Investec Bank (Australia) Limited v Glodale Pty Ltd & Ors [2009] VSCA 97

2 In August 2003, the bank, sold by tender the properties owned by the second and third respondents, corporate vehicles of Mr James Rolfe.[1]

3 The primary contest before both the trial judge and this court was whether the bank as mortgagee in possession had taken reasonable care to ensure that the properties were sold at market value.[2]

4 The trial judge gave judgment against the bank, finding particular faults with the sale process and held the bank liable to pay damages to the respondents assessed at $2,714,250. He also ordered on the bank's counterclaim that the respondents pay the amount of $462,544 plus interest, from 8 April 2005 calculated at rates provided by the bank's loan agreement.

5 The bank now appeals the trial judge's decision, asserting that the evidence should have led his Honour to find that it had not breached its duty to take reasonable care to ensure that market value was obtained for the two properties. The respondents not only defend his Honour's findings but, by a notice of contention, point to a number of other matters which would have justified his Honour concluding that the bank had not taken reasonable care. All parties attack his Honour's assessment of the market value of both properties. In addition, the respondents' cross-appeal challenges his Honour's decision to award damages, rather than order a taking of accounts. They also challenge the basis of his Honour's award in favour of the bank on its counterclaim.

6 Although the question of whether the bank exercised reasonable care in ensuring that the property was sold at market value may appear a relatively simple factual exercise, the reality is that, as the notices of appeal, cross-appeal and contention demonstrate, there was considerable complexity both legally and factually in the issues before both the trial judge and this court.

7 The facts giving rise to the dispute can now be addressed.

8 As we have said, the dispute concerns two properties at Port Douglas, The Verandahs and The Boathouse.

9 The Verandahs, in Owen Street, is comprised of 20 apartments, on separate titles, all of which were at the relevant time, owned by Boz One Pty Ltd ('Boz One'), the second respondent. The Boathouse, in Murphy Street, consists of 18 apartments. Again all of these were on separate titles, and owned by the Boathouse Port Douglas Pty Ltd ('BPD'), the third respondent.

10 On 19 September 2001, the bank lent Glodale Pty Ltd ('Glodale') $11,800,000 under a Loan Agreement. Glodale is also one of Mr Rolfe's companies. The security for the loan included mortgages over both properties. A number of other related parties provided guarantees in respect of the loan.

11 Each of the properties was also subject to a second mortgage to First Melbourne Capital Pty Ltd ('FMC') which secured an additional loan of up to $1 million, that mortgage having been signed on 18 October 2001.

12 Prior to funds being advanced by the bank, in August 2001, as part of the loan approval process, Mr Michael Henderson of Herron Todd White ('HTW'), a Cairns valuer, valued each of the properties. The valuation was not made on a single figure basis, rather it provided two separate estimates, dependent on the manner in which the sale of the properties might be effected. In respect of The Verandahs, the 'gross realisation - current market value' was $6,059,455, and the 'gross realisation - forced sale value' was $5,453,510. In respect of the Boathouse, the 'gross realisation - market value' was $5,135,000, and the 'gross realisation - forced sale' was $4,260,000.

13 Glodale defaulted under the Loan Agreement on 19 April 2002.

14 In August 2002, notices were served by the bank on the respondents and related parties who had guaranteed the loan demanding payments of monies owing, but no payments were made. Mr Rolfe attempted to sell the properties; in August 2002 he engaged Mr Peter McLeod, an estate agent in Port Douglas but ultimately to no avail.

15 On behalf of the bank, on 17 December 2002, Mr Mark Quinn, another valuer and a member of HTW, provided further valuations of the two properties. He also valued the properties on two bases. In respect of The Verandahs, the 'market value - individual strata titles' was $6,545,000 and the 'market value - in one line' and 'forced sale value' were each $5,563,250. In respect of The Boathouse, the 'market value - individual strata titles' was $4,860,000 and the 'market value - in one line' and 'forced sale value' were each $4,131,000.

16 A sale 'in one line' means that each property, is sold as a whole, notwithstanding that the units are held on separate titles. The alternative method of sale is to sell the units individually, necessarily over an extended period of time, which process is described as 'gross realisation'.

17 On 24 January 2003, Sutherland Farrelly Pty Ltd ('Sutherland Farrelly'), and specifically Mr Grant Sutherland of that company, provided a marketing report for each of the properties to Gadens Lawyers, acting on behalf of the bank. Mr Sutherland was an experienced valuer and agent in Victoria but had no qualifications or experience in Queensland, and particularly not in Far North Queensland.

18 In his report ('the Sutherland Marketing Report'), Sutherland recommended that the properties be sold on an in one line basis. He valued the properties on that basis as follows: The Verandahs at $3,750,000-$4,250,000, The Boathouse at $3,100,000-$3,600,000. The report was compiled with the assistance of Mr Peter Hopkins, a member of Ray White Commercial, a Cairns real estate agent.

19 On 11 March 2003, the bank appointed Crosbie & McLellan ('the receiver') as receiver and managers of Boz One and BPD, with Mr Craig Crosbie being the officer responsible for carrying out the receivership.

20 The receiver then appointed Sutherland Farrelly and Ray White Commercial to sell the properties. The sale process was to be by tender and the properties were to be sold in one line. That tender process included advertising and marketing of the properties, the distribution of property reports and tender documentation and inspections by prospective purchasers.

21 On 5 May 2003, Mr Quinn of HTW wrote to the bank, expressing his views as to the tender process being undertaken by the defendant. The relevant parts of the letter are as follows:

We refer to the above mentioned valuations that were undertaken by our office in August 2001 and subsequently in December 2002.

We are of the understanding the properties are now mortgagee in possession and are being marketed for sale on an 'in one line basis'.

We have been approached by several purchasers since the marketing has commenced. We wish to raise our concerns with you. These purchasers have indicated to us they will be able to buy the properties in one line at figures at well below what we consider to be achievable. All purchasers that have contacted us to date are simply looking to purchase the property mortgagee in possession at a heavily discounted price (which they have been given advice from a southern selling agent that they may achieve) and then simply sell on the units for a profit. This indicates to us that the marketing of the properties has not been properly directed. Heavily discounted sales may not extinguish all existing debt levels. We are of the view that sales on an individual basis by local Port Douglas agents, would achieve value levels consistent with our gross realisations as per our previous reports.

We understand that no local Port Douglas agents are involved in selling the properties. It would appear that a Cairns based agent and a Melbourne based agency are selling the properties in conjunction. The Port Douglas unit market is a specialised market and we would consider that local agents who have established contacts would be able to better market such properties and achieve a better result through marketing the individual units as opposed to an 'in one line' sale.

Mr Quinn subsequently spoke to Mr Hirst, an employee of the bank, in respect of the mode of sale. On 16 May, Mr Sutherland wrote to the receiver, commenting on Mr Quinn's letter.

22 On behalf of the receiver, Gadens issued tender documents on 8 May 2003 in respect of The Verandahs and The Boathouse. The properties were advertised in the southern States with a closing date for tenders which was initially 15 May 2003; it was subsequently extended to 29 May 2003. Ultimately, twelve tenders for The Verandahs and six for The Boathouse were received.

23 After considering the offers made by tender for the properties, on 10 June 2003, the receiver entered into a contract with Mr Chris Delios for the sale of The Verandahs for $4,330,000 and, on 12 June 2003, the receiver entered into a contract for the sale of The Boathouse with Our Stuff Pty Ltd ('Our Stuff') for $2,650,000. The Delios sale was to be settled on 30 June 2003. The Our Stuff sale was to be settled within 60 days of the date of the contract.

24 The bank learnt of FMC's second mortgage on 27 May 2003. FMC refused to discharge the second mortgage, preventing the completion of the sales by the receiver. On 4 July 2003, the bank served notices under s 84 of the Queensland Property Law Act ('PLA') of its intention to take possession of the properties as mortgagee, which it did in August 2003.

25 On 12 and 15 August 2003 the bank, as mortgagee in possession, adopted the contracts of sale entered into by the receiver. The purchasers accepted transfer of the respective properties from the bank, and the contracts were settled on these dates.

26 During the tender process and whilst the bank was mortgagee in possession, the receiver provided regular reports to the bank concerning the tender process generally, the level of interest in the properties and the tenders received.

27 Between 22 June 2003 and 26 September 2003, 19 contracts were entered into by Mr Delios in respect of the on sale of 19 of the 20 individual units at The Verandahs. The sum of these sales was $6,110,000, which was substantially more than the value for which The Verandahs was sold and close to Mr Quinn's valuation of $6,545,000 as at 17 December 2002. Our Stuff did not on-sell the units of the Boathouse on a gross realisation basis.

28 On 8 April 2005, the bank issued a certificate of indebtedness pursuant to clause 14.7 of its loan agreement asserting that an amount of $462,544.10 remained outstanding to it after the sale of the properties.

29 The trial took ten sitting days in June 2007 and the trial judge delivered his judgment and reasons on 1 August 2007. Subsequent to the delivery of reasons, written submissions were provided by the parties in relation to the appropriate orders to be made consequential upon his Honour's findings. His Honour then entered judgment on 28 August 2007 on both the claim and the counterclaim.

30 At the trial, the respondents called Mr Rolfe, Mr Peter Newbold, a prospective purchaser of the properties, and an expert Queensland valuer, Mr Geoffrey Eales. The respondents also called Mr Quinn, the valuer engaged by the bank in December 2002, who was subpoenaed by them and had not provided a witness statement.

31 The bank called two of its employees, Mr Michael Sack and Mr Andrew Hirst, Mr Crosbie of the receiver, and Mr Sutherland, the Victorian agent.

32 The written material was voluminous, encompassing some 20 volumes of a court book which was, with one exception, tendered as a whole.

33 Before turning to his Honour's reasons, it is necessary to mention one matter. The bank accepted at trial that, when it took possession of the properties in August 2003, it adopted the conduct of the receiver in the handling of the sales. It accepted that, if there was a failing in the receiver's conduct which constituted a lack of reasonable care in ensuring that market price was obtained, then it was bound by such act or omission. It did not resile from this position on the appeal.

34 The trial judge rejected the primary submission advanced by the respondents, criticising the sale in one line rather than on a gross realisation basis. He concluded that, notwithstanding the significant difference in price between Mr Quinn's December 2002 valuations (which were made on behalf of the bank) and the sale price, it was appropriate to sell the properties on an in one line basis. His Honour accepted the evidence given by Mr Sack on behalf of the bank that there were a number of considerations which the bank took into account in undertaking this method of sale. He found that the bank had acted honestly and reasonably and that the risk analysis conducted by the bank, whilst unsophisticated, was appropriate.

35 His Honour concluded that in determining whether the property was sold at market value, the test of reasonableness permitted the court to take into account certain matters peculiar to a mortgagee in possession as opposed to a developer or entrepreneur who may be engaged in the sale of such a property.

36 Having found that it was appropriate to sell on an in one line basis, his Honour then examined the manner in which the properties had been marketed and sold. He concluded that the bank had not acted reasonably and found two failings on the part of the receiver's handling of the sale. First, it had failed to engage local Port Douglas agents to engage in the selling of the properties. Secondly, there were a number of specific deficiencies in the tender documentation for the sale of both properties.

37 After determining that there was a lack of reasonable care on the part of the receiver, his Honour then addressed the question of the appropriate market value. Ultimately, he accepted the evidence of Mr Quinn in preference to that of Mr Eales, the other Queensland valuer, also called by the respondents and applied Mr Quinn's valuations in determining an appropriate award of damages. He assessed the differential between the price obtained and the market price as being $1,233,250 in respect of Verandahs and $1,481,000 in respect of the Boathouse.

38 After submissions had been made by the parties, his Honour determined that he would award damages of $2,714,250 to the respondents, rather than order a taking of accounts. He also ordered on the counterclaim that the sum of $462,544.10 be repaid by the respondents to the bank, being moneys calculated by the bank to be still owing by the respondents pursuant to the mortgages.

39 The notices of appeal, contention and cross-appeal raise a number of interwoven issues:[3]

(1) Whether the bank, in selling the properties pursuant to its power of sale, breached its duties under s 85 of the PLA 'to take reasonable care to ensure that the property is sold at market value' and under s 420A of the Corporations Act to 'take all reasonable care to sell the properties for not less than their market value'.[4]

(2) Whether the trial judge erred in his findings regarding the 'market value' of the properties in preferring the valuations provided by Mr Quinn[5] on 17 December 2003 to:

(c) the sale prices actually achieved in respect of on-selling of the The Verandahs units.

(3) Whether an award of damages was the appropriate remedy or whether a taking of accounts should have been ordered as submitted by the respondents.[6] On the appeal an alternative agreement was advanced by the bank; it contended that the respondents had elected to pursue a remedy in damages and were bound by that conduct - it was not open to the court to order a taking of accounts.

(4) Whether $462,544.10 was the proper amount payable on the counterclaim. The trial judge relied upon a certificate of indebtedness and a provision within the Loan Agreement to hold that the respondents remained indebted to the bank in that amount.[7] The issue was whether any interest, costs et cetera allowed after the close of settlement were recoverable.

It is the duty of a mortgagee, in the exercise after the commencement of this Act of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value.

41 Section 420A(1) of the Corporations Act provides:

In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:

(a) if, when it is sold, it has a market value - not less than that market value; or

(b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

42 Despite the reference in s 420A(1) to 'all' reasonable care, the duty under either provision should be regarded as the same.[8]

DID THE BANK TAKE REASONABLE CARE IN ENSURING THAT THE PROPERTIES WERE SOLD AT MARKET VALUE?

43 In Commercial and General Acceptance Limited v Nixon,[9] the High Court considered the application of s 85 of the PLA in the context of an assertion by the mortgagor that the advertising of the property by the mortgagee was unsatisfactory and insufficient and in breach of the duty imposed by the section. Gibbs CJ said as follows:[10]

Although a mortgagee is not a trustee of the power of sale for the mortgagor, it is nevertheless clear that in conducting a sale of the mortgaged property he is not entitled to sacrifice the interest of the mortgagor in the surplus of the proceeds of the sale. It is equally clear that the mortgagee must exercise the power in good faith.

...

The duty of a mortgagee exercising a power of sale in Queensland is clear; it is to take reasonable care to ensure that the property is sold at market value... The duty of the mortgagee is not merely to take care to ensure that the sale is carried out by competent agents. It is to take reasonable care to ensure that the property is sold at the market value.

The duty is defined in terms which look to the result of its performance - a sale at market value - and the phrase 'reasonable care to ensure' describes what is to be done to effect that result. The duty relates to the acts which are to be done, not to the appointment of a person to do them. I would therefore construe s 85(1) as imposing upon the mortgagee a duty to do what ought reasonably to be done to ensure a sale at market value, though he is at liberty to perform the duty by the hands of others. If an omission is made in doing what ought reasonably to be done to ensure a sale at market value, the duty is not performed, and it is immaterial that the omission was made by another upon whom the mortgagee relied to do it. Although it may have been entirely reasonable - or even necessary - for the mortgagee to rely upon another to do the omitted act, that circumstance does not establish that the mortgagee's duty was performed.[11] (Emphasis added.)

44 Notwithstanding the obligations under s 85 of the PLA and s 420A of the Corporations Act, the power of sale is an 'essential part of the mortgagee's security'[12] and the mortgagee 'is not a trustee of the power of sale for the mortgagor'.[13] Whilst the mortgagee is obliged to take reasonable care in the process of undertaking the sale, he is not obliged to spend further money on items that might improve the value of the property.[14] Nor is the mortgagee required to secure the market value by the method of sale or by the timing of the date of sale.[15]

45 Recently, in Florgale Uniforms Pty Ltd v Orders,[16] Dodds-Streeton J emphasised that in determining whether there has been a breach of s 420A, a Court will have regard to all the circumstances existing at the time when the property is sold:

The expert evidence establishes that the exercise of all reasonable care by a receiver would entail a process of selecting the method of realising the highest net return, by considering the different available means of sale and weighing the prices likely to be achieved against the likely costs and expenses entailed and the relative risks of the various methods in all the circumstances. The process is informed by the objective of securing the best possible return for the secured creditor, subject to the obligations imposed by general law doctrines and s 420A. It necessarily involves the exercise of judgment, taking into account all the relevant variables and circumstances of the particular case. It does not depend on matters of price or revenue alone, or any single factor in isolation.

In my opinion, the process of evaluating and balancing the competing costs and benefits and the associated risks of various methods of sale will not, in every case, require a formal comparative analysis or documented calculations. All will depend on the circumstances of the individual case, including the scale of the receivership, the value and nature of the property involved, the receiver's expertise in relation to the type of property, relevant expert advice, the advice or input of proprietors and staff, the trading history and marketing of the company, including during the receivership, and other relevant variables in a realistic commercial context.[17] (Emphasis added.)

46 We accept the bank's contention that a sale below the estimated market value of the property does not of itself mean that the duty to take reasonable care has not been satisfied.[18] The question that needs to be answered is whether the process utilised to effect the sale of the property for market value was undertaken with reasonable care.

47 In Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgagers) Pty Ltd,[19] Campbell J said the following in relation to a breach of s 420A:

In deciding whether there has been a breach of s420A, a court looks at the process that a controller of property of a corporation has gone through in selling that property. The enquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. It is not necessary to prove that the property was in fact sold for less than its market value - a controller could breach s 420A, but, through luck, still manage to sell the property for its market value or more.[20] Further, it is not necessary for me to find what actually was the market value of the property, to be able to find that s420A(1)(a) was breached - all that I need find is that the process gone through was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be. (Emphasis added.)

This analysis should be accepted. It was adopted by the Full Court of the Supreme Court of South Australia in Jovanovic & Ors v Commonwealth Bank of Australia[21] and is consistent with what was said by the High Court in Commercial and General Acceptance Ltd v Nixon.[22]

48 In the course of argument, an aspect of the nature of the mortgagee's duty under s 85(1) and s 420A arose in the light of the trial judge's observation that:[23]

Whether reasonable care has been exercised will doubtlessly vary from case to case and may perhaps be informed by the fact that a mortgagor[24] will typically be a lender (and will have assumed the risks associated with lenders) rather than developers, entrepreneurs or owners with special attachments. Thus, what is reasonable from the point of view of a selling developer may not be reasonable from the point of view of a selling financier who has come into possession to sell as mortgagee.

The bank submitted that in making that observation his Honour had wrongly held that there is a difference between a mortgagee's duty in exercising a power of sale and the approach to be taken by a developer or entrepreneur in selling property. If this is what his Honour meant, it would have amounted to an error of law. However, in our view, his Honour did not mean that the concept of reasonable care in selling at market value varies depending upon the identity of the seller. Rather, his Honour was pointing out, correctly, that where a mortgagee is involved in a sale a range of matters must be taken into account. The fact that the sale is one made by the mortgagee (or the controller) cannot be ignored. As Dodds-Streeton J pointed out in Florgale, the multitude of competing considerations vary from case to case. Many and varied factors will influence the method adopted to effect the sale (eg marketing, engagement of an agent or agents, timing, date and place of sale, method of sale, fixing a reserve). That the sale is by a mortgagee or a controller is a relevant consideration in determining whether reasonable care has been taken in all the circumstances.[25] Further the statutory duty does not detract from the common law principle that the mortgagee may sell at the time chosen and does not have to wait until a time when a better price may be obtained. [26]

49 We now turn to his Honour's finding that the bank failed to discharge its duty to take reasonable care because in relation to the process by which the sale in one line:

(a) it failed to involve a Port Douglas real estate agent; and

(b) the tender documents were not calculated to obtain the best price for the subject properties. His Honour identified some seven aspects of the tender documents which satisfied him there was a failure on the part of the bank's agent to take reasonable care for the interests of the respondents.

50 His Honour also found that the bank did not breach its duty to the respondent by selling each of the properties in one line. That finding was the subject of the cross-appeal, which is discussed below.

Failure to engage a Port Douglas agent for the purpose of an in one line sale

51 His Honour accepted that the marketing and sales should have involved a local Port Douglas estate agent, relying upon the evidence 'tendered for the plaintiffs'.[27] The bank accepted that a gross realisation sale would reasonably have involved a Port Douglas agent. However on the appeal, the bank argued that there was no evidence available to his Honour that a sale in one line required the engagement of a Port Douglas agent.

52 This contention that his Honour erred in finding that a Port Douglas agent should have been appointed is not made out.

53 The receiver had, it will be recalled, appointed Mr Sutherland to manage the sale. He was a Melbourne agent and valuer with no Queensland and, particularly, no Far North Queensland experience. He had never carried out any work in Port Douglas. He held no Queensland qualifications. He visited Port Douglas for 36 hours, and did not (as his Honour noted) speak to any Port Douglas agents, including Mr McLeod who had previously marketed the two properties. He appointed a Cairns agent, Mr Hopkins of Ray White Commercial, to manage the sale. He could not recall what experience, if any, that agent had in dealing with sales in Port Douglas.

54 The evidence of Mr Quinn, the Queensland valuer, was of significance. He had been engaged by the bank to prepare a report as to the valuation of the property, which he did in December 2002. He was based in Cairns and had a real familiarity with the manner in which sales were conducted in Far North Queensland, in contrast to Mr Sutherland.

55 Notwithstanding that he had been engaged by the bank, he was called by the respondents at the trial. In the course of cross-examination by counsel for the bank, he emphasised the distinction between the Port Douglas market and the Cairns market and the knowledge of local agents of their particular area. He noted that the Cairns 'Realtor' listed solely Cairns properties and the Port Douglas 'Gazette' listed Port Douglas properties only. He also said that agents working in Port Douglas did not work in Cairns and vice versa. He gave the following answers in cross-examination:

Counsel: In other words, if you embarked on a marketing campaign to sell 20 units in Verandas and 18 in The Boathouse, if you're selling 38 units - - -?

Witness: Yes.

Counsel: You should have a local Port Douglas [agent] to sell the units individually, correct?

Witness: Yes, I agree with you.

Counsel: And you agree it becomes less relevant if you're selling in one line because in all likelihood it will be a tender or an auction or an international sort of process?

Witness: No, I disagree with that, too, in that, you know, the Port Douglas agents, you know, they have been involved in selling larger properties. You always - I could be too harsh with 'always', but all circumstances I'm aware of you do have an agent on the ground there.

Counsel: You may not necessarily get a different result though? You're not suggesting that because ... with a Port Douglas agent you always will get a better result, you're not suggesting that?

Witness: I - I can't answer that in that I can't think of any circumstances that I'm aware of where there has not been a Port Douglas - no Port Douglas agent and an agent somewhere else.

Counsel: But it may not matter at the end of the day, I'm suggesting to you?

Witness: I - I think it would matter. But I can't provide any, you know, specific details of, you know, XYZ property that only an agent in Brisbane was involved in and no, you know, no Port Douglas agent.

Mr Sutherland did not disagree that the agents in Port Douglas and Cairns operated in separate markets, whether selling in one line or individually.

56 Mr Quinn was tested by counsel in cross-examination on the distinction between engaging a Port Douglas agent for an in one line sale as opposed to the sale of individual units. In general he maintained his position that it would be desirable to have a Port Douglas agent to sell the apartments in one line, though he conceded that he would need to know more about the circumstances before categorically stating that a Port Dougla s agent would get a better price for such a sale. When it was put to him that the market for prospective Port Douglas purchasers was distant from Port Douglas, he responded by pointing to Port Douglas agents who maintained large databases of thousands of people who could be contacted in relation to potential sales. Whilst he accepted that he could not be 100 per cent sure if a Port Douglas agent would make a difference to a sale, he then said in re-examination:

Witness: To me, you know, if - whether they were being marketed individually or in one line, if you have an agent in Port Douglas prospective purchasers can go through the property, you've got an agent in Port Douglas who knows what stock sells for, they know the market up there. And even if it was being sold in one line, I think, you know, if someone came into town they'd expect the agent to be able to talk to them about, you know, the intricacies of the development and the Port Douglas market and what other stock is selling for. Whereas, you know, Ray White in Cairns and Peter Hopkins, they're good operators in the Cairns market, but they do not go into the Port Douglas market. It's as simple as that, and I was trying to point that out to them. I'm just trying to think of the other bit to your question.

Counsel: The question was simply, what was it that you had in mind when you said in the letter that the marketing of the properties hadn't been properly directed?

Witness: Well, basically they - I wouldn't have a huge drama with someone out of two being joint marketing agents, but you definitely need someone in Port Douglas as well. They needed a presence in Port Douglas.

57 The underlying theme of his evidence was that, because of the nature of the Port Douglas market, whatever the mode of sale, the engagement of a Port Douglas agent was preferable to that of a Cairns agent. In the context of valuations, Mr Quinn emphasised again the distinction between the Cairns and Port Douglas markets and re-affirmed the proposition that the agents work in their particular area and that there was no cross-over. Mr Eales also said that Port Douglas is a distinct market. No evidence was called by the bank from Mr Hopkins of Ray White Commercial, the Cairns agent it engaged to carry out the sale, to contradict what had been said by Mr Quinn. The absence of Mr Hopkins as a witness in the trial appears to us to be significant. He was the only other contemporaneous witness familiar with the Cairns/Port Douglas market who was in a position to affirm or contradict Mr Quinn's evidence, bearing in mind Mr Quinn had also been engaged by the bank. Given that Mr Hopkins had been chosen by the bank to act as its local agent in the sale of the two properties, one could reasonably have expected him to give evidence if the bank wished to contradict Mr Quinn's opinion. As he was not called, then Mr Quinn's evidence may be accepted with greater confidence and it can be readily inferred that he would not have assisted the case put by the bank on this issue. Although the trial judge made no explicit reference to the Jones v Dunkel[28] principle this principle is relevant in assessing whether the determination by the trial judge to accept Mr Quinn's evidence was correct.

58 Mr Sutherland had never been involved in property sales in Queensland apart from the sale of The Verandahs and The Boathouse and had never done any work in Port Douglas. The letter written by Mr Quinn to Mr Sutherland dated 5 May 2003[29] suggested, at the very least, that the sales strategy was inadequate. Whilst we accept the bank's submission that this letter was directed primarily towards the mode of sale, it should have alerted Mr Sutherland to the differences between the two areas and particularly that the Port Douglas market was a 'specialised market'. As the trial judge noted, Mr Sutherland's response, in a letter of 16 May to the receiver, was unconvincing, as in that letter, he described Cairns as being 'the more substantial settlement and therefore the choice of a Cairns agent'. Indeed, when Mr Sutherland gave evidence, he acknowledged that he could not recall what experience Ray White Commercial in Cairns had in Port Douglas and, significantly, whether it had any experience in selling in one line in Port Douglas. The potential market, as with virtually all Port Douglas property, was not in Cairns and his expressed concerns about the conduct of other sales in Port Douglas, again as his Honour noted, were hardly relevant, given that Mr Sutherland himself controlled the sale process. One, indeed, wonders how Mr Sutherland could credibly express any view as to the Port Douglas market, given his total lack of knowledge of the Far North Queensland area.

59 Mr Sutherland's failure to carry out any inquiries as to the Port Douglas market before engaging the Cairns agent, as noted by his Honour, reflects his lack of analysis of what was a highly relevant issue. His evidence as to the expertise of Ray White Commercial, particularly in Port Douglas and on insolvency matters, was totally unconvincing. He engaged Ray White Commercial on the basis of an unidentified recommendation without any further inquiry and did not, apparently, appreciate that there were two distinct markets; one in Cairns and one in Port Douglas.

60 Notwithstanding the fact that this was an in one line sale, once it was accepted that the Cairns market and the Port Douglas market were separate and distinct, then there was an obligation cast upon the bank and its agents, particularly Mr Sutherland, to give consideration to the engagement of a Port Douglas agent. Indeed, there was nothing to prevent him appointing dual agents if he thought about it, as Mr Quinn suggested. No such consideration was given as it ought to have been, and his Honour was correct in concluding that, in not engaging a Port Douglas agent, reasonable care had not been undertaken by the bank in ensuring that market value was obtained.

Notice of cross-appeal - was the bank in breach of its duty in selling in one line rather than by a gross realisation?

61 It is necessary to consider the respondents' argument that the choice by the bank of the in one line mode of sale was unreasonable in ensuring that the property was sold at market value. If this finding was erroneous it affects the assessment of the market value of the properties, as will be seen.

62 The trial judge accepted the bank's argument that its conduct in selling the properties in one line was reasonable. He concluded that whilst the price to be obtained at such a sale was necessarily less than that if sold on a gross realisation basis, it was prudent to sell in one line.[30] He accepted the evidence given by two of the bank officers, Mr Sack and Mr Hirst, who relied upon the recommendation of Sutherland Farrelly and endorsed by the receiver. His Honour set out those considerations as follows:

1. the 6 to 18 month estimate by the HTW reports as the length of time for an individual apartment sale program;
2. the presumed (albeit unquantified and possibly erroneous) GST liability falling on the vendor arising from individual apartment sales;

1. the expectation that the cost of the receivers would be significantly increased from the length of time of an individual sales program;

1. the uncertainty of effecting sales;
2. the risk of being left with some apartments which might be hard to sell;
3. the increase in costs in making the apartments ready for sale;
4. the increasing general risk exposure to the Bank occasioned by a protracted sale program;
5. the uncertainties of the real estate market in conducting a protracted sales program;
6. the increasing interest liability on the Glodale account;
7. delays in commencing the sale program which were expected as a result of needing to rectify what was believed to be non-compliance with planning requirements (necessitating, as was thought, either rectification works or maintaining planning appeals); and,
8. potentially increased advertising fees for agents involved in an extended sales program for sales of individual units.[31]

63 Each of the factors set out by his Honour were relevant to his consideration of the appropriate mode of sale. So was the fact that the owner had tried and failed to sell the apartments in 2002.

64 His Honour was required to evaluate the evidence of Mr Eales, who supported a gross realisation sale against that of the bank's officers who had made the decision to proceed with an in one line sale. Each of the bank officers (Mr Sack and Mr Hirst) gave evidence before his Honour. He accepted that they acted honestly and, he concluded, reasonably. The theme of his Honour's reasoning was that a sale conducted quickly at that time minimised the risks of further losses to all, including the respondents.

65 It was accepted by his Honour that the cost benefit analysis performed by the bank's officers was less than sophisticated, and that 'with the benefit of hindsight it may be that each of the matters seen as a problem was not as large or significant as it may have appeared at that time'.[32] Nevertheless, on the basis of Mr Hirst's evidence his Honour concluded that a risk analysis was undertaken and it pointed to the desirability of selling quickly, so that interest payable or the debt did not increase. In that context it may be noted that the loan had been in default for over a year and the interest was accruing at an alarming rate. Whilst the evidence of Mr Eales was that second-hand residential units were not normally sold in one line, this was not necessarily a view shared by all witnesses. Even if one accepted this was outside the norm, it was still a case of determining whether, in the circumstances that existed at this time, the course was reasonable. It is of some interest that Mr Rolfe, had purchased both The Verandahs and The Boathouse in one line.

66 In addition to relying upon Mr Eales' evidence, the respondents relied heavily upon Mr Delios' resale of a number of properties after his purchase as demonstrating the advantages of utilising a gross realisation process. A number of the units at The Verandahs were sold and their prices extrapolated to demonstrate a difference of over $100,000 per unit over the sale price which was actually realised by the bank. This evidence however does not assist in the resolution of whether the bank acted reasonably in determining as mortgagee to sell the properties in one line. Whether Mr Delios made a significant profit or a significant loss was, to a large extent, irrelevant. The true question was, did the bank act reasonably at the time that it determined to engage in the process of selling in one line, not what may have happened when some of the apartments at the Verandahs were sold by Mr Delios. Moreover, as the evidence disclosed, the vagaries of the market are reflected by individual decisions made at particular times. The purchaser of The Boathouse did not on-sell the properties, but rather retained the properties.

67 The respondents' contention that a sale in one line was necessarily in breach of the obligation to exercise reasonable care as it produced a lower amount than that which would be obtained on a gross realisation basis cannot be accepted. His Honour was correct in concluding that it was open to the bank to sell in one line provided that the circumstances demonstrated that such a course was reasonable. This is particularly so given his Honour's finding that the loan was in default, debt was increasing rapidly and there had been a failed attempt to sell the properties. A relevant consideration, unquestionably, was the significant increase in interest (in excess of $100,000 per month) with no evidence of the loan or the ongoing payments of interest being repaid absent a prompt sale.

68 There is no demonstrable error in his Honour's conclusion that the method of sale was reasonable in the circumstances.

Other grounds of appeal and the notice of contention

69 The bank also attacked the finding of the trial judge that the tender documents were not calculated to obtain the best price for the properties. His Honour made the following remarks about the content of the tender documents:

It contained much information prejudicial to the value of the properties without containing the contextual information that would give a full picture of the perceived problems. A difference of views, for example, about the ability to use recreation rooms as bedrooms was presented in a way that was likely (according to Mr Eales, whose evidence based upon years of experience I accept) to have a disproportionately detrimental effect upon the market without putting the alternative views. The inclusion in the tender documents of material concerning a dispute with Mr Davis was also incomplete without giving details of a release which he had given.

Other steps in the way the properties were marketed were not directed to ensuring that the market price was obtained. The 'closure' of the recreation rooms may have been done to prevent potential purchasers from thinking that the rooms were being represented as 'bedrooms' (contrary to the planning conditions of the local council) but, since the rooms were part of the sale, the closure of them would not seem a sound step to enhance the market value of what was being sold. What was not done was to explain the council's planning requirement or seek variation of it or even to leave the rooms open but with an explanation of what seems to be a widespread practice that planning restrictions are effectively overcome by describing a room as a 'study' when not authorised as a 'bedroom'.

Various other problems with the properties seem also to be either overstated in significance or if not overstated were not fully explained, or fixed if possible. The 'illegal' decking and the landscaping non-compliance were neither rectified nor were steps taken either to determine what was needed to rectify the non-compliance or to quantify the cost of compliance. An 'issue' about potential difficulty of access to The Boathouse was emphasised although the evidence of both Mr Quinn and Mr Eales, which I accept, was that the practical inconvenience of access was not significant enough to affect value. The fire safety description for the properties as 'high risk' is capable of differing significance and, if only for adequate disclosure purposes, might have been more informatively described. The Boathouse may have been purchased by Boathouse Port Douglas from previous receivers but a description of it as having a 'troubled history' is hardly relevant to its then present and expected future unless the unspecified events of the past were identified and continued to have real impact. If not, the description is likely to create a negative impression that is unwarranted.[33]

70 The bank submitted that, with exception to the 'fire safety' issue each of these matters related only to The Boathouse and not The Verandahs and that his Honour had erred in attributing these flaws in the tender documents to the sale of both properties. The bank also criticised findings made by his Honour in relation to particular matters included in The Boathouse tender documents. Because we have concluded that the bank breached its duty as a mortgagee, by failing to employ a local agent, it is unnecessary to consider these submissions in any detail. We refer only to his Honour's comments relating to the restriction on the use of the recreation rooms in The Boathouse and the fact that the decking and landscaping at the property had been undertaken without planning permission.

71 We do not consider that his Honour's remarks on these issues give adequate weight to the receiver's obligation to disclose these planning restrictions to potential purchasers of the property. However, we do accept his Honour's view that the locking of the recreation rooms, so that they could not be inspected by potential purchasers was not a reasonable means of discharging the mortgagee's duty to take reasonable care to ensure the properties were sold at market value.

72 The respondents also, by notice of contention, argued that the trial judge's finding that a lack of reasonable care was substantiated by other matters not adverted to by his Honour. Broadly, the notice of contention claimed that:

• The trial judge ought to have held that the bank failed to take reasonable care in the sale of the properties by failing to set an appropriate reserve price and by selling the properties for a price below such a reserve.

• The trial judge ought to have had regard to valuations other than the estimates in the Sutherland marketing report and had failed to take reasonable care in the sale of the properties by ignoring the prices obtained by Delios for the individual sale of the The Verandahs unit.

• The trial judge ought to have ascertained whether the market had risen or fallen since the Quinn valuation was prepared in December 2002.

Although there is some force in these arguments, we do not consider it is necessary to examine them individually, because of our earlier conclusion that the trial judge correctly held that the bank breached its duty to take reasonable care to ensure that the properties were sold at market value.

73 Upon proof of breach it then becomes necessary to determine whether the sale was for less than market value.

74 It was accepted by the bank that it was not necessary to show a causal link between the particular breach and the loss: rather, once a breach is established, the question was whether the sale price could be equated with the market value of the property.[34] This approach is also consistent with the statutory intention - market value is the starting point of the inquiry once the breach has been established. Once that has been ascertained, it will become apparent whether any loss has been sustained by reference to the sale price. As Young CJ observed in Ultimate Property Group Pty Ltd v Lord:[35]

unless it can be demonstrated ... that the property in fact sold for under the market price, it is merely a case of injuria sine damnum.

75 In the event that it is established that the property has been sold for under market value the next enquiry is to determine the measure of the loss. In determining the calculation of market value, Courts regularly invoke what was said by Griffiths CJ in Spencer v The Commonwealth.[36] 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?'.[37] Market value is the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the property.[38]

76 The market value is not determined by the nature of the sale. That the sale is conducted by the mortgagee is irrelevant. There can be only one market value. As the Queensland Court of Appeal said in Emerson v Custom Credit Corporation Limited:[39]

The context in which the phrase 'market value' is used may indicate that the market in which the value is to be determined is one which has some special features. That is in one sense what the appellant in effect argues here. However there is no identifiable mortgagee's market; a mortgagee sells in the general real estate market. No doubt, as the appellant says, mortgagee's sales are often forced sales. But that is not invariably the case and sales by registered proprietors are also sometimes forced, perhaps often so in the current market. But we think that the purpose of a phrase such as 'market value' is to enable a hypothetical value to be determined disregarding the desire to sell of particular vendors or classes of vendors. Furthermore, there is no suggestion in the common law cases concerning a mortgagee's duty that the phrase or any similar one should be construed as the appellant contends. (Emphasis added.)

The Court specifically rejected the proposition that in determining market value a Court was to take into account the fact that the subject sale was forced because the mortgagee is always an anxious vendor and a mortgagee's sale is always a forced sale.

77 An issue that arose at the trial and on the appeal was the question of the market value of the property when there were two different modes of selling the property which produced differing estimates of market value, depending on the method chosen. Necessarily, in a case under s 85 or s 420A, examination of the process of sale will be conducted retrospectively. Both sections speak of a market value, not values. The sale of commercial properties may often require a decision to be made as to the appropriate method of sale. As long as the particular process chosen is reasonable, then the market value will be referable to that process. In the event that it is not reasonable, the Court will determine the appropriate process and the consequent market value. In the present case, once it is determined that a reasonable method of sale as part of the process was to sell in one line, then the market value will be that attainable on such a sale. The converse holds true; if it was determined that a gross realisation mode of sale should have been adopted, then that will be determinative of the market value of a sale conducted in that manner. This is consistent with the proposition that what is in issue, is the process, and it is that process which will determine the market value. It follows that there are not two market values for the purpose of a determination under either s 420A or s 85.

78 The evidence as to the valuations of the two properties if sold in one line is summarised in the following table:

79 The trial judge accepted the valuation of Mr Quinn made in December 2002 on the basis that it eschewed hindsight and was given in the expectation of a possible sale in one line at a time approximate to the actual sales by the bank in August 2003.

80 Having adopted those valuations of market value and after deducting the sale price, his Honour assessed the damages at $1,481,000 in respect of The Boathouse and at $1,233,250 in respect of The Verandahs.

81 The bank argued that the trial judge should not have accepted either valuer's estimates and that each is flawed; rather, he should have adopted the price obtained at sale in fixing the market value.

82 The bank's contention that the market value is to be determined by the sale price should be rejected. It may in certain circumstances be that the market value is that which is obtained at the sale,[40] however the sale figure is necessarily dependent upon the process adopted. If it is found to be flawed, then reliance upon that figure will be inappropriate as the failings in the process may have reduced the sale price.

83 The bank's reliance upon the decision of the Court of Appeal in New South Wales in Stockl v Rigur Pty Ltd[41] is misplaced. That case did not involve a consideration of market value involving a breach of s 420A or s 85, rather, it was a consideration of whether the mortgagee had breached its general law duty of good faith.[42] In any event, Palmer AJA cited with approval what had been said by Hodgson JA in Stone v Farrow Mortgage Service (in liq):[43]

A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken.

Had the process of advertising, marketing and sale of the property been shown to be unsatisfactory or inadequate, a question might have arisen whether the price achieved by the process was other than the true market price or value of the property. In that circumstance valuation evidence might have been important to establish whether, in truth, the price realised was an undervalue, but that is not this case.[44]

The sale price may be the best evidence if the Court is satisfied that the mortgagee has taken proper steps in advertising and selling the property. This was the proposition that underpinned the judgment in Stockl.[45] That is not the case here, as the failure to engage the Port Douglas agent went to the heart of the sale process. Moreover, the sale of both properties was significantly below the valuations of each of the experienced Queensland valuers, namely, Messrs Quinn and Eales. The bank's reliance on the sale price should not be accepted.

84 The bank, then, adopts a curious position. Having appointed Mr Quinn as its valuer for the purpose of the sales of the properties, presumably on the basis of his expertise and local knowledge, it then proceeded to attack individual aspects of Mr Quinn's report. Its attacks are petty and, to a large extent, unfounded, as we will try to explain. In our view the criticisms are largely unfounded and those that have substance are of little consequence.

85 First, several of the criticisms now made by the bank of his evidence were not put to him in the course of his cross-examination. For instance, the bank contends that his calculation of an in one line sale value by applying a discount of 15 per cent on the price to be achieved by selling the units individually may not have taken into account the fact that a gross realisation would, by its nature, have occurred over a period of time whilst an in one line sale occurs at a fixed point of time. Mr Quinn was not cross-examined about this.

86 Secondly, in his report, Mr Quinn referred to a number of the units at The Boathouse as being identified as having a recreation room, when such rooms were, in fact, contrary to the planning permits, used as a second bedroom. Mr Quinn valued those units taking into account that, from time to time, persons might 'sneak' children into the second room as a bedroom. As he said, this was not uncommon in Port Douglas. The bank now attacks this aspect of his evidence as affecting his valuation. This overlooks several matters that emerged in cross-examination. The comments of the bank's counsel indicate that he did not contend there was 'anything 'wrong' with 'sneaking' children in to the second bedroom; more importantly, Mr Quinn thought that such use would, in any event, only 'ever so slightly' affect the valuation.[46] The point is no better than that. Indeed, all Mr Quinn was doing, at the behest of the bank, was providing a realistic valuation of the premises. He was not asked to provide an opinion as to compliance by residents with the planning laws.

87 Thirdly, the bank submitted that the valuation of The Boathouse did not consider the fact that the property included decking and landscaping for which planning permission had not been given. Again we do not regard this point as having any significance. Mr Rolfe testified that the decking could have been dismantled in a day for a cost of $3,000 and Mr Quinn said he thought that this would have had a negligible effect on the value of the property.

88 Fourthly, if the bank wished to adduce evidence of the correct valuation of the property, it could have called Mr Hopkins of Ray White Commercial or a valuer familiar with Port Douglas apartments. The absence of evidence from Mr Hopkins at the trial both as to the method of sale (as we have noted) and the valuation is not insignificant and would have merited a Jones v Dunkel[47] inference being drawn by the trial judge; particularly bearing in mind that the bank's attack is upon a person it chose to have value the property. It chose not to adduce any evidence from Mr Hopkins, but rather engaged in trivial criticism in respect of matters which it now says are 'important deficiencies in his valuations'. Those deficiencies, if they exist, are minor and do not affect the import of Mr Quinn's evidence.

89 Finally, the bank contends that the trial judge should have adopted the valuation contained in the Sutherland Farrelly marketing report. This contention can be dismissed. As Mr Sutherland conceded in cross-examination this was a marketing report, not a valuation carried out after extensive research into comparable prices as well as inspection of the properties. Mr Sutherland had no Queensland qualifications as a valuer. It was a marketing report which identified the method of sale as 'mortgagee's tender', not an assessment of market value. It appears to have been produced by Mr Sutherland in conjunction with Mr Hopkins. Mr Sutherland had no expertise of any form with valuations or sales in Port Douglas. Mr Hopkins did not give evidence and, according to Mr Sutherland at least, Ray White Commercial had no experience in selling in one line at Port Douglas.

90 In summary, the bank's criticisms of the trial judge's findings as to market value are not made out. It is appropriate now to turn to the respondents' cross-appeal.

91 We reject the respondents' argument on the cross-appeal that the only market value which should have been considered was a valuation on a gross realisation basis. True it is that Mr Quinn's in one line valuation resulted in a discount of 15 per cent on the gross realisation method of sale (although there would be many other adjustments, given the holding costs of the property), however, it was a constant theme of all the valuation evidence that a sale in one line might not produce a return equivalent to gross realisation but would permit a relatively quick sale, stop interest escalating and insure against a fall in the market. Once the trial judge's finding that the sale in one line was appropriate is upheld, then the ascertainment of the market value on that basis was correct and should not be interfered with.

92 The respondents also contend that his Honour's assessment of their loss was wrong in that he failed to allow five per cent as an increase between the time of valuation (January 2003) and the time of sale (August 2003). The respondents relied upon Mr Eales' evidence. However the trial judge was correct in preferring the evidence of Mr Quinn to that of Mr Eales. Mr Quinn's assessment of the market value of the property was not tainted by hindsight. It was made at the behest of the bank and he applied his knowledge of the market in Port Douglas, with which he was familiar at that time. His valuation was provided approximately eight months prior to the sale and was made after inspection of the properties as they appeared at that time on his inspection. Mr Eales was engaged by Mr Rolfe over two years after the sale and his Honour was, clearly and correctly, troubled by the difficulty in preferring a valuation made late in the day as against one made contemporaneously. Mr Eales' opinion about the rise in the market value between January 2003 and August 2003 was a broad conclusion not addressed specifically to the values of the particular properties, but rather a global assessment of the manner in which the market may have moved. Mr Eales had not been asked by the respondents' solicitors to prepare a supplementary report based upon an August 2003 valuation setting out the basis for the suggested increase in value. The respondents contend that this evidence was uncontradicted and therefore should have been accepted. However, his Honour was entitled to reject Mr Eales' opinion albeit that it was uncontradicted if, as he so found, the evidence underpinning that opinion was unsatisfactory. Moreover, the respondents could have led evidence from Mr Quinn as to this issue, if they had chosen, but did not. [48] No such evidence was led and the trial judge was left with a broad assertion and an unsatisfactory substratum of evidence supporting the opinion expressed by Mr Eales. The trial judge was correct to reject Mr Eales' broad brush approach.

93 Finally his Honour was also correct in rejecting the respondent's argument as to a separate valuation of the management rights. Mr Quinn's December valuation had not attributed any value to the rights. His Honour concluded[49] that a sale in one line was inconsistent with a separate dealing with the management rights. He relied upon Mr Quinn's evidence (which he accepted as to the market value of both properties) that if the units were sold individually, the management rights could be sold separately, but he went no further than that. Management rights were only capable of having a value if there was a trading history, which there was not. Once it was accepted that the bank was not obliged, in exercising reasonable care, to sell on a gross realisation basis, then the question of management rights became irrelevant.

94 In summary, no error has been demonstrated by the respondents as to the trial judge's reasoning as to the appropriate market value.

95 Both the appeal and cross-appeal on this issue should be dismissed.

96 Section 85(3) of the PLA prescribes a remedy in damages where a breach of s 85(1) has been established. The Corporations Act is silent as to the nature of the remedy for a breach of s 420A(1).[50] However in Artistic Builders v Elliott & Tuthill,[51] Campbell J said:[52]

Having found that there was a breach of s 420A, the action which seems to me to fit is that [the mortgagee] should pay the plaintiff the amount of the loss which the plaintiff has sustained by reason of [the mortgagee's] breach of its statutory duty under s 420A.

This approach was applied in Duggan v Thomas,[53] Ultimate Property Group Pty Ltd v Lord[54] and Kyuss Express Pty Ltd v Sellers.[55]

97 In determining the measure of compensation where a breach of s 420A(1) or s 85(1) has been established, a loss may be sustained as a result of the breach by the mortgagee or controller in not selling at the market value. The difference between market value and sale price, if proved, is the primary loss, but there may be other discernible losses for which damages must be awarded if they are causally related to the breach.

98 The respondents contend, on the cross-appeal, that the trial judge was in error in awarding damages and that instead he should have ordered a taking of accounts. The trial judge's decision to award damages was a direct result of the submissions put to him by the parties and particularly the respondents. The consolidated submissions of the respondents filed at the conclusion of the trial and authored by counsel set out a series of calculations in relation to loss and damage accompanied by a number of schedules. Nowhere in those submissions was there a suggestion that the trial judge should consider making an order for taking of accounts - rather it was submitted that the loss was to be calculated on the basis of the differential between the estimated market value and the sale price.

99 On 1 August 2007, his Honour published his reasons in which he assessed the damages recoverable by the respondents. The matter was then adjourned for further submissions to be made as to the final orders on both the claim and the counterclaim. The respondents, in those submissions (of 6 August 2007), changed tack in relation to the relief they sought. They sought the taking of accounts which had been pleaded in the prayer for relief but not persisted with during the trial.

100 The bank contended that, in accordance with authorities such as Coulton v Holcombe [56]and Whisprun v Dixon,[57] the respondents should not be permitted to argue this matter on appeal as, up until the time that the reasons were delivered, no such argument had been advanced. However, despite his Honour's conclusion that an amount of $2,714,250 was the loss sustained by the respondents, his Honour then invited the parties to make submissions in respect of orders to give effect to the reasons and particularly to take into account the award of damages and the amount that the bank sought on its counterclaim.

101 At the resumed hearing on 28 August 2007, his Honour did not conclude that it was too late for the respondents to raise the argument relating to the taking of accounts. Rather, he considered the respondent's submissions and rejected this argument contending that the taking of accounts was not 'necessary or appropriate or desirable'. He noted that the approach he had taken was intended to end the dispute between the parties as soon as possible. No doubt the change in the respondents' position made it difficult for his Honour to revisit his original decision to award damages. Nevertheless it cannot be said that it was not an argument that was run at the hearing. There was no final election by the respondents to pursue one remedy to the exclusion of the other. His Honour had not pronounced final orders and had invited the parties to return with submissions concerning putative orders. In this case, the matter was ventilated (albeit at the last moment) and the bank's argument that it should not now be allowed to be raised on appeal should be rejected.

102 The question then remains as to whether his Honour should have, in all the circumstances, ordered a taking of accounts, rather than an award of damages. Section 85(3) specifically provides for an award of damages.[58] Whilst s 420A does not specify the nature of the remedy, the common approach, as we have said, has been for a court to determine compensation based upon the loss occasioned from the breach of duty. It is, as Mandie J noted in Kyuss Express Ltd v Sellers,[59] a question of what loss flows from the breach. In Jovanovic v Commonwealth Bank of Australia,[60] the majority of the Full Court of South Australia held that the duty imposed by s 420A did not sound in damages, but that the remedy was in equity. Compensation was explained subsequently in Fortson Pty Ltd v Commonwealth Bank of Australia[61] as 'the difference, if any, between the price obtained and the market value'. In this case given that there was a claim by the respondents under s 85(3) of the PLA which specifically provided for damages, whether the loss was categorised as equitable compensation or as damages, the method of calculation remained the same. The approach taken by the trial judge therefore was, in the circumstances of this case, correct. There was no sound reason to adopt an alternative mode of assessment.

103 The respondents also contended on appeal that they were entitled to interest over and above their entitlement to statutory interest from the date of issue of the proceeding. No mention of this claim was made prior to the delivery of his Honour's reasons. It then formed part of the respondent's new argument in the August submissions which raised the taking of accounts point. If there was to be a claim for interest it should have been articulated as a claim in accordance with the principles set out in Hungerfords v Walker[62] - as such it would have been a claim for damages based on the notional loss of use of the funds which would have been paid to the respondents as a result of a sale at market value (after paying out the bank). It was not pleaded or argued as such. No evidence was led to support it.[63] The trial judge was correct in rejecting this last minute submission.

104 There is nothing in the reasons of his Honour or the facts of the case which demonstrate that his Honour was in error in adopting what was standard practice in a case such as this, that is, assessing the loss by reference to the difference between the market value (as found by the trial judge) and the sale price. There was no basis upon which his Honour should have ordered a taking of accounts or inquiries into the accounts, nor, given the way the case was run, to make any order other than that providing for interest under s 60 of the Supreme Court Act.

105 The bank filed a counterclaim and at trial sought recovery of a sum of $462,544. This was said to be the amount outstanding after the proceeds of the sale had been deducted from the loan account coupled with additional fees, charges and interest incurred after settlement.

106 The trial judge accepted that the counterclaim had been made out and also ordered that there be interest from 8 April 2005 based upon a certificate provided under the terms of the bank's loan agreement (clause 14.7). His Honour did not specify the amount of interest nor was there any dissection of the calculation of the amount ordered. His Honour left it to the parties to make the calculations as to the outstanding amount of interest.

107 The respondents, in submissions filed at his Honour's directions prior to the delivery of reasons and then consequent upon the delivery of reasons, disputed the components of the counterclaim and the award of interest. In particular they contended that in the event of a finding that the properties were sold for below market value then the interest, legal costs and receiver's fees incurred by the bank after the end of 2003 'could not be ignored' for the purpose of the counterclaim, as it would necessarily affect questions of interest and costs.

108 In the submissions filed on 6 August 2007 subsequent to the delivery of his Honour's reasons the respondents argued that the counterclaim ought to be dismissed. They contended that the interest which they said comprised the bulk of the counterclaim should be written back and that there were items, including interest, costs and receiver's expenses, which would not have been incurred had the receivership been terminated earlier, as it ought to have been if funds realised from a sale at market value had been obtained by the bank. The respondents also argued that if any amount was to be allowed on the counterclaim then it should be applied as a set off.

109 There is no apparent consideration by his Honour of the consequences of the finding of breach of duty upon the quantum of the counterclaim; unfortunately his Honour was not assisted by the respondents' who failed to make any attempt to assess the disputed amount or to break it up into components such as:

(a) Capital and interest outstanding to the bank at the time of settlement in August 2003;

(b) Costs or fees incurred by the bank and/or the receiver before settlement in August 2003;

(c) Interest, costs or fees incurred by the bank and/or the receiver after settlement, which would not have been incurred if the loan had been paid out in August 2003.

110 The respondents' argument that the bank is not entitled to interest on or after the date upon which the settlement of the two properties (12 and 15 August 2006) was effected should be accepted. The bank's lack of care in ensuring market value was obtained has led to the respondents' liability for such interest. If the property had been sold at market value as found by the trial judge then there would have been no outstanding indebtedness and no consequential interest or costs incurred after the respective settlements, apart from those which would have been reasonably incurred if the loan had been paid out. It is not apparent from His Honour's reasons as to whether His Honour addressed this issue in determining the counterclaim, although it is apparent that his Honour regarded the additional sums sought for the costs of the receivership as not being reasonable. The question of the quantum of the counterclaim will need to be reconsidered.

111 The appropriate course is to remit the question of the quantum of the counterclaim to the trial judge for assessment in accordance with these reasons.

112 For the reasons stated above, the appeal should be dismissed and the cross-appeal against the orders on the counterclaim should be allowed.

[1] The expression 'respondents' is used to cover each of the three plaintiffs; it is not necessary to distinguish between them although each had separate claims.

[2] Obligations imposed by s 85(1) of the Property Law Act of Queensland ('PLA') and s 420A of the Corporations Act.

[3] The list of issues draws considerably from the joint summary provided by the parties.

[4] Glodale Pty Ltd & Ors v Investec Bank (Australia) Ltd [2007] VSC 276 ('Reasons'), [24] and [31].

[8] Fortson Pty Ltd v Commonwealth Bank of Australia & Anor [2008] SASC 49; (2008) 100 SASR 162, [27].

[9] [1981] HCA 70; (1981) 152 CLR 491.

[12] Commercial and General Acceptance Limited v Nixon [1981] HCA 70; (1981) 152 CLR 491, 515 (Aickin J).

[14] Upton v Tasmanian Perpetual Trustees [2007] FCAFC 57; (2007) 158 FCR 118 [7].

[15] Cameron v Brisbane Fleet Sales Pty Ltd (2000) 1 Qd R 463, [44].

[16] [2004] VSC 65; (2004) 11 VR 54.

[17] Ibid, [442]-[443]. See also Salebrook Pty Ltd v Credit Union Australia [2008] QSC 242, [33]-[39] as to the statutory duty under s 85(3) of the PLA.

[18] Florgale Uniforms Pty Ltd v Orders [2004] VSC 65; [2004] 11 VR 54 [410].

[20] In such a case, however, no loss would be established, see paragraph [74] below.

[21] [2004] SASC 61; (2004) 87 SASR 570 [50], [95].

[22] [1981] HCA 70; (1981) 152 CLR 491, 498, 505, 524.

[24] The trial judge presumably meant to refer here to a mortgagee, not a mortgagor.

[25] Emerson v Custom Credit Corporation Limited [1994] 1 Qd R 516; Florgale Uniforms Pty Ltd v Orders [2004] VSC 65; [2004] 11 VR 54, [442].

[26] Australia and New Zealand Banking Group v Alirezai [2002] ANZ Conv R 597, 617; Jeogla Pty Ltd v Australia & New Zealand Banking Group Ltd [1999] NSWSC 563; (1999) 150 FLR 359, 446 [420]. See also, Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VicRp 26; [1976] VR 309, 313_; Tyler v Custom Credit Corp Ltd (in Liq)_ [2001] QSC 495,[153].

[28] [1959] HCA 45; (1959) 101 CLR 209.

[29] See paragraph [21] above.

[34] Although this may be at odds with what was said by Besanko J in Jovanovic v Commonwealth Bank, [2004] SASC 61; (2004) 87 SASR 570, [117] it is consistent with the approach that has been undertaken by other Courts when assessing the loss to a party as a result of a failure to take reasonable care to obtain market value.

[35] [2004] NSWSC 114; (2004) 60 NSWLR 646, 657.

[36] [1907] HCA 82; (1907) 5 CLR 418; Boland v Yates Corporation [1999] HCA 64; (1999) 167 ALR 575, [15].

[37] [1907] HCA 82; (1907) 5 CLR 418, 432. See also 441 (Isaacs J).

[38] Commonwealth v Arklay [1952] HCA 76; (1952) 87 CLR 159, 170.

[39] (1994) 1 Qd R 516, 521.

[40] See Stockl v Rigura Pty Ltd (2004) 12 BPR 23, 151 [31].

[44] Ibid, 175 [76]. See also Gomez v State Bank of New South Wales Ltd [2001] FCA 1059 [29], [2002] FCA 442 [27].

[45] Stockl v Rigura Pty Ltd (2004) 12 BPR.151 [34].

[46] Mr Quinn later in cross-examination confirmed this aspect of his evidence when counsel for the bank again asked him about this topic, prefacing his questions by saying 'We're not criticising you'. Mr Quinn repeated that 'perhaps' the valuation may be affected, but appears to have emphasised that the real issue relevant to his valuation was that of the total size of the unit, rather than the designation of particular areas.

[47] [1959] HCA 8; (1959) 101 CLR 298.

[48] Indeed it would have been open to his Honour to draw inferences adverse to the respondents by reason of their failure to lead evidence from Mr Quinn on this issue: R v GEC [2001] VSCA 146; (2001) 3 VR 334 [41], Zaccardi v Caunt [2008] NSWCA 202 [27], Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418.

[49] [2007[ VSC 276 [30].

[50] There has been considerable judicial discussion as to the nature of the duty imposed by s 420A(1) and the remedy or remedies which flow from it. In Florgale a body of authorities were collected and authoritatively analysed by Dodds-Streeton J, who came to the conclusion that the section did not vest an independent cause of action but extended the duty owed by a controller with the effect that all existing entitlements to equitable remedies were enhanced and strengthened by reference to s 420A. Her Honour also acknowledged that there was an alternative line of authority as to the existence of a duty independent of the equitable remedies. S 85, on the other hand, is clear in providing a remedy in damages.

[53] [2002] FCA 830 [35].

[54] [2004] NSWSC 114; (2004) 60 NSWLR 646 [94].

[55] [2001] VSC 10.

[56] [1986] HCA 33; (1986) 162 CLR 1.

[57] [2003] HCA 48; (2003) 77 ALJR 1598. See also Chen v Chan [2008] VSCA 280, [36]-[46].

[59] [2001] VSC 10 [102].

[60] [2004] SASC 61; (2004) 87 SASR 570.

[61] [2008] SASC 49; (2008) 100 SASR 162, [11]. See also [28].

[62] [1989] HCA 8; (1989) 171 CLR 125, 143.

[63] Hobartville Stud Pty Ltd v Union Assurance Co Ltd (1991) 25 NSWLR 358, State Bank of New South Wales Ltd v Yee (1994) 33 NSWLR 618.