"The securities" referred to in paragraph (iii) were defined as the securities given to the respondent by the appellants other than the bank guarantee. The appellants said that in disposing of the bank guarantee as it did, the respondent repudiated the FDA facility. The appellants accepted the repudiation by commencing the proceeding and accordingly, so it was said, were discharged from liability under the securities.
15 In the course of counsel opening the appellants' case it became apparent that the appellants complained that the respondent had disposed of the bank guarantee for no consideration. Counsel for the respondent contended that this was a misapprehension of its position and that the respondent would not seek to justify such a disposal, if it had occurred. Rather, the respondent contended, it sold both the land and the bank guarantee for $6.5 million and that was a proper price for both assets. It was submitted that special condition 26.1 showed that the consideration for the disposal of the guarantee was $2 million. On this basis the issue between the parties was the sufficiency of that part of the consideration which was attributable to the land and the plant. Counsel for the respondent contended that its sale of these assets at a price of $4.5 million was proper. Counsel for the appellants said that their clients accepted that a sale of the land for $6.5 million was unexceptionable but contended that a sale at a price of $4.5 million was insufficient. Counsel said that if this was in issue, they were not ready to proceed without evidence as to the true value of the land and the plant. His Honour accepted that the appellants should have the opportunity to collate and present that evidence. In order to salvage the trial date, the parties agreed that Byrne J should determine those issues which did not depend upon the value of the land and the plant. Accordingly, his Honour proceeded to determine the construction of the FDA facility.
16 Byrne J held that the respondent was entitled to realise the security represented by the bank guarantee by selling it rather than calling upon the guarantee. His Honour also held that recourse to the bank guarantee was not the only method by which the FDA facility was to be repaid. The respondent was entitled to recover the amount of the FDA facility by enforcing all the securities given to the respondent by the appellants. The trial judge also rejected attempts by the appellants, founded upon concepts such as mistake and estoppel, to achieve the result that the respondent could have recourse only to the bank guarantee to meet Pinnacle's liability under the FDA facility.
17 The remaining claims of the appellants concerning the conduct of the respondent and its agents in managing and realising the land at Bulla and the business conducted on the land were tried by Whelan J. The appellants alleged that the respondent breached its duties as mortgagee in selling the Bulla land because the real sale price was $4.5 million, far less than the true value of the land, the respondent failed to negotiate with DeGroup, the respondent preferred the eventual purchaser because of a misconception that it could not give vacant possession to another purchaser, the respondent had reason to believe the value of the land was at least between $5.4 and $6 million, the respondent relied on non-current and erroneous valuations and the respondent released the bank guarantee as a term of the sale. The appellants also alleged that the respondent breached its duties as mortgagee because its receivers and managers incurred certain liabilities to the Environment Protection Authority and decided to allow the existing site operator to continue, and costs, charges and expenses were improperly incurred and charged to Pinnacle. His Honour held that the respondent did not breach any of its duties as mortgagee in selling the land or in managing the business conducted on the land and the appellants had failed to establish any of their claims in relation to the costs, charges and expenses said to have been improperly incurred.
Construction of the FDA facility
18 On appeal it was submitted that Byrne J erred in construing the terms of the FDA facility as he did. Counsel for the appellants submitted that the specific provision contained in the details sheet relating to the respondent calling on the bank guarantee was at odds with and overrode the respondent's standard terms, and indeed the other terms of the FDA facility, and accordingly supplied the only means by which the amount owing under the FDA facility could be repaid. Counsel relied upon authorities establishing that the court will limit the printed form of words which are inconsistent with the main object and intention of the transaction disclosed by terms specifically agreed upon[4] and that in the event of conflict between general conditions and special conditions the latter will prevail.[5]
19 The appellants adopted an extreme position, which denied any area of operation to most of the terms in the FDA facility and the respondent's standard terms. They did not contend, for example, that the respondent was obliged to first call upon the bank guarantee but was entitled to resort to the other securities provided that it was not disabled from recovering under the guarantee by reason of its own wrongdoing. It did not advance such a construction at trial and could not do so on appeal because there was no finding that the respondent had made the misrepresentations alleged by Tranteret, which prevented the respondent calling upon the guarantee.
20 We respectfully agree with the trial judge's rejection of the contention that the amount owing under the FDA facility could only be met by calling upon the bank guarantee. The appellants' construction is at odds with the terms and basic structure of the FDA facility. The clause in the facility relating to securities required Pinnacle to provide the mortgages, company charges and guarantees by the appellants which were specified in the letter of offer and described as the "existing securities", while the bank guarantee was called a "new" security. The letter spelled out in detail the properties and the identity of the guarantors, whose guarantees were "joint and general, unlimited as to amount." Indeed, the appellants' construction involved denying any obligation on the part of Pinnacle to repay the debt. Further, the appellants' construction nullified the respondent's standard terms and the special conditions of other facilities, which were expressly incorporated in the FDA facility. The pages of provisions in the documents signed by the parties were reduced by the appellants to a simple exchange of promises: the respondent would pay $1.75 million to Pinnacle and Pinnacle would give to the respondent a bank guarantee in an amount of $2 million.
21 The FDA facility was the last facility in a series, which was clearly intended to constitute a composite facility. When the FDA facility was granted, the Bulla project was in a parlous financial state. It was burdened by significant debts and had yet to produce any return. In that context there appears to us to be substance in the respondent's contention that the sentence in the provisions in the details sheet upon which the appellants founded their case amounted to no more than a statement of the respondent's then intention to wind up the facility at the expiration of 12 months from its commencement. At all events, in our view the sentence did not constitute a promise that the respondent would not enforce any obligation or security other than the bank guarantee.
22 Accordingly, in our opinion there was no breach by the respondent of the terms of the FDA facility. The appellants were not released from their liabilities under the FDA facility.
23 The appellants then argued together a number of grounds of appeal concerning the manner in which the trial judge treated the respondent's disposition of the bank guarantee.
Alleged inconsistent findings by Byrne J and Whelan J
24 It was first argued for the appellants that the two judges below made inconsistent findings in relation to the respondent's action of returning the bank guarantee to Tranteret. It was said that the inconsistency was constituted by Byrne J finding that the respondent sold the bank guarantee (and recovering in relation to it either full, or some, value) whereas Whelan J concluded that, by returning the bank guarantee, the respondent had released it.
25 In considering this claim it is necessary to look at the matters that arose for decision before the two judges. As has been noted, before Byrne J the parties agreed that his Honour should determine only those issues that did not depend on a value being attributed to the land and plant or to the value reserved by the respondent for the bank guarantee. Those matters were to be the subject of the subsequent hearing. Accordingly, Byrne J proceeded to deal essentially only with the issue of the proper construction of the FDA facility and whether the respondent breached its terms. On the other hand, the issue as to whether the respondent breached its duty as mortgagee in possession to the appellants when it sold the Bulla property and, in particular, any question of the true value of the securities was deferred and came on for hearing before Whelan J.
26 Byrne J concluded, correctly as we have noted, that on its proper construction the FDA facility did not impose on the respondent the limitation as to its right of recourse for which the appellants contended and that the disposition of it by return to Tranteret did not amount to a breach of the agreement. In the context of analysing the relevant events, Byrne J noted that, notwithstanding that the contract of sale provided in terms that the purchase price was $6.5 million as consideration for the Bulla land and plant, it was apparent that what the respondent sold was not only these assets but also the bank guarantee. The purchaser, said his Honour, received in exchange for the purchase price benefits that included the return of the bank guarantee to its associated company and the respondent obtained "value for the security".[6]
27 Before Byrne J the appellants disputed that the respondent had received $2 million for the bank guarantee. As his Honour noted, this claim was made notwithstanding that, in their pleadings, the appellants necessarily accepted that the respondent obtained $2 million for the bank guarantee. First, the judge said, they pleaded that a proper allocation of the price paid under the contract of sale produced the result that the respondent obtained $4.5 million for the land and plant, the balance being attributed to the bank guarantee. Secondly, they did not assert that if the respondent had elected to call on the bank guarantee rather than returning it to Tranteret the reduction in the purchase price under the contract of sale would have been less than $2 million. Nevertheless, his Honour accepted that, given that the Tranteret proceeding was on foot, the bank guarantee might have been worth less than its face value. Consistently with his ruling to adjourn the issues going to valuation, his Honour deferred the question of any valuation of the amount received by the respondent for the guarantee to the subsequent hearing.
28 Before Whelan J the appellants contended that the "real sale price" for the Bulla land of $4.5 million was significantly below its true market value which, they claimed, ranged from $7.5 million to $11.3 million. Moreover, it was said that the respondent must have known that the purchase price was below the true market value of the property, given that it had reason to believe that its value was between $5.4 million and $6 million. Consequently, it was argued, the respondent sold the land in breach of its duty to obtain the highest price. In the context of considering whether the sale was at an "under value" as alleged, his Honour described the disposition of the bank guarantee by the respondent as a "release" and not as a "sale". More particularly, he said that "in commercial terms, the two securities [the bank guarantee and the property] were realised in 'one lot'" and that by agreeing to release the bank guarantee the respondent had achieved a significantly higher price for the land as compared to the next highest tenderer. It was clear, his Honour said, that HQQ offered significantly more for the land on the basis that the bank guarantee would be released to Tranteret. Thus, given that the judge determined the issue before him by asking whether the amount received for the two securities - the bank guarantee and the land - constituted "proper" value, it was unnecessary for him to allocate the purchase price as between the land and the bank guarantee and thus attribute a "value" to the amount received in respect of the latter.
29 Given that context, we consider that there is no relevant inconsistency between the their Honours' respective characterisations of the dealing by the respondent with the bank guarantee. Briefly, our reasons are these. First, it is apparent from what we have said that the two judges dealt with materially different issues, so that what Byrne J said about the nature of the respondent's dealing with the bank guarantee or its value was not related in any relevant way to the issues with which he was concerned, namely, the construction of the FDA facility to determine whether, as the appellants contended, it limited the respondent's recourse under it to calling on the bank guarantee, and whether its dealing with it otherwise was a breach of the facility agreement. The nature of the disposition of the bank guarantee by the respondent and what value it received for it were not matters with which Byrne J was relevantly concerned.
30 Secondly, and in any event, although their Honours used different terms, they were speaking of the same transaction, namely, that constituted by the respondent's return of the bank guarantee to Tranteret. Importantly, as we mention again later, their different characterisation of the transaction had no legal effect on the resolution of the distinct issues with which each judge was concerned. And, as has been noted, although Byrne J considered that, in the circumstances, the amount received by the respondent for the bank guarantee was probably its face value, he stood over the resolution of that issue to the later hearing. That Whelan J did not quantify the amount that the respondent received for the bank guarantee is also unsurprising given that the critical question that was posed for resolution by him, as we have mentioned, was whether the respondent failed to take appropriate steps to obtain the best reasonable price for the property. Thus, for the purpose of determining whether the respondent had acted improperly in the sale of the property as the appellants alleged, it was sufficient for Whelan J to assess whether the respondent obtained the best reasonable price for it, and it was irrelevant to the determination of that question how the purchase price was apportioned, notionally or otherwise, between the land and plant on the one hand and the bank guarantee on the other. And it was also totally irrelevant to the resolution of the issue before Whelan J whether the dealing by the respondent with the bank guarantee was characterised as a sale or as a release.
31 Consequently, as we have said, there is no relevant inconsistency in the characterisations by their Honours of the respondent's dealing with the bank guarantee. But even if there was such inconsistency, it did not lead to any relevant error by their Honours. Thus, as we have mentioned, the characterisation of the transaction by Byrne J as a "sale" did not relate in any relevant way to his Honour's critical decision to reject the appellants' argument as to the proper construction of the FDA facility. His Honour's conclusion on that important issue, and those related to it, was arrived at on the basis of his construction of the documents. Thus, it is plain, as we have said, that his Honour's characterisation of the respondent's dealing with the bank guarantee as a "sale" played no part in his reasoning that led him to reject the appellants' claims. And as has been noted, we consider that his Honour was right in rejecting them. Similarly, the characterisation of the respondent's dealing with the bank guarantee as a "release" formed no relevant part of Whelan J's reasoning that led him to conclude that the respondent obtained the best price reasonably obtainable for the Bulla land, a conclusion which, as we have said, was not attended by any relevant error.
32 The appellants further claimed under these grounds that Whelan J erred by treating the purchase price of $6.5 million as the amount obtained for the Bulla land. That his Honour so treated the purchase price, it was said, arose from the fact that the judge said that it "[represented] the proceeds of sale of two securities" (and not just the land). In our view, that claim is also without merit. In support of this contention counsel for the appellants pointed to what he (incorrectly) described as a "concession" by Whelan J that the "real sale price" was not $4.5 million. For reasons already given, Whelan J did not have to consider what was the "sale price" of the land separately from the price that was paid for the return of the bank guarantee. It is for that reason that his Honour said that it would be inappropriate to regard the $4.5 million as being "the real sale price" (for the property). To say, as the appellants' counsel did, that this constitutes a "concession" by his Honour that the real sale price was not "$4.5 million" is plainly a misdescription of his Honour's finding.
Similarly, we reject the appellants' further contention under these grounds that the conclusion of Whelan J that the bank guarantee had been "released" and not "sold" had prejudicial consequences for the appellants in the conduct of the second trial. As we understand the appellants' argument in this regard, the claimed prejudice arose because, it was said, the respondent propounded a case before Whelan J that was different from that pleaded and pursued by it before Byrne J. It was claimed that the respondent's case before Byrne J was that the $2 million for the bank guarantee was part of the purchase price of $6.5 million, whereas before Whelan J it argued that the bank guarantee was released (without value). But it is plain from his Honour's reasons, and from the material put before us, that at no stage did the respondent argue at either of the trials that it received no value for the return of the bank guarantee. But even if it did argue for such a conclusion at the second trial, it cannot be logically said, as the appellants now seek to do, that his Honour effectively held that no value was received by the respondent for the bank guarantee because it "released" it. In any event, we think the underlying fallacy in this argument is the assumption that the respondent contended before Whelan J that it received nothing for the bank guarantee and that the $6.5 million was paid solely for the land. As we have said, no such case was put by the respondent. At all relevant times it maintained that it achieved the best price reasonably attainable, in part because it returned the bank guarantee to Tranteret.
33 We mention for completeness that it was also asserted in the appellants' written submissions that the respondent returned the bank guarantee to the successful tenderer's associated company in order "to get out of the litigation". But no such claim was made in the pleadings and it did not constitute a basis for the appellants' claim that the respondent had, by reason of this, breached the terms of the FDA facility. That is not to say that the respondent did not take into account in determining to proceed with the sale that a benefit flowing from its return of the bank guarantee was the obviation of the risk of Tranteret being successful in its proceeding to have this security set aside. It is plain, however, that this was not an impermissible consideration for the respondent to take into account in the decision to dispose of the property as it did, and the contrary was not suggested by the appellants. We consider that there is no merit in this complaint as we have noted.
34 It was said for the appellants that, because Byrne J found that the respondent had "sold" the bank guarantee whereas Whelan J considered that there was no such "sale" but that the guarantee was released, it was incumbent upon Whelan J to reconsider the findings of Byrne J as to the proper construction of the FDA facility and to determine for himself the true meaning and operation of the FDA facility and whether its terms have been breached. For the reasons we have given, however, there is no relevant inconsistency as between their Honours on this issue. On that basis alone there was no reason, and it probably would had been inappropriate, for Whelan J to reconsider the conclusion of Byrne J as to the proper construction of the FDA facility. And his Honour did not do so. He noted that Byrne J was plainly right in his construction of the FDA facility and, contrary to the contention of the appellants, did not depart from that finding. Importantly for present purposes, for the reasons given by us, there was no need for Whelan J to quantify the value that the respondent received, or could have received, for the bank guarantee by dealing with it as it did or by seeking to call on it. The appellants' contention that his Honour erred in not pursuing that line of inquiry is, as we have said, based on a misconception of the principal matter that had to be resolved by Whelan J, namely, whether the respondent took reasonable steps to obtain the best price reasonably obtainable for the Bulla land. That task did not require him to consider, in quantitative terms, what was the value that the respondent received for the bank guarantee or what it might have received if it pursued its earlier attempt to call on the bank to meet it.
Breach of the mortgagee's duty to obtain the best price reasonably obtainable.
35 In essence amended grounds of appeal 13 to 15 contend that his Honour should have applied the principle in Ross v Victorian Permanent Property Investment and Building Society[7] to the sale of the land and the release of the guarantee for a single unapportioned price. It was said that his Honour wrongly regarded s 420A of the Corporations Act 2001 (Cth) as excluding the principle in Ross.
36 Section 420A of the Corporations Act 2001 provides: