Irani & Ors v St George Bank Limited [2007] VSCA 33

"As Borrower we accept this offer and acknowledge that by this acceptance a legally binding agreement comes into existence upon the terms of this letter and [the respondent's standard terms] that we have read and understood."

"As Guarantor we acknowledge the terms of this offer and that by the Borrower's acceptance a legally binding agreement comes into existence between [the respondent] and the Borrower upon the terms of this letter and [the respondent's standard terms] that we have read and understood."

"Upon acceptance, a legally binding contract will automatically exist between [the respondent] and the Borrower upon the terms of this details sheet and [the respondent's standard terms] enclosed. It is therefore important that the Borrower reads and understands the Standard Terms as well as this details sheet."

Opposite the marginal heading "Special conditions" the details sheet read:

"Unless the context otherwise requires, any special condition, which at any time applies to any other Facility, also applies and continues to apply equally to this Facility (even if the other Facility expires or is cancelled)."

There followed, in bold type, the words "In addition any special conditions set out in the Original Letter of Offer dated the 15th June 2000 still apply."

6 The central plank in the appellants' case was based upon the provisions in the details sheet relating to repayments. Those provisions were:

"Interest Only, with interest to be capitalised for the initial 12 months, within the overall limit. Alternatively interest can be met from other sources.

At the completion of the Interest Capitalisation period, the full debt is to be cleared by way of St George Bank calling on the Bank Guarantee for $2,000,000 provided by the Westpac Banking Corporation.

You may repay early any part of the balance owing at any time by giving us at least three business days' notice in writing. Once you repay an amount early, you may not borrow it again. If you repay early other than by making your standard repayments, you must, in addition, pay us any break costs (see the "Break costs" clause in the Standard Terms). (You need not do this if, at the time of early repayment, the interest rate applying to the facility is variable).

The total amount owing is repayable by you on the last day of the term."

(Underlining and italics in the original.)

7 The "Ongoing Conditions" contained the following provision:

"Written confirmation from Hallinan's Pty Ltd that they are aware and acknowledge that the Bank Guarantee of $2,000,000 will be called on by St George Bank Limited in 12 months' time, to clear the Fully Drawn Advance Facility provided to Pinnacle Investments Pty Ltd"

8 Pinnacle entered into a landfill operating agreement with Soiltech Australia Pty Ltd ("Soiltech"). The agreement required Pinnacle to provide infrastructure as required by Soiltech. Soiltech also engaged a Tasmanian Government organisation to carry out infrastructure works, which it did at a price of $1.1 million. Soiltech sought payment of this amount from Pinnacle, and as a result Pinnacle arranged the FDA facility. It was Soiltech, not the Iranis, which negotiated the terms of the FDA facility with the respondent.

9 In August 2001 Soiltech engaged Hallinan's Pty Ltd to construct a soil treatment facility. Hallinan's Pty Ltd was controlled by Patrick Hallinan**,** as was Soiltech. Hallinan also controlled High Quality Quarries Pty Ltd ("HQQ"), which was granted a quarry sub-licence by Soiltech on 25 September 2001.

10 On 25 September 2001 Pinnacle, Soiltech and Shalridge Pty Ltd ("Shalridge"), the third appellant, being a company controlled by Mrs Irani, entered into an agreement with Tranteret Pty Ltd ("Tranteret"), another Hallinan company, whereby Shalridge granted to Tranteret an option to purchase 25 per cent of the shares in Pinnacle at a price of $2 million. The option agreement provided that Tranteret was to receive an executed transfer of the Pinnacle shares from Shalridge and was in turn to provide to Shalridge a bank guarantee in favour of Soiltech and Shalridge as security. Pursuant to this obligation, Tranteret obtained from Westpac Banking Corporation a bank guarantee in the sum of $2 million. As part of the FDA facility the respondent insisted upon a bank guarantee naming itself as favouree. With the assistance of Tranteret, a substitute Westpac Banking Corporation guarantee for $2 million was obtained naming the respondent as favouree.

11 In 2002 Pinnacle defaulted under the FDA facility and other facilities provided by the respondent. Pinnacle failed to comply with a demand for payment of the amount of its indebtedness and Dr and Mrs Irani did not comply with demands made pursuant to their guarantees. The respondent, as mortgagee in possession, offered the land at Bulla for sale. On 23 May 2003 the respondent entered into a contract to sell the land at Bulla and certain plant to HQQ for the sum of $6.5 million. The contract of sale contained the following condition inserted by the tenderer:

"26.1 The Vendor agrees that on the Settlement Date, the Vendor will:

(a) either return to Tranteret Pty Limited the Bank Guarantee issued by Westpac dated October 2001 in favour of the Vendor for a sum of $2 million ('the Bank Guarantee'); or

(b) allow the proceeds from the calling of the Bank Guarantee by the Vendor to be utilised as part payment of the Balance on the Settlement Date."

The condition is to be explained by the fact that Tranteret and HQQ were related companies. The respondent elected to pursue the course permitted by clause 26.1(a) and, upon settlement of the contract of sale, the bank guarantee was returned to Tranteret.

12 In November 2002 Tranteret issued proceedings against the respondent concerning the bank guarantee, alleging that the bank guarantee was provided in reliance upon the truth of representations by the respondent that Pinnacle was not in default under its facilities and that it was to be used to secure money advanced to Pinnacle and for Pinnacle's purposes only. It was alleged that those representations were misleading and deceptive. When the respondent sought to call upon the bank guarantee, Tranteret applied for an interlocutory injunction. A trial judge of the Supreme Court found that there were serious issues to be tried and accordingly, in order to avoid being subject to an injunction, the respondent gave an undertaking until the hearing and determination of the proceeding not to make any demand under the bank guarantee.[2] That undertaking was in force when the Bulla land was sold.

13 Tenders were invited for the purchase of the land. Tenders were received from HQQ and a company named DeGroup Pty Ltd ("DeGroup"). By letter dated 2 April 2003 DeGroup offered to purchase land at a price of $3 million. On 17 April 2003 DeGroup sent a facsimile containing a revised offer of $5.25 million but shortly afterwards withdrew the tender, although a representative of the company expressed ongoing interest in the land. The tenders did not comply with the conditions of tender published on behalf of the respondent. The HQQ tender included the term that became clause 26.1 of the contract of sale, but otherwise complied with the conditions of tender. The tender by DeGroup was non-conforming in important respects. The conditions of tender required the execution of a contract of sale containing the terms prescribed by the respondent in a form that was binding upon the tenderer. DeGroup proffered merely a letter referring to some only of the terms and enclosing a deposit of $10,000 when the conditions required payment of a deposit of 10 per cent of the tender price. The respondent's agent was of the view that DeGroup's offer was far short of the price offered by HQQ and decided not to pursue negotiations with DeGroup.

14 The trial of the proceeding commenced before Byrne J on 20 July 2004. At the forefront of the appellants' case was the allegation that in returning the bank guarantee to Tranteret the respondent breached the terms of the FDA facility. The respondent's obligations were expressed in absolute terms in the appellants' statement of claim. It was alleged that upon the proper construction of the repayment terms[3]:

"(i) The Bank Guarantee was the only method by which the [respondent] was to be repaid the FDA facility;

(ii) The [respondent] could not return or deal with the Bank Guarantee without the FDA facility being paid, alternatively, being treated by the [respondent] as fully repaid;

(iii) The [respondent] had no recourse to the [appellants] under the Securities for repayment of the FDA facility."

"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:

"(1) 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 that that market value; or

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

37 Ross is generally cited as authority for the proposition that mortgagees who have separate powers of sale over pieces of land comprised in different mortgages do not have the power to sell the whole of the land in one lot. The basis of the principle is said to be the difficulty of apportioning the proceeds of a combined sale between first and later mortgagees of the separate lots.[8] Such difficulty does not arise simply by virtue of the fact that the sale of mortgaged land is combined with the release of a guarantee of the mortgage debt, as was the case here.[9]

38 As Whelan J recognised, the proposition in Ross is inconsistent with the Chancery Division decision in In re Cooper and Allen's Contract for Sale to Harlech.[10] In that case Jessell MR incorrectly equated the position of a mortgagee with the position of a trustee for sale,[11] but said that the duty of the mortgagees was

"...to sell the estate to the best advantage they can... If, therefore, the sale of the property can be effected at a higher price by joining with somebody else, so far from that being a breach of that principle, they are only carrying out their trusts and performing their duty in so obtaining that higher price."[12]

39 Whelan J pointed out that not all of the judgments in Ross clearly support the broad proposition that mortgagees cannot sell land comprised in different securities in one lot. Further, some texts have explained the decision in Ross as turning on the fact that some of the lots were registered under the Torrens system and other lots were general law land.[13] Following a detailed and helpful analysis of the relevant cases[14] his Honour concluded that

"1. Ross does reflect a different approach to the approach in Cooper & Allen's Contract. The Master of the Rolls in Cooper & Allen's Contract emphasised the need to obtain the best available price_. Ross_ emphasised the uncertainties and the potential for abuse in combined sales. In the modern context, the reasoning in Cooper & Allen's Contract is more consistent with s 420A than is the reasoning in Ross. Where s 420A applies, the duty it provides for must prevail. The duty it provides for is very similar to the principle enunciated by the Master of the Rolls. In particular circumstances, s 420A might require a mortgagee to realise a secured property in a combined sale, provided, of course, it had the requisite power to do so.

2. It is necessary to distinguish between the question whether there is power to enter into a combined sale and the question whether it is prudent to do so. Ross is authority for the proposition that a mere power to sell a property under a mortgage does not authorise a combined sale with another property. But it is also authority for the proposition that such a power can be properly conferred by the mortgage instrument.

3. As to the prudence of a combined sale, the concerns raised in Ross and in Gesualdi are valid, but, if the power exists, the commercial prudence of each combined sale will have to be assessed on its own merits. Such an issue can also arise where there is only one security, as was the case in Midland Credit Ltd v Hallad Pty Ltd.

4. The Master of the Rolls' suggestion that where there is a combined sale, apportionment is the responsibility of the mortgagee, provided it is reasonable, is inconsistent with Commonwealth Bank of Australia v Duggan. The principle applied in Commonwealth Bank of Australia v Duggan is that, if challenged, the mortgagee must account under s 58(3) of the Real Property Act 1900 (NSW) (equally, under s 77(3) of the Transfer of Land Act 1958) in accordance with the apportionment as found by the court, regardless of any private arrangements or apportionments not involving the mortgagor or other affected parties. This approach does create the possibility of litigation, one of the concerns raised in Ross and Gesualdi, but it seems to me that the statutory obligation to account must require an accounting in accordance with the facts as found by the court, not on some other basis." (Citations omitted).

40 We are inclined to agree with Whelan J's analysis. It is however, unnecessary for us to decide whether the decision in Ross is still good law and if so, whether it is excluded in situations where the duty of the mortgagee is governed by s 420A of the Corporations Act.

41 In Ross both Williams and Holroyd JJ recognised that a mortgage can confer power to sell different pieces of mortgaged land in one lot.[15] Such a power was conferred by the Memorandum of Common Provisions, which are set out in his Honour's judgment. His Honour found that the terms of the mortgage "express an intention, in plain terms, that the Bank may release the Westpac Bank guarantee in order to recover a greater sum than it otherwise would on the sale of the land."

42 We agree with that view. In our opinion therefore, grounds of appeal 13-15 are not made out.

43 The essence of grounds of appeal 16 and 17 was that Whelan J had erred by failing to give sufficient weight to

•

evidence of the plaintiff's witnesses as to the value of the land;

•

the evidence of Mr De Lutis that DeGroup would have paid up to $8 million dollars for the land and the failure of Mr Martin to authorise Mr Sutherland to follow up the DeGroup's offer;

•

the knowledge of the respondent's agent that there was an interest in purchasing the land at a figure well above $4.5 million dollars; and

•

the failure of the respondent to carry out an aerial survey of the land.

44 It was also said that his Honour erred in regarding the offer of DeGroup as a non-conforming offer and the HQQ offer as a conforming offer.

45 The appellant submitted that His Honour failed to give any or sufficient weight to Mr Rockliffe's and Mr Nicholson's expert evidence in relation to the value of the property.

46 Mr Rockliffe was a financial analyst with experience in project evaluation and litigation support. His first expert report said:

"I profess no particular expertise and make no comment on

• the planning permits, works approvals, and licenses required for the kinds of waste to be disposed of, and quarrying activities to be conducted.

• the geotechnical and environmental conditions of the site."

47 In valuing the property for the purpose of these proceedings he was asked to assume that a licence would be issued for the disposal of putrescible waste disposal. In his analysis he assumed that the purchaser would have all necessary planning and other permits and licences and that the geotechnical and environmental conditions of the site would permit the activities to be conducted. Having discussed various possible valuation methods, he used the discounted cash flow ("DCF") method of valuation. He did not refer to comparable sales and nor did his valuation take account of the purchase price of $4.5 million paid by Pinnacle in February 2000.

48 His report projected a cash flow for the business over a 25 year period of $48,228,228 based on calculations of revenue streams for various activities to be carried on at the site. A discount rate of 15 per cent per annum was applied to that figure, producing a valuation of $11.3 million. In response to a query from his Honour, he said that his decision to apply a discount rate of 15 per cent was based upon an assumption that there were no risks relevantly to be taken into account in the areas in which he had no expertise. He agreed that 15 per cent was low for valuing a business.[16]

49 His Honour analysed Mr Rockliffe's evidence in some detail. He pointed out that Mr Rockliffe had previously been engaged by Dr Irani to assist him in his dealings with TransWest, so that he could not be regarded as a completely independent expert witness. He also referred to a critique of Mr Rockliffe's evidence by another financial analyst, Mr Acton, who provided an expert report on behalf of the Bank.

50 Mr Acton was critical of Mr Rockliffe's cash flow assumptions, in part because they did not adequately account for risks of disruption to the business or permanent loss of market share which would arise from temporary suspension of the licence. Mr Katapodis, an environmental expert who gave evidence on behalf of the Bank, had said that licence suspension was quite likely. Consequently, a prudent investor would have used lower volume forecasts in relation to waste than Mr Rockliffe had done.

51 Mr Acton also considered that an investor considering acquiring the property in 2003 would have been likely to use a much higher discount rate than the 15 per cent adopted by Mr Rockliffe. Mr Acton said that in his opinion,

"in valuing this asset an investor might reasonably reduce Mr Rockliffe's net cash flow forecast by 20% (equivalent to a reduction in price or volume of about 10%), ignore cash flows after 10 years and apply a 30% discount rate. This would result in a valuation of around $4 million which I understand is consistent with the outcome of the tender process."

52 On the basis of this evidence, our view is that his Honour did not err in concluding that Mr Rockcliffe significantly overvalued the property.

53 It was also submitted that his Honour gave insufficient weight to the evidence of the appellant's expert witness, Mr Nicholson. Mr Nicholson was a property valuer who prepared an expert report which valued the site as at 30 June 2003 at $7.5 million. The valuation was prepared for HQQ to support its application to obtain mortgage finance if it purchased the property. For the purposes of the valuation, Mr Nicholson assumed that an extractive industries licence would be made available permitting the extracting of clay sand, gravel and hard rock. His report acknowledged that the valuation could change significantly and unexpectedly over a relatively short period as the result of general market movements or factors specific to the property. In his cross-examination he said that a valuation of the property would not be relevant to a date six months later because there were too many factors that could change it.

54 Justice Whelan did not accept Mr Nicholson's valuation as being reliable in the circumstances. Given the fact that it was a valuation obtained by HQQ for the purposes of obtaining finance, and the qualifications made by Mr Nicholson under cross-examination, we can see no error in his Honour's reasoning.

55 On 2 April 2003, Mr De Lutis made an offer to purchase the property for $3 million on behalf of DeGroup. In cross-examination Mr De Lutis gave conflicting answers as to whether he wanted to put in a tender at that stage, or simply to express an interest in the property. He said he had had a later conversation with Mr Sutherland, the real estate agent handling the sale, in which Sutherland suggested that he was a couple of million off the purchase price. Mr De Lutis put in a revised offer of $5.25 million on behalf DeGroup on 17 April 2003. As we have said, neither offer conformed to tender conditions in a number of important respects. No director's guarantee or environmental indemnity was included and the deposit provided was $10,000, not 10 per cent of the purchase price, as the tender conditions required.

56 On 28 April 2003 Mr De Lutis withdrew that offer, and requested return of the deposit, after he was informed by Mr Sutherland that the time for acceptance for tenders had been extended. Mr Sutherland and Mr De Lutis gave conflicting evidence at trial as to events which occurred on 8 May 2003.

57 Mr De Lutis gave evidence that he had attended the Sutherland Farrelly offices on 8 May 2003 and left a written offer of $5 million with a cheque for $50,000 as a deposit in the tender box. He gave evidence that the tender papers and cheque for $10,000 were later returned to him by Sutherland Farrelly and, in response to a telephone call asking what had happened, he was told that the property had been sold for $7.5 million plus a bank guarantee of $1 million to $2 million.

58 Mr Sutherland said that in his discussion with Mr De Lutis prior to 8 May he would not have divulged information on other tenders but might have given him a range or indication. His version of the events of 8 May 2003 was that, although Mr De Lutis attended the office and spoke to him, he had no recollection of any fresh offer or tender having been made and he would not have returned any tender without instructions from the receivers. He subsequently emailed Mr Martin, one of the agents for the Bank as mortgagee in possession, informing him of his conversation with Mr De Lutis. The email made no reference to a third offer from DeGroup.

59 His Honour found that Mr De Lutis was mistaken in his evidence that he had made an offer on 8 May 2003. He also found that there was no contemporaneous record of Mr De Lutis' willingness to offer up to $8 million for the property and that no such intention was ever communicated to the Bank or its agent. Mr Martin, in any case, had given evidence that he did not regard Mr De Lutis' proposal as satisfactory because Mr De Lutis had not signed an environmental indemnity and guarantee or given a directors' guarantee.

60 His Honour had the advantage of seeing the witnesses. In our view he was entitled to reach the conclusion that Mr De Lutis had never made a firm offer of an amount in excess of the HQQ tender and that he had also failed to satisfy the tender conditions in important respects. The issue of the non-conforming nature of the tender is discussed in more detail below.

61 It was also submitted that other evidence supported the submission of the appellants that the Bank had not adequately considered the value of the property. In particular counsel for the appellants referred to the evidence that Mr Sutherland, had queried the value of the sale, that commission had been paid on the basis of a sale at $4.5 million and that the respondent's agents knew that Mr De Lutis had expressed an interest in purchasing the land at a figure well above $4.5 million.

62 In our opinion, there is nothing in the point that Mr Martin negotiated the payment of the commission on a purchase price of $4.5 million rather than $6.5 million. Ultimately the payment of a reduced commission was to the benefit of sureties.

63 Nor was it inappropriate for Mr Sutherland to proceed on the basis that the HQQ tender was worth $6.5 million, although this amount was based on the assumption that the vendor would release the bank guarantee of $2 million. As Whelan J said

"The HQQ tender was $1.7m above the next highest tender (Delta) ... [I]t was left to the bank to factor in the risks in the Tranteret proceeding. Even if one attributed the full $2m to the Westpac Bank guarantee, accepting the HQQ tender would still realise an amount in excess of both the then current Fitzroys and Ham & Murray valuations, although below the Delta tender."[17]

64 The respondent relied upon the decision of Mandie J in Kyuss Express Pty Ltd v Sellers[18] as authority for the proposition that Mr Martin should have asked Mr Sutherland to take further steps to follow up the DeGroup offer. In particular, he referred to paragraph 95 of that Judgment, in which Mandie J said that

"in most instances: a controller should advise sufficiently to bring the property to the attention of prospective purchasers; a controller should test the market in some way such as by advertising and responding to all inquires and expressions of interest." (Citations omitted.)

It was submitted that the failure to follow up the DeGroup offer evidenced a failure to test the market in the manner required.

65 In our view the decision in Kyuss does not assist the appellants. In that case the receivers had failed to advertise the sale of the mortgagor's business or to call for tenders for its sale. They had also failed to discuss with a person, whose contract was the main asset of the business, the circumstances in which the benefit of that contract might be passed to the purchaser of the business. The decision of Mandie J turns on the factual findings which he made in the circumstances of the case, which cannot be extrapolated to the facts of this case.

66 Counsel for the appellants also relied on the decision of Campbell J in Artistic Builders Pty Ltd v Elliott & Tuthill (Mortgages) Pty Ltd.[19] In that case Campbell J found that the mortgagee had breached s 420A by arranging a meeting with a potential purchaser immediately prior to the public auction in the city and by failing to encourage the potential purchaser to attend that auction. Again the decision turned on the facts of the particular case and has limited relevance to the circumstances of this case.

67 Mr Sutherland did not ignore Mr De Lutis's proposals. While he could perhaps have pursued Mr De Lutis's interest in the property more vigorously, it was not unreasonable for him to conclude that Mr De Lutis was unlikely to put in a conforming tender at a higher price than the amount which HQQ was prepared to pay for the sale of the property and release of the guarantee. In our opinion his Honour correctly held the Bank had not breached its duty by failing to further pursue DeGroup for a complying tender.

68 Counsel for the appellants also submitted that the respondents should have undertaken an aerial volumetric survey of the property in order to ascertain the value of the operating landfill. It was contended that the mortgagee could not discharge its duty under s 77 of the Transfer of Land Act or s 420A of the Corporations Act without obtaining an estimate of the size of the landfill.

69 We agree with his Honour that the failure to undertake an aerial survey did not breach the duty imposed by either of these provisions. The appellants' own witness, Mr Rockliffe, said in cross-examination that issues as to air space were of no relevance to a valuation assessed by reference to a projected cash flow over 25 years, as there was sufficient volume of space for that period. The valuation obtained by the respondent's lawyers, Ham and Murray, did not suggest that the results of the aerial survey would have altered its approach. As His Honour commented

"[Mr Martin and Mr Carson] did consider it. They decided it was too expensive and acted on the basis that its results would not affect assessments of value. This approach was consistent with the valuation of Ham & Murray which they held at the time, and with the evidence of Mr Rockliffe, the plaintiff's principal expert."[20]

70 The appellants complained that Whelan J had erred in treating the HQQ tender as a conforming tender, whereas Byrne J had said that it was a non-conforming tender. In addition, it was said that Whelan J should have treated the HQQ tender and the DeGroup tender in the same way as both were non-conforming tenders. This issue has been indirectly addressed above.

71 The only respect in which the HQQ tender was non-conforming was that the contract of sale included clause 26, under which the vendor agreed to return to Tranteret the bank guarantee or to allow the proceeds from calling of the bank guarantee by the vendor to be utilised as part payment of the balance on the settlement date.

72 By contrast, the DeGroup tender failed to comply with the tender conditions in a number of significant respects. It did not provide a signed indemnity guarantee and it did not include a director's guarantee.

73 In light of the evidence relating to the withdrawal of the tender and the view that his Honour took of Mr De Lutis's evidence, there is no basis for suggesting that his Honour erred in finding that

"the Bank had no reason to believe that the valuation of the land was at least between $5.4m and $6m, but rather had every reason to believe that the valuation of the land was between $3m (the then current Fitzroys valuation of the land without an extractive industries licence) and $4.2m (the then current Ham & Murray valuation)."

74 It follows from the above that his Honour did not err in finding that the appellants could not show that the Bank failed to take all reasonable care to sell the land for the best price reasonably obtainable in the circumstances.

75 For the foregoing reasons we are of the opinion that none of the grounds of appeal has been established. Accordingly, the appeal is dismissed.

[1] Also known as Dr Homai Kermani.

[2] See Tranteret Pty Ltd v St. George Bank Ltd [2003] VSC 46.

[3] See paragraph [6] above.

[4] Neuchatel Asphalte Co Ltd v Barnett [1957] 1 W.L.R. 356 at 360 per Denning LJ.

[5] See, for example, The Brabant [1967] 1 Q.B. 588 at 600 per Lord Ellenborough; Modern Building Wales Ltd v Limmer & Trinidad Co Ltd [1975] 1 W.L.R. 1281 at 1289 per Buckley LJ; The Athinoula [1980] 2 Lloyds Rep. 481; C.J. Homburg Houtimport D.V. v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715 at 737 per Lord Bingham of Cornhill.

[6] We mention for completeness that his Honour found that the proceeds of the contract of sale were in fact applied first to extinguish the indebtedness of Pinnacle under the FDA facility and the balance was applied towards reducing its other indebtedness to the respondent.

[7] [1882] VicLawRp 33; (1882) 8 VLR (E) 254.

[8] Ibid at 276 per Holroyd J. And see Gesualdi v Serenar Nominees Pty Ltd & Anor (1993) V Conv R 54-478 at 65,593. This was an application for an interlocutory injunction in the Practice Court to prevent a combined sale of several lots as a single parcel of land. Coldrey J held that there was an arguable case that neither the Memorandum of Common Purpose nor s 77 of the Transfer of Land Act 1958 permitted a combined sale of different portions of land subject to different mortgages and involving different mortgagors.

[9] Note, however, that a mortgagee exercising a power of sale owes the same equitable duty to a surety as to a mortgagor; see Commonwealth Bank of Australia v Duggan [2003] FCAFC 64 at [17].

[10] (1876) 4 Ch D 802. The mortgages, which were granted to the same person, were of the life estate and remainder interests in property. It was held that the sale was be regarded as a joint sale of two interests. The issue in the case was whether the mortgagees could make good title in the circumstances of the sale.

[11] Note Jessell MR's comments on this matter in In re Cooper and Allen's Contract for Sale to Harlech at 818. The error was recognised by Holroyd J in Ross v Victorian Permanent Property Investment and Building Society [1882] VicLawRp 33; (1882) 8 VLR (E) 254 at 273.

[12] (1876) 4 Ch D 802 at 815.

[13] C Croft and J Johannsson, The Mortgagee's Power of Sale (2nd ed, 2004) [6.6]; Halsbury's Laws of Australia (online) [295-7485] LexisNexis.

[14] See Gesualdi v Serenar Nominees Pty Ltd & Anor (1993) V Conv R 54-478 where Coldrey J held that it was arguable that the mortgagees could not sell different pieces of land involving different mortgagors together under the memorandum of common provisions and s 77 of the Transfer of Land Act 1958; Commonwealth Bank of Australia v Duggan [2003] FCAFC 64 and Midland Credit v Hallad (1977) 1 BPR [97062] at 9570 where a building comprising separate units was sold as a whole. Note, however, that this was not a case of sale of separate properties subject to separate mortgages.

[15] [1882] VicLawRp 33; (1882) 8 VLR(E) 254 at 271 per Williams J at 273 per Holroyd J.

[16] [2005] VSC 403 at [126].

[17] [2005] VSC 403 at [213].

[18] [2001] VSC 10.

[19] [2002] NSWSC 16.

[20] At [192].