National Transport v Smith

PARTIES : National Transport Insurance v Trevor Gregory Smith JUDGMENT OF : Hunter J

COUNSEL : Plaintiff: J Stevenson Defendant: R Parsons SOLICITORS : Plaintiff: Phillips Fox Defendant: Nash O'Neill Tomko Lawyers CATCHWORDS : Mortgagee sale - whether mortgagee lacking good faith or in breach of duty to exercise reasonable care - s420A Corporations Law - sale initiated by invitation to tender - sale effected prior to closing date for tenders - guarantor precluded from submitting tender offer above sale price - whether mortgagee precluded from selling to non tenderer prior to closure of tender process - whether conduct of mortgagee in terms of invitation to tender misleading. Real Property Act 1900 (NSW) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Law CASES CITED : Forsyth v Blundell (1973) 129 CLR 477 Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation (unreported, Supreme Court of NSW, 9 December 1994) DECISION : Cross claim dismissed. Plaintiff to bring in short minutes of order in accordance with par 196 of reasons for judgment.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HUNTER J FRIDAY 23 NOVEMBER 2001 50141/00 NATIONAL TRANSPORT INSURANCE LIMITED -V- TREVOR GREGORY SMITH REASONS FOR JUDGMENT

1 Subject to a defence framed as an equitable set-off, which is repeated in the cross claim in these proceedings, the defendant does not dispute the plaintiff's entitlement as set out in the summons. 2 The proceedings are brought by the plaintiff pursuant to a deed of guarantee and indemnity dated 27 October 1999 (the guarantee), under which the defendant guaranteed the repayment of a loan by the plaintiff to Noble House Development Corporation Pty Ltd (Noble House), pursuant to deed of loan dated 27 October 1999 (deed of loan). The amount loaned was in excess of $2,800,000. A charge over the undertaking of Noble House was also effected in favour of the plaintiff by deed of charge dated 27 October 1999. The granting of such a loan was not in the ordinary course of the plaintiff's business. It carried on the business of an underwriting agency. 3 The loan facility to Noble House was an arrangement of necessity, emerging when it was disclosed that the defendant, as managing director of the plaintiff, had caused advances to be made by the plaintiff without the knowledge of his co-directors, to companies controlled by the defendant, namely Kalamata Pty Ltd (Kalamata) and Fenning Timbers (Aust) Pty Ltd (Fenning). No formal documentation was entered into and it appears that the loans were "secured" by lodgement with the plaintiff of the shares in Fenning and of shares in an Isle of Mann corporation controlled by the defendant, namely, Fenning Pacific Limited. The deed of charge, the deed of loan and the guarantee were entered into by Noble House and the defendant, respectively, when the fact of the advances to the defendant's companies was made known to the board of the plaintiff who, in addition, required the resignation of the defendant. 4 Under those facilities Noble House was required to repay the loan by February 2000 which it failed to do, resulting in the appointment of Paul Gerard Weston (Weston) and Neil Cusson (Cusson) as receivers and managers of Noble House on 19 May 2000. 5 It may be noted that the matter of these irregular loans was made known to the plaintiff by the defendant only when it became clear to him that he was unable to call in those loans, as he had hoped, by September 2000, the loans having been made in July and August 1999, as a temporary measure to "meet a huge crisis" as described by the defendant as follows: "Q. Was there some crisis that arose that caused you to make the funds available to these entities? A. There was a huge crisis.

Q. Of what nature? A. Well, there were two issues. I was involved at that time with the Fenning Timbers acquisition and the Sydney project was being managed by a third party, I mean not myself, and the manager had led me to believe that he had certain funding in place relative to ensuring that we retain the DA, the development approval that was in place at the time. Had the DA not been saved and it was, then it would have impacted greatly on the property.

Q. The property that you are talking about is the Dixon Street one? A. Yes, yes. This was also a Fenning Timbers project. I mean these were two large projects which are running simultaneously. I could say in hindsight, we all have to be wiser in hindsight, trying to run those two projects at the one time was stupid to say the least.

Q. That I think explains it to this extent, that you had personal commitments and it seems to me that you choose to use the funds of National Transport to get you out of your perceived to be temporary difficulties? A. That's pretty right, yes. I mean-"

(T16:45-T17:14) 6 The "Sydney project" involved the acquisition and development of the Dixon Street property. 7 The cross claim arose out of the sale of the Dixon Street property by the plaintiff as mortgage in possession to Kimberly Securities Ltd (Kimberly) by contract for the sale of land dated 3 November 2000 for the purchase price of $4,500,000. Prior to the sale, Weston and Cusson retired as receivers and Weston was appointed as the plaintiff's agent in respect of the Dixon Street property to exercise the plaintiff's powers of sale as mortgagee in possession. The evidence was to the effect that this retirement of the receivers and the appointment of Weston, as agent, was designed to avoid any disruption to the completion of the sale which might arise if the sale was effected by the receivers and to gain the benefit of the effect of registration by transfer by a mortgagee conferred by s59 of the Real Property Act 1900. 8 By his defence and cross claim the defendant challenged the propriety of the way in which the sale of the Dixon Street property was effected on the basis that the "plaintiff failed to act bona fide or alternatively … acted in breach of its duty pursuant to s420A of the Corporations Law.." and, on that basis, further claimed damages pursuant to s82 and an avoidance of the guarantee pursuant to s87 of the Trade Practices Act 1974 (Cth). The grounds for those contentions may be summarised as follows: 9 As receivers, Weston and Cusson offered the sale of the Dixon Street property through a protocol that involved issuing invitations to tender, requiring the submission by interested parties of conforming tenders to be made by the designated time of 5pm 9 November 2000: that, prior to the expiration of the tender period, the plaintiff sold the Dixon Street property to Kimberly and terminated the tender process: that the defendant intended to submit a tender and had relied on the tender conditions, in particular the closing date of tenders, with the consequence that he did not cause a tender to be submitted prior to the sale to Kimberly: that he was not notified by the plaintiff of the intention to sell the property prior to the expiration of the tender period, save for a letter of 6 November 2000 notifying the termination of the tender process. 10 It was contended that that conduct was in contrast with a representation in the invitation to tender "that tenders would be accepted for consideration up to 5pm on Thursday 9 November 2000". By that conduct the defendant contended that he was precluded from causing a tender to be submitted for $6,000,0000, which, if accepted, or had a higher offer been accepted by the plaintiff, would have effectively discharged his obligations under the guarantee. 11 The law applicable to the issue so raised by the defendant I understand not to be in dispute. The position is governed by s420A of the Corporations Law as follows: "Controller's duty of care in exercising power of sale (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 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". 12 Prior to the passing of s420A, the position at law of a mortgagee exercising power of sale was authoritatively stated by McLelland CJ in Eq. in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (unreported, Supreme Court of NSW, 9 December 1994) as follows: "It is necessary to consider the nature and extent of the relevant obligations owed by the mortgagee to the mortgagor when exercising the mortgagee's power of sale, independently of such statutory provisions as ss 232 and 420A of the Corporations Law , the enactment of which was subsequent to the relevant events in the present case. The powers of sale exercised by Custom Credit were statutory powers conferred by s.58 of the Real Property Act. That section empowers a mortgagee to "sell the land mortgaged ... or any part thereof ... either altogether or in lots by public auction or by private contract, or both such modes of sale, ... subject to such conditions as he thinks fit ...". In exercising the power thus conferred, the mortgagee is, however, subject to obligations arising from the application of equitable principles equivalent in nature and extent to the obligations similarly arising in respect of legal or equitable mortgages under the general law (as is implicit in the decision in Pendlebury v Colonial Mutual Life Assurance Society). Those obligations apply to the exclusion of any duty of care arising from the principles of the law of negligence (Coroneo v Australian Provincial Assurance Association 35 SR 391; Colin D Young v Commercial and General Acceptance (Court of Appeal 24 August 1982 unreported); Downsview v First City Corporation 1993 AC 295). The content and scope of the relevant equitable obligations were considered by the High Court in Pendlebury. That case is authority for the proposition that in exercising its power of sale, a mortgagee must act in good faith, which involves an obligation to deal fairly with the interests of the mortgagor, which in turn involves an obligation to refrain from acting in wilful or reckless disregard of those interests. Subsequent discussion of the question in the High Court (particularly in Forsyth v Blundell Pastoral Co; Australia and New Zealand Banking Group v Bangadilly Pastoral Co (1978) 139 CLR 195 and Commercial and General Acceptance v Nixon) has not displaced the authority of the decision in Pendlebury, although in Bangadilly a mortgagee was said by Aickin J (with whose judgement Stephen and Jacobs JJ agreed) to be in breach of its obligation to the mortgagor where there was "a serious departure from accepted standards in seeking to obtain the best price then available" (at 288). This is an area of the law where particular phrases used in judgements should not be construed and applied as if embodied in an Act of Parliament (cf Australian Apple & Pear Marketing Board v Tonking (1942) 66 CLR 77 at 110). What matters is the underlying equitable principle, which in the modem idiom usually finds expression in terms of unconscionability. The mortgagee in equity is not answerable for what Isaacs J in Pendlebury describes (at 700) as "mere negligence or carelessness in carrying out the sale". Any departure from reasonable standards must be so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable. If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as that expression is understood in equity, then in the taking of accounts between the mortgagee and the mortgagor, the mortgagee will be accountable on the basis of wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct." (at 3-4) 13 Sec 420A is not an attempt at codification of the general law. As I understand the operation of the section, it does not displace the obligation of a mortgagee to act in good faith "which in turn involves an obligation to refrain from acting in wilful or reckless disregard of … [the mortgagor's] interests". 14 Additionally it requires the mortgagee to exercise a power of sale with reasonable care and with the objective of not selling the subject property below its market value or, in the absence of a known market value at the best price which is reasonably obtainable, having regard to prevailing circumstances at the time of sale. 15 With some justification, commentators have questioned the concept of a property not having a market value. It is very difficult to conceive a situation where a property does not have a market value as distinct from a known market value which may only be ascertained upon sale. It is for this reason that I think the section should be treated as providing in sub-par (b) for the situation where there is no known market value. For the reasons that follow, the provision of sub-par (b) of s420A may have some work to do in the circumstances of this case. 16 The defendant has expressly disavowed a case of malice against the plaintiff. His case is that it lacked good faith in sacrificing the interest of Noble House and the defendant or acted in breach of s420A. In substance, that case turns upon contentions that the plaintiff's agent failed to obtain a true market value of the Dixon Street property: initiated a tender process which was designed to gain the best price from the existence of any competition in the market place: abandoned that process at a time when there was objective evidence of a demand for the Dixon Street property and at a time when the defendant was marshalling a tender through a nominee company in the sum of $6,000,000: that the benefit of the tender process and of the defendant's proposed tender was lost by the acceptance of an offer during the tender period without notice to interested parties, including the defendant, and by the abandonment of the tender process. 17 Prior to the appointment of the receivers a development application had been approved for the development of the Dixon Street property by the construction of a one hundred and eighteen apartment building with car park and associated retail outlets, restaurant and gymnasium. Substantial commencement of that development had been undertaken in the form of excavation and foundation construction; presumably to protect the development approval. On 13 April 1999 Noble House commissioned Stanton Hillier Parker (QLD Pty Ltd) (SHP) to provide a market valuation "on a completed basis… for Mortgage Security purposes". The 'completed basis' referred to the following instructions given by Noble House to SHP: " Synopsis: A proposed apartment hotel development strategically situated within Sydney's China Town adjacent to the landmark Darling Harbour Waterfront & Convention Centre within the southwestern corridor of the Sydney CBD. The development, currently under construction with practical completion scheduled for July 2000, has consent approval for 118 residential and serviced apartments. The current proposal and design provides for a 134 room hotel providing onsite basement parking, recreational, retail, food and beverage facilities to be operated under a Ramada International franchise. The development also has the option of being strata titled and sold to individual investors." 18 SHP provided its report to Noble House on 26 August 1999. The "highest and best use" of the Dixon Street property "under prevailing market conditions" was described by SHP as being the proposed use of the land for a "seventeen storey, 134 room hotel development". An alternative use was described as being "a mixed commercial office and retail development" which would require appropriate development approval. The subject hotel proposal involved a "conversion into 134 key 4.5 star 'Ramada Plaza' Hotel". Completion of the proposed hotel development was assumed to occur in August 2000. 19 In connection with this proposal, Noble House had entered into a management agreement dated 1 November 1998 with UHL Management Pty Ltd "to provide services of hotel management for the…" proposed hotel. In addition, it entered into a franchise agreement with Marriott International Licensing Company B.V. in relation to a system known as the Ramada System for the operation of Ramada International Hotels & Resorts (Ramada) in relation to the conduct of the proposed hotel under the auspices of the Ramada name (the franchise agreement). 20 In connection with the proposed development, the defendant intended to exploit the interest of overseas investors wishing to emigrate to Australia by marketing agreements upon terms which met Australian immigration requirements related to immigrants conducting a business in Australia. 21 The Dixon Street property had been acquired by Noble House in September 1998 for the purchase price of $3,200,000. The purchase price was provided by means of a loan facility in the sum of $2,800,000 secured by first mortgage to Elliott Tuthill (the first mortgagee). A further $991,000 was provided by Wispform Pty Ltd (Wispform), a corporation which whom Ray Chan (Chan) was associated. The $991,000 was provided under an option agreement with Noble House which gave to Wispform the option to purchase fifty units in the proposed development at a price of $9,910,000 within six months of registration of a strata plan. 22 The balance sheet of Noble House, as at April 2000, listed non-current assets in relation to the Dixon Street property in the sum of $6,454,452.02, which included acquisition and holding costs of $4,368,208.29 and development costs of $2,086,243.77. It was anticipated that there would be no real obstacle to the proposed conversion of the development to a hotel on the advice received by the defendant. 23 The valuation report of SHP assumed the reasonableness of a "pricing submission and construction tender program" of the builder and an estimated cost for furniture, fixtures and equipment. The section of the report dealing with these matters (section 5) is not without some apparent inconsistencies in that the "General Building Design, Layout & Floor Areas" appears to be based upon the 118 unit approved development rather than the proposed hotel. 24 On these and other projections, SHP built financial projections for the proposed development for the years 2001 to 2005 which showed a net operating profit, before interest, depreciation and tax, varying between approximately $3,170,000 and $4,650,000, the latter being geared to the then anticipated influx of tourists for the Sydney Olympic Games in the year 2000. 25 Comparative Site Sales Evidence consisted of some five city properties identified as development sites. Of those sites it was stated that "none of the sales provide conclusive evidence as to the current value [of the Dixon Street property]". Nevertheless, on that basis SHP offered the following opinion: "As such we believe an appropriate rate for the site on an 'as is' basis with all approvals in place for the proposed development and work completed to date … is … $6,506,000." 26 To that was added the value of work completed in the sum of $1,500,000 giving a figure of approximately $8,000,000. That reflected a rate of $12,296 per m² which was considered reasonable and was thought to be "further supported by [the] residual land value assessment covered later in [the] report." 27 The report also encompassed five sales of hotel properties in Sydney, Perth and Melbourne, other cities being included on the basis of the limited hotel sales evidence in Sydney. That section concluded with the statement that, given the limited available market evidence SHP "relied upon the Income Approach as [their] primary method of evaluation" (presumably, referring to potential or estimated income). 28 The Valuation Methodology was described as follows: "Income producing real estate is normally valued by way of reconciliation between the Capitalisation of the Net Maintenance Income, Direct Comparison and utilising Discounted Cash Flow methods, viz. 1. The sum of the capitalisation of the projected 2002 profit at initial yield in line with market evidence plus the addition of the 'super profit' earned in Year 1 of operations; 2. Dollar value per room based on sales of other 4.5 star hotels; 3. Undertaking a discounted cash flow analysis to determine the investments internal rate of return and net present value.

The owner/developers have been astute in identifying a niche within the current market place and under the current proposal, have the option to strata title the development on completion. Our assessment has been made on a single basis and that the proposal is generally in accordance with that described herein." 29 The Dixon Street property was not "Income producing real estate". 30 SHP's instructions also included the following: "As part of our instructions we have also considered the value of the site with the necessary approvals in place. This has been approached both on a direct comparison basis with sales of other development sites, and a hypothetical residential calculation." 31 The capitalisation approach, based on the projected 2002 profit figure, before interest depreciation and tax of $3,171,417, at a capitalisation rate ranging between 7.0% - 7.5% and allowing for what was described as a "Super Profit" in 2000 of $1,481,641 representing an Olympics windfall, resulted in a valuation of $46,000,0000. 32 The Direct Comparison method of valuation simply involved multiplication of the "Number of Keys", namely 134, by a value range of $300,000 to $350,000 per room, which produced a valuation of $46,000,000 in a rather simplistic analysis. 33 The valuation of $46,000,000, based on the financial projections provided, represented an internal rate of return of 10.19% which was "considered to be in conformity with market expectations and parameters where prime central business district commercial high-rise investments provided internal rates of return in the range of 6% to 9%". 34 In my view there was something of the contrived in those three bases of valuation for mortgage security purposes. 35 The "Residual Land Value Calculation" proceeded on what, on the face of it, was a simplistic approach based upon a "Net Realisation" of $46,155,950, reached by adopting an average unit sale price of $245,000: a "Commercial Value" of the "Hotel Core" quoted at $15,000,000, and development costs of $26,800,000 derived from a figure of $200,000 per unit. A twelve month period was allowed for each of the development and sale phases. After allowing for holding charges SHP came up with a "VALUE OF DEVELOPMENT LAND ONLY WITH APPROVALS" of $8,6060,000. 36 The valuation of $46,000,000 was expressed in the following terms: "Subject to the assumptions and qualifications contained within the body of this report and subject to the Hotel being completed & operative prior to the Olympics as proposed we have assessed in relation to the Ramada Plaza Hotel a Market Value of: $46,000,000." 37 A general qualification was expressed on the basis that the valuation was "for mortgage security purposes only". 38 As earlier noted a "Comparative Site Sales Evidence" analysis was undertaken by SHP. It was not conclusive as appeared from the following: "In reviewing the preceding sales evidence it is evident that none of the sales provide conclusive evidence as to the current value of the subject site. Sale rates ranging between approximately $4,000 and $16,500 per square metre of site area have been achieved for sites within the general locality of the subject". 39 Notwithstanding it was observed as follows: "After careful analysis and consideration of the preceding attributes it is possible to assess value on a rate per square metre of site area basis". 40 The reader is not favoured with the details of that careful analysis and consideration. 41 In the "final assessment" of SHP it selected a rate of $10,000 per m² as "an appropriate rate for the site on an as is basis with all approvals in place… and work completed to date", resulting in a site valuation of $8,000,000. 42 The residual land valuation calculation was based on the "going concern value of the apartments and hotel core as… assessed at $46,000,000 … hypothetically apportioned" as to land, $8,000,000 and development $38,000, noting that "in both values… the intangible asset value of the good will..." was included. 43 I have not been persuaded that such a figure represented the market value of the Dixon Street property in October, November 2000. 44 At the time of the appointment of the receivers there was no prospect of the project proceeding in the immediate future: the development work in the site being limited to a substantial commencement to satisfy development approval requirements. The receivers were provided with this SHP report. 45 In discharging the responsibilities of the receivership, Cussen appeared to take little part, the work being performed by Weston with the assistance of Liz Occleshaw (Occleshaw). The day after their appointment as receivers, Weston contacted Knight Frank Valuations (Knight Frank) confirming the appointment of the receivers and requesting a Knight Frank "curb side" assessment of value by "Tuesday morning 23 May 2000". Knight Frank was requested to provide a cost estimate together with an estimate of timing to provide a "formal registered valuation" which was needed to afford "appropriate protection" to the receivers in selling the Dixon Street property by private treaty. That resulted in a telephone conversation between Lindsay Sturrock (Sturrock) of Knight Frank and Occleshaw of 23 May 2000.

46 Her note of the telephone conversation with Sturrock covered topics such as the then current development approval of the site, its likely value and method of sale. The development approval was noted as current until October 2000 and that under existing zoning the floor space ratio would be significantly less than that the subject of the approval, a fact which was thought to add value to the site. In what appears to be a rough estimate, a fee of $3,750 was canvassed for a "Formal Valn". On "old" floor space ratio bases, a rough calculation suggested a land value of $4,200,000. Sturrock is noted as offering the view that obtaining expressions of interest was the best method of sale as it avoided the setting of a sale price. He anticipated the value would be in the "late $3m/ early $4m". The site excavation costs were treated as "gone". 47 To further the process of obtaining a "formal registered valuation", on 31 May 2000, Weston forwarded the SHP report to Knight Frank, requested confirmation of Knight Frank's costs of preparing a valuation and sought an "estimate of timing". 48 On 19 June 2000 Weston again wrote to Knight Frank noting that the latter was "presently preparing a formal valuation [and that Knight Frank would] provide a verbal valuation by 23 June 2000 and a written valuation by 30 June 2000. With reference to the SHP report, Weston expressed his understanding that Knight Frank's valuation would follow that report in valuing the Dixon Street property "as a development site rather than a hole in the ground". In that facsimile of 19 June 2000 Weston stressed that "time [was] of the essence in [the] matter." 49 A follow up facsimile to Knight Frank of 30 June 2000 conveyed Weston's advice that the matter had become urgent. 50 Knight Frank responded to Watson's letter of 19 June by letter to Weston of 23 June 2000. The timing of the valuation, the nature of the proposed valuation and the marketing strategy recommended by Knight Frank was expressed in the following terms: "As discussed and as you would well understand, the end of financial year is an extremely demanding period for all valuers. However, as you are an important client and we know the urgency of this matter, the associate director of our valuations department, Mr Peter Inglis, is prepared to value the property purely on a per square metre rate on comparable sales. Having considered the current approvals, it is quite clear that the full potential of the proposed development must be assessed. This assessment would be on the basis of a full feasibility study requiring all relevant documentation including DA Approval, agreement with UHL and Ramada, etc. This assessment would obviously require more time and would be carried out by our expert in this field, Mr Tony Owen. Tony would be able to provide you with a complete feasibility, however, he would require until the end of July to provide a full assessment. Due to the current market, a hotel development may not necessarily be the highest and best use, and we may find that a mixed residential/commercial development may yield a higher value. We must however, explore the hotel use to be completely satisfied. Upon receipt of the valuation we will provide our marketing submission which includes:- » Recommended Method of Sale » Stategy » Timing » Target Market » Marketing Budget » Track Record Our marketing submission can be produced within a few days, once we have ascertained the highest and best use, e.g. hotel, commercial or residential use, as the submission will relate to the target market."

51 Sturrock was the author of this letter. He was one of Knight Frank's sales staff. This communication was immediately referred to Susanna Khoury (Khoury) of Phillips Fox, the solicitors for the plaintiff. A meeting to discuss the contents of Knight Frank's letter was proposed for the Friday or the following Monday. 52 A meeting was held on Monday 26 June 2000 at which was present Khoury, Weston, Occleshaw, Sturrock and the valuers with Knight Frank, Peter James Inglis (Inglis) and Tony Owen (Owen). The record of the meeting disclosed that those present discussed the amount owed by Noble House to the first mortgagee and the plaintiff namely $2,800,000 and $2,900,000. Inglis was noted as expressing a "gut feel" that the prevailing market for the property was "not good". The view was attributed to Owen that a hotel was not the "best use in [the] current market" and that the there were "No income guarantees". That appears to be a reference to the fact that management and franchise agreements in place with Noble House provided no such guarantees. Sturrock was noted as estimating a likely value of the property as being between "late $3m/ early $4m", depending on the terms of the development approval and the floor space ratio as approved. 53 Inglis expressed the view that there was "not much current evidence" of comparable development site sales and that, therefore, the exercise would be "subjective". He considered that approaching a valuation only on the basis of the Ramada proposal excluded "other best uses". He was of the view that a valuation of land only could be provided within two weeks. 54 Owen repeated his view that the hotel proposal was "not [the] best way forward" for the preparation of a valuation. 55 Inglis proposed a fee of $4,000 for a valuation of land only, whereas a full feasibility study would require a fee of $8,000. He considered that the excavation work carried out on the Dixon Street property was "worth money". 56 In terms of sales strategy, a "campaign" over six weeks was discussed. Khoury observed that a land valuation was "definitely" needed, but that there would also be needed a letter of cover saying "based on current market not recommended to build hotel". Knight Frank was to provide a critical analysis of the SHP valuation. 57 It appears from the first mortgagee's letter of 27 June 2000 to Occleshaw that the first mortgagee was being kept informed of progress. It is apparent from that communication that the method of sale under consideration was by auction and that the first mortgagee was concerned that sale not be delayed beyond late August. 58 On 28 June 2000 Weston confirmed to Knight Frank the matters discussed at the meeting of 26 June as follows: "As agreed, Peter Inglis will proceed to value the property on a square metre rate on comparable sales and will provide a formal written valuation by 7 July 2000. I note your cost estimate for this exercise remains at $4,000. Upon receipt of the valuation I will be in a position to discuss marketing strategies for sale of the property presently anticipated by the end of August 2000. I also note you will prepare a program for sale which will be available at around the same time as your valuation. In your letter dated 23 June 2000 and as discussed on 26 June 2000, you advised that due to the current market a hotel development may not necessarily be the highest and best use of the property. Accordingly, I confirm my instructions for Tony Owen to prepare a critical analysis of Stanton Hiller Parker's valuation dated 20 July 2000 rather than prepare a full feasibility analysis. I have requested from Stanton Hillier Parker a full copy (including annexures) of their valuation, I will forward a copy upon receipt. I understand the critical analysis will be available by mid-July 2000, however an estimate of cost to prepare same is required as soon as possible." 59 Knight Frank responded by accepting the commission to value the property "by direct comparison only with the market evidence" and undertook to provide an oral advice by 7 July 2001 and a "formal report" by 14 July 2000, in addition to preparing a "critical analysis" of the SHP report for an additional fee of $2000. 60 On 7 July 2000 Knight Frank (Inglis) provided a certificate of valuation with an accompanying valuation report which expressed the opinion that "the current market value of the unencumbered freehold interest in the property assessed on a direct comparison basis with the market evidence and for possible sale purposes, as at 7 July 2000" was $4,000,000. 61 The direct comparison method of valuation based upon evidence of comparable sales was approached as follows: "We approached the valuation as a two-part exercise, firstly to derive the indicative value range before any added value attributable to the completed site works and, secondly, considered the cost of the completed site works and the added value they would give to the property if marketed for sale." 62 In carrying out this valuation eight sales were analysed on a "rate/m² site area, FSR area and rate/unit basis." 63 The most comparable sales were identified as being 361 Kent Street (the Kent Street comparable), 339-345 Sussex Street (the Sussex Street comparable) and 93-105 Quay Street (the Quay Street comparable). 64 The Kent Street comparable was calculated as having a rate per square metre of site area value of $11,642; a rate based upon floor space ratio area, of $754 per m² and a unit rate of $61,765. The development approval was stated to be for 170 units. 65 The corresponding figures for the Sussex Street comparable were $9,264, $1,029 per m², and $103.26 per unit, there being development approval for 155 units. 66 Corresponding figures for the Quay Street comparable were $3,911, $489 per m², and $57, 692 per unit, with development proposed of 114 units. Applying those figures, the following calculations were advanced in relation to the Dixon Street property: " 10.3 Calculations We consider the above three sales show the general value range applicable and, based on this evidence and other less significant sales included in our analysis, we applied a deduced rate range of $5,000 to $5,500/m² of site area, equating to a value range of $3,195,000 up to $3,514,500. On a potential FSR area basis we applied a rate range of $700 to $725/m² equating to $3,578,400 to $3,706,200. On a rate per unit site basis we applied a rate of $70,000 per two-bedroom unit to a proposed development of 51 units, equating to $3,578,400. In addition, we assessed the indicative value range based on the approved Development Approval FSR area of 5,724m² and 118 apartments. On this assumption our value ranged between $4,006,800 up to $4,130,000. The above approaches showed a market value range before any added value of the completed site works of $3,195,000 up to $4,149,900." 67 To that range Knight Frank allowed an added value for completed site works of $500,000 based upon assumed actual construction costs of approximately $1,400,000. The "current market value of $4,000,000" was said to equate to $6,260 per m² of site area, $782 per m² of floor space ratio area "excluding the existing approval or $699 per m² of (floor space ratio area) in accordance with the approved Development Application". 68 The valuation had been preceded by an "indicative market value assessment" by Knight Frank in its letter to Weston of 7 July 2000 in which the opinion was expressed that the "current market value of the site, ignoring the existing development approval and based purely on a direct comparison of the available market evidence, as at 7 July, [was] $3,800,000". 69 Both the valuation report and a marketing submission by Knight Frank were tabled at a meeting of the office of Phillips Fox on 14 July 2000. On the same date Watson forwarded a copy of the valuation to the first mortgagee. 70 The marketing submission favoured the sale of the property by means of an "Expression of Interest campaign". The view was expressed that the property would appeal to "a range of potential purchasers including commercial and residential developers, hotel operators and property traders". It was further observed that the offering of the property "as having a high level of permissible uses [would] attract the widest range of enquiries and [would] result in maximum participation and competition." "Strong demand for the offering" was expected. 71 The submission covered the advantages of the proposed method of sale amongst which was the encouragement of interested parties to carry out their investigations within a specified time frame. 72 Consideration was given to the impact of the Olympic Games and it was suggested that the advertising campaign be divided into a preliminary campaign to commence in late August and the main campaign commencing immediately after the closing of the Olympic Games. 73 By facsimile of 21 July 2000, Knight Frank forwarded to Weston their critical analysis of the SHP valuation. The purpose of the analysis was described in that letter as follows: "We understand the purpose of this assignment is to consider the relevance of the SHP valuation at this point in time and to determine the added value to the site from the Development Consent from Sydney City Council for a proposed hotel and the hotel Management Agreement to Ramada International." 74 Notwithstanding that description, it was observed that it was "not part of [Knight Frank's brief] to comment on whether the value assessed by [SHP] was considered correct or incorrect." However, Owen considered that as the proposed hotel had not been completed prior to the Sydney Olympics, the SHP evaluation was 'largely irrelevant'. Any relevance of the SHP valuation was considered in the following context: "While the central location and close proximity to Chinatown, the Central Business District and Darling Harbour make the site well suited for hotel development, in the current over supplied Sydney market, we consider it unlikely the site will be aggressively sought for hotel development". 75 It was considered that the Sydney market would take "some time" to absorb the growth in hotel development. The oversupply was described as a "massive supply imbalance" such that "Sydney [was] unlikely to see any new hotels in the next two to three years, simply on the basis of inadequate financial return". It noted that the agreements involving the Ramada franchise "did not involve any income guarantees". While it was considered that the interest of Ramada could be regarded as "a vote of confidence", it was thought that it did little to "dispel the considerable risk to a developer looking to build a hotel in the current over-supplied environment." 76 The conclusion was reached "that the agreement with Ramada [added] little value to the site". While there remained the possibility that a major hotel chain might be attracted to the site, it was not considered "that the approved use of the site as a hotel would add a premium to the site's value over and above the price that either a residential or office developer would pay for the site." 77 Towards the end of July, Sturrock left the employment of Knight Frank and his place was taken by Matthew James Cook (Cook). 78 On 4 August 2000 Weston informed Knight Frank of their appointment as agent for sale in conjunction with another agent. The letter of appointment confirmed acceptance of the proposed method of sale by expression of interest. The proposed marketing timetable by Knight Frank was set out in a facsimile to Occleshaw of 14 August 2000 which included most details. It provided for closing of tenders on 9 November 2000. 79 On 15 August 2000 Weston engaged Jones Lang LaSalle Hotels NSW (Jones Lang) to value the Dixon Street property "on a per square metre rate on comparable sales" basis. Jones Lang provided its valuation on 28 August 2000, valuing the property at $3,200,000. The opinion was expressed in the valuation report that the Sydney market had reached a stage where hotel development had "effectively ceased" but where "continued development of serviced apartments was occurring at the expense of traditional hotel accommodation." Jones Lang considered that "the lack of development sites within the Sydney Central District [had] seen strong demand for sites demonstrating good development potential and locational characteristics". 80 Four comparable development site sales were examined, one of which was the Quay Street comparable. The comparables were analysed on a square metre of floor space ratio basis as reflecting values between $382 to $997 per square metre. The Quay Street comparable was said to reflect a sale price of $438 per square metre. This may be compared with the figure of $489 calculated by Knight Frank in their valuation. I think the difference lies in the allowance of floor space ratio 9:1 in the Jones Lang calculation, whereas on my calculation Knight Frank allowed an 8:1 floor space ratio. 81 The rates per square metre of site area were calculated as reflecting values ranging between $3,578 and $7,979. The Jones Lang valuation stated that they had "derived a value for the subject property on a rate per square metre basis of $5,000". The basis upon which that derivation was made was not stated. The valuation, so estimated was rounded off at $3,200,000. 82 The first advertisement in the Sydney press offering the property for sale occurred on 7 October 2000. A marketing report was furnished by Knight Frank to Weston on 9 October 2000. They reported that the advertisement had generated five enquiries and had been preceded by a "brochure mail out…to 1,261 individuals within local and international development and property companies": that a site board had been erected and arrangements made for listing the property on the internet. As at the date of the report there had been a total of sixteen enquiries received. They included Chan, on behalf of Wispform. Ramada was also amongst those listed as having made an enquiry. 83 Prior to the commencement of advertising, Phillips Fox, on behalf of the plaintiff, made a demand on the defendant pursuant to the guarantee. The response by the defendant's solicitors, Nash O'Neill Tomko Lawyers, by facsimile of 11 October 2000, is not without some relevance to the position taken by the defendant in these proceedings. So far as is relevant the facsimile was in the following terms: "Since demand was made of him our client has engaged the services of Access Corporation to assist him in raising monies necessary to pay out the call on the guarantee. You will appreciate that a substantial sum of money has been called upon and trust your client will appreciate that our client does not have that sort of cash in the bank to simply write out a cheque. Equally he does not have sufficient assets in his name which would enable him to raise the money personally and it has been necessary for him to approach certain companies related to his family to ascertain whether they can assist in the financing. Your client will appreciate that if monies are available from such a source they would not be monies which would otherwise be available to your client. Your client will also appreciate that if money can be raised in this way it will be necessary for our client to stand behind any borrowing. … If proceedings are commenced by your client then those proceedings will no doubt be noted on our client's CRA. If that occurs then it will become substantially more difficult for our client to obtain the finance necessary to meet the demand and reduce our clients (sic) prospects of being paid (regardless of where (sic) it is able to obtain judgment - as referred to our client does deny that your client would be so entitled). In these circumstances we are instructed to ask your client to consider withholding the commencement of proceedings to enable our client the opportunity to continue with his efforts to raise finance. Finally, we would be grateful if you would confirm that if our client is able to raise money necessary to pay out the call your client will assign to our client all of its security interests and that it will take such steps as are necessary to ensure that the appointment of the receiver and the marketing and sale of the properties is continued under instructions from our client. While our client does have statutory rights in relation to his rights of subrogation, in our experience the co-operation of the original security holder can assist in this process."

84 I draw from that facsimile that the defendant could not satisfy the demand under the guarantee from his own assets and those of corporations in which he held a beneficial share interest: that, in effect, he expressed interest in paying out the mortgage debt: that raising sufficient funds from other than his own resources would require time: that the institution of proceedings would jeopardise his ability to raise such finance and finally, that he was interested in the continued marketing and sale of the Dixon Street property. 85 Most of those assertions are in strong contrast with the position adopted in these proceedings by the defendant. 86 The second report of Knight Frank of 17 October 2000 noted that they had received a total of thirty eight enquiries which included a request for a contract from Peter Carkigas (Carkigas) of the firm of solicitors, Heidtman & Co, who were acting on behalf of an undisclosed party. Carkigas, in fact, was acting for practical purposes, on behalf of the defendant. Of those who had made enquiries in relation to the property, three were described as "A Grade prospects" by Knight Frank. They included Carkigas and Chan as representing an "unsecured creditor consortium, who [had] aligned themselves with … Ramada…" 87 An article appearing in the Australian Financial Review of 17 October 2000 linked the liquidation of Noble House with Ramada's interests in Australia. The article contained information about the acquisition by Noble House of the Dixon Street property for $3,200,000 in 1998. It reported that Noble House had "forked out an additional $1,000,0000 in initial development costs" and that the secured creditors were "collectively owed around $6,000,000". It concluded with the opinion that around "$4,000,000 would likely secure the site, with the proposed development to run to an end value of around $30,000,000." 88 Prior to the approval by the plaintiff of the form of the tender and contract, the draft of those documents was forwarded to Carkigas on 30 October 2000. 89 On 23 October 2000 the defendant called upon Westpac Banking Corporation (Westpac) in the company of Robert Andrew-Smith (Andrew-Smith), a finance consultant engaged in the "business of raising funding on a domestic and international level for clients through the provision of project finance, bank guarantees, insurance bonds, securitisation, equity partners and direct debt raising." 90 He was a person with significant experience in the field of corporate finance. His experience was recognised by his election as president of the Mortgage Bankers Association of Australia and of its New South Wales council. He had been a member of the New South Wales Government Steering Committee to establish First Australian National Mortgage Acceptance Corporation. 91 It was his evidence that he had been approached in late July or early August 2000 by the defendant to assist him in raising finance to enable purchase of the Dixon Street property with instructions that he "wanted to ensure that he was able to purchase the Dixon Street property for no less than $6,000,000". Although he was not cross examined on this matter, it is difficult to reconcile this evidence with the contents of the letter of the defendant's solicitors of 11 October. Moreover, Andrew-Smith's evidence was to the effect that the task of "raising finance" which he addressed was that of raising finance from the defendant's resources. 92 On the face of it, this evidence is also at odds with the information recorded as being provided by the defendant to Westpac on 23 October 2000. 93 The Westpac file note of 23 October 2000 recorded the visit to the defendant "to advise the …. update" as set out in the file note. The update included the following in relation to the Dixon Street property:

" Noble House - Sydney Property Development - (Receivers and Managers Appointed) · Property is due to go to tender 9 November 2000, with the R & M for the second mortgagee to control. · 1st mortgage is simply awaiting the outcome of the process. · Smith's plan is to endeavour to delay this process pending trying to put some investors together to tender for the property at around $6.0m. This is the amount required to extinguish Smith's liability to both the first and second mortgagees (other interested parties ie vendor/ other unit holders must not have any direct recourse to Smith). · If successful, the new "syndicate" will hopefully have enough other capital to progress the project (hotel proposal now to be inner city apartments). · Should their tender be unsuccessful, then the sale price should exceed Smith's liability and the property will simply be sold to the other party leaving Smith to walk on this asset."

94 The defendant was not questioned as to the implication nor meaning of the note that "other interested parties ie vendor/ other unit holders must not have any direct recourse to Smith". 95 Nor was the defendant cross examined upon the recorded tactic of delaying the process of sale by tender. The exercise of "trying to put some investors together" appeared to be far from reaching fruition. It is also noted that the objective of tendering "at around $6.0M" was geared not to the value of the Dixon Street property, but to the amount required to extinguish the defendant's liability. 96 There is no suggestion in this file note of the defendant being the true purchaser of the Dixon Street property through a nominee company, funded by companies which the defendant controlled. 97 It is not without significance that a Fenning requirement of funding of $500,000 to satisfy short term cash flow requirements was not supported by Westpac: one of the reasons being the commercial uncertainty of Fenning's future. In general, this file note is at odds with the defendant proposing to raise funds through companies controlled by him for the purpose of acquiring the Dixon Street property. 98 The content of the file note of 23 October may also be put in the context of documents produced by the defendant on discovery and as itemised in the evidence in chief of Weston. They were the following: (a) a loan application of 18 September 2000 by Fenning to the Australia and New Zealand Banking Group Limited (ANZ) for $5,000,000. This may be related to the entry in the Westpac file note under the "Fenning" heading as follows: "Financial Advisor present is looking at the overall proposal for funding and sought whether the Bank would be interested (Apparently the ANZ has been approached)."

(b) a letter of interest dated 22 September 2000 from Scottish Pacific Business Finance to Fenning in respect of a facility in the sum of $3,000,000.

(c) a loan application by Sunset investments Pty Ltd (a Fenning company) dated 26 October 2000 to Commonwealth Bank of Australia Ltd for $1,2000,000.

(d) a loan application by Kalamata dated 1 November 2000 to the Commonwealth Bank for $5,500,000.

(e) a letter of interest dated 17 November 2000 from G E Capital Finance Pty Ltd to Fenning in relation to finance up to a limit of $8,000,000.

(f) a further letter of interest dated 21 November 2000 to Fenning from G E Capital Finance for finance, also to a limit of $8,000,000.

(g) a loan approval by Howard Mortgage Trust dated 24 November 2001 to Kalamata in the sum of $2,163,000.

(h) a loan approval by "CBC" dated 1 December 2000 to Kalamata for $2,250,000.

(i) a loan approval by Access Corporation dated 5 February 2001 to Kalamata for $1,450,000.

(j) a letter of commitment dated 9 February 2001 by G E Capital Finance to Fenning for finance up to $7,600,000. 99 Having regard to the period over which the negotiation for finance took place involving defendant controlled companies, particularly having regard to the loan application to ANZ in September for $5,000,000 and the letter of commitment of GE Capital Finance of 9 February 2001 to Fenning for finance up to $7,600,000, together with the earlier letters of interest provided by that financial institution, the inference one could draw from the file note of Westpac in relation to Fenning's affairs was that those applications related to the future commercial directions proposed to be taken by Fenning, independently of the defendant's concern as to his personal exposure under the guarantee. 100 The description of the Fenning commercial position as at 23 October 2000 as provided to Westpac included the following: "Business still very much in a growth stage. …

Has a great opportunity to acquire (tender made) a source of pine which will see the connection covered for soft wood for the next 20 years. This is a completely new market for Fenning (historically hardwood) and will require substantial restructuring and additional Plant & Equipment." 101 There then followed the reference to the approach to ANZ in relation to an overall proposal for funding. 102 The next report of Knight Frank of 26 October 2000 noted that contracts had been forwarded to four parties, including Carkagis and Chan and that a total of fifty-five enquiries had been received as a consequence of the marketing program undertaken. To this point I understand no criticism of the sale process is levelled at the plaintiff by the defendant. 103 On 27 October 2000 Carkagis, by facsimile to Phillips Fox, informed them that his client "had engaged a marketing company to put together a feasibility" and that his "client [perceived] that more time [would] be needed to conclude its feasibility and arrange funding facilities". On that basis, Carkagis requested an extension of the closing date for the submission of a conforming tender to 24 November. It is difficult to disassociate that request with the information conveyed by the defendant to Westpac at the meeting of 23 October 2000, to the effect that the defendant proposed to adopt a delaying tactic in relation to the tender process. 104 In Knight Frank's market report of 26 October 2000 amongst the fifty-five enquiries noted in that report, reference was made to the interest expressed by Kimberly through its representative, Marti Stoliar (Stoliar). In relation to that interest it was reported as follows: "He has indicated that he would be prepared to pay $4.3M prior to the Tender close. We have indicated that we did not believe that it would be accepted, but that if he chose to submit an offer then we would present it to the Receiver. He may therefore make an offer to acquire the site prior to the Tender date, possibly directly to yourself." 105 According to the evidence of Weston, he was approached by Stoliar immediately thereafter and a meeting took place between them on 27 October, at which Stoliar made an offer of $4,250,000. Stoliar had with him a bank cheque for $425,000. The offer was unconditional, save for a rider that, if it was not accepted, any tender for the property by Kimberly would be "for a much lesser sum". Weston's response was to say that if Stoliar could "come up to $4.5M, [the receivers] may be able to do a deal". 106 Weston, in cross examination, agreed that Knight Frank's report of 26 October foreshadowing this offer came "no more than three days after the invitation to tender documents became available" to interested parties. 107 There was a further communication from Stoliar, this time by telephone to Weston on 30 October 2000, in which he offered $4,500,000, provided that contracts were exchanged prior to the close of tenders. 108 Before accepting this offer, it was Weston's evidence that he checked with Cook regarding the level of interest of other tenderers and that, in response, his was informed that tenders and draft contract documents had been issued to six parties and that preliminary discussions with them indicated that they were "talking figures around the $4,000,000 and … [that Cook had] the impression that offers may be closer to the $3,000,000." 109 Cook's evidence concerning the events surrounding the acceptance of Stoliar's offer is that he was requested by Weston to ascertain the level of interest in parties to whom draft contracts had been forwarded. He confirmed Weston's evidence that the responses were such, as he conveyed to Weston, that he considered it unlikely that there would be any offer in excess of $4,000,000 and that he thought offers may be closer to $3,000,000. In relation to his enquiry of Carkagis, it was his recollection that Carkagis had responded to the effect that his client would not be in a position to submit a tender because of the lack of time available to him. 110 On 30 October 2000, prior to receipt of this offer of $4,500,000, Occleshaw had a telephone conversation with Khoury in which instructions were obtained to proceed with Stoliar and to accept $4,250,000 if an offer of $4,500,000 could not be obtained. The instructions were to accept the Kimberly offer "asap". The note of the telephone conversation contained the following: "caveat » confident that he can complete & not connected with Trevor Smith. If others come into knowledge of quick sale there may be caveats [therefore] retire as R N & Appoint Mortgagee in Possession." 111 That note of the telephone conversation has a later note recorded on it that agreement had been reached at $4,500,000 with a request by Stoliar to "sign off today", which I have taken to refer to 30 October 2000. 112 The evidence of Weston was that he had no instructions to the effect that he should not deal with the defendant. However, I think the note which reads: "caveat» confident that he can complete and not connected with Trevor Smith" is a clear statement by the plaintiff's solicitor that the acceptance of Stoliar's offer was only on the basis that it was not an offer connected with the defendant. 113 During the course of submissions by counsel for the defendant the following exchange occurred: "PARSONS: That's one view of it, your Honour, but document 60, page 297, there appears a curious note of a message received from Phillips Fox in the office of the receiver "caveat confident that he can complete and not connected with Trevor Smith" and in my submission that suggests that Mr Smith's concerns were not all that ill-placed, that there is an undercurrent here, notwithstanding what Mr Weston has said.

HIS HONOUR: I wouldn't have regarded that as, say, an indication of bad faith. They'd had a pretty unfortunate experience with Mr Smith and it wasn't just a case of the advancing of the funds without referring to anybody but not having the funds repaid and I don't know that I'd have found much room for criticism of the mortgagee if it was cheery (sic) about dealing with him on this tender exercise.

HIS HONOUR: So are you saying that that is what the case was, that that file note evidences that very fact? PARSONS: That his concerns were well-founded and he was, therefore, wise to not reveal before tender his connection with any particular tender because that--

HIS HONOUR: But are you saying it was open to me to infer that the mortgagee did have reservations about dealing with him?

PARSONS: Yes, your Honour, certainly open to find that on this note. Certainly--

HIS HONOUR: Well, if I found that wouldn't that downplay the value of any proposition from him? PARSONS: Once the tender was in play the rules would be different. Also, your Honour, Mr Weston has said to your Honour in evidence that he would not have been overborne on that issue. He says that he would have judged it fairly and objectively.

PARSONS: Even though his general evidence was that he looked for and acted on instructions from his point or he was steadfast in saying that he would have dealt with this independently on his own judgment and that perhaps is quite credible…"

(T187:21-T188:11) 114 Weston was extensively cross examined on the prudence of his acceptance of the offer of $4,500,000. He acknowledged that, by accepting the offer and by terminating the tender process, he deprived Noble House and the defendant of the benefit of competition amongst other interested parties. He rejected the proposition that Kimberly's offer could have been canvassed with those other parties, on the following basis: "A. We formed the view, we being myself and Knight Frank, that we should not be going back to the other interest groups and trying to run a type of dutch auction, as it is called, and get further bids. We believed that that would lead us to a point where we would lose Mr Stoliar's interest or offer - he would withdraw his offer." (T90:28-T90:33) 115 He did not agree that in the first contact with Stoliar it was unwise to suggest that $4,500,000 might secure the property on the following basis: "A. The intelligence I received back from Mr Cook and the valuations that had been provided to us in relation to the property and also the fact that, as you point out, there was - someone had released in the market place from some unknown source that a figure in the order of 4 million dollars was the likely get-out on the property or sale price on the property." (T91:23-T91:29) 116 The reference to the "release in the market place" of a likely sale price of $4,000,000 is a reference to the article in the Australian Financial Review earlier referred to in these reasons. He accepted that he was "very keen to close a deal with… [Kimberly]". Weston was of the opinion that a price above $4,500,000 dollars was "unrealistic" on the basis of valuations received and "discussions with Knight Frank about the property and what we thought it might go for… based on experience … specifically Knight Frank because that was their business." (T92:25-T:43) 117 The instructions received from Khoury to accept $4,250,000 if $4,500,000 could not be obtained, he said, was in accordance with his recommendation as appears from the following cross examination: "PARSONS: Q. Instructions were then sought through Phillips Fox, were they not, by your office? A. I had made recommendation to Phillips Fox in relation to the Nati Stoliar Kimberly Securities offer and I was awaiting for approval to proceed on that basis. So if they're instructions, that's instructions.

Q. The recommendations that you are talking about having made and the step that you were contemplating was very significant, was it not, in the disposal of this asset? A. Yes.

Q. You realised that at the time? A. Yes?

Q. Do you say that you put your recommendations in writing to Phillips Fox? A. I don't recall if I did. … Q. The instructions were to try to get 4.5 million but if you couldn't to accept the 4.25 million as soon as possible? A. That is correct. That was in line with my recommendations.

Q. I'm sorry if I am being repetitive, can you recall having a conversation in which you made those recommendations? A. Yes. Q. To NTI? A. No, not to NTI?

Q. For the purposes of NTI? A. Yes.

Q. When was that? A. That would have been very shortly after the meeting that I had with Mr Stoliar. I believed we needed to move quickly to secure the sale with Mr Stoliar - time was of the essence. Q. Why was time of the essence? A. Because Mr Stoliar had indicated that he did not want to tender and that the closing date for the tenders was approaching. We wished to ensure that if we were going to change tack and withdraw the tender, that we gave people as much notice as possible in relation to that and that we could get Mr Stoliar's agreement and all parties including NTI's agreements to process as quickly as possible. At that stage we were a week or so out from the - sorry, a bit more than a week from the close of tenders.

Q. Yes. A bit less than a week into the period during which people had tender documents? A. Something like that, yes." (T93:17-T93:34… T93:56-T94:36) 118 As to the suggestion that he had negotiated too low a price Weston gave the following evidence: "Q. At that time, did you think that you might have pitched your price too low? A. No, I did not. Rather to the contrary, I was pleased with the result.

Q. You were pleased to have a sale? A. I was pleased with the price, yes.

Q. The promptness with which Mr Stoliar accepted your counter-offer suggested, did it not, that he was very happy to have the property at the price of 4.5 million? A. I had suggested to Mr Stoliar that his previous offer was a bit low and that he - that an offer of around 4.5 million would probably see a deal proceed, so he had a few days to think about it. So to say it was a prompt response, it is a prompt response in relation to my conversation with him that day but I had already discussed that figure with him on an earlier occasion." (T95:22-T95:39) 119 A strategy of retirement of the receivers on 2 November 2000 and the appointment of Weston as an agent to exercise the plaintiff's powers as mortgagee in possession, principally to execute the contract of sale to Kimberly, was explained by Weston as follows: "…A. We embarked upon discussions with Phillips Fox on a strategy to prevent the possibility of someone interfering with the Smith sale.

Q. When you say "we"? A. Ourselves and Phillips Fox.

Q. Right, but with "ourselves", who are you speaking of? A. Myself and or Liz Occleshaw. I also discussed these issues and kept my co-appointor Neil Cussen appraised of what was happening of course.

Q. When you say that "we" did something, in respect of Howarths, you are really talking about you, aren't you? A. Myself and Liz Occleshaw.

Q. But she was your assistant? A. That's correct.

Q. So it was you who embarked upon that strategy to stop somebody spoiling the sale? A. Yes.

Q. What did you do? A. We had discussions - I had discussions with Phillips Fox in relation to the possibility that someone may try and lodge a caveat on the property or otherwise provide and prevent the sale going ahead with Mr Stoliar.

Q. Just on that point, the basis of your apprehension that any such thing might happen, was that something that you yourself apprehended or something that was brought to your attention from somewhere else? A. I have had experience on people trying to upset sales in the past in receivership matters and we have taken strategies to try and prevent that from happening. It was something that I was aware of that could happen? Q. From what quarter was it feared that such an attack might come in this case, by you? A. I'm sorry? Q. From what quarter was it feared, by you, that such an attack might come in this case? A. I was concerned that Mr Smith may try and prevent the sale. I was concerned with the possibility that other parties may - that were interested in the property - may try and prevent the sale, particularly there were quite a number of creditors of the company, Noble House, that may try and upset the sale. And my recollection was that Mr Chan, I think it was, had some belief that he had some proprietary rights or interest in the property which had not been demonstrated but still in conversations with him he believed that he may have some rights there, so we were concerned that any one of those parties and even unknown creditors who were aggrieved by the sale process, because they may not be receiving or would not be receiving any of the surplus funds, may try and prevent the sale?

Q. The only basis upon which someone in that category would be trying to upset the sale would be that they were looking to spend or pay more money than the sale price for the property; that would be true to say? A. I don't agree.

Q. You thought that prospective tenderers might try to spoil the sale even though they were not prepared to offer more money? A. That is always a possibility, yes. In a receivership matter of that nature it is always considered to be a possibility. … Q. But you were determined, were you not, to act in accordance with your appointors' instructions and sell to Mr Stoliar? A. I was determined that we should be selling to Mr Stoliar. As I aid before, it was my recommendation. I did not know what my appointors thought about that prospect at that time until they came back to me with the advice on 30 October but I was quite sure that we should be selling to Mr Stoliar at the 4.25 or if we could get him up to 4.5 million dollars."

(T96:27-T97:26…T97:36-T97:47…T98:15-T98:24) 120 In the light of the information given by the defendant to Westpac at the meeting of 23 October and Carkagis' request to extend the closing date for tenders, this concern of the receivers may not have been misplaced. Weston gave the following evidence in cross examination on his response to Carkagis' request for an extension of time: "…A. I did not respond directly to Heidtman & Co, no.

Q. Did you respond to anyone? A. Yes, I responded.

Q. By what method did you respond? A. By telephone discussion I recall having with Phillips Fox not to extend the tender date?

Q. Right. Why was that? A. We wanted - we didn't want any interference with the program of sale. We were very mindful of the need to try and get a sale up within as quick a timeframe as possible and did not wish to delay it further. There were pressures coming from a cost point of view and also in terms of the first mortgagee. Q. What was that pressure from the first mortgagee? A. Pressure from the first mortgagee was to try and effect a sale as quickly as possible.

Q. The first mortgagee had accepted the sales method that you had adopted, had it not? A. Yes, they did.

Q. And the first mortgagee had been informed that there was going to be a tender with the closing date of 9 November? A. Yes.

Q. And was aware of the basis on which the tender was to proceed? A. Yes?

Q. And had raised no specific objection to any of that? A. No, they didn't. They were, however, reasonably hard to convince of the process. Q. But you managed to convince them and they agreed to it? A. Yes.

Q. And that was all agreed before it was ever put in place; true to say? A. Yes.

Q. Was it the case that the pressure which you speak of to the effect of "get a sale up" played on your mind in your dealings with Mr Stoliar? A. Yes.

Q. So far as you were concerned, the pressure for a quick sale was coming from your appointor; that would be true to say, would it not? A. There was pressure there to get the sale done, yes.

Q. To get it done quickly? A. Yes. Q. As soon as possible? A. As soon as possible."

(T100:24-T101:23) 121 Given that the debt to the plaintiff had fallen due in February 2000, the sense of urgency may be seen as not unreasonable. 122 It was contemplated by Weston that, if the Kimberly offer was rejected, he could be faced with the situation where no tenders were received, as appears from the following: "Q. Sorry, why do you put that qualification on your answer "if people tendered"? A. If people tendered. There's no certainty that there will be tenders received.

Q. No absolute certainty-- A. Yeah, that's right.

Q. --but in this case that wasn't a consideration, was it, for you? A. It's always a consideration.

Q. In making a judgment on the situation, that would have been a highly unlikely event, would it not, from where you stood towards the end of October 2000? A. I didn't rule out the prospect that nobody would tender. Q. So does that mean that you are saying that the prospects for the tender didn't look good? A. No, that - what I'm suggesting is that there was every prospect that people would not tender.

Q. You'd received information, had you not, that prospective tenderers were even prepared to give some inkling of what they were thinking about tendering to your real estate agent? A. Yes.

Q. You don't seriously say, do you, that by 1 November, say, that you seriously thought that you may receive no tenders? A. I did.

Q. As a likelihood? A. As a likelihood. It's always a likelihood that you will get no tenders. Q. Do you mean as a likelihood or as a possibility? A. A possibility.

Q. The likelihood was, was it not, as things were at that time that you would receive tenders? A. We were quite hopeful that we would, yes.

Q. You were more than hopeful, you were confident, weren't you? A. No.

Q. Is that a serious answer? A. That is a serious answer.

Q. What, with all the signs that were shaping up at that time, you were afraid that you'd receive no tenders, is that right? A. That's correct.

Q. Even Mr Stoliar had said that he'd participate in the tender with his negotiations with you, had he not? A. My recollection is that he said he may participate in the tender.

Q. That was encouraging, wasn't it? A. There was lots of encouragement there.

Q. All the objective signs were that there would be tenders, you'd agree with that, wouldn't you? A. Yes." (T109:15-T110:23) 123 I am satisfied that Weston entertained no doubt that the offer of $4,500,000 was the best price he was likely to obtain for the property: that if the offer of Kimberly was rejected it may not be repeated and that there was a possibility that he could be faced with receipt of no tenders for the property. 124 I am also satisfied that Weston had a reasonable basis for reaching that conclusion given the grounds for his opinion as quoted in these reasons. 125 I found Weston's evidence unsatisfactory only in the respect that I am satisfied that he had a very poor recollection of events. He had done little, it seemed, to refresh his memory by a careful of examination of contemporaneous records. In that respect he may have had some excuse, in that the evidence indicated that his file had been taken from him, presumably for the purpose of discovery. Even so, the number of "can't recall" answers in his cross examination was quite surprising. I expressed as much, when he could not recall whether Knight Frank had been able to provide a valuation in terms of Weston's letter to Knight Frank of 19 June 2000. The evidence to which I refer is as follows: "Q. You were looking, were you not, as at 19 June, in letter document 10, for a valuation which was based upon a similar philosophy, if you like, to the Stanton Hillier Parker valuation report which you had; true to say? A. Yes.

Q. And their response to that request in the letter of 19 June was that they would have some trouble doing that because the end of the financial year was an extremely demanding period for all valuers? A. I seem to recall that was one of the reasons, yes.

Q. Ring a bell? Have a look at document 12, please? A. Yes, I agree.

Q. That was Lindsay Sturrock who was the marketing manager of sales writing to you? A. Yes.

Q. And he said that having fully considered the strategy it was his opinion that certain matters had to be considered and then went on to say that they had insufficient time to do the valuation other than purely on a per square metre rate on comparable sales, true to say? A. Yes.

Q. When you read that letter that is the way you understood it? A. Yes.

Q. That's all they could do for you but they were stretching because you were an important client? A. Yes.

Q. Went on to say that they couldn't fulfil the request which you had made in the 19 June letter, that it was quite clear to them that full potential of the proposed development must be assessed, yes? A. Yes. Q. And that that would be on the basis of a full feasibility study requiring all relevant documentation including the DA and various agreements, yes? A. That's what it said, yes.

Q. That would take more time? A. Yes.

Q. Mr Tony Owen would do that? A. Yes.

Q. But wouldn't be able to until the end of July? A. Yes.

Q. That full assessment was never obtained, was it? The full assessment that is referred to in that paragraph was never obtained, was it? A. I don't recall.

HIS HONOUR: Q. I am surprised at that answer. I would have thought in light of the issues raised in this matter you would have refreshed your recollection about what steps were taken in effecting the sale. You have not done that? A. I have to the extent possible, your Honour.

Q. What does that mean? A. I reviewed the documents that I had in my possession.

Q. Yes, but you recall the Knight Frank letter that Mr Parsons has drawn your attention to, do you? A. Yes, I do.

Q. And that you can't recall one way or the other whether an evaluation such as they were speaking of was done or not done? A. I do not recall whether the full valuation was provided to me before or after the assessment, before a full assessment was done. I don't recall." (T57:01-T58:19) 126 However I am equally satisfied that Weston gave his evidence to the best of his recollection. He showed a willingness to make concessions throughout his evidence, without any indication of prevarication.

127 Before exchanging contracts with Kimberly, in accordance with instructions from Phillips Fox, Weston satisfied himself that Kimberly was in a position to complete the contract. He did this by obtaining from Kimberly a copy of their financial statements and of a spreadsheet used by Kimberly in announcements to the Stock Exchange for the period ended 30 June 2000 and which indicated a "net equity position of some $6.3M [and an] underlying market value … in the order of $21.1M [which converted into] … an "effective" net equity position in excess of $40M", after taking into account "subordinated related" party loans". 128 Following upon the exchange of contracts with Kimberly, Cook contacted the parties to whom an invitation to tender had been issued to inform them of the sale of the Dixon Street property. He recalled that he had telephoned Carkagis on 3 November 2000 and was informed that Carkagis was not available. He left a message for Carkagis to return the call, but no call was received. 129 Cook followed those telephone calls with a letter of 6 November 2000 confirming the fact of sale. It was the evidence of Cook that it was not until 16 November 2000 that he received a telephone call from Carkagis enquiring about the outcome of the tender submitted on behalf of his client. Cook's response was that he knew nothing about such a tender, that the property had been sold and he had notified Carkagis of the sale. On checking the tender box, Cook found a tender made by Secured Capital Investments Pty Ltd (Capital) in which Andrew-Smith was given as the contact reference. The tender was for $6,000,000 and, in effect, was made on behalf of the defendant, or, at least, on his instructions. 130 Accompanying the tender was a letter from Carkagis to Knight Frank, attention Cook, dated 9 November 2000, in the following terms: "We confirm we act for Secured Capital Investments Pty Ltd. Our client has been working on the submission of a Tender for the purchase of the above described property for a period of over two months. Notwithstanding that our client requested an extension of time, we were disappointed to have been advised that the receiver has accepted an offer prior to the closing date and has exchanged contracts. Our client has worked diligently on this matter and is willing to offer a purchase price of $6,000,000.00. On that basis, we are instructed to forward to you copies of the Form of Tender and counterpart Contract duly completed and executed together with the a (sic) photocopy of the cheque in the sum of $60,000.00 in payment of the preliminary deposit as evidence of our client's commitment to this matter." 131 The terms of that letter confirm that Cook's letter of 6 November had been received by Carkagis, which is consistent with Cook's evidence that, in his conversation of 16 November 2000 with Carkagis, he informed the latter that the property had been sold, and that Carkagis had been notified of the sale; a matter which Carkagis, on Cook's evidence, did not deny. 132 Cook's response to the receipt of the tender documents from Capital was to pass the information onto the 'Receiver', presumably referring to Weston, and to make a telephone call to Carkagis, informing him that the property had been acquired by a 'trader': that Capital's offer represented a premium and that it was open to that corporation "to put an offer in writing to Kimberly". 133 It was the further evidence of Cook that between 17 November and 23 November 2000 he made several phone calls to Andrew-Smith to pass on the information that he had given to Carkagis and that, on no occasion, was he able to speak to Andrew-Smith and, despite leaving messages for the latter to call him, Cook received no return phone call. 134 The tender accompanying the letter of 9 November 2000 was the first time that Cook had received notification of an interest to purchase by Capital. The form of tender is not without significance. A conforming tender required provision of details of guarantors for an unlisted corporate tenderer. Capital's tender provided no such details. A bank cheque was not included with the tender. Instead, a photocopy of Capital's Investments cheque for $60,000 drawn in favour of Noble House accompanied the form of tender. Andrew-Smith was described as the only director, secretary and shareholder of the tenderer. 135 The tender conditions, as set out in the invitation to tender, included the following: (a) all tenders were required to be made in accordance with the tender conditions, with the closing date being 5pm Thursday 9 November 2000.

(b) the tenderers were required to note that the vendor reserved "certain important rights" which were set out in the "Tender Conditions".

(c) cl 3.1 provided as follows: "A Tender must be in the Form of Tender completed in accordance with Clauses 3.3 and must be accompanied by the requirements specified in Clause 3.4."

(d) cl 3.3 stipulated the things that must be completed in the form of tender and that included guarantors where applicable.

(e) cl 3.4 stipulated that the tender "must be accompanied" by a bank cheque for the preliminary deposit of 1% and where the tenderer was an unlisted company or trust it was required that a form of guarantee be completed which was "consistent with the Form of Tender." The vendor was entitled in its absolute discretion to waive strict compliance with the terms of the invitation to tender and to consider a non-conforming tender (cl 3.5).

(f) while alternative proposals could be submitted, they were required to be accompanied by a conforming tender (cl 3.6).

(g) cl 6.1 provided that except as expressly provided by the invitation to tender no legal rights were created with the tenderer until acceptance of the tender.

(h) cl 6.6 precluded a tenderer from withdrawing a tender until the vendor had either accepted or rejected it. That provision could not be read literally.

(i) cl 6.7, in light of the Trade Practices Act cause of action, is a provision of some significance. It was in the following terms: "6.7 The Vendor's Discretion The Vendor is not required to consider any Tender unless it is in accordance with this Invitation to Tender. The Vendor may permit non-compliance with any requirement in its absolute discretion and in particular may consider and agree to any amendments or additions to the Contract which may be proposed by any Tenderer or by any other person whether or not a Tenderer. An unsuccessful Tenderer is not entitled to any redress against the Vendor if the Vendor permits any amendments or additions to any Tender or to the Contract or enters into a Contract with or agrees to sell the Property to any person at any time whether or not a Tenderer."

(i) a related provision was to be found in cl 6.8 as follows: "6.8 Reservation by the Vendor of Certain Rights The Vendor reserves the right at any time to: (a) accept or reject any Tender in its absolute discretion including the highest Tender made (without having to attribute reasons or being liable or accountable in any way); (b) extend the Closing Date by notice to parties to whom this Invitation to Tender has been issued not less than one day before the Closing Date; (c) nominate a new Acceptance Date by notice in writing to all parties who submit Tenders pursuant to Clause 3 and Clause 4; and (d) discuss any matter with and deal with any Tenderer before or after the Closing Date." 136 The tender as submitted by Capital was not a conforming tender and there was no obligation on the part of the receivers to consider it. The defendant's only explanation for the secrecy surrounding his tender was that he wanted to ensure that the receivers did not reject his tender out of hand, at the same, acknowledging that, once the tender was in, it would be necessary for him to disclose his involvement. 137 He explained his unwillingness to approach the receiver with a view to paying out his obligations under the guarantee and, by subrogation, obtaining the entitlement t to acquire the Dixon Street property in his own right, on the basis that he required the co-operation of Chan and that their relationship had deteriorated to the point that Chan, through Wispform, had caused Noble House to be placed in liquidation on 16 August 2001. 138 The defendant's reasoning in making an offer of $6,000,000 was explained as follows: "(i) As I have indicated I believed the Dixon Street property was capable of returning a substantial profit if developed in the manner I have outlined and I wished to maximise the opportunity to make that profit; (ii) I knew I had given a guarantee to NTI and thought that if I was going to be required to make good any shortfall on the sale of the Dixon Street property, it would be beneficial for me to purchase the property for the payment of that money otherwise I would receive no benefit for any payment I might otherwise be required to make." 139 Further that : "30… Based on the Stanton valuation referred to earlier in this affidavit, I believed that $6,000,000 was less than the market price of the Dixon Street property. I was confident that a sale of the Dixon Street property at any price greater than $6,000,000 would extinguish the debt of Noble House to the plaintiff and also my liability under my guarantee to the plaintiff." 140 It was his tactic to withhold the submission of a tender until immediately before close of tenders "to minimise the risk of a tender … becoming public knowledge." 141 It is not in dispute that funds were available to the defendant through Fenning to provide the deposit cheque of $60,000. He proposed to "raise the balance required for payment of the deposit (ie $ 540,000) through the equity [he] had in [certain] properties". Those properties consisted of Loganholme, owned by Kalmata, a Coffs Harbour property owned by Sunset Investments, which in turn was owned by Clori Holdings Pty Ltd, it being owned by Kalmata and the defendant. The defendant was also the owner of a residential property on the Gold Coast. 142 Loganholme had been purchased in 1998 for $1,900,000 and was subject to a mortgage to Westpac of approximately $835,000. The Coffs Harbour property had been purchased in 1985 for $1,700,000 and at the time of giving evidence it was unencumbered. The Gold Coast property, he said, was valued at approximately $1,000,000 and was subject to a mortgage to Westpac of approximately $750,000. 143 Andrew-Smith gave evidence in the defendant's case to the effect that he was of the opinion that the financial position of the defendant and the assets owned or controlled by him were such that the defendant would have been able to complete the purchase of the Dixon Street property in accordance with the terms of the tender submitted by Capital. 144 On balance, given the extensive experience of Andrew-Smith in the field, I think, his evidence, in general, should be accepted, at least to the extent of reaching a finding that at some stage in late 2000 or early 2001 the defendant would have been in a position to marshal funds from within his own holdings and through corporations controlled by him to satisfy obligations to complete, in accordance with the terms of the Capital tender. 145 In that context, it should be accepted that the Dixon Street property itself, on acquisition, would have been available as security to support financial facilities required for the acquisition. It does not follow necessarily, that those funds would have been available for the acquisition of the Dixon Street property. In particular, I have in mind the material disclosed to Westpac by the defendant at the meeting of 23 October of Fenning's need to finance substantial restructuring of its business. 146 I note that the G E Capital Finance letter of commitment of 9 February 2001 was ear-marked for "working capital purposes and refinancing certain existing indebtedness", a purpose which echoes the general approach by the defendant to Westpac in October 2000. It may be inferred that the G E Capital Finance letter of commitment was a flow-on from its finance proposal of 17 November, just a little over a week after the submission of the Capital tender. 147 The G E Capital Finance proposal contained a timetable which called for the issuing of the proposal letter in the week ending 17 November 2000, the identification of information requirements in the following week, completion of due diligence in the week ending 1 December, a presentation of the application to senior management for approval in the week ending 8 December, preparation and issuing of a commitment letter in the week ending 15 December, execution of a commitment letter in the week ending 22 December, preparation of documentation in the week ending 29 December, the negotiation of file documents in the week ending 5 January 2001, and the closing of the financial arrangements in the week ending 12 January. 148 In the same context, I note that the loan application to ANZ, seeking a facility in the sum of $5,000,000 was dated 18 September 2000. According to the Westpac file note that related to an "overall proposal for funding" in relation to the proposed change of business direction of Fenning. Further, the information provided to Westpac on 23 October is quite inconsistent with a tender proposal by the defendant through his own resources. 149 Although the meeting with Westpac on 23 October was wide ranging, there is no suggestion in the records of any financial assistance being sought from the defendant's bank in relation to any acquisition of the Dixon Street property. On the contrary, the discussions so far as it concerned that property centred upon the acquisition of the Dixon Street property by a group of investors that the defendant was said to be "trying to put… together to tender for the property at around $6.0M": noting that it was the defendant's plan "pending" such arrangement "to endeavour to delay [the] process of putting the property to tender on 9 November 2000." 150 I have been left with the strongest of inferences, from the events involving the defendant during the tender period, that his plan to delay the tender process badly backfired when the plaintiff accepted the Kimberly offer of $4,500,000 before the closing of the tender period. 151 So far as the defendant has presented the case based upon the deliberate sacrifice of his interests by the plaintiff in effecting the sale to Kimberly, considerable reliance has been placed upon the decision of the High Court in Forsyth v Blundell (1973) 129 CLR 477. 152 That was a case where the mortgagee, with the knowledge of the purchaser, effected the sale of a service station site for the amount which was needed to pay out the mortgagee. The sale was made at a time when the mortgagee was aware of a presence in the market of a competitor of the purchaser and who had expressed an interest to purchase the property for, at least, the amount required to pay out the mortgagee. Without going to auction, without notifying the competitor of its intention to sell to the purchaser and without informing the purchaser of the interest of its competitor in the site, the mortgagee sold the property at the pay out figure. 153 Although it was submitted on behalf of the defendant that the facts in Forsyth were closely aligned to those the subject of these proceedings, I think the resemblance is superficial. The rationale for the decision which regarded the conduct of the mortgagee as amounting to a sacrifice of the interests of the mortgagor may be found in the following passages in the judgments of Walsh and Mason JJ. Walsh J approached the matter in the following way: "The breach of duty which has been found to have been committed by A.S.L. did not consist merely of a careless failure to carry out the sale in a manner which reasonable care required. Although His Honour thought that a partial explanation of what occurred was to be found in the lack of sufficient communication between Wilkie and Owen, it appears that in proceeding with the sale to Shell without referring to Blundell or Sykes, A.S.L. acted in a way which would produce enough money to satisfy its own interests, and it was those interests alone that were really considered. While A.S.L. as mortgagee was entitled to have regard primarily to its own interests, it was not entitled, if those interests were not at risk, to act in a manner which sacrificed the interests of the mortgagor. What the mortgagee did in this case was done deliberately and not through carelessness." (at 493-4) 154 Mason J regarded the cornerstone of the evidence of deliberate sacrifice of the mortgagor's interest as lying in the fact that the mortgagee was aware that the competitor "was keenly interested in acquiring the property and that it might pay an amount in the vicinity of $150,000" (at 508). Mason J regarded that evidence as establishing that the competitor was "genuinely interested in the site and that there was a distinct possibility that it would pay in the vicinity of $150,000 for it" (at 508). 155 On that basis, Mason J analysed the conduct of the mortgagee in the following way (references in the passages to "A.S.L" are references to the mortgagee; references to "XL" are references to the competitor, and to Shell are references to the purchaser): "8. A.S.L.'s failure to follow up XL's expressed interest in the property was in my view a serious departure from accepted standards in seeking to obtain the best price then available. Knowing that there were two interested potential purchasers, with no reason to think that either was not genuine, A.S.L. should have brought them into competition so as to obtain the highest price which either would offer. Yet it made no attempt to bring Shell and XL into competition. For no justifiable reason A.S.L. decided to disregard XL's announced interest as a potential buyer of the property. Its action in so doing in my view constituted a failure to take reasonable precautions to obtain a proper price. (at p509) 9. An examination of the circumstances in which A.S.L. came to disregard XL's interest in acquiring the property shows, in my opinion, that A.S.L. thereby acted recklessly, without caring whether the price which it obtained was a proper price. A.S.L. attempted to justify its disregard of XL's interest by claiming that XL had every opportunity of submitting a firm offer but did not do so. But his Honour found that in the conversation between Sykes and Owen, Sykes made it clear that he was acting on the basis that an auction would take place. Owen admitted in evidence that Sykes had stated that Blundell wanted the property to go to auction. Yet A.S.L. did nothing to disturb Sykes' belief that an auction would take place. The claim that XL made no firm offer was therefore entirely specious. (at p509)

10. Next, there is the manner in which the negotiations with Shell were conducted by Wilkie on behalf of A.S.L. In his discussions with Goddard of Shell, Wilkie did not place reliance on those factors which would indicate that A.S.L. placed a high value on the property. A person anxious to obtain the highest price available might have been expected to say to Goddard that A.S.L. had already rejected a firm offer of $90,000, that it had obtained a valuation of $98,000 that there was another valuation of $150,000 and that XL had expressed real interest and had mentioned a figure of $150,000. These matters were not mentioned. Instead, Wilkie said that A.S.L. had a valuation in the vicinity of the valuation of $80,000 that Goddard had mentioned, and proceeded to decry the interest expressed by XL by saying that Sykes had "talked generally" of offering $150,000. Wilkie's conduct in the negotiations was therefore not consistent with that of a mortgagee endeavouring to obtain the highest price available. (at p509) 11. Moreover, it was Wilkie who first suggested the figure of $120,000 and that figure represented the amount which he believed A.S.L. should receive on sale in order to meet the principal debt, interest and expenses owing to it. It was that amount which Goddard subsequently put by way of a firm offer to A.S.L. No attempt was made at any time by Wilkie to negotiate a higher figure which would yield something for the mortgagors. Yet there is no reason why he should not have done so. (at p510) 12. I cannot agree that in the circumstances there was a grave risk of losing all in the event that the Shell offer was not accepted according to its terms. If Shell was prepared to offer $120,000 privately to retain a site which had previously been tied to it as an outlet for its petroleum products, there was every reason for thinking that it would repeat that offer at auction, notwithstanding the suggestion that it might not do so. But in any event there was no risk whatsoever in A.S.L. informing XL that it had received a firm offer of $120,000 and inquiring whether it was prepared to do better. Its failure to inform XL and Blundell, its determination to sell privately to Shell for $120,000 and not proceed to auction all indicate that its sole interest was to obtain payment of its debt, interest and expenses. (at p510) 13. Finally, there is the circumstance that no further reference was made to XL, although, as his Honour found, Sykes in his telephone conversation on 4th or 5th March with Owen "stressed that if necessary we would pay out the mortgages and therefore take over the position of A.S.L. entirely, so therefore they couldn't have any risk of loss". And on 4th March, A.S.L. accepted an offer of $45,000 for the Red Hill property; yet no attempt was made by A.S.L. to inform Blundell and Sykes that the mortgage debt would be correspondingly reduced. (at p510)

14. I am left with the overwhelming impression that A.S.L. determined willy nilly on a sale to Shell for a price which would cover the moneys owing to it, notwithstanding that there was a real possibility of selling at a higher price to XL and despite its knowledge that XL would take over the mortgage and preserve the mortgagors' equity, if the need arose. (at p510) 15. It seems that in a contest for the site between XL and Shell, A.S.L. preferred that Shell should become the purchaser. Why this should have been so, is not entirely clear. But it is not to be overlooked that in June 1969 A.S.L. gave Shell an undertaking in a letter signed by Wilkie that "we will do as much as we can in selling the property to assist Shell in retaining its connection with the site as an outlet for Shell's petroleum products. We will put you in immediate contact with the purchaser and will try to persuade them to affiliate with Shell." This undertaking would not have required A.S.L. to sell the site to Shell, but it is consistent with, and may explain, A.S.L.'s preference for the sale to Shell. (at p510)

16. In these circumstances I conclude that A.S.L. in exercising its power of sale did not act bona fide in the sense that it was reckless, not caring whether the price obtained was a proper price or not…" (at 508-511) 156 In this case there was no evidence of any knowledge of the plaintiff or of its agents, nor of any indication to them, that there may have been interested parties in the market at a price at or above the final offer of Kimberly. The defendant had deliberately kept from the plaintiff or its agents any expression of interest he had in acquiring the Dixon Street property. He went to great lengths to avoid disclosure of his interest. He can hardly complain of the closure of the tendering process before the expiration of the tender period, given the provisions of the tender documents which clearly give to the plaintiff and its agents the right to do just that. 157 It is true that there was interest in the property by parties other than Kimberly, as evidenced by the supply, on request, of several copies of the tender and of the proposed contract to those parties. It is also clear that the acceptance of the Kimberly offer put an end to any benefit that might have been obtained by pursuing the tendering process. In that regard the plaintiff and its agents were faced with the decision whether to accept an offer that was only open if it was accepted prior to closing of tenders or to risk the loss of that offer in the hope of gaining a better offer through the tendering process. 158 The evidence of Weston on this matter is evidence which I accept. That evidence I think established the bona fides of the plaintiff and its agent in accepting the Kimberly offer. Further, I think the evidence falls well short of justifying a finding that the plaintiff or its agent acted with deliberate disregard for the interests of Noble House and the defendant, or had deliberately sacrificed their interest in accepting the Kimberly offer. 159 There was a concern that parties having an interest in the sale would endeavour to disrupt the process of an orderly sale which, I think, justified acting with circumspection in disclosing the existence of the Kimberly offer and closing negotiations with Kimberly expeditiously. If any justification for that approach was needed it is reflected, I think, in the Westpac file note of 23 October in which the tactic by the defendant of delaying the tender process was disclosed. 160 While Weston did not disclose the existence of the Kimberly offer to other interested parties he caused enquiries to be made of those to whom tender documents had been submitted. While that process was not likely to expose the true intentions of any intending tenderer it was an exercise that may have given some feeling for what interest lay in the market place for the acquisition of the Dixon Street property. 161 Further, given the unsatisfactory, if not unsavoury, circumstances in which the indebtedness of Noble House was created by the defendant at the expense of the plaintiff, it is not entirely surprising that the plaintiff, through Phillips Fox, placed a "caveat" on the Kimberly offer that required Weston to be satisfied that it was not one associated with the defendant; notwithstanding Weston's evidence that he was prepared to negotiate with the defendant and to treat any offer by him on its merits. 162 In my view, the plaintiff had every reason to be extremely wary of an offer from the defendant having regard to the circumstances in which the debt was created and to the apparent difficulty which the defendant described as a "huge crisis" which led to the inappropriate borrowing in the first place. He intended to retire hat borrowing in September 2000 and was unable to do so, resulting in his disclosure of the borrowing to the board of the plaintiff. The arrangement then reached with the plaintiff called for repayment by February 2000. The defendant was unable to effect this. 163 Although it was a matter unknown to the plaintiff, the rejection by Westpac of the defendant's application on behalf of Fanning for further facilities by on 23 October 2000 would not have encouraged optimism in the capacity of the defendant to complete the transaction; notwithstanding the evidence of Andrew-Smith as to the apparent shareholder equity in the defendant's corporations. 164 In my view, the Capital 'tender' of 9 November should be treated with some circumspection. It was not a conforming tender. It was made by a nominee company. It was made at a time when it was known that the property had been sold. 165 A further matter which, I think, supports a finding that there was no deliberate sacrifice of the defendant's interest lies in the fact that the receivers held valuations of the Dixon Street property of $4,000,000 and $3,200,000. Those valuations have been criticised by the defendant as ones prepared in haste, on a limited basis, which ignored the examination of the 'best use' of the Dixon Street property. 166 It is clear on the evidence as outlined above that a 'best use' valuation would have included the use of the property as a hotel development. However, in my view it should be accepted that the interests of the mortgagees dictated some urgency in obtaining a valuation having regard to the time that had elapsed since the passing of the due date of repayment of the "loan". 167 I am also of the view that valuation of the property by Knight Frank and Jones Lang did not suffer from the approach which did not pursue the potential of the site as a completed hotel development. I think that much is clear from the advice given by Knight Frank at the meeting of 26 June 2000: in their critical analysis of the SHP valuation and the opinion of Jones Lang in their valuation report to the effect that the hotel use was not likely to be the best use having regard to the excess of hotel development in the Sydney area, triggered by the Olympic Games of September 2000. 168 It is interesting to note that the defendant himself appears to have accepted that fact in the information provided to Westpac on 23 October to the effect that "hotel proposal now to be inner city apartments". That accords with the valuation advice given to the plaintiff. 169 As to the SHP valuation, I place little importance on that valuation as one evidencing the value of the undeveloped site: which was given for mortgage security purposes and which, in substance, proceeded upon a premise of a completed hotel development, set for completion prior to the commencement of the Olympic Games; notwithstanding an allowance by SHP of some $1,500,000 in the event that that target was not achieved. 170 I have noted earlier in these reasons what I consider to be the salient points of the SHP valuation and, in my view, they give little encouragement to a conclusion that the Dixon Street property as undeveloped land with the benefit of development approval was worth $8,000,000. The residual land value approach in my view was unconvincing and the direct comparison method of comparison had a factual base which, to say the least, reflected its subjectivity and, I think, the provision of the report for mortgage security purposes. 171 The valuations of Knight Frank and of Jones Lang are also subject to criticism having regard to the limited evidence of comparable sales and to the wide ranging values attributed to those sales which tended to give rise to a valuation approach which placed the property somewhere in the middle of those values. The shortcoming in that approach I think was exposed in cross examination of Knight Frank's valuer, Inglis, and of the valuer with Jones Lang, Scott Ronald Girard (Girard). 172 In the case of Girard, his valuation proceeded on the assumption that the "designated Floor Space Ratio" of the Dixon Street property was 5:1. In fact, the evidence disclosed that it was either 8:1 or 9:1. His cross examination on this aspect was as follows: "Q. Just returning to the value per square metre of floor space ratio to that principle, it follows if the floor space ratio is higher than one for a given site that one would get a greater numerical count of square metres in the FSR component, true to say? A. That's correct, yes.

Q. The way to use the FSR to compare one development site with another is to take your total FSR metres as opposed to your site metres and multiply by your derived or adjudged valuation per FSR is it not, sorry per FSR metre? A. On the analysis on the FSR basis, that's correct, yes.

Q. It would follow that if the FSR on this site were higher than 5 to 1 that you would use, your multiplier of 992 to obtain a higher valuation, true to say? A. On that basis, you would, yes. … HIS HONOUR: Q. I have done the calculation that at $992 per square metre of FSR that the ratio of 9, that would give you per square metre of land a value of $8,928. I notice that in your sales analysis the comparables were between three and a half and nearly 8,000. How would that affect your thinking? A. On a rate per square metre of land basis I would have a look at that range I have quoted there and obviously look at the various characteristics of the land and the site and again try and find a rate per square metre of land area to which a subject property could fall within given its characteristics.

Q. I don't know quite understand what that means. If your FSR at 9 to 1 gave you a land area rate of $8,928 per square metre would that fall outside the range of comparables you have referred to? A. It would yes.

Q. What would that indicate? A. That on a purely FSR basis that a reliable market value, it is perhaps derived in a more preferable way by looking at a rate per square metre of land area compared to the sales evidence.

Q. It would have the effect of increasing or decreasing your valuation of 3,200,000, or not affect it? A. It would not affect it in that in deriving that figure value of 3,200,000 I have placed more importance on comparable sales on a rate per square metre basis as opposed to strictly valuing it on a FSR per square metre basis.

PARSONS: Q. But that means you simply are picking and choosing between the two, doesn't it, between a per square metre basis and a FSR basis? A. You are, it is not picking and choosing. You are having a look at the market to try and support your value and if your value is showing a range of nearly $8,000 per square metre of land area the more appropriate value where your value rate per square metre falls within that range is usually adopted."

(T131:01-T131:31… T131:50:T132:32) 173 I think that cross examination revealed the subjectivity of the valuation and the lack of depth in comparative sales figures. 174 Cross examination of Inglis, also, I think, exposed a weakness in the valuation in so far as it placed reliance upon a "per apartment" basis of comparison. 175 As earlier noted in this reasons, the Kent Street comparable produced a figure of $61,765 per apartment, the Sussex Street comparable, $103,226 and the Quay Street comparable, $57,692. Those comparables were used in the Knight Frank valuation in the way quoted earlier in these reasons. 176 It was not explored in cross examination why a calculation of $70,000 per unit was applied to a development of 51 units for the Dixon Street property, having regard to the development approval for 118 apartments. However, that unit basis of evaluation had its shortcomings as, I think, was exposed in the following cross examination of Inglis: "Q. If you take a figure of say $60,000 as a per apartment allowance, and then multiply that over the 118 apartments which were approved for the Dixon Street property, that $60,000 just being a shade over the apartment value of the Quay Street property - you are nodding your head but you are agreeing with all these propositions I am putting so far? A. Yes.

Q. If you apply that $60,000 against the 118 you get a value for the site much higher than the value that you have attributed to it, do you not? A. Yes.

Q. And it would be fair to say, would it not, that in comparing Quay Street with Dixon Street as a development site, that to use a figure of not less than $60,000 on Dixon Street would be a fair and proper approach to the problem? A. I'm going on memory but I think from memory the approved number of residential apartments on the Dixon Street site - you said 118, did you?

Q. Yes? A. From memory I think they were mainly studio apartments, weren't they? If I was relying on the rate per unit basis I would be trying to assess what the break-up of the Quay Street apartments were in relation to the break-up of Dixon Street so it starts to get very subjective, but as a general comment, you are correct.

HIS HONOUR: Q. Where does that leave your valuation of four million dollars? A. I am sorry, your Honour?

Q. Where does that leave your valuation of four million dollars? Is that not the valuation you -- A. That's the valuation I adopted, yes.

Q. The figure, if you apply $60,000 to 118 you get something over six million dollars, don't you? A. Yes, that is correct.

Q. So my question is where does that leave your valuation at four million dollars? A. It bears no relationship.

Q. And the reason being the inapplicability of the unit bases because of the studio apartments? A. Yes, that is correct.

PARSONS: Q. Sir you are not actually able to say that with certainty, are you? A. No.

Q. You are not able to say that the comparison of the apartments is inapplicable or the apartment rate is inapplicable because, as you have said in your evidence, you don't know what the apartments were which made up the DA's or proposals for the three comparisons that we have used, you accept that, don't you? A. Could you just restate that please?

Q. You have stated in your evidence that you do not know and did not know what was the composition contributing to the number of apartments in the three comparables that you have used, yes? A. Correct.

Q. And so you are not able to say that the per apartment value is inapplicable to your valuation of Dixon Street by reference to those comparables, are you? A. I notice there, just looking at what I wrote there, I said I applied a rate of $70,000 per two bedroom unit so, yeah, based on 51 units, so I didn't do the Dixon Street valuation based on 118 units.

Q. No, but there was no approval for 51 units on Dixon Street, was there? A. No, correct.

Q. There was only approval for 118 units? A. Exactly.

Q. And you would agree with me, would you not, that the per apartment value comparison between Dixon Street and Quay Street would tend to come out in favour of Dixon Street? A. Most definitely. Q. And result in a higher value on Dixon Street -- A. Yes.

Q. And therefore that higher value per apartment would be multiplied by the number of approved apartments if apartments had been approved? A. Yes.

Q. And that would lead to a valuation which was simply a multiplier of apartment value by number of apartments? A. Yes, that is correct.

Q. And in this instance you would accept, would you not, given that you have put $57,692 on Quay Street for the per apartment value, you would accept a figure of $60,000 for Dixon Street, would you not? A. I applied a rate of $70,000 but comparing like with like, yes, I agree with you it would be a minimum.

Q. Of $60,000? A. Yes, a minimum.

Q. And so $60,000 over 118 apartments, being the actual approved development? A. I don't know whether I would apply $60,000 because, if I was comparing like with like, if it was a two bedroom apartment site at Quay Street compared to a two bedroom apartment site at Dixon Street, the rate at Dixon Street, based on the Quay Street analysis, would be higher. That's all I can say.

(T142:11- T144:13) 177 Again, I think the cross examination exposed the limited evidence available of comparative sales and weakened the base upon which the evaluation was expressed on a unit basis. 178 Notwithstanding, I think each valuation reflected an acceptable approach to valuation of the Dixon Street property as a development site and represented the best available evidence of market value as at the time that the Dixon Street property was offered for sale. 179 I think the evidence established that Weston accepted the validity of the valuations and acted accordingly. I think he was entitled to do so. 180 That brings one to s420A of the Corporations Law. In applying that section one should start with the premise that the market value of the Dixon Street property was in the order of $4,000,000. 181 I think, for the reasons given, in relation to my findings as to the good faith of the plaintiff and its agents in effecting sale to Kimberly, I am of the view that the plaintiff and its agents took reasonable care to sell the Dixon Street property for not less than its market value. 182 If I am wrong in treating the Knight Frank and Jones Lang valuations as acceptable evidence as to the true market value of the property, I would be of the view, for the same reasons, that the plaintiff and its agent exercised all reasonable care to obtain the best price that was reasonably obtainable. 183 Having regard to the circumstances, outlined in these reasons, which existed at the time the property was sold, I find little justification in the defendant's criticism that, in so acting, the plaintiff deprived itself, the mortgagor and the defendant, as guarantor, of the benefit of the tender offer of $6,000,000 which the defendant caused to be submitted on 9 November 2000. He, literally, only had himself to blame for his tactics in keeping the plaintiff and its agents in the dark in relation to his intentions in relation to the property. 184 The defendant has a further obstacle to accommodate in relation to the tender offer of 9 November. It was not a conforming tender. In particular, it did not offer a guarantor to support the tender and did not provide a bank cheque notwithstanding the apparent availability of funds to effect such a payment. 185 It is not necessary for me to consider the question of damages, however it seems to me that the defendant faces a significant obstacle in establishing any damages in this matter. Apart from the SHP valuation and the matter elicited in cross examination of the valuers retained by the plaintiff, no evidence of market value was adduced in the defendant's case. 186 If the true value of the property was $4,500,000, as paid by Kimberly, the offer of $6,000,000 by interests associated with the defendant, represented a premium on market price. It is difficult to see how the defendant could have legitimately encouraged "investors" to participate in an acquisition above market price, principally to satisfy the extent of his exposure to the plaintiff under the guarantee and where the concept of the site's development as a hotel had, in effect, missed the market, according to the experts. 187 Alternatively, if the property was acquired by a corporation under the control of the defendant, the $6,00,000 would not represent market value and it should be treated as one structured on the basis that its payment would remove the defendant's exposure under the guarantee to the plaintiff. That in turn, raises the question whether it would be proper for the defendant to cause the chosen corporation to acquire the property at an over value. 188 The evidence of Weston was clear that, on the financial material presented to him as earlier outlined in these reasons, he would not have treated Capital's tender offer as supported adequately by evidence of availability of the requisite funds. He was challenged on this evidence on the basis of his willingness to accept the Kimberly offer on the evidence of its financial statements as provided by it. 189 In the absence of clear evidence of the availability of funds to make good the tender offer, I think there would have been considerable justification in the plaintiff having nothing to do with any further dealings with the defendant. I do not see it as part of the plaintiff's obligations to prolong settlement over a period of months while the defendant searched around for facilities which would enable him to perform the contract for the acquisition of the Dixon Street property at a price above market value. 190 Finally, I am firmly of the view that the defence based upon the representation case that the plaintiff would permit the tendering process to take its course and would not bring the process to an end before the tender date, is without any merit. The provisions of the invitation to tender, cl 6.7 in particular, preclude any acceptable contention that the defendant relied on a representation to that effect. Cl 6.7 makes it clear that the defendant had no redress where the vendor choses to sell the property at any time and to any person whether or not that person was a tenderer. I consider that that provision does not admit of a reasonable view that the right to sell at any time means any time after the tender date. 191 For those reasons, in my view, the defence fails and the plaintiff is entitled to the sum calculated in accordance with the security documents. 192 According to the evidence of Duncan West (West), a director of the plaintiff, in his affidavit of 8 June 2001, the amount owing as at that date was $2,144,748.72 made up of the principal indebtedness, interest and costs "calculated in accordance with clause 13 of the Deed of Loan", after satisfaction of the first mortgagee's claim, and receipt of the balance of proceeds of sale. That calculation was updated by his affidavit of 29 August 2001 which brought the total indebtedness, on his calculation as at that date, to $2,224,698.99 after inclusion of the costs said to be calculated under cl 13 of the deed of loan. 193 While there has been no challenge to these calculations I think the Court should be satisfied as to the appropriateness of one element of the calculation. In the affidavit of 8 June 2001 West evidenced a demand made on the defendant by letter of 10 August 2000 which included the sum of $56,267.26 as representing costs calculated in accordance with cl 13.1 of the deed of loan. In his calculation of 8 June 2001 West has included costs purporting to be calculated in accordance with that clause, in the sum of $179,915.65. In the update of that calculation he has included a further sum of $42,718. 194 The relevant clause is in the following terms: " 13.1 Borrower to pay all costs

The Borrower must pay to the Lender all costs and expenses (including legal costs on a full indemnity basis and out of pocket expenses) incurred by the Lender, any receiver appointed by the Lender under a Security and any officer of the Lender acting as attorney under this deed or a Security in connection with: (a) the approval, and any advance, of the Principal Sum; (b) the preparation, negotiation, registration, stamping, variation, discharge or release of this deed, any Security and any deed varying or relating to this deed or any Security and any associated investigation, enquiries or searches; (c) the occurrence of any Event of Default and the assessment of the Lender's Securities, rights and duties; (d) the recovery of Borrower's Debt; (e) the exercise or attempted exercise of any power conferred on the Lender (or any receiver or attorney) pursuant to this deed, any Security or otherwise; (f) any obligation the Lender (or any receiver or attorney) has at any time to the Borrow pursuant to any legislation, this deed or any Security or any transaction contemplated by this deed or any Security; (g) the consideration of any application for its consent or approval in connection with this deed or any Security and the issue or refusal of consent or approval; and (h) the assessment of the Borrower's position following the occurrence of an Event of Default or Potential Event of Default." 195 The defendant is not a party to that deed. The borrower referred to in that clause is Noble House. On the face of it, the calculation appears to include the costs of these proceedings, as to which I have considerable doubt as to the propriety of its inclusion under the terms of cl 13.1. 196 Accordingly, notwithstanding the provisions of cl 6.3 and 15.2 of the deed of loan and of cl 7.3.4 of the guarantee, I direct the plaintiff to bring in short minutes of order in accordance with these reasons, together with a calculation of any costs claimed under cl 13.1 of the deed of loan. Those short minutes of order should be calculated on the basis of the inclusion of interest to 23 November 2001, and should be calculated on alternative bases, in the event that there is a challenge to the method of computation of cl 13.1 costs, so as to permit final orders to be made, disposing of the proceedings.

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