Nom de Plume Nominees Pty Ltd v Fingal Developments Pty Ltd [2016] VSCA 159

EQUITY - Estoppel - Whether respondents estopped from denying validity and enforceability of charge - Subsequent deeds expressly acknowledge and accept validity of charge - Whether detrimental reliance and unconscionability established - Entry by applicant into subsequent deeds and appointment of receivers and managers on basis of validity constitutes detriment - Resiling from validity of charge unconscionable in circumstances.

MORTGAGE - Duty of prior mortgagee to account to subsequent mortgagee - Amount paid on redemption subject of agreement and accompanied by discharge of mortgage and charge - Whether reservation of rights leaves open price to be paid upon redemption - Equity of redemption satisfied and duty to account does not arise.

MORTGAGE - Duties of prior mortgagee to subsequent mortgagee - Whether prior mortgagee obliged to hold surplus proceeds for subsequent mortgagee where funds received otherwise than by virtue of exercise of mortgagee powers - Westpac Banking Corporation v Daydream Island Pty Ltd [1985] 2 Qd R 330; Downsview Ltd v First City Corporation Ltd [1993] AC 295; Re Otway Coal Co Ltd [1953] VicLawRp 74; [1953] VLR 557, discussed.

MORTGAGE - Whether mortgagee can be in possession of mortgagor's assets after appointment of receiver - Refuge Assurance Co Ltd v Pearlberg [1938] 1 Ch 687, distinguished - Applicant in possession of settlement proceeds notwithstanding appointment of receiver.

RECEIVERS - Receiver agent of mortgagor, not mortgagee - Mortgagee only liable for acts of receiver where mortgagee instructs, directs or interferes with exercise of powers of receiver - Bank of Western Australia Ltd v Abdul [2012] VSC 222, referred to.

PRACTICE AND PROCEDURE - Applicant sought to establish first respondent's duty to account on legal basis not pressed at trial - New basis requires resolution of question of contractual interpretation - Resolution of question may require leading of evidence - Applicant precluded from raising point on appeal where evidence could have been given that might have prevented point from succeeding - Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 438; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424, 439-40 [38], applied.

REMEDIES - Declaratory relief - Declaration made by trial judge as to obligations of nonparties - Declaration set aside.

1 I have had the considerable advantage of reading, in draft form, the reasons of McLeish JA. I agree, for the reasons his Honour gives, that leave to appeal should be granted and the appeal allowed. I also agree that, of the declarations made by the judge below, declaration 1 should be varied, declaration 2 should stand, and declarations 3 to 9 should be set aside. I further agree that the orders of the judge below should be set aside and in their place it should be ordered that Nom de Plume Nominees Pty Ltd pay Fingal Developments Pty Ltd the sum of $57,901.50, together with such amount as was overpaid in respect of undrawn fees.

2 This application for leave to appeal raises questions about the extent of the obligations owed by a security holder to a subsequent security holder, and in particular whether a duty to account arises in that relationship, either generally or only where the prior-ranking security holder has recovered moneys by exercising powers under its security. The resolution of those questions involves as well the role of a receiver appointed by the prior-ranking security holder, through whose efforts the moneys concerned are recovered.

3 In June 2010, both the applicant, Nom de Plume Nominees Pty Ltd ('NDP'), and the first respondent, Fingal Developments Pty Ltd ('Fingal'), appointed receivers and managers over the second respondent, Ascot Vale Self Storage Centre Pty Ltd (receivers and managers appointed) (in liquidation) ('AVSS'), which was indebted to each of them (or, in the case of Fingal, alleged to be so) under loans which were both secured by fixed and floating charges over the assets and undertaking of AVSS. Fingal commenced a proceeding in the Commercial Court claiming that NDP ultimately recovered amounts totalling more than its priorranking secured indebtedness and that it breached duties said to be owed by it to Fingal as subsequent security holder. Fingal sought orders for the taking of accounts and the payment to it of the alleged excess and for loss caused by the breach of duties. NDP resisted the claims and submitted that, in any event, neither the loan nor the debenture charge upon which Fingal relied was valid.

4 After a seven-day trial, the judge in the Commercial Court substantially upheld Fingal's claims.[1] After further argument, orders were made declaring that NDP had recovered certain amounts in excess of the amount secured by its charge and that NDP, by its conduct and in breach of a duty it owed to Fingal, caused further amounts to be wasted or not paid in accordance with the relevant priorities.[2] Pending a taking of accounts, which was ordered by the Court, NDP was ordered to pay Fingal the sum of $886,309.50, with interest, plus the costs of the proceeding to date.

5 NDP seeks leave to appeal against all of the orders. It contests the validity of the loan and charge relied upon by Fingal. It denies the existence of the duties upon which Fingal's case depended. To the extent that any duty existed, NDP challenges most of the findings made by the trial judge in relation to specific payments and transactions (although not all of them). As far as possible, these reasons will omit reference to payments and transactions which are no longer in dispute.

6 For the reasons that follow, as the trial judge held, Fingal's loan and charge were valid and enforceable. However, contrary to the decision of the trial judge, NDP only owed Fingal a duty to account in so far as it recovered moneys by virtue of the powers it held as security holder. That did not include moneys recovered by NDP's receiver, who acted as agent of AVSS as mortgagor, not NDP as mortgagee, in recovering funds and paying them to NDP. Fingal was not entitled to recover from NDP moneys which NDP received as an unsecured creditor of AVSS. Fingal is, however, entitled to stand in the shoes of AVSS to recover from NDP moneys which NDP received but were not properly owed to it by AVSS at all. In the circumstances, leave to appeal should be granted and the appeal allowed in part. The declaratory relief granted by the trial judge will need to be revisited as a result.

7 AVSS is the trustee of a unit trust. It is the registered proprietor of the land situated at 8-11 Burrowes Street, Ascot Vale ('the Property'). That land was purchased in 2000 and was initially used as a self-storage facility. In 2003, a decision was made to convert it into a residential development ('the Project'). After that time, AVSS developed and constructed residential apartments on the Property.

8 When the Property was purchased, the units in the trust were held by a company controlled by John Crozier, as to 60 per cent, and by companies controlled by Geoffrey Turner and Tony Melville, each as to 20 per cent. Following the making of various loans, in December 2001 the units in the trust were held by Crozier's company as to 35 per cent. Turner and Melville still held 20 per cent each through their respective companies. Richard Leggo and Robert McNab had acquired units and held 15 per cent and 10 per cent respectively.

9 Funding for the Project was obtained from four sources. Suncorp-Metway Ltd ('Suncorp') provided a first mortgage facility of $14,031,091, secured by a first ranking registered mortgage over the Property and a first ranking registered mortgage debenture over the assets and undertaking of AVSS. Secondly, DBR Corporation Pty Ltd ('DBR') provided a second mortgage facility of $1,620,000, secured by a second ranking registered mortgage over the Property and a fixed and floating charge over the assets and undertaking of AVSS. That mortgage and charge were subsequently assigned to NDP. Thirdly, unitholders or persons or entities associated with the five unitholders made loans during the period 1 November 2000 to 1 September 2007. Those loans were, at the relevant time immediately before Fingal's charge was created, in the following amounts:

The total amount then lent by these persons and entities was $1,396,538. Finally, a collection of investors whom it is convenient to describe as the 'Albury investors' together lent AVSS $500,000. Thus, the total amount invested by the unitholders and the Albury investors was $1,896,538.

10 In order to explain the way in which the charge relied upon by Fingal came into existence, it is necessary to trace in some more detail the manner in which the Project developed.

11 When the Property was purchased in 2000, Crozier was the manager and sole director of AVSS. As mentioned, a company he controlled held 60 per cent of the units in the unit trust. This reflected the financial contribution Crozier intended to make, directly or indirectly, to the venture, his role in initiating the Project and his ongoing management as the sole director. At this time, the remaining units were held equally by companies controlled by Melville and Turner. Leggo and McNab became unitholders later, in 2001.

12 In 2003, Crozier decided to raise additional funds for the Project from new private investors. He thought that there would be investors prepared to lend money to the Project in exchange for the right to purchase an apartment off the plan on advantageous terms. Melville, who was a solicitor, advised Crozier that if AVSS was required to grant security over the new loans, it would be preferable to use a nominee company as a conduit between the new investors and AVSS. Under such an arrangement, investors would lend money to the nominee company, which would on-lend it to AVSS. AVSS, as trustee, would then grant the nominee company the security of a second mortgage over the Property. In this way, a single security instrument would cover loans advanced by a number of different investors. In due course, Fingal (then called AVSS Nominees Pty Ltd) would be used as the nominee company in this arrangement. Crozier became the sole shareholder and director of Fingal in 2003.

13 Also in 2003, the Albury investors signed three loan agreements with Fingal (as borrower) and AVSS. Crozier told the investors they would receive substantial discounts on the purchase of apartments in the Project, as well as having their loans repaid. The agreements provided for the investors to be paid interest and to receive a second ranking registered mortgage over the Property, but no such mortgage was entered into. The agreements did not refer to the discounts upon purchase of apartments. A further loan was subsequently made by one of the investors in February 2006. At the same time, Crozier wrote to each of the investors confirming that they would purchase apartments at a price reduced by $100,000, which they would be paid at settlement, subject only to repayment of mortgage finance. Crozier told some of the investors that no interest would be paid if the price reduction were received instead. The total amount lent by the Albury investors was $500,000.

14 Between 2004 and April 2005, the necessary steps were taken to have the land rezoned for residential use and to obtain a planning permit to build a multi-level residential apartment block consisting of 50 apartments. Additional funds were required, and further loan amounts were advanced directly to AVSS on an unsecured basis, rather than to Fingal, by the unitholders or entities associated with them.

15 By the start of 2006, the Project had reached the stage where apartments could be sold off the plan to purchasers. By late 2006, the Project was ready for construction. Crozier mandated Ashe Morgan Winthrop ('Ashe Morgan'), finance brokers, to procure loan facilities. The first mortgage facility with Suncorp was provided in March 2007 and settled in May 2007. The second mortgage facility with DBR was provided in April 2007 and also settled in May 2007. Crozier provided sole guarantees under these facilities.

16 Around August 2007, another company associated with Crozier, Golf Course Properties Ltd ('GCPL'), was experiencing financial difficulties. At about the same time, Crozier was approached by Turner who told him that he was concerned that the financial problems of GCPL could detrimentally affect the Project. Turner sought assurances from Crozier that his money and the loans from the Albury investors were not at risk. He reminded Crozier that the Albury investors' loans were supposed to be secured under the terms of their agreements with Fingal. The equitable mortgages held by the Albury investors under those agreements in the meantime had been postponed by the subsequent registration of the legal interests of Suncorp and DBR.

17 After these discussions, Crozier, Turner and Melville agreed that AVSS should grant a security interest which would cover the loans of the Albury investors and the existing and future loans of unitholders. Acting on Crozier's instructions, Melville then prepared the relevant security documents comprising a loan agreement under which Fingal was the lender on behalf of the unitholders as well as the Albury investors, and a debenture charge given by AVSS to Fingal in respect of the loans. The parties to those documents were AVSS and Fingal. It is convenient to refer to the documents as the 'Fingal loan' and the 'Fingal charge' respectively. Both documents were executed on 5 October 2007 by Crozier on behalf of both parties, as the sole director of each of them. As mentioned above, when the Fingal charge was registered with the Australian Securities and Investments Commission ('ASIC') on 25 October 2007, the total of the unitholder loans and the loans of the Albury investors was $1,896,538.[3] Leggo, McNab and the Albury investors were not told of the execution of the Fingal loan or the creation of the Fingal charge. However, the loan agreements with the Albury investors contemplated that Fingal would on-lend the moneys borrowed to AVSS.

18 By early 2008, the financial difficulties of GCPL had become severe. Wayne Etchells of Ashe Morgan, who managed the loan facilities on behalf of Suncorp and DBR, was concerned about Crozier's financial position as sole guarantor of those facilities. On 26 February 2008, GCPL entered into administration with a debt of about $60 million. The following day, the impact of GCPL's difficulties upon AVSS was discussed between Crozier, Leggo and Etchells. On 28 February 2008, Ashe Morgan informed AVSS by letter that both the Suncorp and DBR facilities had been suspended due to a material adverse change, constituted by the change in Crozier's financial circumstances and the registration of the Fingal charge without the consent of Suncorp or Ashe Morgan (on behalf of DBR).

19 After canvassing various alternatives, in April 2008 the unitholders agreed to a proposal under which Leggo would become a director and guarantor for AVSS in return for a fee. To that end, Leggo acted as a director of AVSS from 3 April 2008 and was formally appointed as such on 30 April 2008. As part of the arrangement with Leggo, Crozier believed that the unitholders had agreed that:

(a) Leggo would cover all interest and cost overruns relating to the Project;

(b) any funds Leggo provided would earn interest at the same rates as those payable under the second mortgage;

(c) Leggo would provide an unlimited guarantee to Ashe Morgan and Suncorp for the facilities in return for a fee payable by AVSS; and

(d) that fee would be added to Leggo's loan account and rank equally with the other unitholder and associated party loans.

20 From this time, Leggo assumed sole responsibility for and control of AVSS and funding for the Project resumed. Crozier continued as a director until 1 June 2009, although he was not actively involved in the management of the company. During that period, Crozier did not attend any meetings or have any direct correspondence with Suncorp or the sales agent for the apartments engaged by AVSS. However, he did continue to maintain the financial records of AVSS until receivers and managers were appointed on 21 June 2010.

21 In May 2008, Leggo told Crozier that he was arranging for the second ranking DBR facility to be novated to NDP, a company of which Leggo was a director and which he effectively owned. Around the same time, relations between Leggo and Crozier deteriorated significantly. There were different understandings as to aspects of what had been agreed among the unitholders in April 2008, and differences between Leggo and Crozier as to whether Suncorp or DBR was required to pay a substantial builder's payment claim in June 2008. That dispute served to highlight a difference of views about what Leggo had (through NDP) agreed to fund. A further dispute concerned the extent of the guarantee Leggo had given, which extended only to the Suncorp facility, leaving Crozier as sole guarantor of the DBR facility.

22 In July 2008, NDP took a novation of the DBR facility and an assignment of the NDP mortgage and charge.

23 The disputes between the unitholders culminated in a deed of settlement entered into on 23 March 2009. The parties to the deed of settlement were AVSS, NDP, Fingal and persons or entities representing the five unitholders. The deed recited that a dispute had arisen between the parties regarding the terms upon which loans and facilities had been made available by Leggo and NDP for the benefit of AVSS. It was stated that NDP and Leggo had agreed to provide further financial accommodation to AVSS. Leggo executed the deed of settlement on behalf of AVSS and NDP, as well as in his personal capacity.

It is acknowledged by all parties to this deed that Ascot Vale Self Storage Centre Pty Ltd is indebted to Nom de Plume Nominees Pty Ltd pursuant to the [DBR] Facility Agreement and for other advances made to date by Nom de Plume Nominees Pty Ltd or on its behalf by Richard Leggo or companies associated with him together with interest on those amounts which in aggregate total $2,546,889.71 as at 28 February 2009 and that all amounts owed by Ascot Vale Self Storage Centre Pty Ltd are secured by the second mortgage and the second debenture charge [held by NDP].

The amounts referred to in cl 2.1 were defined in cl 1(a) as the 'Advanced Funds'.

25 Clause 3 was headed 'Further Financial Accommodation', which was defined in cl 1(e) to mean all further financial accommodation to be lent by NDP or Leggo in accordance with cl 3.1 (but not Leggo's unitholder loan amounts advanced prior to 31 March 2008). Clause 3 relevantly provided as follows:

3.1 At the request of the parties to this deed Nom de Plume Nominees Pty Ltd and Richard Leggo have agreed to advance further funds to or for the benefit of Ascot Vale Self Storage Centre Pty Ltd as and when required to meet the costs of building the apartments in the Burrowes Street Development Project (including but not limited to construction costs, consultants fees, advertising & marketing costs, legal costs, interest costs & charges to mortgagee, rates, land tax, lodgement fees, council fees, permits, agents commission and insurance premiums).

3.2 It is agreed by all parties to this deed that the Advanced Funds shall, for the purpose of this deed, be deemed to have been made on and subject to the terms and condition[s] contained in the [DBR] Facility Agreement so far as such terms and conditions can apply and are still subsisting.

...

3.5 It is agreed that all monies advanced to Ascot Vale Self Storage Centre [Pty Ltd] by Nom de Plume whether before or after the date of this deed shall be secured money within the meaning of that expression as contained in the second mortgage and shall be secured by the second mortgage.

26 It was further agreed, in settlement of the dispute as to the amount which Leggo was required to provide by way of guarantee, that AVSS would pay NDP 'the further sum of $330,000 (inclusive of GST) ("the settlement sum") (subject to the provision of a valid tax invoice) in settlement of the claims' by NDP and Leggo in that regard: cl 4.1. The amount of the settlement sum was deemed to be an advance by NDP to AVSS and to be secured money under the NDP mortgage: cl 4.2.

27 Clause 5.1 of the deed of settlement made particular provision with respect to the Fingal charge, as follows:

Until the first and second mortgagee have been paid in full on or before settlement of the sale of each apartment in the Burrowes Street Development project, Fingal Developments Pty Ltd shall provide Ascot Vale Self Storage Centre Pty Ltd with a duly executed ASIC Form 312 [Notification of discharge or release of property from a charge] or alternatively a letter acknowledging that its third debenture mortgage charge (No: 1536072) does not continue to affect the land the subject of the contract for the sale of that apartment and shall not do anything which might obstruct the settlement of the sale of that apartment.

28 Before the deed of settlement was executed, Leggo had prepared and sent to Crozier a draft deed of priority between AVSS, NDP and Fingal.[4] This document referred to the amount secured under the Fingal charge as the third priority amount, being $1,896,538, together with interest and all moneys secured thereon. This reflected the amount of the loan described in the Fingal loan dated 5 October 2007.

29 No deed of priority was entered into at this time. However, on 29 October 2009, at the insistence of Suncorp, a deed of priority was entered into to prescribe the order of priority of payment by AVSS of its debts to Suncorp, NDP and Fingal respectively. Leggo executed the deed of priority on behalf of AVSS and NDP. This document was in completely different terms to the draft priority deed Leggo had prepared earlier in the year. It did not specify the amount said to be secured under the Fingal charge, but it did refer to Fingal as one of the mortgagees. Part 2 of the deed was headed 'Priority'. It was agreed that the order of priority for the various securities would be the order specified in the Second Schedule, namely Suncorp, followed by NDP, followed by Fingal. By cl 3.1, the parties acknowledged that the securities secured the moneys secured by them and, among other things, that the priority order under pt 2 would apply despite the making of further advances and any rule of law or equity to the contrary.

30 Part 4 of the deed of priority provided as follows:

4.1 Each party shall:

(a) exercise its rights under its Security and do everything required in such a way as to give effect to the order and amount of priority established under Part 2 above; and

(b) account to the other of them to the extent necessary for that purpose.

4.2 Each party will promptly inform the other of them in writing of any breach by the Mortgagor of any covenant obligation or liability under the relevant Security under which that party intends to exercise any of its powers, including a power of sale.

31 The Project thereafter continued and the sales of a number of apartments were completed. The marketing agent for the sale of the apartments was an organisation called Hughes Kennedy. Pursuant to the arrangements that were made between Hughes Kennedy and AVSS, Hughes Kennedy was entitled to a percentage of the sale price by way of a marketing fee plus the difference between a stipulated sale price and that achieved by Hughes Kennedy, by way of 'rebate'.

32 It will be necessary to refer further below to various transactions that took place in 2009 and 2010. For present purposes, it is sufficient to note that on 16 June 2010, AVSS satisfied its debt to Suncorp and Suncorp's security was discharged. On 21 June 2010, Fingal appointed receivers and managers to AVSS pursuant to its charge. Those receivers froze the bank accounts of AVSS. However, on 22 June 2010, NDP appointed Avitus Thomas Fernandez as receiver and manager of AVSS pursuant to its own mortgage and charge.

33 Between October and December 2010, Fernandez repaid NDP all but approximately $16,000 of the amount which NDP said it was owed under its loan. On 14 December 2010, the NDP mortgage and charge were redeemed by Fingal for the sum of $16,000.74 and they were discharged on 15 December 2010. Fingal contends that it reserved the right to challenge the amount claimed and received by NDP under its security at a future date.

34 In February 2012, Fingal asked NDP to provide 'a proper accounting' of its receipts and payments concerning the assets of AVSS under NDP's mortgage and charge. Fingal contended that this request was made pursuant to the rights it had reserved in December 2010. NDP provided Fingal with a statement of receipts and payments on 8 March 2012, the same day on which Fingal commenced the present proceeding.

35 By its second further amended statement of claim, Fingal claimed that NDP had improperly caused various sums to be treated as advanced funds or further financial accommodation under the settlement deed and therefore owing by AVSS to NDP and subject to NDP's security in purported priority to the rights of Fingal. Among other things, it was alleged that NDP had become mortgagee in possession of the assets of AVSS before 7 June 2010 and that it had breached its duties to Fingal in that regard and more generally. Fingal also alleged that NDP had been repaid for unsecured advances.

36 There were five transactions in respect of which the trial judge held that amounts were recoverable by Fingal from NDP and which are the subject of this application for leave to appeal. It is convenient to set out the broad details of those transactions. It will be necessary to return to these transactions after considering the legal foundations of Fingal's claims against NDP.

37 In each instance except the first and last, the complaint is that NDP received payment of amounts which had not been the subject of its security. The payments were made by the receiver, but no complaint was, or is, made about the conduct of the receiver. It was contended that NDP had caused the payments to be made to it, and that it was not entitled to them under its security. The first and last amounts concerned sums which it was contended that NDP had wrongfully caused to be lost to Fingal, in one case because NDP has used its position as mortgagee to pay an unsecured creditor ahead of Fingal, and in the other because AVSS had been unable to claim a tax benefit which would have increased the amount available for recovery by Fingal.

38 On 22 or 23 June 2010, the sale of apartment 112 settled. At the settlement, Hughes Kennedy was paid the sum of $57,901.50 (including $41,000 for 'rebates' and $16,901.50 by way of marketing fees). The settlement statement according to which this payment was made was prepared by Trumble Szanto Lawyers at the direction of Leggo, who was a partner of that firm. The trial judge found that Leggo was acting in his capacity as a director of NDP in causing this statement to be prepared. The payment itself was made by a separate cheque from the purchaser payable to Hughes Kennedy.

39 The judge held that this sum should not have been paid to Hughes Kennedy.[5] The amounts owing to Hughes Kennedy by AVSS were an unsecured debt of AVSS which ought not to have been paid in advance of the debts secured by NDP's and Fingal's securities. Even though no amount was actually paid by NDP and then sought to be added to the NDP loan, NDP had permitted part of the settlement funds to be used to discharge an unsecured debt of AVSS. The judge held that a duty 'was owed by NDP to Fingal not to sacrifice the assets of AVSS or to interfere with or disturb the priorities arising out of the various securities'.[6] By virtue of the direct involvement of Leggo and NDP in the making of the payment, breach of that duty was established.

40 On 18 June 2010, NDP advanced $500,000 to AVSS for the purpose of enabling it to pay $487,000 by way of rebates owing to Hughes Kennedy. By virtue of the subsequent appointment of receivers by both mortgagees, and consent orders which had been made in the Federal Court of Australia pending resolution of disputes arising between them, that amount was frozen and AVSS was unable to access it for the purpose of paying Hughes Kennedy.

41 On 29 June 2010 and 7 July 2010, NDP separately paid Hughes Kennedy the amount of the rebates, in two instalments of $330,000 and $157,000 respectively. The judge held that the payments were initiated by Leggo and NDP and he was not satisfied that they were requested by the receivers and managers of AVSS.

42 The judge found that it was more probable than not that these amounts were not paid on behalf of AVSS, but that Leggo on behalf of NDP chose to make the payments at a time when both charges had crystallised and there was no further work to be performed by Hughes Kennedy.[7] The judge held that, in these circumstances, the facilitation of payment to an unsecured creditor did not fall within the ambit of cl 3.1 of the settlement deed and the NDP mortgage and charge. The judge held that it was a matter for NDP and Leggo whether they chose to make the payments, but they could not properly be regarded as 'Further Financial Accommodation' within the meaning of cl 3 of the settlement deed. As such, the settlement deed did not provide for the charging of the assets of AVSS with the payments. It followed that, when NDP was repaid the full amount by the receiver, it received more than it was entitled to under its security.

43 On 27 April 2009, when Leggo was the sole director of AVSS and NDP, NDP advanced $25,000 to Rod Ferguson of Hughes Kennedy. Fingal contended that this payment was a personal loan to Ferguson. NDP contended that it was an advance on fees payable by AVSS to Hughes Kennedy. After receivers were appointed, NDP treated the amount as such an advance, and fees owing by AVSS to Hughes Kennedy were reduced accordingly.

44 The judge held that this payment had nothing to do with AVSS and its assets should not have been charged with a voluntary unrelated loan or payment that Leggo elected to make.[8] Again, NDP should not have been repaid this amount under its security.

45 Special condition (a) of the letter of offer constituting the DBR loan provided:

The Facility Amount is to be fully drawn within 5 months of initial drawdown. In the event that this does not occur, a monthly fee of $5,000 will accumulate and [be] payable upon the earlier of repayment or the Maturity Date.

46 The initial drawdown took place on 23 May 2007. The facility was not fully drawn down five months later on 23 October 2007. DBR recorded a monthly fee of $5,000 in its loan statements to AVSS from 31 October 2007 until 30 June 2008, when the facility was fully drawn down.

47 After NDP redeemed the DBR loan and was assigned the mortgage and charge, NDP recorded the undrawn fee as zero in statements from 30 June 2008 until October 2010. On or around 20 October 2010, NDP added to the AVSS loan account the undrawn fee, in the amount of $5,000 for each month since 23 October 2007, in the total amount of $152,097.

48 The judge held that, as a matter of construction, the fee was no longer payable once the facility was fully drawn.[9] The judge further held that, upon the execution of the settlement deed, the fee was, in the circumstances and context of that deed, no longer relevant or applicable. It was held that the amount should not have been claimed by NDP because there was simply no basis to claim it. As a result, the judge held that the amount of $152,097 which NDP had added to AVSS's loan statements ought not to have been added and that it did not fall within the scope of the NDP mortgage and charge.[10] As such, the amount ought not to have been allowed in NDP's favour under its security.

49 Finally, Fingal alleged that the actions of NDP had caused it to lose $30,000, being the amount of GST included in the 'settlement sum' of $330,000 paid by AVSS to NDP pursuant to cl 4 of the settlement deed. The judge held that NDP did not produce a tax invoice in respect of the GST component of the settlement sum, meaning that AVSS was not able to claim an input tax credit for the GST paid.[11] The judge held that AVSS had therefore been impoverished in the amount of $30,000, in breach of the obligation which NDP owed to AVSS. That amount would have been available to secured creditors and could be recovered by Fingal.

50 In respect of the first of the above payments, being the payment to Hughes Kennedy for the sale of apartment 112, Fingal contended that NDP had caused the payment to be made in the capacity of mortgagee in possession. In relation to the other payments, the arguments were different. It was contended that both the Ferguson payment and the Hughes Kennedy rebates represented payments of amounts whose repayment was not secured by the NDP mortgage and charge. Fingal contended that NDP was under an obligation to account to it for the moneys which NDP had received in the capacity of a secured creditor but which were in fact unsecured.

51 In respect of the payment for undrawn fees, Fingal submitted that the fees were not contractually payable by AVSS. As to the loss of $30,000 attributable to the absence of a tax invoice for GST purposes, and by way of alternative argument in relation to the apartment 112 payment, Fingal argued that NDP had caused AVSS to be impoverished in the relevant amounts in breach of a duty owed by NDP to Fingal as a subsequent security holder.

52 As set out further below, Fingal asserted the existence of a duty on the part of NDP to account to Fingal for the way in which it had applied the moneys available to it in satisfaction of AVSS's indebtedness.

53 Fingal's pleading did not descend to detail as to the grounds upon which this duty arose. It was submitted at trial that it arose as a matter of law. Fingal also relied on the reservation of rights which it said it had effected when it redeemed the NDP mortgage in December 2010. It was submitted that its payment of $16,000 to NDP on that occasion had in effect been a temporary payment pending a full taking of accounts between NDP and Fingal. In this regard, Fingal sought to rely on its position as holder, by way of its charge, of the equity of redemption in respect of the NDP mortgage and charge. On the appeal, as explained further below, Fingal sought to bolster its argument by reliance on cl 4.1 of the priority deed.

54 At trial, Fingal suggested also an obligation on the part of NDP to account to AVSS, which in turn owed money to Fingal. It was submitted that Fingal could recover the amounts due to AVSS by means of a 'shortcut'. It was not clear whether this basis for relief rested on anything in the rights said to have been reserved and enjoyed by virtue of the assignment of the equity of redemption. It will be necessary to return to this matter, because on the appeal Fingal also sought, over objection by NDP, to rely on an argument that cls 2.1 and 3.1 of the Fingal charge had respectively charged and conveyed all of AVSS's assets to Fingal, including AVSS's rights as mortgagor in relation to the NDP security and, moreover, any chose in action held by AVSS. As such, Fingal was more than a 'mere mortgagee of land' and could recover any debt owed to AVSS.

55 NDP, on the other hand, contended that the Fingal charge was invalid. It was submitted that the unitholder loans were never intended to be secured and that Leggo, at least, had not consented to Fingal being interposed as lender on behalf of the unitholders. It was contended that the Albury investors were promised a second mortgage, not the different security unilaterally created. NDP also submitted that the Fingal charge and the Fingal loan were not deeds and that no consideration had been given in respect of them. As such, they were unenforceable.

56 The second defendant, AVSS, took no active part in the trial or the appeal. It filed a notice of intention not to respond to or contest the proposed appeal.

57 The trial judge held that NDP, AVSS and Leggo were estopped from making the above submissions by virtue of the deed of settlement, cl 5.1 of which expressly acknowledged and accepted the validity of the Fingal charge, and by virtue of the deed of priority.[12] He went on to find that the Fingal charge and the Fingal loan were valid and enforceable in any event, on the bases that they were executed as deeds and that in any event consideration flowed both ways between the parties.[13]

58 As already indicated, the judge found that various amounts recovered by NDP were unsecured and that NDP had caused Fingal loss as a result, as well as causing loss by breaching duties which he held that NDP owed to Fingal. The judge identified those duties in his orders.

59 In the result, the judge declared that the Fingal charge was valid and enforceable, and that it secured the loans made by the Albury investors and the unitholders to AVSS. He declared that both NDP and AVSS were estopped from denying the validity and enforceability of the Fingal charge. He made further declarations as to the various amounts in dispute, and for NDP's liability for wasted amounts more generally. The declarations were as follows:

(a) is valid and enforceable; and

(b) secures the loans provided by the Albury Investors to the Second Defendant and the Unit Holder Loans made to the Second Defendant.

1. The Defendants are estopped from challenging the validity and enforceability of the Fingal Charge.
2. The Plaintiff has standing to recover amounts paid to the First Defendant either directly or to its receivers Fernandez Partners in excess of the amount secured by the NDP Charge.
3. The First Defendant recovered the following amounts in excess of the amount secured by the NDP Charge:

(a) the $487,000 Rebate Payments to Hughes Kennedy;

(b) the $25,000 Ferguson Loan;

(c) the $134,306 of NDP Consultancy fees; and

(d) the $152,097 of Undrawn Fees.

1. The First Defendant had a duty to the Plaintiff and to the Second Defendant not to sacrifice the assets of AVSS or interfere with or disturb the priorities arising out of the various securities.
2. The Plaintiff has standing to recover amounts that the First Defendant, by its conduct, caused to be wasted or not paid in accordance with the relevant priorities.
3. The First Defendant, by its conduct and in breach of its duty set out in [5] above, caused to be wasted or not paid in accordance with the relevant priorities, the following amounts:

(a) the $57,906.50[14] apartment 112 payments to Hughes Kennedy; and

(b) $30,000 claimed as GST.

(a) adding to the amount secured by the NDP Charge the amounts listed in [4] above; and

(b) causing amounts to be wasted, or not paid in accordance with the relevant priorities, as listed in [7] above -

wrongfully and in breach of its duty set out in [5] above, caused the receivership of Fernandez Partners to be prolonged beyond the time that it should have ceased by reason of the collection in by Fernandez Partners of the amount properly secured by the NDP Charge.

1. The First Defendant is obliged to account to the Plaintiff for:

(a) interest paid to NDP on the sums listed in [4] above;

(b) any additional cost or expense paid from the assets of the Second Defendant arising from the prolongation of the receivership of Fernandez Partners identified in [8] above; and

(c) any additional cost or expense caused to the Plaintiff arising from the prolongation of the receivership of Fernandez Partners identified in [8] above.

60 The judge ordered a taking of accounts. Pending that being done, NDP was ordered to pay Fingal $886,309.50, together with interest in the sum of $294,107.17. The figure ordered to be paid is more than that the subject of the transactions and claims described above, because NDP does not challenge the judge's findings regarding one transaction. As will be seen, however, NDP challenges the declarations and orders made in their entirety.

61 NDP's application for leave to appeal sets out 19 proposed grounds of appeal, many of them discursively expressed and elaborated upon in subsidiary grounds. It would not be fruitful to set them out in full. It is preferable to explain the issues arising in the application for leave to appeal. In doing so, reference will also be made to issues arising under a notice of contention filed by Fingal, as well as in submissions filed after the hearing concerning an application by Fingal for leave to amend its notice of contention, as well as its pleadings.

(a) whether the Fingal loan and the Fingal charge were valid and enforceable (including whether NDP and AVSS are estopped from contending that the Fingal charge was not);[15]

(b) whether Fingal was entitled to an account from NDP, either by its reservation of rights, because NDP was a mortgagee in possession, by virtue of Fingal holding the equity of redemption in respect of the NDP mortgage or (if leave to amend is given) by virtue of cl 4.1 of the priority deed;[16]

(c) whether NDP owed a duty to Fingal not to waste the assets of AVSS;[17]

(d) whether NDP wrongly exercised its powers as mortgagee to pay Hughes Kennedy $57,901.50 when apartment 112 was sold;[18]

(e) whether the payments totalling $487,000 to Hughes Kennedy were secured by the NDP charge;[19]

(f) whether the Ferguson payment was properly treated as a secured advance by NDP;[20]

(g) whether the undrawn fees in respect of the DBR facility were due;[21]

(h) whether NDP caused the alleged GST loss to AVSS;[22]

(i) whether the Court should have refused declaratory relief;[23]

(j) whether the Court should have ordered NDP to pay moneys to Fingal pending the taking of accounts;[24]

(k) whether the order for taking of accounts should be set aside;[25] and

(l) whether the Court should have ordered NDP to pay the costs of the proceeding to date.[26]

63 In short, for the reasons that follow, as mentioned, the application for leave to appeal should be granted and the appeal should be allowed in part. The above issues should be resolved as follows:

(a) the Fingal loan and the Fingal charge were valid and enforceable as deeds (and NDP and AVSS are estopped from contending otherwise);[27]

(b) Fingal was not entitled to an account from NDP except in so far as NDP was a mortgagee in possession (leave to amend in respect of cl 4.1 of the priority deed should be refused);[28]

(c) NDP did not owe a duty to Fingal, except to the extent that it acted as a mortgagee in possession, not to waste the assets of AVSS;[29]

(d) NDP acted as mortgagee in possession in respect of the sale of apartment 112 and wrongly paid $57,901.50 to Hughes Kennedy in that capacity;[30]

(e) the payments totalling $487,000 to Hughes Kennedy were secured by the NDP charge;[31]

(f) the Ferguson payment was not an advance by NDP but AVSS subsequently obtained the benefit of the payment and was obliged to NDP accordingly; it is not necessary to decide whether that obligation was secured by the NDP charge;[32]

(g) undrawn fees of $80,000 in respect of the DBR facility were due and secured by the NDP charge, but the balance that was paid was neither due nor secured and is recoverable by Fingal in the circumstances;[33]

(h) the alleged GST loss to AVSS was not established;[34]

(i) declaratory relief is appropriate only in respect of the validity of the Fingal charge, and only so as to bind the parties to the proceeding;[35]

(j) the order that NDP pay moneys to Fingal pending the taking of accounts should be set aside;[36]

(k) the order for taking of accounts should be set aside;[37] and

(l) the order that NDP pay the costs of the proceeding to date should be set aside.[38]

64 As will be explained, the first declaration made by the trial judge should be varied. The second declaration should stand. The remainder of the declarations should be set aside. The orders made should also be set aside and in their place it should be ordered that NDP pay to Fingal the sum of $57,901.50, along with the total amount in excess of $80,000 charged by NDP to AVSS in respect of undrawn fees, together with interest.

Validity of the Fingal loan and the Fingal charge

65 It is convenient to deal first with the question of the validity and enforceability of the Fingal loan and the Fingal charge. There were four aspects to NDP's argument. First, it was contended that neither of the instruments was operative as a deed. Secondly, it was submitted that neither was supported by consideration. Next, NDP argued that the instruments failed for want of consensus on the part of all the Albury investors and the unitholders. Finally, it was submitted that the judge erred in finding that NDP, AVSS and Leggo were estopped from asserting the ineffectiveness of the Fingal charge to secure the loans it purported to secure.

66 NDP accepted that the execution page of the Fingal loan stated that it was 'Executed as a Deed' and that the agreement complied with the formalities in s 127(3) of the Corporations Act 2001 (Cth) ('Corporations Act').[39] However, NDP submitted that these matters were not determinative. It was submitted that, when the document was read as a whole, the intention to be ascertained objectively from it was that it was to operate according to the law of contract rather than as a deed. NDP relied on a number of formal matters, including that the Fingal loan was not sealed, or expressed to be sealed, in accordance with s 73A of the Property Law Act 1958; it was described as an agreement throughout, including in all operative clauses; the recitals purported to specify consideration passing between the parties; and the document made no reference to having been sealed or delivered. NDP also submitted that the Fingal loan was not immediately binding, because the parties to it lacked the power to grant immediately that which they promised and specific clauses providing for conditions precedent meant that Fingal was not immediately bound by the agreement upon delivery.

67 The same reasons were said to show that the Fingal charge was not intended to operate as a deed. In addition, that document was not 'Executed as a Deed' and was not executed in accordance with s 127(3) of the Corporations Act.

68 The question whether the Fingal loan was to operate as a deed or according to the law of contract is to be determined by reference to the intention of the parties.[40] Both parties accepted that it was permissible to address this issue in the context of the factual matrix as known or assumed by the parties.[41] There is some authority to the effect that evidence may be admitted as to what each party thought was the effect of the relevant document when they executed it.[42] It is not necessary to enter into this question in the present case as NDP did not rely on evidence of this kind.

69 As NDP submitted, the Fingal loan uses the language of agreement, both in its title ('Loan Agreement') and in its operative provisions. However, it describes itself as a deed in the execution provisions and states that it was executed as such. In those circumstances, the formal matters upon which NDP relies are of little assistance. In particular, the words 'Executed as a Deed', if they are operative, would suffice to indicate an intention that the instrument be signed, sealed and delivered.

70 NDP calls in aid the fact that the parties to the Fingal loan did not have the power when it was entered into immediately to grant that which they promised. Reliance was placed in particular on clauses providing for conditions precedent to the provision of the loan. However, the fact that obligations are subject to conditions precedent does not assist NDP.

71 There is a distinction between conditions precedent to contract and conditions precedent to performance. In Perri v Coolangatta Investments Pty Ltd, Mason J stated that '[g]enerally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract'.[43] The provisions of the Fingal loan do not suggest that the conditions precedent are intended to be prerequisites to the formation of a contract. In particular, cl 4.6 provided that the conditions had to be met in order for Fingal to become obliged to advance moneys to AVSS on the drawdown date. The better view is that the conditions precedent were prerequisites to performance. An obligation subject to a condition precedent to performance is immediately binding; as the name indicates, it is merely the performance of the obligation that is delayed pending satisfaction of the condition.

72 NDP submitted that the only indication in the Fingal loan that the parties intended it to operate as a deed was in the words 'Executed as a Deed', which appeared immediately before the execution clauses. Reliance was placed on cases in which instruments were held not to be deeds, despite such wording.

73 No particular form of words is necessary in order to render an instrument a deed of the party executing it. Rather, there must be acts or words sufficient to show that the party intended the instrument to be executed as a deed so as to be presently binding on the party executing it.[44] As the Queensland Court of Appeal explained in Interchase:[45]

The question whether an instrument under seal is a deed depends on whether it was intended to operate as the deed of the person executing it, that is whether it was intended to be immediately binding on that person in the sense that, whether it was intended to operate immediately or subject to a condition, it could not be recalled by the person. A deed, even one 'delivered' conditionally, that is, as an escrow, is in this respect different from a contract. A contract is not binding on an offeror until acceptance by the offeree. A deed is binding on its maker, in the sense in which we have indicated, immediately upon its delivery.

74 In Interchase, the holding company of a corporate taxpayer executed an instrument under its common seal to guarantee the performance of a contract for the purchase of land by the taxpayer, and sent both executed documents to the vendor. The question was whether the guarantee was a deed for stamp duty purposes. The guarantee was not expressed to be a deed, although one clause referred to 'every covenant' in the instrument and another referred to the instrument as 'these presents'. A backsheet, which misdescribed the parties, described the instrument as a 'deed on [sic] indemnity & guarantee', but there was no evidence as to whether it was typed before or after execution.

75 The Court of Appeal held that the guarantee was not a deed. The instrument was poorly drafted and the express language relied on reflected that fact rather than providing any firm foundation for inferring the requisite intention to make a deed.[46] Moreover, there was nothing to distinguish between the tender of the guarantee and the tender of the form of contract, and the latter was plainly the communication of an offer capable of withdrawal prior to acceptance. This was more consistent with the view that the guarantee was also tendered by way of contractual offer rather than so as to have immediate effect.[47]

76 NDP pointed out that the Court said that the 'most striking part'[48] of the guarantee was its opening clause, which stated that the execution of the contract of sale by the vendor of the land was intended to provide the consideration for the guarantee by the holding company of the purchaser's obligations. It was submitted that the Fingal loan was similar, in so far as it contemplated consideration flowing between the parties. But the similarity is illusory. The express words of the guarantee in Interchase indicated that the guarantee obligation was not intended to come into existence until the contract for sale of the land had been executed. Not only did those express words provide a clearer indication of the guarantor's intention than the textual suggestions of a deed, but that interpretation accorded with the commercial reality of the situation. There was no reason for thinking that the guarantor intended to make its offer irrevocable.[49]

77 In the present case, the situation is quite different. The Fingal loan was executed by both parties at the same time, through Crozier. It contained no words corresponding to the 'striking' words to which the Court in Interchase referred. The fact that it contained a mutual exchange of promises and thereby evinced consideration by the parties is not inconsistent with it being a deed. Nor is the repeated description of the instrument as an 'agreement' a strong indication that the parties did not intend the instrument to operate upon execution. In this case, the fact that the instrument was executed by the same person on behalf of both parties, on an execution page describing it as having been executed as a deed, is the clearest indication of the intention of the parties. There is no reason for thinking that Crozier intended the instrument to operate other than as a deed.

78 NDP also relied on Meredith Projects.[50] In that case the question arose whether an instrument was a deed for the purposes of a limitation period. The instrument was described as 'articles of agreement', to which a building contract was annexed.[51] The parties to the instrument were the principal and the contractor under the building contract. The instrument was executed by the contractor with the words 'signed, sealed and delivered' and its attorney was said to have executed 'this deed'.[52] The principal merely stated that its common seal was affixed. The instrument was also executed by two non-parties with interests in the subject matter of the building contract, one by affixing a corporate seal and the other by personal signature.[53] The contractor's attestation clause contained the only indication that the document was intended to operate as a deed.

79 In holding that the articles of agreement were not a deed, the Court distinguished Backstop Nominees Pty Ltd v Goscor Pty Ltd,[54] in which Tadgell J held that an instrument described throughout as an agreement was a deed. The parties were held in that case each to have executed the instrument as a deed. In Meredith Projects, only one signatory's attestation was consistent with the requirements of a deed, one was inconsistent and two were equivocal. There was no indication at all that the principal intended to execute the instrument as a deed. Again, this case does not assist NDP.

80 Rather, the present case more closely resembles Backstop Nominees. In that case, five corporate parties executed the instrument under their common seals (and, in that sense, their execution was 'equivocal'), while two natural persons executed the instrument as a deed. Tadgell J held that the natural persons' execution 'at least suggest[ed] that the corporations [executed the instrument as a deed] too'.[55]

81 The other case on which NDP relied was 400 George Street (Qld) Pty Ltd v BG International Ltd.[56] It concerned an agreement for lease and an instrument of lease executed by the owners and builders of an office building under construction, and a putative tenant. The potential tenant executed the documents first. By the time it learned, several weeks later, that the other parties had all signed, it had changed its mind and purported to withdraw from the transaction. It contended that it had only made an offer, which it had withdrawn before being notified of its acceptance. The other parties contended, among other things, that the tenant was bound by the agreement for lease because it was a deed which it had duly executed and delivered.

82 The putative tenant had signed three copies of the agreement for lease and the lease instrument. The 'signing page', which comprised three pages, contained the words 'Executed as a deed' on its first page. The tenant's managing director 'signed, sealed and delivered' the instrument as attorney and the attestation clause referred to 'this deed'.[57] Two of the other parties executed the deed by affixing corporate seals. The third executed it by signing using the words 'in accordance with its constitution and section 127 of the Corporations Act 2001'. The fourth signed by attorney using the words 'signed sealed and delivered'.[58]

83 Justice McMurdo considered the case similar to Meredith Projects. He held that the reference on the signing page to the document being 'executed as a deed' and the executing words of the tenant, standing alone, would 'unambiguously' prove that the tenant intended that the instrument should be a deed.[59] Even when other matters were considered, those references could not be lightly disregarded. However, other circumstances pointed to the contrary. First, the instrument began by referring to the mutual promises it contained, which were described as 'consideration'. As in Interchase, this was an unambiguous statement that the promises made by the tenant were given for those of the other parties, which was inconsistent with the suggestion that the tenant intended immediately to be bound while other parties were not. The tenant had, consistently with that understanding, left the agreement undated, with the effect that some of its promises awaited definition. There was also no evidence of the parties having intended a deed, and no apparent reason why the instrument needed to be a deed.

84 Again, this decision does not assist NDP. The circumstances of the execution of the agreement for lease were entirely different from the present case, where the parties executed on a single occasion. Moreover, the execution clauses themselves were equivocal because some parties purported to sign, seal and deliver the document while others did not. Again, the agreement for lease was expressly subject to the promises of the parties who had not yet signed.

85 In all the circumstances, there is nothing in the Fingal loan or the evidence surrounding its execution to displace the unambiguous indication that the parties intended it to operate as a deed. The surrounding circumstances point rather in the same direction. There is no reason why Crozier would have wanted to defer the operation of the Fingal loan. For the reasons given, the Fingal loan was executed as a deed.

86 There is no basis for reaching any different conclusion in respect of the Fingal charge. It is described at the outset as 'This deed'. Unlike the Fingal loan, it describes itself subsequently as 'this Debenture', rather than as an agreement. Clause 4 contains the borrower's 'covenants', and by cl 14 the borrower 'covenants' with the mortgagee that it will duly perform and observe the obligations imposed on it. The circumstances of its execution were the same as the Fingal loan, albeit that the execution page did not refer to a deed. It is also to be observed that Crozier on the same day signed an ASIC form certifying compliance with stamp duties law which described the Fingal charge as a 'Deed of Debenture'. Nothing at all turns on the fact that the Fingal charge did not employ the method for executing a deed for which s 127(3) of the Corporations Act provides; there is no single method by which a corporation may execute a deed. For the reasons given, the Fingal charge therefore also took effect as a deed.

87 In light of this conclusion, it is not necessary to decide whether there was valuable consideration for the Fingal loan and the Fingal charge. However, NDP's arguments in this respect should also be rejected. It was submitted that the absence of consideration was revealed by the fact that Fingal had not, in fact, advanced any moneys to AVSS and several of the lenders for whom Fingal purported to be the nominee were unaware of the transactions. They had therefore not committed to making any future advances. But as Fingal submitted, it entered into the agreements as bare trustee for the lenders, under a new loan agreement for which AVSS agreed to provide security. There is no want of consideration in these arrangements.

88 Nor, given the conclusion that the agreements were executed as deeds, is it strictly necessary to consider whether they were supported by a consensus among the lenders. But in any event, a lack of consensus would not go to the validity of the agreements. Whether or not it may point to a breach of warranty of authority or other breach of the agreements on the part of Fingal also need not be decided.

89 The validity of the Fingal loan and the Fingal charge also means that the question of estoppel does not arise. However, since that issue goes also to the relief that was granted, it is necessary to say more about it.

90 It will be recalled that the trial judge held that NDP and AVSS were estopped from denying the validity of the Fingal charge, on the basis that the deed of settlement and the deed of priority expressly acknowledged it and accepted its validity. He held that there was detrimental reliance on the part of Fingal because it had acted on the basis that the Fingal charge was valid and enforceable in all respects.[60]

91 By its written submissions, NDP submits that the finding of estoppel should not have been made against it because there was no detrimental reliance on the part of Fingal and it was not unconscionable of NDP to withdraw its acknowledgement of the Fingal charge because it had been entered into in breach of trust to the Albury investors (whose equitable mortgage was defeated) and in breach of contractual and other duties to the secured and unsecured creditors of AVSS.

92 These submissions, which do not take issue with the finding that NDP had by the deed of settlement and the deed of priority acknowledged the Fingal charge, should be rejected. As to detrimental reliance, Fingal not only entered into the settlement deed and the deed of priority in reliance on the Fingal charge and NDP's acceptance of its validity, it appointed receivers and managers on the strength of the charge. In substance, NDP seeks to resile from the settlement deed. It is impossible to conclude that Fingal has not acted to its detriment on the basis of NDP's acknowledgement if that reliance were to prove misplaced.[61]

93 As to NDP's argument about the absence of unconscionability on its part, Fingal pointed out that this claim was not pleaded, and was not raised until NDP's closing address at trial. NDP has not sought to establish the duties or other obligations to third parties which it alleged that Fingal owed and then breached by entering into the Fingal charge, beyond Fingal's breach of its contractual obligations to Suncorp and DBR. Fingal pointed out that the prior equitable mortgage of the Albury investors could not have been defeated by the subsequent Fingal charge, given with notice of the equitable mortgage. For the reasons advanced by Fingal, none of NDP's arguments affords any foundation for denying the estoppel identified by the trial judge.

94 In the case of AVSS, the position is not materially different. The judge made a declaration to the effect that it too was estopped. AVSS was a party and, while it took no active role at the trial, there is no reason why the declaration in respect of it should not stand. It should be noted in that regard that NDP, not AVSS, contended for the alleged estoppel.

95 Subject to a qualification as to the form of relief, explained at the end of these reasons,[62] the grounds relevant to the validity and enforceability of the Fingal deeds should be rejected.

96 The validity of the Fingal loan and the Fingal charge having been established, NDP's next argument was that NDP did not owe Fingal, as third mortgagee, the duties upon which Fingal relied, and which the trial judge held existed, to sustain Fingal's claim to a taking of accounts.

97 Fingal put its claim against NDP on three principal bases. It first alleged that, when it redeemed the NDP mortgage and charge, it did so subject to its right to seek an account from NDP in respect of all amounts alleged by NDP to be subject to its security. Fingal contended that it was entitled to stand in the shoes of AVSS, by virtue of its position as mortgagee, under which it held the equity of redemption in respect of NDP's security, carrying with it the rights of AVSS as against NDP in respect of that security. Secondly, NDP contended that a mortgagee is bound to account to subsequent security holders and the mortgagor for any surplus in its hands in excess of the amount secured, and is under a fiduciary duty to such persons not to prejudice their interest in such a surplus by the manner in which it is disposed of. Such an account was said to require all disputes regarding the mortgagee's conduct to be resolved. Finally, Fingal sought leave to argue that NDP had an independent obligation to account to it by virtue of cl 4.1 of the deed of priority.

98 As mentioned, Fingal also sought, in submissions filed after the hearing of the appeal, to rely on the fact that AVSS had by the Fingal charge conveyed to Fingal all its assets, including choses in action. This matter will be dealt with separately.

99 Fingal relied first on the circumstances in which it had redeemed NDP's security. It will be recalled that Fingal paid NDP the sum of $16,000.74 when it redeemed the NDP mortgage and charge. The NDP mortgage and charge were discharged on 15 December 2010. Melville gave unchallenged evidence that Fingal reserved its right to challenge the amount claimed by NDP under its security at a future date.

100 The precise form of words by which that reservation came to be made was not in evidence. The trial judge did not admit into evidence correspondence upon which Fingal relied in this respect. This formed the basis for the grounds contained in Fingal's notice of contention. However, on the hearing of the application for leave to appeal, Fingal indicated that these grounds were not pressed. In the end, it was not in issue that Fingal had purported to reserve its rights in the manner Melville described.

101 Fingal submitted that, by its reservation of rights, it was entitled to seek an account from NDP in respect of the amounts NDP alleged were subject to its security. However, by its nature, a reservation of rights preserves rights; it does not create them. The reservation of rights indicated that, in redeeming NDP's security, Fingal was not surrendering such rights as it had to contest the amount NDP had claimed under its security. In other words, its payment of $16,000.74 did not settle any outstanding issues between the parties in that regard. The effect of that reservation of rights could only be measured against the rights that Fingal otherwise had against NDP as prior mortgagee.

102 Fingal contended that it was entitled to an accounting from NDP by virtue of the fact that it had redeemed NDP's mortgage and charge.

103 It is true, in a sense, that a subsequent mortgagee who redeems a prior mortgage is entitled to an account by that prior mortgagee. But it is not correct in the sense for which Fingal contends. The requirement for an account arises because it is necessary, in a redemption action, to determine the amount required to be paid in order to redeem the mortgage. An action for redemption is an action to account; in other words, to certify the amount the mortgagor needs to pay the receiver or mortgagee in possession to discharge the property from the mortgage.[63] No such action was brought in the present case. The amount to be paid upon redemption was instead the subject of agreement. In the circumstances, no occasion for a taking of accounts arose.

104 At best, the reservation of rights might be said to have sought to leave open the price to be paid by Fingal to redeem the NDP mortgage. But even if it were to be suggested that this gave rise to a contractual entitlement (which it was not), that would fall well short of establishing a right to a taking of accounts.

105 Moreover, to the extent that the reservation of rights was suggested to have preserved Fingal's ability to exercise rights as assignee of the equity of redemption in respect of the NDP mortgage and charge, the argument must fail. The fundamental right of the holder of the equity of redemption is to redeem the mortgage by paying the mortgage debt. Once the debt is paid and the mortgage is redeemed, the equity is satisfied. This is what Fingal did, as assignee of the equity of redemption in respect of the NDP mortgage and charge, when it redeemed those securities in return for the payment of $16,000.74. There is no suggestion that the redemption was in any way conditional. It was closely followed by the discharge of the mortgage and charge. As a result, the equity of redemption was satisfied and Fingal cannot now rely on it to advance further claims on behalf of AVSS against NDP.

106 At most, the reservation of rights enabled Fingal to claim that it had paid too much to redeem the NDP security. In the circumstances of this case, the point does not need to be considered further because, for the reasons that follow, Fingal is entitled to recover more than the $16,000.74 it paid on other grounds in any event.

Duties of mortgagee to subsequent security holder

107 Fingal relied in its written submissions on a number of authorities in support of the suggested duty of a mortgagee to a subsequent encumbrancer. However, each of them, with one possible exception, addressed the obligations of a mortgagee who holds surplus funds after having exercised a power of sale and paid itself the amounts due under its mortgage. For example, in Adams v Bank of New South Wales, the following statements of principle were stated by reference to the facts in that case:[64]

The rights of the parties after the sale on 2 May 1980 were: the first mortgage was discharged and having regard to the size of the purchase price and the mortgage debt when purchased in 1975, a surplus could be expected. Upon the sale being completed, the mortgagee is bound to furnish to the person or persons entitled to receive those moneys an account, if demanded, of his claims under the mortgage in respect of principal, interest and costs: Coote on Mortgages, 9th ed (1927) at 945, 946. His position after sale, qua a second mortgagee, is clearly stated by Kay J, in Charles v Jones (1887) 35 Ch D 544 at 549, 550:

His duty is to say, 'I have paid my debt: this property which is pledged to me, and in respect of which I now hold this surplus in my hands, is not my property. I desire to get rid of this surplus, and hand it back to the person to whom it belongs.' ...

108 The same passage in Charles v Jones was quoted with approval by Gummow, Hayne, Heydon, Kiefel and Bell JJ in Bofinger v Kingsway Group Ltd:[65]

The position in equity was described as follows by Kay J in Charles v Jones as follows:

I have never heard it doubted that where a mortgagee sells, and has a balance in his hands, he is a trustee of that balance for the persons beneficially interested. He takes his mortgage as a security for his debt, but, so soon as he has paid himself what is due, he has no right to be in possession of the estate, or of the balance of the purchase-money. He then holds them, to say the least, for the benefit of somebody else, of a second mortgagee, if there be one, or, if not, of the mortgagor. What, then, is he to do? Surely he has a duty cast upon him. His duty is to say, 'I have paid my debt: this property which is pledged to me, and in respect of which I now hold this surplus in my hands, is not my property. I desire to get rid of this surplus, and hand it back to the person to whom it belongs.' ... The duty of this mortgagee was at least to set this money apart in such a way as to be fruitful for the benefit of the persons beneficially entitled to it. To that extent and in that manner he was, according to my understanding of the law, in a fiduciary relation to the persons entitled to the money. ...

109 None of the decisions upon which Fingal relied takes the matter beyond the obligations of a mortgagee who has exercised a power of sale.[66] The only authority cited which was expressed in more general terms did not expressly support Fingal's current proposition and, in any event, relied solely on the present decision by way of judicial authority.[67]

110 The obligations which the above authorities recognise arise by virtue of the mortgagee having exercised the power to sell the mortgaged property and then holding a surplus after having taken from the proceeds of sale that to which the mortgagee is entitled under the mortgage. The issue which then arises is, for whom does the mortgagee hold that surplus? As the cases referred to above indicate, the essence of the obligations identified is that the mortgagee is dealing with another person's property. The power of sale upon which the mortgagee relies for obtaining the proceeds of sale of the mortgaged property derives from the mortgage agreement. As such, the mortgagee is only entitled to apply the proceeds for its own benefit to the extent that the mortgage permits.

111 Fingal seeks to identify a much wider obligation on NDP, one not dependent on the exercise of the power of sale or any other rights or obligations sourced in the mortgage. It is said that a mortgagee has a duty to account to a subsequent mortgagee in respect of moneys that have come into its hands while an amount is outstanding on the subsequent mortgage. It is also submitted that there is a duty not to 'waste' such moneys or to allow them to be spent other than in accordance with the relevant priorities.

112 The trial judge held that 'NDP, as the prior ranking security holder, [had] a duty to account to Fingal as a subordinate security holder and assignee of the equity of redemption'.[68] In addition, the judge held that NDP would be responsible for 'waste' only 'if it gave the necessary instruction or direction or was in effect a mortgagee in possession'.[69] In effect he identified three sources of NDP's duty to account to Fingal depending on Fingal's status: (1) as the subordinate security holder; (2) as the assignee of the equity of redemption; and (3) as having given an instruction or direction to the receiver or acting as a mortgagee in possession. Fingal's status as assignee of the equity of redemption has already been addressed. It is convenient to consider next Fingal's status as a subordinate security holder. Consideration of NDP having given an instruction or direction or acting, in effect, as a mortgagee in possession arises only in respect of the challenged amount in respect of the sale of apartment 112, and can be deferred for present purposes.

113 In support of the identified duty to account to a subsequent security holder, the trial judge relied on three authorities. NDP contended that this reliance was misplaced. It is necessary to consider each of these decisions.

114 The first case was Westpac Banking Corporation v Daydream Island Pty Ltd.[70] In that case, a first mortgagee went into possession after default by the mortgagor and sold the business. The second mortgagee sought an account from the first mortgagee, who initially contended that its obligation to account arose only if there was a surplus in its hands. That contention was abandoned, and McPherson J explained why the concession was properly made:[71]

That reasoning, if accepted, would appear largely to defeat the purpose of relief by way of taking accounts, a principal object of which is to find out whether there is a surplus. It is true that a second mortgagee may depend for his interest in the proceeds upon the existence of a surplus; but as assignee of the equity of redemption he is in general entitled to enforce against the first mortgagee all rights available to the mortgagor himself.

It was further conceded that a mortgagee in possession is liable 'as of course' to an account on the footing of wilful default. The second mortgagee 'sought no order for an account of a wider kind than that which is conceded to be available as of course against a mortgagee in possession'.[72]

115 It is apparent from these references that the propositions for which this decision was cited were not in issue in the proceeding. At the same time, McPherson J plainly accepted their correctness, and cited authority to that effect. But the propositions are more confined than Fingal asserts. The right to an account which was sustained in Daydream Island was that of a mortgagee in possession. This reflects the third source of duty referred to at [112] above, rather than an independent and wider source of its own. Similarly, in so far as McPherson J referred to the ability of a subsequent mortgagee to enforce the rights of the mortgagor, as assignee of the equity of redemption, this reflects the second of the potential sources mentioned earlier and does not assist in establishing the first of them.

116 The second authority was Downsview Ltd v First City Corporation Ltd,[73] a decision of the Privy Council on appeal from the Court of Appeal of New Zealand. A company issued two debentures and the second debenture holder appointed receivers and managers of the company. The assignee of the first debenture then appointed a receiver and manager, not for the purpose of enforcing its security but to disrupt the receivership under the second debenture. The second debenture holder sought damages in negligence for breach of duty by the first debenture holder and its receiver and manager. The action succeeded at first instance and the appeal was allowed in part. In a judgment delivered by Lord Templeman, the Privy Council relevantly restored the judge's orders.

117 Lord Templeman rejected as untenable an argument that a first mortgagee owed duties to the mortgagor but no duty to any subsequent encumbrancer. He explained:[74]

The owner of property entering into a mortgage does not by entering into that mortgage cease to be the owner of that property any further than is necessary to give effect to the security he has created. The mortgagor can mortgage the property again and again. A second or subsequent mortgage is a complete security on the mortgagor's interests subject only to the rights of prior encumbrancers. If a first mortgagee commits a breach of his duties to the mortgagor, the damage inflicted by that breach of duty will be suffered by the second mortgagee, subsequent encumbrancers and the mortgagor, depending on the extent of the damage and the amount of each security.

118 These observations were directed to identifying those with standing to recover for a breach of duty by a first mortgagee. Lord Templeman went on to explain the nature and extent of the relevant duties:[75]

Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower.

119 Lord Templeman summed up the position as follows:[76]

A mortgagee owes a general duty to subsequent encumbrancers and to the mortgagor to use his powers for the sole purpose of securing repayment of the moneys owing under his mortgage and a duty to act in good faith. He also owes the specific duties which equity has imposed on him in the exercise of his powers to go into possession and his powers of sale.

120 In Downsview, the duty in issue was the duty to exercise the mortgagee's powers, in this instance the power to appoint a receiver, in good faith. The position of the receiver was also in issue, but no similar claim arises in the present case. The case relevantly stands for the proposition that the powers of a mortgagee must be exercised in good faith and for the sole purpose of securing repayment of the moneys owing under the mortgage, and that failure to do so renders the mortgagee liable to account to a subsequent encumbrancer and the mortgagor. The case does not establish that a mortgagee owes a general duty to a second encumbrancer to account for any moneys that come into its hands otherwise than through the exercise of its powers as mortgagee.

121 The third decision the judge relied on was that of O'Bryan J in Re Otway Coal Co Ltd.[77] In that case, a receiver of a company which had been dissolved since his appointment sold assets of the company, which had been thought to be valueless, for a substantial sum. The company was restored to the register and the first debenture holder was paid in full. The receiver took out an originating summons to determine his duty with regard to the balance. The main issue before the Court was whether the second debenture survived and its enforcement was statute barred.

122 Having decided that the second debenture was enforceable, O'Bryan J stated, without elaboration, that its holders were entitled to the remaining surplus.[78] The case presented no issue for consideration regarding any duty on the part of the prior encumbrancer. The receiver for that encumbrancer was simply approaching the Court for a determination as to the ownership of the surplus, thereby resolving the question which the authorities referred to earlier indicate arises once a prior security has been satisfied.

123 Fingal drew attention to an observation made by O'Bryan J after finding that the moneys were held for the second debenture holders, where he said that the proceeding was in substance 'a proceeding by persons with proprietary interests in property to enforce a charge, or, in another aspect, a proceeding by a beneficiary to enforce a trust'.[79] But again, the existence of a trust in circumstances where property of the mortgagor has been sold pursuant to powers of the prior encumbrancer (here, to appoint a receiver) is uncontroversial. This observation does not support the general duty advanced by Fingal.

124 In addition to the above authorities, Fingal pointed to material in Halsbury's Laws of England which it contended supported its position.[80] The passages in question are found under the 'Mortgage' title and more particularly the 'Accounts between Mortgagor and Mortgagee' subtitle. The relevant section commences with the following:

The relation of mortgagor and mortgagee is terminated by redemption, foreclosure, or the accounting for the proceeds of realisation, and proceedings for any of these purposes involve the taking of an account between the mortgagor and mortgagee.[81]

125 The explication of the law of account then proceeds to explain, among other things, that 'an account taken against a first mortgagee at the instance of a second mortgagee [is] taken in all respects as though the mortgagor were taking it',[82] and, conversely, an account between a mortgagor and mortgagee binds a second mortgagee.[83] An account may be reopened by giving 'leave to surcharge and falsify, that is to take exception to particular omissions or entries', including at the instance of an absent party.[84]

126 In written submissions filed after the hearing in this matter, Fingal placed particular reliance on the cases cited in Halsbury's in support of the following propositions:[85]

General principle as to application of money. Where the mortgagor is indebted to the mortgagee on other accounts than the mortgage, the mortgagee is not at liberty to appropriate sums received by virtue of the mortgage to those other accounts. An incumbrancer is bound to apply what he receives by virtue of his security to that security.[86] Money received by a mortgagee on a sale by the mortgagor in which he concurs is received by virtue of the security.[87]

127 Fingal submitted that these authorities demonstrated that, to the extent that NDP had received and retained funds by virtue of its security, including moneys in respect of which it was an unsecured creditor, it was not entitled to retain those funds. It was submitted that this principle applied even when the funds were not received pursuant to the exercise of a mortgagee's powers, for example where the mortgagee had concurred in recovery of the funds by the mortgagor. An analogy was sought to be drawn between the latter situation and the present case, where the funds repaid to NDP had been recovered by the receiver and manager appointed by NDP. Those moneys were submitted to have been recovered by virtue of NDP's security.

128 NDP submitted that the decisions in question showed only what amounts were to be included in the course of a taking of accounts. They did not establish any entitlement to a taking of accounts, or any duty to account for payments received through a receiver. The principles stated by Halsbury's were said to arise during a taking of accounts conducted to satisfy a duty to account already established on some other basis. The cases in question were explained as actions to redeem, in which the need for a taking of accounts was never in issue.

129 The submissions of NDP should be accepted. The quoted extract from Halsbury's proceeds on the basis that accounts are to be taken. It does not suggest a duty to account arising from the mere receipt of moneys by a mortgagee not exercising a power of sale or other mortgagee powers. Nor does it suggest that a mortgagee has a duty to account for moneys it receives from a mortgagor merely on the basis of having concurred in the mortgagor's actions. The cases Fingal relies on do not support those propositions either. Moreover, there is an independent reason why the proposed analogy to the position where a mortgagee receives funds through a receiver should be rejected. It is convenient to refer first to the decisions relied on.

130 In Knight v Bowyer,[88] a life tenant of real property granted three annuities, secured on judgments granted to the annuitant. He subsequently granted six further annuities and charged his estate to secure his obligation to those annuitants, appointing a receiver of the rents of the estate as part of that security. Later still he granted three more annuities, charged on the same estate, and directed the receiver to pay these annuities also from the rents. When the six annuities went into arrears, the receiver went into possession of the estate. The first annuitant claimed a lien on the estate by virtue of his judgments and sought the rents and profits of the estate on that basis. An agreement was subsequently entered into between the first annuitant and the six annuitants in respect of the rents and profits of the estate, under which the first annuitant would receive a fixed sum from the rents each year, the surplus being further dealt with among the six annuitants.

131 In proceedings brought by one of the final annuitants, an account was directed of what was due to the first annuitant. The plaintiff contended that the first annuitant was not entitled to any amount because the annual rents he had received exceeded the amount of the judgment debt which was his security. It was submitted that the first annuitant could not apply the rents, as against a subsequent encumbrancer, otherwise than in satisfaction of his own encumbrance.

132 The case did not consider the basis for the taking of accounts that had been ordered, although it is evident that this was a redemption suit by the final annuitant. It was held that the rents in question had not been received by virtue of the first annuitant's security. The reasoning of Turner LJ does not assist Fingal; rather to the contrary:[89]

It may well be that an encumbrancer is bound to apply what he receives by virtue of his security to the security by virtue of which he receives it; but ... these rents were not received by [the first annuitant] by virtue of the judgment, for he never got into possession under the judgment; and if he did not receive the rents under the judgment, I can see no ground on which it can be held that he was bound to apply them in payment of the judgment debt.

133 The case demonstrates that the powers of a security holder may only be exercised for the purpose of recovering the debt secured. But it also shows that amounts received other than by exercise of those powers (for example, pursuant to an agreement between security holders) need not be applied to the secured debt. The words 'by virtue of his security' do not point to any wider or more onerous obligation.

134 In Johnson v Bourne,[90] a mortgagor built houses on the mortgaged land and sold the houses to third parties. The purchase moneys were paid directly to the mortgagee, which credited them against an unsecured account of the mortgagor. A subsequent encumbrancer issued proceedings for redemption of the first mortgage, including the taking of an account as to what, if anything, might be due to the first mortgagee. It may immediately be seen that, as in Knight v Bowyer, a requirement to account arose independently of the receipt of the moneys, upon the bringing of a redemption suit by a subsequent encumbrancer.

135 The question for determination was whether the moneys received on the sale had gone to reduce the first mortgage debt. Expressed in the terms of the mortgage, the issue was whether the moneys were 'recovered or recoverable by virtue of [the] security'.[91] In answering that question in the affirmative, the reasoning of KnightBruce V-C is instructive as to what is meant by 'concurrence' of the mortgagee in this context:[92]

These sums were received from the purchasers of parts of the property: in two instances upon sales made by the mortgagees under their power of sale; in the third instance upon a sale expressed to be made by the mortgagor, with the mortgagees' concurrence, on the terms of receiving the purchase-money in part reduction of their mortgage debt.

Now, it seems difficult to say that these sums were received otherwise than by means or virtue of the security. Gore, the mortgagor, is not allowed to receive them. The mortgagees stand between him and the purchaser, and take the money immediately out of the purchasers' hands. Is it possible to say that they do not get it by means or virtue of the security? If indeed they had merely joined in the conveyance to the purchaser for the purpose of assurance, and being not unwilling that their security should be diminished, and having confidence in the mortgagor, they had allowed him to receive the money, then, though he had paid it the next hour into the bank, they would not have received it by means or virtue of the security, but by the voluntary payment of the mortgagor. But here they will not let the mortgagor receive - they will not let their security be reduced without a corresponding payment. The consequence is that they directly and immediately make their security available for payment of their debt pro tanto.

136 This passage reveals that the 'concurrence' of the mortgagee in Johnson v Bourne amounted to permission to sell, despite the mortgage. Moreover, it was permission to sell on terms that the mortgagee would receive the purchase money. As the passage cited explains, such action is tantamount to exercising the powers of the mortgagee, effectively by refraining from exercising those powers on condition that the proceeds of sale are paid towards the mortgage debt.

137 Again, Johnson v Bourne offers more support to NDP's case than it does to Fingal's. Far from establishing a security holder's duty to account to a subsequent encumbrancer for all moneys coming into its hands, the cited passage shows that, had the moneys been received by the prior security holder other than by virtue of the exercise of the security - for example, by the voluntary act of the mortgagor - there would have been no obligation to account for those moneys to a subsequent encumbrancer. While turning on the operation of the mortgage deed in the case, this conclusion points against the existence of the wider obligation to account for which Fingal contends. At the least, no such duty appears to have been suggested to arise.

138 Likewise, the ability of someone who is already a party to the taking of accounts to 'surcharge and falsify' to correct errors does not assist Fingal. That involves a reopening of accounts already taken, on the basis of identified error. Such a process is removed from the present case. Again, there is no freestanding right to assert 'error' by challenging the grounds on which a prior mortgagee has treated moneys coming into its hands otherwise than by virtue of the exercise of the mortgagee's powers.

139 It also follows that the analogy sought to be drawn between a mortgagor receiving moneys with the concurrence of the mortgagee and a receiver recovering moneys on sale lacks its suggested foundation. But there is another reason why the analogy must be rejected. It lies in the nature of the role of a receiver appointed under a mortgage.

140 A receiver is the agent of the mortgagor, not the mortgagee who appointed the receiver.[93] The appointment is facilitated by the mortgagee's powers pursuant to the mortgage instrument (or by statute) for the purpose of enabling the receiver to stand in the mortgagor's shoes for the purpose of realising the security. That may include carrying on the mortgagor's business. To do so it is essential that the receiver acts as the mortgagor's agent. But the receiver is no ordinary agent. The receiver's relationship with the mortgagor is 'special and limited in its character'.[94] The primary duty owed by the receiver as agent to a mortgagor is to exercise the receiver's powers in good faith for the purpose of obtaining repayment of the debt owing to the mortgagee.[95] The appointment is primarily a device to protect the mortgagee, not the mortgagor: '[t]he receiver is a piece of administrative machinery designed to enforce a charge'.[96]

141 Consistently with the status of a receiver as agent of the mortgagor, the mortgagee has no true power to instruct or direct the receiver in the exercise of its powers,[97] and is not responsible for any breach by the receiver of its duties.[98] These aspects of a receivership enable the mortgagee to obtain the benefits of its security without being subject to the liabilities of a mortgagee in possession.[99] If the receiver breaches their duties, it is the mortgagor who, as principal, is liable at the suit of the mortgagee or a subsequent mortgagee.[100] Further, while the receiver has a duty to apply the proceeds of the company to the debt of the mortgagee, money in the receiver's hands is, until it is applied, money of the mortgagor.[101]

142 In these circumstances, the analogy for which Fingal contends cannot be sustained. Moneys brought in by a receiver are, in a loose sense, recovered by virtue of the security. But they are recovered on behalf of the mortgagor, not the mortgagee. If they are then paid to the mortgagee, that again is done on behalf of the mortgagor. If they are wrongly paid, the mortgagor or a subsequent encumbrancer may have an action against the receiver.[102] But Fingal contends for a fundamentally different result, whereby the mortgagee would be liable for the acts of the receiver by virtue of 'concurring' in those acts. This would turn the legal position of receivers on its head.

143 The law already provides for an exception to the general position regarding a mortgagee's lack of responsibility for acts of a receiver. Where a mortgagee instructs, directs or interferes with the exercise of the powers of the receiver, the mortgagee may become liable for a breach by the receiver of its duties.[103] The level of involvement required to produce that result was explained in this way by Croft J in Bank of Western Australia Ltd v Abdul:[104]

The evidence must show that the mortgagee, the secured creditor, was so intimately involved in the performance of the receiver's activities as to transform the character of the relationship between the mortgagee, the secured creditor, and the receiver into one of principal and agent.

As already mentioned, consideration of this head of liability can be deferred.[105]

144 Fingal finally contended that, even if no authority was found to support its contended duty to account, nor was there authority against it. It submitted that there was no logical reason why the obligations of a prior encumbrancer should depend on whether money came into its hands through the exercise of its powers as security holder or otherwise.

145 That submission should be rejected. The source of the duty to account to a subsequent security holder is the exercise of powers, conferred upon the security holder for the limited purpose of recovering its secured debt, to deploy the property of the mortgagor to produce a result beyond the fulfilment of that purpose. Bad faith is an extreme example of such a result. The creation, using mortgagee powers, of a fund larger than that needed to satisfy the mortgage debt is a more common instance, for example, by the exercise of a mortgagee's power of sale. The general duty for which Fingal contends rests on no such foundation, and no alternative basis was suggested. In the circumstances, if there were a duty on the mortgagee to account to subsequent encumbrancers for amounts received by it otherwise than by virtue of it deploying the mortgagor's property for the purpose of recovering its secured debt, there would be no apparent reason why that duty would not extend to unsecured creditors as well. Any creditor of the mortgagor could then hold a mortgagee to account for having received more than was due to it under the mortgage. The general law does not provide for such a result.[106]

146 It follows that, aside from any duty to account arising from NDP exercising its powers as mortgagee, NDP was under no general duty to account to Fingal on the basis that it was a subsequent encumbrancer.

Rights arising as assignee of AVSS's choses in action

147 It has already been observed that the equity of redemption, under which Fingal stood in the shoes of AVSS in respect of the NDP mortgage, was satisfied when Fingal redeemed that mortgage. Prior to that time, Fingal was entitled to enforce against NDP all rights available to AVSS as mortgagor.[107] However, it did not do so. Instead, it redeemed the mortgage and succeeded to the position of first ranking security holder. This meant that Fingal could no longer rely on the equity of redemption to assert the rights of AVSS against NDP.

148 However, as mentioned above,[108] Fingal also sought after the hearing of the appeal to rely on a variant of the argument that it was entitled to exercise all the rights of AVSS as mortgagor in relation to the NDP charge, by virtue of being the assignee of the equity of redemption. It submitted that, under the terms of the Fingal charge, it was also the assignee of the rights of AVSS generally. On this approach, the equity of redemption was not a necessary foundation for Fingal's claims.

149 This argument was not developed at any length and NDP took issue with Fingal seeking to raise it on appeal. It contended that Fingal had not run its case at trial on the basis that the receiver had improperly paid NDP or that Fingal sued in its capacity as assignee of a chose in action from AVSS. It was the receiver that had made the payments to NDP and the propriety of his doing so had not been challenged. NDP contended that, had such claims been raised, the receiver would have had to be called to give evidence.

150 It is true that the claims made by Fingal at trial (and on appeal) did not extend to wrongdoing on the part of the receiver in making payments to NDP. However, this argument did not rely on wrongdoing by the receiver. Moreover, Fingal did submit at trial, albeit in the most general terms, that it was advancing claims that could have been advanced by AVSS, by way of 'shortcut', and that this meant that AVSS was a necessary party. There is no reason not to permit Fingal to run the same argument on appeal. The liquidation of AVSS presents no obstacle because the liquidator, by reason of AVSS being a party, was on notice of Fingal's claims and has taken no step to contest them. Moreover, as will appear, the only claim in respect of which this argument avails Fingal is one in respect of which the facts are not in dispute. The claim is therefore not one which NDP can say that it could have met by calling evidence, had it been raised more directly at trial.[109]

151 It should be observed, however, that standing in the shoes of AVSS assists Fingal only to a limited extent. AVSS was not, other than by virtue of the equity of redemption, entitled to a taking of accounts in respect of the NDP mortgage. Fingal cannot, therefore, deploy this argument to obtain that relief for itself. Nor could AVSS recover from NDP amounts that were owing by it to NDP, even if unsecured; AVSS would have no legal basis for resisting payment. Fingal did not explain how AVSS could have recovered from NDP amounts received by NDP by way of repayment of debts owing by AVSS, simply by establishing that those debts were not secured.

152 None the less, to the extent that Fingal is able to demonstrate that NDP retains amounts which were not properly due to it on AVSS's account, AVSS is entitled to reclaim those amounts and Fingal, pursuant to its rights under its charge, can recover them itself. These include a sum representing an amount received by NDP for undrawn fees in excess of its contractual entitlement, together with interest. This is discussed below.[110]

153 The final basis upon which Fingal sought to establish a duty to account on the part of NDP was an obligation said to arise from cl 4.1 of the priority deed, which obliged each party to exercise its rights under its security and do everything required in such a way as to give effect to the order and amount of priority established under the deed and 'to account to the other parties to the extent necessary for that purpose'.

154 Fingal did not rely on this ground at trial, and on the hearing of the appeal it sought leave to amend both its statement of claim and its notice of contention to raise the point. It sought to contend that NDP was contractually obliged to account to it in respect of any sum received by NDP from AVSS in excess of the sum required to discharge the secured indebtedness of AVSS to NDP.[111]

155 NDP filed detailed written submissions opposing the grant of leave. It contended that the proposed amendment would put in issue for the first time the source of payments received by NDP from AVSS, the exercise of powers by the receiver of AVSS, the application of proceeds of sale by the receiver and the acceptance and use of those payments by NDP and the knowledge of Fingal of those matters. It submitted that Fingal's case at trial had been limited to whether or not payments made by NDP to itself, and payments made to third parties and later added by NDP to AVSS's loan account, were properly secured. No claim had been made about the application of proceeds of sale by the receiver, or about the receipt or use of trust funds by NDP. The receiver and manager of AVSS, who made those payments, had therefore not been called to give evidence and the factual issues involved were not explored.

156 The specific matters which NDP identified as being in issue for the first time, if leave were to be granted, included the exercise by Fernandez of his powers of sale of secured property, the fact, quantum and timing of payments made by him to NDP, the sources of such payments and in particular whether they derived from secured property, and whether the acceptance by NDP of such payments, and the discharge of debts owed by it to AVSS, were inconsistent with the priorities contained in the deed of priority. NDP did accept, however, that a finding had been made by the judge that it had entered into possession of and sold apartment 112. This matter is the subject of a discrete ground of appeal and it is convenient to postpone consideration of that matter.

157 NDP submitted that the obligation to account in the deed of priority was to be read in the light of the whole of cl 4.1(a), which required each party to 'exercise its rights under its Security and do everything required' so as to give effect to the agreed priorities. The obligation to account 'for that purpose' arose only in the context of a party having exercised its rights under its security. As in its arguments as to the general law, Fingal sought to identify a wider duty, arising in respect of moneys received other than in the exercise of rights over the secured property. NDP contended that resolution of the issues thus raised would necessarily involve contested questions of fact.

158 NDP filed a form of amended defence to the relevant paragraph of the proposed amended statement of claim. Among other things, it did not admit that any repayments made to it by AVSS were made from the proceeds of sale by Fernandez of secured property. Further, it alleged that each of the payments by NDP which were added to its loan account were made at the request of the parties under cl 3.1 of the deed of settlement with the knowledge and consent of AVSS through its receiver and for the benefit of AVSS to discharge its debts, and that in the circumstances Fingal and AVSS were estopped from asserting that the advances made by NDP were unsecured and that repayment of them was inconsistent with the deed of priority.

159 Fingal filed extensive written submissions in reply. It submitted that no issue of fact would arise for the first time if leave were to be granted. As to the four issues to which NDP pointed:

(a) The source of the payments received by NDP from AVSS was never in dispute, being the sale of apartments in the Project.

(b) The exercise of the receiver's powers did not arise for examination because the obligation in cl 4.1 rested on the security holders.

(c) Similarly, the application of proceeds of sale by the receiver did not arise.

(d) The acceptance and use of proceeds of sale by NDP did arise, but had been the fundamental issue in the trial.

160 In effect, Fingal submitted that its argument under cl 4.1 was merely an alternative basis for asserting the duty to account upon which it had consistently relied, and which the judge had found to exist.

161 With respect to the interpretation of cl 4.1, Fingal drew attention to cl 2.5 of the deed of priority, which provided as follows:

All money received by the Bank or the Mortgagee (or a receiver or receiver and manager appointed by either of them) from the disposal of or other dealing with the Property, irrespective of whether the disposal or dealing takes place in connection with the enforcement of any security, must be applied in accordance with the order of priorities set out in this Part 2.

Fingal submitted that NDP's construction of cl 4.1 would be inconsistent with this provision, which made clear that the order of priorities applied irrespective of whether the mortgagee had exercised any power of sale or gone into possession.

162 Fingal said that, even if NDP did not admit that repayments were made from the proceeds of sale of secured property, that fact was established beyond question, including from Leggo's own witness statement. It submitted that the suggested estoppel had no foundation because the judge had found that the payments in question did not fall within cl 3.1 of the settlement deed.

163 In my opinion, the argument which Fingal seeks to advance does not present the list of new factual issues to which NDP points. It merely seeks to rest its case on a different legal foundation. If that legal foundation could be established, the factual issues that would then arise are those already litigated and the subject of the application for leave to appeal.

164 However, there is a different problem. The new legal foundation involves resolution of a question of construction of a contractual provision upon which Fingal placed no reliance at trial. The submissions of the parties have exposed that question of construction as genuinely contentious. NDP submitted, without elaboration, that Fingal's construction of cl 4.1 would necessarily involve contested questions of fact. It was not clear whether NDP meant that the resolution of the construction issue would itself require evidence to be led. Fingal, in its response, pointed for the first time to the potential relevance of cl 2.5 of the deed of priority. But, not surprisingly given the general nature of NDP's submission, it did not address the question whether further evidence would be required.

165 Despite the fact that the parties did not directly address the point, it is quite plain that the question of construction now advanced is itself one upon which either party might well have sought to lead evidence. The priority deed was only raised at trial in connection with the estoppel argument concerning the validity of the Fingal deed and charge, and it is not mentioned in the reasons of the trial judge. The process by which it came into existence was not explored, although there was evidence regarding the drafting of a different form of priority deed earlier in 2009. It appears, from the logo on the face of the executed deed, that it was prepared by Suncorp and that it took a standard form. Leggo gave evidence that Suncorp had required the document to be executed. The relationship, if any, between the deed and the earlier drafts was not canvassed in evidence. Fingal now seeks to contend that the deed not only established relationships of priority among the parties but also conferred a specific right to account extending beyond that which was afforded by the general law. Consideration of whether that was the intention of the parties, objectively ascertained, may well have called for evidence of surrounding circumstances.[112]

166 Where a point is not taken at trial and evidence could have been given which 'by any possibility could have prevented the point from succeeding' it cannot be taken on appeal.[113] The rule is 'strictly applied'.[114] The considerations which underpin this approach were explained by Allsop J (with whom Drummond J and Mansfield J agreed) in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd:[115]

First, the finality of litigation and the importance of parties being bound to the cases they make at trial should never be overlooked. Secondly, the difficulty of the party against whom the new point is raised reaching back in time to assess, necessarily hypothetically, how the conduct of the trial would, or may, have been different should not be underestimated. Such judgments or assessments can require re-agitation or reconsideration of decisions taken before and at trial (which may be privileged) and which can be very difficult to assess and articulate after the event. The entitlement of a party to the benefit of the opportunity of informed and reasonably contemporaneous assessment of relevant evidence, or inquiry, should be respected. Thirdly, the potential unfairness on counsel conducting an appeal who will be expected to assist the court in respect of the prejudice, or lack of it, to his or her client in the face of such matters being raised should not lightly be brushed aside. Even when counsel cannot positively say that something in particular would have been done differently, that does not mean that the court will be satisfied of a lack of prejudice. The possibility of evidence or the possibility that the hearing would have taken a different course, if not fanciful, may well suffice to deny raising of the new point. These considerations should not be seen as not requiring counsel frankly and candidly to say that the trial would not have been conducted differently if he or she is of that view. Fourthly, and in conclusion, before any new point be allowed, the court should be able to be satisfied that the raising of it could work no injustice on the other party and is otherwise in the interests of justice.

167 In the present case, given the fact that it is distinctly possible that evidence might have been led to assist in the process of construction of cl 4.1, I am far from satisfied that the raising of the claim based on that provision could work no injustice on NDP. In the circumstances, the interests of justice are served by affording finality to the litigation and refusing Fingal leave to amend.

168 In summary, NDP owed no general duty to Fingal to account to it for moneys coming into its hands other than as a result of the exercise of NDP's powers as mortgagee. Nor did NDP owe Fingal a duty to account for moneys received by NDP from the receiver it had appointed. However, to the extent that AVSS could recover from NDP for amounts received by it to which it was not entitled, Fingal stands in the shoes of AVSS as assignee of the relevant chose in action by virtue of the Fingal charge. This has implications for the claim with respect to undrawn fees.

169 In his declaration, the trial judge expressed the duty of NDP to Fingal as a duty 'not to sacrifice the assets of AVSS or interfere with or disturb the priorities arising out of the various securities'.[116] That formulation extends beyond the situation where NDP had in its possession moneys belonging to AVSS which it then applied towards its unsecured debt instead of paying them to Fingal as subsequent encumbrancer. The judge applied the duty to cases where NDP was eventually repaid, through the receiver, for amounts which, he held, had not been secured. For the reasons already stated, that approach was in error. However, the judge also held NDP accountable for assets being 'sacrificed' or amounts being 'wasted' as a result of the actions of AVSS. That further aspect of Fingal's claims has not yet been examined and calls for separate consideration.

170 Fingal contended at trial that NDP, either as mortgagee in possession or by directing and instructing Fernandez as receiver and manager, effectively wasted assets of AVSS to Fingal's detriment as subsequent security holder.[117] The judge accepted that NDP would be liable, but only if it gave the necessary instruction or direction to the receiver or was 'in effect' a mortgagee in possession.[118]

171 These two potential bases for liability have already been touched upon. A mortgagee who instructs, directs or interferes with the exercise of the powers of the receiver may become liable for a breach of the receiver's duties, at least on the basis that the mortgagee was so intimately involved in the performance of the receiver's functions as to transform their relationship into one of principal and agent.[119] The obligations of a mortgagee in possession are recognised and distinct. As considered further below, the question whether a mortgagee can be 'in effect' in possession despite the appointment of a receiver was a point of contention between the parties. However, the general propositions which Fingal advanced in this respect, and which the trial judge accepted, were correct. The issue was whether they applied in respect of the transactions in question.

172 The judge's identification of the duties of NDP, and the declaration, extended considerably further than the two propositions just mentioned. It follows that, to a substantial extent, the orders of the trial judge ought to be set aside. It is desirable to defer consideration of the precise effect of the above conclusions until the arguments surrounding each of the contested sums have been considered. Those arguments in one case concern the question whether NDP was exercising a power as mortgagee at the relevant time.

173 The controversy regarding the sale of apartment 112 centred on payment to Hughes Kennedy of a total amount of $57,901.50 which was paid by the purchaser to Hughes Kennedy at settlement. The judge held that the amounts owing were an unsecured debt of AVSS which ought not to have been paid in advance of the debts secured by NDP's and Fingal's securities. Although the payments were made on 22 or 23 June 2010,[120] and Fernandez had been appointed as receiver and manager of AVSS on 22 June 2010, the settlement statement had been prepared by Leggo in his capacity as a director of NDP. The judge found that NDP had thereby permitted part of the settlement funds to be used to discharge an unsecured debt.[121] The direct involvement of Leggo and, through him, NDP, was in breach of NDP's duty to Fingal 'not to sacrifice the assets of AVSS or interfere with or disturb the priorities arising out of the various securities'.[122]

174 Fingal's claim in respect of the relevant payment was that it had been caused to be made by NDP as mortgagee in possession of the assets of AVSS. The judge found that Fingal had failed to prove that NDP was a mortgagee in possession at the time of other payments made before the receivers and managers were appointed.[123] He made no explicit finding on the point as at the time of payment of the proceeds now in issue. However, the clear implication of his reasoning is that he considered that NDP was in possession of the proceeds of the sale of the apartment. The judge's main reason for rejecting such a conclusion in the other instances was that Leggo was relevantly acting as a director of AVSS rather than NDP. Having reached the contrary conclusion in the present case, it is implicit that he considered NDP to have been in possession on this occasion. Although, as mentioned, the judge expressed his conclusion in terms of NDP having sacrificed the assets of AVSS or disturbed the governing priorities, the same result follows in this context, once it is seen that NDP was in possession.

175 NDP challenged the judge's finding that Leggo had acted as a director of NDP when he had the settlement statement prepared. It submitted that Leggo was the sole director of AVSS and its solicitor responsible for managing the sale of the apartments. The firm of which Leggo was a partner acted and attended at settlement on behalf of AVSS, not NDP. There was no reason for NDP to be present at the settlement as it had no interest in it.

176 This argument should be rejected. The short answer to it is that, the receiver and manager having been appointed, Leggo was no longer in control of AVSS and lacked the ability to give instructions on behalf of AVSS as to how the settlement proceeds were to be allocated. Leggo had given evidence that a different partner of the firm acted for the receiver. The only basis upon which Leggo could have given the relevant instructions was as a director of NDP. By causing part of the proceeds of sale to be paid to Hughes Kennedy in satisfaction of its unsecured debt, NDP had acted as mortgagee in possession of those proceeds.

177 NDP submitted that a mortgagee could not go into possession of a mortgagor's assets after a receiver had been appointed. Such a conclusion was said to be inconsistent with the relationship of receiver and mortgagee, under which the receiver is appointed by the mortgagee but acts as agent of the mortgagor. NDP relied on the following observations of Greene MR, addressing an argument that a mortgagee's statutory power to appoint a receiver was to be read as subject to the rights of a mortgagee in possession:[124]

this suggestion ... imputes to the Legislature an intention to produce a result which appears to me to be quite fantastic, a result under which, at one and the same time, there would be a receiver appointed under the section and a mortgagee having possession outside the section. The two positions appear to me to be too incompatible with one another to permit of any such suggestion. In the present case the incompatibility appears very clearly, because, if the argument were correct, it would mean that [the receiver] is to be treated at one and the same time as the agent of the plaintiffs, to retain possession of the premises on their behalf, and as receiver appointed by the plaintiffs as agent of the mortgagor, to collect the rent - two positions which are entirely inconsistent one with the other.

178 Fingal submitted, in effect, that the question whether a mortgagee was in possession was in every case one of fact. Here, the facts pointed to NDP exercising control over the proceeds of sale to the exclusion of the receiver.

179 Fingal's submission should be accepted. The facts in the present case indicate that NDP exercised control over the proceeds of sale. The receiver was appointed on the day when NDP caused the settlement statement to be prepared, and the settlement went ahead on the following day without the receiver having taken any steps in relation to the matter. In the circumstances, the inconsistency of which Greene MR spoke in Refuge Assurance did not arise. No doubt such circumstances are unusual, but the timing of the relevant transactions, coming immediately before and after the appointment of the receiver, is significant in this case.

180 The observations of Greene MR should not be taken as excluding the possibility of a mortgagee ever being in possession while a receiver holds office. Refuge Assurance involved a mortgagee who appointed a receiver named Roberts to the mortgaged property after the mortgagor went into arrears. However, Roberts had gone into possession of the mortgaged property before the deed appointing him as receiver had been signed, sealed and delivered. In substance, then, Roberts was in possession as agent of the mortgagee prior to his appointment as receiver. The mortgagee submitted that Roberts continued in possession as its agent notwithstanding his subsequent appointment as receiver.[125] Roberts was therefore said to be acting simultaneously as agent for mortgagor and mortgagee. Such an inherent contradiction is absent in the present matter. Moreover, to the extent that the observations of Greene MR may have wider application, it must be borne in mind that the question of statutory construction before the Court meant that it was considering an argument that Parliament contemplated an ongoing situation in which a mortgagee was in possession after appointing a receiver. That is not the present case either.

181 Recognition that there may be cases where a mortgagee is in possession of part of the mortgage property, despite the appointment of a receiver, is consistent with the well recognised possibility that a mortgagee may displace the usual relationship of a receiver and the mortgage parties by instructing or directing the receiver so as to make the receiver the agent of the mortgagee to the extent of the instruction or direction.[126] In each case, the usual function of the receiver is altered or displaced, to an extent, as a result of actions of the mortgagee. Refuge Assurance does not deny that possibility.

182 In acting as mortgagee in possession in respect of the proceeds of sale of apartment 112, NDP was therefore entitled to do no more than satisfy its own secured indebtedness. However, in oral submissions NDP advanced a further argument to the effect that, even if NDP was acting as a mortgagee in possession, it had acted within its powers as such. It submitted that the payment to Hughes Kennedy was to be likened to the costs and expenses claimed by a liquidator. In effect, in paying Hughes Kennedy, NDP was meeting a cost of the sale itself, an expense properly incurred in facilitating the creation of the fund from which Fingal sought to be paid.

183 The analogy with the costs and expenses of a liquidator relied on the view taken that a secured creditor would be acting unconscientiously in taking the benefit of a liquidator's work without the liquidator's expenses being met.[127] NDP did not contend that any interest analogous to a liquidator's lien arose in favour of Hughes Kennedy but that the costs of sale fell to be met before secured creditors were paid. It was pointed out in that connection that marketing fees and 'rebates' were payable to Hughes Kennedy, under its contracts with AVSS, upon settlement of the relevant apartment.

184 In the situation forming the basis for the suggested analogy, a mortgagee in possession or exercising a power of sale itself incurs the costs of sale and recovers those costs pursuant to its security. The present situation is different. The sale in question was contracted before NDP as mortgagee effected possession of the proceeds of sale; the costs of sale had already been incurred by AVSS. There was therefore no occasion for NDP to incur any costs of sale on its own account. Its action in facilitating payment to Hughes and Kennedy was therefore of a different character to a payment by a liquidator to an agent in order to achieve a sale. Moreover, NDP had not incurred costs in realising the asset which created the fund.[128]

185 In my opinion, the analogy advanced by NDP is unsound. As the judge found, NDP chose to enable Hughes Kennedy to receive the amount owed to it by AVSS as unsecured creditor, instead of holding the proceeds of sale, as it was required to do, for Fingal as subsequent encumbrancer. Notwithstanding that Hughes Kennedy was properly owed the sum in question in connection with the sale, in the unusual circumstances of this case NDP had no obligation to ensure that this sum was paid. As mortgagee in possession for these purposes, it was obliged to hold excess proceeds for the subsequent encumbrancer. By paying the sum of $57,901.50 to Hughes Kennedy, NDP is liable to account to Fingal for that amount.

186 It follows that it is not necessary to decide whether, in the alternative, NDP instructed or directed the receiver as to the disposition of the proceeds of sale so as, in effect, to make the receiver its agent. However, the judge did not distinguish between giving such an instruction or direction and being, in effect, a mortgagee in possession.[129] The analysis of the facts and the law would yield the same result in either case.

187 In connection with the payment of rebates to Hughes Kennedy totalling $487,000, the judge recorded various matters as to which there was no factual dispute.[130] The amount was paid by NDP directly to Hughes Kennedy in two amounts, namely $330,000 on 29 June 2010 and $157,000 on 7 July 2010 (in each case after the appointment of the receivers and managers). At the time, AVSS had available to it $500,000 which NDP had advanced to it for the purpose of making rebate payments to Hughes Kennedy, but the bank account of AVSS was frozen. There was no evidence that Leggo, who made the payments, had been asked to do so by the receiver.

188 The judge held that it was more probable than not that the amounts were paid by Leggo, not on behalf of AVSS, but on behalf of NDP in circumstances where no further work was required of Hughes Kennedy. He held that facilitating a payment directly to an unsecured creditor did not fall within the ambit of cl 3.1 of the settlement deed and NDP's charge, so that the payment could not be regarded as 'Further Financial Accommodation'.[131]

189 My conclusion that there is no duty to account means that, as there was no question here of NDP exercising any power by virtue of its security, no obligation was owed to Fingal. It does not matter whether or not the advance of $487,000 made to AVSS in order to satisfy its obligations to Hughes Kennedy was secured or unsecured. If NDP ultimately recovered more than the value of its security, it did not do so in the exercise of its powers as mortgagee. Nor would it assist Fingal to rely on rights of AVSS assigned to Fingal. On any view, the money was owed to Hughes Kennedy and by paying it on AVSS's behalf, NDP became entitled to repayment by AVSS. NDP having been repaid, AVSS could not have recovered that payment from NDP, and nor could Fingal do so standing in the shoes of AVSS.

190 In the circumstances, it is not necessary to decide whether the trial judge was correct in holding that the payments to Hughes Kennedy represented unsecured, rather than secured, advances by NDP to AVSS. However, I would also have upheld the argument of NDP in this regard. In my opinion, the payments to Hughes Kennedy constituted secured advances by NDP to AVSS. Even if, as the judge held, there was no request by or on behalf of AVSS that NDP make the payments, cl 3.1 of the deed of settlement did not require the making of such a request. Instead, it recorded that a request had already been made for further financial accommodation 'as and when required' to meet the costs of the Project. In other words, cl 3.1 operated as a standing request for further financial accommodation. Clause 3.5 provided that all moneys advanced by NDP to AVSS before or after the date of the deed were secured by NDP's mortgage.

191 Clause 3.1 specifically contemplated the advancing of further funds to meet advertising and marketing costs and agents' commission. It stated that such advances had been requested. On that basis, the payments to Hughes Kennedy by way of rebates were secured pursuant to cl 3.5 of the deed of settlement and NDP was entitled to recover those advances ahead of Fingal's secured debt.

192 The trial judge held that an amount of $25,000 added to NDP's loan account represented a personal loan by NDP to Rod Ferguson of Hughes Kennedy, rather than a payment of marketing fees to that firm. The payment was made by NDP on 27 April 2009, well before the appointment of receivers. There was no question of NDP exercising its powers as mortgagee. It made the payment as a loan and only later treated it as a further advance to AVSS under its charge, by way of a forward payment of marketing fees. Since the payment was a loan by NDP to Ferguson, it had nothing to do with AVSS and AVSS was never obliged to repay NDP for advancing it. NDP submitted that the evidence showed that the payment did not reflect a loan but was an advance in respect of marketing fees.

193 The trial judge observed that the payment in question had not been recorded in NDP's loan statements at the time (unlike earlier separate advances on marketing fees, totalling $80,000) and that Ferguson had consistently stated that the amount was for his personal use. In seeking to disturb the finding that the amount was paid by Leggo (for NDP) by way of personal loan, rather than an advance on marketing fees, NDP highlighted that AVSS received the full benefit of the payment in the form of a reduction in the amount of marketing fees payable. However, that benefit, which was consistent with Leggo's later approach to the payment, does not change the character of the payment as revealed by the contemporaneous evidence. The amount was repaid by Ferguson's personal cheque and described as a loan by Ferguson in all surrounding communications.[132] Although Ferguson's cheque was dishonoured, it was only after then that the sum of $25,000 was deducted from amounts owed to Hughes and Kennedy. Further, the payment to Ferguson was not described by Leggo as an advance on marketing fees until after it had been made. NDP did not treat the payment as such an advance until receivers had been appointed. The judge rejected Leggo's evidence as a reconstruction after it became apparent that Ferguson would not repay the amount.[133] There is no basis for disturbing that finding.

194 At the same time, however, it is not in dispute that AVSS did ultimately receive the benefit of the transaction, in the form of a reduction in the amount it owed Hughes Kennedy. NDP funded that benefit, by foregoing its right to recover the loan payment. Thereafter, NDP treated AVSS as having received the benefit of an advance equivalent to the amount by which the Hughes Kennedy debt was reduced. In my opinion, NDP was entitled to do so. It had met part of AVSS's obligations, and AVSS became indebted to it for doing so under cl 3.1 of the deed of settlement. As with the Hughes Kennedy rebate payments, it does not matter whether or not that indebtedness was secured.

195 Therefore, while NDP's attack on the judge's finding of fact should be rejected, my earlier conclusions mean that NDP was under no obligation to Fingal in respect of the ultimate repayment to it of the amount of the loan ahead of Fingal's secured debt. Since the amount was owed to NDP and NDP did not act by virtue of its security in recovering payment of it, it was under no obligation to hold it for a subsequent encumbrancer. Nor, again, would Fingal's status as assignee of the rights of AVSS assist.

196 Fingal complained that NDP treated an amount of $152,097 by way of 'undrawn fees' under its charge as due and payable to it. The trial judge held that the fee in question was not payable after the facility was fully drawn, and that the fee was 'no longer relevant or applicable' after the execution of the deed of settlement.[134] As such, there was no basis for NDP to have claimed the fees.[135]

197 Written and oral submissions were made as to the construction of special condition (a) of the DBR facility, which was the source of any obligation to pay an 'undrawn fee', and as to the relevance or otherwise of the deed of settlement.

198 The judge held that no amount was payable under special condition (a). He observed that until receivers were appointed, NDP loan statements had recorded a monthly figure of zero by way of undrawn fees (including after NDP acquired DBR's interest in the loan). As already noted, the trial judge held that the fee in question was not payable after the facility was fully drawn. Further, it was 'no longer relevant or applicable' after the execution of the deed of settlement.

199 NDP submitted that the fee was payable in accordance with the terms of special condition (a) and that it was not open to find that it was only payable until such time as the facility was fully drawn. It also submitted that the settlement deed did not vary special condition (a) and that this had not been pleaded or raised as an issue at trial.

200 As to the first argument, Fingal submitted that special condition (a) was ambiguous, and that it was to be read as imposing a monthly fee only so long as the facility amount was not fully drawn (after allowing for the initial 5 month period). Fingal submitted that this construction was required in order to give special condition (a) an operation that accords with business common sense and is not capricious or unreasonable.[136]

201 NDP's first argument should be accepted. By its terms, special condition (a) provides for a payment of $5,000 per month to accumulate and be payable upon a given date, in the event that the facility amount was not fully drawn within 5 months of initial drawdown. It does not provide for the amount to cease to be payable if and when the facility is fully drawn. It cannot be said that this construction does not accord with common sense or that it is capricious or unreasonable. Both competing constructions provide for a readily calculated sum to accrue if the facility amount is not fully drawn after 5 months. The Court has no foundation for treating one of those constructions as more reasonable or more likely to accord with business common sense than the other. Either sum could properly be seen as part of the agreed price of the financial accommodation. In that context, it should be noted that the description 'undrawn' fee is not used in special condition (a) itself.[137] It appears only in the loan statements. In the circumstances, the grammatical meaning, upon which NDP relies, is to be preferred.

202 The DBR loan was executed on 23 May 2007 and the judge found that this was the date of initial drawdown.[138] The facility amount was not fully drawn until 30 June 2008. NDP's claim was based on a charge of $5,000 from 23 October 2007. However, as NDP accepted in oral submissions on the appeal, the claim for $152,097 could not be sustained. That was because the undrawn fee became payable upon the earlier of the repayment date or the maturity date, and the latter date was defined as 21 months after the initial drawdown date. It follows that the maximum undrawn fee payable was $80,000, representing the 16 months after the 5 month date which triggered the obligation. In the terms of special condition (a) that amount was payable, because the fee continued to accrue even after the facility amount was fully drawn.

203 The judge held that NDP faced a more fundamental difficulty as a result of the execution of the settlement deed. Clause 2.1 of the settlement deed contained an acknowledgment by all parties of the amount of AVSS's indebtedness to date under the DBR facility to which NDP had succeeded. At that time, NDP had not treated any undrawn fee as payable. It may be inferred that no amount of undrawn fees was reflected in the agreed amount of indebtedness. The fee is not properly regarded as further financial accommodation within cl 3.1 either. No money was advanced when the fee was later charged by NDP. Although the settlement deed contains no release by NDP, the judge held that the deed fundamentally altered the nature of NDP's security so that there was no longer any upper limit. As such, there could no longer be an amount that had to be drawn by a particular date.

204 In my opinion, this conclusion cannot be sustained. By the time the settlement deed was executed, the undrawn fee had already become payable. The maximum amount of $80,000 had accrued by 23 February 2009. The settlement deed did not purport to forgive that obligation. In so far as the figure was not factored into the calculations of the NDP indebtedness, it was not contended that this effected a release or gave rise to an estoppel.

205 Moreover, the amount in question, despite not being further financial accommodation, was plainly secured as a cost of the DBR facility itself. It follows that Fingal's claims in respect of the amount of $80,000 should be rejected.

206 The position as to the balance is different. As already held, Fingal is entitled to claim against NDP as assignee of AVSS's choses in action under the Fingal charge. It is entitled on that basis to recover the balance represented by the amount which NDP claimed and now accepts that it received in excess of its entitlement, namely $72,097, along with any interest charged in respect of the excess charges in question.

207 Clause 4.1 of the deed of settlement provided that AVSS would pay NDP $330,000 (inclusive of GST), subject to the provision of a valid tax invoice in settlement of the claims by NDP and Leggo, and cl 4.2 provided that the settlement sum was deemed to be an advance by NDP to AVSS and to be secured money under the NDP mortgage. There was a dispute as to whether NDP had provided AVSS with the necessary tax invoice to enable it to recover the amount of GST included in the settlement sum, being $30,000. Fingal claimed that, by not providing a tax invoice, NDP had wasted the assets of AVSS to the extent of $30,000, which it could have recovered from the Australian Taxation Office or offset against any GST liability.

208 The judge upheld this claim, holding that no tax invoice had been provided and that NDP was directly responsible for AVSS not recovering the amount of $30,000 which should have been available to its secured creditors.[139]

209 It is unnecessary to consider whether any legal foundation was established for this claim. As NDP submitted, it was not demonstrated that any loss had been caused to AVSS even if a tax invoice was not provided. Further, it was not proved that, if a tax invoice were even now to be produced, AVSS would be unable to recover the GST paid. NDP should not have been ordered to pay for the amount allegedly lost.

210 It follows from the foregoing that the declarations of the trial judge need to be revisited.[140]

211 The first declaration, as to the validity and enforceability of the Fingal charge, has effectively been sustained. However, NDP submitted that equitable relief ought to have been withheld in light of the fact that the interests of the Albury investors, who were not parties to the proceeding, were affected, in particular by their prior equitable mortgage being defeated. It was further submitted that the Fingal charge converted the unsecured debt of unitholders into secured debt to the detriment of AVSS, and its interests should also have been taken into account.

212 These submissions should be accepted up to a point. The Albury investors and the unitholders were not parties to the proceeding and the declaration should not state that their loans were secured by it. However, all the parties to the Fingal charge, including AVSS, were parties and there is no reason not to declare the charge to be valid and enforceable accordingly. The first declaration should be varied by omitting reference to the loans of the Albury investors and the unitholders and substituting a reference to Fingal as lender. The declaration as to estoppel should stand.

213 The declarations as to Fingal's standing and NDP's duty should be set aside.[141] For the reasons given, they state the position too broadly. Nor is it necessary for such declarations to be made; in so far as they were intended to guide the taking of accounts which had been ordered, they are redundant.

214 The fourth declaration concerns the recovery by NDP of amounts in excess of the amount secured by its security. The judge's finding of fact in respect of one of those amounts, namely $134,306 by way of consultancy fees charged by NDP, is not in issue in the appeal. The judge accepted that the consultancy fees were payable, but held that the obligation was unsecured. Although NDP did not take issue on the appeal with the finding that the obligation was not secured, or address submissions directed to this specific amount, in its general arguments it has successfully challenged the underlying basis for the fourth declaration, which it sought to have set aside in its entirety. For the reasons given, Fingal was not entitled to a declaration as to the recovery of amounts due to NDP but unsecured. Therefore, the fourth declaration should be set aside.

215 The declaration as to the undrawn fees should be replaced by a specific order for payment to Fingal of the amount which was charged to AVSS in excess of NDP's contractual entitlements.

216 The declaration regarding apartment 112 and the $30,000 GST amount should also be set aside, since it depends on the duties identified in an earlier declaration.[142] However, it will be necessary to make a fresh order regarding the apartment 112 amount, upon which NDP has not succeeded.

217 The remaining declarations, as to the prolonging of the receivership consequent on the breach of duty identified and attendant costs and expenses, and as to interest, are consequential on the earlier matters and therefore fall away.[143]

218 The orders of the judge should be set aside and in their place it should be ordered that the first defendant (NDP) is to pay the plaintiff (Fingal) the sum of $57,901.50, together with such amount as was overpaid in respect of undrawn fees The Court should hear the parties further as to the final form of the orders, including as to interest and costs.

[1] Fingal Developments Pty Ltd v Nom de Plume Nominees Pty Ltd [2015] VSC 44 ('Reasons').

[2] See Fingal Developments Pty Ltd v Nom de Plume Nominees Pty Ltd (No 2) [2015] VSC 146.

[4] Suncorp was not named as a party, but it was listed as the 'first mortgagee' and its mortgage was to be given priority to those of NDP and Fingal.

[14] This appears to be a slip for $57,901.50.

[16] Grounds 1 and 2, and the notice of contention.

[28] It follows that grounds 1 and 2 succeed except in relation to the mortgagee in possession claims.

[39] Section 127(3) provides:

A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).

[40] Meredith Projects Pty Ltd v Fletcher Construction Australia Ltd [2000] NSWSC 493 [175] (Rolfe J) ('Meredith Projects'); Interchase Corporation Ltd (in liq) v Commissioner of Stamp Duties (Qld) [1993] QCA 485; (1993) 27 ATR 154, 155 (Davies, Ambrose and White JJ) ('Interchase'); Xenos v Wickham (1867) LR 2 HL 296, 312 (Blackburn J).

[41] See 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QSC 66 [53], [55] (McMurdo J), affd [2012] 2 Qd R 302; Peter Butt, Land Law (Lawbook, 6th ed, 2010) 741 [19 141].

[42] See, eg, Rose v Commissioner of Stamps (SA) (1979) 22 SASR 84. But see Dean and Westham Holdings Pty Ltd v Lloyd (1991) 3 WAR 235, 248 (Wallace J), 252 (Ipp J); 400 George Street (Qld) Pty Ltd v BG International Ltd [2012] 2 Qd R 302, 316 [30]-[32] (Muir JA; Fraser JA and Mullins J agreeing).

[43] (1982) 149 CLR 537, 552. See also Kaneko v Crawford [1999] 2 Qd R 514, 516 (Pincus and Davies JJA, and Shepherdson J).

[44] Xenos v Wickham (1867) LR 2 HL 296, 312 (Blackburn J).

[45] [1993] QCA 485; (1993) 27 ATR 154, 155 (Davies, Ambrose and White JJ).

[50] [2000] NSWSC 493.

[54] [1990] VicRp 41; [1990] VR 468 ('Backstop Nominees').

[55] [1990] VicRp 41; [1990] VR 468, 470.

[56] [2010] QSC 66.

[61] Fingal submitted that detrimental reliance was not, in any event, necessary in the case of estoppel by deed. Given the above conclusions, it is not necessary to deal with this submission.

[62] See [211]-[212] below.

[63] See generally E L G Tyler, Justice P W Young and Justice C E Croft, Fisher and Lightwood's Law of Mortgage (LexisNexis Butterworths, 3rd Australian ed, 2014) 781 [33.1].

[64] [1984] 1 NSWLR 285, 295 (Hutley JA; Moffitt P and Samuels JA agreeing).

[65] [2009] HCA 44; (2009) 239 CLR 269, 287-8 [35], quoting Charles v Jones (1887) 35 Ch D 544, 549-50. The judgment also cited Banner v Berridge (1881) Ch D 254, 269-70 (Kay J), Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407, 429-30 (Dawson, Gaudron and Gummow JJ) and Lloyds Bank NZA Ltd v National Safety Council of Australia Victorian Division (in liq) [1993] VicRp 88; [1993] 2 VR 506, 511 (Marks J), 514 (J D Phillips J). All these authorities concerned surpluses obtained upon exercise of a power of sale.

[66] Fingal referred also to Re S & D International Pty Ltd (in liq) (rec and mgr apptd) [2009] VSC 225 [159(c)], [159(f)] (Robson J); Residential Housing Corporation v Esber [2011] NSWCA 25; (2011) 80 NSWLR 69,

96-100 [125]-[144] (Campbell JA; Macfarlan JA agreeing); Tyler, Justice Young and Justice Croft, above n 63, 557-8 [20.44], 839 [39.21].

[67] James O'Donovan, Thomson Reuters, Company Receivers and Administrators (at March 2016) [11.5770]. Moreover, the passage in question concerned the duties of a receiver, rather than a mortgagee.

[70] [1985] 2 Qd R 330 ('Daydream Island').

[77] [1953] VicLawRp 74; [1953] VLR 557.

[80] Lord Hailsham (ed), Halsbury's Laws of England (Butterworths, 4th ed, 1980) vol 32, 451-65 [998]-[1031] ('Halsbury's').

[84] Ibid 453 [1002]; see also at 454 [1006].

[85] Ibid 453 [1001] (emphasis in original).

[86] Knight v Bowyer [1859] EngR 908; (1859) 4 De G & J 619, 629; [1859] EngR 908; 45 ER 241, 245 (Turner LJ).

[87] Johnson v Bourne [1843] EngR 541; (1843) 2 Y & C Ch Cas 268; 63 ER 118; Young v English [1843] EngR 1256; (1843) 7 Beav 10; 49 ER 965.

[88] [1859] EngR 908; (1859) 4 De G & J 619; 45 ER 241.

[90] [1843] EngR 541; (1843) 2 Y & C Ch Cas 268; 63 ER 118.

[93] Re B Johnson & Co (Builders) Ltd [1955] Ch 634, 644 (Evershed MR).

[94] R v Board of Trade; Ex parte St Martins Preserving Co Ltd [1965] 1 QB 603, 617 (Winn J). See also Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407, 418-19 (Brennan J).

[95] Downsview [1993] AC 295, 312 (Lord Templeman); State Bank of New South Wales v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587, 625 [868] (Einstein J) ('Chia').

[96] Re Leyland DAF Ltd [1993] BCC 626, 630 (Nicholls V-C).

[97] Gaskell v Gosling [1896] 1 QB 669, 693 (Rigby LJ): dissenting view approved on appeal in Gosling v Gaskell [1897] AC 575; Chia [2000] NSWSC 552; (2000) 50 NSWLR 587, 629 [878] (Einstein J); Medforth v Blake [2000] Ch 86, 95 (Sir Richard Scott V-C).

[98] Gaskell v Gosling [1896] 1 QB 669, 692 (Rigby LJ); Expo International Pty Ltd v Chant [1979] 2 NSWLR 820, 829-30 (Needham J).

[99] Gaskell v Gosling [1896] 1 QB 669, 692; Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354, 376 (Starke J), 381 (Williams J) ('Visbord'); Medforth v Blake [2000] Ch 86, 93-4 (Sir Richard Scott V-C).

[100] Gaskell v Gosling [1896] 1 QB 669, 692; Visbord [1943] HCA 4; (1943) 68 CLR 354, 368 (Latham CJ).

[101] Visbord [1943] HCA 4; (1943) 68 CLR 354, 367-8 (Latham CJ).

[102] There may also be a Barnes v Addy claim available against a mortgagee who receives moneys with knowledge of a receiver's breach of duty. No such claim was made in the present proceedings.

[103] American Express International Banking Corporation v Hurley [1985] 3 All ER 564, 571 (Mann J); Wiley v Commonwealth (1995) 131 ALR 712, 718 (Lockhart J); Medforth v Blake [2000] Ch 86, 95 (Sir Richard Scott V-C). See also Visbord [1943] HCA 4; (1943) 68 CLR 354, 370 (Latham CJ); Chia [2000] NSWSC 552; (2000) 50 NSWLR 587, 631 [885]-[886] (Einstein J).

[104] [2012] VSC 222 [41].

[105] See [112] above.

[106] As NDP noted, the present case involves no claims under pt 5.7B of the Corporations Act.

[107] Daydream Island [1985] 2 Qd R 330, 331 (McPherson J).

[109] See the authorities referred to at [166] below.

[111] Particulars were provided which elaborated on the alleged nature of the obligation under cl 4.1.

[112] Woodside Energy Ltd v Electricity Generation Corporation [2014] HCA 7; (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 89 ALJR 990, 998 [46] (French CJ, Nettle and Gordon JJ).

[113] Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 438 (Latham CJ, Williams and Fullagar JJ).

[114] Water Board v Moustakas (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJ).

[115] [2001] FCA 1833; (2001) 117 FCR 424, 439-40 [38] (citations omitted).

[119] See [143] above.

[120] The payments were presumably made on 23 June 2010, being the date of the transfer of land. The settlement statement was dated 21 June 2010.

[124] Refuge Assurance Co Ltd v Pearlberg [1938] 1 Ch 687, 692 ('Refuge Assurance').

[126] See [143] above.

[127] See Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171, 174-5 (Dixon J); Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, 667-8 (Deane J); Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307, 317-18 [11]-[13], 320 [22]-[23], 322 [30], 325 [41] (Crennan, Kiefel, Bell, Gageler and Keane JJ).

[128] See Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307, 325 [41].

[129] Reasons [10], [124], [148], [218], [219(e)].

[132] NDP contended that Ferguson's response to an email from Leggo after the payment was made indicated that he accepted Leggo's characterisation of the payment as an advance payment to Hughes Kennedy. However, it is clear from the context that when Ferguson replied simply 'Great - see you Thursday', he was not doing any more than accepting an invitation for coffee.

[136] Fingal relied on Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 233 [12].

[137] The facility agreement itself contained a different clause regarding 'unused' fees. This was not the subject of argument.

[138] Ibid [176]. A loan statement dated 7 July 2010 appears to indicate that the drawdown was on 15 June 2007; nothing turns on the difference.

[140] The declarations are set out at [57] above.