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

Court of Appeal (Vic)|2016-07-14|Before: Tate JA

DEEDS - Whether loan and charge enforceable as deeds - Whether parties intended loan and charge to operate as deeds - Interchase Corporation Ltd (in liq) v Commissioner of Stamp Duties (Qld) [1993] QCA 485; (1993) 27 ATR 154; ; ; ; , considered - Loan and charge intended to operate as deeds.

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.

The Defendants are estopped from challenging the validity and enforceability of the Fingal Charge.
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.
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.

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.
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.
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.

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]

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