NR Addlestone Pty Ltd v Henry and Kogan

The plaintiffs' claim

1. These are the relevant parts of the SOC, especially [26] and [30], and their respective particulars: "Breach of Equitable Duty 25 The first defendant, in their capacity as receiver and manager of the first to third plaintiffs and controller of the fourth to fifth plaintiff, and as agent for the second defendant in its capacity as mortgagee in possession of inter alia the Properties, owed an equitable duty to the first to fifth plaintiffs in their capacity as borrowers in respect of the First Facility Agreement, the Second Facility Agreement and the Restatement Facility Agreement, and the sixth plaintiff in his capacity as a guarantor of the Restatement Facility Agreement, to (Equitable Duty): a. sell the Properties in good faith; and b. take all reasonable care to sell the Properties for not less than market value. 26 In breach of the Equitable Duty, the first defendant failed to: a. sell the Properties in good faith; and b. take all reasonable care to sell the Properties for not less than market value. Particulars i. The first defendant agreed to and exchanged contracts for sale with respect to the Properties at a price that is well below market value for each of the Properties. ii. Addlestone Road Valuation. iii. Merrylands Road Valuation. iv. The first defendant obtained an offer to purchase the Properties for $18,010,000.00 in one line during the "expression of interest" process nominated by the defendants as the process of sale but then proceeded to sell each of the respective lots in the Properties to separate purchasers who had not themselves all engaged in the "expression of interest" process nominated by the defendants as the process of sale. v. Further particulars will be provided prior to trial. 27 As a result of the first defendant's breach of the Equitable Duty, the first to fifth plaintiffs have suffered loss and damage. Particulars i. The difference between the sale price and market value of the Properties. ii. Further and/or alternatively, the loss of rental yield in respect of the Properties and/or loss of profit. iii. Further particulars will be provided prior to trial. Breach of s 420A of the Corporations Act 28 In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: a. if, when it is sold, it has a market value - not less than that market value; or b. otherwise - the best price that is reasonably obtainable, having regard to the circumstances existed [sic] when the property is sold. Particulars i. Section 420A of the Corporations Act 2001 (Cth) (the Act). 29 The term "controller" in relation to property means: a. a receiver, or receiver and manager, of that property; and b. anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property, for the purpose of enforcing a security interest. Particulars i. Section 9 of the Act. 30 In breach of Section 420A of the Act, the first defendant failed to take all reasonable care to sell the Properties for no less than market value. Particulars i. The first defendant agreed to and exchanged contracts for sale with respect to the Properties at a price that is well below market value for each of the Properties. ii. Addlestone Road Valuation. iii. Merrylands Road Valuation. iv. The first defendant obtained an offer to purchase the Properties for $18,010,000.00 in one line during the "expression of interest" process nominated by the defendants as the process of sale but then proceeded to sell each of the respective lots in the Properties to separate purchasers who had not themselves all engaged in the "expression of interest" process nominated by the defendants as the process of sale. v. Further particulars will be provided prior to trial. 31 As a result of the first defendant's breach of Section 420A of the Act, the first to fifth plaintiffs have suffered loss and damage. Particulars i. The difference between the sale price and market value of the Properties. ii. Further and/or alternatively, the loss of rental yield in respect of the Properties and/or loss of profit. iii. Further particulars will be provided prior to trial."

Valuations of the Properties

1. Although the argument proceeded on the basis of the Conceded Differential, it is necessary to set out briefly the evidence as to the value of the Properties.
2. The Properties comprised four primarily residential unit developments in Addlestone Road, Merrylands; Merrylands Road, Merrylands; Jenkins Road, Carlingford; and Durham Street, Mt Druitt.
3. The Receivers invited three well known valuers to submit proposals to value the Properties. Of those three, Savills were engaged to conduct the valuation. They in fact provided two valuations: 1. As at 11 November 2020, the Properties were valued on the basis of their constituent lots being sold individually at $24,436,888 and if they were sold together in one line at $19,140,000. 2. As at 25 March 2021, the individual valuation was $19,989,015 and the in one line valuation was $15,372,500.
4. The Properties were sold on 12 April 2021 for $18,010,000. The two buildings in Merrylands were sold to Makhraz Development Group Pty Ltd (Makhraz Development Group) for $15,000,000. The other two buildings were sold to KYS Properties Pty Ltd (a company in the Capital Developments Group) for $3,010,000.
5. Two other matters are peripherally relevant to the question of valuation.
6. First, on 9 April 2021, through his solicitors, Mr Fayad offered to purchase the Properties for $17,400,000. The offer letter included this statement: "Mr Fayad is confident that the Offer constitutes the highest commercial offer available to you in respect of the assets described in numbered paragraph 3(c) above. In this respect, we remind you of your statutory duties described in inter alia s 420A of the Corporations Act 2001 (Cth) which, in our view, obliges you to accept the offer."
7. Second, Mr Fayad's affidavit filed in relation to the Receiver's motion attaches valuations obtained in 2019 and 2020 which, for example, give a total value for the Properties on an individual lot basis of $37,315,000. There is no suggestion that Mr Fayad put the Receivers on notice of those valuations before the Properties were sold by the Receivers. Mr Fayad's affidavit also states that because the Receivers had proposed the Conceded Differential of $12,640,000, the plaintiffs had not yet obtained valuations as at the date of sale of the Properties by the Receivers.

The Sale Process

1. Approximately two weeks after the plaintiffs' summons was filed, the Receivers' solicitors wrote to the plaintiffs' solicitors setting out the steps that had been taken to sell the Properties. The Plaintiffs did not dispute that those steps had been taken for the purposes of the present application, so it is convenient to set out as a summary the relevant part of the Receivers' solicitors' letter: "Steps taken to sell the Properties 7. We are instructed that the following steps were taken by the Receivers with respect to the sale of the security properties (Properties). 8. On 3 December 2020, the Receivers were appointed. 9. Shortly after their appointment, the Receivers, among other things: (a) arranged for sale documentation to be prepared; (b) set up a data room for prospective purchasers; and (c) engaged real estate agents Jones Lang LaSalle (JLL) to market the Properties for sale via the invitation of Expressions of Interest after receiving submissions from and interviewing a number of national and international real estate agents for comparison. 10. On 3 February 2021, the marketing campaign commenced, consisting of: (a) premium listings on real estate websites; and (b) direct communications through JLL's database (approximately 4,700 contacts). 11. From 2 to 8 February 2021, JLL received 121 enquiries and 18 requests for data room access from prospective purchasers. 12. On 11 and 18 February 2021, the Properties were advertised in the Australian Financial Review. 13. From 5 to 15 February 2021: (a) an electronic brochure advertising the Properties was circulated to JLL's database (approximately 4,400 contacts); (b) JLL received 56 enquiries and 12 requests for data room access from prospective purchasers; (c) weekly inspections of the Properties commenced, with 5 groups inspecting the Properties during this period. 14. From 15 to 22 February 2021: (a) an electronic brochure advertising the Properties was circulated to JLL's database (approximately 4,400 contacts); (b) JLL received 24 enquiries and 10 requests for data room access from prospective purchasers; (c) 7 groups inspected the Properties. 15. From 22 February to 2 March 2021: (a) an electronic brochure advertising the Properties was circulated to JLL's database (approximately 4,400 contacts); (b) JLL received 10 enquiries and 2 requests for data room access from prospective purchasers; (c) 3 groups inspected the Properties. 16. From 2 to 10 March 2021; (a) an electronic brochure advertising the Properties was circulated to JLL's database (approximately 7,400 contacts); (b) JLL received 3 enquiries and 2 requests for data room access from prospective purchasers; (c) 4 groups inspected the Properties. 17. On 11 March 2021, the first round of the Expressions of Interest campaign closed, with 7 parties submitting expressions of interest. 18. On 18 March 2021, the second round of the Expressions of Interest campaign closed, with 6 of the 7 previous parties submitting expressions of interest, and an additional party submitting a first and final expression of interest. 19. The Receivers considered the expressions of interest received. 20. On or about 19 March 2021, the Receivers pursued tranche offers from Capital Developments (Capital) and Makhraz Development Group (Makhraz). 21. On or about 25 March 2021, Capital and Makhraz commenced their due diligence. 22. From 1 to 9 April 2021, the Receivers discussed the terms of the contracts of sale with the prospective purchasers. 23. By 12 April 2021, Capital and Makhraz had paid deposits for the Properties equivalent to 10% of the purchase price for each property. 24. On 12 April 2021, the Receivers and NH Bank exchanged contracts with Capital and Makhraz respectively for the sale of the Properties."
2. The steps taken by the Receivers were then proved formally for the purposes of the present application in an affidavit of one of the Receivers, Mr Henry, which again it is convenient to reproduce and which the Court adopts as its findings of fact for the purposes of the present application (together with the fact of the valuations referred to in [14] above): "21. Marketing submissions were requested from 5 real estate agents who: (a) were large agents operating nationally or in the North-Western Sydney area; (b) had experience in properties of this type; and (c) had experience undertaking sales campaigns for Receivers and Managers and Controllers. … 24. Jones Laing LaSalle (JLL) were selected as the sole agent. Based on the submissions received from JLL, I observed that JLL: (a) had an experienced team available to run the campaign; (b) offered competitive pricing strategy; and (c) had experience in the National Disability Insurance Scheme (NDIS) and Specialist Disability Accommodation market. I saw that some of the occupants of the properties carried on business in this market. 25. From 3 February 2021, a 5 week Expression of Interest campaign was conducted during which potential purchasers were invited to submit Expressions of Interest (EOI) via a 2 round process. 26. During the marketing campaign, JLL: (a) provided a written weekly update; and (b) exchanged regular correspondence with the Receiver and Managers' team … 27. From the reports provided by JLL and discussions with my team, I observed that: (a) JLL received over 200 enquiries; (b) 45 parties accessed the data room which was established to provide information about the Properties including rent returns; and (c) there were 23 property inspections by various parties. 28. The events during the marketing campaign were as follows: (a) 28 December 2020 - pre-sale teaser document distributed; (b) 2 February 2021 - information memorandum and marketing materials finalised; (c) 3 February 2021 - marketing campaign commenced. The marketing campaign included the provision of the following: (i) a data room of relevant information available to potential purchasers; (ii) professional internal/external and drone photography; (iii) an Information Memorandum and e-brochure; (iv) listings on real estate websites (both commercial and residential); (v) newspaper advertisements (appearing on 11 February 2021 and 18 February 2021); (vi) direct communiques through the JLL database sent to circa 4,400 contacts; and (vii) weekly inspections to interested parties. (d) 11 March 2021 - expression of [i]nterest campaign closed; (e) 18 March 2021 - second round expression of interest closed; (f) 19 March 2021 - JLL recommends pursuing tranche offers from Capital Developments and Makhraz Development Group; (g) 25 March 2021 - NH Bank approves entering into a legal due diligence and contract negotiation period with Capital Developments and Makhraz Development Group; (h) 31 March 2021 - deadline for finalisation of contract negotiations and receipt of signed contracts and deposits from Capital Developments and Makhraz Development Group. Due to a delay in availability of sales contracts, this was extended to 1 April 2021; (i) 25 March to 8 April 2021 - we considered the Sixth Plaintiff's refinancing offer (Revised Offer); (j) 9 April 2021 - we considered the benefits to the Revised Offer; (k) 12 April 2021 - we rejected the Revised Offer in writing as the Sixth Plaintiff was unable to provide evidence that funding was in place; and (l) 12 April 2021 - successful exchange of all contracts takes place for the Properties. First round offers 29. At the end of the first round EOI, 7 parties submitted expressions of interest, which included portfolio offers as well as offers in relation to tranches of assets. Each of these parties proceeded to the second round. Second round offers 30. After the first-round offers were received, the following occurred: (a) Revelop Building & Development Pty Ltd (Revelop) submitted an offer of $15 m (later increased to $16.25m); (b) Aspen Group Limited (Aspen Group) increased their offer from $12.5 m to $13.8m; (c) Capital Developments offered $3.01m (inclusive of GST) for 17-19 Jenkins Road, Carlingford and 7-9 Durham Street, Mt Druitt; (d) Makhraz Development Group provided more flexibility in the structuring of their offers and increased their offer prices for both of the Merrylands properties to $15m (an increase of $5m on the total offered in the first-round); and (e) the remaining parties re-confirmed their offers from the first round which were less than the above. One party withdrew its first-round offer. 31. Offers were from Capital Developments and Makhraz for the total amount of $18,010,000 (inclusive of GST), comprised as follows: (a) Capital Developments: 17-19 Jenkins Road, Carlingford and 7-9 Durham Street, Mt Druitt for $3.01 m (incl GST); and (b) Makhraz Development Group: 40-42 Addlestone Road, Merrylands and 280 Merrylands Road, Merrylands for $15 m (incl GST)."
3. The extract in the preceding paragraph does not include those parts of the affidavit which were rejected or admitted only as going to Mr Henry's state of mind. There was no dispute that the combination of the offers from Capital Developments and Makhraz Development Group was an increase of over $3,000,000 from the highest offer in the first round and $1,760,000 above the highest offer in the second round (which had increased from the first round).
4. In deciding to pursue the offers from Capital Developments and Makhraz Development Group, the Receivers also sought and acted upon advice from JLL contained in an email from one of its directors to an employee of the Receivers on 19 March 2021. That email included: "Following our discussion on the questions raised by NH [the second defendant bank] we thought it would be important to further clarify that JLL have explored multiple avenues with the tranche buyers in order to maximise the financial outcome. Capital Developments - The purchaser has limited financial capacity and therefore has always maintained his interest in Carlingford and Mount Druitt. This buyer has no interest in Addlestone Road or 280 Merrylands. We have explored all avenues with the buyer. Abel Makhraz - The purchaser's main interest lies with Merrylands and is based around his total financial capacity. Abel could possibly buy the whole portfolio however the total he can pay is well below the $18 million we have in hand. You will note that when Abel lodged his second round bid that he only attributed $1mil to Carlingford and $1mil to Mount Druitt when combining them with 280 Merrylands. We have explored all possible avenues with the buyer. Dylan and I have been very thorough in our dealings with all groups, explored every scenario and as a result have pushed the value substantially beyond the portfolio buyers. The tranche buyers will deliver the best financial outcome. I must again make it clear that JLL have conducted an all-encompassing, international expressions of interest sales campaign offering these properties as a portfolio or individually therefore covering all investor profiles in the market. Every buyer was contacted directly by Dylan or I and the opportunity explained to them in detail. The product had a very strong level of engagement with 214 investor enquiries, 45 groups accessed the data room and reviewed the due diligence information however based on their inspections and review of the available DD information, investor groups chose not to pursue the product further. The level of participation by the investor market to buy the opportunity is based around the standard of the product available for sale and the market sector. To achieve the total investor bids to date and then drive the pricing to where it currently sits is a great outcome. JLL must advise that to not press forward with the offers in hand and to put the property back on the market will not lead to a better outcome for NH Bank or their investors. The reputation of Dyldam as a developer and the status/condition of the properties (as reported throughout the campaign) have been the determining factor in the outcome. To further compound this with what the market would view as a 'failed sales campaign' would only damage the reputation of the buildings and the pricing further. The threat to pricing from a failed campaign will be significant, is difficult to quantify but would be less than what we have in hand and could result in another failed campaign. …"

How the Properties were in fact sold

1. During the course of the contract negotiations with the successful tenderers, each of the tenderers, through their solicitors, identified individual nominees to whom particular lots were to be sold.
2. On 25 March 2021, a solicitor describing himself as acting for "Makhraz Development Group Pty Limited and its nominees" informed the Receivers' solicitors that "individual contracts for sale should be entered into as per the attached excel schedule". The attached spreadsheet (which was in evidence on the present application) identified each of the lots in the two Merrylands Properties, attributed a purchase price to each lot and identified a specific purchaser. There was no dispute that the purchasers were all persons or corporations related in some way to Makhraz Development Group. So much was apparent, for example, from the fact that a number of the purchasers had the surname Makhraz. The sum of the individual prices for each lot was the $15,000,000 tender price that had been accepted by the Receivers.
3. Similarly, on 26 March 2021 and 30 March 2021, a licensed conveyancer acting for Capital Developments identified individual purchasers for the lots to be purchased for a total equivalent to the tender price accepted by the Receivers. Again, there was no dispute that the individual purchasers were persons related to the principals of Capital Developments.
4. The method of giving effect to the sale of the Properties which are identified in the preceding two paragraphs is one of the two matters complained about by the plaintiffs. I will refer to it as the "Individual Sales".

The jurisdiction relied on by the Receivers

1. As I have set out in [3], the Receivers relied on r 13.4 or, in the alternative, r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW).
2. Rule 13.4 provides: "13.4 Frivolous and vexatious proceedings (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings - (a) the proceedings are frivolous or vexatious, or (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
3. Rule 14.28 provides: "14.28 Circumstances in which court may strike out pleadings (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court. (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
4. There was no dispute about the principles which govern the Court's powers of summary dismissal and strike out, including that the Court could receive evidence. I gratefully adopt as a convenient summary these paragraphs from the plaintiffs' written submissions: "15. In their joint judgment in Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99 Mason CJ and Murphy, Wilson, Deane and Dawson JJ said: "The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v. Union Bank of Australia Ltd. (1917) 23 CLR. 5; Jones v. Stone [1894] A.C. 122; Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262." 16. In Webster & Anor v Lampard (1993) 177 CLR 598 Mason CJ, Deane and Dawson JJ reinforced the rigorous test stating, at 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried." … 19. The present application needs to be approached upon the basis that a very clear case is required before summary dismissal is granted and that the power to make such an order should be sparingly employed: Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129; Webster v Lampard ([1993] HCA 57; 1993) 177 CLR 598 at 602-603. 20. The test to be applied by a court when considering summary dismissal is clear. It has been variously expressed as a claim being "so obviously untenable that it cannot possibly succeed", "manifestly groundless", or "so manifestly faulty that it does not admit of argument": General Steel Industries Inc v Cmr for Railways (NSW) [1964] HCA 69; (1964); 112 CLR 125 at 128-129. In Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91 Dixon J observed that before summary intervention can be justified, the case must be a very clear one and there must be no real question of fact or law to be determined. 21. By bringing an application for summary dismissal, the defendant undertakes the burden of establishing that there is no triable issue: Wickstead v Browne (1992) 30 NSWLR 1 at 11. The General Steel test remains the primary touchstone for such an application. The mere fact (if it be the case) that a plaintiff's prospects of success might be characterised as slim would not be enough to strike out a pleading: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 271; Preston v Star City Pty Ltd [1999] NSWSC 1273 ("Preston") at [31]. 22. The question for determination is whether a reasonable cause of action is disclosed, that is a cause of action which has some chance of success, or which could conceivably give the plaintiff a right to relief, or which, although weak, is properly debatable and has some apparent legitimate basis if the facts upon which it is alleged to be based are made good: Preston at [37]. 23. The onus of satisfying the Court that there is an abuse of process lies upon the party asserting the abuse of process, and that onus is 'a heavy one': Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 529 (Mason CJ, Dawson, Toohey and McHugh JJ)."

Legal principles in relation to mortgagee powers of sale

1. The parties were also in agreement that the common law principles governing the proper exercise of a mortgagee's or receiver's power of sale have their origin in the decision of the High Court in Pendleberry v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 and that the statutory duty was set out in s 420A of the Corporations Act 2001 (Cth). The latter provides: "420A Controller's duty of care in exercising power of sale (1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value - not less than that market value; or (b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. …"
2. There was also no dispute between the parties about the applicable legal principles as set out in Mr Newton SC's written submissions, which the Court gratefully adopts: "17. In Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 Needham J considered the equitable duties owed by a receiver to a mortgagor when selling a property. His Honour held: "[The] duties [owed by a receiver to the mortgagor] include the duty to exercise his powers in good faith (including a duty not to sacrifice the mortgagor's interests recklessly); to act strictly within, and in accordance with the conditions of his appointment; to account to the mortgagor after the mortgagee's security has been discharged, not only for the surplus assets, but also for his conduct of the receivership. ... There is no justification in logic for suggesting that a receiver [who has decided to sell assets of the mortgagor for the purpose of realising the security] becomes saddled with more onerous duties, such as, for example, a duty to obtain the "true market value" of the property at the time of sale, or a duty not to act negligently in connection with the sale." 18. His Honour followed Pendleberry v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 and concluded at 835 that his task was to: "ascertain whether the [receiver] wilfully or recklessly sacrificed the interests of the [mortgagor] ... If the [receiver] acted bona fide, and certainly, if it took reasonable precautions to obtain a proper price, the [mortgagor] must fail, even if the price obtained was below market value; and even if, by waiting, or by spending more money on the property, a better price could have been obtained." 19. In Stone v Farrow Mortgage [1999] NSWCA 435; (1999) 12 BPR 22 175 [(Stone)] the court of appeal considered whether the respondent breached its duty, in relation to the sale of a property, to act in good faith or to act with reasonable skill and care or to take reasonably adequate steps to ensure a fair price in relation to the sale. The respondent had engaged an agent who advertised and marketed the property. 20. Hodgson CJ in Equity said at [4]: "[14] In such a case, there are two broad areas of enquiry: first, what steps were taken in relation to the sale; and second, the comparison between the sale price and the true value of the property. These areas are interdependent. A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken. The relationship between the price obtained and the true value is also relevant in that, if it is shown that the duty has been breached, the measure of damages is the difference between the sale price and the true value; and if there is no difference, there is no remedy." 21. Cole AJA held at [75]-[76]: "[75] It seems impossible, to my mind, to hold, on the evidence of continuous endeavours to sell the property over a period of 18 months, both by Mr Stone and the mortgagee, that other than the value of the property was achieved in the sale effected in February 1991 after the auction in December 1990. It follows that there was not a sale by the mortgagee at an undervalue." Valuations [76] It follows from what I have said that I regard the valuation evidence as of little significance. Had the process of advertising, marketing and sale of the property been shown to be unsatisfactory or inadequate, a question might have arisen whether the price achieved by the process was other than the true market price or value of the property. In that circumstance valuation evidence might have been important to establish whether, in truth, the price realised was an undervalue, but that is not this case." 22. In relation to the statutory duty, in Boz One Pty Ltd v McLellan [2015] VSCA 68, the Court held (citations omitted): "[167] In deciding whether there has been a breach of s 420A, a court assesses the process that a controller has undertaken in selling the property. The enquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. However, it is not necessary for the court to decide what actually was the market value of the property in order to find that s 420A(1)(a) has been breached - all that the court needs to decide is that the process that was followed was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be. [168] Accordingly, a breach of s 420A(1)(a) is not established merely because a receiver fails to realise the property for its market value. However, if it is proved that the price obtained at sale was substantially below the market value of the property, this may be evidence that proper steps were not taken." 23. In Re Australasian Barrister Chambers Pty Ltd (In liq) [2017] NSWSC 597, Black J held at [50]: "It seems to me that there are significant difficulties with any proposition that a sale, made at or above an apparently reliable valuation although without advertising and by private treaty, necessarily contravenes s 420A of the Corporations Act. That section, in its terms, requires a controller to take reasonable care to sell the property for not less than market value, if it has a market value when it is sold. If a receiver obtains a reliable valuation of the property (and, as I will note below, there is no basis in this case to treat the valuation which Mr Sampson obtained as anything other than reliable) and then receives a plainly above market offer for the property, before he or she was about to initiate a marketing campaign or sale process, it is difficult to see why reasonable care to sell the property for not less than market value requires anything more than acceptance of the offer that will bring about that result. It can be accepted that that course may not maximise the sale price of the property, since a higher sale price may or may not have been obtained by incurring additional marketing and sale expenses and the additional delay of a sale process. However, s 420A of the Corporations Act does not impose an obligation to obtain the maximum possible sale price for a property with a definite or determinable value, but only to take reasonable steps to sell the property for not less than its market value.""

The parties' submissions

1. The parties' arguments each accepted that the Receivers had a very high threshold to meet in order to persuade the Court that there was no triable issue or reasonable cause of action disclosed. Without intending any disrespect to the careful way in which the arguments were presented both in writing and in the course of oral submissions, the decisive dispute between the parties may be summarised quite briefly.
2. Mr Newton SC submitted that the plaintiffs' claim was a narrow one which relied on only two complaints. The first complaint was crystallised for the purposes of the argument by the Conceded Differential: the difference between the sale price achieved for the Properties ($18,010,000) and their market value, which for the purposes of this application the Receivers conceded was $12,640,000. The second complaint was the Individual Sales.
3. Dealing with the Individual Sales complaint, Mr Newton SC submitted that on any view what had occurred could not amount to a departure from the Receivers' common law or statutory duties. The best price after a proper advertising and sales campaign had been obtained. That was the amount that was paid to the Receivers. The fact that the sale was effected by selling individual lots to purchasers nominated by the successful tenderers was a matter of mechanics and, for the purposes of any argument about breach of duty, was neither here nor there.
4. Insofar as the Conceded Differential was concerned, Mr Newton SC submitted by reference to the authorities summarised in [32] above, that the sale of a property well below or substantially less than its market value did not in and of itself establish a breach of duty. Having regard to the dicta of Hodgson CJ in Eq (as his Honour then was) and Cole AJA, while it may be accepted that the steps taken to sell a property and the comparison between the sale price and the true value of the property were interdependent, the starting point of any inquiry had to be the adequacy of the process of marketing and selling the subject property.
5. In terms of both the common law and statutory obligations, the essential issue was whether the Receivers had taken reasonable steps to obtain a proper price. The insuperable difficulty for the plaintiffs, it was submitted, was that they made no attack upon the adequacy of the Sale Process. In the absence of any such complaint, reliance upon the Conceded Differential was not sufficient to make out a triable issue of breach of duty. Furthermore, the unchallenged evidence demonstrated that the Sale Process was one which, beyond sensible argument, met the requirement to have taken all reasonable steps to obtain a proper price for the Properties, including that the sale price for the Properties exceeded Savill's in one line valuation as at 25 March 2021 (see [14] above).
6. Reduced to its essentials, Mr Vincent's response on behalf of the plaintiffs was to fasten upon the observation of Hodgson CJ in Eq in Stone that "if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken" (emphasis added). Mr Vincent relied on the Conceded Differential for the proposition that there was evidence, therefore, that proper steps had not been taken so as to give rise to a triable issue. Even if, taking into account the Receivers' evidence about the Sale Process, the plaintiffs' prospect of success might appear to be slim, in accordance with the principles identified in [30] above, that was not sufficient to dismiss summarily or strike out the plaintiffs' claim.

Consideration

1. The Court accepts Mr Newton SC's submissions.
2. In setting out the reasons for that acceptance, I begin by emphasising that I have approached the exercise of the Court's discretion with, at the forefront of my consideration, the warnings in cases of the highest authority that the jurisdiction to dismiss a claim summarily is to be exercised with the utmost caution and only when the Court is well satisfied that the plaintiff cannot possibly succeed. Approaching the present application with the requisite caution, the Court is nevertheless satisfied that the Receivers have demonstrated that the claim brought against them in the SOC cannot possibly succeed for the following reasons.
3. It is convenient first to deal with the plaintiffs' complaint about the Individual Sales. For the reasons given by Mr Newton SC set out in [35] above, the Court is well satisfied that complaint cannot sensibly be made to call the Receivers' sale of the Properties into question. The Receivers were paid the price nominated in the successful tenders as a result of the Sale Process. The fact that the successful tenderers' nominees had not themselves participated in the expressions of interest process is irrelevant. The plaintiffs would equally have had no basis for complaint if the successful tenderers had purchased the Properties and then onsold them to their nominees.
4. Turning to the plaintiffs' main complaint, it might be thought that the Receivers' willingness to argue their application on the basis of the Conceded Differential was a bold forensic move. It was obviously driven by their confidence in the adequacy of the Sale Process, something which the plaintiffs did not challenge in the SOC.
5. The difficulty for the plaintiffs is that their argument could only succeed if the Court accepted that a substantial difference between the market price and the sale price achieved for the Properties was in and of itself sufficient to create a triable issue of breach of duty by the Receivers. However, that is not the law.
6. Without elevating Hodgson CJ in Eq's expression "may be some evidence" into a statutory formulation, his Honour's explanation of the correct approach makes clear that the primary focus of any attack upon the exercise a mortgagee's power of sale must begin with the marketing and sale process. At its highest in some cases, an amount as large as the Conceded Differential could support the conclusion that the proper steps had not been taken in the sale of the Properties. But to focus only upon the Conceded Differential is to "put the cart before the horse".
7. The "horse" in this case must be the adequacy of the Sale Process. As I put to Mr Newton SC in the course of argument, the Receivers' evidence as to the Sale Process was not going to get any better at a final hearing. In the present application the Receivers had put before the Court the evidence that they would rely upon at a final hearing. That evidence disclosed that the Sale Process had been a substantial one, conducted with the benefit of valuations from Savills and the advice of JLL as the real estate agent. The parties accepted that the Court was entitled to take judicial notice, as it does, that these are reputable and experienced international firms. A significant number of inquiries and several tenders were ultimately received over more than one round. The Receivers had also acted upon the advice set out in [22] above and had achieved a sale price which exceeded the Savill's in one line valuation as at 25 March 2021 (see [14] above]. No aspect of the Sale Process was challenged by the plaintiffs in the SOC or in the course of argument on the present application.
8. The strength of the Receivers' evidence about the Sale Process, leading to the findings of fact set out in [20] above, and the absence of any complaint about the Sale Process leads the Court to the conclusion that both of the complaints made in the SOC are manifestly groundless and bound to fail. That conclusion remains the same even when the Conceded Differential is taken into account because the Court is well satisfied that the Receivers have demonstrated beyond sensible argument that the Sale Process which they undertook satisfies both the common law obligation to take reasonable precautions to obtain a proper price and the statutory obligation to have taken all reasonable care to sell the Properties for not less than their market value. Putting it slightly differently, even if the Conceded Differential is accepted as some evidence that the Receivers had not met their common law or statutory duties, it is decisively outweighed by the evidence as to the Sale Process so that there is no triable issue of breach of duty.
9. The Court's conclusions may be summarised as: 1. The plaintiffs' reliance on the Individual Sales says nothing about the adequacy of the steps taken to market and sell the Properties. The fact of the Individual Sales does not raise a triable issue. 2. The Conceded Differential does not in and of itself demonstrate a breach of duty on the part of the Receivers or, taken in isolation, even raise a triable issue. Whether it even raises a triable issue depends upon an assessment of the Sale Process. 3. The SOC makes no complaint about the Sale Process. 4. By their evidence, the Receivers have demonstrated by unchallenged evidence on the balance of probabilities (and beyond any plausible suggestion to the contrary) that they satisfied their common law and statutory obligations by carrying out the Sale Process. 5. While not of itself dispositive, in drawing these conclusions to dismiss the plaintiffs' case against the Receivers summarily, the Court is fortified by the requirement that in exercising its discretion under the rules, the Court must give effect to the overriding purpose under s 56 of the Civil Procedure Act 2005 (NSW).

Strike out with leave to replead?

1. Mr Vincent submitted that if the Court was satisfied that his clients' case as currently pleaded did not disclose a reasonable cause of action, the Court should not summarily dismiss the claim. Instead, in the exercise of its discretion, the Court should strike out the relevant paragraphs of the SOC with leave to replead. This would enable the plaintiffs to review material with which they have now been provided by the Receivers to decide whether they have an arguable claim based upon the Sale Process.
2. Substantially accepting Mr Newton SC's submissions, the Court rejects Mr Vincent's submission for the following reasons.
3. The plaintiffs had been put on notice of the Sale Process in the letter from the Receiver's lawyers on 28 April 2021 (set out in [19] above).
4. The plaintiffs' SOC filed on 6 May 2021 made no attack on the Sale Process. The Court was not referred to any request by the plaintiffs to delay the filing of their SOC to enable them to assess the information they had been given about the Sale Process or to any subsequent indication that they were proposing to make amendments complaining about the Sale Process.
5. On 13 May 2021, the Receivers sought further particulars of the allegations in [26] and [30] of the SOC. Other than referring the Receivers to the valuations obtained by Mr Fayad in October and December 2020 (referred to in [18]), no further particulars were provided by the plaintiffs.
6. Mr Henry's affidavit giving details of the Sale Process (extracted in [20] above) was filed and served on 12 July 2021 with the Receivers' notice of motion the subject of these reasons. In the course of discussion about a timetable for evidence, the plaintiffs' solicitors wrote to the Receivers' solicitors on 16 July 2021, including (emphasis added): "5. Assuming that the first defendants refuse to withdraw the Motion, our clients do not agree to the timetable proposed. In order to meet [Mr Henry's] Affidavit, our clients will be required, amongst other matters, to engage an expert valuer to adduce evidence as to the value of the Properties as at the date of exchange of the contracts for sale, together with evidence from an expert insolvency practitioner and/or real estate agent as concerns for the process the first defendant's allegedly followed in marketing and selling the Property. Our clients will also be required to adduce lay evidence in respect of the offers they made in respect of the Property. As such, our clients will require much longer than four (4) weeks to prepare their evidence in response to [Mr Henry's] Affidavit."
7. No evidence of the kind referred to the italicised passage in the preceding paragraph has been adduced by the plaintiffs.
8. On 29 July 2021, the Receivers' solicitors wrote to the plaintiffs' solicitors and, relying on Mr Henry's affidavit, put that "it is clear … that the Receivers took all reasonable steps to sell the Properties" and invited the plaintiffs to advise "if they intend to seek leave to amend their statement of claim to plead any acts or omission of [the Receivers] that may constitute a breach of their statutory or equitable duties and provide a copy of the draft amended statement of claim." This drew a response on 4 August 2021: "Our clients do not intend to amend the SOC. The allegations of breach are adequately pleaded and particularised."
9. On 17 September 2021, approximately two months after their solicitors referred to the possibility of obtaining expert evidence about the Sale Process, the plaintiffs issued a notice to produce to the Receivers for the documents referred to in Mr Henry's affidavit evidencing the Sale Process. Those documents were provided on 30 September 2021. There was no suggestion that there had not been full compliance with the notice to produce.
10. It is significant that at no time, including after receiving the documents on 30 September 2021, did the plaintiffs complain that they required more time to adduce the expert evidence of the kind that was referred to in their solicitor's letter of 16 July 2021 going to the Sale Process.
11. Mr Vincent put that, notwithstanding nearly four weeks had passed, his clients had not had an opportunity to consider the documents that had been produced on 30 September 2021 in relation to the Sale Process. However, there was no evidence that the plaintiffs had even retained experts to assist them in that task or, for that matter, whether they had ever sought such expert advice after the Receivers' notice of motion had been filed or at any other time. Nor did the plaintiffs apply to have the hearing of the present motion adjourned while the documents were reviewed.
12. Mr Vincent's submission for strike out with leave to replead may have had some force if it had been supported by affidavits from relevant experts to the effect that they had been retained and, in the absence of even a preliminary expression of opinion, indicating how long they would require to provide their advice to the plaintiffs. However, in the absence of such evidence, Mr Vincent's submission was, with respect, no more than a plea to the Court to give his clients an opportunity to see if they could find a case based on a deficiency in the Sale Process without the slightest evidence to suggest that that they had expert advice that such a case might be found.
13. Given the interlocutory history which I have set out in the preceding paragraphs, it would not be consistent with the overriding purpose to keep the present proceedings against the Receivers on foot while the plaintiffs look for a cause of action. Summary dismissal of their case in these proceedings will not prevent the plaintiffs from commencing fresh proceedings if they eventually come to the view that they have a proper basis on which to complain about the Sale Process. I note that Mr Newton SC indicated, in answer to a question from me, that his clients would take no point relying upon the plaintiffs' implied undertaking (see Hearne v Street (2008) 235 CLR 125; [2008] HCA 36) if the plaintiffs wish to continue to review the documents that have been produced to them in these proceedings in relation to the Sale Process.

Conclusion

1. The plaintiffs' claim against the Receivers will be summarily dismissed. The parties will be given an opportunity to make submissions as to costs and any further orders, including as to how the balance of the proceedings are to be progressed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 November 2021