Pola v Australia and New Zealand Banking Group Limited

WA 1518

1. The terms of WA 1518 included the following [Blue 454]: Allocation Type NRL WATER ALLOCATION - NO RESOURCE OPERATIONS LICENCE Allocation No: 1518 CROWN PLAN AP7585 Resource Operations Plan: CONDAMINE AND BALONNE RESOURCE OPERATIONS PLAN Location: LOWER BALONNE ZONE LBU-04 (AMTD - 129.2 KM) Water Management Area: LOWER BALONNE WATER MANAGEMNT AREA Nominal Volume: 1930.000 Megalitres Water Allocation Group: CLASS LB4 Volumetric Limits: NOT GREATER THAN 8360.000 MEGALITRES AT ANY TIME Purpose: ANY Maximum Rate: 124.00 MEGALITRES PER DAY Flow Conditions: WHEN THE PASSING FLOW AT ST GEORGE WEIR IS GREATER THAN 8000 MEGALITRES PER DAY, THE MAXIMUM RATE AT WHICH WATER CAN BE TAKEN DURING AN ANNOUNCED PERIOD UNDER THE AUTHORITY OF THIS WATER ALLOCATION IS 124 MEGALITRES PER DAY. WHEN THE PASSING FLOW AT ST GEORGE WEIR IS LESS THAN 8000 MEGALITRES PER DAY, THE MAXIMUM RATE AND FLOW CONDITION AT WHICH WATER CAN BE TAKEN DURING AN ANNOUNCED PERIOD UNDER THE AUTHORITY OF THIS WATER ALLOCATION IS: MAXIMUM RATE OF 82 MEGALITRES PER DAY AT A PASSING FLOW OF 2000 MEGALITRES PER DAY Other Conditions: WATER TAKEN UNDER THE AUTHORITY OF THIS WATER ALLOCATION MUST ONLY BE STORED ON THE PARCELS OF LAND SHOWN ON ADMINISTRATIVE PLAN 18833. WATER TAKEN UNDER THE AUTHORITY OF THIS WATER ALLOCATION IS MANAGED UNDER AN INSTANTANEOUS VOLUMETRIC LIMIT WATER SHARING RULE. WATER TAKEN UNDER THE AUTHORITY OF THIS WATER ALLOCATION IS STORED CONJUNCTIVELY WITH OVERLAND FLOW WATER TAKEN UNDER AN AUTHORITY IN THE EXISTING STORAGES ON THE PARCELS OF LAND SHOWN ON ADMINISTRATIVE PLAN 18833. WATER TAKEN UNDER THE AUTHORITY OF THIS ALLOCATION IS STORED CONJUNCTIVELY WITH OVERLAND FLOW WATER TAKEN UNDER WATER LICENCE(S) 602026 ON THE PARCELS OF LAND SHOWN ON ADMINISTRATIVE PLAN 18833. REGISTERED ALLOCATION HOLDER Interest LAURENCE JAMES POLA ½ SILVIA FRANCES POLA ½

The amended ROP

1. Chapter 6 of the amended ROP applied to water allocations to take unsupplemented water and also overland flow water in the Lower Balonnne Water Management Area (s 117) [Blue 512-519]. The ROP records the Zones in the Lower Balonne Water Management Area which includes Zone LBU-04, identified as the Location in WA 1518. That Zone is described as "Balonne Minor River - from the Balonne Minor River regulator downstream to the Bifurcation of the Narran River and Belah Creek" with the "AMTD 163.5-128.9 km" [Blue 634].
2. The ROP provided for the taking of water under the various sharing rules being: an instantaneous volumetric limit water sharing rule (s 120); a multi-year accounting water sharing rule (s 121); and an annual volumetric limit water sharing rule (s 122). The first of these sharing rules applicable to WA 1518 provided as follows: 120 Taking water under a water entitlement with an instantaneous volumetric limit water sharing rule (1) This section applies to water entitlements that state a condition that water taken under the entitlement is managed under an instantaneous volumetric limit water sharing rule. (2) The instantaneous volumetric limit is the maximum volume that may be stored at any time on the parcels of land shown on the administrative plan specified on the water entitlement. (3) A holder of a water entitlement must not take water under the entitlement if a volume of water equivalent to the volumetric limit for the entitlement is stored on the parcels of land shown on the administrative plan specified on the water entitlement at any time.
3. Under the multi-year accounting water sharing rule, the chief executive establishes a volumetric account for each water allocation. At the beginning of each year the volumetric account for a water allocation is credited with the lesser of the volumetric limit multiplied by two; or the volumetric limit plus the volume of water remaining in the account at the end of the previous water year. The maximum volume of water that may be held in the account is equal to the volumetric limit of that allocation multiplied by two (s 121).
4. Under the annual volumetric limit water sharing rule, the annual volumetric limit is the maximum volume of water in megalitres that may be taken under a water allocation in a water year (s 122).
5. Part 2 of Chapter 6 of the ROP entitled "Dealings with water allocations" provided for subdivision or amalgamation of water allocations (ss 124-125) and for changes (known as "assessed changes") including: in location (s 126); or for removal of an instantaneous volumetric limit condition (s 127); or for removal of a conjunctive storage condition (s 128); or to change a condition limiting the land supplied by the allocation (s 129). It also identified some prohibited changes (s 131-132). There was also capacity to make application for other changes pursuant to s 130 of the Water Act 2000 (Qld) (s 133).
6. If WA 1518 were to be traded it would have been necessary to proceed under s 127 of the ROP to remove the instantaneous volumetric limit condition and add the condition for management under the multi-year accounting sharing rule under s 121 of the ROP. It is probable that any application in this regard would have had to be supported by an expert hydrologist's report.
7. It was common ground at trial and on appeal that WA 1518 was not attached to the Property and could be traded separately. During the appeal the Court was advised that it was common ground at the trial that when the amended ROP came into force, the Bank, acting as the attorney for the appellants, executed a mortgage over WA 1518. It was conceded that there was a properly executed and adjusted mortgage over WA 1518 and that the Bank was empowered to enter into the sale that it did in September 2010 (tr 2).

Proceedings at first instance

1. The appellants cross-claimed against both the Bank and its agents. The primary judge dismissed the appellants' claims against the agents and the appellants have abandoned their appeals against those dismissals. It is therefore only necessary to deal with the case between the Bank and Mr Pola and the appellants' Cross-Claims against the Bank.

The pleadings

1. By Amended Statement of Claim the Bank sought an order that Mr Pola pay it the sum of $2,119,921.73, plus interest ($1,916,989.86 in relation to the Business Variable Loan, plus interest, and $202,931.87 in relation to the Overdraft, plus interest). The Bank also sought possession of Morella and North Star [Red 2].
2. The two mortgages that were pleaded, dated 2 February 2006 and 8 March 2006 respectively, were alleged to have secured the repayment of all monies owed by Mr Pola to the Bank [Red 3-4 (3)-(11)]. However the Amended Statement of Claim included an allegation that the Bank provided financial accommodation to Mr and Mrs Pola and their son by way of the Business Variable Loan of $6.7 million and the Overdraft with a limit of $500,000. It was alleged that the terms and conditions of the Business Variable Loan and the Overdraft included that they would be secured by the Mortgages [Red 5-6 (14)-(15)].
3. In his Defence to the Amended Statement of Claim Mr Pola denied that the Bank was entitled to the relief sought and repeated and relied upon the Statement of Cross-Claim filed by the appellants. The Defence included the following [Red 30 (5)]: If the Defendant is otherwise indebted to the Plaintiff (which is not admitted) the Defendant claims by way of set off against the sums claimed in the Amended Statement of Claim the damages found to have been suffered by the Defendant as more particularly pleaded in the Statement of Cross-Claim filed herein.
4. Notwithstanding that it was only Mr Pola against whom the Bank proceeded in its Amended Statement of Claim the appellants' Cross-Claim included a claim for a declaration that both Mr and Mrs Pola were not indebted to the Bank [Red 34(1)]. It was alleged that the Bank made a number of loans to the appellants and that those loans were secured by first registered mortgages given by the owners of, inter alia, Kilcummin (Mr Pola) and Cawildi (both Mr and Mrs Pola) [Red 36 (15); 38-39 (21)-(22)].
5. In their Cross-Claim the appellants alleged that the Bank was under a statutory duty pursuant to s 85(1) of the Act to take reasonable care to ensure that the Property was sold at market value [Red 40 (29)].
6. The appellants alleged that at all material times after 26 March 2010 WA 1518 was able to be sold separately from the Property; was not attached to any land; was a tradeable water entitlement under the ROP; and was able to be subdivided under the ROP [Red 41 (29A)]. The appellants alleged that in order to discharge its statutory duty, the Bank was obliged to obtain a valuation or appropriate estimate of the market value of WA 1518 and the Property having regard to all the rights and benefits inherent in and attaching to the Property including the Overland Flow Rights (referred to as "the Assets"); to consider how best to offer the Assets for sale; to offer the Assets for sale in a proper manner so as to achieve their sale at their market value; to advertise the Assets accurately and without material omissions so as to maximise the interest of potential purchasers; and after an auction at which the Assets were passed in, to review the pre-auction advertising to determine whether each of the Assets had been advertised accurately and if not to re-advertise and re-offer them for sale [Red 42-43 (29G)].
7. The appellants alleged that the Bank should have offered WA 1518 for sale to the Commonwealth either before or after offering the Property for auction without WA 1518 because it knew, or should have known, that the Commonwealth stood in the market prepared to buy water allocations in the Lower Balonne [Red 44 (29H(c)(i))]. They also alleged that the Bank should have offered WA 1518 for sale to a private purchaser either before or after offering the Property for auction; and/or offered WA 1518 and the Property as separate lots; and if they failed to sell at market value, by offering them as one lot [Red 44 (29H (c)(ii)-(iv))].
8. As noted above, the appellants alleged that the Bank should have taken reasonable care to ensure that the Assets were advertised accurately and without material omissions so as to maximise the interest of potential purchasers. In this regard they alleged that the advertisements should have expressly disclosed: the fact that WA 1518 was for sale; and/or the fact that WA 1518 was separately tradeable; and/or the nominal volume and volumetric limit of WA 1518; and/or the fact that the Commonwealth had in place an ongoing program for the acquisition of water allocations in the Lower Balonne; and/or the existence of the other licences and storage capacity on the Property so as to maximise the interest of the potential purchasers [Red 44-45 (29H (d))].
9. The appellants also alleged that the Bank failed to obtain a valuation or appropriate estimate as pleaded; failed to retain a suitably qualified expert to advise on the sale of WA 1518; failed to consider how best to offer the Assets for sale separately or in some combination of lots; failed properly to consider offering WA 1518 to the Commonwealth; failed to offer the Assets for sale in the proper manner so as to achieve the market value; and failed to advertise the Assets accurately and without material omissions [Red 45-49 (30)]. The appellants alleged that WA 1518 had a market value of between $2.702 million to $2.895 million [Red 49 (30(g))]. It was also alleged that the Property sold without WA 1518 but with the overland flow rights had a market value of $7,499,370 [Red 49 (30)(g)].
10. In its Defence to the Cross-Claim the Bank admitted that it was under a statutory duty under s 85(1) of the Act to take reasonable care to ensure that the Property was sold at market value [Red 66 (17)]. It admitted that WA 1518 was able to be sold separately but contended that any such sale would have resulted in a change in the Water Licence Reference 602026 from an instantaneous volumetric limit to a multi-year volumetric limit of 4,237 megalitres; and in a diminution of the residual value of the Property by an amount equal to or greater than the amount received for WA 1518 [Red 67 (18)]. It contended that all other water rights or licences were attached to the Property and were not tradeable at any material time [Red 67 (19)-(20)]. It admitted that it was under an obligation to publish advertisements so as to attract interest from potential purchasers and contended that "it did just that" [Red 68 (24)(d)].

The trial

1. The proceedings were heard by the primary judge over thirteen days between 30 September 2013 and 16 October 2013, with final submissions on 22 November 2013.
2. The main issues at the trial that are relevant on the appeal were the appellants' claims that the Bank breached s 85(1) of the Act by failing to consider the separate sale of WA 1518 (the WA 1518 breach) and failing to advertise the Property properly (the Advertisements breach).
3. Both the appellants gave evidence at the trial and were cross-examined. The Bank relied upon a number of its officers and agents who were also cross-examined. The evidence at the trial pertinent to the issues on the appeal is that of Mr Allpass in the Bank's case relating to the advertisements for the auction of the Property on 17 August 2010 and the expert evidence in relation to the valuation of the Property and WA 1518.
4. Richard James Allpass, a real estate agent and auctioneer, drafted the print advertisements in respect of which the appellants made complaint in their Cross-Claim. Mr Allpass agreed in cross-examination that in March 2010 he was aware that the ROP had been amended [Black 553 X]. He said that there were many occasions on which the possibility of selling WA 1518 separately to the Commonwealth was discussed [Black 571 G-J]. He said that he gathered market intelligence and tried to understand it and analyse it. He also said that he was ready to "accommodate it" and gave the following evidence in cross-examination [Black 572 M-T]: Q. And what did you mean by that? A. If it became obvious that that was the one path we needed to take to go to the Commonwealth Government and try and negotiate a sale, but that was - notwithstanding the fact that we were focusing on selling the total attributes is where we saw the value of the property, and that was one of them which a buyer would assess. Q. So one of the attributes, a very important attribute was water allocation 1518? A. Yes. Q. And it had particular value because the Commonwealth was standing as a buyer in the market, and it would make it attractive to all sorts of buyers, wouldn't it? A. Yes.
5. Mr Allpass said that they were "spreading the net as widely as possible to attract every type of buyer" [Black 576 G]. He gave the following further evidence in cross-examination [Black 581 P - 582 N]: Q. You knew that water traders and people who were interest (sic) in acquiring water allocations were some of the potential buyers you needed to catch in your wide net, didn't you? A. Yes. Q. In any advertising of the property you would need to bring to their attention, wouldn't you, the sale of the separately tradeable water allocation? A. The whole industry, the irrigation industry knew this to a much greater extent than we did. Q. In order to bring the availability for sale of the separately tradeable water allocation to the attention of potential buyers, you would need to include it in the advertisement of the sale, wouldn't you? A. Not necessarily. Q. How would the advertisement bring to the attention of potential buyers the availability of a separately tradeable water allocation if it wasn't expressly mentioned in the advertisement? A. Yes, yes. In our considered opinion the knowledge of the water aspects of the property that were well covered in a very broad brushed approach in the ads, ads originate to draw attention and inquiry, they are not intended to be complete information by any means. In fact, the more information you put in an ad, generally speaking, the less response you get to it. An ad is there to generate inquiry so that we can find out what aspect of that property people want to talk about. Then we - if it is water people are focused on, when we receive an inquiry about a property that is generally covered in the contents of an ad, we seek to get inquiry for further information.
6. Mr Allpass said that the "dilution of selling the water off separately would have a deleterious effect on the marketing process" [Black 594 T]. He said that what was disclosed in the advertisement was what was "considered at the time the key aspects" of the Property [Black 607 X]. He agreed that what was being auctioned on 17 August 2010 were three separate items of property being Kilcummin, Cawildi and WA 1518 [Black 611 S-X]. He gave the following evidence in further cross-examination [Black 612 L-Q]: Q. I want to suggest to you that the two freehold lots that you identified in the contract are referred to in the advertisement? A. Yes. Q. And that the third separate item of property which is the subject of the contract is not referred to in the advertisement? A. Because I believe it is part of the property. Q. Your belief was that it was part of the property. You didn't think it was attached to the land, did you? A. Well at that time obviously because they changed the ruling, it was separate for (sic) the land if you wished to trade it, yes.
7. In his affidavit evidence Mr Allpass had said that the features to emphasise in respect of the Property were "the location of the properties, their grazing attributes, their water entitlements, the country and their capacity for dry land farming" and that the advertisements were a "snapshot" of the Property [Red 270 M-O]. He agreed that WA 1518 was not mentioned in the advertisement and gave the following evidence [Black 613 P - 615 X]: Q. So that in your view, in the case of Kilcummin and Calwildi, the features to emphasise in such an advertisement were the location of the properties, yes? A. Yes. Q. Their grazing attributes? A. Yes. Q. Their water entitlements? A. Yes. Q. The country? A. Yes. Q. And their capacity for dry land farming? A. Yes. Q. They are the few aspects that you say should be mentioned? A. They are the most pertinent ones. Q. Of those, in the advertisements you drafted, no-where are the water entitlements expressly identified, are they? A. Intentionally not expressly advertised. Q. But I thought you just said to me that in the case of Kilcummin and Cawildi the features to emphasise in the few words in the advertisement were their water entitlements? A. Well obviously if you are talking about water storage capacity, and currently approximately 5,700 mega litres, it is quite easy to assume a buyer is going to say there have to be water entitlements and a licence for that water. Q. In a few words, in order to emphasise a few key aspects, your evidence was, just before, that those should include their water entitlements, wasn't it? A. That was leading to the water entitlements I would consider. Q. You understood water entitlements were different from water in situ, didn't you? A. Yes, yes. Q. The storage capacity, didn't you? A. Yes. … Q. You know that the difference between water entitlements and irrigation stored water, don't you, Mr Allpass? A. Yes. Q. You didn't intend using, when you used the words "their water entitlement" in paragraph 44 to refer to water stored on the property, did you? A. Yes. Q. I suggest to you, Mr Allpass, that you were referring to water allocation 1518 and water licence 602026 by the words "water entitlements"? A. It might infer that the purpose of add (sic) was capture interests or generate inquiry. The purpose of add (sic) to generate inquiry and to ask for more information you are asking me for now. Q. The point is you believed when you wrote in a paragraph in your affidavit that the words should emphasise the water entitlements in relation to Kilcummin and Cawildi in any advertisement of the property, didn't you? A. I said the mention of water inferred water entitlements.
8. The second aspect of the evidence at trial pertinent to the issues on appeal is the expert evidence. The appellants relied upon the valuation opinions of David John Purtle [Blue 395-796] and Ernest Mark Harrison [Blue 220-263; 381-394]. Both Mr Purtle [Black 703-725] and Mr Harrison [Black 726-797] were cross-examined. At the conclusion of that cross-examination counsel for the Bank announced that the Bank did not propose to adduce any valuation evidence [Black 802 D].
9. Both Mr Innes' valuation dated 17 March 2010 and the valuation by Shaun Patrick Hendy dated 13 July 2010 that he had provided to a potential purchaser of the Property were in the Court Book at trial. Mr Innes valued the Property at $8.5 million and Mr Hendy valued it at $8.15 million.
10. During preparation for trial the Bank had served two valuation reports by Mr Hendy on the appellants; one annexed to his affidavit sworn on 18 December 2012 relating to a valuation as at 13 September 2010 [Blue 264-380]; and the other dated 29 July 2013, annexed to his affidavit sworn on 16 August 2013 [Blue 811-851]. The report dated 13 September 2010 was a retrospective valuation of the Property as at that date if sold "in-one-line" with and without WA 1518, together with a separate valuation of WA 1518. Mr Hendy valued the Property in this report at $7 million. In the report dated 29 July 2010 Mr Hendy dealt with the questions about the value of WA 1518 as at a time prior to 11 May 2010.
11. After the Bank indicated it was not going to rely upon any valuation evidence, Senior Counsel for the appellants tendered the two reports of Mr Hendy and they were admitted into evidence. In those circumstances, Mr Hendy was not cross-examined.

The Judgment

1. The primary judge delivered judgment very promptly after the trial on 6 December 2013: Australia and New Zealand Banking Group Ltd v Pola [2013] NSWSC 1801 (the Judgment). His Honour compared the valuations by Mr Innes, Mr Hendy, Mr Harrison and Mr Purtle in tabular form [Red 243 F-Q; J 194]. That table referred to Mr Innes' valuation of the property if sold "in one line" at $8.5 million; Mr Hendy's valuation at $8.15 million (in his valuation report dated 13 July 2010); Mr Harrison's valuation at $8.575 million; and Mr Hendy's valuation in the "retrospective" report of 13 September 2010 at $7 million.
2. The comparative table also referred to Mr Harrison, Mr Hendy and Mr Purtle's valuation of WA 1518 (Mr Harrison at $2.895 million; Mr Hendy at $2.16 million (or $2.316 million to $3.088 million if advice had been given for the period March to May 2010); and Mr Purtle at $2.702 million).
3. The primary judge also compared Mr Harrison's and Mr Hendy's valuation of the Property excluding WA 1518: (Mr Harrison at $7.9 million and Mr Hendy at $5.36 million). The primary judge said of the comparison [Red 244]: 198 As can be observed from the table at [194], the valuers' opinions as to the value of Water Allocation 1518 ranged from $910 per ML (Mr Hendy's discounted figure to take account of "true market circumstances" as at September 2010) to $1600 per ML; ie $1.76 million to $3.088 million. It was common ground before me that, at the relevant time (April/May 2010, when the Commonwealth tender was on foot) the value of Water Allocation 1518 was in the range of $2.3 million to $3 million. 199 The Commonwealth reported that the "average price of offers pursued" (which I read to mean the average price paid) in the May 2010 "Lower Balonne tender" for "unsupplemented" water allocations (such as Water Allocation 1518) was $1433 per ML. That figure, if applied to the nominal volume of Water Allocation 1518 (1930 ML) suggests that the Commonwealth would have paid something in the order of $2.765 million for it.
4. The primary judge then analysed Mr Harrison's valuation [Red 244-247; J 200-212] and Mr Hendy's valuation [Red 247-250; J 213-224]. His Honour said that Mr Harrison's valuation had a "number of significant difficulties" as revealed in cross-examination [Red 245; J 203]. The most significant of those difficulties was that Mr Harrison assumed that if WA 1518 was sold separately, part of the Property (Stage 1) could still be used for irrigation using overland water flow [Red 245; J 204]. His Honour observed that this assumption was contradicted by the appellants' evidence that if WA 1518 was sold separately, Stage 1 would have to be abandoned as an irrigation area [Red 246; J 206]. The primary judge also identified the other "significant difficulties" with Mr Harrison's approach [Red 246; J 207] and then referred to the fact that Mr Harrison had claimed that his valuation of WA 1518 was based on one available transaction [Red 246; J 209]. Although Mr Harrison had used the transaction as a comparative sale, his Honour said it was clear that such sale did not occur in May 2010 but rather in the following year [Red 247; J 210]. His Honour concluded: 211 Thus, not only did Mr Harrison express conclusions that appeared to me to be unlikely to be accurate, his methodology was shown to be deficient and a fundamental piece of information upon which he relied shown to be wrong. 212 In those circumstances, I am not prepared to accept Mr Harrison's opinions.
5. The primary judge then analysed Mr Hendy's valuations. His Honour recorded the submission by counsel for the appellants that Mr Hendy's retrospective valuation should not be accepted at all. His Honour referred to this submission as "curious" because this report had been tendered by counsel for the appellants. In any event his Honour regarded this submission as having no substance, concluding that the valuation was a carefully reasoned one exposing in great detail Mr Hendy's reasoning [Red 248; J 219]. His Honour observed that Mr Hendy's valuation of $7 million reflected a sale process with "duress". His Honour referred to other aspects of Mr Hendy's report and said [Red 248-249; J 221-222]: In my opinion, a fair reading of those points is that Mr Hendy's opinion was: (a) that when a vendor is "anxious" to sell, a 20 per cent to 30 per cent discount on value may result; (b) it was necessary to take into account the condition of the Property and apply a discount "compared to better presented, less distress [sic] assets"; (c) this led to a "normal market value range" of between $6.8 million to $7.4 million (which Mr Hendy rounded to $7 million); and (d) the market value of the Property should not allow for a requirement for a sale "in a relatively short time"; but had he made such an allowance he would have reduced his opinion as to the value to a range between $5.7 million (a discount of 16 per cent of his figure of $6.8 million) to $6.6 million (a 10 per cent discount on his figure of $7.4 million); thus reconciling his "normal market value" to what he knew to be the sum achieved by the Bank of $6.1 million.
6. His Honour accepted the submissions made on behalf of the Bank that Mr Hendy undertook a "proper and detailed analysis of the productive capacity of the Property" without WA 1518. His Honour accepted Mr Hendy's opinion of $7 million as the value of the Property if sold in-one-line and $5.36 million excluding WA 1518 [Red 249-250; J 223-224].
7. The primary judge noted that it was common ground that once a breach of s 85(1) of the Act is established, it is not necessary to show a causal link between the particular breach and any loss "and that at that point 'the question [is] whether the sale price could be equated with the market value of the property' (Investec v Glodale at [74])" [Red 251-252; J 233]. However his Honour then said [Red 252; J 235]: It is necessary, however, for the mortgagor to show that the steps it contends the mortgagee should have taken to ensure the property was sold for market value would, had they been taken, have led the mortgagee (acting conformably with its duty under s 85) to take a different path than the one actually taken. Otherwise, the step not taken would not have made a difference to the overall outcome of the sale and thus could not have been one necessary to comply with the duty.
8. The primary judge identified the matters to be taken into account when considering whether a mortgagee had discharged its duty under s 85(1) of the Act as: (1) the circumstances of the case; (2) the value and nature of the property involved; (3) the mortgagee's expertise in relation to the type of property; (4) relevant expert advice; and (5) other relevant variables in a realistic commercial context [Red 253; J 239].
9. The primary judge then dealt with the WA 1518 breach. His Honour referred to the allegations in the appellants' Cross-Claim that the Bank should have obtained valuations or appropriate estimates of the value of WA 1518 and of the Property without WA 1518 having regard to all the rights and benefits including Water Licence 602026 [Red 255; J 244(a)]. His Honour found that: no attempt was made by anyone on behalf of the Bank to investigate whether there was a market price for water allocations such as WA 1518; neither the Bank nor its agents investigated whether a valuation of WA 1518 could be obtained; and there was no attempt to investigate the likely timing of the Commonwealth's response in a tender process in respect of WA 1518 [Red 257; J 250-252]. His Honour concluded that the Bank simply assumed without investigating that a market price for the separate sale of WA 1518 could not be ascertained in a timely fashion or perhaps at all and that there was insufficient time to participate in the tender with the Commonwealth [Red 258; J 255].
10. His Honour concluded that a step that the Bank could, and should, reasonably have taken to ensure it obtained market price for the Property was to obtain a valuation of WA 1518 and advice from an appropriate qualified person [J 256]. His Honour then posed the question as to what would have happened had the Bank: (a) explored the possibility of selling WA 1518 separately; and (b) taken expert advice on the subject [Red 260; J 264-265].
11. His Honour observed that "the only evidence as to what advice the Bank would have received" was that of Mr Hendy [Red 261; J 268]. His Honour made a number of "highly optimistic" assumptions in respect of the retention of an expert and the production of an expert's report [Red 262; J 269 and Red 263; J 275]. His Honour concluded that the Bank would have had available to it an opinion (that of Mr Hendy) as to the value of WA 1518 of between $2.316 million and $3.088 million [Red 262; J 270]. His Honour also concluded that in mid-April 2010 the Bank would have been faced with advice that it would be 3 or 4 months before it could assess whether it would be better off selling the Property in-one-line or piecemeal and that such a delay would have justified the Bank in deciding to eschew further pursuit of the separate sale of WA 1518 [Red 263; J 275 and 277].
12. The primary judge then discussed the technicalities of the removal of the instantaneous volumetric limit on WA 1518 and the need to add to it a condition that it be managed under the multi-year accounting water sharing rule. His Honour found that if this were to happen, the Bank would probably have had to provide an hydrology report and obtain a report from a registered professional engineer in respect of what was referred to as the "overland flow hook", all of which would have had to occur by 21 May 2010, the closing date for submission of tenders to the Commonwealth [Red 265; J 287-288].
13. His Honour concluded that the Bank's duty under s 85(1) of the Act did not require it to defer the exercise of its power of sale or to defer including WA 1518 in such a sale until it was known when the Commonwealth's next tender process might take place [Red 265; J 291]. In assessing the likely outcome of a tender that might have been made by the Bank, his Honour was satisfied that it would have been rejected having regard to the probability of a tender at $1,600 per ML whereas the Commonwealth's average price was $1,433.30 per ML [Red 267; J 304].
14. His Honour concluded that had the Bank given further consideration to the separate sale of WA 1518 and sought the opinion of an expert it would have received advice that would have justified it in not pursuing that option further [Red 268; J 309]. His Honour also concluded that the failure by the Bank to take the course the appellants advocated would have made no difference to the ultimate marketing and sale approach adopted by the Bank and did not amount to a breach by the Bank of its duty under s 85(1) of the Act [Red 268; J 309-310].
15. The primary judge then dealt with the Advertisements breach. His Honour referred to the claims against the Bank in respect of the advertisements for the sale of the Property, in particular that it should have disclosed: that WA 1518 was for sale or was separately tradeable; that the Commonwealth was in the market for water allocations in the Lower Balonne area; the existence of Water Licence 602026 and the fact that it was for sale; the existence of the Ground Water Irrigation Stock Intensive Licence and a Stock and Domestic Supply Ground Water Licence; and the existence of a storage capacity of 10,500ML [Red 269; J 314].
16. His Honour concluded that the appellants needed only to establish that the inclusion of such details in the advertisements was a step that ought reasonably to have been taken to ensure the achievement of market value [Red 272; J 330]. His Honour concluded that the failure by the Bank to include these details in the advertisements was a breach of its duty under s 85(1) of the Act [Red 273; J 333].
17. His Honour accepted Mr Hendy's valuation of the Property at $7 million and concluded that the appellants were entitled to damages of $900,000 being the difference between the price of $6.1 million achieved at auction and the market value of the Property that his Honour concluded was $7 million [Red 273; J 334-336].
18. His Honour concluded that the appellants had established that the Bank had acted in breach of its duty under s 85(1) of the Act "in respect of the advertising of the Property" and were entitled to damages "flowing from that breach". His Honour also concluded that the appellants' Cross-Claim against the Bank otherwise failed. His Honour also concluded that the Bank was otherwise entitled to the relief it sought and invited the parties to bring in Short Minutes to give effect to his reasons [Red 285; J 391-395].

The second Judgment

1. On 4 February 2014 the primary judge heard further argument in relation to the orders to be made in consequence of his Judgment. His Honour delivered Judgment in respect of that argument on 12 February 2014: Australia and New Zealand Banking Group Ltd v Pola [2014] NSWSC 59 (the second Judgment).
2. In deciding what judgments should be entered, the primary judge said that the amount claimed by the Bank in the proceedings against Mr Pola of $2.1 million was the amount "owed by Mr Pola (and also by Mrs Pola and Mr Stuart Pola)" in respect of the Overdraft facility and the Business Loan [Red 294; J 9]. His Honour said [Red 294-296]: 10. In these proceedings the Bank was entitled to recover the amounts due under those facilities from Mrs Pola and from Stuart Pola, but elected not to do so. 11. The only defence offered by Mr Pola to the Bank's claim for debt and possession of the Morella Property and North Star Property was a set off arising from the Cross-Claim made by Mr and Mrs Pola in these proceedings. That Cross-Claim related to the circumstances in which the Bank sold the Queensland Property. It related in no way to the North Star or Morella Properties or the Bank's mortgage security over those properties. 12. Thus in opening submissions it was stated on behalf of Mr Pola: "Mr Pola's defence to [the Bank's claims for debt and possession of the Morella and North Star Properties] is principally one of set off. The claims upon which Mr and Mrs Pola rely to establish the set off (and other relief claimed) are set out in the First Cross Claim… If this cross claim is wholly unsuccessful, Mr Pola does not maintain any defence to the claims made [by the Bank] in the Amended Statement of Claim, subject to proof of the amount actually owing." 13. Ultimately Mr and Mrs Pola's Cross-Claim against the Bank was, in substance, confined to a claim that the Bank had failed to exercise its obligation under s 85 of the Property Law Act 1974 (QLD) to take reasonable care to ensure that the Queensland Property was sold at market value. 14. Mr and Mrs Pola sought to set off the damages thereby claimed against the Bank's claim in debt. In these proceedings, the Bank made that claim in debt only against Mr Pola. However, for the reason I have set out above, Mrs Pola was equally liable to the Bank for that debt (as was Mr Stuart Pola). 15. As Mr Lucarelli, who appeared for the Bank, pointed out, so much was recognised by the declaration sought in the Cross-Claim by both Mr and Mrs Pola that neither one of them was indebted to the Bank.
3. The primary judge then reiterated his findings that Mr and Mrs Pola were entitled to damages against the Bank for $900,000 [Red 295; J 16] and continued [Red 295-296]: 17. There was argument before me as to whether those damages should be set off against the amount claimed by the Bank against Mr Pola (but also due to the Bank by Mrs Pola) or whether these should be separate judgments on the Bank's claim against Mr Pola on the one hand and on Mr and Mrs Pola's Cross-Claim against the Bank on the other. 18. In my opinion, although I have a discretion under s 90(2) of the Civil Procedure Act 2005 to give judgment "for the balance only of the sums of money awarded on the respective claims" or to "give judgment in respect of each claim", the appropriate course to adopt is to give judgment for the balance. 19. The object of an award of damages under s 85 of the Property Law Act is to place the mortgagor in the same position he, she or it would have been in had the mortgagee complied with its duty to ensure that the relevant property was sold at market value. 20. The evidence reveals that the net proceeds of the Queensland Property were credited to the account of Mr and Mrs Pola and Mr Stuart Pola. Had the Bank achieved a sale price of $7 million for the Queensland Property (rather than the $6.1 million actually achieved) an extra $900,000 would have been available to be so credited. Taking into account the slightly higher figure that would have been payable for agents commission in that event, the result would have been that a further sum slightly less than $900,000 would have been credited to the account of Mr and Mrs Pola and Mr Stuart Pola. 21. The evidence reveals that had that occurred, and were interest on the account to be recalculated to allow for that credit (and excluding any legal costs debited to the account), the amount owing by Mr and Mrs Pola and Mr Stuart Pola to the Bank would be $1,738,632.40 as at 4 February 2014. 22. In my opinion the appropriate course is to enter judgment against Mr Pola for that amount and otherwise to dismiss the Cross-Claim against the Bank.
4. The primary judge noted that the Bank accepted that if it were minded to commence proceedings against Mrs Pola and Mr Stuart Pola in respect of the amounts they owed the Bank, they would also be entitled to the "notional credit of $900,000" [Red 296; J 24].
5. In entering judgment that Mr Pola pay the Bank $1,695,427.32 (taking into account the reduction of $900,000) his Honour noted that this figure comprised $1,407,777.16 in respect of the Business Variable Loan and $287,650 in respect of the Overdraft Account [Red 310].
6. The primary judge then dealt with the question of costs. Although his Honour dealt with costs of the whole proceedings, the only relevant findings in respect of the questions on this appeal relate to the costs orders as between the Bank and the appellants.
7. His Honour observed that in order to be successful it was necessary for Mr and Mrs Pola to recover damages from the Bank exceeding the amount of the Bank's debt. His Honour referred to the two distinct claims against the Bank in respect of the alleged breaches of s 85(1) as follows [Red 297]: 28. The most significant claim made by Mr and Mrs Pola was that the Bank acted in breach of its duty by not seeking to sell separately Water Allocation 1518, claimed by their valuer Mr Harrison to be worth $2.895 million. For Mr and Mrs Pola to achieve substantial success in this litigation it was necessary that they succeed on this claim. That claim took up the bulk of the hearing time before me; and failed. 29. The second claim made by Mr and Mrs Pola related to the omission from the Advertisements of any reference to water entitlements. That claim did not occupy significant amount of hearing time and in substance, revolved around the form of the Advertisements themselves and the affidavit evidence of Mr Allpass (see my judgment of 6 December 2013 at [318]). 30. That claim did yield an entitlement to damages in the sum of $900,000. That is, of course, a significant amount. But its award to Mr and Mrs Pola does not, in my opinion, alter the fact that, in substance, the Bank has achieved greater success in these proceedings than Mr and Mrs Pola.
8. His Honour took into account a number of claims that had been abandoned by the appellants during the course of the proceedings and concluded that the "justice of the case" required that the appellants did not obtain an award of costs against the Bank, but that the Bank obtain an award of not all of its costs against the appellants. His Honour ordered that the appellants pay 25 per cent of the Bank's costs of the proceedings [Red 299; J 36 and 38]. His Honour then considered the Bank's claim for indemnity costs against the appellants and determined that no such order should be made [Red 301; J 49].

Grounds of Appeal

1. By Amended Notice of Appeal filed on 9 May 2014 the appellants contend that the primary judge erred:
2. In finding that the appellants had to prove that if the steps they allege the Bank should have taken to ensure market price was achieved had been taken, that would have led the Bank to take a different path to the one it actually took (J 235);
3. In basing some of his findings (J 264-310) upon hypotheses that were: (a) at odds with uncontested evidence; and (b) not the subject of any evidence;
4. In failing to distinguish between inferences that could be drawn from the evidence and hypothetical submissions that were at odds with uncontested evidence and/or not the subject of any evidence;
5. In failing to apply the appropriate test or adopting an erroneous construction of the expression "market value" within the meaning of s 85(1) of the Act in determining the market value of the appellants' mortgaged assets;
6. In failing to conduct a rational analysis of the probative value of all the valuation evidence in respect of the market value of the mortgaged assets;
7. In failing to find as a fact that Mr Hendy's retrospective valuation opinion dated December 2012: (a) was not formed independently and without bias; (b) did not identify the market value of the appellants' mortgaged assets; and (c) was a subjective attempt by the witness to explain away or justify the sale by the Bank of the appellants' mortgaged assets for the low price of $6.1 million;
8. In finding that the damages of $900,000 awarded to the appellants jointly should be wholly set off against the judgment debt owed by Mr Pola to the Bank; and
9. In making costs orders that failed to give effect to the appropriate legal principle and were outside the ambit of the proper exercise of his Honour's discretion.
10. By Notice of Cross Appeal filed on 20 May 2014 the Bank contends that the primary judge erred:
11. In finding that the absence of a specific reference to WA 1518 in the published advertisements amounted to a breach of s 85(1) of the Act;
12. In applying the wrong test, or alternatively misdirecting himself, as to the proper test applicable to whether there was a breach of s 85(1) of the Act;
13. In failing to have any, or any sufficient regard to the evidence explaining why the published advertisements did not specifically refer to WA 1518; and
14. In making a finding that the absence of reference to WA 1518 in the advertisements may have deterred prospective purchasers when there was no evidence to support such a finding and where evidence on the topic was to the contrary effect.

The Appeal

1. The appellants' Grounds 1 to 6 relate to the Judgment. Grounds 7 and 8 relate to the second Judgment.

Ground 1

1. The appellants contend that in paragraph [235] of the Judgment his Honour erroneously imposed an additional test that is not necessary or relevant to the determination a claim under s 85(1) of the Act. That additional test was that the appellants had to show that the steps the Bank should have taken to ensure the Property was sold for market value would, if the steps had been taken, led the Bank to take a different path from the one it took.
2. The appellants rely on this ground of appeal only if the Bank's Cross-Appeal is allowed (tr 3). If as I propose the Cross-Appeal is to be dismissed then consideration of this ground is academic because even if the primary judge had found for the appellants on the WA 1518 breach, they would have achieved no more than they achieved in respect of the Advertisement breach.
3. The provisions of the Act relevant to this aspect of the appeal are as follows: 85 Duty of mortgagee or receiver as to sale price (1) It is the duty of a mortgagee, including as attorney for the mortgagor, or a receiver acting under a power delegated to the receiver by a mortgagee, in the exercise of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value. … (3) The title of the purchaser is not impeachable on the ground that the mortgagee or receiver has committed a breach of any duty imposed by this section, but a person damnified by the breach of duty has a remedy in damages against the mortgagee exercising the power of sale.
4. The primary judge said [Red 251-252]: 233. It was common ground that, once a breach of s 85 is established, it is not necessary to show a causal link between the particular breach and loss and that at that point "the question [is] whether the sale price could be equated with the market value of the property" (Investec v Glodale at [74]). 234. Thus, as long as it is established that a mortgagee failed to take a step that was reasonably necessary "to ensure" market price was achieved, it is not necessary to prove that, as a matter of fact, the taking of that step would have ensured market price was achieved. Nor is it necessary for the mortgagor to prove that some identifiable individuals would have offered to purchase, or actually purchased, the property for any particular price had there been no breach of the duty: Sablebrook Pty Ltd v Credit Union Australia Ltd [2008] QSC 242 at [149] per Applegarth J; Nixon v Commercial and General Acceptance Ltd [1980] Qd R 153 at 160 per Sheahan J; McKean v Maloney [1988] 1 Qd R 628 at 634-5 per McPherson J. 235. It is necessary, however, for the mortgagor to show that the steps it contends the mortgagee should have taken to ensure the property was sold to market value would, had they been taken, have led the mortgagee (acting conformably with its duty under s 85) to take a different path than the one actually taken. Otherwise the step not taken would not have made a difference to the overall outcome of the sale and thus could not have been one necessary to comply with the duty.
5. The steps the primary judge found that the Bank should have taken to ensure that the Property was sold at the market value were: (a) that it should have obtained a valuation of WA 1518; and (b) that it should have obtained advice from an appropriate qualified person [Red 258; J 256] (the omitted steps). The advice to which his Honour referred was in respect of the valuation and separate sale of WA 1518 and the prospect of participating in the tender to the Commonwealth by 21 May 2010. The primary judge concluded that the Bank's peremptory rejection of the appellants' suggestion (via Mr Saal) on 4 May 2010 to sell WA 1518 separately was "unreasonable" [Red 258; J 256].
6. There is a distinction between the conduct that is said to have amounted to a breach of s 85(1) of the Act (the omitted steps) and actually failing to sell WA 1518 separately. His Honour concluded that had the Bank taken the omitted steps it would have been justified in not pursuing the option of a separate sale of WA 1518 [Red 268; J 309]. His Honour also concluded if the omitted steps had been taken they would have made no difference to the marketing and sale strategy that the Bank adopted and in those circumstances the Bank's failure to take the omitted steps did not amount to a breach of s 85(1) of the Act [Red 268; J 310].
7. The appellants submitted that his Honour should have found that the Bank's failure to take the omitted steps was in breach of s 85(1) of the Act and should have then proceeded to assess the appellants' damages. It was submitted that his Honour fell into error by asking and answering the question as to what would have happened if the Bank had taken the omitted steps.
8. It is clear from paragraph [233] of the Judgment that it was "common ground" between the appellants and the Bank that there was no need to establish a causal link between breach and loss. It also appears that the parties adopted this approach in reliance on paragraph [74] of the judgment of the Victorian Court of Appeal (Neave and Redlich JJA and Forrest AJA) in Investec Bank (Australia) Ltd v Glodale Pty Ltd [2009] VSCA 97; 24 VR 617. That was an appeal from Pagone J in which his Honour had found that the bank had not complied with its duty under s 85(1) of the Act or taken reasonable steps as required by s 420A of the Corporations Act 2001 (Cth) to ensure that the two properties in question were sold at the market value, relying instead on a method of sale that had the effect of depressing the value and reducing the market interest: Glodale Pty Ltd v Investec Bank (Australia) Ltd [2007] VSC 276 at [24]. Pagone J awarded damages by reference to the valuations of market value and the difference between those valuations and the price achieved on sale: at [31].
9. In dismissing the appeal the Court of Appeal said at 634 [74]: It was accepted by the bank that it was not necessary to show a causal link between the particular breach and the loss: rather, once a breach is established, the question was whether the sale price could be equated with the market value of the property. This approach is also consistent with the statutory intention - market value is the starting point of the inquiry once the breach has been established. Once that has been ascertained, it will become apparent whether any loss has been sustained by reference to the sale price. As Young CJ observed in Ultimate Property Group Pty Ltd v Lord: [69] ... unless it can be demonstrated … that the property in fact sold for under the market price, it is merely a case of injuria sine damnum.
10. There was a note at the end of the first sentence of this extract (endnote 34) which was in the following terms: Although this may be at odds with what was said by Besanko J in Jovanovic [117] it is consistent with the approach that has been undertaken by other courts when assessing the loss to a party as a result of a failure to take reasonable care to obtain market value.
11. In Jovanovic v Commonwealth Bank of Australia (2004) 87 SASR 570 at 599 [117], Besanko J, with whom Mullighan J agreed, said in relation to the analogous provision in the Corporations Act: The question remains as to the price which would have been obtained for the freehold title of the property had the bank taken all reasonable care in terms of the section. … The difference between the price which would have been obtained had that been done and the price the bank in fact obtained, together with appropriate adjustments in relation to the expenses of the sale, is the measure of the loss for the breach of the duty in s 420A.
12. Although the Court of Appeal did not specifically mention in endnote 34 those cases in other courts in which the approach had been undertaken, one case that may have been within contemplation, mentioned by the primary judge in the present case (at [234]), is McKean v Maloney [1988] 1 Qd R 628, in which McPherson J said at 634-635: The second question to be considered is whether it is, as was submitted on behalf the first defendant, incumbent on the plaintiff as a prerequisite to recovering damages under s.85(3) for breach of the statutory duty imposed by s.85(1), to establish by evidence that some identifiable individual or individuals would have purchased the property for more than $50,000 if proper advertising had been carried out. In my view, both as a matter of authority and common sense, it is not necessary for the plaintiffs in a case such as this to adduce evidence of that kind in order to succeed in an action under s.85(3). There is authority to that effect in the decision of the Full Court in Nixon v Commercial and General Acceptance Ltd [1980] Qd R 153, 160. If the law were otherwise, it would cast upon a plaintiff in such a case what appears to me to be an almost impossible burden of locating prospective purchasers who, because of the very deficiencies in advertising complained of, had failed to come forward at the auction and identify themselves.
13. McPherson J's observations were limited to "a case such as this". In this area in particular much will depend upon the circumstances of the particular case.
14. In Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516 (a case referred to by the Victorian Court of Appeal in Investec Bank (Australia) Ltd v Glodale Pty Ltd (at 634-635 [76]) and by Young CJ in Eq in Ultimate Property Group Pty Limited v Lord (2004) 60 NSWLR 646 at 659 [98]) the defendant, as mortgagee, sold a motel and some associated land to the purchasers pursuant to a contract that provided a purchase price of $1 million. This was to be payable by $100 by way of deposit, $800,000 on an unspecified date of completion and the balance of $199,900 within 18 months. Only $800,000 was paid and was not enough to pay out the mortgages.
15. At first instance (Emerson v Custom Credit Corporation Ltd (1991) Q ConvR ¶54-414 de Jersey J found the mortgagee to be in neglect of its duty under s 85(1) of the Act for failing to draw the properties to the attention of parties who might be interested in purchasing them. It was held that the price of $1 million in the contract was "merely to suggest that there had been a sale" at that amount and that the defendant had to be seen to be protecting the plaintiffs' interests. de Jersey J said: But in reality, the defendant was not protecting the plaintiffs' interests at all. It took no reasonable step to secure the market value of $1 million, even though it ended up with a contract at that price, there being no expectation of its being paid anything beyond $800,000. Had the defendant taken reasonable steps, it would probably have secured a sale for $1 million, for settlement at about the same time as this contract was settled.
16. The plaintiffs were awarded damages for the difference between the amount received and the market value of $1 million. The trial judge's approach was approved on appeal: per Davies JA and Williams J at 520.
17. Similarly to the approach that the trial judge adopted in the present case, de Jersey J made an assessment of whether the omitted steps, if taken, would have made any difference to the outcome of the sale.
18. In Commercial and General Acceptance Limited v Nixon (1981) 152 CLR 491 Brennan J said at 524: Section 85(1) imposes a duty to be performed in the exercise by the mortgagee of the power of sale which has been conferred upon him. In the event of breach and consequential damage, he alone is liable. The primary judge in the present case answered in the negative the question as to whether the omitted steps, if taken, would have caused the Bank to conduct a separate sale of WA 1518. His Honour was satisfied that the Bank was justified in not selling WA 1518 separately. On the premise that the failure to take the omitted steps was in breach of the Bank's duty under s 85, there was no consequential damage.
19. In any event, as I have said, this aspect of the appeal is academic if as I propose the Cross-Appeal in respect of the Advertisement breach is dismissed.

Grounds 2 and 3

1. The appellants contended in written submissions that the primary judge's findings as to what would have happened had the Bank explored the possibility of a separate sale of WA 1518 and obtained expert advice on the subject was based on mere hypotheses which were contrary to uncontested evidence or not based on any evidence (Ground 2). It was also contended in the appellants' written submissions that the primary judge failed to distinguish between inferences and hypothetical submissions that were at odds with the evidence (Ground 3). Although these grounds were not addressed to any extent in oral submissions they are maintained and should be addressed. It is convenient to deal with these two grounds of appeal together.
2. The passages of the Judgment the subject of these grounds are paragraphs [264] to [310].
3. The first set of paragraphs is from [264] to [278]. In paragraph [269] his Honour recorded that counsel for the Bank had invited him to assume "for the sake of argument" that the Bank should have retained an expert by 2 April 2010 and that the expert was able to produce a report by 9 April 2010. Having made those assumptions the question was, what would have happened in the circumstances. In paragraph [270] his Honour also assumed that the Bank would have had available an opinion that the value of WA 1518 was in the range between $2.316 and $3.088 million. Although this latter matter was referred to as an assumption it was based on Mr Hendy's report, referred to in paragraph [194] of the judgment.
4. His Honour then referred to Mr Hendy's opinion that it would have been necessary to obtain an hydrology report and a valuation and that it would have taken approximately 3 to 4 months before the Bank would have been in a position to assess whether it would have been better off selling the Property in-one-line or on a piecemeal basis. His Honour also referred to the advice of the Bank officer, Mr Peter Lloyd, that a likely purchaser would wish to proceed with "summer planting" by November 2010 and that in the circumstances the auction should take place in August 2010. In paragraph [277] the primary judge concluded that the 3 to 4 months delay would have justified the Bank in deciding not to pursue a separate sale.
5. The primary judge based his findings on evidence that was tendered by the appellants, the report of Mr Hendy. His Honour also based his findings on other evidence properly before him including Mr Lloyd's records.
6. The assumptions that his Honour made were identified with clarity and were quite favourable to the appellants. An assumption that a bank could obtain an expert report within seven days in relation to WA 1518 is, as his Honour said, highly optimistic. However that assumption was made and his Honour then reviewed the evidence of Mr Hendy. The process by which his Honour did so was perfectly orthodox and appropriate.
7. The next set of paragraphs on which the appellants focused in respect of these grounds of appeal are paragraphs [279] to [319]. In these paragraphs his Honour referred to the evidence relating to the steps that would have been necessary for the Bank to take to sell WA 1518 separately to the Commonwealth or to any other party. His Honour concluded that by reason of all the matters to which attention had to be given, it was "almost certain" that the Bank could not have achieved participation in the May 2010 tender (at [289]).
8. The finding that the application to the Department to convert the WA 1518 from instantaneous volumetric limit to multi-year water sharing rule would have had to occur was based on the consultation report [Red 264; J 281-282]. The finding that an application to the Department to remove "overland flow hook" would require engineering certification was based on the ROP and the conditions in WA 1518. [Red 264-264; J 286]. The finding that by April/May 2010 only one Commonwealth buy back tender had been announced was based on the information in the Commonwealth tender documents [Red 261; J 290]. The finding that the marketing of a property subject to an earlier sale of WA 1518 would deter purchasers was based on the evidence of Mr Allpass [Black 594] and Mr Devine [Black 652-654] [Red 266; J 297]. The finding that any offer in a tender to the Commonwealth at $1,600 per ML would have been rejected was based on Mr Purtle's report [Red 267; J 304]. The finding that the Commonwealth tender was a blind tender and not open to negotiations was based on the Commonwealth tender documents [Red 267-268; J 306-307].
9. The primary judge carefully identified the assumptions that he had been asked to make and made findings of fact on the evidence, drawing inferences from those facts and the opinions expressed by Mr Hendy. The contention that his Honour failed to distinguish between inferences and submissions is without merit.
10. Grounds 2 and 3 are not made out.

Grounds 4, 5 and 6

1. The appellants contended that the primary judge's task was to determine the "market value" of the mortgaged assets at the time of sale. It was submitted that in construing the expression "market value" the primary judge failed to ask what would a person desiring to buy the assets have to pay for them on the day, to a vendor willing to sell at a fair price but not desirous to sell: Spencer v Commonwealth of Australia (1907) 5 CLR 418 (the Spencer test). The appellants contended that his Honour applied the wrong test in adopting Mr Hendy's retrospective reports and construing "market value" as a discounted or "forced sale value" with arbitrary discounts. It was submitted that had his Honour applied the correct test a finding would have been made that the market value of the property was between $10.8 million and $11.4 million. The appellants submitted in the alternative that if the primary judge was correct in finding that hypothetical buyers would only have purchased the assets in-one-line, then his Honour should have found on the evidence of the valuers (Mr Innes, Mr Harrison and Mr Hendy) and the business records of the Bank, that the market value in-one-line of the assets with irrigation water in situ was $9.39 million to $9.74 million (Ground 4).
2. These contentions lead into the next group of the appellants' grounds of appeal relating to his Honour's alleged failure to conduct a rational analysis of the probative value of the valuation evidence and his approach to Mr Hendy's retrospective valuation (Grounds 5 and 6). It is appropriate to deal with these grounds of appeal together.
3. The appellants submitted that the trial judge failed to analyse and understand the probative value of the experts' "disparate opinions" and failed to examine the factual assumptions and methodologies which underpinned their evidence.
4. The primary judge dealt with the valuation evidence in paragraphs [184] to [224] of the Judgment. Part of this analysis is referred to earlier in this judgment (paragraphs [52] to [57]). However it is necessary to refer in a little more detail to his Honour's analysis of Mr Hendy's evidence. His Honour recorded that in his retrospective report of December 2012 Mr Hendy had referred to a sale process "with duress" (at [220]) and then extracted (at [221]) the following passage of his report: It is therefore my opinion, that if a sale has to be achieved, by an 'anxious vendor', mortgagee in possession or otherwise, price expectations need to be lowered. Often discounts of 20% to 30% are commonly required to achieve a sale in difficult market conditions. My valuation has factored in the condition of the property as at 13 September 2010 which is a discount on value compared to better presented, less distress [sic] assets. The effect not allowed for is the requirement to achieve a sale in a relatively short time. This residual discount may be 10% to 20%. With a normal market range of $6,800,000 to $7,400,000, this could reflect a new range of $5,700,000 to $6,600,000.
5. His Honour then set out what he regarded as Mr Hendy's opinion on "a fair reading" of this extract as follows (at [222]): (a) that when a vendor is "anxious" to sell, a 20 per cent to 30 per cent discount on value may result; (b) it was necessary to take into account the condition of the Property and apply a discount "compared to better presented, less distress [sic] assets"; (c) this led to a "normal market value range" of between $6.8 million to $7.4 million (which Mr Hendy rounded to $7 million); and (d) the market value of the Property should not allow for a requirement for a sale "in a relatively short time"; but had he made such an allowance he would have reduced his opinion as to value to a range between $5.7 million (a discount of 16 per cent of his figure of $6.8 million) to $6.6 million (a 10 per cent discount on his figure of $7.4 million); thus reconciling his "normal market value" to what he knew to be the sum achieved by the Bank of $6.1 million.
6. Although Mr Hendy had referred in his retrospective report to the adjustment of the Spencer test in circumstances of a mortgagee sale, the conclusion he reached in respect of the value of the Property, as his Honour pointed out in paragraph 222, was not based on such an adjustment but rather on what Mr Hendy referred to as the "normal" value, that is, one that does not take into account the fact that the vendors may be anxious. Accordingly the criticism made by the appellants in respect of the lack of application of the Spencer test is not made out.
7. There were very serious matters raised in the appellants' written submissions that have absolutely no foundation. The appellants submitted that Mr Hendy: made an active attempt to mislead the Court [Orange 49 (54)]; adopted an assessment based on facts and assumptions which "were patently untrue" [Orange 46 (51)]; had engaged in a subjective "and probably a deceptive attempt" to justify the low price at which the Bank had sold the Property; and had expressed a biased opinion [Orange 49 (56)]. In oral submissions on behalf of the appellants it was contended that Mr Hendy's report was really an instance of "advocacy" for the Bank and was not objective (tr 14). None of this was ever put to Mr Hendy and in my opinion it was quite inappropriate and improper for these submissions to have been made in circumstances where the appellants had tendered Mr Hendy's reports.
8. In written submissions the appellants referred to the differences in Mr Hendy's descriptions of the Property in his reports of July 2010 and December 2012. For instance, in the first report he had described the condition of the homestead as "well maintained" and in the second report he had described it as "fair". In the first report he described the Property generally as being "in good order" and in his second report he described the western grazing area as being in "poor condition". In his first report he valued the structural improvements on the lands at $672,000 and in his second report at $409,925.
9. There is no doubt that the primary judge was well aware that Mr Hendy's observations of the Property in his second report were as at the date of his inspection in December 2012. His Honour referred to both the first report and the second report. The first report was not one in respect of which Mr Hendy had agreed to the Experts Code of Conduct. It was a report given in the commercial market place, whereas Mr Hendy's second report was given as an expert to assist the Court. His Honour also dealt with Mr Hendy's report which dealt with the advice he would have given in March to May 2010 regarding the valuation of WA 1518. In fact His Honour referred to the three areas of "common ground" regarding the valuation of WA 1518 (at [196]-[198]) in reaching his conclusion that the Commonwealth would have paid something in the order of $2.765 million if the appropriate valuation was $1,433 per ML (at [199]).
10. The appellants contended in their written submission that the Bank's decision not to rely upon Mr Hendy's evidence posed "a procedural fairness issue" for them. This submission is not sustainable. When the Bank advised the primary judge that it was not going to call Mr Hendy or Mr Innes or read their reports, senior counsel for the appellants then tendered Mr Hendy's reports [Black 802-804]. At the time of this process there was discussion as to whether some unfairness may occur in respect of the Bank's position, not in respect of the appellants' position [Black 802-804].
11. The appellants submitted that there is "no rule of law that binds a party to all evidence tendered by that person" [Orange 51 (63)]. It was open to the appellants to simply rely upon Mr Hendy's report of 31 July 2010 that was already in the Court Book. The only way that Mr Hendy's opinion that the market value of the Property as at September 2010 was $7 million was before the primary judge was because the appellants tendered it. It is not surprising that his Honour described the appellants' submission that he should not accept this opinion as "curious". If the appellants did not wish his Honour to give consideration to this expert opinion, they should not have tendered it.
12. The primary judge analysed all of the valuers' opinions identifying the difficulties with Mr Harrison's approach and concluding that Mr Hendy's approach was preferable. Far from not considering it, his Honour made a detailed analysis of the competing valuations including in tabular form. His Honour took into account the methodologies employed by each of Mr Harrison and Mr Hendy in reaching his conclusions.
13. There was no error made by the primary judge in the manner in which he dealt with the valuation evidence or in reaching his conclusions as to the market value of the Property.
14. Grounds 4, 5 and 6 are not made out.

Ground 7

1. The appellants contend that his Honour fell into error in bringing the whole of the $900,000 to account in respect of the judgment debt against Mr Pola.
2. At the outset of the trial before the primary judge it was noted that Mrs Pola was not named as a defendant in the proceedings brought by the Bank and the following submission was made [Black 1086 (4)] Nonetheless, Mrs Pola was, with Mr Pola, one of the registered proprietors of the property, Cawildi, and of Water Allocation 1518, which are both the subject of the cross claim. It appears that Mrs Pola should properly have brought her claims against the Bank (and the other cross defendants) by way of statement of claim in separate proceedings. This, however, was not done but rather Mrs Pola purportedly joined in the First Cross Claim, being described as the "second cross claimant" in the pleading.
3. Leave was then sought and granted for Mrs Pola's claim as set out in the Cross Claim to proceed "as if it had been commenced by statement of claim in a separate proceeding which had been consolidated with the present proceeding" [Black 1087 (5)(b)].
4. It was contended in written submissions on Mrs Pola's behalf on the appeal that what the primary judge did was "procedurally irregular and unfair". It was submitted that Mrs Pola was not able to be heard on 4 February 2014 because her "separate claim" had been determined in December 2013 and she was unable to inform the primary judge by evidence or submission of her position [Orange 53 (97)]. This submission is baseless. On 4 February 2014, junior counsel for the appellants (senior counsel no longer appearing) put the following submission [Black 1448]: The Polas say that it should be two separate judgments for the rather straight forward proposition that it is Mr Pola who is indebted to the bank on the bank's claim. Mr and Mrs Pola had jointly been awarded damages on their cross-claim. … We say it is joint, and Mrs Pola's damages cannot and should not go by way of setting off any ultimate debt that Mr Pola might owe to the bank.
5. Although this submission was in stark contrast to the appellants' senior counsel's submission to the primary judge at the conclusion of the trial that the $900,000 "has to be set off against the amount owing" [Black 818 G-J], it is quite clear that submissions were advanced on Mrs Pola's behalf.
6. Junior counsel for the appellants suggested to the primary judge that "loose language" had been used in the Cross-Claim [Black 1449 K-L]. However it is clear that the appellants, not just Mr Pola, sought a declaration that they were not indebted to the Bank [Red 34 C]. Mrs Pola's indebtedness to the Bank was clearly in issue.
7. Although the language used by the parties and the primary judge was that of "set off", the process upon which the primary judge embarked in the second Judgment was essentially a "procedural device" (Derham, The Law of Set-Off, (4th ed 2010, Oxford University Press) at 2.103) pursuant to s 90 of the Civil Procedure Act 2005 (CPA) which provides relevantly: 90 Judgments generally (1) The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires. (2) If there is a claim by a plaintiff and a cross-claim by a defendant, the court: (a) may give judgment for the balance only of the sums of money awarded on the respective claims, or (b) may give judgment in respect of each claim, and may give judgment similarly where several claims arise between plaintiffs, defendants and other parties.
8. His Honour considered these provisions of the CPA after his analysis of the real issues in dispute in the proceedings. In entering judgment, the primary judge was entitled to conclude as he did (at [20] of the second Judgment) that had the sale proceeds been at the market value of $7 million (that is the extra $900,000) the whole amount would have been brought to account in the reduction of the debt owed by Mr and Mrs Pola and their son in respect of the facilities the securities for which included the Property. I am satisfied that his Honour was entitled to enter the judgment in the form that he did.
9. Ground 7 is not made out.

Ground 8

1. In exercising his discretion to award costs against the appellants the primary judge took into account the whole of the circumstances of the proceedings and the outcome. His Honour correctly pointed out that to defeat the Bank's case by their Cross-Claim, the appellants would have had to achieve an amount of damages greater than they did. The Bank's damages were only reduced by $900,000, leaving it as the victor when the proceedings were considered as a whole. Notwithstanding that outcome his Honour ordered that the appellants pay only 25% of the Bank's costs and refused the Bank's request for indemnity costs.
2. I am of the view that this approach was well within the proper exercise of his Honour's discretion. The primary judge did not fall into error in exercising his discretion.
3. Ground 8 is not made out.

The Cross-Appeal

1. The Bank's first contention in support of its grounds in the Cross-Appeal is that at paragraph [324] of the Judgment his Honour took Mr Allpass' evidence out of context. His Honour said [Red 271]: 324. I do not accept Mr Allpass's affidavit reference to "water entitlements" was an "allusion" to water stored on the Property. What he said was quite clear. "Water entitlements" are such entitlements as the owner of the Property has to water passing over or through the Property. Water stored on the Property is something quite distinct.
2. The Bank submitted that the thrust of Mr Allpass' evidence was that there was nothing wrong with the print advertisement and that it would be too confusing to the reader to include further detail, in particular in relation to WA 1518.
3. Mr Allpass' evidence on this topic is extracted earlier in this judgment (at [46]). Obviously the primary judge had the advantage of seeing the witness give evidence. However even a reading of the transcript without that advantage leads to the irresistible conclusion reached by his Honour in paragraph [324]. I am not satisfied that there was any error in his Honour's analysis of, or conclusions in respect of, Mr Allpass' evidence.
4. The Bank's next contention was in respect of his Honour's findings at paragraph [326] of the Judgment as follows [Red 272]: 326. As I have said (see [147] above), the Advertisements refer to the Property as being irrigated and having "centuries of alluvial flows". They contain a picture of a crop under irrigation. But they do not refer at all to Water Allocation 1518, and its tradability. They do not refer to Water Licence 602026, or to the other, arguably less significant water licences.
5. It was submitted that any reference to the tradability of WA 1518 would not "tell the purchaser anything" (tr 37). It was also contended that the tradability of WA 1518 was dependent on a number of factors, including the permission of other people in certain circumstances. It was submitted that it was incumbent upon the primary judge to say what the advertisement should have recorded rather than noting the absence of reference to the tradability of WA 1518 (tr 37).
6. Mr Allpass accepted in his evidence (extracted earlier at [45]) that WA 1518 was separate from the land "if you wished to trade it". There was no mention of its presence or its tradability in the advertisement and these were the very matters his Honour identified as wanting. It was not necessary for his Honour to go further and perform a drafting exercise for the Bank. As to whether its mention would "tell the purchaser anything" was dealt with by the primary judge in the passage (in paragraph [328] of the Judgment) referred to below in respect of which the Bank also complains.
7. His Honour said [Red 272]: 328. But a prospective purchaser, looking about in the market, considering a number of possibilities, and weighing up whether to consider purchasing the Property, rather than another property, may well have been tempted to investigate further had details of the water entitlements featured in the advertisements. Conversely, such prospective purchaser may well have been deterred or deflected from further consideration of the Property in the absence of those details.
8. The Bank submitted that his Honour was hypothesising about a prospective purchaser and that this hypothesis was not based upon any evidence at all (tr 38). It was submitted that one has to assess the advertisements by reference to the target market.
9. The fact is that WA 1518 was an asset able to be traded separately and on the evidence before the trial judge it was a valuable asset. His Honour did not fall into error in paragraphs [326] and [328] of the Judgment. Rather his Honour was dealing with the absence of reference to the valuable asset in the advertisement in accordance with the evidence and with the application of commercial common sense.
10. The Bank's next contention was in respect of the following passages of his Honour's Judgment [Red 272]: 329. In this context, and unlike the position in relation to their claims under the TPA, FTA and in negligence, Mr and Mrs Pola do not have to prove that, as a matter of fact, the absence of any reference to the water entitlements made any difference to any particular purchaser (see [233] and [234] above). 330. All they need to establish is that inclusion of such details was a step that ought reasonably to have been taken to ensure achievement of market value.
11. The Bank submitted that his Honour conflated the "strange law" about how damages work in this field back into the question of breach (tr 38). It was submitted that if the appellants do not have to prove that as a matter of fact the absence of any reference to water entitlements made any difference to any particular purchaser, no breach was identified and the Cross-Appeal should be upheld.
12. As I have said earlier his Honour recorded that it was common ground that once a breach is established it is not necessary to show a causal link between any particular breach and loss.
13. There have been cases in respect of s 85(1) of the Act in which the language of causation and causal connection has been used: Sablebrook Pty Ltd v Credit Union Australia Ltd [2008] QSC 242 at [75]-[76]; Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 at 405; Higton Enterprises Pty Ltd v BFC Finance Limited [1997] 1 Qd R 168, at 174 and 185. However the parties to the present litigation proceeded on the basis of the approach adopted by the Victorian Court of Appeal in Investec Bank (Australia) Ltd v Glodale Pty Ltd and advised the primary judge that this was common ground.
14. As I said earlier it will depend on the particular circumstances of the case. McKean v Maloney was a case in which the mortgagee's advertising campaign was found to be "insufficient" (at 633). In the present case the print advertisements were found to be wanting by reason of the lack of reference to WA 1518 and its "tradability". This was a serious lack of care to ensure the Property sold at market value and his Honour correctly found it to be in breach of the Bank's statutory duty under s 85(1) of the Act. The observations made by McPherson J in McKean v Maloney at 634-635, referred to in paragraph [91] above, are apt. Once breach was established, it was not necessary for the appellants to adduce evidence of some identifiable individual who would have paid more for the Property if WA 1518 had been mentioned in the advertisement to succeed in their claims. The consequential damage in this instance was the sale at less than market value.
15. The Bank's contentions are not made out and the Cross-Appeal fails.

Conclusion

1. I am of the view that the Appeal and the Cross-Appeal should be dismissed with costs. The orders that I propose are as follows: 1. The Appeal is dismissed. 2. The Cross-Appeal is dismissed. 3. The appellants are to pay the Bank's costs of the Appeal. 4. The Bank is to pay the appellants' costs of the Cross-Appeal.
2. YOUNG AJA: I agree with Bergin CJ in Eq but wish to make some comments about the cross-appeal.
3. As to the cross-appeal I was at first concerned there was too much emphasis on the fact that advertisements were inadequate in that they did not properly deal with the position of the water rights.
4. Before noting how I overcame my concern I must note that it was conceded that the water rights in question in this case were part of the mortgaged property. Thus awkward questions that are often raised in connection with water rights attached to properties as to whether they do form part of the security do not arise in this case.
5. The key question that arises under Section 85 of the Property Law Act 1974 (Qld) is whether the mortgagee has taken reasonable care to ensure that the property is sold at the market value. The statutory duty under that section is breached if, on an evaluation of the whole of the mortgagee's conduct, it is demonstrated that there was a failure to take reasonable care. A mortgagee who (1) fails to take proper advice and (2) fails to act on proper advice and (3) fails to advertise properly or at all does not commit three breaches of the section, but one breach. One looks at the total picture. As Dodds-Streeton J said in Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54; 51 ACSR 699 at [442] the assessment does not depend on any single factor in isolation.
6. The requirements for advertisements have long been settled. As Griffith CJ said in Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; 13 CLR 676 at 683 with respect to a sale by auction: The object of a sale by auction is to secure a fair price for the property offered by means of competition between probable purchasers. And the object of giving public notice of a sale by auction, whether by advertisement, bellman, posters or otherwise is to bring the subject of the sale to the notice of such probable purchasers and so to induce such competition as will be likely to secure a fair price. The notice ought, therefore, so far as the circumstances will admit, to be of such a nature, both as to particulars given and as to the places in which and the modes by which it is given as to be likely to secure this result.
7. Mr Newlinds SC referred to the supplementary blue appeal book which contained the handouts provided to any purchaser that responded to the ad and he says that the details in that package show that there was proper notification of the situation with respect to water rights.
8. One answer to that is that it may well be that a person who saw the original ad did not make the inquiry which would have given him or her the handouts to which Mr Newlinds SC refers.
9. I agree that one looks not just at the one advertisement but at the whole package of brochures and handouts and that it is not necessarily so that one defective advertisement will mean that there is a breach of the section. ACES Sogutlu Holdings Pty Ltd v Commonwealth Bank of Australia [2014] NSWCA 402 at [64] and following is the most recent illustration of a court looking at the whole of the advertisement package.
10. However when one reads the primary judge's Judgment particularly paragraph [326] and following his Honour did consider the whole package of advertisements. He said that the Bank did have in its mind what should be done and that included (see [331]) that the advertisements should emphasise (among other things) the land's water entitlements. The problem for the Bank is that it did not implement what it found it should have done. His Honour also said at [328]: But a prospective purchaser, looking about in the market, considering a number of possibilities, and weighing up whether to consider purchasing the Property, rather than another property, may well have been tempted to investigate further, had details of the water entitlements featured in the advertisements. Conversely, such prospective purchaser may well have been deferred or deflected from further consideration of the Property in the absence of those details.
11. Hence I agree that the cross-appeal ought to be dismissed.

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