Porter v Computer Based Technology Pty Ltd

1 By an Originating Process filed on 18 September 2003, Mr Porter, the liquidator of Imperial Plantations Pty Ltd ("Plantations") seeks a declaration that an unregistered mortgage over an interest in land given by Plantations to the First Defendant ("CBT") dated 1 February 1996 is of no effect. Mr Porter says that the mortgage was not executed at the time and in the circumstances alleged by CBT and that the loans which it purportedly secures were never made to Plantations by CBT. Alternatively, he says that even if the mortgage is otherwise valid CBT irrevocably elected to surrender it by proving as an unsecured creditor in the liquidation of Plantations. 2 Accordingly, Mr Porter seeks orders under s.530B or s.530C Corporations Act 2001 (Cth) ("CA") that CBT or its sole director, Mr B.P. Hocking, the Second Defendant, deliver up to him the certificate of title in respect of Plantations' interest in the land. 3 By its Cross Claim, CBT seeks a declaration that the mortgage is valid, and consequential relief. 4 The issues are:

• whether the mortgage was executed on behalf of Plantations on the date it bears and in the circumstances alleged by Mr Hocking;

• whether CBT ever advanced money to or for the benefit of Plantations, as asserted in a deed of loan between those parties dated 1 February 1996;

• whether CBT is precluded from enforcing the mortgage by reason of an irrevocable election to prove as an unsecured creditor in the winding up of Plantations. Background

5 Mr Hocking was admitted as a solicitor of the Supreme Court of New South Wales in 1953. Between that date and 1967 his practice was mainly in conveyancing. 6 In 1968 Mr Hocking was struck off the Roll of Solicitors. It had been alleged that he had forged his wife's signature on a mortgage of land. The case before the Statutory Committee was heard and determined in Mr Hocking's absence. Mr Hocking says that before the case was heard he had had a complete nervous breakdown and had gone to the United States of America, intending never to return to Australia. He says that he had an explanation as to his conduct, namely, that he had bought the subject land with his own money but in his wife's name and believed that the land was beneficially his own. He says, however, that in 1968 he was not in a frame of mind to defend himself. 7 Mr Hocking returned to Australia in about 1970. From then on he appears to have involved himself in numerous small business ventures, either alone or in association with other persons. 8 One of these ventures involved Plantations. That company was incorporated in December 1985 and Mr Hocking became a director with Mr Ian Williams. The evidence given by Mr Hocking about the nature of the business conducted by Plantations is extremely vague. It seems that Plantations and another associated company, Imperial Tea Growers Pty Ltd ("Growers") acquired land as tenants in common at Corndale - the precise location of Corndale has not been identified. 9 Apparently, the Corndale land was to be used for growing tea and there was to be a scheme under which investors would acquire interests in the land as tenants in common. Further elucidation of the scheme is lacking. All that now appears is that on 16 February 1987 Mr Hocking ceased to be a director of Plantations, on 1 July 1991 he was reappointed, and by 1997 the investment scheme involving Plantations and Growers, whatever it was, had come to nothing. In the process, however, Plantations had somehow acquired an interest in the Corndale land as tenant in common with Growers, as to 102/468 shares. 10 CBT was incorporated on 3 July 1991. Mr Hocking was one of the two original directors and became the sole director on 31 January 1996. Mr Hocking says that CBT had no other activity at about this time than to lend money in connection with his various business ventures. 11 Daintree Tea Pty Ltd ("Daintree") was incorporated on 2 March 1995. Mr Hocking was one of the first two directors. Mr Williams became a director on 31 December 1996. Mr Hocking produces a deed dated 2 March 1995 whereby the shareholders of Daintree declare themselves to be trustees for Plantations of their shares in Daintree. No challenge to the genuineness of this deed has been made by Mr Porter. Mr Hocking has said that he regarded Daintree as a subsidiary of Plantations. 12 Daintree carried on the business of selling iced tea to Coles and Woolworths. Mr Williams conducted its day-to-day operations in that regard. In the course of carrying on that business, Daintree incurred trade creditors. Execution of the security documents

13 According to Mr Hocking, by 1 February 1996 he had provided $42,375.12 in various payments to Daintree's creditors. Those monies were paid through CBT and were mostly paid by cheques drawn on CBT's account in favour of the creditors directly, although some payments were made in cash. 14 Mr Hocking's evidence is that on the morning of 1 February 1996, Mr Williams telephoned him and told him that Daintree had received orders for the supply of iced tea from Coles and Woolworths and needed money to pay various suppliers otherwise it would miss out on the orders. 15 Mr Hocking says that Mr Williams came to the office of the firm of Dennis & Co., solicitors, where Mr Hocking was working part-time as a clerk. Mr Hocking showed Mr Williams the security documents which he had prepared in order to secure the loan which CBT was about to make as well as the loans it had previously made. The documentation comprised a Real Property Act mortgage form to which was attached a Power of Attorney given by Plantations to CBT and a deed dated 1 February 1996 between Plantations and CBT evidencing the terms of the loan. 16 Mr Hocking says that both he and Mr Williams signed the mortgage form as directors of Plantations, and the seal of the company was affixed. The mortgage form provided for the execution of CBT as mortgagee by its solicitor. Mr Hocking says that he did not sign as solicitor for CBT at that time, as he did not then have a Practising Certificate. He says that he intended to get Mr Dennis, the principal of the firm of solicitors in which he was working, to sign the mortgage form later. Mr Hocking says that he and Mr Williams also affixed the seal of Plantations to the deed of loan and signed that document as directors of Plantations. Mr Hocking also signed the deed as a director of CBT. 17 Mr Hocking says that he then gave Mr Williams a cheque for $1,667.50 drawn on CBT's account in favour of Cottee Corporation and a sum of $480 in cash to be deposited into Plantations' account to meet a cheque which it had drawn in favour of another supplier, ABS Cotter. He says that he then took possession of the certificate of title to Plantations' interest in the Corndale land and thereafter retained it in CBT's file. 18 The mortgage was not stamped until shortly before the commencement of the trial. Neither was the mortgage form executed on behalf of CBT until about 24 October 2001, when Mr Porter requested Mr Hocking to provide a copy of it to substantiate his contention that CBT was a secured creditor. Mr Hocking says that on receipt of request, he signed the mortgage form as solicitor for CBT as he had been re-admitted as a solicitor on 24 May 1996. The evidence of Mr Williams

19 The only other person who could have given evidence about the execution of the security documents is Mr Ian Williams. Although Mr Williams' whereabouts is known, his evidence is not before the Court in the following rather curious circumstances. 20 Mr Porter caused Mr Williams to be examined publicly under Pt 5.9 CA on 9 October 2002. Exhibited to Mr Porter's affidavit of 16 September 2003 in these proceedings was a transcript of that examination, signed by Mr Williams. When Mr Tregenza, Counsel for Mr Porter, sought to tender the transcript of Mr Williams' evidence in reading Mr Porter's affidavit, Mr Loughnan, Counsel for Mr Hocking, successfully objected to the tender on the ground that the transcript was hearsay and that it was not admissible under s.597(14) CA because Mr Williams was not a party to the proceedings. 21 In the course of cross examining Mr Hocking, Mr Tregenza sought to establish the basis of a Jones v Dunkel inference against Mr Hocking by reason of Mr Hocking's failure to call Mr Williams as a witness. Mr Hocking explained that by letter dated 7 November 2003 he had advised Mr Porter's solicitors that he intended to file an affidavit by Mr Williams but, by letter dated 4 February 2004, he had advised that as the transcript of Mr Williams' public examination was exhibited to Mr Porter's affidavit of 16 September 2003 no purpose would be served by filing Mr Williams' affidavit. Mr Hocking was clearly giving notice that he would rely upon the tender by Mr Porter of Mr Williams' transcript. 22 Strangely, at the commencement of the hearing, as I have noted, Mr Williams' transcript was successfully kept out of evidence by Mr Hocking's own Counsel. When Mr Hocking gave this explanation in the course of his cross examination, Mr Loughnan conceded that his objection to the tender of Mr Williams' transcript had been made in error. He then withdrew the objection, but Mr Tregenza then expressly declined to tender the transcript himself. Mr Loughnan later sought to tender the transcript. It was open to Mr Tregenza to waive an objection to the tender on the ground of hearsay, but he did not. Upon Mr Tregenza's objection on the ground of hearsay, the tender of Mr Williams' transcript was rejected. 23 Clearly, Mr Hocking had regarded the transcript of Mr Williams' evidence as an acceptable substitute for the affidavit which he had proposed to obtain from Mr Williams. Mr Williams was not immediately available to be called and his evidence was not placed before the Court by reason of a decision by Mr Porter at the very end of the trial. In those circumstances, I am not prepared to draw a Jones v Dunkel inference adverse to Mr Hocking by reason of the absence of Mr Williams' evidence. Serious misconduct suggested

24 Mr Tregenza submits that, as the certificate of title to Plantations' interest in the Corndale land is prima facie the property of Plantations, the onus rests on CBT to establish its security, as asserted in the Cross Claim, notwithstanding that it was Mr Porter who commenced these proceedings to recover the certificate of title pursuant to s.530B and s.530C CA. As explained below, because of the gravity of the allegations made against Mr Hocking personally, I do not think that the decision in the case turns upon nice questions as to who bears the onus of proof. 25 Mr Tregenza says that I should not be satisfied that the security documents were executed at the time and in the manner deposed to by Mr Hocking. He seeks to suggest that the security documents must have been brought into existence after the liquidation of Plantations in order to substantiate a false claim by Mr Hocking that, through CBT, he was a secured creditor of Plantations. Mr Tregenza acknowledges that such a finding requires that I be satisfied that both perjury and fraud have been committed by Mr Hocking. 26 As I have noted above, Mr Hocking has been admitted as a solicitor since 1996 and is, as far as the evidence reveals, a solicitor in good standing. Mr Tregenza acknowledges that in order to make a finding against a professional person of such serious misconduct I would have to find it proved with that degree of satisfaction discussed in Briginshaw v Briginshaw (1938) 60 CLR 336 and reflected in s.140(2)(c) Evidence Act 1995 (NSW). 27 It must be noted at once that, although Mr Tregenza cross examined Mr Hocking closely as to the circumstances in which the mortgage security documents were executed and as to other circumstances said to be inconsistent with the existence of the security, Mr Tregenza never put directly to Mr Hocking that the security documents were a concoction brought into existence long after the date of their apparent execution and that Mr Hocking was not telling the truth. The submissions

28 Mr Tregenza relies upon a number of circumstances which, he says, taken together should satisfy me that Mr Hocking's evidence as to the execution of the security documents should not be accepted. 29 First, Mr Tregenza says, there is no reference at all in Plantations' balance sheet and financial statements to the alleged indebtedness to CBT, let alone a secured indebtedness. Mr Hocking concedes this to be so. However, he says that he has never seen the relevant balance sheets and financial statements and that he had no input into their preparation. He says that the balance sheets and the financial statements were prepared by a Mr Phegan, that he met Mr Phegan only twice and that Mr Williams was responsible for giving instructions to Mr Phegan. There is no evidence which contradicts this evidence of Mr Hocking. 30 Second, Mr Tregenza points out that the mortgage was never registered, it was not stamped until shortly before the trial commenced, no interest under it was ever sought or paid, and no caveat was lodged against the title. Mr Hocking's explanation is that he believed that Plantations had insufficient money to pay the stamp duty and that stamping, registration and caveating were unnecessary in any event because CBT held the certificate of title to Plantations' interest in the Corndale land, he believed CBT's debt would be paid when the Corndale land was sold and he himself was actively involved in the attempts to sell it. He says further that he thought that it would look better for the purposes of the sale if it appeared that title to the Corndale land was unencumbered. 31 Third, Mr Tregenza points to a letter dated 19 January 1999 written by Mr Hocking to the Deputy Commissioner of Taxation in an endeavour to persuade the Australian Taxation Office to give Plantations further time to pay its tax debt. In that letter Mr Hocking says, concerning Plantations: "As you are aware, this company has not traded for a number of years and has not incurred any liabilities and the company at this time is dormant and the only creditor is the Taxation Commissioner ." [Emphasis added.]

Mr Tregenza emphasises that the underlined statement must have been inconsistent with the existence of CBT's mortgage security at the time that the letter was written, to the knowledge of Mr Hocking. 32 Mr Hocking readily conceded in cross examination that the underlined statement in his letter was incorrect according to his own version of events. His explanation was that he intended to convey to the Taxation Commissioner that Plantations had no other debts to external creditors for which it was being pressed for payment. He says that as he was a director of Plantations and of CBT, CBT was not an "external creditor". He says that CBT was not pressing for payment of its debt because he expected that the sale of the Corndale land would eventually realise sufficient to enable Plantations to pay the Commissioner's tax debt of some $50,000 as well as the debt to CBT, which was then in the order of some $50,000. He says that in his letter to the Commissioner he was seeking to persuade the ATO that there was no need for Plantations to be wound up in insolvency. 33 Fourth, Mr Tregenza points out that, although Mr Hocking says that he, through CBT, paid just over $2,000 on 1 February 1996 in favour of Daintree's suppliers at the request of Mr Williams and Plantations because Plantations itself had no money, in fact the bank statements of Plantations show that on that date $10,000 was banked to its account. Mr Tregenza suggests that the explanation given by Mr Hocking for the execution of the security documents is untrue. 34 Mr Hocking says that Mr Williams told him that there was no money available to pay the suppliers on 1 February and he himself did not know that $10,000 was banked into Plantations' account on that day. He knew nothing of the transactions leading to that deposit. 35 Fifth, Mr Tregenza points to the fact that the cheque which Mr Hocking says he drew in favour of Cottees on 1 February 1996 was apparently delivered to Cottees and presented for payment on the same day. Mr Tregenza says that it is unlikely that this could have happened, casting doubt on Mr Hocking's evidence generally. Conclusions as to execution of mortgage

36 I have taken into account the matters relied upon by Mr Tregenza. I have taken into account also that in 1968 Mr Hocking was struck off the Roll of Solicitors for a dishonest action in placing a signature on a mortgage document. Nevertheless, I have come to the conclusion that I should accept Mr Hocking's evidence as to the circumstances in which the mortgage security was taken by CBT. My reasons are as follows. 37 First, as to Mr Hocking's general credit: Mr Hocking was frank in admitting that he had been guilty of serious misconduct in placing a signature on a mortgage document in about 1967. He did not attempt to justify his conduct and he said that he still felt ashamed of it. I have taken into account also the fact that Mr Hocking was re-admitted as a solicitor in 1996 and that there is no evidence to suggest that he is not of good character or of good standing as a solicitor. I have found no reason to regard Mr Hocking's evidence as uncreditworthy. 38 Second, as Mr Tregenza concedes, there is no doubt that by 1 February 1996 CBT had made considerable payments from its own funds for the benefit of Daintree, the shares of which were beneficially held for Plantations. Likewise, there is no doubt that CBT drew a further cheque for $1,667.50 in favour of another of Daintree's creditors on 1 February 1996. There is no evidence which contradicts the acknowledgement by Plantations in paragraph 7 of the deed of loan dated 1 February 1996 that CBT had made the payments there identified on its behalf for the benefit of Daintree, whose shares were beneficially held for Plantations. 39 Having regard to Mr Hocking's experience as a conveyancing solicitor, I find it inherently probable that when further money was sought by Mr Williams on or about 1 February 1996 in order to pay further debts of a company which Mr Hocking regarded as the subsidiary of Plantations, Mr Hocking should have made it a condition of agreeing to make that further payment that he obtain some real estate security not only for the advance about to be made but also for the advances already made. As Mr Hocking explained, Plantations was the only company which had real estate available to give as security. 40 In these circumstances, I think it inherently probable that Mr Hocking would have sought an equitable mortgage from Plantations securing past advances for the benefit of Daintree as a condition of the further advances sought. I think it inherently probable that, as the advances were ultimately for the benefit of Plantations as the beneficial holding company of Daintree, Mr Williams as the other director of Plantations, agreed to give the security. 41 That an equitable mortgage by Plantations in favour of CBT was agreed is supported by the fact that Mr Hocking, in fact, had possession of the Certificate of Title to Plantations' interest in the Corndale land by the time that Plantations was placed in liquidation. 42 I take into account that the indebtedness of Plantations to CBT was not shown in any of the relevant balance sheets and other financial records said to have been the financial records of Plantations. I note that none of these purported financial statements is audited and none of them is signed by Mr Hocking or by Mr Williams by way of verification or adoption. There is no evidence to contradict Mr Hocking's explanation that he was unaware of the fact that these records of Plantations did not disclose the unregistered equitable mortgage. I accept also that Mr Hocking had no input into the contents of such financial statements and accounts as were prepared for Plantations. 43 In any event, I gain the impression from such evidence as there is as to the affairs of Plantations that its records and accounts were not maintained with scrupulous attention: it appears that by the late 1990s the company had failed to file tax returns for a number of years. 44 I take into account that the unregistered mortgage was left unstamped, unexecuted by the mortgagee and unprotected by caveat for a considerable time after its execution. I take into account that no interest under the mortgage was paid or demanded by CBT. However, having regard to the somewhat optimistic views which Mr Hocking obviously took as to the value of Plantations' interest in the Corndale land and having regard to the fact that there could be no adverse dealing with Plantations' interest without Mr Hocking's own knowledge and consent as holder of the Certificate of Title, I accept his explanation that, until Plantations was wound up, he did not see any need to take any step to protect or enforce CBT's security interest. 45 I take into account that in Mr Hocking's letter to the Deputy Commissioner of Taxation dated 19 January 1999 he said that Plantations had no creditors other than the Commissioner. However, I accept that this letter was written in an endeavour to persuade the Australian Taxation Office to give further time to Plantations for payment of its tax debt. In those circumstances, I accept that Mr Hocking was concerned to convey that no "external" creditor except the ATO was pressing for payment. As far as CBT was concerned, that was the case. 46 I take into account that $10,000 was banked into Plantations' account on the day that the mortgage security was given. I am unable from this circumstance to infer that Plantations had no need of the money paid by CBT on that day. Mr Hocking has no knowledge of the transactions underlying the deposit into Plantations' bank account: the money could have been already committed to some other obligation of Plantations. 47 I take into account the circumstance that the CBT cheque in favour of Cottees was apparently delivered and banked on the day on which it was drawn. In itself, that is not a suspicious circumstance: Mr Williams could well have made special arrangements for an urgent delivery of the cheque in response to a request from the supplier. 48 Finally, I take into account that Mr Williams' evidence was to be relied upon by Mr Hocking but, in the course of the trial, he was deprived of the benefit of that evidence by the liquidator in the circumstances which I have recounted. However, Mr Williams signed a Report As To Affairs of Plantations dated 10 May 2001 in which the unregistered mortgage in favour of CBT is disclosed. I infer from these circumstances that Mr Williams' evidence generally would have been supportive of CBT's case. 49 Mr Hocking has given clear and firm evidence as to the circumstances in which the mortgage security was taken. Having regard to the considerations to which I have referred, I am unable to conclude with any degree of satisfaction that he is deliberately perjuring himself and that he has fraudulently concocted the security documents upon which he relies. On the contrary, I am satisfied that I should accept Mr Hocking's evidence. 50 For those reasons, I find that as at 1 February 1996 CBT had the benefit of a valid and enforceable equitable mortgage over Plantation's interest in the Corndale land. The debt secured was as acknowledged in the deed of loan between Plantations and CBT dated 1 February 1996. Election to surrender the security

51 Mr Tregenza submits that, even if CBT had a valid equitable mortgage, by lodging a proof of debt dated 8 January 2002 it has irrevocably elected to surrender its security and to prove as an unsecured creditor in the liquidation of Plantations. 52 Mr Hocking says, and I accept, that at the time that he completed the proof of debt he had very little, if any, experience as a solicitor in bankruptcy and insolvency practice. He says that he received the proof of debt from Mr Porter without explanation as to what he should do about it and he did not appreciate that if CBT proved in the liquidation for the whole of its debt it could be held in law to have surrendered its security. I accept that he certainly did not make a conscious decision that CBT would surrender its security and take instead a dividend in Plantations' liquidation. 53 The circumstances in which CBT came to lodge the proof of debt may be summarised thus. 54 On 21 April 2001, Mr Hocking made known to an employee of Mr Porter that CBT was claiming to hold an equitable mortgage over Plantations' interest in the Corndale land. On 11 May 2001, Mr Hocking sent a copy of the executed mortgage form to Mr Porter. 55 On 30 May 2001, Mr Porter wrote to Mr Hocking advising that he had received an offer to purchase Plantations' interest in the Corndale land for $40,000. He sought CBT's consent as mortgagee of Plantations' interest. 56 On 12 June 2001, Mr Porter wrote again to Mr Hocking informing him that the offer to purchase Plantations' interest in the land had been increased to $61,000. Mr Porter again sought CBT's consent to the sale. 57 On 15 June 2001, Mr Hocking replied, saying that the principal and interest payable under CBT's mortgage exceeded $80,000 and that he considered that Plantations' interest in the Corndale land was worth much more than $61,000. On behalf of CBT, he offered to match the offer of $61,000 and said that the balance of CBT's debt owing under the mortgage would be unsecured. Mr Porter did not respond to this offer. 58 On 5 July 2001, Mr Porter wrote to Mr Hocking saying that he disputed the validity of CBT's alleged equitable mortgage, on essentially the same grounds as he has maintained in these proceedings. He advised that he would commence proceedings to compel the return of the Certificate of Title held by CBT unless it was surrendered by a stipulated date. 59 There appears to have been no further communication between the parties until 19 December 2001. In a report to creditors dated that day, a copy of which was received by Mr Hocking, Mr Porter noted that CBT claimed to hold an unregistered mortgage over Plantations' interest in the Corndale land and that its indebtedness, including interest, would be about $80,000. Mr Porter advised that he intended to commence proceedings to establish that the mortgage was invalid. He advised that if the mortgage was held invalid, unsecured creditors would receive a dividend of approximately eighty-five cents in the dollar and about twenty-nine cents in the dollar if the mortgage was held valid. He then said: "Attached to this report is a proof of debt … that creditors should complete and return to my office if they have not previously done so." 60 Mr Hocking's evidence, which I accept, is that he completed the proof of debt form for CBT at his home on the evening of 8 January 2002 and next day took it to the office in which he worked. He dictated a letter to Mr Porter, which a secretary typed for him. The letter is dated 10 January 2002. Mr Hocking believes that he attached the proof of debt form to the letter dated 10 January 2002 and had them sent by DX to Mr Porter. 61 There is no evidence which contradicts Mr Hocking's account of how he returned the proof of debt form or which makes that account implausible. All that the records of Mr Porter's office show is that the letter dated 10 January was stamped as received on 16 January. There is no other letter from Mr Hocking in Mr Porter's files which encloses the proof of debt. There is no date stamp on the proof of debt form at all. The absence of a date stamp on the form is capable of suggesting that the document was not received separately from the letter of 10 January 2002 but, rather, that it was received under cover of that letter. 62 I am satisfied on the probabilities that Mr Hocking's account of when he sent the proof of debt form should be accepted. I find that the proof of debt form was received by Mr Porter under cover of Mr Hocking's letter dated 10 January 2002. 63 In his letter of 10 January 2002, Mr Hocking disputes that the equitable mortgage held by CBT is invalid. In doing so, he was clearly responding to that allegation in Mr Porter's report to creditors dated 19 December 2001. Mr Hocking asserts that the mortgage was properly given and he recounts the circumstances in which it was given in substantially the same terms as he has given in his evidence. 64 In his letter, Mr Hocking continues by meeting and explaining, point by point and at length, the circumstances relied upon by Mr Porter in his letter of 5 July 2001 as indicating that it was improbable that the mortgage had been granted as Mr Hocking had claimed. The explanations are substantially to the same effect as those which have been given by him in his evidence in these proceedings. In short, it is obvious from the letter that Mr Hocking and CBT assert the validity of the mortgage with the intention of relying upon it. 65 The proof of debt form - which I have found was enclosed with the 10 January letter - contains some anomalies. Paragraph 1 states the amount of the debt at $80,769. Paragraph 2 provides for details to be given of any securities held. It requests: "If the securities are on the property of the company, assess the value of those securities." In this section, Mr Hocking described the mortgage and wrote under the heading "Amount" : "$44,500 + interest $44,719. I assess the value of the security at $100,000." It will be observed that the total debt claimed in paragraph 2 is $89,219. 66 Section 554E CA provides: "(1) In the winding up of an insolvent company, a secured creditor is not entitled to prove the whole or a part of the secured debt otherwise than in accordance with this section and with any other provisions of this Act or the regulations that are applicable to proving the debt.

(2) The creditor's proof of debt must be in writing.

(3) If the creditor surrenders the security to the liquidator for the benefit of creditors generally, the creditor may prove for the whole of the amount of the secured debt.

(4) If the creditor realises the security, the creditor may prove for any balance due after deducting the net amount realised, unless the liquidator is not satisfied that the realisation has been effected in good faith and in a proper manner.

(5) If the creditor has not realised or surrendered the security, the creditor may:

(b) prove for the balance due after deducting the value so estimated.

(6) If subsection (5) applies, the proof of debt must include particulars of the security and the creditor's estimate of its value." 67 What would the reader of the proof of debt form reasonably have thought that CBT was doing in lodging the proof of debt containing the anomalies which I have described? Was CBT estimating the value of its security and proving for the balance in accordance with s.554E(5)? That could not be right, because the "value of the security" had been "assessed" in the proof of debt at more than the secured debt itself so that there would be no balance for which to prove. Was CBT simply surrendering its security and proving for the whole amount of the debt, in accordance with s.554E(3)? If that were the case, why would CBT refer at all to the value of the security? Further, if CBT believed that the value of the security was more than adequate to repay one hundred cents in the dollar of its debt, why would it wish to surrender the security to take a dividend of eighty-five cents in the dollar? In any event, what was the debt claimed: was it $80,769, as claimed in paragraph 1, or $89,219, as claimed in paragraph 2? It must have been obvious to Mr Porter on reading the proof of debt that Mr Hocking had been somewhat confused when completing it, to say the least. 68 In my opinion, the law as to election to surrender a security in an insolvency administration may be summarised in the following propositions:

a) whether or not an election to surrender a security has been made is not subject to rules peculiar to insolvency law; the question is determined according to the principles applicable to election generally;

b) an election to surrender may be shown by proving a conscious decision by the creditor, communicated to the liquidator or bankruptcy trustee, to give up the security and take instead a dividend from the insolvent estate;

c) where a conscious decision by the creditor to surrender has not been shown, a decision to surrender will be imputed to the creditor, regardless of actual intention, if the creditor has acted in a manner which is clearly and unequivocally consistent only with surrender of the security;

d) an election to surrender is not lightly to be imputed from conduct - it is not to be supposed that secured creditors give up their securities without good reason;

e) where an intention to surrender is to be imputed from conduct, lodgement by the creditor of a proof of debt may not, on its own, be sufficient - other surrounding circumstances, both before and after lodgement of the proof of debt, may indicate a contrary intention;

f) on the other hand, lodgement of a proof of debt together with acceptance and retention of a dividend from the insolvent administration will usually give rise to an imputed intention to surrender;

g) if conduct said to imply an election to surrender is equivocal or indicates confusion or that a final course of action has not yet been decided upon by the creditor, no election to surrender will be held to have been made:

see: Moor v Anglo-Italian Bank (1879) 10 Ch D 681, at 689-690 per Jessel MR; Re Douglas Homes Qld Pty Ltd (in liq) [1980] Qd R 528; Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) [1987] 1 Qd R 111; Kelso v McCulloch (24 October 1994, NSWSC, Young J); Re Ferguson; ex parte Elder's Trustee & Executor Co Ltd (1943) 13 ABC 1, at 5; Surfers Paradise Investments Pty Ltd (in liq) v Davoren Nominees Pty Ltd [2003] QCA 458, at paras.5-7 per Williams JA, at paras.30-34 per Dutney J. 69 In the present case, as I have said, anyone reading Mr Hocking's letter of 10 January 2002 would reasonably have concluded that it evidenced a clear intention on the part of CBT to rely upon its security: it would have been pointless to go to such lengths to refute the allegations as to invalidity of the mortgage if the mortgage was to be surrendered. The letter enclosed a proof of debt which showed some confusion on the part of Mr Hocking in completing it. At one glance, the reader of these two documents could see that their effect, taken literally, was mutually contradictory: the letter evidenced a clear intention to rely upon the security but the proof of debt, on one view of it, had the effect in law of surrendering the security. 70 At the highest, a person reading the 10 January letter and the proof of debt form could conclude that Mr Hocking, in returning the proof of debt form, was in some confusion as to its legal effect and that CBT's true intention was expressed in the covering letter. At the lowest, CBT's conduct in sending the letter and enclosing the proof of debt form must have been regarded as equivocal in indicating whether CBT intended to rely upon its security or to surrender it. 71 In those circumstances, I am of the opinion that not only was there no conscious decision on the part of CBT to surrender its security but such an intention is not clearly and unequivocally to be imputed from its conduct in submitting the proof of debt enclosed with the letter of 10 January 2002. Orders

72 For these reasons, I conclude that the Plaintiff is not entitled to the relief sought in the Originating Process. The Originating Process should be dismissed. The First Defendant/Cross Claimant is entitled to a declaration to the effect set out in paragraph 2 of the Cross Claim. I do not know at this stage whether the remaining relief sought in the Cross Claim is necessary or is still sought. 73 I will stand the proceedings over for a short time to enable the parties to discuss whether the further relief sought in the Cross Claim is necessary and for the bringing in of Short Minutes of Order reflecting these reasons for judgment. When the matter is returned for the making of final orders I will hear argument, if any, as to costs. - oOo -

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