Sweet v Mercantile Credits Ltd & Ors [1998] QCA 442

2 The Notice of Appeal raised a number of issues, but some were abandoned by the appellant. The issues raised by the appeal against the third respondent were resolved by the parties without the necessity of this court giving any consideration to them. The appellant abandoned the appeal insofar as it:

(a) appealed against the order striking out the claims pursuant to s.60 of the Trade Practices Act 1974 (paragraphs 19, 20, 21, 23 and 24 of the statement of claim) and giving judgment for the defendants against the plaintiff on those claims;

(c) appealed against the order striking out the claim for damages for collateral abuse of process (paragraphs 19 and 22 of the statement of claim) and giving judgment for the defendants against the plaintiff on that claim.

3 That left for consideration by this court three matters:

(1) the cause of action against the first respondent arising from the misrepresentations allegedly made in relation to the availability of further financial accommodation;

(2) the cause of action against the first respondent arising from the alleged breach by the first respondent of its duties as mortgagee exercising power of sale over the appellant's property;

(3) the cause of action against the second respondent arising from the alleged breach by him of his duty as real estate agent acting on behalf of the mortgagee exercising power of sale over the plaintiff's property.

Each of those matters needs to be separately considered.

4 The starting point in the chronology of facts is the appellant's allegation that between 21 January and 22 February 1985 the first respondent represented to the appellant that if he proceeded with an initial loan of $200,000 by way of stock mortgage and a collateral land mortgage, the first respondent would advance further sums over the ensuing 6 month period. Allegations are made that the first respondent indicated that a loan of $1M in total would be available to the appellant and at or about the time of advancing the $200,000 indicated a further $710,000.00 would be advanced. On 10 April the appellant signed a stock mortgage and a mortgage over his property "Rugby Run" to secure the loan of $200,000. The appellant alleges that on receipt of the $200,000 some of it was spent in preparing for the development and expansion of a wheat irrigation scheme for which the additional $710,000 was required.

5 There is no dispute that the appellant entered into the stock mortgage and property mortgage in support of the loan of $200,000, and that the first respondent did not advance $710,000, or any further sum, subsequent thereto.

6 It is sufficient to observe at this stage that the wheat irrigation scheme failed, and the appellant was unable to meet repayments of the $200,000 in accordance with the loan agreement and security documents. In September-October 1988 the first respondent exercised power of sale pursuant to the mortgages and, inter alia, Rugby Run was sold.

7 The writ commencing this action (No. 90 of 1994 in the Mackay Registry) was issued on 31 August 1994 and served on the first respondent on 23 August 1995. The claim against the first respondent endorsed thereon was as follows:

8 It is not necessary to refer to the full history of the litigation between the parties, being proceedings under this writ and also writ No.50 of 1994 issued out of the Rockhampton Registry. That history is recorded in the reasons for judgment of Demack J the subject of this appeal.

9 The first statement of claim in this action appears to have been drafted by the plaintiff himself and was delivered 30 May 1996. That was obviously defective and in July 1996 the plaintiff was ordered by consent to deliver an amended statement of claim. That was not done, despite an order granting an extension of time, until after an order, that the action be dismissed if an amended pleading was not served, was made. That resulted in a pleading being delivered on 27 February 1997 described as a Further Amended Statement of Claim. That was the subject of consideration by Demack J in July 1997 when the plaintiff was again ordered to replead within 30 days. Extensions of time were granted and on 12 September 1997 the subject pleading was delivered. Demack J in his reasons has set out in some detail the history of those statements of claim, indicating the changes in the nature of the claims made from time to time. It is not necessary for present purposes to repeat that; all parties accepted that the history was accurately stated by Demack J.

10 On 2 October 1997 the first respondent applied by way of summons for an order that the action be struck out or in the alternative that the statement of claim be struck out. The second respondent filed a summons on 5 November seeking similar relief. Both of those summonses were heard together.

11 We now turn to the first question raised on the appeal, namely whether the causes of action against the first respondent arising from the alleged misrepresentations in relation to the availability of further finance should have been struck out.

12 At the outset counsel for the appellant (who was not counsel responsible for drafting the statement of claim) conceded that much of the material contained in paragraphs 5 to 10 inclusive, the paragraphs in question, was embarrassing, as being evidentiary, narrative, irrelevant or objectionable on more than one of those grounds. He conceded the necessity to replead. But it was his submission that one could see from the contents of those paragraphs the broad outline of the causes of action relied on and that they were not statute barred.

13 In counsel's submission there were allegations of a particular representation, reliance by the appellant upon the first respondent's "skill and diligence", reliance by the appellant upon the representation in considering whether or not to enter into the securities, and the existence of a duty of care in making the representation. It was then argued that there was a plea of inducement or causation and resulting damage. Alternatively there was an allegation that the representation was made fraudulently resulting in loss and damage.

14 The pleading is obscure, as found by Demack J, but we would be inclined to hold that the paragraphs indicated there was possibly a viable cause of action and give leave to replead if that was the only point.

15 Counsel for the appellant conceded that his client was not relying on a cause of action in breach of contract. That concession is important because it will be remembered that the writ claimed damages for breach of contract. Perhaps the reason why no claim for damages for breach of contract is made is because it would clearly be statute barred. Any breach of contract arising from the alleged agreement to loan $1M would have accrued in August 1985, and the writ was issued more than 6 years thereafter.

16 In consequence the only causes of action now relied on by the appellant with respect to the alleged misrepresentations are in negligence and deceit.

17 The critical question in our view is whether or not such claims are statute barred given the fact that the writ issued on 31 August 1994. The causes of action for negligent misrepresentation and deceit only arise when damage was actually suffered. It is the plaintiff's contention that the relevant loss was the loss of the land (Rugby Run) which occurred in September-October 1988 when the power of sale was exercised. If that be the relevant event then the writ was issued in time and the claims in question are not statute barred.

18 It is now necessary to return to the statement of claim in question. The loss and damage relied on is alleged in paragraph 10 of the statement of claim which is in these terms:

"10. By reason of the matters aforesaid, the plaintiff has suffered loss and damage.

Upon receipt of the sum of $200,000 the plaintiff paid out existing debtors in the amount of approximately $100,000 and paid the balance of the loan of $200,000 to tool up for development and expansion of the wheat irrigation scheme to which the Land had been dedicated by leasing a new tractor and a precision planter, constructing earthworks, and installing water gates. Upon the firstnamed defendant then failing to lend the further sum of $710,000 to the plaintiff, and the plaintiff having expended the initial loan and irreversibly committing Rugby Run to the development of the wheat irrigation system whereby without the further funds to complete the development the irrigation scheme collapsed and the first defendant called up the loan of $200,000 thereby causing catastrophic losses to the plaintiff.

Projected Annual Gross Income for last 12 years $1,400,000

Less projected average annual costs of production $ 588,000

Loss of Net Average income to date $422,240p.a. and continuing.

I. Loss on sale of tractor (November 1988) $ 10,094

19 A careful reading of that paragraph makes it clear that the appellant suffered significant financial loss as a result of the alleged misrepresentation well before the sale of the property in September-October 1988. Rather, the sale of the property was necessitated by the "catastrophic" losses which the appellant had by then sustained. A critical allegation made by the appellant is that when the additional funds were not advanced in August 1985 the wheat irrigation scheme collapsed. That collapse, or at least the commencement of it, must have occurred well before the sale of the property. One sees in the pleading a claim for loss of income with respect to grain production (sorghum and wheat) for a total period of 10 years; that goes back to 1987. Then there is a claim for loss on joint venture cattle sales for the period of 8 years up until 1994; that means those losses commenced to accrue in 1986. Average annual losses to date are then calculated over a 12 year period; that means they commenced in 1985.

20 It is also important to note that in paragraph 13 of the statement of claim dealing with the alleged breach of duty with respect to the exercise of the power of sale it is alleged that: "There was an auction of the Land scheduled for 24 June 1988. This was postponed by Mercantile Credits until 1 August 1988 or sometime thereafter. No auction was ever held and the property sold privately at an undervalue." That is a clear recognition of a right in the first respondent to exercise its power of sale by 24 June 1988. That must mean that the appellant was by June 1988 in breach of its obligations under the securities. The clear implication from everything in the statement of claim is that the appellant's inability to meet his obligations was due to the first respondent's failure to advance the additional funds in August 1985. Again, that is a clear concession that loss and damage had been sustained prior to August 1988 which is the critical time for present purposes.

21 However one looks at the allegations in the statement of claim it is clear that if there was any negligent or fraudulent misrepresentation it occasioned loss and damage to the appellant well before August 1988. It follows that even if one were to hold that there was a sufficient basis for making an allegation of negligent or fraudulent misrepresentation that claim was statute barred by the time the writ was issued.

22 In consequence it is not necessary to consider the argument of the first respondent that by not clearly pleading negligent misstatement and fraud in the earlier statements of claim those causes of action were abandoned and could not be revived by an amended pleading. Reference in that context was made to Renowden v McMullin [1970] HCA 24; (1970) 123 CLR 584.

23 As any cause of action based on negligent misstatement or fraud with respect to the availability of further financial accommodation accrued more than 6 years prior to the issue of the writ on 31 August 1994 Demack J was clearly correct in dismissing those causes of action.

24 We turn now to the cause of action against the first respondent arising from the alleged breach by the first respondent of its duties as mortgagee exercising power of sale over the appellant's property. The relevant allegations are found in paragraphs 11 to 15 inclusive of the statement of claim.

25 Probably because paragraph 13 has been amended on a number of occasions it is now ungrammatical. One needs to infer some words before the first paragraph heading "particulars" therein. However, one can readily see the general sense of what was being alleged. The main reason why Demack J dismissed this cause of action was that the appellant, notwithstanding he had more than 2 years in which to plead such facts, failed to plead facts specifying sale at an undervalue.

26 One finds in paragraph 13 an allegation that the land was sold privately for $1.65M, whereas its true value at the time was $2.7M. That is repeated on a number of occasions.

27 The relevant duty is imposed by statute (s.85 of the Property Law Act 1974) and is imposed on any mortgagee exercising power of sale. That relationship clearly existed here, and is pleaded. There is then an allegation of sale at an undervalue, an allegation that the first respondent failed to have any proper regard to prevailing market values, an allegation that it failed to obtain a valuation prior to sale, an allegation that it failed to sufficiently advertise prior to sale, and an allegation that it failed to supervise the sale. Given the allegation that the sale price was $1.65M when the market value was $2.7M there is a sufficient allegation of loss and damage.

28 There are however problems with the existing pleading. As already noted paragraph 13 is literally unintelligible, though the sense is clear. There is also an allegation that sale by private treaty was itself negligent whereas the Property Law Act specifically authorises such a sale. Those matters are embarrassing and ought to be deleted.

29 However, it is clear that the appellant has pleaded the essential elements of a cause of action alleging breach of s.85 of the Property Law Act and to the extent that the judgment appealed from struck out that cause of action it should be set aside. However, the appellant should amend the paragraphs dealing with that claim to make them intelligible and devoid of embarrassing and unnecessary allegations.

30 That leaves for consideration the cause of action against the second respondent who was, so it is alleged, the real estate agent acting for the first respondent on the sale.

31 It is true that the duty imposed by the Property Law Act on the mortgagee is non-delegable (Commercial & General Acceptance Limited v Nixon [1981] HCA 70; (1981) 152 CLR 491) but equally real estate agents owe duties to purchasers in at least some situations (cf. Roots v Oentory Pty Ltd [1983] 2 Qd R 745).

32 We are not prepared on a pleading such as this to hold that the appellant has no possible cause of action against the second respondent. Findings of fact on questions such as the conduct of the second respondent with respect to advertising, knowledge by the real estate agent of the true market value of the land, and the reason for entering into a private contract prior to auction could all be relevant in determining whether or not a duty situation existed and was breached.

33 To the extent that the judgment appealed from struck out that cause of action against the second defendant it should be set aside.

34 We would therefore allow the appeal and set aside: (1) so much of the order below as struck out paragraphs 11 to 15 inclusive of the statement of claim; (2) that part of the order as ordered that there be judgment for the first and second defendants on the cause of action arising from the alleged breach by the first and second defendants of their duties upon the sale of the plaintiff's property.

35 The appellant should have leave to deliver a further amended statement of claim within 28 days of the date of this order.

36 It follows that each of the first and second respondents have been substantially successful on their respective summonses. Various causes of action relied on in the statement of claim have been struck out, and with respect to the remaining causes of action it is necessary for the appellant to replead. On the hearing of the appeal the appellant was unsuccessful on one major issue, but successful on the others. In the circumstances the orders made by Demack J that the appellant pay the respondent's costs on each of the summonses heard before him should stand, and the first and second respondents should pay two-thirds of the appellant's taxed costs of and incidental to the appeal.

(ii) Set aside the following parts of the order of 3 February 1998:

(a) that part which struck out paragraphs 11 to 15 inclusive of the statement of claim;

(b) that part of the order as ordered that there be judgment for the first and second defendants on the cause of action arising from the alleged breach by the first and second defendants of their duties upon the sale of the plaintiff's property.

(iii) Order that the appellant have leave to deliver a further amended statement of claim within 28 days of this order.

(iv) Order that the first and second respondents pay two-thirds of the appellant's taxed costs of and incidental to the appeal.