Upton v Tasmanian Perpetual Trustees Pty Ltd

Mr Upton's claims 3 Mr Upton makes the following complaints. First, the respondent breached its duty as mortgagee. The respondent sold the land for manifestly less than its market value and failed to sell it as separate lots, either by allowing him to subdivide or by subdividing itself. 4 Secondly, the respondent breached the duty imposed on it by s 81(2)(iii) of the Lands Titles Act 1980 (Tas) in that it improperly or irregularly exercised its power of sale. 5 Thirdly, the respondent engaged in misleading and deceptive conduct, contrary to the Trade Practices Act 1974 (Cth), s 52. The respondent, knowing there had been the earlier sale of the lot to Mr Patmore, failed to advise Mr Upton of its intention to sell, and of the sale when it took place, and thus deprived him of the opportunity of subdivision and sale. Also, the respondent led him to believe it would allow him to subdivide and sell the land or re-finance the loan. 6 Fourthly, the respondent engaged in unconscionable conduct within the meaning of the general law or ss 51AA or 51AC of the Trade Practices Act. The respondent acted unconscionably because, when it appeared that the property could be sold for less than the indebtedness, especially in the light of the sale of Lot 2, it failed to tell Mr Upton of its consideration of an offer to sell to Mr Patmore and thus deprived Mr Upton of an opportunity to purchase. 7 As to damage suffered, Mr Upton says he has been deprived of the "commercial opportunity" to sell land in separate lots. He says the sale price was less than the amount owing under the mortgage. The land at the time the sale to Mr Patmore was completed, was valued at $600,000 if sold in separate lots.

A narrative of events 8 On 31 March 2001 Mr Upton defaulted on payments due under the mortgage. It is common ground that he has remained in default since. On 17 August 2001 the respondent served on him a notice of demand and on 19 September 2001 a notice of intention to sell under the mortgage. 9 On 15 October 2001 the respondent obtained a valuation from Mr Russell Cripps of Saunders and Pitt which valued the land at $75,108. 10 Mr Cripps notes the valuation was for mortgage security purposes. The date of inspection was 10 October 2001. After referring to the subdivision and describing the land and existing services, he deals with some market evidence of comparable sales in the area and gives valuations on three bases. 11 The first is as a single lot without subdivision; at $11,000 per hectare the figure is $75,108. He then values the land on lot potential and notes that, on a historical rule of thumb, the englobo value of blocks is about one third of the gross realisable price. Taking that gross realisable price from the comparable sales already mentioned as around $30,000, the average would be about $10,000 per lot. On this method one arrives at $60,000. 12 Finally Mr Cripps values the land on the basis of a hypothetical development. He assesses individual prices against each lot to arrive at a gross sales income, and then deducts all the costs which a developer would incur. Starting with gross realisation of $207,000, he deducted GST, selling costs, an allowance of 40 per cent for profit and risk, development costs, interest for six months at 7 per cent and a total period for the development at selling of 12 months. The net result is $39,308. 13 Mr Cripps notes that demand for building blocks in the Old Beach to Brighton district had improved slightly over the last nine months or so, although the selling rate of about 1.5 blocks per month was well below average long term selling rates. He thought the most likely purchaser of the property would be one whose prime expectation was using the land for a home site or running a few livestock. He concludes that subdivision of the land as proposed "does not appear to be feasible". 14 Thereafter the respondent instructed Roberts Limited to offer the land for sale by public auction with a reserve price of $75,000. The auction was duly advertised. There were a number of advertisements in the Mercury. No complaint is made in this case of any inadequacy of advertising. The auction took place on 21 December 2001 at the Glenorchy offices of Roberts Limited. No bids were received. Apparently Mr Upton was the only person present. The land remained on the books of Roberts Limited for sale, and in the following February the respondent instructed another agent, McGregor First National, as a co-agent with Roberts for sale at $80,000. 15 On 28 October 2002 the respondent obtained in the Supreme Court of Tasmania judgment in default of appearance against Mr Upton for $112,801.90. 16 In November 2002 Mr Upton entered into a contract for the sale of Lot 2 on the subdivision to Mr Patmore and Glynis May Smith. The purchase price was $32,000 payable by a deposit of $3000 "to Connect Credit Union as stake holder". The contract completion date was on "issue of separate titles". There was apparently some side arrangement for Mr Patmore to carry out some water supply works on the land and for a deduction to be made from the contract price. Mr Patmore paid the $3000 deposit. Mr Upton then paid it into his own account at Connect Credit Union, and, it would seem, mingled it with his own monies. 17 There is some dispute as to when the respondent became aware of this sale of Lot 2, but nothing turns on this, since on any view the respondent was aware of it before the sale of the whole of the six lots to Mr Patmore. Mr Upton says that on 6 December 2002 he telephoned Mr Philip Kitto, who is the Lending Manager of the respondent, stationed in Launceston. Mr Upton says he told Mr Kitto that he had signed a contract for Lot 2. Mr Kitto says he has no recollection of any conversation with Mr Upton on this date. 18 At this point I should note that Mr Kitto, who was responsible for the administration of something like 600 mortgages, did not as a practice keep notes of every telephone conversation. Not infrequently in his evidence he said that he does not recall what Mr Upton asserts to be conversations. In cross-examination he admitted that some matters "could have happened". However, I do not treat that circumstance as establishing that what Mr Upton says as conversations should be accepted. I did not find Mr Upton a satisfactory witness. He tended to be argumentative and evasive. His evidence about allegedly obtaining credit approval from Connect Credit Union turned out to be unsupported by evidence which he claimed he would produce. So, as I say, the mere fact that Mr Kitto says he does not remember anything happening does not lead me to accept Mr Upton's assertion that it did. 19 On 9 December 2002 Mr Upton telephoned Mr Kitto requesting a pay-out figure. Mr Kitto faxed back a figure of $123,033.94. Mr Upton says that also on that date Mr Kitto telephoned him to advise him of the pay out figure, and suggested that Mr Upton should "come back with an offer". Mr Kitto denies that he said this, and I am positively satisfied he did not. In the evening of that day Mr Upton was served with a bankruptcy notice founded on the judgment. 20 On 10 December Mr Upton telephoned Mr Kitto and told him about the service of the bankruptcy notice. He sent a fax which confirmed the morning's phone call. In the fax he stated that his only assets were his land and that he had been doing it "pretty tough" for the last two years. He related some problems he had with his own investments in solicitors' mortgage funds. He said: "Bankruptcy would be a disaster for myself and my creditors. You are aware you have no offers on the land even at $80,000 and you would not receive more monies from me as my assets are my land and there are other creditors. I ask you to be patient while I re-finance. My offer will be substantially more than $80,000 to pay you out." 21 On 3 January 2003, Mr Upton applied to the Supreme Court to set aside the default judgment. In the following month that application was dismissed. 22 On 26 January Mr Patmore applied to the Brighton Council, with Mr Upton's consent, to obtain a subdivision of Lot 2 only. On 28 February, Mr Patmore called on Mr Milne of the respondent and told him about the purchase of Lot 2 from Mr Upton. On 28 February, Mr Milne sent a memorandum to Mr Kitto concerning this discussion. 23 On 4 March Mr Upton sent a fax to Mr Kitto saying all but one condition of approval for refinancing have been satisfied; that condition related to a valuation he would need to obtain and he would contact Mr Kitto once approval was unconditional. 24 On 11 March 2003 the agent McGregor First National Real Estate faxed Mr Kitto an incomplete copy of a contract for the purchase of the land by Mr Patmore for $75,000. 25 That contract was executed by Mr Stearnes on behalf of the respondent on 12 March. It was subject to a lending institution making available to the purchaser a loan of $150,000 within 14 days of the date. The condition was satisfied within the time stipulated. 26 Mr Upton says that on 17 March he telephoned Mr Kitto saying he had heard about the possible sale of the whole of his land to Mr Patmore and that Mr Kitto told him that a contract had been received, that it was conditional and not yet signed, and that he and Mr Kitto would contact Mr Upton before it was to be signed and it would only be signed if the respondent intended to proceed with the creditor's petition. Mr Kitto has no recollection of any conversation to this effect and I am not satisfied it occurred. 27 On 20 March Brighton Council approved the subdivision of the single Lot 2 subdivision. Mr Patmore obtained building approval and started building on the lot. 28 On 24 March Mr Upton telephoned Mr Kitto. He says that he told Mr Kitto he had managed to final approval from Connect Credit Union to refinance the balance of his loan with the respondent. He asked Mr Kitto "what amount (he) should offer to resolve (his) indebtedness" and Mr Kitto said that he should "put in an offer higher than Patmore's to make it worthwhile". 29 Mr Kitto's version is that they discussed Mr Upton making an offer to pay off the mortgage debt. Mr Kitto made it clear that this was on the basis that if Mr Upton made an offer it would only be to pay off the debt rather than obtain a discharge of the mortgage and clear title as the respondent had already signed a contract for the sale of the whole of land to Mr Patmore. Mr Kitto does not accept that he told Mr Upton he should "put in an offer higher than Patmore's". In any event, after the conversation Mr Upton sent a fax to Mr Kitto in these terms: "Phil: Further to my phone call; to resolve this troublesome mortgage I would like to offer you $80,000 in full and final settlement to close this account. My intentions were always sound, however, due to circumstances which were partly my own making and partly unforeseen, I have been experiencing severe financial difficulty. Anyway, I do appreciate your manner in the handling of this account." Plainly the fax is consistent with Mr Kitto's version rather than Mr Upton's. 30 On 25 March Mr Upton lodged a caveat against the land. 31 Mr Upton says he spoke to Mr Kitto on 26 March. Mr Kitto told him that he did not know if the respondent could accept a contract between the respondent and Patmore when a contract between Upton and Patmore already existed. Mr Kitto did not tell him that the respondent had signed the contract with Mr Patmore. Mr Upton says that he told Mr Kitto that he had taken more contracts in relation to the subdivision and Mr Kitto said, "Good". 32 Mr Kitto does not deal specifically with the alleged conversation of the 26th. However Mr Upton says that on 27 March he telephoned Mr Kitto and told him that he had advised Mr Patmore that his one lot subdivision had been approved and asked whether the respondent would approve of proceeding with his sale of Lot 2 to Mr Patmore provided the proceeds of the sale were paid to the respondent and that the respondent and Mr Upton could reach agreement on the outstanding balance. Mr Upton says that Mr Kitto agreed. Mr Kitto has no recollection of this conversation but denies ever discussing with Mr Upton the possibility of the Lot 2 contract proceeding, let alone agreeing to it. 33 On 1 April Mr Upton telephoned Mr Kitto. Mr Kitto says they discussed the contract for Lot 2. Mr Upton then sent a fax dated 1 April which, according to his affidavit, "confirmed" the agreement he claims was reached on 27 March. The fax, however, says: "Dear Phil, Thank you for your ear. Today being April Fool's Day I say it will be very foolish if we don't take advantage of the situation and get it resolved quickly. Bill's contract with me is sound. The only requirement is for water and Bill and I have already agreed to install it together. I understand why Bill approached you. At the last council meeting it was told very clearly that the Manager of Planning was to get off my back. Peter Binny, my surveyor, is talking to Bill and Bill should phone you shortly. All the proceeds of the sale are to go to you, enclosed the contract between Bill and myself." Mr Kitto says that this was the first time he had actually seen a copy of the contract between Mr Upton and Mr Patmore. 34 Mr Upton says that on 2 April Mr Kitto told him the offer of $80,000 was rejected. Mr Kitto has no recollection of this. He had no authority to accept or reject any such offer and he has no recollection of having referred that offer to anyone else within the respondent. 35 On 2 April Mr Upton sent Mr Kitto a fax stating he was prepared to increase his offer to "pay out the mortgage" to $100,000. He also faxed a copy of his caveat which he "didn't want to lodge but I'm uncertain of what's going on". 36 On 3 April Mr Upton's then solicitor received a copy of the signed contract between the respondent and Mr Patmore. Mr Upton says that "until then I had believed Mr Kittto to be truthful when he told me that he would contact me before (the respondent) signed the contract, if they signed it at all". I am satisfied Mr Kitto made no such promise. 37 Mr Upton says that on 7 April he telephoned Mr Kitto, having cancelled an appointment to meet with him in Launceston, and that Mr Kitto told him that the respondent's contract with Mr Patmore was "possibly signed by Mr Stearnes" when Mr Kitto was away. Mr Patmore asked if his offer of $100,000 was acceptable, and Mr Kitto said he would have to check with his CEO and would send Mr Upton an update of the pay-out figure. 38 Mr Kitto believes that Mr Upton did telephone him on the 7th as on the same day he sent Mr Upton a fax advising a pay-out figure of $124,713.08. This was the full amount of principal, interest and costs without any deduction. Mr Kitto denies saying anything about Mr Stearnes signing the contract while he (Mr Kitto) was away. He has no recollection of discussing an offer of $100,000, and certainly not in any context of Mr Upton receiving a discharge of mortgage for that amount. Mr Kitto's belief was that the respondent was unable to accept any sum of money from Mr Upton in return for a discharge of the mortgage so long as the contract between the respondent and Mr Patmore remained on foot. 39 Mr Upton says Mr Kitto's fax of the 7th advised him of the amount owing to the respondent "on the assumption 'that no further legal proceedings are necessary'". Mr Upton says he took this to mean "that I would be allowed time to pay my debt and continue with my subdivision and complete my sale to Patmore". Such a construction is absurd. Mr Kitto was simply stating the full amount owing under the mortgage to date and making the obvious point that any further proceedings would increase the amount owing. 40 Mr Upton says that after receiving the fax of the 7th he telephoned Mr Kitto and they both agreed that the payment of the pay-out figure in full would "discharge my mortgage". I do not accept that any such agreement was made. 41 On 9 April Mr Upton sent Mr Kitto a fax which stated: "Confirming our agreement of 7 April '03 Re your correspondence. I am arranging a bank guarantee for $124,713.08 as security to finalise pay-out of mortgage B929135." Mr Upton says that he telephoned Mr Kitto who told him that he should pay the money to the respondent, but that the respondent was "unable to give a discharge of the mortgage because of the Patmore contract". Mr Kitto told him that the respondent "would make a formal approach to Bill Patmore to walk away from the contract to buy all of my land". 42 Mr Kitto has no recollection of speaking to Mr Upton on that date although it is possible that he did. It is also possible that he explained again to Mr Upton that the respondent could not give him a discharge of the mortgage irrespective of any amount he might offer because of the contract between the respondent and Mr Patmore. Mr Kitto denies that he ever told Mr Upton that the respondent would make a formal approach to Mr Patmore to walk away from the contract. 43 On 11 April Mr Upton sent Mr Kitto a fax saying he was "ready to settle" the mortgage loan on 14 April and the amount required was $124,713.08. 44 Mr Upton says that on 14 April he telephoned Mr Kitto and told him that he was ready to settle when the respondent was. Mr Upton says Mr Kitto told him that he would talk to his lawyer and "give me an update of the pay-out figure". Mr Kitto has no recollection of the conversation on this day. However Mr Kitto denies he ever told Mr Upton on that date or on any date after 13 March that he would recommend that the respondent should accept Mr Upton's offer to pay out the mortgage. 45 On 1 April the respondent had requested Mr Cripps to provide a second valuation of the land "as a matter of urgency, as this company has signed a contract for the sale of the property as mortgagee in possession". His valuation as at 16 April resulted in figures of: single lot, $75,108, six lot potential $72,000, hypothetical development analysis $72,000. He assessed the current market value at $75,000. 46 Mr Cripps noted that the demand for vacant building blocks in the area had improved gradually over the last 12 months, although the selling rate of about 1.75 blocks per months was still well below long term selling rates. He thought that since his previous valuation in October 2001 subdivision of the land now appeared to be feasible at his level of assessed market value although it was a "line ball". It should be noted that it has not been suggested in this case that Mr Cripps had knowledge of the price for the sale of the land to Mr Patmore. 47 Mr Upton says there were various conversations from this time onwards with Mr Kitto during which Mr Kitto said he would recommend to his CEO that Mr Upton's pay-out would be accepted. It is not necessary to go into any further detail. I accept that Mr Kitto took the consistent position that any settlement would not have been on the basis that the respondent would hand over the title to Mr Upton because there was the contract with Mr Patmore. 48 Settlement of the Patmore contract was delayed by litigation over applications initiated by the respondent (on 6 June 2003) and Mr Patmore (on 19 December 2003) for the removal of Mr Upton's caveat. A contested hearing took place in the Supreme Court in March 2004 and on 27 July 2004 Underwood J delivered a judgment ordering that the caveat be removed: Patmore v Upton [2004] TASSC 77. 49 On 6 August 2004 the contract between the respondent and Mr Patmore for the sale of the whole of the land was completed.

Breach of mortgagee's duty 50 In exercising its power of sale the respondent was under a duty to act in good faith, and not to fraudulently, or wilfully or recklessly sacrifice the mortgage property. The taking of reasonable precautions to obtain a proper price is part of the duty to act in good faith: Forsyth v Blundell (1973) 129 CLR 477. 51 I am satisfied that the respondent took all reasonable steps. The land was put up at a properly advertised auction, and then remained on the market for some 15 months, during which time it only attracted one offer, for which it was sold. I am satisfied that the price was a reasonable price, and in fact was at or about market value at the time. I reject valuation evidence given on behalf of Mr Upton by Mr Daryll Timms. He valued the land at 27 November 2000 at $175,000 "for security purposes" but on the basis that "a six lot Council approved development would be completed by Mr Upton himself". 52 It is not quite clear what is meant by this last-mentioned basis. If it means that a hypothetical purchaser was to buy on the basis that Mr Upton himself, and nobody else, would carry out works at some unspecified price, it is quite unreal. 53 It will be recalled that Mr Cripps made an allowance of 40 per cent for profit and risk. Mr Timms made only an allowance of 20 per cent for profit, because he said once the subdivision development had been approved by the Council it was "a risk-free investment". This seems to me to be an astonishing proposition. The subdivision or development of residential land is a notoriously risky field of commercial activity; one need look no further than the predicament that Mr Upton himself finds himself in to see that this is so. 54 Moreover, as counsel for the respondent put, the best available evidence of the true market value of the land was that it was actually put on the market, properly advertised and marketed and received only one genuine offer over 15 months. Mr Upton was aware that the respondent had the land on the market for sale at about $80,000, and made no protest. 55 There was no obligation on the respondent either to subdivide the land or allow Mr Upton to subdivide it. While the respondent had no doubt a power to do so if commercially desirable, a mortgagee is under no obligation to spend further money on matters which might theoretically improve the value of the mortgaged property. The aphorism about sending good money after bad springs to mind. 56 There is no evidence to base a finding that the respondent acted otherwise than in good faith. The obligations of a mortgagee when selling, in respect of communications with the mortgagor, are as stated in Fisher and Lightwood's Law of Mortgage, Australian edition, par 20.27, in these terms, citations omitted: "A selling mortgagee need not consult the mortgagor, nor subsequent encumbrancers. If he elects to keep them informed of the progress of the negotiations for sale, he does not thereby limit his freedom of action... It is not a breach of the mortgagee's duty to refuse to negotiate with the mortgagor, even if the latter is making the highest offer... A mortgagee may sell when he considers it appropriate." 57 In the present case such offers as Mr Upton made before the sale of the land to Mr Patmore were well below the admitted amount of the mortgage debt. As I understand Mr Upton's case in final submissions, it is not really put that that respondent, through Mr Kitto, gave any representations or promises to Mr Upton. The attack seems to be on the basis that, as counsel put it, Mr Kitto was "uninterested in the mortgagor" and was "elegantly obdurate", "intransigent", and "an utter brick wall". This characterisation of Mr Kitto's conduct does not sit too well with the thanks that Mr Upton himself volunteered in the fax that I have already quoted. 58 But in any event there is no obligation on a mortgagee, whether at law or in equity, or as a matter of conscience, to respond to propositions on behalf of a mortgagor, still less where such propositions involve the acceptance of substantially less than the admitted debt.

Duty under the Land Titles Act 59 Counsel accepted that effectively this substantially overlapped with the common law duty, and at least in the present case there is no further relevant circumstance.

Misleading and deceptive conduct 60 I will assume for the purposes of argument that the respondent's conduct was conduct "in trade or commerce", although the contrary is clearly arguable. 61 The respondent was not required to have any regard to the earlier sale of Lot 2 to Mr Patmore. Mr Upton could not complete that contract without the respondent's consent, which he never sought. 62 In any event, as is submitted by the respondent, even if the respondent had told Mr Upton of its intent to enter into the contract in March 2003, there is no evidence that, practically speaking, Mr Upton could have done anything to alter matters. One can reasonably infer from events up to date that he was not able to get together the funds to pay out the judgment and mortgage debt in full, which was his legal obligation. So learning of the proposed sale to Mr Patmore would have made no difference. 63 Mr Upton says that he would have "accelerated arrangements in train for the longer term financing of the respondent's mortgage" - such arrangements being "to pay either a discounted sum, which I had always been led to believe by Mr Kitto could be negotiated, or if not so agreed the whole of the judgment debt then owed". There is no basis in the evidence for thinking that the respondent held out any promise that a discounted sum would be acceptable, nor was there any obligation on the respondent to do so, nor did it promise to give Mr Upton a right of first refusal. 64 The simple fact is that the respondent had, in good faith, entered into the contract with Mr Patmore and any dealings thereafter with Mr Upton could only be on the basis of him paying out the balance of the mortgage.

Unconscionable conduct 65 There is no need to traverse what I have already said. Underlying this case is the harsh reality that prices and values have greatly increased since March 2003. It is misfortune for Mr Upton that he was unable to meet the mortgage debt and his land was sold. That is but the fortune of the market and does not arise from any legal or moral misconduct of the respondent. 66 The application will be dismissed.

Costs 67 Mr Sealy on behalf of the respondent sought an order for costs on an indemnity basis. He referred to a number of authorities, including Fountain Meat Sales Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 where Woodward J said that such an order was appropriate where an action has been commenced or continued in circumstances where the party, properly advised, should have known that he had no chance of success. It is not necessary to show that the claim was brought for some collateral purpose or is an abuse of process. 68 In my opinion this was a hopeless case, and should have been recognised as such from the outset. Given the initial auction and the time the property was on the market, there was no arguable basis for contending that the sale to Mr Patmore was improper. On that premise, the respondent could not have been expected to act other than in the way it did. At the heart of Mr Upton's case is, I suspect, a belief that notwithstanding he was a mortgagor in default he had some kind of right of first refusal before the mortgagee could sell. This is a misconception. There should be an award of indemnity costs.

I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Counsel for the Applicant: RA Skiller and JA Munnings

Solicitors for the Applicant: CA Johnstone Munnings & Co

Counsel for the Respondent: L Sealy and M Chambers

Dates of Hearing: 9, 10, 11 August 2006