Almona Pty Ltd v Parklea Corporation Pty Limited & Ors

[2022] HCATrans 92

[2022] HCATrans 092

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S128 of 2021

B e t w e e n -

ALMONA PTY LTD ACN 002441438

Applicant

and

PARKLEA CORPORATION PTY LIMITED ACN 610022056

First Respondent

P.T. LIMITED ACN 004454666

Second Respondent

SECURED ASSET PORTFOLIO III LIMITED (IN LIQUIDATION)

Third Respondent

Application for special leave to appeal

KIEFEL CJ
EDELMAN J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 MAY 2022, AT 9.29 AM

Copyright in the High Court of Australia

MR D.L. WILLIAMS, SC:   May it please the Court, I appear with my learned friend, MR N.D. RIORDAN, for the applicant.  (instructed by Bartier Perry Lawyers)

MR K.L. ANDRONOS, SC:   May it please the Court, I appear with my learned friend, MR S.A. KEIZER, for the first respondent.  (instructed by Norton Rose Fulbright Australia)

MR M.A. IZZO, SC:   May it please the Court, I appear with my learned friend, MR J.S. BURNETT, for the second respondent.  (instructed by Corrs Chambers Westgarth) 

MR N.C. HUTLEY, S.C:   May it please the Court, I appear with my learned friends, MR E.A.J. HYDE and MS G. WATSON KEESING for the third respondent.  (instructed by King & Wood Mallesons)

KIEFEL CJ:   Yes, Mr Williams.

MR WILLIAMS:   The three special leave questions are deserving of this Court’s attention and have prospects of success – essentially, for the reasons given by Justice White in the minority judgment.  The first question raises for consideration the importance and dispositive effect of the different formulations of the mortgagee’s duties in connection with the power of sale, as expressed by this Court.  It calls for an examination of those formulations and their intersection and interrelationship.

For example, in Barns, Chief Justice Griffith – giving the judgment of the Court – focused on the purpose of the exercise of the power of sale.  The principle was that the power must be exercised with the entire and single view to the real purpose of the object of the power and not for the purpose of accomplishing or carrying into effect any object beyond the purpose and intent of the power.  In other words, a mortgagee must fairly and honestly exercise the power without having any ulterior object to be accomplished.

The notion that the mortgagee’s power of sale must be exercised bona fide for the purpose for which it was conferred, was reiterated by this Court in Pendlebury.  Other cases have focused on the independence of the bargain.  Thus, in Bangadilly, Justice Jacobs stated the obligation of the mortgagee – once the decision to sell had been arrived at – as being a genuine primary desire to obtain the best possible price consistently with the right of the mortgagee to realise the security.  Where there was a possible conflict between that desire and the desire that an associate obtain a best possible bargain, the facts must show that the desire to obtain the best price was given absolute preference over any desire that an associate would obtain a good bargain.

EDELMAN J:   Mr Williams, if your submission were correct, it would not be necessary, would it, to say that the ulterior purpose is the only purpose that the respondents had – in this case it would be sufficient to say that the ulterior purpose was one of the purposes.

MR WILLIAMS:   Indeed, and that is the point that was made by this Court in Barns.  Other formulations have involved a focus on whether or not the interests of the mortgagor are sacrificed.  Those cases sometimes speak in terms of a proper price, sometimes a fair price, a market price, full value, best price or an undervalue.  All of those concepts may have different gradations of meaning – both legally and practically.

GLEESON J:   So, are you saying that a factual issue arises about the mortgagee’s purpose at any time throughout the sale process up to the transfer?

MR WILLIAMS:   I am.  But, if it be the case, as the majority found, that one can only look at the events – I am sorry – that the relevant wrongdoing, if I could put it that way, or the relevant illicit purpose must exist up until the time that the contract of sale becomes unconditional, we have that in this case.  When I come to address your Honours on question 3 I will indicate why it is we say that the events that can be examined in that context extend right through to the time at which the transfer occurs.  But if I could address that at that point, I would be grateful. 

When looking at the concept of value or best value, market value, and the like, it is important to note that Latec is authority for the proposition that a mortgagee sale might be improper even if there was no sale at an undervalue.  As Justice White noted, at judgment 318, the mortgagee sale in Latec was not set aside on the ground that the price was not a fair market price but because the sale to a subsidiary was made to preclude the mortgagor from redeeming the mortgage.  That is where we get to this concept of ulterior purpose or motive – or ulterior purpose, I should say. 

As Justice Aickin pointed out in Bangadilly, if the sale is not truly independent, the sale can be challenged even if the price be the full value of the property.  That is the expression his Honour used.

EDELMAN J:   That may not assist you because it may help in relation – if you are right, it may help in relation to questions of accounting but in relation to setting aside a transfer itself, there are a lot of issues that this case would present that either have not been dealt with in the courts below or that raise really basic questions of procedural fairness.

MR WILLIAMS:   There is no doubt that there are – if we were to succeed on the proposition that the mortgagee sale was in bad faith and fraudulent within the meaning of the Real Property Act, there is no doubt ‑ ‑ ‑

EDELMAN J:   Or for an improper purpose.

MR WILLIAMS:   For an improper purpose – there is no doubt that there would be issues of relief that remain to be considered.  I accept that.

EDELMAN J:   It is worse than that, it is issues of belief that have to be considered in a context where parties are not even before the Court.  LBH VI or Lord V1 is not even before the Court.  Lord V1 may be directly affected as either a principal or as a beneficiary.

MR WILLIAMS:   It is a trustee, it is, and that is the proper party to represent its interest – both legally, and pursuant to the facility agreements that were the subject of discussion.

EDELMAN J:   Not if it is a principal.  If the trustee is only an agent for a principal who is directly involved, then the principal needs to be before the court.

MR WILLIAMS:   There was no allegation of that nature by any party before the court below.

EDELMAN J:   Justice White says that it may be a principal.

MR WILLIAMS:   He says that it is arguable, yes.  But that has not been the subject of any examination either at first instance or in the Court of Appeal.

KIEFEL CJ:   One of the matters that stands in your way is the majority view – particularly the Chief Justice’s view of the pleadings in relation to ‑ ‑ ‑

MR WILLIAMS:   We would submit not.  Can I address that in relation to the second question?

KIEFEL CJ:   Yes.

MR WILLIAMS:   I will just finish the first question, if I might, and then get to that.  So far as the first question is concerned, the Chief Justice held, at 65 to 68, that so long as the mortgagor’s interests were not sacrificed, the lack of independence in the sale process did not matter.  We submit that his Honour ultimately – although he had posed the question as to whether the sale was in bad faith or flawed on the exercise of the mortgagee’s power – his Honour ultimately decided the case on whether the mortgagee’s interests were sacrificed.  That gives rise to a question of the reversal of onus and how one deals with the issue of pleadings that is raised by question 2.  At judgment paragraph 54, the Chief Justice had said that:

I accept that the nature of the transaction in the present case, involving a sale to a corporation in which an associate of the mortgagee had an 80 per cent economic interest, was such as to cast upon the purchaser and the mortgagee the onus of satisfying the Court that the power of sale was exercised in good faith and that reasonable steps were taken to obtain a fair price –

At 66, he held that in the absence of an express allegation of collusion, it followed that:

Dyldam emerged as the highest bidder as a result of a legitimate process which did not sacrifice the interests of Almona.

That conclusion was despite the fact that the Chief Justice identified a number of issues raising suspicion, other than the so‑called “bid‑rigging”, in respect of which there had been no attempt to explain by evidence and in respect of which the mortgagee and purchaser had the onus.  His Honour collects some of those matters at judgment paragraphs 15 to 19.  One of the examples he particularly described as being “unusual”. 

EDELMAN J:   But none of these circumstances of submission are really necessary for your primary submission, are they?  If your primary submission is that ulterior purpose is established by an interest that Parklea had in relation to another company that was taking an interest in the transaction, the circumstances of submission may add forensically to the mortgage, but they do not detract or add to your primary submission.

MR WILLIAMS:   Your Honour is correct.  But the propositions are put because some of the expression of the principle in Bangadilly went on to suggest that possibly even if the sale was independent, if it could be established that the best price available was obtained, then the sale might not be able to be subject of challenge.  So, it is at that point when that subsidiary argument or the gloss on that primary principle kicks in that, particularly, the issues that arise in a special leave question come to the fore.

So far as Justice Basten’s judgment is concerned, his Honour failed to analyse the central aspect of Almona’s case.  We have dealt with this in paragraph 30 of our special leave application.  Your Honours might have noticed how at judgment 108, Justice Basten identifies the critical issue as to whether there:

was a truly independent bargain –

Immediately before judgment 198, there is a heading, “Appellant’s second claim of impropriety”.  Justice Basten sets out the primary judge’s reasoning and indicates he will come back to it in the context of analysis of the wider case.  But he does not actually do so. 

As Justice White found, both the Chief Justice and Justice Basten’s analysis of the facts, showed that it should be concluded the power of sale was exercised, not for the purpose of recovering payment of the mortgage debt but to ensure a sale to Parklea in which another PAG company had an indirect 80 per cent economic interest.  It was a “collusive bargain” and not an “independent bargain” – to use some of the expressions from the authorities.

GLEESON J:   Those purposes are not mutually exclusive.  It could hardly seriously be said that one of the purposes of the exercise of the - the mortgagee’s power of sale was to recover the debt.

MR WILLIAMS:   In this case it could because what happened here is that instead of recovering the debt – if one puts aside the corporate entities that are involved – the PAG entities – through SAP – was the mortgagee in possession - it was, through another entity, fully funding the purchase price.  So, it is not a matter of it being ‑ ‑ ‑

GLEESON J:   That is a different debt.

MR WILLIAMS:   It is a different debt, but equity looks at the reality and the circumstances in examining what is really occurring in this case – as all the judges did.  Having regard to the divergent ways in which the prominence was given to different formulations by different appeal judges, this case is a convenient vehicle for the issues raised by question 1 to be explored.  It is a ground that is not dependent – although it is supported by – the second question.  If I could move to that.  The second special leave question concerns the tension between the rules as to pleading and particularisation of fraud, on the one hand ‑ ‑ ‑

EDELMAN J:   Just before you do move on to this issue of appropriate vehicle, what do you say about the fact that issues like laches would need to be dealt with in this Court in relation to the primary relief that you seek when it has never been dealt with below?

MR WILLIAMS:   We have a simple proposition in relation to that which is either right or wrong.  The simple proposition is that there is a finding – that Almona did not know about the events about which it complains until shortly before the hearing.  Based upon established principles – including Sze Tu - those stated in Sze Tu v Lowe – that would be enough to remove any defence of laches.  If we are wrong about that, it ought get remitted for that to be determined.

EDELMAN J:   As well as joinder of party that might be affected.

MR WILLIAMS:   If that is thought to be an impediment, yes. 

EDELMAN J:   What about the fact that there have been findings that Lord VI, you now accept, did not have any knowledge or could not be implicated in any improper purpose? 

MR WILLIAMS:   No, we did not accept that.  We accepted PT did not.  

EDELMAN J:   Yes, and that PT would be affected by re‑transfer of the property.

MR WILLIAMS:   Yes, but only in the sense that it still has its security interest over the exact property that it always had its security interest over, and it still has its covenants under the various ‑ ‑ ‑

EDELMAN J:   A different registered proprietor surely would not say that it is exactly the same position whether there was a different registered proprietor from the registered proprietor who was previously the debtor.

MR WILLIAMS:  We would, because ‑ ‑ ‑

EDELMAN J:   A bank might take a slightly different position whether it is being offered security by the debtor or security by a completely different party.

MR WILLIAMS:   It might, but that has already passed.  The situation is already existent.  There is a security – that is the security – the security has taken over the land – the covenants remain.  That is our answer to your Honour’s proposition. 

GLEESON J:   Mr Williams, I just have one other question about relief.

MR WILLIAMS:   Yes.

GLEESON J:   Is it your suggestion that the transaction should be unwound without a loan of repaying whatever amount would be under…..

MR WILLIAMS:   No, no.  It would be required to – we no longer seek to set aside the registered interest of PT.  So, that means that whatever debt is established on the taking of accounts would be a debt that Almona would have to discharge in order to free its land from any encumbrance.

Could I deal quickly with questions 2 and 3?  All appeal judges – I am sorry.  I started by saying that this ground gives rise to the tension – raises the tension between the pleading issue on the one hand and the proposition that where the nature of the mortgagee sale invites suspicion, that it may not represent an independent bargain, the onus is cast on the mortgagee and purchasers to satisfy the court of the bona fides of the sale.

All appeal judges accepted that the sale transaction was of such a nature - the Chief Justice at 54, Justice Basten at 256 and Justice White at 336.  They all accepted that the onus lay on the mortgagee and purchaser to satisfy the court of the bona fides of the sale.  The Chief Justice, at 54 to 55, held that the onus of the purchaser and mortgagee did not extend to disproving allegations of collusion not expressly pleaded by them.  We submit that misses the point.  It was incumbent upon SAP and Parklea to satisfy the court that the power of sale was exercised in good faith and the best price obtained.  They did not even seek to do this.  All witnesses who could have shed light on the sale process were kept from scrutiny.  It was an onus – where to use the words of Justice Kitto in Latec ‑ ‑ ‑

KIEFEL CJ:   But how can the onus arise if the matter is not pleaded with particularity and clearly?

MR WILLIAMS:   Because an onus arises by reason of the lack of independence in the transaction.  There is no question that that was ‑ ‑ ‑

KIEFEL CJ:   But cases are run on pleadings.

MR WILLIAMS:   Pleadings and particulars.

KIEFEL CJ:   You do not have anything happening with an onus unless the issue has been squarely raised.

MR WILLIAMS:   It is squarely raised in the statement of particulars that are extracted at paragraph 51 of the judgment.  The lack of independence and the features of – the giving rise to suspicion.

KIEFEL CJ:   But not lack of good faith and not collusion in…..

MR WILLIAMS:   There were particulars of those allegations – particulars of fraud – as his Honour said.  Even the Chief Justice said they, at least, indicate some sort of impropriety – those particulars.  Your Honours, I see that I only have a couple of minutes left so I am just going to race through the last matter here.

Your Honours, as Justice White noted at 336, Almona did not even need to allege fraud to cast a burden on SAP and Parklea proving the validity of the transaction.  Further, the obligation of proof, at least, extended to removing suspicion of fraud which the particulars had specifically raised.  So, where, under allegations of fraud, particulars of the nature that were given argument, it is incumbent upon the mortgagee and purchaser to dispel them.  They did not do so.  Your Honours will have seen numerous references in all of the judgments to factors that give rise to at least suspicion as to what occurred in connection with the independence of the sale.

Can I move quickly to question 3?  I am sorry – the present case involves an appropriate vehicle for an intention that - regard to be resolved and that is because both the Chief Justice and Justice Basten would have found for Almona but for the so‑called pleading issue.  Both of them, we submit, ignored the particularised facts because the conclusion from those facts of collusion was not expressly pleaded.  But the circumstances giving rise to that possible inference certainly were.  Neither SAP nor Parklea demonstrated that SAP had obtained the best price. 

In relation to the third special leave question, that concerns the legitimate scope of the inquiry in examining the fraud exception to indefeasibility.  Once the breach of duty, in the exercise of the power of sale, is established, the issue is whether the conduct of the sale is to properly be characterised as fraudulent.  The majority considered events post‑contract or, alternatively, post the contract becoming unconditional, as being outside the scope of the inquiry.  They considered that the cut‑off time for assessing the quality of the mortgagee and mortgagor’s conduct was either at the contract or unconditional contract stage.

As may be seen from cases such as Latec, the conduct of the purchaser and the mortgagee must be scrutinised as a whole to determine if that conduct ought to be characterised as fraudulent.  Justice Kitto, in Latec, found that the object in view was not really to effect a sale but was to destroy the mortgagor’s interest and get the hotel for the mortgagee’s group of companies without allowing the mortgagor the opportunity to pay off the mortgage – which the procedure for foreclosure would have afforded.  That has obvious parallels with the SAP’s solicitor’s action plan in this case – set out by Justice Basten in 178 to 180. 

If the individual aspects of the overall conduct in Latec were each subjected to a fine analysis, then most, if not all, would not individually

meet the test of dishonesty.  The mortgagee, in that case, did conduct an auction, it did appoint an independent auctioneer, it did attract 35 potential bidders to the auction, and it did sell the property for a price that exceeded both the valuation – not more than six months old – and the highest bid at the auction.

KIEFEL CJ:   I see the light is on, Mr Williams.

MR WILLIAMS:   Thank you, your Honour.  None of those facts were necessarily indicative of bad faith or fraud.  It was only when seen in the context of the other matters that the conduct was able to be characterised in that way.  Given the time, your Honours, can I just make two more brief matters?

KIEFEL CJ:   Yes.

MR WILLIAMS:   We submit that the majority considered that what occurred after the contract became unconditional – or was entered into – was irrelevant.  We say that is wrong in two respects.  First, the power of sale is being exercised up and until such time as completion occurred.  There had been a finding of fraud and sharp practice in that period that had a direct effect on the transfer.  As a result of the fraudulent conduct, the land was transferred at the lesser value of $81.1 million and not $85.36 million.  As Justice White noted at 348:

That aspect of the transaction and Parklea’s involvement in it cannot be divorced from the other aspects of the transaction when considering whether Parklea became registered as a proprietor through fraud.

The second point – the one well known to your Honours – arises from Carapark and other cases – if one looks at the totality of the case – looks at events that occurred after relevant events to examine whether they shed light on events that occurred before, in particular, that is relevant when one is looking at purpose.  May it please the Court.

KIEFEL CJ:   Is there an agreement about order of argument this morning? 

MR HUTLEY:   I am sorry, your Honour.

KIEFEL CJ:   Are you arguing for all parties?

MR HUTLEY:   Yes.  I am not arguing for all parties, but it is agreed that I will go first.

KIEFEL CJ:   First, right.

MR HUTLEY:    Because we are in certain different positions.

KIEFEL CJ:   Yes.

MR HUTLEY:   Can I start – my learned friend commenced by saying they seek special leave basically for the reasons given by Justice White.  Justice White, of course, found at 378, page 411 of the application book, that it was:

unlikely that the sale would be set aside –

On a moment’s reflection – having regard to the position of the second respondent, PT Limited – and the fact of the size of the debt and also, as was clear, that debt is secured on other properties, not just this property – would suggest that what is not being sought here is really setting aside this transaction at all ‑ ‑ ‑

KIEFEL CJ:   Equitable ‑ ‑ ‑

MR HUTLEY:   ‑ ‑ ‑ merely a transfer of title from the ‑ ‑ ‑

KIEFEL CJ:   Is Justice White suggesting equitable compensation?

MR HUTLEY:   Equitable compensation.

KIEFEL CJ:   But no idea of what sort of sum that would be.

MR HUTLEY:   The difficulty with equitable compensation is one would have to, in effect, then make some form of inquiry on the counterfactual circumstances to what the company of Mr Merhi would have bid and whether he alone would have been acceptable as a purchaser.  Mr Merhi, your Honours will see, had a rather somewhat “playing all sides” attitude.  The only evidence of anybody actually dealing with him was dealing with Mr Constantine who he entered into an agreement with.  We say that there are really no real prospects of the relief being obtained at the end of the day, so it is not an appropriate vehicle for the determination of these questions.

EDELMAN J:   The answer to this may be that the case has just not been run – or have been run this way, but it may be that the answer to your concern is that if the legal issue were surmounted by the applicant establishing that an improper purpose existed and that improper purpose was sufficient to, on its face, invalidate the transaction, then rather than setting aside the transaction the question would be simply a taking of an account on the basis of who was in default.

MR HUTLEY:   Quite, but that is not the relief sought.  The relief sought, and the aim sought, is to get back the property and the utility of the suit from the point of view of the position taken by the applicant has very little prospects, and we say no prospects, even if you make all the series of assumptions to get there to succeed.  That is what I just wanted to say in the first point.

The second point, with respect to the point that the “sole purpose” point runs into the difficulty is it was common ground throughout, and this is reflected in the trial judge’s judgment at first instance at paragraph 457, that:

there is no absolute prohibition on a mortgagee selling to a purchaser in which the mortgagee has some direct or indirect interest –

Now, unless you say that that only occurs when it is an accident, the gravamen of our learned friend’s point is that authority must be wrong, and that authority has been held to be correct in this Court and has been the law for a long, long time.  So, the first point we say just simply falls over at that point.  To do it, they would have to convince the court that it is impermissible for a mortgagee ever to have an interest in the incoming purchaser.

EDELMAN J:   Well, I think the point would be put on the basis that provided that the mortgagee is acting for a proper purpose of obtaining the best possible price the collateral purpose would not invalidate that ‑ ‑ ‑

MR HUTLEY:   Quite, and we submit that is clearly the law.  That is clearly the law that the Court of Appeal considered was the law and that is apparent – and that is the law that should be determined in this Court and ‑ ‑ ‑

EDELMAN J:   But the authorities cited for that proposition at 499…..at page 129 of the application book, were any of them in dispute…..for the proposition…..

MR HUTLEY:   I do not think it has ever been in dispute, your Honour, because it has been the law as we understand it for at least 100 years, if not more, and has always been treated to be the law in this Court, and a moment’s reflection, it must be the law.  The object of the mortgagee, although they are allowed to act in their self‑interest, is to achieve the best price available in the marketplace, acting reasonably, in essence, not just a reasonable price – in effect, acting reasonably, they have to explore the market and obtain a proper price. 

The facts in this case are that that exploration was undertaken in the hands of Colliers whose behaviour is not in any way in challenge.  There was a thoroughgoing examination of the market.  There were then two rounds of bidding.  The second round involved four organisations.  One withdrew.  One lowered its bid – two lowered their bid and Dyldam, nominee Parklea, was successful, and that really could not be challenged.  Therefore, the principal and the majority held that that was a proper exercise of obtaining the best price, and there we have it.

GLEESON J:   Mr Hutley, do you accept that Justice White had any basis for his conclusion that there was a collusive bargain?

MR HUTLEY:   Your Honour, the problem comes this way.  His Honour – and if I could take your Honours to the paragraph, it is interesting exactly the way his Honour put it and we say it is in that where the error is shown.  At 334 at page 399 in the book, he says:

Their Honours observe and the primary judge found that those particulars do not allege bid-rigging or fraud involving collusion . . . But they do allege matters that raise the suspicion of bid‑rigging.

That is how his Honour put it and ‑ ‑ ‑

KIEFEL CJ:   This is where the pleadings become all‑important, do they not?

MR HUTLEY:   Exactly, your Honour.

GLEESON J:   But at 329 he finds that it was a collusive bargain.

MR HUTLEY:   Yes, he comes to that conclusion.  It is interesting to look at the judgment of Justice Basten in this regard.  Justice Basten directs his attention to it at essentially 257 to 261 and he refers to the fact of, “Do I look at these facts on the assumption that the defendants have been put on notice that there is an allegation against them of collusive bargaining?  Now, if I make that assumption and I assume they have sat by and called no evidence, I may be able to draw some inferences”.  Ultimately he says he doubts that he would be able to, and your Honours will see that at 260.

In a sense there would be an argument, but what he says is, “If I subtract the fact that no one was on notice of this” - and it is important in this regard to note that the trial judge did not think he had a case before him involving such a serious allegation, not least because it involved an allegation essentially against Mr Merhi of committing a serious criminal offence.  No one thought it.

Now, our learned friends for whatever reason chose not to allege it.  Justice White refers to the possibility of ethical concerns.  Justice Basten, your Honours will have seen, went through thoroughly and said the plaintiff/applicant was in possession of all the relevant documents before the commencement of the case, the start of the hearing, and they made the choice.  I do not comment one way or another.  But one should not assume that one had to allege collusive bargains if one was concerned without putting the other side on notice.  An allegation could have been made. 

The plaintiff does not accept that the lowering of the bid of Mr Merhi’s company and the acquisition of an interest in the joint venture were unconnected transactions and does not accept that either SAP or Dyldam or Parklea were unaware of that fact.

Now, that would have been a way, if one had an ethical problem – and in our respectful submission there was none because my learned friend was quite content at final submissions to make that very serious allegation but set that aside.  But if one - in pure fairness – there were ways of opening this up to investigation which would have been fair to everyone.  That was chosen not to be done, and the Court of Appeal quite properly has come to the conclusion that is conclusive.  My client does not have to guess at a completely un‑pleaded, very serious fraud, and this is made clear in the judgment at first instance by the trial judge. 

If your Honours go to paragraphs I think up to 412, his Honour the trial judge went through a detailed investigation from paragraph 404 onwards as to what occurred.  Your Honours will see at 412 the observation made is even the particulars given with the words relied upon by my learned friends were not particulars of an allegation of fraud of the variety which is now relied upon.  Mr Hyde, who was counsel for SAP at the relevant time, made clear – and it is referred to in paragraph 412 – that he was content for those allegations, those particulars, to be addressed as long as it was made perfectly clear that it was dealing with the fraud allegation pleaded. 

So, in other words, this was not, in effect, a situation where my learned friend could have been under any misapprehension as to the position we had taken, and for then nothing to be said, “No, we are hinting at or potentially hinting at something much broader”, the case went forward, and the only fairness was the ruling of Justice Robb and then the majority in the Court of Appeal.

With all due respect to Justice White, Justice White lost sight of the fact that these words relied upon by my learned friends were words of particulars to a totally different sort of fraud, namely the fraud of trying to stop the applicant being in a position to discharge the mortgage, not a conspiracy to suppress the price and obtain it for companies associated with my client, SAP, for commercial gain.

With respect, it is so clearly a case where fairness – it would have been an outrage, with respect, for my clients to be found guilty of - a finding of fact to be made that my clients engaged in a criminal conspiracy to bid‑rig on the basis of those pleadings and that material.  That is why Justice Basten, to go back to your Honour Justice Gleeson’s question, says, “I doubt whether the finding would even be made, it is so serious”.  So, we say that deal – the so‑called sole purpose test is hopeless, in our respectful submission. 

EDELMAN J:   It may depend on what the sole purpose test is.  The authorities which you say have stood for 100 years as a raw statement of generality are in at least some tension with notions of the mortgagee having a duty of good faith that is analogous to a fiduciary duty and also notions of a requirement of independence in the exercise of the transaction.  That seems to be a very large question.

MR HUTLEY:   Well, except this, your Honour.  In a properly run auction situation, the interest of the mortgagee is that as many people participate as possible and it would be strange that the law would require that any person who is associated with the mortgagee cannot participate, thus reducing the likelihood of producing the best price.

EDELMAN J:   Well, it would never be the case that they cannot participate.  The case would be whether they can participate after full disclosure.

MR HUTLEY:   With respect, that would be full disclosure to the mortgagee – mortgagor.  The mortgagor was in receivership.  There was no doubt that the receiver – there was no question or suggestion that the receiver did not know anything.

EDELMAN J:   That may all be right on the facts of this case, but the breadth of the proposition – the proposition does not confine itself to situations of receivership.

MR HUTLEY:   Well, your Honour, I am content that this is an appropriate vehicle for the determination of that broad question, if it be, but put at its absolute that it cannot be any part of any purpose to, as it were, obtain ownership of the property, which is the breadth our learned friend put it, cannot be right.  It has to be something else. 

The findings of fact by the majority that in a sense my client spent many months giving opportunity after opportunity after opportunity to Mr Constantine on behalf of Almona to raise the funds was incredibly powerful evidence leading to the majority’s conclusion that their evident purpose was to recover the money, particularly in the situation where, as your Honours will see from paragraph 43 of the trial judge, my client did not need – that is at application book 20, your Honours - my client, SAP – not my client, but a related company in the PAG group and for this purpose my learned friend treats my client as, in effect, an ally of PAG – had an option to acquire the property for $50 million.  They had no trouble, in effect, obtaining the ownership of the property should they want to. 

So, that is why the suggestion that my client was not motivated - or purpose was not to recover the money was farcical.  They gave a year’s worth of opportunities, their associates could have got the property any time they want, and yet they went through an incredibly elaborate auction process which on any view was fairly determined to get to the point of selling this thing, and that is why the judgment of the Chief Justice and Justice Basten, in our respectful submission, is clearly correct where they found that, in effect, it was done for proper purposes.  There was no fraud on the power.  It was an honest acquisition of the money.  Now, there was at the very heel of the hunt an act which was found to be improper, but that was only with respect to the uplift, did not impugn the transaction and as Justice ‑ ‑ ‑

EDELMAN J:   That is the $4 million?

MR HUTLEY:   That is the $4 million.  As Justice Basten – and your Honours have no doubt seen it found – that developed at the last minute because even the action plan which our learned friends placed so much reliance upon, the action plan contemplated the $4 million being paid because it would be paid after vacant possession a month – there would be a month after settlement to get vacant possession. 

So, in effect, it was a most regrettable development at the very heel of the hunt and, therefore, had no implications for the broader relief sought by our learned friends.  That is why – and just shortly – so we say the first question, in our respectful submission, does not raise a matter of principle in the way expressed and, with all due respect, the statement of Justice White at judgment 296 at its broadest cannot be right, for the reasons we have advanced.

Now, as to the second question, your Honours, that really is just the pleading point by another name and we just say common fairness requires one be determined, otherwise – anyway, that is self‑evident.  As to question 3, my learned friend accepts that all the judges looked at the totality as a whole.  It is quite clear that they did.  Justice Basten in his

assessment up to 262 – at 261, 262, 263 - is clearly looking at it all.  So that point simply does not arise. 

Therefore, we submit, together with the fact that the prospects of the applicant getting the relief it seeks is vanishingly small and, having regard to the peculiar way the applicant ran this case, this is not an appropriate vehicle for the Court to entertain any of the issues raised and special leave should be refused.  Unless your Honours have any further questions, those are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Hutley.  Mr Andronos.

MR ANDRONOS:   May it please the Court.  I respectfully adopt the submissions of my friend, Mr Hutley, for the third respondent and will do my best not to duplicate the propositions put by Mr Hutley in my own submissions. 

The first respondent also says that this is not an appropriate vehicle for determination of any of the issues of principle that the Court may discern are raised by this appeal.  We prefer to say that there are in fact no issues of principle or matters of public importance raised by this appeal, both on the facts – it is largely a question of fact – and also because of the way in which the proceedings were run at first instance certain concessions were made, including the key one that my friend, Mr Hutley, referred to which is recorded in the primary judgment at paragraph 457 that:

there is no absolute prohibition on a mortgagee selling to a purchaser in which the mortgagee has some direct or indirect interest –

That really disposes, we say, of the question of whether or not the tension apparent in the earlier authorities about whether there needs to be a sole purpose – a sole indirect purpose to recover the debt owed to the mortgagee necessarily precludes any subsidiary purposes, such as taking an interest.

The fact that cases like Bangadilly and Forsyth have situations where a purchaser has a relationship with the selling mortgagee, and the question is addressed in terms of independence and purpose, necessarily means that you simply cannot say that by the very fact of taking an interest a breach is established, or even that – I will leave it there.

Almona’s case for special leave depends ultimately on being able to argue the collusive bidding claim.  If that is excluded and if it – precluded, the other questions necessarily fall away as well.  Question 1 has three predicates and they are primarily factual.  In order to get to question 1 it would be necessary to overturn the factual findings of the majority of the Court of Appeal which largely mirrored those of the primary judge.

Question 1 does not, in truth, raise any questions of principle, because the principles which are recorded there, and which form the basis of the dichotomies raised by Justice White at paragraph 296 of his judgment, do not really arise.  The dichotomies raised by Justice White are false in the sense that it is – if I could turn to paragraph 296 of his Honour’s judgment – the questions his Honour ‑ ‑ ‑

KIEFEL CJ:   You say the question of collusion does not arise because of the findings of fact?

MR ANDRONOS:   No, the question of collusion does not arise because of the pleading issue.

KIEFEL CJ:   The pleading issue, yes.

MR ANDRONOS:   The other predicates that are built into question 1 require the overturning of findings of fact.  So, each of the pillars on which question 1 rests is unstable.  Question 1 does not in terms mirror the questions raised by Justice White in any event.  Justice White speaks in terms of the only duty of the mortgagee being to act reasonably to obtain not less than the market value, as against the power being exercised for the purpose of obtaining payment of the secure debt, and not a collateral purpose.  They are not alternatives, they are cumulative, and so the question is not really raised in this matter.  Secondly, must it be exercised without collusion but by way of independent bargain, well the answer is obviously yes, and nobody ever contended to the contrary.

So, they are not really live issues for determination of the dispute between the parties.  If one takes out of the equation the allegation of collusive tendering or bid‑rigging, then there is no basis on which to assert that a fair market price – and in fact the best price obtainable – had not been achieved.  This raises the two aspects of the duty which are relevant in this case, which are purpose of the mortgagee and independence of the process.  On the evidence, both were established.

Again, you take out the question of collusion for all the reasons which my friend, Mr Hutley, addressed on, as a matter of fairness and a matter of process, and what is one left with?  One is left with a factual context as follows.  The facility agreement between the applicant and the third respondent was entered in 2013.  It went into default in May 2014.  The facility agreement also, as part of the suite of documents, included what is known as the RDL call option, which is that the third respondent or an entity associated with it, could have acquired the property directly from the applicant for $50 million, if the facility was in default.

The facility went into default in May 2014.  Receivers were appointed pursuant to the facility documents in April 2015.  Section 57(2)(b) notices were not served until August 2015.  Over the course of 2015, there were many occasions on which the applicant approached the third respondent saying, “I am in a position where I can refinance, give me a payout figure and I will organise the transaction”.  That never happened.  Sometimes the third respondent would show up to the purported settlement and there would be no one else there.  So, in terms of establishing an ulterior purpose to acquire the property, all of the evidence indicates that there was no such purpose. 

Now, if I go back to the chronology.  The 57(2)(b)s were served in August.  In August 2015, Colliers as sales agents were appointed by the receiver to conduct a sale process.  On Colliers’ recommendation that was an expression of interest process.  That commenced in September 2015 and ran through until December 2015 - two rounds of bidding.  Colliers identified a number of prospective parties who would be – in Colliers’ view – appropriate and interested.  One of them was Dyldam, who is the entity of which my client is a subsidiary.  Just in passing, Mr Merhi’s company was not among them. 

The first round of the EOI process ended at the end of October 2015.  Three days prior – and this is not strictly relevant to the question of the purpose of the third respondent, but it is an interesting and potentially significant factual circumstance - Mr Constantine, the principal of the applicant, entered into an arrangement with Mr Merhi, through one of his companies, and an intermediary, pursuant to which Mr Constantine and Mr Merhi contemplated doing a deal in some form, possibly involving a share sale, to deal with the land.

Now, Mr Constantine, of course, had no authority to do so.  The company was in receivership.  He denied having done so until he was actually confronted with the evidence of a signed document, signed by him, in the witness box on the final day of the hearing. 

But, putting that to one side, the process continued to a second round.  The top four bidders were invited to participate in the second round.  That was Dyldam, Mr Merhi’s company, and two others.  The second round closed in the middle of December.  At the end of that process Dyldam was the highest bidder.  Now, this is where the allegation of collusion comes up because Mr Merhi’s company had dropped from being the highest bidder to being the third‑highest bidder.  One of the other four dropped out entirely.  Both Dyldam and the second‑highest bidder put in differential bids, one on the basis of vacant possession of the house and curtilage which was on the property occupied by Mr Constantine, and one on the basis of vacant possession – one is vacant possession and one is where Mr Constantine was still in possession.

Now, that takes us up to the middle of December 2015.  At that point negotiations ‑ ‑ ‑

KIEFEL CJ:   A survey of the facts is, of course, very helpful to get an overview but what is your point in relation to special leave?

MR ANDRONOS:   Yes, thank you, your Honour.  The point is that – the factual context indicates that there was no ulterior purpose.  It does two things.

KIEFEL CJ:   You mean the findings of fact are not sufficient?

MR ANDRONOS:   Yes, that is right.  It does two things – one on purpose and one on independence.  The independence established by the process by which the sale took place and that both the identity of the purchaser and the price struck were the outcome of an independent process.

KIEFEL CJ:   Is this largely by reference to Colliers?  It is a point already been made.

MR ANDRONOS:   Yes, your Honour.  The second is purpose – if there had been an ulterior purpose, there were other ways by which that purpose could have been achieved at much less expense by the third respondent.

EDELMAN J:   …..point from the start.

MR ANDRONOS:   Yes.  So, they are predicates of the first question and plainly the facts, as found, do not establish those predicates, so the applicant would need to overturn those in order to bring the question before the Court.  As to the collusive bidding question, again I adhere to what my friend, Mr Hutley, put – that there really was no proper basis on which the applicant would be able to say that the course of the proceeding prevented the applicant from putting the allegation fairly. 

As was noted by Justice Basten, all of the material that the applicant needed to make the allegation was in its hands on the Thursday before the proceedings started.  There is no ethical basis, to pick up one of the points that Justice White made, that would have precluded the applicant from raising the allegation at that point because nothing relevantly changed between the first day of the hearing when the allegation was not made and closing submissions when the allegation was made that there was a collusive tendering process.

At the risk of going over ground more than adequately covered by my friend, Mr Hutley ‑ ‑ ‑

KIEFEL CJ:   Yes.

MR ANDRONOS:   ‑ ‑ ‑ could I just make this point – I think in answer to a question which was raised earlier.  The shift in the burden of proof must be circumscribed by the pleaded allegation to which ‑ ‑ ‑

KIEFEL CJ:   I think that has been well and truly gone over.

MR ANDRONOS:   Yes, all right.  Well, in that circumstance, your Honours, there is nothing further - unless there are any questions, nothing further I propose to say.

KIEFEL CJ:   Yes, thank you, Mr Andronos.  Do you have anything to add, Mr Izzo?

MR IZZO:   Your Honours, I did wish to very briefly draw your Honours’ attention to some particular matters pertinent to the position of Lord VI and indeed PT, including some that were the subject of exchange with his Honour Justice Edelman, and I will do so as briefly as I can.

The first is that contrary to what my learned friend, Mr Williams, put to your Honours, the notion that Lord VI was a principal and PT an agent did not emerge for the first time in the Court of Appeal.  It was a point made by the trial judge, Justice Robb, at paragraph 916 in his judgment, and that is page 245 of the application book.  That is paragraph 916 and, in the third‑last sentence, it says:

Lord VI was not the agent of PT for the purpose of giving consideration to Parklea . . . Nor was Lord VI the holder of any relevant interest on trust for PT.  The agency and trust relationship was the other way round. 

His Honour clearly made that point.  The second point is this, that the absence of Lord VI as a party is a matter that we have been complaining about since day one.  That is addressed by the learned trial judge in his judgment at paragraph 875 – that is 233 of the application book.  The second sentence in that paragraph starts with the words:

It is necessary to pay close attention to the terms of clause 21.2, as Almona ultimately submitted in par 42 of its submissions in reply, in response to PT’s argument that Almona was not entitled to the relief first raised in its Reply because of its omission to join Lord VI as a party -

We complained because, below, the case was – and, indeed, in the Court of Appeal – that the mortgages were entirely defeasible, that we did not have the protection of section 42.  We said you cannot seek that relief in the absence of Lord VI because they were part of the structure set up by Lord VI and…..security trustee and so on.  That is the context in which we made that complaint.  His Honour dealt with it at 924.  He said:

As the making of an order by the Court against PT that it discharge the PT Mortgages without the repayment to Lord VI of all monies secured by the mortgages would clearly damage Lord VI’s interests, as the beneficial owner of the PT Mortgages, Lord VI was a necessary party to these proceedings.

We renewed that objection.

EDELMAN J:   A fortiori, Lord VI was a principal, was it not?

MR IZZO:   Of course, we ‑ ‑ ‑

EDELMAN J:   Was there any attempt to join Lord VI in the Court of Appeal?

MR IZZO:   None.  Your Honour, Justice White records – and it is clear why, your Honour – because if your Honour goes to the Court of Appeal, page 405, paragraph 358:

Almona did not allege that PT’s mortgage was defeasible on the ground that LBH VI had knowledge of and participated in the fraud of SAP and Parklea.  LBH VI was not joined as a party to the proceedings.

This is the point when they were still saying the mortgage was defeasible, because we were infected by fraud – not that we knew about it – but because we had not given consideration they said.  At 374, the passage that I think your Honours are aware of, where Justice White records:

that these complexities disappear if the relationship between the registered mortgagee and the lender is not just that of trustee and beneficiary but that of agent and principal.  But in this case no claim was made against LBH VI that it was a party to a fraud.

So, it is all very well for my friend to say he does not accept that it is innocent, but the point is he never alleged it was culpable.  Of course, if he did allege it he had to join them, which is what we said from the start.  So, when we say – ultimately relevantly to special leave - that the appeal lacks utility because the Court would never grant the principal relief they seek – namely, setting aside, in inverted commas – I will come to what that means – setting aside the transfer because that would prejudice the interests of the mortgagee and the lender, and that is the proposition that Justice White at paragraph 378 thought was self-evident, it is not an answer to that for our friends to say well, they do not accept Lord VI is wholly innocent.  They have had every opportunity to deal with that problem. 

The second, or final point that I wish to make relates to the position of PT as the actual mortgagee, and there are two things I want to say about that.  One, as your Honour Justice Edelman, I think, put, there is a problem when you force the mortgagee into a legal relationship with someone with whom they did not choose to deal. 

Can I say that the problem is exacerbated here when we hear for the first time today from my learned friend, that they are happy to accept the land subject to the mortgage and take an account and then pay out the mortgage.  It is the first time anyone has ever suggested that an account is necessary against us.  There has been no complaint by the current borrower that the mortgage debt is not the amount actually owing – and the debt is large, as your Honours know – at the time of the Court of Appeal with 158 million, and interest is running.

So, if the Court actually ordered us – re‑vested the property, we would not only be faced with a hostile mortgagor or registered proprietor, we would be faced with fresh litigation about what the mortgage did which is exactly why the mortgagee does not want to be in a relationship with someone with whom it did not choose to deal, nor does Lord VI, the lender, wish to be fighting a derivative battle with someone who is not part of the transaction structure, and who has not given the guarantees and other securities that the loan note subscription agreement requires.  There are all sorts of problems with bringing that about.

The second problem is this, that we are not sure it can be done.  If one looks at Latec Investments v Hotel Terrigal, the words “set aside” were used in inverted commas by Justice Kitto in that case, and what he said actually happens is that the defrauded mortgagor gets an equity of redemption in the true sense because what has actually happened is that the title is registered in the name of the purchaser, and so what the defrauded mortgagor has to do is exercise the equity of redemption in order to get it back at all.  So, it is not possible for them to get the land back, subject to our mortgage. 

What was contemplated in that case is that the prior interest would have to be paid out, and correlative to what was happening in that case, we are in the position of the innocent trustee company, MLC Trustees, that

came along and had a later superior equitable interest – ours is legal – and the position was that that had to be paid out before there could be any setting aside, in any sense, of the transfer.

So, we are not even sure that what our friends want to achieve is possible, but even if it were, the Court would never, in our submission, make that order for the reasons I have attempted to elaborate and that Justice White thought were self-evident at 378, and for those reasons a grant of special leave would lack utility.  They are our submissions.

KIEFEL CJ:   Thank you, Mr Izzo.  Do you have anything in reply, Mr Williams?

MR WILLIAMS:   May it please, your Honour.  In relation to the matters that have been raised about the description “collusive bargain”, it is important to recognise and be precise about the two ways in which that expression has been used in the judgment.  First of all, and this is the subject of the finding of Justice White at 329, there was the collusion between the mortgagee and the purchaser.  That is an independent ground that does not depend at all upon the Wesco pleading matters. 

The second way in which collusion was referred to in the judgment is in connection with the allegations that came to be particularised in the statement of particulars.  The applicant could win this case without the necessity of the pleading issue being determined one way or the other, and that is because the lack of independence that was identified both by the majority judges and by Justice White consisted of the collusion between the mortgagee and the purchaser.  That was sufficient.  If your Honours look at the way in which Justice White expressed that finding at 329, your Honours will see that his Honour looked at the matter in those terms.  There was a collusive bargain, not an independent bargain, because:

the power of sale was exercised not for the purpose of recovering payment of the mortgage debt but to ensure a sale to Parklea in which another PAG company had an indirect 80% economic interest.

So that is ‑ ‑ ‑

EDELMAN J:   I think that has to be read as “not exclusively for the purposes of recovering the payment” ‑ ‑ ‑

MR WILLIAMS:   Possibly, but that does not cut across the point I am making to your Honour, which is that this finding of collusion and lack of independence exists irrespective of what one makes of the particularised allegations about Wesco.

EDELMAN J:   We understand ‑ ‑ ‑

MR WILLIAMS:   Secondly, the question that ought to have been examined is whether the mortgagee and purchaser dispelled the suspicion raised by the facts which were particularised.  Could I just remind your Honours they are set out at paragraph 51 of the judgment, and they identified, in paragraph 1, the commercial arrangements that subsequently came to be identified that involved the various parties, including Mr Merhi’s companies; secondly, that those interests were not apparent to third parties who did not have access to the documents; thirdly, that your Honours will have heard, consistently with what my friend said, these documents were produced following contests about notices to produce on the evening of the Thursday before the Monday’s hearing of an expedited case.  That is an expedited case in which there had been no discovery, and the defendants had filed no evidence.

Then the allegation is that the sale was not an arm’s length transaction – that Mr Merhi, through another company, had been the highest first‑round bidder in the expression of interest process, that at the time of the closing of the second round of expressions of interest, Wesco reduced its offer from 92 to 79 million, thereby placing the first defendant in the position of highest bidder, and at about that time – that is about the time that it reduced its expression of interest, arrangements of the nature that came to be ultimately reflected in the contractual documents were discussed or negotiated with representatives of all three entities.  So, those were the facts that had been raised particularly and which were required to be - any suspicion in respect of which were required to be dispelled, and they were not. 

The third matter we would raise is my learned friend Mr Hutley’s attempt to sideline the importance of the finding of fraud in relation to the $4 million.  That finding is relevant in two ways.  First of all, it occurred prior to the completion of the sale and, secondly, it was capable of shedding light on the purposes and the legitimacy or otherwise of the purposes that were being affected by this mortgagee sale.

KIEFEL CJ:   I see the light is on, Mr Williams.

MR WILLIAMS:  Thank you, your Honours.  So far as relief is concerned we of course seek alternative relief including relief that returns the matter to the court below for ultimate determination of that if we are right about the breach of the duty of mortgagee’s power of sale.  We do seek an account in the alternative, and so far as the point about Lord VI’s concern, we have joined the trustee under the UCPR, rule 7.9(2) to (3). 

If one joins the trustee it is not necessary to join beneficiaries.  Their interests are sufficiently represented by the trustee and any order that Almona may have obtained against PT would have bound Lord VI.  That is the effect of the rule.  So, we say that there is no impediment to the relief that we seek by reason of Lord VI not being a party.  May it please the Court, they are our submissions.

KIEFEL CJ:   The court will adjourn to consider the course it will take.

AT 10.45 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.46 AM:

KIEFEL CJ:   We do not consider that the proposed appeal is an appropriate vehicle for the determination of questions as to a mortgagee’s duty and purpose in relation to the power of sale.  Having regard to the pleadings, the findings of fact and the parties joined to the proceedings the relief sought raises a real question as to its utility.  Special leave is refused with costs.

The Court will now adjourn.

AT 10.47 AM THE MATTER WAS CONCLUDED