Almona Pty Ltd v Parklea Corporation Pty Ltd

[2021] NSWCA 171

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Almona Pty Ltd v Parklea Corporation Pty Ltd [2021] NSWCA 171

Hearing dates:

16–19 November 2020

Decision date:

11 August 2021

Before:

Bathurst CJ at [1];
Basten JA at [80];
White JA at [275]

Decision:

(1)   Dismiss the further amended notice of appeal of Almona Pty Ltd.

(2)   Order that the appellant pay the costs of each respondent to the appeal.

(3)   Dismiss the cross-appeal by Parklea Corporation Pty Ltd.

(4)   Order that Parklea Corporation pay the costs of Almona Pty Ltd of the cross-appeal.

(5)   Dismiss the summons filed by Secured Asset Portfolio III Ltd (in liq) seeking leave to cross-appeal from the costs order made by the trial judge.

(6)   Order that Secured Asset Portfolio III pay Almona’s costs of the summons seeking leave to cross-appeal.

Catchwords:

MORTGAGES AND SECURITIES – mortgages – duties, rights and remedies of mortgagee – power of sale – mortgagee’s duty to exercise power of sale in good faith – effect of contract of sale upon mortgagor’s rights – whether attempt to refinance and discharge mortgage prior to transfer of title can prevent sale – where mortgagor’s attempts to refinance accelerated the sale process

MORTGAGES AND SECURITIES – mortgagee exercising right of sale – price higher if vacant possession given – requirement of vacant possession not communicated to occupant –damages awarded for failure to communicate occupation condition

LAND LAW – Torrens title – exceptions to indefeasibility – fraud by mortgagee exercising power of sale – bid-rigging where alleged collaborator later acquired share in successful purchaser – whether collusion established

LAND LAW – mortgages – mortgagee sale – where owner of the mortgagee financed the purchase and acquired option to control purchaser – honesty and independence of sale process – good faith exercise of power of sale – pre-existing relationship between parties acting on other projects – whether lack of independence in sale process indicative of fraud – burden of disproving fraud

Legislation Cited:

Conveyancing Act1919 (NSW), ss 109, 111A

Corporations Act 2001 (Cth) s 420A

Real Property Act 1900 (NSW), ss 42, 43, 45, 56, 57, 59, 118

Legal Profession Uniform Conduct (Barristers) Rules 2015, r 65

Cases Cited:

Almona Pty Ltd v Parklea Corporation Pty Ltd (No 4) [2020] NSWSC 553

Assets Co Ltd v Mere Roihi [1905] AC 176

Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; [1978] HCA 21

Banque Commerciale S.A., en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279; [1990] HCA 279

Barns v Queensland National Bank Limited (1906) 3 CLR 925; [1906] HCA 26

Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449

Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9

Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2

Chia v Rennie (1997) 8 BPR 15,601

Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440

Davey v Durrant (1857) 1 De G & J 535; (1858) 44 ER 1086

Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125; 28 ER 82

Farrar v Farrars Ltd (1888) 40 Ch D 395

Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20

Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15,581

Kennedy v De Trafford [1897] AC 180

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68

Latec Investments Ltd v Hotel Terrigal Pty Ltd(In liq) (1965) 113 CLR 265; [1965] HCA 17

Nash v Eads (1880) 25 Sol Jo 95

National & Provincial Building Society v Ahmed (1995) 2 EGLR 127

Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9

Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29

Potts v Miller (1940) 64 CLR 282; [1940] HCA 43

Property & Bloodstock Ltd v Emerton (1968) Ch 94

Provident Capital Ltd v Printy [2008] NSWCA 131; (2008) 13 BPR 25

Robertson v Norris (1858) 1 Giff 421; 65 ER 983

Sahab Holdings Pty Ltd v Registrar General (No 2) [2012] NSWCA 42; (2012) 16 BPR 30

Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104; [1930] HCA 29

Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349

Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101

Waring (Lord) v London and Manchester Assurance Co Ltd (1935) Ch 310

Warner v Jacob (1881) 20 Ch D 220

Texts Cited:

Croft and Hay, The Mortgagee’s Power of Sale (4th ed, LexisNexis, 2019)

J D Heydon, M J Leeming and P J Turner, Meagher, Gummow and Lehane’s Equity – Doctrines and Remedies (5th ed, LexisNexis, 2015)

Waters, The Constructive Trust, University of London (1964)

Category:

Principal judgment

Parties:

Almona Pty Ltd (Appellant/First Cross-Respondent)
Parklea Corporation Pty Ltd (First Respondent/Cross-Appellant)
P T Ltd (Second Respondent/Second Cross-Respondent)
Secured Asset Portfolio III Ltd (In liq) (Third Respondent)

Representation:

Counsel:
D Williams SC / N Riordan (Appellant/First Cross-Respondent)
K Andronos SC / S Keizer (First Respondent/Cross-Appellant)
M Izzo SC/ J Burnett (Second Respondent/Second Cross-Respondent)
N Hutley SC / E Hyde / G Keesing (Third Respondent)

Solicitors:
Bartier Perry (Appellant/First Cross-Respondent)
Norton Rose Fulbright Australia (First Respondent/Cross-Appellant)
Corrs Chambers Westgarth (Second Respondent/Second Cross-Respondent)
King & Wood Mallesons (Third Respondent)

File Number(s):

2020/197106

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2019] NSWSC 1868

Date of Decision:

20 December 2019

Before:

Robb J

File Number(s):

2018/317496

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Almona Pty Ltd (Almona), was until 22 March 2016 the registered proprietor of a large site in western Sydney, including Parklea Markets. In 2013 Almona had entered into a refinancing agreement with the third respondent, Secured Asset Portfolio III Ltd (SAP), a part of the Pacific Alliance Group (PAG). Almona defaulted under the agreement. On 17 April 2015 SAP appointed receivers and managers (PPB Advisory) to Almona; PPB appointed a sales agent, Colliers International, which conducted a sale process by receiving bids from interested parties. The second round of bidding closed on 16 December 2015. The highest bidder was identified as the Dyldam Group, that bid being accepted by SAP. On 4 January 2016 Dyldam’s principal, Mr Sam Fayad, established a special purpose vehicle, Parklea Corporation Pty Ltd (Parklea) to be the purchaser. A contract of sale was entered into by SAP and Parklea on 13 January 2016. The sale price with vacant possession was $85.35m; if the principal of Almona, Mr Constantine, whose home was on the land, remained in possession the price would be $81.1m. A deed of variation was entered into on 22 March 2016 to record the purchase price as $81.1m.

On 11 December 2015 representatives of PAG and Dyldam had met in Hong Kong. When the sale settled on 22 March 2016, the bulk of the finance for the purchaser came from another PAG company. The ownership of Parklea was held through unit trusts which reflected the financing arrangements, with the PAG entity having an option to acquire 80% of the interests in Parklea.

On 18 March 2016, Almona commenced proceedings seeking to prevent the settlement of the sale. It abandoned that relief, but continued the proceedings after settlement seeking to set aside the transactions on grounds of fraud, breach of duty, unconscionable conduct and misleading or deceptive representations on the part of SAP and Parklea. The Court at first instance awarded Almona $4.25m on the basis that it had not been revealed to Mr Constantine that a higher price would have been obtained had he vacated the land prior to settlement.

However, Almona’s principal claims failed, including allegations that (i) PAG had manipulated the sale process by controlling both the mortgagee (SAP) and the financing of the purchase; (ii) PAG, as the principal of the mortgagee, obtained through another subsidiary an option to acquire a controlling interest in the purchaser, and (iii) there had been collusive bidding, in that the highest bidder in the first round, Wesco Capital Pty Ltd (Wesco), reduced its bid substantially in the second round so as to no longer be the highest bidder, yet ended up with a 20% share of Parklea. If proved, these matters established that the sale was not a truly independent bargain.

Almona appealed from the dismissal of its principal claims; Parklea filed a cross-appeal challenging the order for payment of $4.25m. The issues before this Court were:

1. whether SAP, in exercise of its power of sale as mortgagee, breached its duty to Almona;

2. whether there was no independent sale because PAG both controlled the mortgagee, funded the purchaser and obtained an option to control the purchaser;

3. whether there was collusive bidding involving Dyldam and Wesco;

4. if fraud were established, whether the registered holder of the mortgages was affected by fraud;

5. whether Mr Constantine had notice of the occupation condition, and whether any lack of knowledge should have resulted in an adjustment to the sale price; and

6. in the event a breach of duty was established, what relief should be granted.

Held, by majority (White JA dissenting), dismissing the appeal:

As to (1) – breach of mortgagee’s duty

Per Bathurst CJ and Basten JA:

1. A mortgagee’s power of sale must be exercised honestly for the purpose of the power; however, a mortgagee is not a trustee of the mortgage, and its duty was to act in good faith and take reasonable precautions to obtain a proper price and thus ensure that the interests of the mortgagor were not sacrificed: [56]‑[64] (Bathurst CJ); [105] (Basten JA); importantly, there must be an independent bargain between mortgagee and purchaser: [108]-[115] (Basten JA); [298], [318]-[325] (White JA).

Real Property Act 1900 (NSW) s 59, applied; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; 139 CLR 195; Barns v Queensland National Bank Ltd (1906) 3 CLR 925; Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20, followed; Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15581; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; Pendlebury v The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, discussed.

1. A contract of sale is binding upon the mortgagor, and it did not retain rights superior to those of the purchaser up until settlement; at that time, Almona had: been in default for a considerable time and had failed to discharge the mortgage; no criticisms were levelled at the sale process, which produced bids in excess of the valuations: [66] (Bathurst CJ); [194]-[195] (Basten JA).

Although the settlement had been accelerated to prevent Almona from discharging its mortgage and SAP had stalled in providing payout figures to Almona to allow it time to settle the sale to Parklea, Almona had no continuing right to pay out the mortgage.[67], [78] (Bathurst CJ); [196] (Basten JA).

As to (2) – mortgagee control of purchaser

1. The evidence did not establish that PAG’s primary purpose when the contract of sale was signed was not to recover its money but rather to acquire a contingent interest in the property, so as to place a burden on the mortgagee to justify its conduct of the sale: [1] (Bathurst CJ); [198], [225]-[227] (Basten JA).

per White JA (dissenting)

1. SAP did not exercise its power of sale in good faith, as they did not exercise the power of sale for the purpose for which it was conferred, being to obtain repayment for the secured debt by way of independent bargain. However, the mere fact that a mortgagee finances a purchaser is not sufficient to demonstrate that the sale was made in fraud of the power: [326]-[332].

2. Obtaining a fair price does not necessarily mean that a power of sale was exercised in good faith. However, Parklea’s actions were marked by haste, secrecy, deception, and the intention to prevent the mortgagor from redeeming the property. They registered the property by fraud, and so did not acquire an indefeasible title: [351].

Real Property Act 1900 (NSW), s 42, applied; Legal Profession Uniform Conduct (Barristers) Rules 2015 r 65, referred to; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; Barns v Queensland National Bank Limited (1906) 3 CLR 925; Farrar v Farrars Ltd (1888) 40 Ch D 395, considered; Forsyth v Blundell (1973) 129 CLR 477; Nash v Eads (1880) 25 Sol J 95; Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; Robertson v Norris (1858) 1 Giff 421; 65 ER 983; Warner v Jacob (1881) 20 Ch D 220; Assets Co Ltd v Mere Roihi [1905] AC 176; Belton v Bass, Ratcliff and Gretton Ltd [1922] 2 Ch 449; Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9; Davey v Durrant (1857) 1 De G & J 535; (1858) 44 ER 1086; Kennedy v De Trafford [1897] AC 180; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101, referred to.

As to (3) – collusive bidding

1. The inference that Wesco lowered its second bid to allow Dyldam to make the highest offer in exchange for an interest in the purchaser was available, but this claim was not pleaded and could therefore not be said to have constituted a basis for alleging a breach of the mortgagee’s duty: [49]-[55]; (Bathurst CJ) [252], [260]-[262] (Basten JA).

Banque Commerciale en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279 at 285; Farrer v Farrars Ltd (1889) Ch D 395; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; 139 CLR 195, applied.

As to (4) – registered holder of mortgages

1. The indefeasibility of PT’s interests depended upon it being a bona fide holder of the mortgages, having provided valuable consideration. It was contested whether they had provided valuable consideration or merely fees for services, but the issue did not need to be resolved: [1] (Bathurst CJ); [264]-[267] (Basten JA).

2. Almona did not allege that the mortgage to PT was registered by fraud. Almona’s remedy is confined to a claim for equitable compensation on the taking of accounts, but not in respect of PT, given the amount secured in respect of PT’s mortgage: [278] (White JA).

As to (5) – cross-appeal

1. The failure of SAP to inform Almona of the occupation condition involved a breach of its duty as mortgagee; it was correct to infer that Parklea had knowledge that Mr Constantine had not been advised of the condition: [1] (Bathurst CJ); [199]-[207] (Basten JA).

2. It was unnecessary to consider whether the sale should be set aside, as the Court made no finding that the mortgagee failed to exercise its power of sale having proper regard to the interests of the mortgagor: [264].

As to (6) – available relief

per White JA (Bathurst CJ and Basten JA not needing to address relief):

1. An account is the appropriate form of relief where a mortgagee is alleged to have sold a property at an undervalue or in breach of its duty. It would be open to Almona to investigate whether $85.35m was a true market price, or alternatively, whether it represented the real value of the land: [375]-[381].

Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440, applied; Potts v Miller (1940) 64 CLR 282, considered

Judgment

INDEX

Bathurst CJ:		1
Background facts		3
Was Almona entitled to rely on a collusive arrangement between SAP Dyldam and Wesco in support of its claim?		48
Was the sale in bad faith or a fraud on the mortgagee’s power of sale?		56
Basten JA:		80
Overview		85
Issues raised on appeal		92
Legal principles		105
Circumstances constituting collusive dealing		116
History of events		118
(a)	Events in 2015	118
(b)	Negotiations in 2016	140
(c)	Heads of agreement	147
(d)	Final transactions documentation	154
Appellant’s first claim of impropriety – mortgagor’s right to repay loan		165
(a)	Accelerated settlement	186
(b)	Conclusions	191
Appellant’s second claim of impropriety – sale transaction not independent		198
Appellant’s third claim of impropriety: accommodation condition		199
(a)	Finding an opportunity to vacate premises	199
(b)	Cross-appeal – Parklea Corporation	201
(c)	Conclusion – cross-appeal	209
Appellant’s fourth claim of impropriety: involvement of Wesco		210
(a)	Factual background	210
(b)	Available inferences	218
(c)	Challenge to findings of trial judge	224
(i)   appellant’s “wider fraud” case: grounds 1 and 2	225
(ii)   inference of fraud in withdrawal of Wesco bid	232
(d)	Submissions on appeal	250
Other matters		264
Challenges by Almona and SAP to costs order		268
Orders		274
White JA:		275
Facts		280
Duty of good faith		296
Wesco’s involvement: onus of proof		333
Parklea Corporation did not acquire an indefeasible title		337
PT’s mortgage		352
Remedy		375

1. BATHURST CJ: I agree with the orders proposed by Basten JA and generally with his reasons. I wish to address two matters. The first is whether or not it was open to Almona Pty Ltd to rely on a collusive arrangement between the first respondent, the third respondent, Dyldam Developments Pty Ltd, and Wesco Capital Pty Ltd or its associated companies Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd in support of its claim that the sale by the third respondent of the appellant’s property, Parklea Markets, was an improper exercise of the mortgagee’s power of sale. The second is whether the sale was a fraud on the mortgagee’s power of sale or otherwise in bad faith.

2. As Basten JA has comprehensively set out the facts surrounding the dispute, I will only repeat them to the extent necessary to understand my reasons. For convenience I will use the same abbreviations as those used by Basten JA.

Background facts

3. In considering the issues it must be remembered that at the time of the exercise of the power of sale, Almona had been in default under the facilities secured by the mortgage for a considerable period. Default had occurred by 31 May 2014. On 5 June 2014, SAP confirmed to Almona that the amount owing was $58,911,301.00 and rejected a request for extension.

4. Notwithstanding, no action was taken at that time, and on 12 September 2014 the solicitors for SAP wrote to Almona, indicating that it was prepared to consider a forbearance letter in respect of existing breaches of the facilities on certain terms. It is not clear whether those terms were complied with.

5. On 12 December 2014, the solicitors for Almona wrote to the solicitors for SAP stating their client was in the process of refinancing the facility with a “major bank”. Nothing appeared to result from those negotiations, and on 2 February 2015 the solicitors for SAP advised the solicitors for Almona that the amount due as at 31 January 2015 was $65,566,970.91.

6. On 15 April 2015, the solicitors for SAP wrote to Almona demanding payment of $66,720,149.08, and on 17 April SAP appointed receivers and managers to Almona.

7. It should be noted that around this time a number of valuation reports were obtained. A valuation prepared by Abbotts Valuers on behalf of Mr Con Constantine, the managing director of Almona, valued the property as at 1 June 2015 at $115 million. The valuation was not admitted into evidence as proof of the value of the land, and the receivers were not provided with a copy of the report.

8. The receivers obtained two valuations. One dated 29 June 2015 valued the property at $45 million on an “as is, where is” basis and at $67.5 million assuming a residential master plan over the Parklea Markets and adjoining land. The other dated 18 July 2015 valued the property at $48.7 million on an “as is – subject to continuing use” basis and at $70 million on the basis of alternative use based on a residential development scenario. The primary judge noted that it was not suggested by Almona that it was unreasonable for the receivers or SAP to rely on these valuation reports.

3. On 7 August 2015, Mr Dixon-Smith, a partner of King & Wood Mallesons who had commenced acting for SAP, sent a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) stating the amount payable was $71,262,096.22.

4. On 18 August 2015, the solicitors for Almona wrote to the solicitors for the receivers, stating the target date for refinancing was 31 August 2015. In anticipation of settlement on that date, various documents were prepared necessary to effect a release of the securities, but on 31 August settlement was postponed, the solicitors for Almona requesting a payout figure as at 4 September 2015. Settlement was again postponed until 18 September 2015, then postponed to 23 September and finally to 30 September 2015. Settlement did not occur.

5. By the start of October 2015, Colliers on behalf of the receivers had called for expressions of interest in the property. Basten JA sets out the process leading up to the first and second round of offers (at [122]-[129] of his judgment) and it is unnecessary to repeat what is there set out.

6. As Basten JA has pointed out, Wesco was registered on 8 October 2015 with Mr Merhi as the sole shareholder and director. On 12 November 2015, associated companies, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd, were registered.

7. It should be noted that Wesco first attempted to obtain an interest in the property through negotiations with Mr Constantine. The primary judge noted that it emerged during the cross-examination of Mr Constantine that on 27 October 2015, Mr Constantine, Mr Merhi and a company, Australia International Investment Holdings Group Pty Ltd, entered into a Deed of Agreement which recited that Mr Constantine and Mr Merhi were contemplating a joint venture and/or a share sale and/or another transaction involving the assets of Almona. Clause 2 of the Deed provided that, if an agreement was reached that involved Mr Merhi injecting money into Almona to allow it to discharge all securities granted to SAP, with each of Mr Constantine and Mr Merhi holding an interest in Almona or its assets, they would procure that Almona pay a commission of $5 million to Australia International Investment Holdings Group Pty Ltd.

8. The primary judge stated that Mr Constantine’s evidence on the issue was “most unsatisfactory”, noting that he “grudgingly admitted” the existence of the Deed but seemed to deny he ever made an agreement as to some of its terms (PJ[87]). The primary judge went on to make the following remarks:

“[89]   In the context of Almona making a claim that SAP colluded with Dyldam and Mr Merhi to subvert the expressions of interest process, it is telling that there is no objective evidence of any representative of SAP dealing personally with Mr Merhi, or any representative, or knowing anything more about any company of his other than the submissions of expressions of interest by Wesco. The only positive evidence of any party dealing with Mr Merhi is that concerning Mr Constantine’s entirely unexplained, and unauthorised, entry into the Deed of Agreement on behalf of Almona.”

15. In a time entry narration Mr Dixon-Smith records that on 13 November 2015 he completed a review of funding arrangements required for buyers seeking funding on acquisition of assets and “advice to PAG”. This is unusual, as all the buyers who were admitted to the second round of bids, including Dyldam, indicated in their expressions of interest that they had finance to complete the purchase. The time entry narrative records that the review followed meetings Mr Dixon-Smith had with representatives of PAG on 10 November and 11 November, the latter being recorded as a meeting re the sale process. It can be inferred in those circumstances that PAG by that time was interested in retaining an involvement with the property, at least as a potential financier.

16. On 10 December 2015, Mr Dixon-Smith travelled to Hong Kong. His time entry narrative records “Parklea Joint Venture – Meeting with Dyldam in Hong Kong. Prepare and edit Parklea Profit Distribution Table … compose email to James McMurdo and Anshumann Woodhull”. The document which was emailed to Messrs McMurdo and Woodhull on 11 December was attached to an email which stated, “how I see the profit ratchet working”. That document showed a distribution of net profit between Dyldam and PAG in respect of the venture, Dyldam’s share of the profit increasing from a base of 25 per cent at a profit level of $50 million to 40 per cent at a profit level of $400 million, but thereafter constant at 40 per cent (presumably the ratchet).

17. This document demonstrates at least two things. First, to the extent that it can be concluded that it was prepared on the instructions of PAG, it demonstrates confidence that Dyldam would be the preferred bidder, notwithstanding the fact that second round bids had not come in and Wesco’s initial bid was higher than that of Dyldam. Second, on its face, leaving aside the risk involved, it appeared to be a commercially attractive proposition to PAG. I agree with Basten JA that it could readily be inferred that the discussion with Dyldam representatives in Hong Kong was in connection with this proposal.

18. It is apparent from Mr Dixon-Smith’s time entry narrative that by 21 December 2015, Dyldam was the nominated purchaser and PAG (or its associated company) would provide finance. It was also determined by that stage that the sale would be a mortgagee sale rather than a sale by the receivers. On 23 December, Mr Dixon-Smith emailed solicitors acting for Dyldam’s nominee Parklea, attaching a diagram described as the “Diamond Entity Structure (based on total funding of $90m, with $51m from the senior debt facility) discussed at those meetings”. The document shows two entities (Dyldam Parklea Holdings #1 Pty Ltd and Dyldam Parklea Holdings #2 Pty Ltd) holding 20 per cent and 80 per cent interests respectively in the development company (Dyldam Parklea Developments Pty Ltd). Although the document is not entirely clear, it seems to envisage equity contributions of $24 million and $2 million from PAG and Dyldam respectively and $5 million mezzanine finance. The total capital, both loan and equity, thus amounted to $82 million. The structure is silent as to where the balance of $8 million was to come from.

19. The structure on its face did not align with Mr Dixon-Smith’s calculation of net profit share of 11 December. However, Mr Dixon-Smith explained the position in his email to the solicitors for Parklea of 24 December 2015. That email, which was copied to Mr McMurdo of PAG, was in the following terms:

“1.   The holdings of Parklea Holdings 1 and 2 in Parklea Corporation P/L should be 80/20 reflecting the agreed ‘base’ share of the economic interests between the two entities, with any ‘earn up’ by Dyldam Group earned through a performance based component of the Development Management Fee. Let’s say Parklea Holdings 2 is the entity that PAG will primarily fund through, then it should hold 80%.

2.   All units in the two trusts and shares in the two Parklea Holdings companies would be held 100% by Dyldam, presumably Dyldam Developments Pty Ltd, but we are flexible as to where. As further information, one of the challenges in PAG’s arrangements is the potential impact of the thin capitalisation rules. However these rules do not apply if the borrower is an Australia resident and controlled entity, and a direct and indirect 100% ownership by Dyldam gets us into this safe harbour, together with the way we structure PAG’s control rights under the documentation – which are generally negative control rights typically held by mezzanine financiers.”

20. It is unnecessary to deal with the further negotiations leading up to the date of the contract.

21. Contracts were exchanged on 13 January 2016. The vendor was SAP as mortgagee exercising power of sale, and the purchaser was Parklea. As has been explained by Basten JA, the purchase price was $85,350,000 if the residence on the property, then occupied by Mr Constantine, was vacated, or otherwise $81,100,000. The contract provided for a payment of a deposit of $1 million on the date of contract, $3,267,500 within three business days from receiving written confirmation of Investment Committee approval and the balance of 10 per cent on completion.

22. Clause 36 of the contract provided that completion was to take place on the latest of 28 January 2016, 14 days after Investment Committee approval or any extended completion date provided for in special condition 59.1. That special condition provided that if proceedings were instituted against the receivers or vendors relating to the contract, the vendor could serve a notice delaying completion.

23. Clause 63 of the special conditions provided that the agreement was conditional on approval by the PAG Investment Committee. As Basten JA has pointed out, as a result PAG had control over the sale process. Investment Committee approval was required by 14 March 2016; however, the date was extended to 29 April 2016. It should be noted that prior to the latter extension being given, it appeared that the PAG Investment Committee had approved the transaction. This appears from a note in Mr Dixon-Smith’s time entry memorandum of 29 February 2016 to the following effect:

“Attending re Investment Committee approval to sale and advice to PAG re declaring contract to be unconditional. Emails and telephone calls with James McMurdo and Woody.”

24. On 14 January 2016, Parklea lodged a caveat over the property claiming an “equitable interest in the land pursuant to the Contract of Sale of Land dated 13 January 2016” between SAP and Parklea.

25. At the time of exchange of contracts, documentation relating to the funding arrangements had not been completed. On 10 March 2016, Mr Dixon-Smith sent a draft Heads of Agreement to the solicitors for Parklea. The Heads of Agreement were ultimately entered into on 22 March 2016 along with certain other security documents.

26. The parties to the Heads of Agreement were Parklea (“Landowner”), a related company, Quatro 88 Pty Ltd (“Development Manager”), Parklea Holdings 1 Pty Ltd as trustee of the Parklea Holdings 1 Unit Trust (“Holding Trust 1”), Parklea Holdings 2 Pty Ltd as Trustee of the Parklea Holdings 2 Unit Trust (“Holding Trust 2”) and Lord Business Holding VIII Ltd, a British Virgin Islands company (“LBH”). Clause 2.1 of the Heads of Agreement recorded that Parklea had entered into the purchase of the property based on discussions regarding the funding of the Project by members of the LBH group. It should be noted that the Project was defined as meaning “the acquisition, development and sale of the Land”. It was not in issue that LBH was an associated company of PAG and SAP.

27. Clause 2.2 of the Heads of Agreement set out the intention of the parties, including that LBH would provide debt, credit and mezzanine finance to Parklea in its capacity as Trustee of the two Holding Trusts, and that the Development Manager would manage the Project under the Development Management Agreement.

28. By cl 3 LBH agreed to grant the facilities. Details of the facilities were set out in cl 8 of the Agreement and it is unnecessary to set out the somewhat complex structure. However, it should be noted that the total amount proposed to be advanced was well in excess of the amount required to discharge the mortgage.

29. Clause 4.1 provided that the parties would procure the entry into the Development Management Agreement, whilst cl 6 gave LBH and the Security Trustee negative control over the Project.

30. Clause 5 provided for the shareholding and unit holding arrangements in the entities to carry out the Project. The structure was set out in an annexure to the Heads of Agreement. It provided that 80 per cent of the shares in Parklea be held by Parklea Holdings 1 Pty Ltd, and 20 per cent by Parklea Holdings 2 Pty Ltd as trustee of the respective Holding Trusts. The structure provided that 800 units in each trust were to be issued to entities associated with Mr Fayad, the managing director of Dyldam, whilst 200 were to be issued to Visy Group Holdings, a company associated with Wesco. However, LBH VIII was granted a call option to purchase all of the Holding Trust 1 shares in Parklea in consideration for payment of $100,000. Thus, LBH VIII could by exercise of the option acquire an 80 per cent interest in Parklea, diluting the interests of entities associated with Dyldam to 16 per cent and those with Wesco to 4 per cent. Basten JA has explained the confusion in the various Heads of Agreement in [156]-[164] of his judgment.

31. The Heads of Agreement also provided for a “development management fee” based on the net profit of the venture. A worked example was given, which showed that the total return of what might be described as the non-PAG interests was identical to that calculated by Mr Dixon-Smith in his document of 11 December 2015.

32. It is not clear why the mechanism of a call option was used rather than a direct allocation to LBH of either units in Holding Trust 1 or shares in Parklea. However, nothing turns on it.

33. In the period between January and March 2016, Almona was still endeavouring to refinance the property.

34. On 22 February 2016, the solicitor for Almona wrote to the solicitors for the receivers requesting a payout figure. The email asserted that Mr Constantine had requested a payout figure just before and just after Christmas. The email stated that Mr Constantine’s ability to refinance had been hindered by the lack of information about the level of debt.

35. The request was eventually referred to Mr Dixon-Smith, who advised the solicitors for the receivers in the following terms:

“As we know, the property has been sold and (subject to the possible issue of the Investment Committee condition precedent), the equity of redemption has now been wiped out and they can’t repay the mortgage. I know there are issues around the fact that the sale hasn’t (I think) yet been communicated to Con, but I’d be concerned about responding in any way that could be construed as suggesting that the mortgage is capable of being refinanced. This is tricky to deal with until PAG actually have that meeting with Con, but I think we should tread warily.”

36. As a result, the solicitors for the receivers informed Almona’s solicitors on 23 February 2016 that it had referred the request for a payout figure to King & Wood Mallesons which would respond directly.

37. Mr Dixon-Smith’s time entry narrative records that on 11 March 2016 he had a meeting with PAG senior executives to discuss completion of the sale. The entry is in the following terms:

“Meetings with PAG senior executives to discuss completion of sale of Parklea Markets, including comprehensive review of status of sale, including PAG's capacity to complete, purchaser funding arrangements, review of sale process to confirm PAG has complied with all duties of mortgagee exercising power of sale, status of receivership and vacant possession issues. Recommendation to issue notice of IC Approval so as to trigger completion date. Lengthy discussion plus provide signoff regarding moving to completion of contract.”

38. On 14 March 2016, the solicitors for Almona sent an email to Mr Dixon-Smith in the following terms:

“Our client has instructed us a number of times that he has attempted to ascertain the payout figure from you to finalise a transaction that he has been negotiating for the repayment of the facilities owed to SAP III (Lender). On 22 February 2016 we brought our client’s attempts to the receivers' attention through Gilbert & Tobin, their lawyers. On 23rd February 2016 we were advised that the matter would be addressed by the Lender's lawyer, King Wood & Mallesons [sic].

On Friday, 11 March 2016 we attempted to contact both Stuart Dixon-Smith and Jessica Wallis to discuss the matter and obtain a response to our email.

Despite our attempts on Friday, we again attempted to contact both Stuart and Jessica this morning and were advised that the earliest that Stuart would be available would be after 11am this morning. As mentioned the failure to advise our client the level of the debt is frustrating our client’s opportunity to finalise a transaction for the repayment of the facility. We have been given no reason for the lack of response or even its delay. Our client has advised us that he has reached an agreement which will allow him to repay the debt owed, subject to receiving notification of the level of the debt or the payout figure. Subject to receiving this information the repayment may occur on Friday, 18 March 2016.

The failure of both the receivers and the Lender to advise our client of the level of the·debt despite his requests, including those that we have made on his behalf, amounts to a clog on the equity of redemption. It may also amount to a breach of statutory duties and unconscionable conduct.

Our client has instructed us to obtain an urgent undertaking from the Lender and the receivers that:

1. no further steps will be taken to sell Parklea Markets or any other property over which security has been granted to the Lender (Secured Property); and

2. no contract of sale will be entered for the sale of any Secured Property,

until the later of (i) 5 pm on 18 March 2016; or. (ii) 6 hours after the information requested in paragraph (c) is provided to our client (such date being a business day in Sydney); and

1. payout figures will be calculated promptly and provided to our client as soon as possible (but no later than 9 am on Friday 18 March 2018 [sic]) including sufficient information to determine the assets and liability of any borrower/guarantor and any of their assets controlled by the receivers.

We are also instructed that our client has put to the receivers' representative this morning his request to know what is the current status and to have a meeting with the Lender and receivers to discuss the current status. Please let us know if you require any further information as we will obtain it and provide it to you from our clients. The party with whom we are instructed a deal has been reached with is Mackycorp Pty Limited.

In the event that we do not receive the undertaking requested on or before 1 pm today, we have been instructed to approach the court on an urgent basis, without further notice to your clients, to obtain appropriate equitable relief. Should any transaction be entered into before our client's request is complied, with our client will be seeking appropriate equitable relief to set aside those transactions for the reasons stated above including requesting that our client's costs be recovered from each of your clients on a full indemnity basis.

We look forward to receiving your urgent response.”

39. On the same day Mr Dixon-Smith replied as follows:

“I have forwarded your email to my client for instructions, but in the meantime will let you have a preliminary response to your email.

You client have [sic] previously requested payout numbers in similar circumstances over the past 6 months, assured, like this time, that a repayment is imminent. We and the receivers have diligently undertaken considerable work at significant expense to provide that payout and then nothing has eventuated. In one instance we and the receivers were fully prepared for a settlement which you not only did not turn up to, but failed to give us the courtesy of even contacting us to call off. Our client has expended significant sums calculating the payout figure to no avail and your client has not reimbursed it for those significant costs.

Little wonder that we have not taken your latest requests seriously.

In anticipation of the instructions I have yet to receive, I would ask that you provide us with comprehensive written evidence of the refinancing arrangements so we can satisfy our client as to the bona fides of any request for a payout figure. I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame.

In relation to the undertakings sought below in your email, you are not entitled to request those undertakings and they will not be forthcoming.

I will respond further once I have had instructions from my client.”

40. On the evening of the same day, Almona’s solicitors responded in the following terms:

“As mentioned in our earlier email, our client has reached an agreement with Mackycorp Pty Ltd and we have been advised that standing behind it is AMB Capital Partners. We are informed that their lawyers, Norton Rose, will by noon tomorrow provide proof of the financial capability to close the transaction.

Any transaction entered into by your client or the receivers in disregard of our requests will be challenged on the basis stated in our earlier emails. Suffice to state that the record will show:

(a) the picture you are trying to paint of our client's previous requests is not accurate;

(b) the number of times that our requests for payout figures have been completely ignored; and

(c) at the time of those requests, our client had an honest expectation that he could obtain the finance to repay the debt subject to knowing the payout figure.

Your email cryptically states that ‘I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame’. Please explain what this means. We trust that this is not another attempt to obfuscate the current status of your client's or the receivers' dealing with the Secured Property to frustrate our client's ability to repay the debt (ie another attempt to clog the equity of redemption).

With respect our client may seek whatever undertakings are reasonable to request to avoid the need to commence legal proceedings, particularly where its [sic] seeks to obtain the equitable relief we have identified. We believe that our undertakings in the context of the relief sought are reasonable and prudent, and clearly designed to avoid unnecessary costs and court time. If you have any specific concerns about any aspect of the undertakings that you consider to be unreasonable or a concern to your client, please advise us what your concerns are.

We look forward to your urgent response.”

41. The transaction with Mackycorp Pty Ltd and AMB Capital Partners was not as certain as the solicitors for Almona would seem to suggest. On 14 March 2016, Mackycorp wrote to Mr Constantine, stating that a company associated with Mackycorp would offer to purchase the property for $65 million and on other terms, including the engagement of Almona to manage the market garden, with Almona having the right to retain the existing residence. It also provided for the parties to that agreement to approach SAP to negotiate the payout sum “which is understood to be no greater than $65 million”. The offer was said to be subject to satisfactory due diligence and board approval.

42. On 15 March 2016 at 1.22pm, the solicitors for Almona emailed Mr Dixon-Smith, attaching a letter from AMB Capital Partners to Mr Constantine indicating that company was prepared to provide finance of $65 million subject to a three week due diligence period, and seeking confirmation from the receivers that they would not enter into or complete the sale of any assets of Almona during that due diligence period.

43. Prior to receipt of that email, Mr Dixon-Smith sent an email to PAG in the following terms:

“I have thought about our action plan this week following our discussion last night and wanted to just map out how I see us proceeding this week. This is a bit long, but this is a complex situation and I wanted to give you a comprehensive action plan to achieve our objectives and cover off a few risks I see…

Settlement:

I propose that we settle the sale ASAP (target say Thursday) on the basis that the existing PAG fund holding the Almona debt provides vendor finance to the purchaser to enable an accelerated settlement. To this end I propose we have Gilbert + Tobin sent [sic] the purchaser notice saying the Investment Committee approved the contract in January 2016 and giving notice requiring settlement in 14 days (as the contract provides). Sending this notice is very important because it makes the contract unconditional and unquestionably shuts down any right that Almona has to refinance the facility. Notwithstanding this formal notice, we would separately agree to settle on Thursday based on amended terms discussed below…

…

Dealing with Con/Almona/Norman Donato

I haven’t replied to Norman’s letter last night, I’ll let the clock tick a bit. This afternoon I’ll send a short reply saying my earlier email was entirely clear and I don’t propose to elaborate, but saying I do not propose to take any action until I receive written confirmation from a financier’s lawyer that funding has been committed, with copies of a binding term sheet, draft financing documents and a realistic timetable for financial close, at which stage I will respond to all parties. Hopefully that takes until Thursday, at which stage I can write to confirm the sale of the property has completed.”

44. Subsequent to the receipt of the email from Almona, Mr Dixon-Smith again emailed PAG. The email attached the letter from AMB Capital Partners and made the following comments:

“Woody and James, as envisaged by you, those involved in the proposed refinancing do actually have the firepower to fund this if Con can make it stack up. The good news is they are asking for 3 weeks exclusive DD to get it done, so any refinancing can’t be closed by the time it is anticipated that the buyer completes the contract. I’ll consider a draft reply and circulate for instructions late today."

45. On 21 March 2016, the solicitors for Almona were informed by Mr Dixon-Smith that the amount outstanding was $70,872,398.57 and a contract for $81.1 million had been exchanged. Basten JA has explained the circumstances in which the contract price was varied to only include that amount rather than the alternative amount if Mr Constantine gave vacant possession.

46. On 22 March 2016, the solicitors for Almona wrote to King & Wood Mallesons and the solicitors for the receivers, stating that whilst Almona had been aware since 18 January 2016 that a caveat had been lodged on the property, it had not been made aware of the details of the contract. The letter stated that Almona would not stand in the way of completion of the transaction.

47. The contract was completed on 22 March 2016.

Was Almona entitled to rely on a collusive arrangement between SAP, Dyldam and Wesco in support of its claim?

48. As Basten JA has pointed out, Wesco reduced its first round bid of $92 million to $79 million in the second round, thus leaving Dyldam as the highest bidder. The essence of the collusion case was that the reduction in the Wesco bid was as a result of collusion between SAP, Dyldam and Wesco, whereby Wesco agreed to reduce its bid in return for an interest in the ultimate purchaser. This essentially was an allegation that SAP, Wesco and Dyldam had fraudulently manipulated the bid process.

49. The first thing to note is that no such allegation was pleaded. The further amended Statement of Claim, filed in court on the first day of the hearing before the primary judge, alleged that SAP breached its duty of good faith essentially by first, failing to respond to requests for information concerning the payout figure, second, failing to advise of the terms of the proposed sale and third, implementing Mr Dixon-Smith’s action plan to which I have referred at [43] above. There was no allegation of collusion to cause the reduction in Wesco’s bid price.

50. Particulars of fraud, breach of duty and unconscionability were supplied on 20 February 2019 and 1 March 2019. As with the further amended Statement of Claim, they made no reference to any collusion with Wesco.

51. The involvement of Wesco was first raised in the particulars supplied on 6 March 2019. It is convenient to set them out in full:

“1.   By reason of commercial arrangements documented either in whole or in part in the Loan Note Subscription Agreement (LNSA), the Parklea Markets Heads of Agreement (HOA) and the Call Option Deed (COD) dated 22 March 2016, Dyldam through its nominees (including the first defendant, Quatro 88 Pty Ltd, Collrea Pty Ltd) and the PAG Group through its nominees (including Lord Business Holdings VI Limited and Lord Business Holdings VIII Limited) and companies associated with Mr Tony Merhi (namely Visy Group Holdings Pty Ltd, Visy Projects Pty Ltd, Wesco Ventures Pty Ltd, Wesco Capital Pty Ltd and Praise Group Pty Ltd) are involved in a joint venture to develop and purchase the Land through their interests in the first defendant or its shareholders.

2.   Those interests are not apparent to third parties who do not have access to the LNSA, POA [sic] and COD.

3.   The plaintiff first obtained access to the COD and the POA [sic] when documents were produced following contests about the Notices to Produce on the evening of Thursday 28 February 2019.

4.   The sale by the second defendant to the first defendant was not an arm's length transaction.

5.   Mr Tony Merhi had through another company controlled by him, Wesco Capital Pty Ltd (Wesco) been the highest first round bidder in the expression of interest process for the sale of the Land conducted by the Receivers of the plaintiff.

6.   At or about the time of the closing of the second round of expressions of interest, Wesco reduced its offer from $92,000,000 to $79,000,000 thereby placing the first defendant in the position that it was the highest bidder in the second round expression of interest process.

7.   At or about that time, arrangements of the nature that came to be reflected in the LNSA, HOA and COD were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi.”

52. These particulars did not expressly refer to an agreement or arrangement with Mr Merhi that Wesco would lower its bid price in return for a company controlled by him obtaining an interest in the property or the proposed development. Whilst some impropriety may be suggested, particularly having regard to the fact that pars (6) and (7) of the particulars are said to be particulars of fraud, no particular fraudulent conduct is specified.

53. Fraud must be pleaded distinctly and with particularity: Banque Commerciale S.A., en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279 at 285, 295; [1990] HCA 279; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 573; [1995] HCA 68. Deliberate manipulation of the bid process to deprive a mortgagor of its right to receive the best price available for the mortgaged property is fraud and requires specific pleading in accordance with these principles. The particulars fell well short of meeting these requirements.

54. 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: Farrar v Farrars Ltd [1888] 40 Ch D 395 at 398, 410; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 273; [1965] HCA 17. However, the discharge of that onus does not, in my view, extend to disproving allegations that have not been made against the mortgagee and the purchaser.

55. In the present case, both Parklea and SAP were entitled to proceed on the basis that the price offered by Dyldam was the best price which emerged from the sale process. In the absence of any allegation of collusion there was no need for them to adduce evidence that there was no collusion with Wesco either jointly by Dyldam and SAP, or by Dyldam with the knowledge of SAP. In these circumstances the challenge to the sale, insofar as relies on collusive conduct between Wesco, Dyldam and/or SAP, has not been made out.

Was the sale in bad faith or a fraud on the mortgagee’s power of sale?

56. The obligation of a mortgagee in the exercise of its power of sale has been expressed in various overlapping ways. Thus, in Farrar v Farrars Ltd Lindley LJ at 411 described that the mortgagee’s obligation was to act bona fide and take reasonable precautions to obtain a proper price. That statement was approved by Griffith CJ (delivering the judgment of the Court) in Barns v Queensland National Bank Ltd (1906) 3 CLR 925 at 942; [1906] HCA 26, who added (at 943) that the power of sale must be exercised honestly for the purposes of the power.

57. In Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9, Griffith CJ (at 680) stated that the obligation was that the mortgagee not recklessly or wilfully sacrifice the interest of the mortgagor, and that if the mortgagee does so he is to be regarded as not having acted in good faith. Barton J (at 694) stated that if the mortgagee confines his attention to his own interests, and sacrifices the mortgagor’s property by doing so, he acts in bad faith, emphasising that the mortgagee only considers his own interest “if he cares no jot whether a fair price be obtained, so only that the price pays his debt”. Isaacs J (at 700) stated that the mortgagee’s power must be exercised bona fide and having regard to the purpose for which it is conferred.

58. In Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20, Walsh J at 493 described the obligation to act in good faith as an obligation to “act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor”. He stated (at 496) that “[w]hat has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor does not necessarily involve … the commission of actual fraud”. In Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; [1978] HCA 21, Jacobs J stated (at 201) that the obligation of the mortgagee once the decision to sell has been made is concerned with a genuine primary desire to obtain the best price obtainable consistently with the right of the mortgagee to realise his security. He also considered that when there is a possible conflict between that desire and a desire that an associate should obtain the 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 should obtain a good bargain. Aickin J, after extensively reviewing the authorities, stated the critical question was whether there was a “truly independent bargain”.

59. In Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15,581, McLelland CJ in Eq (at 15,583) warned against construing and applying particular phrases in judgments “as if embodied in an Act of Parliament”, stating that what matters is whether what occurred was unconscionable.

60. In each of the High Court cases to which I have referred, it was clear that no regard was paid to the interest of the mortgagor. In Barns v Queensland National Bank Ltd, there was evidence the property was sold at a price equal to the amount of the debt, the property was worth more than that price, the sale was inadequately advertised and the reserve price was disclosed prior to the auction.

61. In Pendlebury v Colonial Mutual Life Assurance Society Ltd, farming land the subject of the mortgage was not advertised at all in the local papers, and was sold to a person who knew the reserve and who it was found had no money and could only complete the sale by on-selling the property, which he did at a substantial profit. The sale was not authorised by the board of the respondent,

62. In Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq), the property was sold to a wholly owned subsidiary of the mortgagee at a price slightly higher than the highest bid at an auction, which was found to have been conducted so as to make it virtually impossible for a sale to be effected.

63. In Forsyth v Blundell, the mortgagee arranged for an auction with a reserve of $120,000, the amount of the mortgage debt. Prior to the auction a petroleum company, XL Petroleum Pty Ltd, indicated it would pay $150,000 for the property. Notwithstanding, the mortgagee did not proceed with the auction and sold the property to another petroleum company for the amount of the mortgage debt. It was held to constitute a reckless disregard of the mortgagor’s interest.

64. Finally, in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd, the mortgagee took an assignment of the mortgage at a time when the mortgagor was in substantial default. The mortgagee thereafter listed the property for auction at a reserve price less than it had paid for the assignment of the mortgage, whilst at the same time failing to ensure that those entrusted with the arrangement of the sale so timed and advertised the holding of the auction as best to attract interest on the part of potential buyers. The result was that there was only one genuine bidder, a wholly owned subsidiary of the mortgagee, who acquired the property at a price less than the total amount owing under the first mortgage, leaving nothing for the appellant, the second mortgagee.

65. In the present case, the question of whether the sale was carried out in the absence of good faith and whether the interest of the mortgagor was sacrificed to that of the mortgagee must first be considered at the time of entry into the contract of sale.

66. At the time of the contract of sale, the mortgagor had been in default for a considerable period of time and had been given a number of opportunities to discharge the mortgage. Further, unlike the cases to which I have referred above, no criticism was levelled at the bid process which produced bids well in excess of the valuations obtained by the receivers. Third, as the bidding process must be considered in the absence of any collusion with Wesco, it follows that Dyldam emerged as the highest bidder as a result of a legitimate process which did not sacrifice the interests of Almona.

67. The fact that the purchaser was a company in respect of which the mortgagee had a significant economic interest does not lead to the conclusion that there was a lack of good faith on the part of the mortgagee or a disregard of the interest of the mortgagor. As has been pointed out in a number of the cases to which I have referred above, the mortgagee is not a trustee of the mortgage and its duty is to ensure the interests of the mortgagor are not sacrificed. In my view they were not sacrificed by the entry into the contract of sale.

68. In these circumstances, I do not think the entry into the contract with Parklea could be said to be a fraud on the mortgagee’s power of sale.

69. It remains necessary to consider the events of March 2016. Having regard to my conclusion on the entry into the contract, the initial question is whether the mortgagor’s right of redemption or more accurately, a right to have the mortgage discharged was lost or suspended as a result of the entry into the contract.

70. As at 15 March 2016, the contract remained subject to an unfulfilled condition, namely, notification of Investment Committee approval. However, the condition was a condition subsequent rather than a condition precedent to a binding contract. This is clear from the fact that cl 63(b) expressly stated that completion of the contract was conditional on Investment Committee approval. Thus in March 2016, notwithstanding the fact that the approval had not been confirmed, there was a subsisting binding contract for the sale of the property: see Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 541-543, 551-552; [1982] HCA 29.

71. In Waring (Lord) v London and Manchester Assurance Co Ltd [1935] Ch 310, Crossman J held that it was the entry into the contract to sell the mortgaged property rather than the conveyance which extinguished the mortgagor’s equity of redemption. His Lordship made the following remarks:

“In my judgment, s 101 of that Act, which gives to a mortgagee power to sell the mortgaged property, is perfectly clear, and means that the mortgagee has power to sell out and out, by private contract or by auction, and subsequently to complete by conveyance; and the power to sell is, I think, a power by selling to bind the mortgagor. If that were not so, the extraordinary result would follow that every purchaser from a mortgagee would, in effect, be getting a conditional contract liable at any time to be set aside by the mortgagor's coming in and paying the principal, interest, and costs. Such a result would make it impossible for a mortgagee, in the ordinary course of events, to sell unless he was in a position to promise that completion should take place immediately or on the day after the contract, and there would have to be a rush for completion in order to defeat a possible claim by the mortgagor.

It seems to me impossible seriously to suggest that the mortgagor's equity of redemption remains in force pending completion of the sale by conveyance. The only effect of the conveyance is to put the legal estate entirely in the purchaser: that follows from s 104, sub-s 1, of the Law of Property Act, 1925, which provides that a mortgagee shall have power to convey the legal estate; and the whole legal estate can be conveyed free from all estates, interests, and rights to which the mortgage has priority.”

72. The decision was followed by the English Court of Appeal decision in Property & Bloodstock Ltd v Emerton [1968] Ch 94, a case involving a contract which was conditional upon the mortgagee obtaining the consent of the landlord of the leased premises to the assignment of the lease the subject of the mortgage. The condition was held to be a mere matter of title and the contract was held to be equivalent to an unconditional contract. The decision was also followed by the English Court of Appeal decision in National & Provincial Building Society v Ahmed [1995] 2 EGLR 127, where Millett LJ (as his Lordship then was), with whom Russell and Rose LJJ agreed, made the following remarks at 128:

“Moreover, in law, the fact that sale had been completed was irrelevant. The relevant transaction was the exchange of contract for the sale of the flat to the purchaser which took place on October 11 1994. A mortgagor’s equity of redemption is extinguished when the mortgagee, in the exercise of his statutory power of sale, enters into a contract for sale of the mortgaged property, not when he later completes the sale by conveyance. Even if completion had not taken place, therefore, the defendant no longer had any equity of redemption in the flat at the date of the hearing before the judge.” (citations omitted)

73. Waring was approved by Walsh J in Forsyth v Blundell at 499. However, Mason J (at 511) left open the question of whether the decision was correct.

74. The United Kingdom decisions were approved by Young J (as his Honour then was) in Chia v Rennie (1997) 8 BPR 15,601. His Honour held that the principles in those cases were equally applicable to mortgagee sale of land under the Real Property Act 1900 (NSW).

75. It must be emphasised that the principles only apply to a contract entered into as a result of a valid exercise of the mortgagee’s power of sale. On my view, they do not extend to the actions of the mortgagee and the purchaser in varying the contract by deleting the alternative purchase price if Mr Constantine gave vacant possession.

76. If these principles are correct, they preclude any complaint by Almona against what was in effect the expedition of completion of a valid contract of sale. However, if they are incorrect, I do not think the actions of SAP and Parklea in implementing the action plan was conduct such as to wilfully disregard the interest of the mortgagee and in fraud on the power of sale.

77. Subject to one qualification, SAP and Parklea were entitled to complete the contract at the time of their choosing. The qualification is that a mortgagor in the position of Almona may well be entitled to complain if there was substantial delay in completion leading to an increase in the amount of interest payable. Further, SAP in my opinion was entitled to serve notice of Investment Committee approval, thus causing the contract to become unconditional.

78. It can be readily inferred that the steps taken pursuant to Mr Dixon-Smith’s action plan were designed to protect the purchaser from challenges and frustrate any right Almona may have had to impede the transaction. However, once it is accepted that the contract was validly entered into, it does not seem to me that steps taken to ensure its completion could be said to be in bad faith or in disregard of Almona’s rights. This is particularly so in the present case when Almona was not in a position to tender the amount due under the mortgage but had indicated that it had funds available in an amount less than the amount due and the availability of finance was subject to three weeks’ due diligence. It does not seem to me that SAP was required to delay completion of the contract to wait and see if the finance became available and Almona was able to fund the difference between the $65 million offered and the amount outstanding. Whilst it is true that on 22 March 2016, the solicitors for Almona wrote to Mr Dixon-Smith, enclosing a copy of a letter from AMB Capital Partners which confirmed to Mr Constantine that, subject to due diligence, AMB Capital Partners was prepared to fund the total amount said to be owing, that letter was enclosed in the context of the solicitors for Almona also indicating that they would not stand in the way of the sale being completed.

79. In these circumstances, I agree with the orders proposed by Basten JA.

80. BASTEN JA: The appellant, Almona Pty Ltd (“Almona”), was until 22 March 2016 the registered owner of a large site in western Sydney on which Parklea Markets operated. In 2013 a receiver and manager was appointed to Almona by its then financier, Westpac Banking Corporation. Almona and its principal, Mr Con Constantine, arranged a refinancing facility with a company known as Secured Asset Portfolio III Ltd (“SAP”). SAP was a special purpose vehicle within a group of companies known as Pacific Alliance Group, or PAG. Almona defaulted under the new financing agreement and, in April 2015, a receiver and manager, PPB Advisory Pty Ltd (PPB), was appointed by SAP. PPB appointed Colliers International as their agent for the marketing and sale of the property. Following a process by which expressions of interest were obtained, an agreement was reached to sell the property to the highest bidder, identified as the Dyldam Group. Dyldam’s principal, Mr Sam Fayad, established a special purpose vehicle, Parklea Corporation Pty Ltd, to be the purchaser. Funding for the purchase was organised through other entities within PAG. On 13 January 2016 SAP, as mortgagee exercising a power of sale, entered into a contract to sell the land to Parklea Corporation.

81. The sale price, as originally agreed, was stated to be $85.35 million with vacant possession, or $81.1 million if Mr Constantine remained in possession of the house and curtilage he and his family then occupied. On 22 March 2016, Mr Constantine still being in possession, SAP and Parklea Corporation entered into a deed of variation which reduced the purchase price to $81.1 million. That variation (a reduction of $4.25 million) reflected the alternative price in the contract as payable if Mr Constantine did not vacate the house. Settlement occurred the same day.

82. Some two years and seven months later, on 17 October 2018, Almona filed a summons in the Equity Division (followed by a statement of claim) which sought to set aside the various transactions involved in the sale on grounds of fraud, breach of duty, unconscionable conduct and misleading or deceptive representations on the part of SAP and Parklea Corporation. Following a contested process for the production of documents, the trial commenced on 4 March 2019. It was not completed in the five days allocated and resumed on 29 August 2019. Despite the volume of material involved and the complexity of the issues, the trial judge, Robb J, delivered judgment on 20 December 2019. ^[1]

    1. Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868.

83. In substance, the judge upheld Almona’s claim that there had been a breach of duty on the part of SAP in failing to reveal to Mr Constantine that a higher price would have been obtained by Almona if he vacated the premises prior to settlement. The judge awarded Almona an amount of $4.25 million plus interest on that account. Otherwise Almona’s claims against SAP and Parklea Corporation failed. Further, the judge said he would in any event have declined to set aside the mortgages entered into by Parklea Corporation in relation to the financing of the purchase, which mortgages were registered in the name of PT Ltd, as trustee of the securities. Final orders were entered on 9 June 2020.

84. On 13 July 2020 Almona filed an appeal in this Court. Parklea Corporation filed a cross-appeal challenging the order that it pay $4.25 million plus interest to Almona. SAP sought leave to appeal the refusal of the trial judge to award it costs of the trial.

Overview

85. It is convenient at this stage to explain, by way of an overview, the case run by Almona, both at trial and on the appeal, and note the resolution, both at trial and on appeal.

86. Whilst in control of Almona, Mr Constantine entered into a loan transaction with SAP which provided short term finance to Almona. There was an opportunity to obtain an extension of the credit facility, but subject to conditions. Almona did not satisfy the conditions and, being unable to repay the loan, fell into default. SAP appointed the receiver and manager PPB, which proceeded to conduct a sale of the property

87. At various times during the following year, Mr Constantine (although no longer in control of Almona) attempted to obtain funding to pay the outstanding balance owing by Almona to SAP. The first and primary claim made at trial was that SAP was in breach of its duty as a mortgagee exercising a power of sale to the extent that it failed to facilitate attempts by Almona to repay the loan. Almona maintained that position after SAP issued a notice under s 57(2)(b) of the Real Property Act 1900 (NSW), and the property had been placed on the market, and after the agent had obtained final bids from a number of prospective purchasers. Indeed, Almona continued to maintain its entitlement to recover the property by repaying the debt to SAP after a contract of sale had been entered into with the highest bidder. The claim that SAP was in breach of its duty to Almona as mortgagor by failing to provide payout figures when requested, and halt the settlement of the contract to allow a financier dealing directly with Mr Constantine to conduct due diligence, dominated the pleadings at all stages and much of the argument presented at trial. At least from the time the contract of sale became unconditional (and possibly before that point) Almona’s claim was bound to fail, unless it could demonstrate that SAP was otherwise carrying the sale process in breach of its duty to Almona. That aspect of the case was properly rejected by the trial judge.

88. Secondly, once Mr Constantine became aware of the “occupation condition” in the sale contract, Almona pursued a claim of fraud, unconscionability and misleading or deceptive conduct against both the mortgagee (SAP) and the purchaser (Parklea Corporation) for failing to disclose that the sale contract contained a higher price and a lower price, the higher price being payable if Mr Constantine vacated the house and curtilage he occupied on part of the land. He was not told of that fact until after the contract had been settled and thus Almona failed to obtain the benefit of the higher price. Almona succeeded on that claim at trial and a cross-appeal by Parklea Corporation challenging that part of the judgment must be rejected.

89. The third basis upon which Almona sought to challenge the propriety of the sale process was an allegation, raised belatedly and then only obliquely in particulars to the pleadings, that the highest bidder in the initial round of offers obtained by the selling agent had reduced its final offer so that it was no longer the highest bidder, but ended up with a 20% share of the ownership of Parklea Corporation. The trial judge rejected the oblique allegation of collusive bidding, because it had not been adequately pleaded, nor pleaded in a timely fashion, and because the necessary factual inferences should not be drawn. That decision also should be upheld.

90. Finally, although both parties had some measure of success at trial, the trial judge declined to apportion costs as between Almona, SAP and Parklea Corporation, directing that each party bear its own costs of the trial. Both Almona and SAP challenged that decision. The decision of the trial judge was not shown to be erroneous and Almona’s appeal in that respect should be dismissed, whilst SAP should be refused the leave it required in order to run an appeal limited to costs.

91. It follows that the appeal must be dismissed, the cross-appeal by Parklea Corporation must be dismissed and SAP should be refused leave to appeal with respect to the costs order. The costs of the various proceedings in this Court should follow those events.

Issues raised on appeal

92. Before exploring the factual complexities, it is convenient to note a number of issues arising from the appellant’s claims in this Court. First, some grounds of appeal spoke of a breach of duty on the part of the mortgagee in the exercise of its power of sale; others referred to a “fraudulent exercise” of the power of sale, as if the concepts were interchangeable. ^[2] A number of circumstances were said to give rise either to a breach of duty or to constitute fraud.

    2. See, eg, further amended notice of appeal, filed 17 November 2020, ground 1.

93. Secondly, the orders sought on the appeal included (i) the setting aside of the contract for sale and the registered mortgages which financed the purchase by Parklea Corporation, (ii) the revesting of the land in the appellant and (iii) the taking of accounts as between the appellant and Parklea Corporation and SAP. Conduct which might warrant one form of relief might not warrant another. Fraud will cover a range of different forms of conduct of which some, but not others, may be sufficient for particular purposes, such as setting aside the indefeasible title obtained by registration. ^[3]

    3. J D Heydon, M J Leeming and P J Turner, Meagher, Gummow and Lehane’s Equity – Doctrines and Remedies (5th ed, LexisNexis, 2015) at [12-040] – [12-055].

94. Thirdly, there were two themes underlying the appellant’s claims. The first was that PAG effectively manipulated the sale process by its subsidiary and agent, SAP, and by providing funding to the purchaser, Parklea Corporation, which was set up through an arrangement between PAG and Dyldam Developments Pty Ltd. Dyldam was a developer of land in Australia with which PAG (based in Hong Kong) had an established relationship. SAP was therefore exercising the power of sale in part to protect its own interests and in part to ensure that those controlling it obtained a majority interest in the land for the purpose of profit through development. Secondly, although it was not submitted that the land was sold at an undervalue, it was submitted that (i) a better price might have been obtained and (ii) steps were taken to prevent Almona from refinancing and thereby exercising its right of “redemption”. ^[4] The claims appeared to suggest at least an analogous situation to a mortgagee purchasing the land itself, a course not permitted by the exercise of a power of sale.

    4. This term was loosely used to describe the paying out of the mortgage which, under the Real Property Act, s 74, did not transfer title to the mortgagee.

95. Fourthly, although not expressed in these terms, there were suggestions of fraud on a third party within the fourth category of fraud identified in Earl of Chesterfield v Janssen. ^[5] In that case Lord Hardwicke LC referred to a transaction which was transparent and consensual between the parties, but which involved a clandestine and private agreement between them to the detriment of a third party. Thus, an entity associated with Mr Tony Merhi, Wesco Capital Pty Ltd, lodged an initial expression of interest at $92 million, well above the conditional offer of $85.35 million made by Dyldam. Wesco’s final bid was $79 million. Two other companies controlled by Mr Merhi emerged with a 20% ownership interest in the purchaser, Parklea Corporation. The highest final bid was the original amount offered by Dyldam. The allegation was, in effect, that Mr Fayad and Mr Merhi had colluded to the detriment of Almona.

    5. (1751) 2 Ves Sen 125 at 156; 28 ER 82 at 100.

96. Bearing these considerations in mind, it is convenient to turn to the amended notice of appeal filed on behalf of Almona. The 18 grounds are discursively formulated under a number of headings. The thrust of grounds 1-14 was to identify the basis upon which the judge should have found that SAP acted dishonestly (that is, for an improper purpose) in exercising its power of sale. Thus, in dealing with the “occupation condition”, Almona alleged in ground 6:

“SAP’s intention in not disclosing the Occupation Condition was not to effect the recovery of the money owed to it but to:

(A)   obtain a substantial interest in the property for an entity within the PAG group (of which it formed part);

(B)   exploit the commercial opportunities in the land for the benefit of entities within the PAG group;

(C)   have its joint venture vehicle (Parklea) registered as the purchaser; and

(D)   have Parklea grant a mortgage over the land for the benefit of a PAG group entity to secure the finance from that PAG Group entity to Parklea”. ^[6]

That purpose, Almona submitted, arose no later than 10 December 2015 when PAG and Dyldam entered into a joint venture for Dyldam to purchase the land with finance provided by PAG.

6. Further amended notice of appeal, ground 6(e)(vii).

97. The contract of sale was entered into on 13 January 2016. Logically, the primary grounds related to conduct undertaken before that date. Grounds 7, 8 and 11 addressed the precontractual conduct. Ground 7 commenced with a series of factual propositions (consistent with the findings of the trial judge):

“(a)   the second round of the expression of interest campaign closed on 16 December 2015 …;

(b)   prior to that time, Mr Dixon-Smith (the solicitor for PAG and SAP and their related entities …) held meetings with Mr Qutami (the solicitor for Dyldam and Parklea …) in Hong Kong on 10 [sic – 11?] December 2015 … and engaged in further correspondence to negotiate the terms of SAP's proposed funding of Dyldam's acquisition of the mortgaged land …;

(c)   during those meetings, Dyldam and PAG/SAP had reached an agreement (at least in principle) for a joint venture between them and/or their related entities by which they would jointly profit from the purchase of the land by Dyldam's nominee in which PAG and/or one of its related entities would hold a substantial interest …; and

(d)   the transaction documents giving effect to the Joint Venture discussed on 10 and 11 December 2015 pursuant to which Parklea obtained funding to complete the purchase of the property:

(i)   were first brought into existence on 16 March 2016 as a first draft …, the day after Almona had notified SAP of its intention to enter into a proposed refinancing transaction with AMB Capital Partners …; and

(ii)   were only finally entered into on the date of completion of the sale of the land, namely 22 March 2016…”.

98. In addition, Almona relied upon the fact that the purchase by a Dyldam entity was to be funded by one of two PAG companies, referred to as Lord Business Holdings VI and Lord Business Holdings VIII. These facts, it was alleged, should have led the judge to the conclusion that SAP’s entry into the contract was not “a proper exercise of its mortgagee’s power of sale and undertaken in good faith”.

Wesco’s involvement: onus of proof

333. I agree with Basten JA that there is an available inference that Wesco’s bid was lowered so as to allow Dyldam’s offer to succeed ([219]). That inference arises from the fact that other companies of Visy acquired call options to obtain an economic interest in Parklea.

334. The Chief Justice and Basten JA have quoted the Second Statement of Further Particulars ([51], [235]). Their Honours observe and the primary judge found that those particulars do not allege bid-rigging or fraud involving collusion between SAP, Dyldam and Mr Merhi’s companies. But they do allege matters that raise the suspicion of bid-rigging.

335. It is understandable that bid-rigging was not alleged. Rule 65 of the Legal Profession Uniform Conduct (Barristers) Rules 2015 provides that a barrister must not allege any matter of fact amounting to criminality, fraud or other serious misconduct against any person unless the barrister believes on reasonable grounds that available material by which the allegation could be supported provides a proper basis for it. It is at least doubtful that Almona’s legal representatives would have been entitled to allege fraud where there could have been other explanations for the lowering of the Wesco bid (as Basten JA explains at [219]).

336. Almona did not need to allege fraud in order to throw upon SAP and Parklea the onus of proving the validity of the transaction (Farrar v Farrars Ltd at 409-410; Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1358). As is clear from Farrar v Farrars Ltd, in the passage quoted at [310] above, the burden of proving the validity of a mortgagee’s sale may be thrown not only upon the mortgagee but on the purchaser. That will be so where collusion between the mortgagee and the purchaser is established as it is in this case.

Parklea Corporation did not acquire an indefeasible title

337. It does not follow that because the power of sale was not exercised in good faith that Parklea did not acquire an indefeasible title. It did unless it was registered by fraud (Real Property Act 1900 (NSW), s 42).

338. It should be inferred that Dyldam (and through Dyldam, Parklea) was aware of the facts that showed that SAP was not exercising its power of sale for the purpose for which that power was given but to enable another PAG subsidiary to acquire an 80% economic interest in Parklea. It should also be inferred that Dyldam, and through Dyldam, Parklea, knew that the accelerated steps for settlement arising from the adoption of Mr Dixon-Smith’s Action Plan were for the purpose of preventing Almona’s redeeming the mortgage.

339. I refer again to Mr Dixon-Smith’s Action Plan of 15 March 2016 after he had been provided with a copy of a letter from AMB Capital and had advised that “those involved on the proposed refinancing do actually have the firepower to fund this if Con can make it stack up” (see J [99]).

340. Mr Dixon-Smith’s email of 15 March 2016 is substantially quoted by Basten JA at [178] – [180]. In addition to the matters quoted by Basten JA, Mr Dixon-Smith stated that:

“It is highly desirable that we not only settle SAP, but also get the purchaser registered.”

341. In the passage from the email quoted by Basten JA at [179], it should be noted that Mr Dixon-Smith stated that if the funding were vendor funding from the mortgagee it would have the advantage of making it appear that the funding provided was short-term funding to assist the buyer which could be considered as beneficial to Almona in generating interest income on the sale.

342. On 11 March 2016, Gilbert & Tobin (acting for the receivers) had proposed an extension to the date for receiving PAG’s Investment Committee’s approval to 29 April 2016. That date was varied by a deed executed for SAP on 22 March 2016. The counterpart executed by Parklea Corporation is undated (J [190]). On 11 March 2016 Gilbert & Tobin attached a deed providing for the extension of the sunset date to be executed under the vendor’s power of attorney stating that it had been signed by Mr Fayad (for the purchaser). Mr Dixon-Smith replied on 11 March 2016 saying that he could hand a counterpart to Maddison Marcus (for Parklea). On 11 March the parties were proposing to extend the sunset date to 29 April. But when PAG learned that Almona might be able to redeem the mortgage, it moved with what Almona accurately described as “breakneck speed”. Almona submitted that PAG was determined to ensure that Almona did not impede its transaction with Parklea because it saw great profit potential in the venture. Mr Dixon-Smith’s spreadsheet of 11 December 2015 referred to by Basten JA at [124] calculated net profits for PAG from some unidentified proposed ventures ranging from $40 million to $445.375 million.

343. Almona submitted that PAG set out to ensure that Almona did not impede its transaction through a dishonest scheme.

344. Almona correctly submitted that Mr Dixon-Smith’s Action Plan could only have been implemented with the cooperation of the receivers, Dyldam and Parklea. The essence of Mr Dixon-Smith’s plan was to accelerate completion in order to obtain registration of the transfer to Parklea whilst keeping Almona ignorant of that strategy. I accept Almona’s submission that in the absence of evidence to the contrary, it should be inferred that Parklea through Dyldam knew of all of the essential elements of Mr Dixon-Smith’s Action Plan. That inference can be drawn from the speed with which the plan was activated, which the primary judge described at length.

345. As Almona submitted, in contrast to the speed with which Almona and Parklea moved to completion, Mr Dixon-Smith delayed his response to Almona’s request for a payout figure (most recently repeated on 14 March 2016) until 17 March 2016. His response did not provide a payout figure. Rather, he stated that SAP, together with the receiver, had commenced the preparation of a statement of amounts owing and that information would be available the following week. Mr Dixon-Smith did not disclose that the parties intended to complete the sale contract as soon as possible.

346. The contract between SAP and Parklea Corporation was entered into on 13 January 2016. It included a special condition 61 that provided that the purchase price would be $85.35 million if the residence were not occupied as at completion but would be $81.1 million if the residence were occupied.

347. As part of the arrangements for completion, SAP and Parklea entered into the Second Deed of Variation on 22 March 2016 that provided a substitute contract which specified the price as being $81.1 million and removed the reference to the higher price of $85.35 million which would have been payable if the property were not occupied as at completion. This gave rise to the primary judge’s limited finding of fraud that SAP did not challenge on appeal. I agree with Basten JA that Parklea’s challenge to the primary judge’s finding as to its liability for the amount of $4.25 million plus interest on the basis of its involvement with the fraud should be dismissed.

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.

349. As Almona submitted, the effect of the Second Deed of Variation was to vary the sale contract so as to give it a façade of regularity. It should be inferred that the purpose of the Second Deed of Variation was to disguise from Almona and others the fact that the occupation condition had ever existed.

350. Almona submitted:

3.23 When understood in the light of the foregoing facts, SAP's actions in destroying Almona's registered interest in the Land were motivated, not by any real concern to recover the sums outstanding under the SAP Mortgage, but instead by a commercial opportunity for the PAG Group to acquire a controlling interest in the registered proprietor of the Land (and therefore the Land itself) and to position itself such that it might derive extraordinary profits from the Project, which it intended to undertake and oversee as part of its joint venture with the Dyldam Group. That opportunity was the subject of negotiations prior to the close of the expressions of interest campaign. It was also the subject of the discussions recorded in clauses 2.I and 2.2 of the HOA, which continued up to the date of the transfer of title. In that sense, as in Tse Kwong Lam, the effect of the sale was to ‘[transfer] from [Almona] to [a company effectively controlled by PAG] ... the chance of making a profit which [SAP] could not acquire for [itself].’

3.24 Conscious of the scrutiny to which it was being subjected by Almona during the period of its exercise of its power of sale (a matter demonstrated by the Action Plan), SAP sought to cover its tracks and gloss over matters which on their face would appear unorthodox. The PAG Group did not take any units in the underlying trusts or shares in either Parklea or its subsidiaries, yet achieved the equivalent level of control through the rights and obligations established in the transaction documents that it would have had if it were a majority shareholder or unitholder. To avoid potential scrutiny and to avoid disclosing the prior existence of the Occupation Condition, SAP and Parklea entered into the second deed of variation, on the date of transfer, to omit this clause from the Sale Contract and to replace its front pages (PJ [680]). Finally, when it was apparent that Almona had found a potential financier with the 'firepower’ to complete the refinancing transaction, SAP, with the cooperation of Parklea, drastically accelerated the transfer of title (PJ [204], [238]). The Action Plan reveals that SAP did so for the express purpose of destroying Almona's interest and rights to refinance and to secure for itself the Land through the Joint Venture (PJ [238]).

3.25 When viewed in this light, the primary judge ought to have found that SAP engaged in a fraudulent exercise of its power of sale and resultant transfer of title, which fraud was brought home to Parklea through its participation in its essential integers. The primary judge ought to have approached the fact finding process by drawing inferences from the cumulative strength of the individual facts, rather than by asking whether dishonesty was separately present in each fact (cf PJ [636]). The actions of SAP in pursuing with Dyldam the joint venture, through the vehicle of Parklea, together with its conduct in concealing its involvement in that enterprise and impeding Almona's efforts to refinance, ought properly be characterised as dishonest and fraudulent, whether that be described as ‘a conscious misuse of power’ (PJ [618]), ‘a designed cheating', ‘an underhand scheme’ or a ‘collusive and colourable sale’. Those inferences ought be drawn on the existing evidence. They can be even more comfortably drawn in light of the decision of SAP and Parklea not to call any witnesses to dispel them. The primary judge erred in rejecting the essential core of the underlying narrative to Almona's fraud claim (PJ [640]).”

351. I agree. The steps taken by SAP and Parklea involved more than a mere fraud on a power. They were marked by haste, secrecy, deception and the intention to prevent Almona from redeeming the mortgage. Fraud for the purposes of s 42 of the Real Property Act 1900 (NSW) requires dishonesty, an intention to cheat, or moral turpitude (Assets Co Ltd v Mere Roihi [1905] AC 176; Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101). Just as in Latec Investments Pty Ltd v Hotel Terrigal Pty Ltd, the mortgagee sale in which Parklea knowingly participated was marked by a conscious misuse of the power of sale and constituted fraud within the meaning of s 42. Parklea did not acquire an indefeasible title.

PT’s Mortgage

352. Before considering questions of remedy, it is necessary to consider the position of the second respondent, PT. PT is a professional security trustee. On 22 March 2016 it took mortgages from Parklea of the land. Those mortgages were duly registered. The mortgages secured Parklea’s agreement to pay the “Secured Money” in accordance with the terms of the “Finance Documents”.

353. “Secured Money” was widely defined as including any monies payable or owing to “the Beneficiary”. “Beneficiary” meant the Mortgagee (PT) either for its own account or for the account of a Financier and each Financier. “Financier” had the same meaning as it had in a Loan Note Subscription Agreement dated on or about the date of the mortgage between Parklea, PT and LBH VI (as financier) and others. “Finance Documents” also had the meaning given to that term in the Loan Note Subscription Agreement.

354. In the Loan Note Subscription Agreement there was an elaborate definition of “Finance Documents” that included loan notes to be issued under that agreement. LBH VI was named as “Financier”. Although the agreement was structured in a way that would have accommodated the provision of financial accommodation by multiple financiers, LBH VI was the only named financier. It agreed to provide $84.4 million of financial accommodation to Parklea by subscribing for loan notes to be issued by Parklea. The Loan Note Subscription Agreement was entered into on 22 March 2016.

355. Clause 21.2 provided that LBH VI:

“…irrevocably authorises…the…Security Trustee to:

(a) enter into the Transaction Documents; and

(b) take action on the Financier’s behalf in accordance with this agreement; and

(c) exercise [its] respective rights expressly set out in the Transaction Documents…”

356. Clause 21.4 provided that LBH VI could direct PT to act or not to act in connection with a Transaction Document as it determined.

357. It is at least seriously arguable that PT holds the benefit of the mortgages, not merely as trustee for LBH VI, but as agent for LBH VI.

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.

359. Instead, Almona contended that PT’s interest was defeasible by reason of s 118(1)(d)(ii) of the Real Property Act as explained by the High Court in Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 at [59]-[60] per French CJ, Hayne and Gageler JJ.

360. Section 118(1)(d) of the Real Property Act provides:

(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows--

…

(d) proceedings brought by a person deprived of land by fraud against--

(i) a person who has been registered as proprietor of the land through fraud, or

(ii) a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud,

361. Section 45 of the Real Property Act relevantly provides:

45 Bona fide purchasers and mortgagees protected in relation to fraudulent and other transactions

(1) Except to the extent to which this Act otherwise expressly provides, nothing in this Act is to be construed so as to deprive any purchaser or mortgagee bona fide for valuable consideration of any estate or interest in land under the provisions of this Act in respect of which the person is the registered proprietor.

(2) Despite any other provision of this Act, proceedings for the recovery of damages, or for the possession or recovery of land, do not lie against a purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act merely because the vendor or mortgagor of the land--

(a) may have been registered as proprietor through fraud or error, or by means of a void or voidable instrument, or

(b) may have procured the registration of the relevant transfer or mortgage to the purchaser or mortgagee through fraud or error, or by means of a void or voidable instrument, or

(c) may have derived his or her right to registration as proprietor from or through a person who has been registered as proprietor through fraud or error, or by means of a void or voidable instrument.

362. In Cassegrain v Gerard Cassegrain & Co Pty Ltd, French CJ, Hayne, Bell and Gageler JJ said:

“[59] …Neither s 118 generally nor s 118(1)(d)(ii) in particular should be read as directed only to fraud in the process of registration. Exactly what would fall within fraud ‘in the process’ of registration may be open to debate. But it is not a debate that need be had, because s 118 should be construed in a way which is consonant with the operation of s 42(1). In particular, s 118 must not be read in a way which would preclude action to recover the land in a case where the fraud exception to s 42(1) applies. Hence, the reference in s 118(1)(d)(i) to proceedings brought by a person deprived of land by fraud against a person who has been registered as proprietor of the land through fraud must be read as embracing every kind of fraud which falls within the relevant exception to s 42(1). If actual fraud is brought home to the registered proprietor, s 118(1)(d)(i) is engaged and the general bar to proceedings for the possession or recovery of land against that registered proprietor is lifted.

[60] Conversely, but equally importantly, if the fraud exception to s 42(1) does not apply to the person who is registered as proprietor, the general bar to proceedings for the possession or recovery of land against the registered proprietor will apply and the exception provided by s 118(1)(d)(i) will not be engaged. That is, the exception for which s 118(1)(d)(i) provides does not diminish the protection given by s 42(1). It does not enlarge the rights which a person deprived of land by fraud has against the registered proprietor.

[61] By contrast, the exception provided by s 118(1)(d)(ii) does enlarge the rights which a person deprived of land by fraud has against a registered proprietor. Unless the registered proprietor is a transferee bona fide for valuable consideration, a person deprived of land by fraud may bring proceedings for the possession or recovery of the land against a person deriving from or through a person registered as proprietor of the land through fraud. But as with s 118(1)(d)(i), the expression ‘registered as proprietor of the land through fraud’ must be read in a manner consonant with s 42(1).”

363. Without deciding the issue, the primary judge expressed a preference for the view that a liberal interpretation should be given to the expression “proceedings for the … recovery of land” in s 118(1)(d)(ii) so that the section applied to a proceeding to establish that the plaintiff was entitled to a re-transfer of the title to the land free of a registered mortgage if the mortgage were obtained otherwise than bona fide for valuable consideration from or through a person registered as proprietor of the land through fraud ([906]). PT submitted that this construction was erroneous. It submitted that the language of “recovery” is inapt to describe Almona’s claim to set aside the PT mortgage.

364. PT contended that the primary judge ought to have found that Almona’s claim was not a proceeding for the possession or recovery of land within the meaning of s 118(1) of the Real Property Act. Almona’s claim against Parklea was undoubtedly a claim for the recovery of land as it sought orders setting aside the sale and for re-transfer of the property from Parklea to it, but that was not the nature of its proceeding against PT. “Land” is defined in s 3 as meaning land and any estate or interest therein. PT submitted that the proceeding against it was neither for the recovery or possession of land nor for the recovery of PT’s estate or interest in the land. There is no dispute that PT’s mortgages, that operate as a statutory charge, are an estate or interest in the land (Provident Capital Ltd v Printy [2008] NSWCA 131; (2008) 13 BPR 25, 199 at [23]-[27]).

363. By ground 2 of the notice of contention, PT submitted that proceedings permitted by s 118(1)(d)(ii) require an identity between the interests sought to be recovered and the interest of the registered proprietor against whom the proceedings are brought. It submitted that the interest in the land sought to be recovered by the appellant being the fee simple was not the interest of PT being the registered mortgagee.

364. The use of the definite article (“the registered proprietor of the land”) in the chapeau to s 118(1) shows that “land” in the chapeau has the same sense on both occasions on which it is used. If the proceedings are proceedings for the recovery of land in the physical sense, then the “registered proprietor of the land” is not the mortgagee who holds an estate or interest in the land but the registered proprietor of the land, in this case Parklea. In the present case, proceedings are also brought against PT as the registered mortgagee of the land. Although PT is a registered proprietor of an estate or interest in the land, the proceedings against it are not for the possession or recovery of the physical land, nor for possession or recovery of the mortgage estate or interest. I would uphold grounds 1 and 2 of the notice of contention.

365. It is therefore unnecessary to decide whether PT derives its interest as mortgagee as a transferee from Parklea bona fide for valuable consideration. Almona contended that PT was not a transferee and therefore did not fall within the bracketed words in s 118(1)(d)(ii). I agree. PT did not take a transfer of any estate or interest of Parklea. That is consistent with the proceeding against PT not being one for the possession or recovery of land from it. As this court said in Sahab Holdings Pty Ltd v Registrar General (No 2) [2012] NSWCA 42; (2012) 16 BPR 30, 353 at [32]:

“…s 118(1)(d)(ii) permits an action for repossession or recovery of land to be brought against a registered proprietor to whom someone, who themselves became registered through fraud, has transferred the land (not being a transferee bona fide for valuable consideration) and whether by way of testamentary devise or by a gift inter vivos. The action for repossession or recovery can be brought even though the donee from the fraudster acquires his or her own title by registration.”

368. In any event PT is entitled to the protection of s 45. There is no issue as to PT’s bona fides. Almona did not allege that LBH VI did not act bona fide. It disputed that PT was a mortgagee for valuable consideration within the meaning of either s 45 or s 118(1)(d)(ii). In my view the mortgage was given for valuable consideration. That consideration consisted of the monies advanced by LBH VI on security of the mortgage. The primary judge considered that it would be necessary to identify a consideration provided by PT to Parklea for the grant of the mortgage and considered that on the basis on which the matter had been argued, it was not open to his Honour to base his judgment on an interpretation of the sections that allowed value to be provided by a party other than the holder of the title (J [913] and [914]). His Honour concluded that PT provided valuable consideration to Parklea by its fee agreement with Parklea whereby PT agreed to undertake potentially onerous responsibilities as security trustee set out in the Loan Notes Subscription Agreement (J [919]).

369. The fee agreement between PT and Parklea provided for Parklea to pay an establishment fee of $10,000 and an annual fee of 0.01% of the outstanding debt balance at the beginning of each fee period. PT undertook to hold and deal with the security for the benefit of the beneficiaries and to undertake the responsibilities of the Security Trustee as set out in the Finance Document.

370. The primary judge held:

“[919] By means of its fee agreement with Parklea, PT agreed to hold the PT Mortgages on trust for the identified beneficiaries, and to deal with the mortgages for their benefit. PT also agreed to undertake the potentially onerous responsibilities of the Security Trustee set out in the Loan Notes Subscription Agreement. The obligations that PT assumed were not the obligations of a trustee created by the fee agreement. They were obligations accepted by PT at the request of Parklea, as a party who could only achieve the benefit of the financial accommodation if PT agreed with it to accept those obligations.

[920] It is trite law that consideration may take the form of a benefit bestowed by the promisee on the promisor. The effect of PT assuming the obligations to Parklea created by the fee agreement was that it enabled Parklea to satisfy the pre-condition in the Loan Notes Subscription Agreement to the obligation upon Lord VI to subscribe for any Loan Notes issued by Parklea. PT conferred that benefit on Parklea partially in return for the grant of the PT Mortgages to PT, as that step was necessary to enable PT to perform the duties necessary to enable it to earn its fees. In my view, PT did provide valuable consideration to Parklea for the grant of the PT Mortgages, notwithstanding that it was Lord VI who ultimately became bound to provide the financial accommodation to Parklea. That consideration took the form, first, of the obligations assumed by PT under the fee agreement, which were commercial and not trustee obligations as between PT and Parklea. Secondly, in accepting the grant of the PT Mortgages, and the obligations that arose out of its role of Security Trustee, PT enabled Parklea to satisfy the essential pre-condition to its receipt of the financial accommodation from Lord VI.”

371. Even if valuable consideration for the PT mortgages were not given by the advances made by LBH VI to Parklea, I agree with the primary judge, for the reasons his Honour gave, that valuable consideration was given by PT itself by its agreeing to assume the position of security trustee and undertaking the duties which it assumed.

372. Almona submitted that the PT mortgages were only indefeasible to the extent they secured consideration that PT provided for its becoming the registered mortgagee. That submission was rightly rejected. In the absence of a claim that the mortgage was defeasible for fraud, it was indefeasible for the debts that it was expressed to secure. The primary judge noted that at the time of the hearing it was said that PT’s mortgages secured a debt of the magnitude of about $158 million (J [841]). As his Honour said, it is unlikely that there would be any benefit to Almona to recover the land from Parklea if PT’s mortgages nonetheless secured a debt of that magnitude.

373. Almona submitted that it would be an odd result if parties involved in a fraud could avoid a consequence of that fraud by the interposition of a nominee as registered mortgagee. That is true. But the submission assumes that a mortgage registered in the name of the nominee could not be set aside on the ground of fraud by the principal for whom the nominee held the mortgage. That assumption is not self-evident. It is at least equally incongruous that a lender or lenders guilty of no fraud should lose the benefit of indefeasibility because they placed the mortgage in the name of a security trustee who holds the mortgage on trust for them if the security trustee itself does not provide consideration to the mortgagor for the mortgage.

374. It is at least seriously arguable 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.

Remedy

375. Almona sought declarations that SAP breached its duties as mortgagee in the exercise of its power of sale, that Parklea was an accessory to those breaches, that the registration of Parklea as registered proprietor was procured by fraud and that Parklea was an accessory to that fraud. Those declarations should be made.

376. Almona also sought an order that the contract for sale and the transfer of the land by SAP to Parklea should be set aside. It sought the taking of accounts in which there would be an inquiry into the amount payable by it pursuant to the mortgage (this is on the assumption that on the setting aside of the contract of sale, the mortgage debt would be reinstated), and that on the taking of accounts there be an allowance for damages or equitable compensation payable by either SAP or Parklea to it. Presumably on the taking of accounts, if the contract of sale were set aside, account would also need to be taken of the rents and profits received by Parklea Corporation since 2016 and allowance would need to be made for improvements made by Parklea and for expenditure towards the obtaining of whatever development approvals have been sought or obtained, that may have improved the value of the land.

377. The primary judge did not rule on Parklea’s submission that an order setting aside the transfer is barred by Almona’s laches. Almona did not commence proceedings until 17 October 2018. His Honour observed that neither party had satisfactorily addressed the issue of laches.

378. Apart from the unresolved issue of laches it appears unlikely that the sale would be set aside where third parties’ rights will have intervened, and where the mortgage debt to LBH VI which remains secured over the land is in the order of $158 million or more. That debt would not be discharged except, presumably, to the extent Almona was required to discharge its liability to SAP in order to obtain a re-transfer of the property.

379. That does not mean that Almona is necessarily without remedy. It claimed damages or equitable compensation in the taking of an account.

380. In Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440, this court held that an account is the appropriate form of relief where a mortgagee is alleged to have sold the mortgaged property at an undervalue or otherwise in breach of its duty (at [41]). Whether the claim be properly characterised as one for equitable compensation or damages need not be determined now (Commonwealth Bank of Australia v Hadfield at [36]-[40], [45]-[46], [63]-[64]). On the inquiry on the taking of accounts it will be open to Almona to investigate the circumstances in which Wesco reduced its offer and to investigate whether $85.35 million was a true market price. It may be open to Almona to argue that even if $85.35 million were a fair market price, that did not represent the real value of the land (Potts v Miller (1940) 64 CLR 282 at 299-300) or the value of the land to it. Whether it would be entitled to compensation for any such additional value over the market price, where SAP was entitled to sell as mortgagee, could depend on whether Almona could have redeemed the mortgage if SAP had not been determined to sell to an associate. These are issues that could only be determined on an inquiry.

381. Although it seems unlikely that Almona would press its claim for a re-transfer of the property which remains subject to PT’s mortgages, Almona should be given the opportunity to make submissions on that question. If Almona persists in seeking that order the proceedings will in any event need to be remitted in order for Parklea’s defence of laches to be determined.

382. The orders I would make are:

1. Appeal allowed in part.

2. Direct the parties within 21 days to provide written submission as to the orders they contend should be made consistently with these reasons, including as to costs.

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Endnotes

Decision last updated: 11 August 2021