Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd

[1978] HCA 21

HIGH COURT OF AUSTRALIA

Stephen, Jacobs and Aickin JJ.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD. v. BANGADILLY PASTORAL CO. PTY. LTD.

(1978) 139 CLR 195

1 June 1978

Mortgage

Mortgage—Sale by assignee of mortgage—Assignee and purchaser controlled by same persons—Lack of independent bargain—Failure to seek higher price known to be available—Sale at auction—Duties of assignee—Proof of bona fides.

Decisions

1978, June 1.
The following written judgments were delivered: -
STEPHEN J. In his reasons for judgment my brother Aickin, after recounting the facts and identifying and analyzing the findings of fact of the learned trial judge, concludes that, for the several reasons which he gives, the sale of the Bangadilly property by Halco Products Pty. Ltd. (Halco), as first mortgagee, to Bangadilly Pastoral Co. Pty. Ltd. must be set aside. Jacobs J. has expressed his agreement with those conclusions, adding to them certain observations of his own. (at p199)

2. I agree with the conclusion expressed by Aickin J. and with his reasons for that conclusion, as I do with the additional observations of Jacobs J. (at p199)

3. It must be seldom that a mortgagee enters upon his role bereft of any belief that he will derive income from his investment in the form of interest on the mortgage debt. Yet this was Halco's position: it acquired a mortgage by transfer from the first mortgagee at a time when, to its knowledge, the mortgagor was already in default under the mortgage and was in serious financial difficulties, its parent company being in receivership. (at p200)

4. In these circumstances it is not surprising that from the start Halco had, at the very least, an expectation and perhaps the firm intention, of almost immediately having recourse to its power of sale. Rather, what at first seems surprising is that Halco should ever have wished to acquire such a mortgage as this, particularly since it paid for it the full amount of the first mortgage debt plus interest to date, almost $280,000, a sum which also necessarily represented the most that Halco could possibly recover for itself on a mortgagee's sale. (at p200)

5. Not only did Halco thus enter into a transaction which could show it no profit, it also went close to ensuring that it would suffer a loss: very soon after acquiring the first mortgage, it fixed as its reserve price on the auction of the mortgaged property the sum of $250,000, some $30,000 less than it had just paid for the mortgage, while at the same time it failed to ensure that those entrusted with arrangements so timed and advertised the holding of the auction as best to attract interest on the part of potential buyers. The outcome was perhaps predictable: there seems to have been only one genuine bidder at the auction and the property realized only $265,000, showing an apparent loss to Halco, as first mortgagee, of some $15,000 plus costs and expenses and of course leaving nothing for the second mortgagee, the present appellant. (at p200)

6. Halco's whole course of conduct is difficult to explain unless it be that, in acquiring the mortgage and then selling the mortgaged property, it was seeking some collateral advantage, being actuated by considerations extraneous to the relationship of mortgagee and mortgagor. In the situation which Halco had created only the buyer at auction was likely to profit; he might have the opportunity of buying for less than the property was worth, and this at the expense of all those interested in the mortgaged property, including not only Halco but also the second mortgagee. (at p200)

7. The purchaser at auction in fact proved to be a company controlled by those who also controlled Halco. Its name had, conveniently enough, been changed to Bangadilly Pastoral Co. Pty. Ltd. a few days before the auction, as if in anticipation of its successful bid for the property. (at p200)

8. In the circumstances of this case, which are here described only in their barest outline and which are fully dealt with in the reasons of my brother Aickin, it would be surprising if the law were to permit this sale to stand. That it does not in fact do so, and the reasons why it does not, appear from the judgments of my brothers in this case. (at p200)

9. I would allow this appeal. (at p201)

JACOBS J. The facts have been fully stated and analysed by Aickin J. in his reasons for judgment which I have had the advantage of reading. I agree with that analysis and with his reasons for concluding that the sale cannot be allowed to stand. There is very little that I wish to add. (at p201)

2. It appears to me on a close reading of the judgment of the trial judge that he makes an underlying assumption that the Halls were justified in directing their actions with a primary purpose of "extracting themselves from the mess that Talga's collapse had got them into" (to use his own description) provided that they took steps which in the normal course of a transaction at arm's length could or even would be regarded as sufficient to sustain the validity of a mortgagee's sale, and that provided those steps were taken, a plan to sell and acquire at an undervalue or other elements of planning, deceptiveness, collusion or underhand exercise of the power would need to be shown before a mortgagee company selling to a company as closely associated with it as was the purchaser company in this case could be said to lack bona fides. He concluded:
"I am satisfied on the whole of the evidence that the sale was a bona fide exercise of the power of sale by the mortgagee in the sense that it was not planned and executed in the way suggested by the plaintiff, and that the purchase of the property by Bangadilly Pastoral Co. did not result from any improper activity or as the result of any plan designed to bring about that result and executed in a way that was calculated to do so. On this aspect of the case the plaintiff is not entitled to any relief." (at p201)

3. In my opinion the trial judge placed too much emphasis on a need for conscious planning, deceptiveness, collusion and underhand exercise of the power before he felt himself able to find that the sale lacked bona fides. It is true that bona fides in this connexion is not concerned with the motive for exercising the power of sale but, once the decision to sell has been made, it is concerned with a genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realize his security. At the same time the mortgagee is concerned with his own interests and not with the interests of the mortgagor or subsequent incumbrancers, and therefore a wide latitude has been allowed to him in his manner of exercising his power of sale. However, 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. When those circumstances exist it may not be sufficient that steps are taken in the conduct of the sale which would suffice to support the validity of the sale when there was no conflict of interest. The steps taken or not taken in the conduct of the sale cannot be considered separately from the conflict of interest. Although conscious planning, deceptiveness or collusion to prefer the close associate would be conclusive of a lack of bona fides, it does not follow that a failure to conclude that any of these elements were present leads to a conclusion that the sale was bona fide unless it would be otherwise invalid even if no conflict of interest were present. The inevitable conflict of interest which arises on a sale to a close associate may be not only consciously but also unconsciously resolved in favour of the associate. The closer the association, the greater the conflict and the greater the possibility of unconscious preference. For this reason, if certain associations are found to exist, e.g. where the purchaser is trustee for the mortgagee, the sale cannot be allowed to stand in any circumstances. (at p202)

4. I am prepared to assume that in some circumstances not easily conceivable a sale by a mortgagee to a company as closely associated with that mortgagee as was the purchaser company in the present case might be a sale which could be allowed to stand. But before that could be so, it would need to appear from the objective facts that there was no shortcoming in the courses followed by the mortgagee or those acting on its behalf. (at p202)

5. When I look at objective facts all found by the trial judge and expressed in his reasons for judgment I find myself quite unable to conclude that there was no shortcoming or that the mortgagee clearly preferred the obtaining of the best price on realization of its security over any desire that the closely associated company should purchase at a price favourable to it. I shall set out some of those facts:
(1) There was no local advertising of the proposed auction sale, virtually no Sydney or Melbourne advertising, and the sale was held in Sydney. The lead time was minimal.
(2) The appellant, the second mortgagee, was not informed that the auction sale was to take place.
(3) The date of the auction was not a desirable time to hold this kind of auction sale. (The trial judge's acceptance of evidence that the urgency was that post-Christmas delay would involve the Halls in more emotional strain and upset and his implicit conclusion therefrom that this finding went some way to support rather than deny the validity of the sale illustrates the error in approach which in my view underlies his reasons.)
(4) The respondent purchaser determined first to bid up to $265,000 at the auction. On the day of the sale it determined to bid up to $303,600. Just before the sale the mortgagee notified the auctioneer of a reserve price of $250,000. These decisions were all made by the same persons. (at p203)

6. Now these things happened against a background which, for this purpose taking only actual findings of the trial judge, was as follows:
(a) "The respondents acted to protect their investment" (that is, the purchase money of $200,000 paid on account) "and their possession" (that is, their licence to occupy the property beneficially or use it for grazing of their livestock) "in setting out to acquire the first mortgage".
(b) "The decision to acquire the mortgage was in the nature of a rescue operation." (c) "The possibility of exercising the power of sale and by so doing of acquiring a property was an inducement to . . . making the decision to acquire the mortgage." (d) "Naturally the Hall interests were anxious to acquire the property at the mortgagee's sale if they could." Against this background which shows a conflict of interests even greater than in other circumstances might exist from the mere fact that the mortgagee and purchaser companies were associated through common directorship and shareholding, the bare facts which I have stated are sufficient in themselves to lead to a conclusion that the sale cannot be allowed to stand. (at p203)

7. I would allow the appeal. (at p203)

AICKIN J. This is an appeal from a decision of Helsham J. in the Equity Division of the Supreme Court of New South Wales in which he dismissed proceedings in which the appellant ("the Bank") sought to set aside the sale of a station property called Bangadilly by a first mortgagee (the second respondent Halco Products Pty. Ltd. ("Halco Products")) to the first respondent, Bangadilly Pastoral Co. Pty. Ltd. ("Bangadilly Pastoral"), the Bank being a second mortgagee. (at p203)

2. The circumstances out of which the proceedings arose involve a number of steps and it is convenient to begin by summarizing the sequence of such events as are not in dispute. In late 1972 Bangadilly was owned by Glenthorne Pty. Ltd. ("Glenthorne") which by contract dated 1st December 1972 agreed to sell the property to Talga Pastoral Co. Pty. Ltd. ("Talga Pastoral Co.") for the sum of $449,235. That sale was completed on 11th February 1973. Talga Pastoral Co. gave a mortgage back to Glenthorne for a sum of $342,000 to secure the balance of the purchase money. At some unspecified date thereafter Talga Pastoral Co. acquired a neighbouring property known as "Nandi" (at p204)

3. Talga Pastoral Co. was a subsidiary of Talga Ltd. ("Talga"), a public company, and on 13th November 1973 Talga, Talga Pastoral Co. and other associated companies executed a form of cross-guarantee, by which each of them guaranteed the indebtedness of each of the others to the Bank. On 8th January 1974 Talga Pastoral Co. gave a second mortgage to the Bank over that part of Bangadilly which was under the provisions of the Real Property Act, and on 20th February 1974 of that part held under old system title, to secure its indebtedness to the Bank. (at p204)

4. In early 1974 Talga Pastoral Co. decided to sell both Bangadilly and Nandi and put them up for auction on 15th March 1974 as a single property, comprising in all some 6,000 acres. They were not sold at the auction but were passed in after only one bid of $100 per acre was made, that bid having apparently been made by the vendor. That auction was held at Moss Vale and had been preceded by substantial press advertising and distribution of brochures at a cost of $2,150.25. AMr. and Mrs. Hall had attended the auction and were interested in purchasing Bangadilly but they did not bid. They were interested in purchasing a property to replace one in Victoria which they or a company which they controlled had sold or were about to sell and from which stock and equipment would have to be removed. After the auction Mr. and Mrs. Hall entered into negotiations with Talga Pastoral Co. for the purchase of Bangadilly and agreed in about the first week of April to pay the price which Talga Pastoral Co. asked, namely $500,000. This oral arrangement was not immediately reduced to writing and the detailed terms of that agreement (if there were any other than the price) do not appear. By the time a written contract was prepared and exchanged (11th June 1974) an arrangement had been made to reduce the price to $470,000, and the terms then agreed upon required a deposit of $50,000 to be paid on 28th June, but to be deposited in a joint account at the time of the exchange of executed contracts. The terms required a further amount of $150,000 to be payable on 28th June, with the balance on completion on or before 15th August 1974. At the same time as the execution of the contract a licence agreement was executed which gave the purchaser the right to move stock and equipment onto the property immediately. The purchaser under this contract was a company called Hall Investments Pty. Ltd. ("Hall Investments"), of which Mr. and Mrs. Hall were the only directors and the only shareholders. In relation to the negotiation of and entry into that contract a solicitor named Thomson acted both for Hall Investments and for Mr. and Mrs. Hall and had advised them on the contract. (at p205)

5. One of the terms of the contract was special condition (7) which provided that: "The purchaser shall not be entitled to require the vendor to register prior to settlement a discharge of any mortgage affecting the property but will accept on settlement a properly executed discharge of such mortgage as regards the Block hereby sold together with the appropriate registration fee." At that time there were two mortgages, namely the first mortgage to Glenthorne and the second mortgage to the Bank. Whether or not Thomson, Mr. or Mrs. Hall or Hall Investments were aware of these mortgages does not directly appear. On 28th June 1974 the deposit of $50,000 was paid over to the solicitors acting for Talga Pastoral Co. as vendor, together with the payment of $150,000 then due. No steps were taken by Thomson to ensure that these moneys were applied in discharge of or towards the discharge of one or other of the mortgages. Hall Investments evidently entered into possession at that time, but it appears that stock and plant had been moved onto the property at some stage between 11th June and 28th June. (at p205)

6. Prior to the settlement with Hall Investments Talga Pastoral Co. had sold the Nandi property by a contract dated 22nd May 1974 for the sum of $246,500. (at p205)

7. Talga Pastoral Co. did not complete the contract for the sale of Bangadilly to Hall Investments on the due date of 15th August 1974 or thereafter and it is apparent that by that time both it and its parent company must have been in serious financial difficulties. Although the date of the appointment of the receivers of the parent company, Talga, does not precisely appear it is clear that it was at latest by some time in September. The amount of the debt due by Talga Pastoral Co. under the cross-guarantee to the Bank at 28th June or 15th August does not appear, but by 18th October it was $547,000. It is however obvious that both in mid-August and throughout September Talga Pastoral Co. was unable to give a clear title to Hall Investments. On 23rd September the receivers of Talga informed Thomson that they did not propose to become involved in the affairs of Talga Pastoral Co. Thomson said that that information was no surprise to him. In truth that was a clear indication that the receivers' view was that there would be no surplus after payment of its debts. On 1st October 1974 the solicitors for Talga Pastoral Co. wrote a letter to Thomson which stated (inter alia), "We are instructed that there are insufficient funds coming from the balance of purchase money and other funds available to our client to attend to this discharge." (at p206)

8. On 3rd October Thomson wrote to the solicitors for Talga Pastoral Co. stating that the Bank required $140,000 to settle and that the matter would be placed in the hands of the fraud squad. It does not appear at what stage or from whom he had obtained the figure of $140,000. There was no evidence that he had obtained it from the Bank. (at p206)

9. On 4th October (some seven weeks after default) Thomson instituted proceedings on behalf of Hall Investments against Talga Pastoral Co. seeking specific performance of the contract. It does not expressly appear when the financial difficulties of Talga Pastoral Co. became known to Mr. and Mrs. Hall or to Thomson but it must have been clear to them on 15th August that there were difficulties. Moreover failure to settle on that date or thereafter during August and September must have indicated that Talga Pastoral Co. was in substantial financial trouble. It would be unreal to suppose that it was not until six or seven weeks after settlement date that Thomson, the Halls and Hall Investments realized that Talga Pastoral Co. was unable to settle and unlikely ever to be able to settle. The trial judge said that it was hoped that Talga Pastoral Co. might be able to settle but rightly adds, "Though that must have been a pretty forlorn sort of hope". The Halls and Thomson must have been well aware of that. (at p206)

10. On 10th October Thomson informed the solicitor for Glenthorne, the first mortgagee, that it would be paid out in full. It does not appear at what date the decision to acquire the mortgage was made but it seems probable that it was at some stage between 3rd and 10th October. (at p206)

11. On 11th October there was a meeting in Thomson's office, attended by Thomson, Mr. and Mrs. Hall and their accountant, one Pritchard. During the meeting on that day Thomson made a note and it is necessary to set out that note in full:

"Harold Thackeray 11.10.74 1) Instruct Dyson Austen to put up for pub. auction. 2) Advertise - local - Sydney - pastoral press - Melb. Compare previous advertisement. 3) Time 5 weeks - mid week - advertise weekly - 4) Place of sale - Moss Vale 5) C/s available - few days before auction. 6) Inspections by appointment - manager points out bad points. Query whether mortgagee sale? N.B. other advertising

Date of prior sale &brochure."

There was some controversy as to the date of that document and the meeting but the trial judge found that the document was prepared on the date it bore, and that the meeting occurred on that day. Thomson said in evidence that he had no experience of auctions of country property and that the programme set out in that note was obtained by him from Thackeray. Thackeray was a partner in the firm of Dyson, Austen &Co., real estate agents. He was already known to Thomson. Thomson and Hall both said that they had no recollection of that meeting, of why it was arranged or what took place. Neither Mrs. Hall nor Pritchard were called. Thackeray said that he had no conversation with Thomson at that time and had not supplied the programme recorded. (at p207)

12. On 14th October Thomson wrote to the solicitors for Glenthorne sending for their approval the appropriate documents for the transfer of the first mortgage to Halco Products Pty. Ltd. (Halco Products") and indicating that he had estimated the amount payable, being the full amount of the first mortgage debt and interest to that date, and requested that a time for settlement be appointed. Halco Products was a company with an issued capital of $270 divided into one hundred and thirty-five shares of $2 each. Mr. and Mrs. Hall were the only directors. Its shares were divided into a number of classes-Mr. Hall held ninety-four A Class shares and Mrs. Hall one A Class share. Mr. and Mrs. Hall jointly held five B Class shares and Five D Class shares. Mrs. Hall also held twenty C Class shares, each of the two children of Mr. and Mrs. Hall held five E Class shares. When the shares were issued does not directly appear, but the annual return as at 31st December 1974 indicates that there had been no change in the shareholding during the twelve months ending 31st December 1974. Halco Products was accordingly controlled by Mr. and Mrs. Hall. (at p208)

13. On 16th October Mr. and Mrs. Hall visited their bank manager who made a note of the interview as follows:
"Mr. &Mrs. Hall called today to advise us the position in relation to the purchase of the Bangadilly property. On the recommendation of their barrister it appears that they will purchase the first mortgage of $273,600 plus interest say $5,400 and stamp duties say $7,000 total $286,000 and then offer the place at auction in terms of their security. They believe that they will probably be the only bidders and they should purchase at say $300/325,000. This means they could lose $50,000 initially and they would then have to sue to obtain repayment of the $200,000 originally paid."
Mr. Hall said that he had no recollection of the interview or of what was said, or indeed of the purpose of his and his wife's visit to their bank. He did however say that he had informed the bank manager that Thomson was insured for only $100,000. Neither Mrs. Hall nor the bank manager were called. (at p208)

14. The acquisition of the first mortgage was settled on 18th October. That was also the day on which the proceedings in the Equity Court came on for hearing. On a date which is not specifically ascertained but which must be shortly prior to 18th October 1974 Thomson made a handwritten note in respect of the settlement of the purchase of the first mortgage, a portion of which reads as follows: "Buy first mortgage - $280,000 - sell by auction" and there is also shown on that note the precise figure required for settlement of the first mortgage on purchase, namely, $279,491.76. (at p208)

15. Thomson was cross-examined as to the purpose of the acquisition of the first mortgage and I set out the relevant portions of his evidence. Exhibit KK referred to in the following extract is a note made by Thomson which is quoted in the preceding paragraph.

"Q. Wasn't it part of the plan for the acquisition of this mortgage that Halco Products Pty.Ltd. would proceed at an early date to exercise its power of sale? A. It might have been part of it but the main reason was the acquisition of the mortgage to protect the Halls who were in terrible difficulties. HIS HONOUR: Q. That may have been the main reason but Mr. Handley is asking you about the plan and the plan may have had a main reason and subsidiary reasons? A. Yes, your Honour. Q. Was it not the plan that the mortgage would be paid and that the property would then be sold? A. I think your Honour, the answer to that would be that the rights would be available to do this. MR.HANDLEY: Q. I think you may take it, Mr. Thomson, that everybody in court is aware of the existence of a mortgagee's rights. What I am asking you about is whether there was any plan prior to the acquisition of the first mortgage that the purchaser of the mortgage would proceed at an early date to exercise its power of sale? A. It was a proposal, I don't say it was a plan. Q. I take it that it had been discussed between you and Mr. and Mrs. Hall? A. I would think so but I can't recall what the precise dates were. HIS HONOUR: Q. What are you saying: that you made it clear to Mr. and Mrs. Hall that if they bought the first mortgage they could immediately sell? A. Correct, your Honour, subject to the mortgage being in default, the mortgagor being in default. Q. You knew perfectly well that Talga had no chance of paying, didn't you? A. Yes, your Honour. MR. HANDLEY: Q. Would you look at Ex. KK. May we take it that that is a note in your handwriting? A. Yes. Q. Now, we also take it that that was a note which came into existence prior to the acquisition of the mortgage? A. I would think so. Q. It refers to the settlement figures, does it not? A. Yes. Q. And, in fact, that $279,491.76 is the amount which was needed on the day of settlement to discharge the principal and interest? A. Yes. Q. And that together with the costs referred to next to it represented the full price that Halco had paid to Glenthorne? A. Yes. Q. Does that not indicate that you made this note either on 18th October, 1974, or perhaps a day or so before? A. Yes, I would say it was probably that day. Q. Having seen that note, Ex. KK, will you agree with me that by 18th October at the latest you were aware that Halco Products were buying the mortgage from Glenthorne with a view to an early sale of the property by auction? A. Yes, I would agree with that, yes. . . . HIS HONOUR: Q. May I just ask you this. Look at Ex. KK and you will agree that by that stage there was at least the possibility that a sale would follow acquisition? A. Yes. Q. Had you discussed that with your clients before that date? A. I would have discussed mortgagee rights with them, your Honour. I can't recall details. Q. Well, it would have been before 18th October? A. I was asked by Mr.Thackeray?

Q. No, it would have been before 18th October that you had discussed those matters with your clients? A. With my clients, yes." (at p209)

16. On 24th October 1974 Thomson wrote to the Bank stating that at the hearing of the proceedings for specific performance in the Equity Court on 18th October the legal representatives of Talga Pastoral Co. had said that they believed that that company would soon be in a position to discharge the second mortgage and had stated that their client believed that no payment would be required by the Bank on the discharge of the mortgage over Bangadilly. Neither in that letter nor in evidence did Thomson say whether he was informed of the basis of that belief. The letter also said that a Mr. Stapleton, an employee of the Bank, had in the course of telephone conversations on 12th and 13th October informed Thomson that no payments had been made into the account of Talga Pastoral Co. from the sale of Bangadilly and that, had any such payments indicated that they came from moneys paid for Bangadilly, the Bank's claims might have been waived or reduced. Thomson said that it appeared from documents produced at the hearing that the Bank had received payments which to its knowledge represented the deposit on the purchase of Bangadilly as well as subsequent payments from Talga, the parent company. The letter said those payments would have indicated to the Bank that they were moneys paid in respect of the purchase price of Bangadilly and it was therefore difficult to understand statements that the Bank was not aware of any payments in relation to the Bangadilly sale. The Bank's solicitors replied to that letter on 5th November 1974 in substance denying the various allegations and pointing out that Talga Pastoral Co. was indebted to the Bank under the cross-guarantee of 13th November 1973. (at p210)

17. On 28th October Thomson served notice of the assignment on Talga Pastoral Co. and on 29th October served a notice of demand for payment on Talga Pastoral Co. within ten days. Thomson said that he gave the notice because it was both usual and a desirable precaution. He did not however offer any explanation for the delay of ten days before giving the notice. (at p210)

18. At some stage Thomson made a note in his diary for the date 4th November to telephone Thackeray. Thomson said in evidence that this was just a reminder to himself to ring Thackeray on that day. He did not say when the note had been made and was unable to remember whether or not he made the phone call, but thought it would be in connexion with the Bangadilly sale because he had no other reason to ring Thackeray. He was unable to recall whether or not the purpose of the note was to arrange for a conference which was subsequently held on 11th November. (at p210)

19. On 11th November a meeting was held in Thomson's office at which Thomson, Thackeray and Mr. and Mrs. Hall were present. Thomson's note of this conference was as follows:
" 11.11.74
Cfce H. Thackeray - A. Hall P. Hall Auction expenses - advertising R.S.T. to write to Dyson Austen - enclosing partics. of title H.T. to reply - description of property Auction to be held in Sydney 23rd Dec. H.T. to inspect as soon as possible Insert preliminary notice this week"
On 13th November 1974 Thomson wrote to Dyson, Austen &Co. formally instructing them to sell Bangadilly on behalf of Halco Products. The letter as sent was as follows:

"We wish to instruct you on behalf of our client, Halco Products Pty. Limited, to submit the above property for auction at the earliest suitable date. Our client is a mortgagee, and the owner of the property, Talga Pastoral Company Pty. Limited, has defaulted under the terms of the mortgage. Would you please take all normal appropriate steps including proper advertising and the preparation of a brochure in respect of the sale. Particulars of the property have been forwarded to your Mr. Thackeray by our client company and we shall be preparing a contract during the course of the next week and will make several copies available to you. Would you please confirm these instructions and keep us advised as to the manner in which the property is to be sold."

He had previously (probably on 11th November) prepared a draft of such letter as follows:

"We hereby instruct your coy. to act as our clients agent take all appropriate action to sell the above property by auction.

Please ensure that all normal &usual steps are taken including local, country &interstate advertising to ensure that the best price is obtained for the property.
Could you please let us have your written advice as to auction venue &any other relevant matters.

Cheque for $ for adtg. expenses enclosed."

On 14th November Thackeray on behalf of Dyson, Austen &Co. replied to Thomson as follows:

"We thank you for your letter of 13th November 1974 instructing us to conduct a Public Auction of the above property on behalf of your clients, Halco Products Pty. Limited as mortgagee exercising their power of sale. Arrangements have been made to conduct this Auction at our Offices, 17 O'Connell Street, Sydney on Monday, 23rd December 1974 at 11 a.m. This is the maximum time available prior to Christmas 1974, after which little or no business is normally transacted in land sales until towards the end of January. Advertising has commenced in the two main N.S.W. Pastoral Papers, "The Country Life" and "The Land" and a programme of advertising, including the printing of circulars is in the course of preparation. Such details will be submitted to you and your clients this week.

Periodically we will advise you of the progress and interest shown in the property as a result of our advertising and Pastoral contact." (at p212)

20. Thomson did not inform the Bank of the purchase of the first mortgage or of the arrangements which were being made for the auction. He said that this was because he was not on good terms with the Bank or their solicitor because of the controversy, details of which are set out in the correspondence of 24th October and 5th November. In giving this explanation Thomson said that he had "a letter from the Bank's solicitors denying statements the bank manager had made to me". Thus the "bad terms" did not arise until he received the letter of 5th November. He did not offer any explanation of why he did not inform the Bank in his letter of 24th October that he had completed the acquisition of the first mortgage. He said he was aware of the possibility of a challenge to the sale and that a possible challenge was one from the Bank. He said that he had directed his mind to the best way of averting a challenge from the Bank. He was asked whether it occurred to him that being frank with the Bank was the best mode of avoiding a subsequent challenge, to which he replied that it did not occur to him. The trial judge found that the reason which he gave for not informing the Bank of the proposed sale, namely, that he was on bad terms with the Bank and its solicitors was in fact his reason. He made no finding on the question of whether it occurred to Thomson that a way or the best way of avoiding a challenge by the Bank was to be frank with it, and made no comment on the failure to inform the Bank of the acquisition of the mortgage when he wrote on 24th October. (at p212)

21. On 15th December an extraordinary general meeting was held of a company called Halco Roll-up Doors Pty. Ltd., combined with a meeting of its directors. That was a company of which Mr. and Mrs. Hall were the only directors and up until that day the only shareholders. At the meeting, which was attended by Mr. and Mrs. Hall, a special resolution was passed unanimously that the company's name be changed to "Bangadilly Pastoral Co. Pty. Ltd." It was also resolved that the Secretary be requested to procure registration of the special resolution and that Mr. Pritchard be appointed acting secretary for the purpose of preparation and lodging of that notice. Further resolutions were passed resolving that certain of the unissued shares be divided into categories A and B, and that the holders of the A and B Class shares should have one vote in respect of each share and be entitled to share in the surplus assets, and that the holders of the A and B Class shares respectively should be entitled to such dividends as the directors might think fit, whether greater or lesser than any other class of shares. The meeting then approved an agreement between the company and Mr. and Mrs. Hall by which they were given, in consideration for payment of $1, an option over the whole of the unissued ordinary shares. It was further resolved to accept applications for two hundred A Class shares from P. K. Hall and two hundred B Class shares from B. M. Hall, children of Mr. and Mrs. Hall. The last item noted in the minutes is a resolution as follows:
"RESOLVED: That authority be and is hereby given to the directors to attend a public auction for the sale of the property to be conducted by Dyson, Austen &Co., Real Estate Agents and Auctioneers at 7th Floor, 17 O'Connell Street, Sydney on Monday 23rd December 1974 at 11.00 a.m. and to bid on behalf of the Company up to $265,000 as purchase price for the property."
As at the end of that year there were four hundred and two issued shares, two ordinary shares (held by Mr. and Mrs. Hall), two hundred A Class and two hundred B Class shares and that was the situation at the date of the sale. It is clear that, if they wished to do so at any time, Mr. and Mrs. Hall could swamp the shares held by the other members of the company and immediately restore their control of a general meeting before any meeting of which proper notice was given could be held. No explanation was given in evidence of the reason for changing the name of the company to Bangadilly Pastoral Co. Pty. Ltd. at that stage, but in answer to the question why had it been changed, Mr. Hall said that Pritchard had informed him that it could be changed back again. (at p213)

22. At a meeting of directors held at Pritchard's office on Monday 23rd December attended by Mr. and Mrs. Hall and Pritchard a resolution was passed authorizing the affixing of the company seal to documents "should the company purchase the Bangadilly pastoral property at this morning's auction" and resolving also that the maximum price payable for the property as decided at the director's meeting of 15th December 1974 be extended to $303,600 if necessary. (at p213)

23. Prior to the auction Thomson gave Thackeray the reserve figure, $250,000, but it does not directly appear when or by whom the figure was fixed, but the trial judge said, "No doubt it was fixed by the Halls or Mr. Pritchard." (at p214)

24. At the auction the successful bid of $265,000 was made by Mr. Hall. The contract was entered into by Bangadilly Pastoral Co. Pty. Ltd. (formerly Halco Roll-Up Doors Pty. Ltd.) as purchaser. The deposit required by the contract, $26,500, was paid by cheque to the agent on that day and on the next day (24th December 1974) the sale was settled by payment of the balance and the transfer of the land lodged for registration. (at p214)

25. The evidence as to the bidding is somewhat conflicting. Thackeray said that the opening bid was by Pritchard (who was not at that stage known to him), the second by Mr. Hall, the third by Pritchard and the final bid by Mr. Hall. The trial judge said that " . . . it is clear there were two other bidders-they were strangers to Mr. Hall; as far as I can gather they were strangers to the auctioneer, Mr. Thackeray . . ." Thackeray's evidence however is directly to the contrary and must have been misunderstood by the trial judge. Hall said there were four or five bids and other bidders not known to him. Thomson said that Pritchard made one bid but said that he did not recognize the first bidder, and that someone may have bid twice. Thackeray was undoubtedly the person best able to identify those making bids, but in the end the point is perhaps of no great significance. (at p214)

26. Mr. Hall in his evidence said that not long after he became aware that the Talga group of companies was in financial trouble he understood that Hall Investments might have lost either completely or substantially the $200,000 that it had paid to Talga Pastoral Co. on account of purchase money. Mr. Hall said that he had told his bank manager that Thomson was only insured for $100,000 in respect of negligence. He said that he had obtained that information from Pritchard, his accountant, but he could not remember when. He said that the reason why Pritchard had given him that information was because he and his wife thought that Thomson had been negligent and had informed Pritchard of that view. He said that he had not said anything about this to Thomson himself. He was asked whether he had ever discussed with Pritchard the question of how Hall Investments would be able to recoup its losses on the Talga transaction and answered no. He was then asked whether his wife had ever discussed that question with Mr. Pritchard in his presence and he said no, "We were upset at the time but I thought - there was no need to fight with Thomson at that stage of the game." He was asked by the trial judge, "You were upset, and I suppose you were concerned about the possible loss of $200,000?" He answered, "We were more concerned to obtain Bangadilly." He was then asked, "But what were you upset about?" and answered, "Losing our purchase money." (at p215)

27. The trial judge made a number of other findings of some importance. They are as follows:

(1) "A summons on behalf of Hall Investments against Talga Pastoral Co. was filed on the next day - 4th October 1976 - in the Equity Division of this Court (No. 2129/74): it was a summons seeking specific performance of the contract. Things happened pretty quickly between then and the date the summons was before the Court on 18th October 1974. A decision was made to acquire the first mortgage, and it was acquired. A tentative or final decision was also made to hold a mortgagee's sale in the sale in the hopes that the Hall interests would be able to buy property at that sale; the steps necessary to implement the first mentioned decision were also taken." (2) "I am satisfied, giving full consideration to the evidence, to my assessment of the witnesses, and notwithstanding the matters to which I shall refer in a moment, that the defendants acted to protect their investment and their possession in setting out to acquire the first mortgage, and did not act in pursuance of a then formulated plan to acquire that mortgage so that one of the Hall interests could engineer an acquisition of the property by means of a mortgagee's sale once that mortgage had been acquired. . . . It was thought necessary to act quickly to protect the purchaser and the Hall interests. I am of the view that protection prompted acquisition. I shall come back to the details. And a decision to acquire was made by 10th October, 1974. This does not mean that Mr. and Mrs. Hall had not been advised and were not aware of their rights if they did, or one of their companies did acquire the first mortgage from Glenthorne. Common sense would demand, and the evidence establishes, that they were advised by 10th October that they would have a right to sell as mortgagees if Talga Pastoral Co. was in default (as no doubt they believed it was) and that they could be given, or some company of theirs could be given, an opportunity to buy at any such sale. I am quite sure this knowledge was present at the time the decision was made to acquire the mortgage, and I have little doubt that the possibility of exercising the power of sale and by so doing of acquiring a property was an inducement to take the course which was taken and to making the decision to acquire the mortgage. But I am also satisfied that at the stage the decision to acquire the mortgage was made no plan for subsequent sale had been formulated, nor was the decision to acquire reached as a step towards subsequent acquisition. Mr. Hall (transcript pp. 292-293, 307) says the reason for acquisition of the mortgage was to protect the Hall interests in Bangadilly and not for the purpose of exercising the power of sale; at transcript p. 307 Mr. Hall said: 'Q. Mr. Hall, won't you agree with me that Halco bought this mortgage so that you and your wife would have control of an auction sale of the property? A. No, no. Q. Didn't you have in mind, at the time that you made the money available to Thomson to buy this mortgage, that you would proceed to auction Bangadilly? A. Say again? Q. When you gave Mr. Thomson the money to buy this first mortgage - A. Yes? Q. I suggest to you that you had in mind that you would put Bangadilly up for auction? A. No.' His solicitor says likewise (transcript pp. 196, 208). I accept their evidence."

However Thomson's evidence in the pages there referred to by the trial judge was as follows:

"MR. HANDLEY: Q. One of the purposes which actuated to your knowledge the Halls in their decision to buy the mortgage over Bangadilly through their company Halco Products was that they wished to have control of an auction sale of the property? A. Basically, they wished protection from being ejected from the premises. Q. Yes, I am not suggesting this was the only reason. A. Sure. Yes, the answer is Yes. Q. And you knew at all times after the collapse of Talga was known that the Halls were still anxious to acquire a freehold title to Bangadilly? A. Yes. Q. You appreciated, I suppose that that fact gave rise to a matter of delicacy so far as the conduct of the auction sale was concerned? A. Yes. Q. As far as their interest as mortgagees was concerned through Halco Products, you appreciated that their interest was to obtain the mortgage debt and costs from the sale proceeds? A. Yes. Q. But as far as their interests were concerned as a purchaser at the auction their interest was to obtain the property as cheaply as possible? A. I think that is any purchaser's interest. Q. And you appreciated that that applied to the Halls in their capacity as purchaser or the possible purchaser of Bangadilly? A. Yes. Q. As far as you were concerned, was there any urgency about this auction sale as at 18th October 1974, which was the day that you settled the purchase of the mortgage? A. Yes, the urgency was that if the property was not sold prior to Christmas the post-Christmas delay would involve my clients in more emotional strain and upset. Q. Is that something that was present to your mind on or about 18th October, the day you settled the purchase of this mortgage? A. I would think so."

That evidence is directly contrary to the evidence of Hall as quoted by the trial judge. I find great difficulty in reconciling those two passages in the judgment. It is necessary also to note on this aspect the following evidence of Hall himself:

"HIS HONOUR: Q. Did you have a barrister at the time you bought this mortgage? A. Had a barrister, Your Honour? Q. Had you seen a barrister? A. Yes, Your Honour. Q. When, do you know? A. About the 16th. Somewhere around there. Q. Why did you see a barrister; do you know? A. To see if it was a proper and legal thing to do, Your Honour. Q. What? A. That we could buy the mortgage and protect ourselves with it. MR. HANDLEY: Q. Do you remember telling, yourself or your wife telling in your presence the bank manager prior to acquiring the mortgage that you intended to offer Bangadilly at auction under the mortgage? A. No. HIS HONOUR: Q. Did you intend to do that? A. Only if everything else failed. Q. What do you mean 'if everything else failed?' A. Well, up until the 18th - 8th November I think it was - we were still in the Equity Court trying to get Talga to settle - settle the original contract. Q. So this was a contingency plan, was it; in the event that Talga did not come to the party? You knew that you were going to put this property up for auction? A. No, we knew that we could protect ourselves. Q. By doing that? A. Yes, Your Honour, to stop Glenthorne from taking over the property, like their solicitors said they could. Q. You had already bought the mortgage. There was no problem about Glenthorne. You had bought Glenthorne out? A. Yes, on 16th we bought - yes - Q. The 18th, you can assume? A. The 18th, yes. Q. Let me ask you this: Before you bought Glenthorne out you knew there was a plan afoot for you to put the property up for auction after you had bought the mortgage, is that right or not? A. No, Your Honour. There was no plan to put the place up for auction. Q. Have another look at this diary note, would you (Exhibit HH). Look at the date first of all? A. 16th October. It might have been discussed but there was no chance of it being done. Q. Can you give me any assistance as to how the bank manager would have come to write that in his diary if you and your wife had not told him? A. We may have discussed it, Your Honour, but there was no decision to do this. Q. That is what I say, it was a contingency plan, is that right? A. If that is correct, a contingency plan. Q. Do you understand what I mean when I say that? A. To help - support our claim. Q. In the event that Talga did not come to the party, that is what you were going to do? A. Only if we had to, Your Honour.

Q. I suppose you would have to if Talga did not come to the party, is that right? A. That is right." (at p218)

28. The trial judge made a number of findings, called "specific findings" in the course of argument. Many are incorporated in the facts as I have stated them above and in the quotations from the judgment. In what I have said above I have already made some comments on certain of those findings. Others require some further comment because, with due respect to the trial judge, I find some difficulty in reconciling them. (at p218)

29. The finding that "the defendants acted to protect their investment and their possession in setting out to acquire the first mortgage" requires some analysis. No doubt their possession would in a practical sense be protected in the relatively short term by the acquisition of the first mortgage, because that would prevent Glenthorne from exercising its power of sale and remove the risk that they would have to give up possession to a purchaser from Glenthorne, though it would not eliminate the second mortgagee's power of sale. However that would not in any practical way protect their investment, (i.e., the $200,000 already paid to Talga Pastoral Co. and their interest in the property, Bangadilly), in view of the amount owing to the second mortgagee. If Talga Pastoral Co. could not give them a clear title, that protection could only be obtained by the acquisition of the freehold interest by the Halls or one of their companies and that could only be done by purchase at a sale by the mortgagee. The trial judge did not explain this finding and appears to have failed to observe what, on analysis, it amounts to. I should add the possibility that Glenthorne might enter into possession as mortgagee seems (rightly) to have been disregarded. No possibility seems more remote than that. (at p218)

30. His Honour found that a decision to acquire the first mortgage was made by 10th October 1974, the day on which Thomson wrote to the solicitor for Glenthorne informing him that it would be paid out. He said ". . . I am also satisfied that at the stage the decision to acquire the mortgage was made no plan for subsequent sale had been formulated," but he also found that, on the day after Thomson wrote stating that Glenthorne would be paid out (10th October 1974), he had a meeting with Mr. and Mrs. Hall and Mr. Pritchard, at which he made out the note which is quoted above and which contains the express statement, "Instruct Dyson Austen to put up for public auction." These findings can be reconciled only on the basis that his Honour meant by the expression "by 10th October", at some date earlier than 10th October. That may well be so because there is no finding or direct evidence of the actual date; all that is established is that it could not have been later than 10th October. Moreover that finding is not readily reconciled with the finding that a "tentative or final decision" to hold a mortgagee's sale was made between 4th and 18th October. His Honour found that Thomson's note quoted above had been made out on the date it bore (11th October) and added:

"To me the document remains somewhat of a mystery. I believe it indicates that the possibility of a sale was discussed before a decision to sell was made, and that this did in fact happen is clear from the evidence. It looks as though Mr. Thomson was recording a plan for an auction, and it may be that he spoke on the telephone on that day to Mr. Thackeray; there is evidence that could justify a finding to this effect, but it does not enable me to make a finding."

The finding there referred to can only be in respect of the telephone call to Thackeray for, in respect of the other matters, the document speaks for itself. (at p219)

31. With due respect to his Honour I am unable to understand why the document remained a mystery to him. Of course the inference is plain that there must have been some discussion, either at the meeting or prior thereto, before the decisions set out were arrived at, but the document cannot in my opinion be regarded as doing other than record decisions. That this was so is amply confirmed by the bank manager's note of the discussion on 16th October. In the absence of any oral evidence about these meetings, other than that they took place, and in view of the failure to call the others who attended, the documents must speak for themselves, which in my opinion they do with clarity. I cannot regard Thomson's note of 11th October as indicating no more than that the possibility of a sale was discussed, as the trial judge thought. (at p219)

32. I do not need to comment on his Honour's finding that by 16th October "some sort of plan evolved for a mortgagee's sale following acquisition by Halco Products and for the Hall interests to bid at that sale." (at p219)

33. In relation to the report that the Bank might not require payment to discharge the second mortgage, his Honour said, "I think it tends to explain why nothing was done immediately to follow up the proposal that the property be sold by the new mortgagee". That is not expressed as a finding that that was the explanation, and it could not be, since there was no evidence to that effect. It was not an explanation offered by Thomson, or by Hall or Thackeray. It would indeed be a triumph of hope over experience. As against others interested in the result of the sale, it could not be regarded as an adequate explanation of the delay. (at p220)

34. There is one other finding made by the trial judge which requires careful examination and comparison with the findings set out in the passages quoted above. After the statement quoted that between 4th October and 18th October "a tentative or final decision was also made to hold a mortgagee's sale in the hopes that the Hall interests would be able to buy (the) property at that sale", there follows a little later in the judgment the following passage:

"Although the Hall interests were made aware of the mortgagee's rights and that they might, through the mortgagee's sale, acquire a property and by so doing prevent what must have looked like the loss of their investment, I do not believe that a decision to take the second step of a mortgagee's sale was made until 18th October 1974, at the earliest, and perhaps it did not finally crystallise until Mr. Thomson received the letter from the bank's solicitors dated 5th November 1974"

and he referred to an answer given by Mr. Hall in which to the question, when did he and his wife as directors of Halco Products decide to exercise the right of sale and hold a mortgagee's sale, he said "Early in November." (at p220)

35. With due respect to the trial judge I am unable to reconcile this finding with the finding referred to above that by 18th October "a tentative or final decision was also made to hold a mortgagee's sale in the hopes that the Hall interests would be able to buy (the) property". Moreover it is in direct conflict with Thomson's evidence. Not only did Thomson say that on 18th October he was aware of the urgency about arranging an auction sale because of the approach of Christmas, as appears from the passage from the evidence quoted above, but, as also appears in another passage, Thomson when asked, "Having seen that note, Ex. KK, (Thomson's note shortly prior to 18th October 1974) will you agree with me that by 18th October at the latest you were aware that Halco Products were buying the mortgage from Glenthorne with a view to an early sale of the property by auction?, he answered, "Yes, I would agree with that, yes." When asked by the trial judge, "Look at Ex. KK and you will agree that by that stage there was at least the possibility that a sale would follow acquisition?", he answered, "Yes." Again when asked, ". . . there was no reason, I suggest, why preparations for this auction could not have got under way immediately after 18th October. I put that to you.", Thomson replied, "No, there is no reason." (at p221)

36. In the light of the above evidence, which was not rejected, or indeed referred to in this connexion by the trial judge, I am unable to see how his finding that the decision to sell may not have been taken until 5th November can be sustained. The trial judge said that he considered that Thomson's note of the meeting of 11th October and the bank manager's note of 16th October did not compel a different conclusion, but even if that were so, the combination of the oral evidence referred to above and those documents, as well as other findings quoted above, demonstrate that a finding that no decision was made until 5th November cannot be sustained. (at p221)

37. The advertisements inserted by Thackeray were as follows:
13th and 20th November
4th and 11th December "Country Life" 14th and 28th November "Land Newspaper" 28th November and 12th December

"Stock and Land" (A Melbourne Weekly)

14th December "Sydney Morning Herald".

In addition one hundred brochures were printed. The total expenditure on advertising was $336.27. Thomson said that on 11th November a firm decision was made to insert a preliminary advertisement in the Sydney Morning Herald as soon as possible. Thackeray agreed that this was not done, and offered no explanation. Thackeray said that he discussed the programme with Thomson on the telephone and obtained his approval. Thomson said that there was no such telephone conversation and expressed surprise that the advertising was confined to the advertisements referred to above. (at p221)

38. Thackeray agreed that the advertising was light and said that he would not have chosen 23rd December unless there were no alternative. He further said that if he had been instructed on 11th October there would have been "ample time". (at p221)

39. The trial judge rejected a submission that Thackeray was chosen because he would "run dead". He said that the choice was for proper reasons and that Thackeray was party to no plan in relation to the auction which would be to his discredit. He concluded that the deficiencies in his work were due to ineptitude and inefficiency. These findings cannot be interfered with by this Court, but their ultimate significance is another matter. (at p221)

40. There were a number of other points on which the evidence of Thomson and of Thackeray was in conflict and in respect of which the trial judge made no finding, beyond his general finding that he regarded all the witnesses as truthful to the extent of their recollection. It is not necessary to record them in detail. Some instances of conflict relating to the advertising programme had been referred to and there were others. Thackeray's evidence about the failure to advertise in local papers contained a number of unexplained contradictions. Moreover the failure to insert any advertisements at all in the Sydney Morning Herald until 14th December remained unexplained, notwithstanding that Thackeray acknowledged that an arrangement with Thomson for an immediate substantial advertisement after 11th November conference was made with Thomson. Thomson and Thackeray gave inconsistent evidence as to the place of sale. Thackeray said that originally Moss Vale had been selected and that Thomson had changed his mind, but Thomson denied this. (at p222)

41. Ultimately the trial judge made no finding about the source of the programme for advertising and sale as set out in Thomson's note of 11th October, beyond his comment that the note "remained somewhat of a mystery". However there seemed to be only two possible explanations of that programme; either Thackeray knew of and failed to carry out the programme, or alternatively, Thomson, having drawn up the programme himself, failed to see that it was carried out. (at p222)

42. The nature of the duties of a mortgagee in the exercise of his power of sale has been the subject of recent decisions both in Australia and in the United Kingdom. The general principles have been re-examined and restated, though at least one area of doubt remains unresolved. Many of the cases were the subject of examination by the Court of Appeal in Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch 949 where it was held that a mortgagee in exercising his power of sale owed a duty to the mortgagor to take reasonable care to obtain a proper price (or, in Salmon L.J.'s words, "the true market value"). In that case it had not been disputed at the trial that the negligence of the mortgagee's agent stood in the same position as that of the mortgagee himself. In those circumstances the Court of Appeal did not allow the argument to be pursued that the mortgagee's duty was discharged by employing reputable agents and leaving the sale to them. Salmon L.J. observed that that proposition could not be squared with Cotton L.J.'s judgment in Tomlin v. Luce (1889) 43 Ch D 191 but expressed no concluded view. In the present case it is not necessary to resolve this question, notwithstanding the trial judge's reference to the incompetence and ineptitude of Thackeray. (at p222)

43. In Forsyth v. Blundell (1973) 129 CLR 477 this Court had to consider the nature of a mortgagee's duty. Walsh J. said (1973) 129 CLR, at p 493 :

"In the authorities there are to be found conflicting views on the question whether the obligation cast upon the mortgagee is simply that he should act 'in good faith' (which means, in my opinion, in the language used in most of the authorities, that he should act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor) or is an obligation which is broken also if there is negligence in carrying out the sale. Support for the former view may be found in the statements in Kennedy v. De Trafford (1896) 1 Ch 762, at p 772 by Lindley L.J. and in the same case on appeal, (1896) AC 180, at pp 184-185 by Lord Herschell, in the adoption of those statements by this Court in Barns v. Queensland National Bank Ltd. (1906) 3 CLR 925, at pp 942-943 and in Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR 676, at pp 680, 694, 700 and in the definite opinion expressed by Isaacs J. in the latter case, that the mortgagee is not answerable for 'mere negligence or carelessness'. On the other hand, it appears that the view that negligence is enough to make the mortgagee liable to account to the mortgagor for loss arising from a sale is supported, not only by the recent cases of Holohan v. Friends Provident and Century Life Office (1966) IR 1 and Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch 949 , but also by the decision of the Privy Council in McHugh v. Union Bank of Canada (1913) AC 299 . But I do not think it necessary to resolve this question in this appeal."

Mason J. said (1973) 129 CLR, at p 506 : "It will be seen that the conclusion which I reach is that A.S.L. was in breach of its duty to the mortgagors in that it exercised its power of sale without taking reasonable steps to obtain a proper price and in so doing acted otherwise than bona fide, that is, recklessly, not caring whether the price obtained was in the circumstances a proper price or not. Accordingly, I need not consider the vexed question whether the mortgagee's duty is merely to act bona fide or whether, in addition, he is bound to take reasonable precautions to obtain a proper price. The conflicting authorities have recently been reviewed by the Court of Appeal in Cuckmere Brick Co. v. Mutual Finance Ltd. (1971) Ch 945 : see also Holohan v. Friends Provident and Century Life Office (1966) IR 1 . It was held in these cases that the mortgagee is bound to act bona fide and take reasonable precautions to obtain a proper price, or, as Salmon L.J. would prefer to express it, 'the true market value'. In any resolution of the question in this Court account must be taken of what was said in Barns v. Queensland National Bank Ltd. (1906) 3 CLR, at pp 942-943 and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR, at pp 692, 693-695, 699-702 . However, as I have said, on the view which I take of the facts this problem does not arise for decision; nor is it necessary for me to determine the related question whether a mere failure to take reasonable precautions to obtain a proper price is a sufficient ground for setting aside a mortgagee's contract of sale or for restraining its performance (see Property &Bloodstock Ltd. v. Emerton (1968) Ch 94 )."
Menzies J., who dissented in the application of the principle to the facts, expressed the general rule as follows (1973) 129 CLR, at p 481 :

"The rule to be applied here is not in doubt; it was stated authoritatively by Lord Herschell in the last century. In Kennedy v. De Trafford (1897) AC 180 which has been followed by this Court in Barns v. Queensland National Bank Ltd. (1906) 3 CLR 925 and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR 676 , the Lord Chancellor said (1897) AC, at p 185 : '. . . if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J. in the Court below, says that "it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mortgagor." Well, I think that is all covered really by his exercising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words "good faith", but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith.'

I do not think that statements in some cases, such as McHugh v. Union Bank of Canada (1913) AC 299 or Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch 949 , that the mortgagee is under a duty to take reasonable precautions to obtain a proper price, are at odds with the rule stated by Lord Herschell. To take reasonable precautions to obtain a proper price is but a part of the duty to act in good faith. This duty to act in good faith falls far short of the Golden Rule and permits a mortgagee to sell mortgaged property on terms which, as a shrewd property owner, he would be likely to refuse if the property were his own." (at p224)

44. The earlier decisions in this Court, Barns v. Queensland National Bank Ltd. (1906) 3 CLR 925 and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR 676 are also of importance in this aspect of the matter. However this is not the only aspect of a mortgagee's position material to the present case. In the light of the arguments put to us it is necessary to go back further in time and re-examine other fundamental propositions. (at p225)

45. It was put to us that, although a sale by a mortgagee to himself was impossible as being no sale at all, there was no case that decided that a sale by a mortgagee to a trustee for himself was improper. However it comes as no surprise that Lindley L.J. in a much-cited passage in Farrar v. Farrars Ltd. (Farrar's Case) (1888) 40 Ch D 395, at p 409 said:

"It is perfectly well settled that a mortgagee with a power of sale cannot sell to himself either alone or with others, nor to a trustee for himself: Downes v. Grazebrook (1817) 3 Mer 200 (36 ER 77) ; Robertson v. Norris (1858) 1 Giff 421 (65 ER 983) ; nor to any one employed by him to conduct the sale: Whitcomb v. Minchin (1820) 5 Madd 91 (56 ER 830) ; Martinson v. Clowes (1882) 21 Ch D 857 . A sale by a person to himself is no sale at all, and a power of sale does not authorize the donee of the power to take the property subject to it at a price fixed by himself, even although such price be the full value of the property. Such a transaction is not an exercise of the power, and the interposition of a trustee, although it gets over the difficulty so far as form is concerned, does not affect the substance of the transaction."

The authorities cited support the proposition about sales to trustees for the mortgagee, though Robertson v. Norris (1858) 1 Giff 421 (65 ER 983) was later overruled in relation to a different proposition, and see also Re Bloye's Trust (1849) 1 Mac &G 488 (41 ER 1354) . A later authority for the proposition that a mortgagee may not sell to a trustee for himself is the decision of the Privy Council in Henderson v. Astwood (1894) AC 150 . (at p225)

46. Much reliance was placed on the decision in Farrar's Case (1888) 40 Ch D 395 . The actual decision is accurately stated in the headnote as follows: ". . . the sale could not be set aside on the simple ground that F. was a shareholder in the company, for that a sale by a person to a corporation of which he is a member is not either in form or substance a sale by him to himself along with other people", and it is important to note precisely what is said. The proposition is not that a sale by a mortgagee to a company of which he is a shareholder is necessarily valid, but that it is not necessarily invalid. Chitty J. had found as follows (1888) 40 Ch D, at p 403 :

"I find as a fact that there was an honest and independent bargain between the Defendant John Riley Farrar, acting for the mortgagees on the one hand, and Mr. Riley and Mr. Cockcroft, acting for the intended company on the other hand, and that this bargaining resulted in the price being fixed at $7,700, conditionally on a company being formed, and at this time the Defendant John Riley Farrar had no thought of joining the intended company or taking shares in it. At the meeting of the 21st of November it was arranged that the Defendant John Riley Farrar, and Mr. Taylor should get up a list of gentlemen likely to form the company, and should endeavour to obtain shareholders."

He further found that the defendant Farrar had acted as solicitor for the promoters and the intended company, and had prepared the memorandum of association and the prospectus. He further found that Farrar took up shares either in January or early February in the following year. Farrar was at no time a director. It was found that the sale was not at an undervalue. Lindley L.J. said (1888) 40 Ch D, at pp 413-414 :

"Having arrived at this conclusion on the question of value, it appears to us that Mr. Farrar in no way disregarded his duty to his mortgagors, on the contrary, he was doing the utmost in his power to find a purchaser at the best price that could be got. At this time his interest was to get the best price he could, for his security was by no means ample, he was pursuing that interest, and was discharging his duty at the same time, and he had no conflicting interest in the matter. This, in our judgment settles the question. The subsequent agreements and conveyances do no more than give effect to the bargain which was entered into in November, and the real character of which has been already considered. . . . Mr. Farrar took shares in the company, and was its solicitor, and in the matter of the conveyance he acted on behalf of himself and co-mortgagees on the one side, and of the company on the other, but this was merely formal work consequential on the previous agreement entered into in November. When the sale was completed the power had become exercisable, for although the six months' notice had not expired the interest was more than three months in arrear. The evidence shows that the transaction was thoroughly honest and fair, and, notwithstanding its suspicious appearance, the company has proved its validity. If the allegations in the statement of claim had been proved, the sale could not have stood, nor could it have stood if when the agreement for sale was made Mr. Farrar had been directly or indirectly one of the buyers. His subsequent conduct does not invalidate the sale then agreed to and afterwards carried out."

Thus the critical issue there was whether it was a truly independent bargain. The observations just quoted show how far the present case is from the facts of Farrar's Case (1888) 40 Ch D 395 . (at p227)

47. One of the critical questions here is whether there ever was an independent bargain. The deciding minds were those of Mr. and Mrs. Hall and of no one else. They were the only directors of the mortgagee (Halco Products); they were the only directors of the purchaser Bangadilly Pastoral Co. They fixed the reserve; they, with their agent Pritchard, were the only bidders, and they fixed the maximum price which the purchaser was prepared to pay. As controllers of the vendor, they knew that a prospective purchaser was prepared to pay $303,000, and as controllers of the purchaser they knew the reserve. In such a situation it seems to me that a purchase at or close to the reserve cannot be an independent bargain. (at p227)

48. It is of course true to say that separate legal persons were involved and that there was no legal impossibility in a contract between the two companies but that does not go to the central point. It is difficult to find what is truly a close analogy to a case where the same two people are directing the activities of two companies, one the vendor and the other the purchaser, so the vendor knows what is in the mind of the purchaser and vice versa. If it were a private sale it could not be said to be an independent bargain and in my opinion it could not then stand. The critical question is whether it makes any difference that the sale was by auction, and an auction in which there was in truth only one bidder, though that fact was not known to the auctioneer until after the conclusion of the bidding. There does not appear to be any authority directly in point, but on principle I can see no reason why in such circumstances a sale by auction is in any different position from a private sale. In the circumstances the evidence was such that it could not support a finding that there was an independent bargain. This itself would be enough to require that the sale be set aside. (at p227)

49. Leaving aside the absence of an independent bargain, the factual situation is very similar to that in Forsyth v. Blundell (1973) 129 CLR 477 . The situation there was that the mortgagee had a firm offer of $120,000 and sold at that figure, cancelling an advertised auction. That offeror had said that if the offer were rejected he would not necessarily bid at the auction. The mortgagee knew that there was another possible buyer who had expressed interest, and who had said he might pay up to $150,000 at the auction, but who had made no offer. It was held that the failure to follow up the possibility of obtaining more than $120,000 from the other prospective purchaser was "a serious departure from accepted standards in seeking to obtain the best price then available". (at p228)

50. The analogy with that case lies in the failure in the present case to follow up the prospect of obtaining a higher price, when it was known that a prospective purchaser was prepared to pay more. It is in a sense a stronger case than Forsyth v. Blundell (1973) 129 CLR 477 because the knowledge of the price to which the prospective purchaser was prepared to go rather than lose the property was precise and complete, whereas in Forsyth v. Blundell the critical point was merely the possibility that another person might bid at the auction, though there was no certainty. If what occurred in Forsyth v. Blundell was a serious departure from accepted standards, the same must be true of the present case. That also is a sufficient reason to set aside the sale. (at p228)

51. In the present case it was conceded by the defendants at the trial that the connexion between the mortgagee vendor and the associated company which was the purchaser was such that the onus lay on the purchaser to prove the bona fides of the sale. A further factor leading to that conclusion is that the case cannot be described as an ordinary case of a mortgagee exercising his power of sale to recover his principal and outstanding interest. At the very least the possibility of an auction sale and a purchase by another company controlled by the Halls was in mind at the very time that Halco Products sought to acquire the mortgage and, not later than the time it invested its funds in acquiring the existing mortgage, a decision to sell had been made, with those who controlled Halco Products being, again at the very least, aware that they could bid at such a sale. It does not in my opinion matter whether it was a "plan" or a "proposal", whether it was "final" or "tentative", or whether it was "a contingency plan" or a "firm decision". In truth however the memoranda made by Thomson on 11th October and by the bank manager of his discussion with Mr. and Mrs. Hall on 16th October indicate that prior to the settlement of the purchase of the first mortgagee there had been a decision to exercise the power of sale and for the Halls or a company controlled by them to bid at the auction with a view to purchasing the property. I do not think that any other conclusion was open on the evidence. (at p228)

52. Quite apart from the matters referred to in the preceding paragraph there are a number of other matters material to the question whether on the evidence the onus of proof could be regarded as having been discharged. There were unexplained delays in proceeding to auction at a time when at least Thomson knew that delaying the sale until close to Christmas was likely to have a prejudicial effect on the sale. The cumulative effect of these delays is considerable, though some overlap is involved. The most significant was the delay between the decision on 11th October and the meeting on 11th November before instructions were given to fix a date for the auction and prepare an advertising programme. Even if one were to take a different view of those memoranda, there was the unexplained delay from 18th October until 29th October in giving notice of the assignment of the mortgage and in giving written notice of default to the mortgagor, and until 11th November before taking steps towards a sale. Thomson acknowledged that there was no reason why the arrangements for the auction could not have been put in hand immediately after 18th October. Then there was the delay in inserting the only advertisement ever placed in a Sydney daily newspaper. (at p229)

53. Other unexplained aspects are Thomson's failure to inform the Bank in his letter of 24th October of the acquisition of the first mortgage. Although his explanation of the failure after receipt of the Bank's letter of 5th November to inform them of the acquisition of the first mortgage and of the proposed auction was accepted by the trial judge as the true explanation, it cannot be regarded as a satisfactory one. It is no doubt true that a mortgagee is not normally under a specific obligation to inform the mortgagor, or those known to be claiming under him, of a proposed sale, apart from the general notice of default which is a prerequisite to exercise of the power of sale. Nonetheless failure to inform the mortgagor and persons known to be claiming under him may be a relevant matter. Personal irritation on the part of the mortgagee's agent or being on bad terms with it and its solicitors is not an adequate explanation for such failure. All these are relevant factors in considering whether the onus of proving bona fides in the relevant sense has been discharged. Taking those matters into account, along with the evidence, and accepting all the findings of the trial judge, save those as to which I have formed the view that they were not open on the evidence, I am satisfied that it was not open to the trial judge to be satisfied that the onus had been discharged. For that reason also I am of opinion that the appeal should be allowed and the sale set aside. (at p229)

Orders

Appeal allowed with costs.

Order of the Supreme Court of New South Wales Equity Division set aside and in lieu thereof order that the sale of the property "Bangadilly" on 23rd December 1974, from Halco Products Pty. Limited to Bangadilly Pastoral Co. Pty. Ltd., be set aside.

Respondents to pay the appellant's costs in the Supreme Court.