Benson, D.M. v Commonwealth Bank of Australia

[1992] FCA 634

Re: DONALD MAYNE BENSON; BETTY LYNETTE BENSON; WILLIAM BENSON; ELIZABETH SUSAN
BENSON; DON BENSON PTY LTD; FLINVIL PTY LTD and COMMONWEALTH BANK OF
AUSTRALIA
And: WILLIAM BENSON; ELIZABETH SUSAN BENSON and COMMONWEALTH BANK OF
AUSTRALIA
Nos. N G315 of 1989 and N G512 of 1992
FED No. 634
Mortgages - Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Mortgages - power of sale - whether mortgagee's duty is merely one of good faith - whether he also owes a duty of reasonable care to obtain a proper price.

Trade Practices - s. 52 - alleged representation by Bank of willingness to grant a consolidated loan.

Trade Practices Act 1974, s. 52

Forsyth v. Blundell (1973) 129 CLR 477

Bourke v. Beneficial Finance Corporation Limited (Hill J., unreported, 30 January 1991)

Southern Goldfields Ltd v. General Credits Ltd (1991) 4 WAR 138

HEARING

SYDNEY

#DATE 2:9:1992

Counsel for the Applicants in Mr A.T. McInnes QC
matter No. NG 315 of 1989 the with Mr S.P. Gullotta
respondents in matter No. NG512
of 1992:

(After the hearing (including addresses) had been concluded subject to the cross-examination of a witness, to be cross-examined upon his return from overseas, the Applicants in matter number NG 315 of 1989 and respondents in matter number NG 512 of 1992 dismissed their counsel, and were then represented by their solicitor, Mr Monti.)

Solicitors for those parties: Messrs Smith Monti and Costa

Counsel for the Respondent in Mr W.H. Nicholas QC
matter No. NG 315 of 1989 and with Mr D.J. Higgs
the applicant in matter
No. NG 512 of 1992:

Solicitor for that party: Mr L.E. Taylor

ORDER

THE COURT ORDERS THAT:

1. The Commonwealth Bank of Australia bring in, on a date to be fixed, short minutes of the orders appropriate to be made in accordance with the reasons of the Court.

2. In the event that William Benson and Elizabeth Susan Benson desire to put matters of fact to the Court in support of a postponement of an order for possession of the house and land referred to in matter number NG 512 of 1992, this be done by affidavit, and any affidavit be filed and served by the date being seven days before the date to be fixed for consideration of short minutes; any affidavit in answer on behalf of the Bank to be filed and served by 4 pm on the preceding day.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The applicants in matter number NG 315 of 1989 are Mr and Mrs Donald Benson and their son and daughter-in-law Mr and Mrs William Benson, together with a family company, Don Benson Pty Limited, and another company controlled by the Bensons, Flinvil Pty Limited. By their amended statement of claim, they claimed a diversity of forms of relief against the respondent, the Commonwealth Bank of Australia. During the course of the hearing, however, the matter resolved itself into two causes of action. Each of these arose out of the relationship of banker and customer between the respondent, on the one hand, and the applicants and a company Polygraph Products Pty Limited ("Polygraph") on the other. The applicants allege that the respondent contravened the provisions of s. 52 of the Trade Practices Act 1974 by making misleading representations that it intended to grant to the applicants, or some of them, and to Polygraph, a consolidated loan to replace various existing loans, aggregating in the vicinity of $1 million, and to include a further advance of $150,000. It is common ground that no consolidated loan ever eventuated; on the contrary, notices of demand were issued in respect of all moneys owed. The second claim made against the bank arises out of the sale by it, as mortgagee, of a rural property known as Cryon Park, near Moss Vale, belonging to Mr and Mrs Donald Benson; of some appurtenant crown leases; and of an adjacent property known as Hidden Valley, belonging to Polygraph. The applicants allege that the bank was guilty of breaches of its duty as a mortgagee exercising its power of sale.

1. It is convenient to begin a recital of the facts, out of which these disputes arise, by stating the position as I find it appeared to the bank in late 1986. At that time, large sums were owed by Polygraph to the bank on overdraft, and the bank had placed the company's overdraft account in reduction. The debt was secured principally by a registered equitable mortgage over the company's assets and guarantees by Mr and Mrs Donald Benson supported by a mortgage over Cryon Park. The bank was concerned that these securities might prove insufficient, since no reasonably up-to-date financial statements were available in respect of Polygraph (and certainly no audited ones). The debt of Polygraph had grown rapidly, by reason of a spate of inadequately funded acquisitions of the businesses of other companies that were in liquidation. Mr William Benson appeared to be very much in charge of Polygraph and its associated companies, Mr Donald Benson having sequestered himself at Cryon Park, where he was engaged in the raising of cattle. Mr William Benson had not responded satisfactorily to requests by the bank for financial statements, and had admitted being undercapitalised to sustain the proliferation of activities in which the company had engaged. Although this was not then known to the bank, Polygraph had in fact entered into a very large contract with the New South Wales government, the viability of which depended upon the exchange value of the Australian dollar, a value then already moving against the company. Even without knowledge of the last matter, the bank considered it necessary to transfer the accounts of Polygraph and associated companies to the Parramatta branch, where they could more readily be controlled by the regional office of the bank. It was made plain to Mr William Benson on 17 October 1986 that the bank intended to arrange for an investigating accountant to examine Polygraph's business, once the necessary financial statements for the year to 30 June 1986 had been received.

2. Officers of the bank had expressed their perturbation for some time. By a letter dated 18 July 1986 the bank had sought payments in reduction of a number of different loans, in each case "as soon as possible", and had confirmed that:
   

"financial statements for the three companies (i.e. Polygraph, Don Benson Pty Limited and another member of the group, Lettering Machines of Australia Pty Limited) at least to 31-3-86 are required as a matter of urgency".

On 21 August 1986, the bank had written to Polygraph, referring to its and related accounts, cancelling overdraft arrangements and stating "the Bank is most concerned at the unsatisfactory manner in which the accounts have been conducted to date". On 17 November 1986, Mr K M Reid, a chief manager of the bank who was in charge of its Cumberland region, wrote to Mr William Benson as director of Polygraph, referring to Polygraph and "associated accounts", to express disappointment that "very material reductions" promised by Mr Benson had not eventuated, while cheques had been issued without covering funds. The letter adverted to a meeting at the Parramatta branch late the previous month and contained a paragraph in the following terms:

"As discussed also at the meeting, the Bank awaits urgently Financial Statements for your group, which you indicated would not take much to complete, except for the stock check. This information is most important in view of our desire to have an Investigating Accountant urgently complete an up-to-date analysis of the overall position."

Mr Benson was asked to contact the bank urgently and warned that it would "have to insist that arrangements are adhered to and the overall indebtedness substantially reduced". The letter set out details of account balances as at 14 November 1986, according to which a net amount of $937,328.92 was then owing to the bank after giving credit for a few accounts not in debit.

1. On 9 December 1986, after a visit by two senior bank officers, Messrs Bowden and Pigot, to Polygraph's premises, a further letter was written to Mr William Benson, as a director of Polygraph, requiring further securities in the form of equitable mortgages on the basis that it appeared certain assets, previously regarded as assets of Polygraph, had been disclosed to be assets of a company Mornway Pty Limited (which changed its name to Australian Drafting Supplies Pty Limited), and of Don Benson Pty Limited, or of Messrs William and Donald Benson. The letter reiterated "the Bank's concern at the lack of Accountant prepared financial statements for the Group", which were said to be "imperative for the Bank's analysis, not only for reason of present accommodation levels but to determine the extent of future assistance". Mr Benson's "very urgent attention" was again requested.

2. Being dissatisfied by Mr William Benson's continued failure to comply with the bank's repeatedly stated requirements, Mr Reid on 23 December 1986 wrote a further letter, which is of considerable significance in the case, to Mr William Benson, and forwarded a copy on the following day to Mr Donald Benson. The letter of 23 December 1986 covered the then situation in some detail. It was alleged by the applicants at the hearing that there were some errors in it, but these do not appear to have been the subject of any written rebuttal at the time. At any rate, the letter made plain that the bank was disappointed by what it regarded as the failure of Mr William Benson to make any real response to its previous letter and was "looking for early clearance in full" of the group's overdrawn accounts. The letter stated that "(i)nterest charged on the accounts in December has sent aggregate accommodation to new peak levels", and set out details revealing a net total debt of $1,002,963.10. It required that "firm and positive action" be taken to "have the financial statements completed for the group for the year ended 30 June 1986, plus interim financial statements now up-to-date for the full group of companies and firms", and demanded reduction of "the bank debts as a matter of extreme urgency and substantially from debtor collections, cattle sales and trading income". In a significant passage, the letter continued:
   

"Unless full clearance of all the accounts from outside finance is definite next month, we require the additional security documentation referred to in our letter of 9 December executed, and we would appreciate your advising Mr Pigot when it is convenient to call with the appropriate seals and other signatories to do this.

. . .

Because of the seriousness of the current position with the Bank and the fact that previous undertakings given by yourself have not been adhered to, a copy of this letter has been forwarded separately to your father, Mr Donald Benson, with the thought that you may need to liaise to bring about the reductions proposed, particularly so far as the cattle and Moss Vale accounts go. We will leave it to you to liaise with the other director and third party mortgagor, Mr Batt. We would also appreciate your not issuing further cheques requiring dishonour for lack of funds."

1. The bank's letters of 23 and 24 December 1986 produced a prompt reaction from Mr Donald Benson. He spoke to his son, decided to take a more active role in the affairs of the companies himself, and arranged to see Mr Pigot at the bank. That meeting took place on 6 January 1987. It is pivotal to the applicants' case under s. 52. According to Mr Donald Benson, there was discussion about whether Polygraph could afford repayments to the bank of an additional $10,000 per week, a question that he promised to look into. Mr Pigot then said:
   

"If the additional payments of $10,000 per week are maintained for three months and you provide additional securities which the bank is seeking the bank will organise a consolidated loan with lower interest and repayments over an extended period which will make it much easier for the company to repay the debt to the bank."

Mr Benson replied: "I will attend to this and a special meeting will be called for this purpose". It is this offer of a consolidated loan on which the applicants rely to establish misleading conduct on the part of the bank. For they ask me to infer that the bank did not intend to honour any such arrangement, but held out the hope of it in order to induce the applicants to provide the further securities sought in the bank's letter of 9 December 1986 and subsequently.

1. Mr Pigot could not be called to deny Mr Donald Benson's evidence, since he died prior to the institution of proceedings. However, his diary note is in evidence. It contains a detailed account of the meeting, at which it indicates Mr Warren Bowden, Acting Deputy Regional Manager of the bank's Cumberland region, was also present. It contains no mention of any representation to the effect alleged by the applicants, although it records Mr Pigot mentioning "that appropriate traders bills of sale and equitable mortgages are presently being prepared to support the present facilities, due to discrepancies in registration of companies/firms etc". Mr Bowden gave evidence that he was present, and he denied
   

"that there was any suggestion made to Mr Benson during the course of this meeting that the bank was considering consolidating the loan and/or providing a lower interest rate and/or permitting repayments to be made over an extended period of time and/or doing anything necessarily that would make it easier for the company or anyone within the group to make repayments over an extended period of time."

It was put to Mr Bowden in cross-examination that he did not in fact attend the meeting with Mr Benson and Mr Pigot, a suggestion which he refuted firmly. An internal memorandum, dated 7 January 1987, which confirms Mr Bowden's presence at the meeting and contains no suggestion of the making of the alleged representation, was typed by a Mrs Robinson (then Miss Murphy), who gave evidence that she was present and that the memorandum was in accordance with her day-old recollection at the time she typed it.

1. Mr Donald Benson also asserts that, in the conversation of 6 January, he told Mr Pigot "we need an extra $150,000". Mr Pigot, he claims, replied:
   

"We have looked at the overall picture and we are not happy because you have a whole stack of loans and it is hard for the bank to manage it. You have also got a lot of different accounts as well. If we lump it all into one loan we can manage it better and so can you. It will be over an extended period of time and at a much lower interest rate. You are paying at the moment between 18 and 22 percent depending on the particular loan. The type of facility that we have in mind would mean you paying something less than 18 percent overall which would be a significant saving to you."

I should say at once that it seems very improbable Mr Pigot would have said anything like that. The bank's diary notes and the correspondence show clearly that the bank was extremely concerned about what it saw as the mismanagement of the companies and the lack of any reliable information concerning their viability. Its unhappiness had much deeper roots than this alleged statement of Mr Pigot would suggest. And its repeated insistence upon substantial reduction or full repayment of moneys borrowed sits very uneasily with the alleged ready and affirmative response to the request for an additional $150,000 accommodation.

1. Mr Pigot's diary notes indicate that late in January 1987 he and a Mrs Keech, a bank officer, attended by appointment at the premises of the Polygraph group at Lidcombe to obtain execution of additional securities,
   

"including an equitable mortgage by Australian Drafting Supplies Pty Limited and an equitable mortgage by Don Benson Pty Limited, a bill of sale by Messrs Don and Bill Benson in connection with the Service Box operation and a guarantee for execution by all parties. It was explained that these documents are required to ensure that all assets support all debts which was the original intention, however, because ownership of certain assets vested in individuals and companies other than Polygraph Products Pty Limited, it was necessary to prepare additional documents."

Mr Pigot's note records also:

"Bill Benson at first flatly refused to execute the bill of sale as he wanted the assets of Service Box held out of any arrangement made in respect of Polygraph. I informed him there was no way the Bank would agree with this and that we would require those assets of Service Box to be charged in support of the debts of all the group. I pointed out that the ultimate beneficial owners of everything and the ultimate borrowers are the two Benson families therefore we would not agree to any standing out of any security. Mr Bill Benson maintained his stance and was arguing most forcibly on that point. However towards the end of our discussions he changed his mind and executed the bill of sale as did all others."

Jo-Ann Keech, a senior conveyancing officer of the bank, gave evidence that on 22 January 1987 she accompanied Mr Pigot, the then manager of the Parramatta branch of the bank (he was also Mr Reid's deputy in the Cumberland regional office of the bank), when they visited the premises of Polygraph to obtain the execution of a number of security documents. She gave a detailed account of the meeting, which confirms the diary note of Mr Pigot, and she expressly denied that anything was said either by Mr Pigot or by her about the provision of a consolidated loan for Polygraph or any member of its group. But Mr Donald Benson claims that the documents were only signed after Mr Pigot had said: "If I go back to the bank without these documents being signed, you will not get the consolidated loan, so you have to sign them." On his account, and on Mr William Benson's account too, Mr Pigot had also referred to the grant of a consolidated loan when arranging the appointment for the meeting. Mr William Benson's account has Mr Pigot saying after the execution of the documents: "It is just as well that you signed these documents. If you hadn't, that would have been the end of the consolidated loan."

1. According to the Messrs Benson, there was a series of references by Mr Pigot over the ensuing months, particularly in relation to further security documents required by the bank, to the bank's intention to grant them a consolidated loan including the provision of additional finance. Mr Pigot is also alleged to have said that the bank was "extremely happy with the way the reduction payments (were) being made". It is the applicants' case that the last additional equitable mortgage required by the bank was executed on 13 August 1987, and that, only a week later, the bank made demand for the outstanding moneys in flagrant disregard of the assurances which had procured the execution of the further securities.

2. The bank contends for a very different interpretation of events. Its case is that a large part of the moneys outstanding was payable on demand, so that it had no need to proffer assurances to support its insistence upon the provision of all the securities it required, particularly in respect of additional assets acquired by the use of funds belonging to Polygraph, in respect of which the bank already held a registered equitable mortgage intended to cover its entire undertaking. In any case, the bank denied the giving of any of the assurances alleged.

1. The climax of the relations between the applicants and the bank came on 20 August 1987. On that day, a meeting of Polygraph, attended by the Messrs Benson and a minority shareholder, a Mr Batt, together with an accountant Mr Brien, having noted "the apparent insolvency position" of the company, resolved "to attend as (scilicet at) the company's bankers, being the secured creditor to request they take action under the terms of the security it being the opinion of directors that the company should cease trading and not incur any further credit". The bank's records include a diary note of Mr Pigot recording a conversation by telephone with Mr William Benson a few days earlier, on 17 August 1987, in which Mr Pigot notes that Mr Benson, after referring to difficulties with Mr Batt,
   

"went on to float the idea of liquidating Polygraph Products Pty Ltd, selling its assets (not the farm - Benson's idea it (scilicet is) to `transfer' it to one of the other companies and for it to be still held by the CBA) and applying proceeds towards reduction of Polygraph's debts and thus releasing Batt. A large trade account (about $120,000-) would then rank as an unsecured creditor, presumably with some arrangement for eventual payment.

. . .

Mr Bill Benson was requested to put his proposals in writing to us and we await his formal representations."

After the passing of the resolution at the meeting of Polygraph, but on the same day, the Messrs Benson called on the bank, accompanied by Mr Brien, who brought with him a report showing, not only that Polygraph was insolvent, but that the gap between its assets and its liabilities was of the order of $700,000. They saw Mr Pigot and another bank officer, a Mr Battle. What the Messrs Benson had in mind was persuading the bank to co-operate in their plan to transfer the business of Polygraph to another company in the group, which might continue to trade unembarrassed by Polygraph's insolvency or the large unprofitable contract with the New South Wales government. Continued escalation of costs, caused, it was said, by the collapse of the Australian dollar, had turned the government contract into a serious drain upon Polygraph's resources. Not surprisingly, as it seems to me, this scheme did not appeal to the bank. Mr Battle, perhaps accompanied by Mr Pigot, excused himself in order to confer with Mr Reid, and upon returning to the meeting served notices on the Messrs Benson with a view to the calling up of the loans. Very shortly thereafter, further notices were served on companies in the group and on the other applicants.

1. It was debated at the hearing whether the bank's action was precipitated by the company's resolution and the proposal put to the bank on 20 August 1987. The applicants contended that, as the notices had admittedly been prepared prior to the meeting, I should reject that idea out of hand. According to the contention put on behalf of the applicants, the bank was simply taking the final step in a deep-laid plan, having always intended to call up the loans upon obtaining execution of the last of the security documents. However, the terms of Mr William Benson's telephone advice to Mr Pigot of 17 August are quite sufficient to explain the preparation of the notices in advance of the meeting of 20 August. The evidence of Mr Battle was that he prepared the documents on the instructions of Mr Reid, and gave them to Mr Pigot shortly before the meeting:
   

"I told him (i.e. Mr Pigot) that I had to go and see Mr Reid once we learned what they were there for and seek instructions from him as to whether they (i.e. the notices) were to be served."

Mr Battle did in fact go to Mr Reid's office for instructions, as to whether or not he should serve the documents, before service was effected, and he discussed the matter with Mr Reid for some 10 or 15 minutes. The terms of the discussion were no longer remembered by Mr Battle, but he did recall obtaining "instructions from Mr Reid to tell Mr Pigot to serve the demands". Mr Reid's evidence was that the decision was taken to serve the documents "in the course of the meeting that was in train with Mr Don Benson and Mr Bill Benson and the final decision was triggered by the report that they produced at the meeting". It was he who made the decision to serve the documents.

1. Having heard both Mr Reid and Mr Battle cross-examined, I have no hesitation in accepting their evidence. I find that the decision to serve the notices was precipitated by the report of Mr Brien, which the bank accepted as demonstrating the insolvency of Polygraph. Mr Pigot being deceased, and Mr Reid's recollection being deficient in respect of his original decision to request Mr Battle to prepare the notices beforehand, I have considered the circumstances, and I infer that the notices were prepared following the telephone advice received by Mr Pigot from Mr William Benson. That inference does not affect my conclusion that there was no final decision to serve the notices until the production of Mr Brien's report, which then led to the decision.

2. However, the first question raised by the s. 52 claim is whether the Messrs Benson should be accepted when they give evidence of the oral representations they claim were made to them. I have not traversed in these reasons all the pieces of evidence which bear in some way on that question. I have not referred, for example, to evidence concerning a later interview with a very senior officer of the bank, a Mr Hatton, in which Mr Donald Benson might have been expected to refer to the representations but, according to Mr Hatton, did not do so. I will simply note that I accept the evidence of Mr Hatton. On the other hand, I have not referred to some support which the Messrs Benson received from the evidence of Mr and Mrs Batt. I have, however, taken all the evidence into account, and particularly each piece of evidence to which I was referred by counsel for the applicants. Having done so, I have reached a clear conclusion that I should not accept the account given by the Messrs Benson. That conclusion is based in part on the evidence, which I find trustworthy, of a number of bank officers, including Mr Bowden and Mrs Robinson, who denied the allegations made by the Messrs Benson; in part on my view of the probabilities inherent in the situation; and in part on my impression of the Messrs Benson themselves. It seemed to me that the vital evidence was a reconstruction. Neither witness impressed me as reliable, and Mr William Benson, in particular, was exposed more than once in cross-examination as unreliable. Neither do I accept the supporting evidence of Mr Ian Benson, whose oral testimony was somewhat at odds with his affidavit. I see no reason to doubt the honesty of the evidence of Mr and Mrs Batt, with whose demeanour I found no fault; however, the possible influence of the strong assertions of two associates ought not to be overlooked: in any case, witnesses who appeared to me reliable are overwhelmingly to the contrary. On the whole of the evidence, I do not accept that the representations alleged by the applicants were made. The s. 52 claim must therefore be dismissed.

3. In order to examine the remaining claim made by the applicants in the case, their claim that the respondent acted in breach of its duties as a mortgagee exercising its power of sale when it sold certain real estate at Moss Vale, I must carry forward the account I have given of the events. After the service of the notices of 20 August 1987, the bank took steps to enforce its equitable securities in relation to Polygraph and certain associated companies. It is unnecessary to examine these steps, since claims made in the applicants' second further amended statement of claim in relation to them were abandoned at the hearing. However, the bank also took steps to exercise its power of sale under mortgages of a cattle grazing property owned by Mr and Mrs Donald Benson (together with certain special crown leases), known as Cryon Park, and an adjacent property belonging to Polygraph, known as Hidden Valley. The bank instructed Dalgety Farmers Limited trading as Dalgety Winchcombe FGC ("Dalgety") to act as its agent and auctioneer. There, the matter was handled by a Mr Crowe, a real estate salesman with long experience in the rural property section of the company. Mr Crowe submitted a draft advertising schedule and draft advertisements to the bank for approval in August 1988, and a proposed date for sale by auction was fixed for 21 October 1988. There was a last minute deferral of the auction until 9 November 1988, apparently by reason of an administrative error on the part of the bank. Mr Crowe took appropriate steps to ensure that persons interested were advised of the new date, and no complaint was pressed about those steps. On 9 November 1988, the property was passed in, there being no bids.

4. Following the unsuccessful auction, Mr Crowe attempted to obtain private offers from persons who had shown some interest, without success. He also spoke to Mr Donald Benson, suggesting that the state of the property was a factor bearing on the likelihood of obtaining a satisfactory offer. According to Mr Crowe's evidence, which I accept, Cryon Park and Hidden Valley were in a generally run-down condition, such as might deter prospective purchasers. Mr Crowe made specific suggestions to Mr Benson in relation to Cryon Park, which Mr Benson promised to carry out, but later Mr Benson said he had not had the time and, on another occasion, that the weather had not allowed him to do the work.

5. Ultimately, the properties were advertised for auction again on 19 June 1989. Two of the applicants, Mr and Mrs Donald Benson, together with Polygraph, applied to this Court for an interlocutory injunction restraining the sale. The application was heard by me on 19 June 1989. After referring to Inglis v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164; Glandore Pty Limited v. Elders Finance and Investment Company Limited (1984) 4 FCR 130; and Batemans Bay Holdings Pty Limited v. Elders Finance and Investment Company Limited (unreported, Burchett J., 5 September 1986), as well as a number of other decisions, I held that the case was not one where it was appropriate to grant interlocutory injunctive relief, and that the applicants must be left to assert the remedy of damages. The auction accordingly proceeded, Hidden Valley being offered first and passed in at $275,000, and Cryon Park being passed in without any bid. After some negotiation, Hidden Valley was sold on 19 June 1989 for $320,000, and Cryon Park was sold on 22 June 1989 for $550,000. As the special leases were included in the sale of Cryon Park, the total amount paid for the properties was thus $870,000.

6. Prior to proceeding to auction, the bank had obtained two independent valuations, from a Mr Carpenter and a Mr Friend. Both were qualified valuers with considerable local experience. Both, I am satisfied, carried out the task of valuation diligently and competently. Mr Carpenter, in September 1988, placed upon Cryon Park a value of $595,000 and upon Hidden Valley a value of $270,000. These figures were up-dated by Mr Carpenter in April 1989, when he confirmed that Cryon Park had not increased in value, and added "it would not sell readily in the present economic climate"; but expressed the view that Hidden Valley had increased in value to $325,000. On Mr Carpenter's figures, the properties were accordingly worth a total of $920,000. Mr Friend valued the properties together at somewhat less; his figure was $885,000, but his assessment was made as at August 1988.

7. Although the applicants called evidence to support the attribution to the properties of values ranging from $1.2 million to $2.2 million, based in large measure on the tourist potential allegedly possessed by the land, this evidence was ultimately relied upon only as going to the question of damages. The sole basis on which it was submitted the bank had been in breach of its duty as a mortgagee exercising its power of sale arose out of a quite separate matter. I should add that I do not think the applicants could, in any event, have succeeded upon a case asserting a failure by the bank to take sufficient account of the tourist potential of the properties. Although the applicants asserted, prior to the sales, that the valuations obtained by the bank were inadequate, and that they had obtained much higher valuations which they would furnish to the bank, it is not suggested they ever did so. Nor am I satisfied that the land actually had the claimed additional value.

8. The evidence on which the applicants rely relates to the unsuccessful auction of the properties in 1988, not to their final sale in 1989. According to Mr Donald Benson, he had attempted to arrange a sale of Hidden Valley, which he had placed in the hands of an agent, a Mr Keith Bowles, in early July 1988. In September 1988, he telephoned the bank to speak to a Mr Paul Landrigan, a Loans Administration Officer for the Western Metropolitan (NSW) Zone. Mr Benson's account is that he said to Mr Landrigan: "I have a buyer for Hidden Valley for $750,000. I need a letter from you giving permission for the sale to go ahead." Mr Landrigan replied: "The property belongs to the bank. You have no right to sell it. If a contract is issued and sent to us we will tear it up." Upon Mr Benson protesting: "But the sale will reduce the debt considerably", Mr Landrigan responded: "It is too late. The Bank will dispose of the property as it sees fit."

9. Mr Landrigan, in evidence, acknowledged that he had had a similar conversation with Mr Donald Benson "a couple of days before 9 November 1988", the deferred date for the auction. It was not in September. Mr Benson did claim to have a buyer for Hidden Valley, and may have mentioned a figure of $750,000. According to Mr Landrigan, his own response was:
   

"The auction is on in a few days time and we are committed to the auction. Why don't you get the party concerned to go through Dalgetys? Based on our figures it probably would be acceptable to the Bank if there was an offer in that sum of money. Also if he is really interested he could bid at the auction."

Mr Benson replied: "I want to sign a contract now." Mr Landrigan, in effect, repeated his previous explanation of the position, only to be met with a repetition of Mr Benson's insistence upon signing a contract at once. Mr Landrigan acknowledges that the conversation then became somewhat heated, and that he may have said: "If you send us a contract I will rip it up." It cannot be denied that Mr Landrigan's choice of language was unfortunate. A large bank, and perhaps particularly the Commonwealth Bank, will not merit the approval of reasonable people by trampling upon understandable concerns expressed by its clients. However, Mr Landrigan's impatience, if unjustified by what was actually known to him, would at least have been comprehensible if he had known the true situation. For in fact Mr Donald Benson did not have a buyer. He had simply been informed by Mr Bowles, according to the applicants' own case, of the existence of a South Australian investor who had expressed interest in inspecting Hidden Valley on the basis that it was available for purchase at the sum of $750,000. That is a far cry from having a buyer with whom it was necessary to sign a contract immediately.

1. Furthermore, as counsel for the bank pointed out, no attempt was made on behalf of the applicants to provide any evidence from the investor himself to demonstrate that the prospect of selling Hidden Valley at $750,000 had some reality. As might have been expected, the identity of the investor could have been ascertained by the use of the records of the agent, Mr Bowles. He had not, indeed, recorded the man's name, but he had recorded the name of his company, which had paid a deposit on another property. In all the circumstances, I am not persuaded that there was in fact any substance in the possibility that a different response from Mr Landrigan may have led to a sale of Hidden Valley, particularly as I find that Mr Benson was invited to pursue the matter, although through the medium of the auction, which was then imminent. In so saying, I accept the version of Mr Landrigan, who appeared to me to give his evidence frankly, and indeed to display an ability to recognise the shortcomings in his own response to Mr Benson's telephone call.

2. The nature of the duty owed by a mortgagee, when exercising a power of sale, is a matter of some controversy. In Forsyth v. Blundell (1973) 129 CLR 477 at 506, Mason J. referred to "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 cases were reviewed in careful detail by Hill J. in Bourke v. Beneficial Finance Corporation Limited (unreported, 30 January 1991), where his Honour pointed out that, in two early High Court decisions, the mortgagee's duty was stated as a duty to exercise his power in good faith: Barns v. Queensland National Bank Ltd (1906) 3 CLR 925; Pendlebury v. Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676. Hill J. concluded (at 36):
   

"(A)s a single judge, I am bound by, and would follow the earlier cases in the High Court, to the extent that so to do would make any difference on the facts of the present case."

He therefore applied to the facts before him the test more favourable to the mortgagee, that of good faith, pointing out that it had obtained an appraisal of value, upon which he held it to be "entitled to rely".

1. The two early High Court decisions, Barns and Pendlebury, were also taken as establishing the basic proposition of law, applicable to a mortgagee's duty in the exercise of his power of sale, in Southern Goldfields Ltd v. General Credits Ltd (1991) 4 WAR 138, a decision of the full court of the Supreme Court of Western Australia. See also Papicroft Pty Limited v. Elders Finance Limited (Cole J., unreported, 22 November 1991) and cf. Johnson v. AGC (Advances) Limited (Lockhart J., unreported, 21 May 1992). The even more recent decision of the Court of Appeal of Queensland in Emerson v. Custom Credit Corporation Limited (Pincus and Davies JJ.A. and Williams J., unreported, 22 June 1992) seems to have turned on the statutory provision made by s. 85(1) of the Property Law Act 1974 (Qld).

2. It is unnecessary for me to examine these authorities in detail, since even if I were to apply the more stringent test against the mortgagee, the result would be the same. I am satisfied that the applicants have failed to make out any case of a breach of the mortgagee's duty, judged by either test. They have not shown any lack of good faith, nor any failure to take reasonable precautions to obtain a proper price.

3. There remains for consideration a proceeding brought by the mortgagee in the Supreme Court of New South Wales, transferred to this Court under the cross-vesting legislation, and thereafter consolidated with the proceeding I have been considering. In that matter, number NG 512 of 1992, the bank seeks an order against Mr and Mrs William Benson, requiring them to deliver up possession of the house and land where they reside, which is the subject of one of the securities provided to the bank as earlier mentioned. It was expressly conceded by senior counsel for Mr and Mrs William Benson that no separate issue was raised, either in defence of the bank's claim against them, or by their cross-claim; they simply relied on the matters pursued in the application in which they were applicants, claiming that the mortgage which they had executed should be set aside under s. 87 of the Trade Practices Act. As that application has wholly failed, there is no defence to the bank's claim. However, I was asked, if I should be of this view, to afford Mr and Mrs William Benson the opportunity to make any submission in support of a postponement of possession, open to them on discretionary grounds, before the entry of an order for possession. The form of order I shall make will allow that opportunity.

1. For these reasons, the application brought against the bank should be dismissed with costs, and in the application brought by the bank there should be an order for possession, postponed for such period (if any) as may be appropriate in the light of any submissions which may be put to the Court in that regard. I direct that the bank bring in, on a date to be fixed, short minutes of the orders appropriate to be made in accordance with these reasons. If factual matters are to be put to the Court by Mr and Mrs William Benson in support of a postponement of possession, I direct that this be done by affidavit, and that any affidavit be filed and served by the date being seven days before the date to be fixed for consideration of short minutes. Any affidavit in answer on behalf of the bank is to be filed and served by 4 pm on the preceding day.