Brueckner v The Satellite Group (Ultimo) Pty Ltd - [2002] NSWSC 378

No judgment structure available for this case.

CITATION: Brueckner v The Satellite Group (Ultimo) Pty Ltd & Ors [2002] NSWSC 378

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 3949/00

HEARING DATE(S): 26/03/02-28/03/02

JUDGMENT DATE: 23 May 2002

PARTIES :

Peter Brueckner (Plaintiff)
The Satellite Group (Ultimo) Pty Limited (Receiver and Manager appointed) (First Defendant)
Westpac Banking Group (Second Defendant)
Gregory Joseph Fisher (Third Defendant)
Jonathon Broster (Fourth Defendant)
Suzanna Mary Broster (Fifth Defendant)

JUDGMENT OF: Campbell J

COUNSEL : R Evans (Plaintiff)
D R Pritchard (Second Defendant)
T D Castle (Fourth & Fifth Defendant)

SOLICITORS: McKell's (Plaintiff)
Henry Davis York (Second Defendant)
Morgan Lewis Alter (Fourth & Fifth Defendant)

CATCHWORDS: CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - trusts, equities and unregistered instruments and interests - effect of information, received prior to acquiring interests, that someone else might have an interest in the land - whether personal equity arises from taking benefit of a transaction and consequently being required to bear burden of that transaction - CONVEYANCING - RELATIONSHIP OF VENDOR AND PURCHASER - breach of contract - failure of vendor to convey - - time for assessment of damages - whether damages recoverable for loss of rent from property - GUARANTEE AND INDEMNITY - discharge of surety - failure of creditor to protect security - appropriate remedy - EQUITY - remedy for breach of equitable duty - relationship of remedy to rationale for equitable duty - GUARANTEE AND INDEMNITY - discharge of surety - failure to disclose unusual features of transaction - need for failure to disclose to amount to misrepresentation justifying rescission - GUARANTEE AND INDEMNITY - discharge of surety - Garcia v National Australia Bank equity - GUARANTEE AND INDEMNITY - discharge of surety - guarantee procured by undue influence of husband

LEGISLATION CITED: Conveyancing Act 1919
Land Registration Act 1925 (UK)
Land Transfer Act 1952 (NZ)
Real Property Act 1877 (Qld)
Real Property Act 1900, s 42
Supreme Court Act 1970

CASES CITED: Armory v Delamirie (1722) 1 Stra. 505; [93 ER 664]
Bahr v Nicolay [No.2] (1988) 164 CLR 604
Bailey v Namol Pty Ltd (1994) 125 ALR 228
Barclays Bank Plc v O'Brien [1994] 1 AC 180
Baxter v Obacelo Pty Ltd (2001) 76 ALJR 114; [2001] HCA 66
Bogdanovic v Koteff (1988) 12 NSWLR 472
Breskvar v Wall (1971) 126 CLR 376
Buckeridge v Mercantile Credits Ltd (1981) 56 ALJR 28; (1981) 147 CLR 654
Canson Enterprises Ltd v Boughtom and Company (1991) 85 DLR (4th) 129
Capel v Butler (1825) 2 Sim. & St. 457
Commonwealth Bank of Australia v Horkings [2000] VSCA 244
Diamond v Campbell-Jones [1961] Ch 22
ER Ives Investments Ltd v High (1967) 2 QB 379
Frater v Finlay (1968) 91 WN (NSW) 730
Frazer v Walker [1967] 1 AC 569
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Garofano v Reliance Finance Corporation Ltd (1992) NSW Conv R 55-640
Gibbs v Messer [1891] AC 248
Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829
Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202
Hadley v Baxendale (1854) 9 Ex Ch 341
Johnson v Perez (1988) 166 CLR 351
Lyus v Prowsa Developments Ltd [1982] 2 All ER 953
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Midland Montague Australia Ltd v Harkness (1994) 35 NSWLR 150
Munro v Stuart; Friedman v Barrett; ex parte Friedman [1962] Qd R 498
Northern Banking Co Limited v Newman and Calton (1927) IR 520
Northern Banking Co v Newman and Colton (1927) IR 520
O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Ortel v Hordern (1902) 2 SR (NSW) (Eq) 37
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Registrar General v Behn (1981) 148 CLR 562
State Bank of New South Wales v Chia (2000) 50 NSWLR 587
Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722
Strange v Fooks (1863) 4 Giff 408; 66 ER 765
Tang Man Sit v Capacious Investments Ltd [1996] AC 514
Tataurangi Tairuakena v Mua Carr [1927] NZLR 688
Tito v Waddell (No.2) [1977] Ch 106
Vassos v State Bank of South Australia [1992] V Conv R 54-443
Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668
Williams v Frayne (1937) 58 CLR 710
Wulff & Billing v Jay (1872) LR 7 QB 756
Yerkey v Jones (1939) 63 CLR 649

DECISION: No personal equity established against mortgagee of premises. Damages awarded against vendor for failure to convey. Liability against one guarantor reduced by value of security lost through negligence of plaintiff. Another guarantor discharged completely from liability through National Australia Bank v Garcia equity, and also undue influence.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

23 MAY 2002

3949/00 PETER BRUECKNER v THE SATELLITE GROUP (ULTIMO) PTY LIMITED (RECEIVER MANAGER APPOINTED) & ORS

JUDGMENT

HIS HONOUR:

Nature of the Claim

1 In July 1997 Mr Brueckner entered into contracts to purchase two home units from The Satellite Group (Ultimo) Pty Limited (“Satellite Ultimo”). The purchase was made “off the plan”, at a time when the building in which the home units were proposed to be situated had not been constructed. He paid the whole of the purchase price to Satellite Ultimo. At the time of entering those contracts, he obtained a guarantee of performance from each of the third, fourth and fifth defendants, who were the directors and secretary of Satellite Ultimo.

2 Satellite Ultimo subsequently mortgaged the land on which it was proposed to build the home units, to the second defendant (“Westpac”). Before Westpac took its mortgage, it was informed that the plaintiff (and numerous other people) had entered into contracts to purchase identified home units in the building.

3 Satellite Ultimo encountered financial problems, and a receiver was appointed to it soon after the building was completed. Westpac has exercised a mortgagee’s power of sale in relation to the two units which Satellite Ultimo had contracted to sell to the plaintiff.

4 The plaintiff asserts, in these proceedings, that Satellite Ultimo and Westpac held their legal rights in the home units upon trust for the plaintiff; a declaration that the proceeds of sale are held on trust for the plaintiff; an order for payment of those proceeds of sale to the plaintiff; an order restraining Westpac from paying any surplus to Satellite Ultimo, and equitable compensation. Alternatively, he seeks to enforce a charge over the land, for the purchase price which was paid, plus interest. Alternatively, he seeks damages against Satellite Ultimo, for breach of contract.

5 Against the guarantors, the plaintiff seeks to recover an amount equal to the damages for loss of bargain which he has suffered when Satellite Ultimo did not perform its contract.

The Contracts to Purchase

6 On 25 July 1997, Mr Brueckner entered two contracts with Satellite Ultimo (at that time Satellite Ultimo was known as the Satellite Group Pty Ltd; it changed its name on 12 August 1997). One contract related to apartment number 56, and car parking space number 126, while the other related to the purchase of apartment number 65, and car parking space number 153.

7 The contract for each, in the form of the 1996 edition of the Standard Form Contract of the Law Society and the Real Estate Institute of New South Wales, was supplemented by various special conditions and annexures. The terms of the contracts were not materially different, one from the other, save that the purchase price under one contract was $119,000, and the purchase price under the other was $156,000. Each contract made provision for a deposit, equal to the totality of the purchase price.

8 Each contract identified the land to be sold by stating an “address”, which was an apartment number and car parking space defined by reference to a draft strata plan which was annexed to the contract, and a “title” which was said to be, “to be converted by the Vendor to a Strata Title from the land titles referred to in the first schedule to this contract”. The first schedule listed five Folio Identifiers under the Real Property Act 1900, and another parcel of land identified as the land in a particular registered old system title conveyance, which was said to be currently the subject of a primary application, the number of which was stated.

9 In each contract, the front page showed that Nicholas G Pappas acted as the solicitor for the purchaser, and that Day Dockrill acted as solicitors for the vendor.

10 Each included, as one of the conditions in the standard form, a clause 2.8 reading:

“If any of the deposit or of the balance of the price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion.”

11 Special condition 3.1 contained an acknowledgment by the purchaser that completion of the contract could not take place until (in summary):

- the primary application, for that part of the site which was still under old system title, had resulted in a folio identifier being issued,

- thereafter, a plan of subdivision had been registered in the Land Titles Office consolidating all the land comprising the site into one lot, under the provisions of the Real Property Act 1900

- once the building was completed, the building was subdivided into two strata lots (which together would comprise a stratum plan of subdivision)

- that each strata lot within the stratum plan of subdivision would in turn be subdivided by a strata plan of subdivision

- that a strata management committee, appointed under a strata management statement to be filed in the Land Titles Office would be appointed

- that a strata plan of subdivision had been registered in the Land Titles Office

- that all necessary easements and rights of way had been granted and preserved (either by instrument(s) under section 88B of the Conveyancing Act 1919, or otherwise), so that the proprietor of each lot in each strata plan of subdivision would be entitled to enjoy the common facilities of the building

- that any necessary easements for the provision of services to the building had been created.

12 Clause 4.1 said that the date for completion would be 14 days after the solicitor for the vendor serves written notice on the purchaser or his solicitor, stating that all the conveyancing documents referred to in special condition 3.1 had been registered by the Registrar General.

13 Each contract included the following special conditions.

“4.2 If the strata plan of subdivision together with all other plans, strata management statement, 88B instrument(s) and easements which are referred to in special condition 3.1 above have not been registered by the Registrar General on or before 28 February 2000, or by any extension of this date pursuant to the terms of 4.3 hereunder, then either party may rescind this contract where upon the Purchaser shall be entitled to a refund of the deposit together with all the interest accrued thereon but the Purchaser shall not otherwise be entitled to any claim or remedy against the vendor for the payment of any damages, costs or expenses arising out of the fact that the strata plan of subdivision on which the apartment forms part, together with all other plans, statements, 88B instrument(s) and easements, have not then been registered by the Registrar General.

5 Caveats

It is an essential condition of this contract that the Purchaser shall not lodge any caveat over any part of the title to the land comprising the Site which shall, or may have the effect, of preventing or delaying the registration of the consolidated plan of subdivision, the stratum plan of subdivision, the strata plans of subdivision, the cancellation, release or registration of any 88B instrument or easement or any right or restriction referred to in or contemplated by this Contract, or which might otherwise prevent the registration of any mortgage, discharge of mortgage, or variation of mortgage to which the vendor is a party and which mortgage is, or was associated with, the funding of the acquisition of the site, or the construction on the site of the Building by or on behalf of the Vendor.

9.1 If prior to completion the purchaser…being a company [has a]…receiver appointed…then in such event the Vendor by written notice to the Purchaser or his Solicitor, shall be entitled to rescind this contract, whereupon the provisions of clause 19 of the contract shall apply. The provisions of this Special Condition shall apply for the benefit of the Purchaser with all appropriate alterations, to the intent that the Purchaser shall also be entitled to rescind this contract in the event that the vendor should have a…receiver appointed…”

14 Each contract contained a guarantee, in the following form:

GUARANTEE AGREEMENT

To: The Purchaser under this Contract

1. We Gregory Joseph Fisher of 10/33 Southern Crescent, Darling Point, Suzanna Mary Broster and Jonathan Broster of 34 Pearl Bay Avenue, Beauty Point being directors and company secretary of the Vendor under this Contract.

2. In consideration of you agreeing to enter into this Contract with the Vendor we hereby jointly and severally unconditionally guarantee you the obligations of the Vendor under this Contract and the due performance of the Vendor’s obligations under this contract and punctual payment by the Vendor of all monies due to be paid by the Vendor under this Contract”

15 On exchange of contracts, Mr Brueckner paid the total purchase price, namely $275,000. He permitted the purchase price to be released to Satellite Ultimo.

Westpac’s Involvement in Providing Finance to Satellite Ultimo

16 On 22 August 1997 Ashe Morgan Winthrop (“AMW”), finance brokers, made an application on behalf of Satellite Ultimo, to Westpac, for financing. Facilities of $15m were requested. An amount of $5.6m was requested, to pay out the mortgage held by the then first mortgagee of the site, Medi-Aid Foundation. A further $9.4m facility was requested, in the form of a “guaranteed take out/bank guarantee” to provide a security for the builder or the builder’s bank.

17 The AMW letter proposed, as a condition precedent to this second facility:

“the obtaining by the developer exchanged pre sales (with a full 10% deposit) equating to 110% of the guaranteed amount, ie approximately $10.3 million.”

”The predominant security with respect to this guarantee is the pre sale contracts. To that extent, we will ensure that all contracts have a full 10% deposit and have been properly executed.”;

“Please note however that the likelihood that the guarantee ever being called is significantly minimised by the fact that the pre sale contract calls for completion by the purchasers no later than 30 days post practical completion, whereas the builder will only be able to call on the guarantee 60 days post practical completion, thereby allowing sufficient time for the proceeds of the pre sales to cover the construction contract.”

18 The application disclosed that an organisation called City West Housing had made a bulk buy of apartments in the building, at a discount to the market price. The pre sale contracts with City West Housing were to be excluded from the pre sales, the obtaining of which was to be a condition precedent for the second facility. Under the heading “Current Status” the application said:

“Total pre sales (excluding City West) stand at $10.0m with full 10% deposits paid. Including City West, approximately 70% of the development is committed. Further exchanges are booked in over the next week, which will increase the pre sales to approximately 80% of the development.”

“Sales Status Report as at 19th August 1997.”

“exchanged

“Brueckner

EXCHANGED”

“sold”

19 Mr Blix was the officer of Westpac who was responsible for processing this application. He went through the table in some detail, placing highlighting on each line in the table relating to a unit which was available, and placing ticks on some of the lines in the table. He read those portions which showed that the two units had been sold to Mr Brueckner.

20 Mr Blix says, and I accept, that he understood that this table was one which was produced by Satellite. He says that his experience is that details provided directly by the developers, of pre sales, are frequently unreliable and over-optimistic, and that the bank and he required, and always relied on, a statement from solicitors retained by the developers as to the actual pre sales achieved, and that the usual 10% deposits were held. He says that this is because those solicitors usually have the conduct of the relevant conveyancing involved, and are professional persons. While he accepted that AMW were a large and reputable broking firm, so far as the table annexed to the letter of 22 August 1997 was concerned, AMW were merely passing on information they had been given, so he could not derive any comfort about the accuracy of the table from AMW’s undoubted reputation.

21 On 18 August 1997 Holman Webb (who were acting as solicitors for Satellite Ultimo in connection with selling the units) sent a fax to Mr Broster, of Satellite Ultimo, saying, “I confirm that contracts for sale of the following apartments have been exchanged with a 10% deposit to date:” There followed a list which identified which respect to each of the eight levels of the building, those apartment numbers which had been sold, and the price at which each had been sold. That list revealed that a total of 25 units had been sold. That fax was passed on by Satellite Ultimo to Mr Blix.

22 Holman Webb’s fax came to Mr Blix’s attention after he received the AMW letter of 22 August. The reader will recall that the table annexed to the letter of 22 August 1997 had purported to set out the status of sales as at 19 August 1997, and showed 28 units sold. The Holman Webb fax dated 18 August 1997 listed 25 units as being sold. A comparison of the list in the Holman Webb fax and the tabled annexed to the AMW letter of 22 August 1997 shows that every apartment which the Holman Webb fax listed as being exchanged, is shown on the table annexed to the AMW letter as being exchanged, but in addition the table annexed to the AMW letter shows another three apartments as having been exchanged. These are the two apartments shown as having been exchanged with “Brueckner”, and apartment number 75 on level 3, shown as being exchanged with “Meredith”.

23 On 29 August 1997, Mr Blix wrote a discussion paper for other bank officers, which drew together some information about the lending proposal. A table set out the various types of units in the development (whether studio, one, two or three bedroom, or retail) and in relation to each of those types, stated the total number of units in the development, the number the subject of the City West sale, the number which were “pre sales 10% deposit”, and the “balance of units”. I infer that this table was prepared by Mr Blix, by comparing the Holman Webb fax of 18 August with the table annexed to the AMW letter of 22 August. That table stated, and the Holman Webb fax did not state, in relation to any particular unit number, the number of bedrooms it had. The numbers which Mr Blix shows in his discussion paper of 29 August for “pre sales 10% deposit” are exactly the numbers which one obtains, if one treats all the units identified in the Holman Webb fax as being pre sales, and finds out the number of bedrooms in each such unit by consulting the schedule to AMW’s letter of 22 August. I infer that this is exactly the exercise which Mr Blix engaged in to prepare that table in his discussion paper of 29 August 1997. This table demonstrates the correctness of Mr Blix’s evidence that he relied on a statement from the solicitor for the vendor about which apartments had been sold, rather than on a statement from the developer to that effect.

24 It follows from this that in Mr Blix’s discussion paper of 29 August 1997 the two units which the schedule to AMW’s letter of 22 August showed as being sold to Mr Brueckner, were not included in Mr Blix’s calculations of “pre sales 10% deposit”, and were included in his calculations of “balance of units”.

25 Mr Blix has given evidence that he did not go back and review the table annexed to the letter of 22 August to determine whether there was any difference between the solicitor’s letter and the table, and that until these proceedings were commenced, he was unaware there was any relevant difference between the solicitor’s letter and the table. He must have compared the two documents to produce the table in his discussion paper of 29 August, but there is no discrepancy involved in the fact that Holman Webb’s letter said that as at 18 August 1997, 25 contracts had been exchanged, and that the table asserted that as at 19 August an additional three contracts had been exchanged. Mr Blix had no reason to know that, while Holman Webb were acting for Satellite Ultimo in relation to most of the sales of units in the building, Day Dockrill had also acted for Satellite Ultimo in relation to the sale of two units to Mr Brueckner. Mr Blix goes on to say that he regarded the solicitor’s letter as accurate, and proceeded with his review and analysis of the application for finance on the basis that the solicitor’s letter was accurate. I accept his evidence in this respect.

26 Some time between 29 August and 3 September Mr Blix received (he does not say from where) and reviewed a table which showed the then status of sales. It was a spreadsheet which identified (amongst other things) unit numbers, and (in relation to any particular unit) whether there was a purchaser, and whether there was a 10% deposit. That table showed (leaving aside sales to City West) that, by that stage, 30 units had been sold, each of which had a 10% deposit. That table showed units 56 and 65 (those contracted to be sold to Mr Brueckner) as unsold, with no deposit. The table also identified units said to be “under deposit”, and identified in relation to each such unit a “depositor“. This referred to the situation where a potential purchaser was interested enough to have a left a “holding deposit”, but exchange had not yet taken place. The table showed 16 units in that category, not including units 56 and 65.

27 On 3 September 1997 Westpac wrote to Satellite Ultimo stating indicative terms and conditions on which it might be interested in providing finance. That letter listed conditions precedent, including:

“Pre sales of 46 units with a gross value of $16,431,000. This amount represents the current 31 units with exchanged contracts and the 15 currently awaiting to be exchanged. All pre sales will be subject to a 10% deposit. A copy of the exchanged contract and solicitor’s certificate confirming the 10% deposit is to be lodged with the Bank.”

28 Satellite Ultimo agreed to those indicative terms and conditions.

29 On 8 September 1997 Angus Hislop, of Richard Ellis, Valuers, wrote to Mr Blix requesting the information contained in a list. The tenth item on that list was “Schedule of apartment unit price list, including pre sales”.

30 On 8 September Mr Blix faxed Mr Fisher (one of the directors of Satellite Ultimo) saying:

“We have rec’d a fax from Richard Ellis for the valuation. We have some of the information required that we can send. It may be easier if we send all the information at once. Can you please phone to discuss.”

31 On 9 September 1997 Mr Fisher sent to Mr Hislop a, “folder containing all the information requested in accordance with your numbering.” A copy of his covering letter was sent to Mr Blix.

32 On 8 September 1997 Mr Blix prepared a “Credit Approval Summary”, a document designed to be sent to other bank officers so that they could decide whether to approve the lending. It included a similar table to the table which had been included in the discussion paper of 29 August 1997, showing the status of pre sales, save only that this time the table had an additional column showing “under deposit (awaiting exc.)”. The figures which Mr Blix included in this table, are ones which, I infer, he derived from the schedule which he received prior to 3 September 1997 (see paragraph 26 above). I say this because that schedule contains handwritten annotations down its left hand side in relation to units shown as sold, stating how many bedrooms they have, and the numbers in the table of “pre sales 10% deposit” in the Credit Approval Summary document tally with those handwritten annotations (Mr Blix’s handwritten annotations do not absolutely perfectly accord with what that table shows about units sold, but that does not effect the legitimacy of this reasoning process, which is derived from his annotations). Thus, the two units which had in fact been contracted to be sold to Mr Brueckner, were not included in the “pre sales 10% deposit” table of the Credit Approval Summary Document. That table showed a total of 31 pre sales, 15 under deposit awaiting exchange, and 13 as the “balance of units unsold”.

33 In that document, Mr Blix explained the bank’s exposure as follows (and here I expand some abbreviations which Mr Blix used). The TAE, or total assessed exposure (ie, the amount that the bank was considering committing itself to), was $14,890,000. As security for this, it would have property worth $20,035,000. This was made up as follows (with Mr Blix following the bankers’ convention of stating figures in thousands of dollars):

$ 3604

$20035

- “Settlement of the pre sales is to be 14 days post practical completion

- Draw down under the guarantee to be 90 days post practical completion

- Sunset clause in the sale contracts 28/2/2000

This structure will see the TAE covered 1.1* with pre sales and should ensure sufficient units have settled to repay the TAE prior to the Bank Guarantee being drawn”

34 Mr Blix went on to make a recommendation for approval, subject to (amongst other things),

“pre sales of at least $16431 (46 units) ex City West Housing sales. Solicitor to confirm that each pre sale has a 10% deposit and that there are no side-agreement which may dilute the value of the pre sale contract.”

35 On 15 September 1997 Richard Ellis prepared a valuation of the freehold, and of what the freehold would be worth if the development were completed. It included a schedule of the residential units, which showed in relation to each unit whether or not contracts were exchanged in relation to it. That schedule showed units 56 and 65 as not being exchanged. I infer that this is information which Richard Ellis had obtained from Mr Fisher, and that Westpac had reason to believe that it was information which Richard Ellis had obtained from Mr Fisher.

36 On 13 October 1997 Mr Fisher sent to Mr Blix, under cover of a letter which said, amongst other things, “As requested, we also enclose an updated sales list” a schedule of sales as at 12 October 1997. That schedule made provision for listing the name of a purchaser of a unit, and the amount of any deposit received. Those two items were blank in relation to units 56 and 65.

37 On 20 October 1997, after Satellite Ultimo had requested an increase and restructuring of the finance, Westpac sent another indicative letter of offer. It also included a condition precedent:

“Pre sales of 46 units with a gross value of $16,431,000. This amount represents the current 31 units with exchanged contracts and the 15 currently awaiting to be exchanged.

All pre sales will be subject to a 10% deposit. A copy of the exchanged contract and solicitor’s certificate confirming the 10% deposit and no other side agreement to the sale contract has been signed is to be lodged with the bank.”

38 On 23 December 1997, Satellite Ultimo and Westpac executed a facilities agreement. Also on 23 December 1997 Satellite Ultimo executed a mortgage in favour of Westpac over the land. However Westpac did not advance any money at that time. The mortgage was registered soon after it was executed.

39 On 24 December 1997, City West Housing Pty Ltd (which had had a mortgage over the land) executed a postponement of mortgage, so that it ranked after the mortgage granted to Westpac.

40 On 29 December 1997, Mr Blix wrote to Mr Fisher, asking for him to arrange for Holman Webb to certify the number of exchanged contracts, and the deposit held for each unit. On 7 January 1998 Holman Webb wrote a letter addressed to Westpac, and to Henry Davis York, solicitors, saying, “Holman Webb solicitors hereby certify that contracts for sale of apartments in the development known as The Powerhouse Apartments at Ultimo have been exchanged in accordance with the attached schedule.” The schedule listed 45 units as having had contracts exchanged. The two units which had in fact been contracted to be sold to Mr Brueckner were not included in that certificate.

41 On 13 January 1998, Mr Blix and another Westpac officer executed a “completion certificate” relating to a portion of the facilities then proposed to be drawn down, namely, $5,260,000 for purchase of land, and an additional amount for capitalisation of interest and fees for 20 months. The certificate included statements that:

“All conditions (including security) of the credit approval have been satisfied.

I am unaware of any unapproved third party interest in the assets secured by the above documents and, if I become aware of any third party interests, it will be referred immediately to Legal for review.”

42 On 14 January 1998, Satellite Ultimo drew down that portion of the facility.

43 On 17 June 1998, Satellite Ultimo granted another mortgage over the land, expressed to be subject to Westpac’s mortgage, to Paribas Australia Pty Ltd.

44 As late as 9 September 1999 an officer of Satellite wrote to Westpac enclosing a schedule of apartments in the building which had been exchanged. That schedule did not disclose the sale of the two home units to Mr Brueckner.

45 The strata plan over the building was registered on 24 January 2000. When the certificates of title relating to the two lots which had been contracted to be sold to Mr Brueckner were issued, on 9 March 2000, they were subject to the mortgage to Westpac, and also to a mortgage to City West Housing Pty Ltd. Three postponement of mortgage documents were noted on each title, but there was no mortgage beyond those to Westpac and City West Housing Pty Ltd.

46 On 14 March 2000, Mr Pappas, acting for Mr Brueckner, served on Satellite Ultimo a notice to complete the two contracts for sale. That notice was not complied with. On 3 April 2000 Mr Brueckner lodged a caveat, claiming an interest, “as purchaser under contracts for sale of land” against the two certificates of title which related to the units which he had contracted to purchase.

47 On 10 July 2000 Westpac appointed receivers and managers of Satellite Ultimo.

48 On 30 August 2000 Westpac served on Satellite Ultimo, a notice under section 57(2)(b) of the Real Property Act 1900.

49 On 23 October 2000 Young CJ in Eq declined to extend Mr Brueckner’s caveat, in consequence of which it lapsed.

50 Since then, the two units contracted to be sold to Mr Brueckner (and others the subject of Westpac’s security), have been sold. The debt secured by Westpac’s mortgage has been repaid from the net proceeds of sale. However, the receivership of Satellite Ultimo has not yet been concluded, so further fees and charges may need to be paid from the surplus funds presently held by the bank. Subject to those fees and charges, and any costs or liabilities arising from these present proceedings, Westpac holds a little over $348,000 from those proceeds. A Westpac officer has given evidence that Westpac proposes to hold that sum, less any further fees and charges payable to the receivers, as security for the costs of, and any judgment in, these proceedings, before providing any accounting to the first defendant regarding them. Westpac is willing to pay into court any surplus which might remain, so that Satellite Ultimo, Mr Brueckner, and the subsequent mortgagee, can argue about their respective entitlements to it.

Parties Represented in the Proceedings

51 The first defendant in these proceedings is Satellite Ultimo. It has been served with a statement of claim, but not appeared.

52 The third defendant in the proceedings, Gregory Joseph Fisher, is one of the directors of Satellite Ultimo. He has been served, and has filed an appearance. On the first day of the hearing his solicitor informed the court that Mr Fisher has become bankrupt. Counsel for the plaintiff accepts that this is so, and that in consequence any proceedings against Mr Fisher are stayed.

53 Westpac, and Mr and Ms Broster, were represented at the hearing which took place before me.

The Plaintiff’s Claim Against Westpac

54 The Real Property Act 1900 contains the following provisions:

Estate of registered proprietor paramount

(1)

[a list of exceptions not presently relevant]

Purchaser from registered proprietor not to be affected by notice

(1)

55 Sections 42 and 43 expressly recognise fraud as an exception to the indefeasibility of title for which the Real Property Act 1900 provides. Section 42(1) itself contains a list of exceptions to indefeasibility. As well, case law has established that a registered proprietor can hold its interest in land subject to an interest which is not registered if there is a “personal equity” or “right in personam” which binds the registered proprietor. In Frazer v Walker [1967] 1 AC 569 Lord Wilberforce, delivering the opinion of the Privy Council, said, at 585 that their Lordships accepted the general principle that registration under the Land Transfer Act 1952 (New Zealand):

Boyd v Mayor, etc of Wellington

Tataurangi Tairuakena v Mua Carr

Their Lordships refer to these cases by way of illustration only without intending to limit or define the various situations in which actions of a personal character against registered proprietors may be admitted.”

56 In Breskvar v Wall (1971) 126 CLR 376 the High Court of Australia applied Frazer v Walker to the Real Property Act 1877 (Queensland). In so doing Barwick CJ (who had been a member of the Board of the Privy Council which decided Frazer v Walker) said, at 385, of the statutory exceptions to indefeasibility:

“It is really no impairment to the conclusiveness of the register that the proprietor remains liable to one of the excepted actions any more than his liability for “personal equities” derogates from that conclusiveness.”

57 Windeyer and Owen JJ agreed with the Chief Justice.

58 Butt, Land Law 3rd edition, 1996 says at [2081] of these “rights in personam”:

Breskvar v Wall

Garofano v Reliance Finance Corporation Ltd

Transfer of Land

personal

Breskvar v Wall

59 The plaintiff asserts that Westpac had constructive notice of the plaintiff’s exchanged contracts and/or payment of the purchase price in full, in consequence of which it would be unconscionable and/or amount to fraud to take its mortgage free of the plaintiff’s equitable interest.

60 No argument was put to me which placed any reliance on section 124, or section 135 Real Property Act 1900.

61 The plaintiff relied on Bogdanovic v Koteff (1988) 12 NSWLR 472 at 479-480. Mr S Koteff had agreed with Mrs Bogdanovic that if she looked after him she could stay in his house for her life. Mr S Koteff died, leaving the house to his son Mr N Koteff. Probate of the will of Mr S Koteff was granted, and a transmission application relating to the house was registered, resulting in Mr N Koteff, the son, becoming the registered proprietor. It was after Mr N Koteff had become the registered proprietor, and tried to get Mrs Bogdanovic to move out, that he found out about the arrangement which his father had made with Mrs Bogdanovic. In the Court of Appeal the argument proceeded on the basis that the arrangement which Mrs Bogdanovic had reached with Mr S Koteff, would have been enough to have given her rights against him. The question for decision was whether Mr N Koteff, being a volunteer (by reason of being a beneficiary under his father’s will, who had acquired an interest in the land without providing any consideration), was able to take advantage of the indefeasibility provisions of the Real Property Act 1900. The decision of the Court was that Mr N Koteff could take advantage of those indefeasibility provisions.

62 Counsel for the plaintiff in the present case referred me to the passage where Priestley JA (with whom Hope and Samuels JJA agreed) said at 480:

“In the present appeal the appellant has not been able to point to anything in the New South Wales Act preserving the rights she had in regard to the land against the registered proprietor. She could have enforced those rights against Mr S Koteff and, I would assume, against his executor. But if knowledge of the appellant’s interest by Mr N Koteff before he became registered proprietor would enable her to assert her rights against him (a matter upon which it is unnecessary in this case to express any opinion) the materials earlier referred to show that there is no basis for holding Mr N Koteff knew anything which would put him on notice of those rights. Thus there was no material upon which the appellant could attempt to found an argument of any personal right against Mr N Koteff, nor was there any provision in the Real Property Act on which she could rely to prevent section 42 so operating that Mr N Koteff held his interest in the land as registered proprietor of an estate in fee simple “absolutely free” from any estate or interest in her.”

63 That Priestley JA, in this passage, saw it unnecessary to express any opinion on the question of whether Mrs Bogdanovic could have succeeded if Mr N Koteff had notice of her rights before he became registered, provides no basis for reaching a positive conclusion, in the present case, that notice by Westpac of Mr Brueckner’s contractual rights, before Westpac became a registered proprietor, would give rise to any right in personam on the part of Mr Brueckner.

64 The plaintiff also relied on Lyus v Prowsa Developments Ltd [1982] 2 All ER 953. In that case, a developer owned a building estate, subject to a mortgage to the National Westminster Bank. The developer entered a contract with Mr and Mrs Lyus, under which it contracted to build a house on a particular lot in the estate and, when complete, transfer that lot to Mr and Mrs Lyus. Before construction of the house began, the developer went into liquidation. National Westminster Bank sold the estate to the first defendant, on terms that the property was sold subject to, and with the benefit of, the agreement that the developer had entered with Mr and Mrs Lyus. The first defendant on-sold to the second defendant, again expressly on the basis that the sale was subject to the contract with Mr and Mrs Lyus, so far, if at all, as it may have been enforceable against the first defendant. The second defendant was, by the time of the trial, registered proprietor of the land, under the Land Registration Act 1925 (UK). Dillon J held that the second defendant was bound by a constructive trust, requiring it to give effect to the contract which Mr and Mrs Lyus had entered with the developer.

65 This decision was made in circumstances where his Lordship had decided:

“The plaintiffs’ contract with the [developer] had been entered into by the [developer] with the consent of the bank as mortgagee, but the bank had not had any negotiations with the plaintiffs and the bank was not a party to, or bound by, the contract. In particular, the bank was under no liability to the plaintiffs or anyone else to complete the building of the plaintiffs’ house. There is no doubt at all that the bank could have sold the estate, and plot 29 in particular, free from the plaintiffs’ contract. If the bank had done that, it is indisputable that the plaintiffs would have had no claim whatsoever against the purchaser.”

66 Because this was so, the provision which the bank inserted in the contract for sale with the first defendant, making that sale subject to the rights of Mr and Mrs Lyus, was not a provision inserted solely for the protection of the bank. In these circumstances, his Lordship held that, if the land had been unregistered, there would have been a constructive trust obliging the second defendant to give effect to the plaintiffs’ contract. His Lordship then went on to consider whether the fact that the land was registered made a difference, and said at 962:

Midland Bank Trust Co Ltd v Green

Miles v Bull (No.2)

Matrimonial Homes Act

Miles v Bull

It seems to me that the fraud on the part of the defendants in the present case lies not just in relying on the legal rights conferred by an Act of Parliament, but in the first defendant reneging on a positive stipulation in favour of the plaintiffs in the bargain under which the first defendant acquired the land. That makes, as it seems to me, all the difference.

67 I will not pause to consider the differences between the system of registration of title which exists under the Land Registration Act 1925 (UK), and under the Real Property Act 1900. There is a very significant difference between the facts of the present case, and the facts in Lyus v Prowsa Developments Ltd. In the present case, there is no suggestion that Westpac made any positive stipulation in favour of Mr Brueckner in the bargain under which it acquired its interest in the land.

68 The plaintiff also relies on Bahr v Nicolay[No.2] (1987-8) 164 CLR 604. That was another case where a registered proprietor of land had expressly undertaken that he would be bound by an interest which the previous registered proprietor had conferred on the plaintiff. Mason CJ and Dawson J took the view that the plaintiff could succeed in these circumstances because the conduct of the registered proprietor amounted to fraud. Wilson and Toohey JJ held that fraud was not made out (636-637) but that the conduct of the registered proprietor gave rise to a personal equity (at 637-639). The basis on which their Honours found that personal equity arising was:

“The [registered proprietors] understood through their agent Mr Callard that the [previous registered proprietor] would not sell lot 340 unless they agreed to be bound by the obligation in clause 6 which required the [previous registered proprietor] to resell to the appellants. The [registered proprietors] bought lot 340 on the understanding common to vendor and purchasers that they were so bound and clause 4 was included to give effect to that understanding…by taking a transfer of lot 340 on that basis, and the appellant’s interest in clause 6 constituting an equitable interest in the land, the [registered proprietors] became subject to a constructive trust in favour of the appellants.”

69 That situation is readily distinguishable from the situation in the present case. Here, no officer of Westpac, at the time Westpac actually took its interest, believed that Mr Brueckner had any interest in the land, let alone agreed to be bound to recognise any such interest of Mr Brueckner. See also per Brennan J at 653-655.

70 The most that Westpac could possibly have had, at the time it took its mortgage, is constructive notice of the existence of Mr Brueckner’s rights in relation to the two apartments. That is not enough to give Mr Brueckner, against Westpac, any right in personam. In Bahr v Nicolay [No.2] (1988) 164 CLR 604, at 652 Brennan J said, of the Western Australian analogue of section 43 of the Real Property Act 1900:

Gibbs v Messer

“To save persons dealing with registered proprietors from the trouble and expense from going behind the register, in order to investigate the history of their author’s title, and to satisfy themselves of its validity. That end is accomplished by providing that everyone who purchases, in bona fide and for value, from a registered proprietor, and enters his deed of transfer or mortgage on the register, shall thereby acquire an indefeasible right, notwithstanding the infirmity of his author’s title.”

Ortel v Hordern

Munro v Stuart

Friedman v Barrett; ex parte Friedman

71 The plaintiff also relies on some remarks of Mahoney JA in Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722. That case concerned a bank which obtained, and registered, a mortgage over property of a company. That mortgage was, unknown to the bank, a forgery, in that the signature of one of the directors, purporting to witness the fixing of the common seal, was forged and placed on the document without the knowledge of that director. The mortgage was entered into after the introduction of section 68A-68D of the Companies (NSW) Code, which entitled to a person dealing with a company to make certain assumptions about regularity of execution of corporate documents. The trial judge found that, if the documents had been entered into prior to the introduction of section 68A and section 68D, the bank would have been put upon inquiry, that in the absence of inquiry the indoor management rule would not have assisted the plaintiff, and that the bank did not make due inquiry. In the Court of Appeal, counsel for the director whose signature had been forged (who was, in effect, presenting the case for the company) relied upon this absence of due inquiry as a ground for attacking the validity of the mortgage. Mahoney JA said, at 740-741:

Real Property Act

I would not wish to pre-empt the possibility that in a particular case failure to inquire as to the execution or purported execution of a document by the registered proprietor could give rise to a personal equity to have that document, after registration, set aside. But I do not think that the failure to check the execution as such would have that effect. Thus, I do not think it is consistent with the existing authorities to hold that it is the duty of a purchaser on completion of a purchase to require specific proof that the signature of the transfer of title is in fact the signature of the then registered proprietor.

Under the general law, the position in respect of the execution of a document by a company was or may have been different.”

72 That passage falls a long way short of saying that constructive notice of an interest, without more, gives rise to a personal equity. See also Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 151-152 per Tadgell JA for persuasive dicta that the doctrine of constructive notice has no role to play in a Torrens system of land title.

73 In Story, Gleeson CJ (with whom Cripps JA agreed) referred to the decision of Hayne J in Vassos v State Bank of South Australia [1992] V Conv R ¶ 54-443. Gleeson CJ, at 736-7, said of that case:

“There the signature of a mortgagor to an instrument of mortgage had been forged and the mortgagee had accepted the mortgage without knowledge of the forgery. Hayne J said (at 65-180 to 65-181):

Frazer v Walker

Those words apply equally to the present case. The most that is said against the respondent Bank is that the nature of the transaction between the Bank, Mr Story, and Fleetwood Star Pty Ltd was such that the Bank was put upon inquiry as to the regularity of the internal company proceedings relating to the transaction. For reasons given above I consider that contention to be at least dubious. The Bank advanced money on the faith of the validity of the mortgage, and a substantial part of that money was applied for the benefit of the mortgagor company. The transaction was entered into at the instigation of the person who was permitted the de facto control and management of the company. It is not unconscientious of the Bank to insist upon its rights as mortgagee or to enforce its security. The relevant personal equity is said to be that of the company, not of Mrs Story. Unless a number of the leading cases concerning registration of forged mortgages were wrongly decided it cannot arise out of the bare fact of the forgery. Even if the Bank had been shown to have failed to make adequate investigation of what was going on within the company, that does not produce the result that it is against conscience for the Bank to rely upon its statutory rights.”

in personam

74 In Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202, at 222-223 Powell JA (with whom Meagher and Handley JJ agreed) said:

“I am of the view that the expressions “personal equity” and “right in personam” encompass only known legal causes of action or equitable causes of action, albeit that the relevant conduct which may be relied upon to establish “a personal equity” or “right in personam” extends to include conduct not only of the registered proprietor but also of those for whose conduct he is responsible, which conduct might antedate or postdate the registration of the dealing which it is sought to have removed from the register.”

75 I would not conclude that Westpac, at the time it acquired its interest in the mortgage, had even constructive notice of the existence of Mr Brueckner’s rights under his contract. The situation is that, by the table annexed to the letter of 22 August, it had been informed, by a document it believed emanated from Satellite Ultimo, that contracts had been exchanged on those two units. Westpac did not regard that document as reliable. Prior to the mortgage being entered Westpac had been informed, by the schedule to the valuation report, which Westpac had reason to believe emanated from Satellite Ultimo, that the two units which, by the schedule to the letter of 22 August had been shown as being exchanged with Mr Brueckner, were now not exchanged. Holman Webb, the only solicitors who Westpac had any reason to believe were acting for Satellite Ultimo in connection with selling units in the building, had provided Westpac with a list of units which had been exchanged, which did not include the two units which the table annexed to the letter of 22 August showed as having been exchanged with Mr Brueckner. Holman Webb provided that list just before Westpac advanced money on the mortgage, and in a form which was no ordinary letter, but had the flavour of care and deliberation that goes with a letter which begins, “Holman Webb Solicitors hereby certify …”.

76 Thus, Westpac is not bound by any personal equity which requires it to recognise Mr Brueckner’s interest in the two units. It also follows that there is no tinge of dishonesty in Westpac’s assertion that it holds free of Mr Brueckner’s interest, and hence there is no fraud (Bahr v Nicolay[No2] (1988) 164 CLR 604 at 613-614, 630-633).

77 Another basis on which the plaintiff puts his case is that, “it would be unconscionable for Westpac, taking the benefit of the other exchanged contracts, refusing to accept the detriment of the plaintiff’s contracts.”

78 There are certain circumstances in which a Court of Equity has not permitted someone to take the benefit of a transaction, while refusing to submit to burdens which are part of that same transaction (ER Ives Investments Pty Ltd v High (1967) 2 QB 379; Frater v Finlay (1968) 91 WN (NSW) 730; Tito v Waddell(No.2) [1977] Ch 106, at 289-303). However, it is probably going too far to say that it is a “basic principle” of law that, always, he who takes the benefit of a transaction must also bear the burden (Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829, at 834-841 per Brooking J). The argument in this case did not seek to explore, even briefly, the circumstances in which such a principle might, or might not, be the law.

79 I shall assume, without deciding, that there is such a principle applicable here. On that basis, Westpac is not subject to any equity in favour of Mr Brueckner. There is no way in which Westpac has taken the benefit of anything to do with Mr Brueckner’s contracts. It is true that Westpac has taken a mortgage over the whole of the Ultimo site, and has done so with a positive requirement that pre sale contracts be entered into for a certain number of units in the apartment block. However, as Westpac understood it, and in reality, the plaintiff’s contracts were not amongst those pre sale contracts. Further, Westpac has permitted Satellite Ultimo to settle various of those pre sale contracts, and allowed a significant part of the proceeds of sale of those contracts, to be applied in discharge of Westpac’s mortgage. By doing so, it has obtained, or sought, a benefit under those particular contracts. However, Westpac has not obtained a similar (or indeed any other) benefit concerning Mr Brueckner’s contracts.

80 In these circumstances, the plaintiff’s claim against Westpac fails.

The Plaintiff’s Claim Against Satellite Ultimo

81 Mr Brueckner has a clear claim against Satellite Ultimo for a breach of contract, in failing to given him title to the two home units. If the contracts had been performed, Mr Brueckner would have obtained title to the units by the end of April 2000.

82 Phillip Rennie, valuer, has given evidence of both the market value, and the rental value of the units. It can be summarised as follows:

Unit 56	Unit 65
Value as at 16 June 1997	$260,000	$250,000
Value as at 27 February 2002	$315,000	$310,000
Rental value as at 16 June 1997	$240 per week	$240 per week
Rental value as at 27 February 2002	$300 per week	$300 per week

83 Mr Brueckner gave evidence that if he had received the two units, he would probably have let both units out for a period of time, then sold one of them. He said that he would have let both units out for “probably the first two years, depending on the return”. Thus it is likely that both units would have been made available for letting for the whole of the time from the end of April 2000 to the date of this judgment.

84 In Johnson v Perez (1988) 166 CLR 351, at 355 Mason CJ said:

“There is a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises. But this rule is not universal; it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered.”

85 In the present case I see no reason to depart from the usual rule that damages are assessed as at the date of breach.

86 The evidence does not give a value for the units as at the end of April 2000. The evidence gives the capital value of the units at dates separated by a period of about 56 months. The end of April 2000 lies about 34 months through that period. I shall assess the value on the basis that the capital gain which occurred between June 1997 and February 2002 accrued at an even rate. On that basis, the value of unit 65, at the end of April 2000, is around $286,000. The value of unit 56 at that date, is around $293,000.

87 The rental value of which Mr Reny has given evidence, is a gross rental value. The evidence established that there would be expenses in letting the property, for agent’s fees and commission, strata levies, statutory and council rates and taxes, and the like. The quantum of those expenses was not established. Counsel for the plaintiff submitted that in these circumstances I should assess the damages by treating those expenses as being of the order of 50% of the gross rents received.

88 However, there is a logically anterior problem, which needs to be addressed, of whether the plaintiff is entitled to damages at all in connection with lost rents.

89 Damages for lost rent are a species of consequential damage. Before they can be awarded, the plaintiff needs to demonstrate that they fall within one or other of the limbs of Hadley v Baxendale (1854) 9 Ex Ch 341. In Diamond v Campbell-Jones [1961] 1 Ch 22, at 36, Buckley J said:

“In some cases the nature or the subject matter of a contract or of its terms may be such as to make it clear that one of the parties is entering into the contract for the purpose of a particular business, and the circumstances may be such that the court will infer that the other party must have appreciated that this was so. It seems to me, however, that this can rarely be the case where the contract is for the sale of land. The vendor of a shop equipped for use as a butcher shop would not, in my judgment, be justified by that circumstance alone in assuming, and ought not to be treated as knowing, that the purchaser was intending to use it for the business of a butcher rather than that of a baker or candlestick maker, at any rate in the absence of covenants or other forms of restriction confining its use to butcher’s business. Special circumstances are necessary to justify imputing to a vendor of land a knowledge that the purchaser intends to use it in any particular manner.”

90 There is no evidence to establish that Satellite Ultimo was aware of the particular manner in which Mr Brueckner proposed to use the two properties which he had contracted to purchase. In these circumstances, the measure of damages is the value of the land at the date of breach, and no damages are allowable for loss of rent.

91 There will be a judgment for the plaintiff, against Satellite Ultimo, for $579,000. In addition, the statement of claim seeks interest. Interest should be allowed, at the rate appropriate under section 94 of the Supreme Court Act 1970, on that sum from the end of April 2000 to the date when orders are made in accordance with this judgment.

Defences of the Guarantors – Failure of Mr Brueckner to Protect his Security

92 The liability of Satellite Ultimo which I have just found, falls within the scope of the guarantee that Mr and Ms Broster signed. Thus, they will each have a liability, in the same amount as Satellite Ultimo, unless and to the extent that they can establish a defence.

93 Both Mr and Ms Broster rely on a defence that Mr Brueckner failed to protect a security which he had. It is a defence which is put on the basis that (as I have found) Mr Brueckner fails in his claim against Westpac and (so far as Ms Broster is concerned) that other attacks on the validity of the guarantee fail.

94 The starting point of this argument is that clause 2.8 of each of the contracts of sale which Mr Brueckner entered, conferred on Mr Brueckner a charge over the land, to secure the amount of money which Mr Brueckner paid.

95 The Brosters submit that there is a principle of law which requires a creditor to maintain any securities he has, for the benefit of a surety. While it is, and for many years has been, a common practice to include in guarantees a clause which negatives this obligation, the present guarantee contains no such clause.

96 In Williams v Frayne (1937) 58 CLR 710 at 738 Dixon J said:

Northern Banking Co v Newman and Colton

97 In The Northern Banking Co Limited v Newman and Calton (1927) IR 520, at 538-539, Hanna J said:

“I am of opinion that these authorities establish the following propositions of law referrable to the facts of the case: -

1. If it is an express or implied condition of, or collateral to, the arrangement for the guarantee, that an existing security, whether inchoate or complete, should be made or kept effective by the creditor for the benefit of the parties as a counter-security, failure to observe that condition discharges the surety absolutely, inasmuch as he has not got the contract he bargained for.

2. The mere circumstances that at the time that the surety becomes bound there exists to the knowledge of the surety in the possession of the creditor another security, which is available to the creditor, does not make it an implied term of the contract to maintain the same as effective, breach of which entitles the surety to absolute discharge. It must be found by the Court to be an express or implied term of the contract agreed to and understood to be so by both parties.

3. If it falls short of being a term of, or collateral to, the contract, but there is, in fact, in the possession of the creditor, either at the time of the contract or later, such a counter-security as referred to, it is the duty of the creditor, whether its existence is known to the surety or not, to exercise reasonable care in maintaining it for the benefit of the surety, so as to be available, unimpaired by reason of any negligence, on the discharge of the debt. If he fails in this duty, the surety is entitled to credit against his liability for the damages suffered by such breach of duty by the creditor.”

98 Brennan J in Buckeridge v Mercantile Credits Ltd (1981) 56 ALJR 28 said:

“In a case where the act of a creditor does not discharge a surety, but the creditor has nonetheless sacrificed or impaired a security, or by his neglect or default allowed it to be lost or diminished, the surety is entitled in equity to be credited with the deficiency in reduction of his liability.”

, the Modern Contract of Guarantee

99 Mr and Ms Broster submit that, by failing to lodge a caveat, Mr Brueckner has impaired the security that otherwise would have existed under clause 2.8. (See paragraph 10 above).

100 As a matter of construction of clause 2.8, “the land” over which the charge exists is the two specific home units contracted to be sold, not the entirety of the land on which the development was constructed.

101 Mr and Ms Broster also submit that, while special condition 5 of each contract (see paragraph 13 above) imposed limitations on the form of caveat which could be lodged by Mr Brueckner, it did not completely prohibit him from lodging a caveat. Special condition 5 prohibited him from lodging a caveat which prevented the recording of particular types of dealings. If Mr Brueckner had lodged a caveat which expressly permitted the lodgement of those types of dealings, or which prohibited only a transaction of a type not within the scope of the prohibitions contained in special condition 5, that caveat would have been able to remain on the title.

102 There is evidence from Mr Peter Cornelius, a solicitor well experienced in conveyancing, about what is the usual practice of a solicitor engaged in a transaction, acting in a reasonably competent and prudent manner in accordance with generally accepted standards and practices of the profession. He says that it is the usual practice of such a solicitor to cause a caveat under the Real Property Act 1900 to be lodged to protect the purchaser’s interest under a contract for sale when there is a delayed settlement, release of the deposit, or a perceived unusual risk. He also says it is the usual practice of such a solicitor to lodge a caveat where a purchaser is acquiring a property, “off the plan”, and for such a caveat to be lodged immediately after exchange of contracts. In accordance with Mr Cornelius’ evidence, there were multiple reasons for Mr Brueckner to lodge a caveat in the present case – there was an extremely delayed settlement, the entire purchase price was paid in advance and released to the vendor, and the purchase was off the plan. The payment of the purchase price in advance, and its release to the vendor, also fell, according to Mr Cornelius’ evidence, within the scope of a “perceived unusual risk”.

103 No expert evidence was called to dispute the correctness of Mr Cornelius’ evidence. I accept that a prudent purchaser in the position of Mr Brueckner would have lodged a caveat.

104 It was submitted, on Mr Brueckner’s behalf, that the opening words of special condition 5 made it clear that it was an essential condition of the contract that no caveat, of the kind described in special condition 5, be lodged, and that if a caveat were to be lodged which breached special condition 5, this would be a repudiation of the agreement. That submission is correct, to this point. I do not, however, accept the next step, that drafting a caveat to fit within the confines of special condition 5 is so difficult an exercise that, given the serious consequences which could flow from getting it wrong, a reasonable person in Mr Brueckner’s position would not even try.

105 Counsel for Mr Brueckner also submits that I should not find that Mr Brueckner had engaged in any neglect or default in failing to lodge a caveat because Mr Brueckner was, in all these matters, advised by his then solicitor, Mr Pappas.

106 While it is correct that Mr Pappas was acting as Mr Brueckner’s solicitor, there was no detailed evidence of what passed between them on the topic of whether a caveat should be lodged. Mr Pappas was not called as a witness. The evidence includes a letter which Mr Pappas wrote to Mr Brueckner on 14 August 2000, where he refers to there having been “meetings with you and representatives of the vendor prior to exchange during which we discussed the risks of paying the entire purchase price for apartments in a building yet to be constructed.” However, Mr Brueckner gives evidence that, at least up to the time when it became clear that settlement of the property was not possible (which I take to be early 2000) Mr Pappas did not give him any advice as to the possibility of lodging a caveat. It is not necessary for me to make a finding about what passed between Mr Brueckner and Mr Pappas on this topic. What matters for present purposes is that, whether or not it was as a consequence of advice, or lack of advice, from Mr Pappas, Mr Brueckner failed to lodge a caveat. For the purpose of deciding whether Mr Brueckner has breached any duty he owes to the Brosters not to prejudice any security, it does not matter whether Mr Brueckner was acting on legal advice.

107 Mr Blix gives evidence, which I accept, that Westpac would not have advanced money if there had been a caveat of any description on the property at the time of Westpac making its advance. However, he says that if there had once been a caveat on the title, which was removed by the time Westpac took its security, that would not have been an inhibition to Westpac advancing the money. Thus, if Mr Brueckner had lodged a caveat, Westpac would have required it to be removed before any money was advanced, but in consequence of the lodgement of a caveat Westpac would have had clear actual notice of Mr Brueckner’s rights.

108 Mr and Ms Broster recognise that there is a difficulty for the Court in deciding, as a matter of fact, what is likely to have happened if Mr Brueckner had disclosed, by caveat, the existence of his contractual rights to the two apartments. However, they say that, in many situations where the Court is required to assess damages, it has no choice but to do the best it can, on such limited material as might be available. Further, the approach which equity takes to assessing the consequences of the breach of an equitable obligation looks simply at questions of causation, uncomplicated by any considerations of remoteness – Re Dawson [1966] 2 NSWR 211. Finally, Mr and Ms Broster submit that, when it is Mr Brueckner who is in breach of his equitable duty to maintain the security, the court should not engage in fact finding about the consequences of his breach with any particular tenderness towards him – cf Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 note; O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 281 per Meagher JA. Nor is that approach to finding the consequences of the wrongdoing of a wrongdoer one which is confined to equity - see Armory v Delamirie, (1721) 1 Stra. 505 [93 ER 664]

109 The Brosters submit that there are four possible scenarios of what might have happened, if Mr Brueckner had lodged a caveat. They ask that I make findings about which is more likely. The first scenario is that Westpac would provide the funds, would require the caveat to be removed before settlement, and would then rely on the Real Property Act 1900 to say that, notwithstanding that it had notice of Mr Brueckner’s interest before it took a mortgage from Satellite Ultimo, it was not bound by any such interest.

110 In my view it is unlikely that Westpac would have taken that attitude. Mr Blix says that if he had known of the two contracts entered with Mr Brueckner, he would have reassessed the application for finance, and would not have ignored the existence of the contracts.

111 The second possible scenario is that Westpac would not provide funds at all. On balance I think that this is unlikely. Satellite Ultimo had taken various steps to lessen the risk associated with the development project. There was a turn-key contract with a builder, which, in his first discussion paper of 29 August 1997, Mr Blix recognised as eliminating the delivery risk. The substantial pre sales also lowered the risk. Mr Blix regarded the fact that the pre sales more than covered the total assessed exposure as an important factor.

112 I have set out at paragraph 33 above part of Mr Blix’s credit risk analysis document of 8 September 1997. If, by that time, he had been aware that the two units had been sold to Mr Brueckner, and that the entire purchase price had already been paid to Satellite Ultimo, he would have reduced the value of the security which the bank had by the list price of those two units, namely $544,000. Thus the bank’s security would have become $19,491,000. This would result in a loan valuation ratio of 76.4%, instead of the 74% which Mr Blix actually calculated. The pre sales known to Mr Blix would still have covered the total assessed exposure 1.1 times.

113 As well, security over the property and its proceeds were not the only securities the bank was contemplating as at 8 September 1977. As well, it was proposing to take an equitable mortgage over Satellite Ultimo itself, and directors’ guarantees. Cross guarantees were not to be provided between group companies, however.

114 By the time Mr Blix had done another credit approval summary on 28 November 1997 (the document bears an incorrect typewritten date of 28 November 1998, but from internal evidence it must come from late 1997) the loan valuation ratio had risen to 76%, but the project went ahead nonetheless. It is not possible, on the evidence, to calculate what the precise loan valuation ratio would have been, as at the end of November 1997, if Westpac had known about the two units sold to Mr Brueckner, but one would expect that that fact would result in an increase in the loan valuation ratio of the order of 2.5%. Given that cross guarantees between group companies had not been offered even by the end of November 1997, and that Westpac had spent some months investigating the project by November 1997 and there is no trace of doubt or concern about the project as a lending proposition in Westpac’s internal documents, it seems to me more likely that, if Westpac had known the true situation concerning Mr Brueckner’s two contracts, it would not have refused to provide funds.

115 The third possible scenario is that Westpac would carve out the two units from its security, but leave other mortgagees on the property free to assert that they had priority over Mr Brueckner’s interests. The other mortgagees on the title at the time were, Medi-Aid and City West. The Medi-Aid mortgage was paid out when the Westpac loan was drawn down. So long as Medi-Aid received its money, it had no reason to assert priority over Mr Brueckner’s interest. The likelihood is that if Westpac was prepared to recognise Mr Brueckner’s contracts, Medi-Aid would not have any independent objections of its own. On settlement of the Westpac loan, City West was prepared to adopt a priority position subsequent to Westpac. City West was not merely a mortgagee – as well it was a substantial purchaser of units in the development. It had every reason for wanting the development to go ahead. I do not think that this third scenario would be a likely outcome of Mr Brueckner having lodged a caveat.

116 The fourth scenario, the Brosters submit, is that Mr Brueckner would have had his contracts recognised by both Westpac and other mortgagees, so that the contracts could be completed, eventually, according to their terms.

170 She married Mr Broster in June 1991. After the marriage, she continued working as a computer programmer. Around March 1993 she was interviewed for a contract position as an analyst programmer at TAFE, St Leonards. She was offered the position, and was told that, because it was a contract position, she would need to either go through an agency or have her own company. She purchased a shelf company after seeking advice from her husband about which of the two alternatives which TAFE gave her, she should adopt. She was the sole director of that company. The company carried out no activities other than being the means by which she could carry out computer programming work for TAFE. Her accountant prepared an annual return for her each year, which she signed.

171 When Mr and Ms Broster first came to Sydney, they rented accommodation. In January 1991 they purchased a house in Murdoch Street Neutral Bay. Mr Broster negotiated the purchase, and organised finance. In May 1994, Mr and Ms Broster had their first child, Tamsin. Following the birth, Ms Broster stopped work for about nine months.

172 Around July 1994, Mr and Ms Broster sold their house in Murdoch Street Neutral Bay, and purchased a house at Pearl Bay Avenue, Beauty Point. This house was purchased in the name of Ms Broster alone. This course was adopted because “Jonathan said that’s how it had to be done.” Mr Broster made all of the arrangements concerning that purchase.

173 About nine months after Tamsin was born, Ms Broster was able to resume work, by working from home on a part-time basis.

174 The Broster’s second child, Ben, was born in March 1996.

175 The ASIC records show that it was in December 1996 that Ms Broster became a director of Satellite Ultimo. This followed the conversation which I have earlier recounted. At that time extensive renovations were being done to the house at Pearl Bay Avenue. Ms Broster was heavily involved in the supervision of the renovations. Ben was around nine months old, and was waking frequently at night. Tamsin was around 2 ½ years old. Ms Broster’s summary of that time in her life was, “I ran the house; Jonathan was the breadwinner. My concerns were not Jonathan’s business ones.”

176 The guarantees which are sued on in the present litigation are not the only guarantees which Ms Broster has executed. She now understands that she has executed guarantees for about $25m or more since about 1997. She also says:

“It is also now my understanding that I am apparently said to have executed personal guarantees for other companies and individuals also totalling further tens of millions of dollars, possibly close to or exceeding $100 million in all.”

177 She gives evidence as follows:

“I was never told to seek independent legal advice. I was not aware it was something I should have done. On some occasions when I was signing documents a solicitor was present but I never once organised one of them. There was always urgency in my singing and Jonathan had always told me that if I didn’t sign the “deal would not go through”. Under my husband’s insistence I had no choice but to sign whatever was put in front of me.

On each of the occasions that I attended solicitors’ offices it was at Jonathan’s insistence. He would never explain the reason why I was required to attend and would typically say words to the effect: “You have to go to (name of solicitors) to sign some documents.” I was, I think without one exception, given only a few hours notice; no regard was given to the fact I had two young children or the fact that I didn’t live or work in the City. I was never asked what times would be suitable or convenient for me. I was simply told when and where.

I was never given the documents that I was required to sign beforehand. They were either in the office or with the solicitor that I went to see. They would then remain in the hands of that solicitor. There was often more than one document that I was required to sign. Some times the pile of documents that I was required to sign was substantial. I do recall seeing the word “guarantee” on some of the documents.

The solicitors that I went to see were not solicitors appointed by me. I do not know whose solicitors they were—whether they were the Bank’s solicitors or the solicitors for the Satellite Group.

I did not have any precise understanding of what a guarantee was then, nor did I have any understanding that I should satisfy myself about the business risks involved in giving guarantees beyond the statements made to me by Jonathan to which I have referred above. I had been told by Jonathan that unless I signed on each occasion it would not be possible for a deal to go through and if it didn’t we would lose the house. I did not know why or how I could lose the house but I could see no alternative to doing what Jonathan requested me to do. If I had been made fully aware of the consequences of signing a guarantee by someone other than Jonathan, and how it meant I could lose my house and be made bankrupt then I would not have signed any guarantees.

After the birth of my second child in March 1996, and Jonathan’s bankruptcy, our marriage changed and became more stressful. This stress was accentuated by moving into Pearl Bay Avenue and the disruption caused by the building works at that house. In July 1996 I took the children over to England to be with my family for an extended 2-3 month holiday. Jonathan did not come with us. Upon my return to Australia, the stressful factors remained present. I had no income and did not want to place my children into childcare which precluded me from gaining any meaningful employment at that time. It was not practical either for me to take on work at home with two young children and the house renovations to contend with. In September 1996, I had a recurrence of a back problem which meant that I had to stay flat on my back with a suspected disc problem that caused further disruption in trying to look after the house and care for my children.

In these circumstances, I felt totally dependent upon Jonathan financially and emotionally. If I had been asked in 1997 to sign the Guarantees by him, I would have done so without questioning his judgment because my health, my marriage and my children were vulnerable if any conflict were to arise between us.”

178 Ms Broster was asked (concerning the time when she did the course in unit trust administration management)

179 Ms Broster was asked:

180 Counsel for Mr Brueckner put to Ms Broster the substance of the evidence which Mr Broster gave about the circumstances of Mr Broster executing the guarantees which are sued on (see paragraph 149 above). The gist of her evidence on that topic was that she did not remember what had happened, she was confident she would not have asked Mr Broster to sign the form for her, but that otherwise the account given by Mr Broster may have happened.

181 Mr Broster gives evidence that Ms Broster had signed four guarantees in the presence of a solicitor perhaps six months before the guarantees now sued on. Those were guarantees relating to the purchase arrangements for the purchase of the Ultimo property. That solicitor, however, was acting for the Satellite Group at the time. Mr Broster does not recollect if he was with her at the time she signed those guarantees, or whether he was in another room with the children. He says that he does not recall the solicitor explaining to her the meaning of the guarantee, or her obligations under it. Mr Broster did not himself ever explain to Ms Broster what was involved in a guarantee.

182 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 concerned a case where there was no actual undue influence by a husband over his wife leading to the execution of a guarantee. Justices Gaudron, McHugh, Gummow and Hayne explained (at 406-7) that in Yerkey v Jones (1939) 63 CLR 649 Dixon J:

“…was dealing with two kinds of case. In the former, the case of actual undue influence…explaining the effect of the document to the surety will not protect the creditor and “[n]othing but independent advice or relief from the ascendancy of her husband over her judgment and will would suffice”. In the latter “[i]f the creditor takes adequate steps to inform [the wife] and reasonably supposes that she has an adequate comprehension of the obligation she has undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or indeed, the significance of what she is doing” cannot give her an equity to set the instrument aside.”

183 Their Honours continued, at 408-409:

Yerkey v Jones

(a) in fact the surety did not understand the purport and effect of the transaction;

(b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);

(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet

(d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.”

184 I will consider the four factors listed in Garcia seriatim.

185 The first requirement is that Ms Broster did not understand the purport and effect of the transaction. That she had the limited understanding of what a “guarantee” is which she admitted in cross-examination does not mean that she understood the particular transactions that she entered into, by executing these particular guarantees. In State Bank of New South Wales v Chia (2000) 50 NSWLR 587, at 600 Einstein J said:

Yerkey v Jones

degree

Yerkey v Jones

Bank of Victoria Ltd v Mueller

material to the liability

186 Ms Broster did not understand the purport and effect of guaranteeing Mr Brueckner’s two contracts of purchase. She knew nothing about the financial arrangements under which the building was to be erected. Indeed, at the time the contracts were entered into, Satellite Ultimo had not obtained finance for the building project. She knew nothing about the circumstances in which Mr Brueckner would be able to sue Satellite Ultimo, or the types of damage he might be able to recover from Satellite Ultimo. She did not understand that signing this guarantee could have the consequence that she could lose her house and be made bankrupt.

187 The account which Mr Broster gives of the circumstances in which she executed the guarantee, the broad outlines of which I accept, were not such as to inform her that the document that she was signing was a guarantee at all. Rather, Mr Broster told her that he had a sales contract for her to sign relating to two units. I accept Mr Broster’s evidence that she did not read the document she signed. Ms Broster was not cross-examined to suggest to her that she must have seen the heading “Guarantee Agreement” on the page she signed. The alleged witness to her signature, Mr Keene, was not called as a witness.

188 In all these circumstances I am satisfied that Ms Broster did not understand the purport and effect of the transaction.

189 This transaction was a voluntary one, so far as Ms Broster is concerned. It is true that she was a director of Satellite Ultimo, but she was a director in name only. The shareholding in Satellite Ultimo was held, as to 50%, by a company called Sojo (NSW) Pty Ltd. That company is a company whose name is derived from the respective first names Ms and Mr Broster, and is one of the 21 companies of which Ms Broster is shown in the ASIC records as having been a director. However, the evidence does not establish how the shares in Sojo (NSW) Pty Ltd are held.

190 In State Bank of NSW v Chia, at 601, Einstein J said:

Bank of Victoria Ltd v Mueller

Garcia

Armstrong v Commonwealth Bank of Australia

Cranfield Pty Ltd v Commonwealth Bank of Australia

State Bank of New South Wales Ltd v Vecchio

Commonwealth Bank of Australia v Khouri

Radin v Commonwealth Bank of Australia

ex facie

Warburton v Whiteley

191 Since the decision in State Bank of NSW v Chia was delivered, the Victorian Court of Appeal has affirmed the decision of Harper J in Commonwealth Bank of Australia v Khouri. The Victorian Court of Appeal’s decision is Commonwealth Bank of Australia v Horkings [2000] VSCA 244. In that case, Winneke P (with whom Phillips and Buchanan JJA agreed) said, at [55]:

“…his Honour found that the respondent was, relatively, a “volunteer” to the transaction because, although she was a director of the company, it was a business run by and under the control of her husband and in which she took no active interest. She was, as his Honour said, “preoccupied with raising her three children” and that “any benefit [she] gained from MBG came to [her] not as of right, but as the result of discretion by Mr Khouri.” Each of these findings was open to his Honour on the evidence. I agree with the submission made by counsel for the respondent that his Honour was entitled to find, and was correct in finding that, in relation to the MBG transaction, the respondent was a volunteer, and that the facts, as his Honour found them to be were - to all intents and purposes – indistinguishable from the facts found in Garcia’s case.”

192 Save for the names of the parties, and the fact that the Brosters had two children, rather than three, the factual finding of the trial judge in that case is equally applicable in the present case. Likewise is the conclusion that, in consequence, the wife was not a volunteer in relation to the guarantee transaction.

193 Mr Brueckner understood that Ms Broster was the wife of Mr Broster. That is all that is needed to make out the third element in Garcia.

194 It is clear beyond argument that Mr Brueckner did not take steps to explain the transaction to Ms Broster, or find out that a stranger had explained it to her. Thus, the fourth element in Garcia is also established.

195 In these circumstances, Ms Broster has succeeded in making out the Garcia defence. That defence relieves her from all liability under the guarantee.

Ms Broster’s Defences – Undue Influence

196 There is no presumption of undue influence between husband and wife – see the authorities collected in Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 3rd ed., para [1517].

197 The guarantees sued on in this case were procured by the undue influence of Mr Broster over his wife. From her qualifications, and also from the way in which she presented in the witness box, she is clearly a woman of above average intelligence. However, her experience of business matters is limited. The business transactions that she would have needed to engage in to carry out her work as a computer programmer were comparatively simple. So far as the acquisition of the two homes she has owed are concerned, she relied on her husband to deal with all financial matters. The circumstances in which she agreed to become a director of Satellite Ultimo are ones where she had no real choice about becoming a director, and no real understanding of the significance of the role she was undertaking.

198 The circumstances in which she executed the guarantees – where she had two young children, had no income, could obtain income only on conditions which she regarded as unacceptable (namely, placing her children into childcare), was contending with two young children and house renovations, and experiencing some stress in her marriage – were ones which led to her executing the guarantees under his influence.

199 In Yerkey v Jones (1939) 63 CLR 649 at 584, Dixon J, in a passage quoted with approval by Gaudron, McHugh, Gummow and Hayne JJ in Garcia at 405, said:

“…it is clearly necessary to distinguish between, on the one hand, cases in which a wife, alive to the nature and effect of the obligation she is undertaking, is procured to become her husband’s surety by the exertion by him upon her of undue influence, affirmatively established, and on the other hand, cases where she does not understand the effect of the document or the nature of transaction of suretyship. In the former case the fact that the creditor, on the occasion, for example, on the actual execution of the instrument, deals directly with the wife and explains the effect of the document to her will not protect him. Nothing but independent advice or relief from the ascendency of her husband over her judgment and will would suffice. If the creditor has left it to the husband to obtain his wife’s consent to become surety and no more is done independently of the husband than to ascertain that she understands what she is doing, then, if it turns out she is in fact acting under the undue influence of her husband, it seems that the transaction will be voidable at her instance as against the creditor.”

200 Dixon J is not here saying that the only circumstance in which a transaction will be voidable because of undue influence is when the wife is alive to the nature and effect of the obligation she is undertaking. There is nothing to stop a transaction being entered into under undue influence where the wife also does not understand the nature and effect of the obligation she is undertaking. That is, in my view, the situation which exists here.

201 The present case is also one where the effect of that undue influence between Mr and Ms Broster can be brought home to Mr Brueckner. Yerkey v Jones was concerned with a wife who guaranteed her husband’s debt, and it was in that context that Dixon J made the remark I have just quoted about what happens “if the creditor has left it to the husband to obtain his wife’s content to become surety…”. Here, Mr Brueckner left it to (at best) Mr Dockrill, the solicitor for Satellite Ultimo, to obtain Ms Broster’s consent.

202 In Barclays Bank Plc v O’Brien [1994] 1 AC 180 the House of Lords dealt with a situation where a wife had executed a guarantee because of a misrepresentation by her husband. The wife had, at trial, also opposed the bank’s enforcement of the guarantee on the ground of her husband’s undue influence, but that ground was not made out at the trial, and was not pursued in the House of Lords (page 187). Lord Browne-Wilkinson (with whom all other of their Lordships who sat in the House of Lords on that case agreed) nonetheless deliberately expressed his judgment in broad terms. At 195, he rejected the notion that wives had any “special equity” in relation to surety transactions. He continued:

“A wife who has been induced to stand as a surety for her husband’s debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction will be enforceable against third parties (eg against a creditor) if either the husband was acting as the third party’s agent or the third party had actual or constructive notice of the facts giving rise to her equity. Although there may be cases where, without artificiality, it can properly be held that the husband was acting as the agent of the creditor in procuring the wife to stand as surety, such cases will be of very rare occurrence. The key to the problem is to identify the circumstances in which the creditor will be taken to have had notice of the wife’s equity to set aside the transaction.”

203 In Garcia, at [39] Gaudron, McHugh, Gummow and Hayne JJ said:

Barclays Bank Plc v O’Brien

O’Brien

“creditor”

“debtor”

204 While the remarks I have just quoted from the decision in Garcia were directed to the “second kind of case” referred to in Yerkey v Jones (an unconscionable transaction, not involving undue influence), the reason which Sir Anthony Mason has given for why constructive notice is not an appropriate analytical tool to use in this context is equally applicable to the context of undue influence.

205 I propose to decide the question of whether the undue influence of Mr Broster over Ms Broster, concerning the guarantee sued on in this case, can be brought home to Mr Brueckner, by reference to the principle which I have earlier quoted from the judgment of Dixon J in Yerkey v Jones. Applying that principle, the guarantees sued on are voidable at the instance of Ms Broster. That provides a second, independent, ground on which Ms Broster is relieved from liability under the guarantee.

Conclusion

206 For reasons I have already given, there will be a judgment against Satellite for $579,000, plus interest from the end of October 2000. There will be a judgment against Mr Broster for $304,000, plus interest from the end of April 2000. The claims against Westpac, and Ms Broster, will be dismissed. Some steps will need to be taken to give effect to Westpac’s intention to pay into court any surplus proceeds from the sale of the units.

207 While the total loss of Mr Brueckner is $579,000, it is appropriate for judgment to be entered against Satellite Ultimo for the amount indicated in the previous paragraph, and also against Mr Broster for the amount indicated as appropriate to the judgment against him. Notwithstanding that the total of the judgments so entered is more than the amount of Mr Brueckner’s loss, the principles concerning double satisfaction should ensure that he does not actually receive more than the amount of his loss, plus interest (Registrar General v Behn (1981) 148 CLR 563 at 569; Midland Montague Australia Ltd v Harkness (1994) 35 NSWLR 150 at 159; Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 522; Baxter v Obacelo Pty Ltd (2001) 76 CLJR 114; [2001] HCA 66 at [46]-[47], [56]-[62], [89]).

208 I direct the parties to bring in short minutes of order to give effect to these reasons for judgment.

**********

Last Modified: 05/29/2002

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Citations

Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378

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CITATION:	Brueckner v The Satellite Group (Ultimo) Pty Ltd & Ors [2002] NSWSC 378
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3949/00
HEARING DATE(S):	26/03/02-28/03/02
JUDGMENT DATE:	23 May 2002
PARTIES :	Peter Brueckner (Plaintiff) The Satellite Group (Ultimo) Pty Limited (Receiver and Manager appointed) (First Defendant) Westpac Banking Group (Second Defendant) Gregory Joseph Fisher (Third Defendant) Jonathon Broster (Fourth Defendant) Suzanna Mary Broster (Fifth Defendant)
JUDGMENT OF:	Campbell J

COUNSEL :	R Evans (Plaintiff) D R Pritchard (Second Defendant) T D Castle (Fourth & Fifth Defendant)
SOLICITORS:	McKell's (Plaintiff) Henry Davis York (Second Defendant) Morgan Lewis Alter (Fourth & Fifth Defendant)
CATCHWORDS:	CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - trusts, equities and unregistered instruments and interests - effect of information, received prior to acquiring interests, that someone else might have an interest in the land - whether personal equity arises from taking benefit of a transaction and consequently being required to bear burden of that transaction - CONVEYANCING - RELATIONSHIP OF VENDOR AND PURCHASER - breach of contract - failure of vendor to convey - - time for assessment of damages - whether damages recoverable for loss of rent from property - GUARANTEE AND INDEMNITY - discharge of surety - failure of creditor to protect security - appropriate remedy - EQUITY - remedy for breach of equitable duty - relationship of remedy to rationale for equitable duty - GUARANTEE AND INDEMNITY - discharge of surety - failure to disclose unusual features of transaction - need for failure to disclose to amount to misrepresentation justifying rescission - GUARANTEE AND INDEMNITY - discharge of surety - Garcia v National Australia Bank equity - GUARANTEE AND INDEMNITY - discharge of surety - guarantee procured by undue influence of husband
LEGISLATION CITED:	Conveyancing Act 1919 Land Registration Act 1925 (UK) Land Transfer Act 1952 (NZ) Real Property Act 1877 (Qld) Real Property Act 1900, s 42 Supreme Court Act 1970
CASES CITED:	Armory v Delamirie (1722) 1 Stra. 505; [93 ER 664] Bahr v Nicolay [No.2] (1988) 164 CLR 604 Bailey v Namol Pty Ltd (1994) 125 ALR 228 Barclays Bank Plc v O'Brien [1994] 1 AC 180 Baxter v Obacelo Pty Ltd (2001) 76 ALJR 114; [2001] HCA 66 Bogdanovic v Koteff (1988) 12 NSWLR 472 Breskvar v Wall (1971) 126 CLR 376 Buckeridge v Mercantile Credits Ltd (1981) 56 ALJR 28; (1981) 147 CLR 654 Canson Enterprises Ltd v Boughtom and Company (1991) 85 DLR (4th) 129 Capel v Butler (1825) 2 Sim. & St. 457 Commonwealth Bank of Australia v Horkings [2000] VSCA 244 Diamond v Campbell-Jones [1961] Ch 22 ER Ives Investments Ltd v High (1967) 2 QB 379 Frater v Finlay (1968) 91 WN (NSW) 730 Frazer v Walker [1967] 1 AC 569 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Garofano v Reliance Finance Corporation Ltd (1992) NSW Conv R 55-640 Gibbs v Messer [1891] AC 248 Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829 Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Hadley v Baxendale (1854) 9 Ex Ch 341 Johnson v Perez (1988) 166 CLR 351 Lyus v Prowsa Developments Ltd [1982] 2 All ER 953 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Midland Montague Australia Ltd v Harkness (1994) 35 NSWLR 150 Munro v Stuart; Friedman v Barrett; ex parte Friedman [1962] Qd R 498 Northern Banking Co Limited v Newman and Calton (1927) IR 520 Northern Banking Co v Newman and Colton (1927) IR 520 O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Ortel v Hordern (1902) 2 SR (NSW) (Eq) 37 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Registrar General v Behn (1981) 148 CLR 562 State Bank of New South Wales v Chia (2000) 50 NSWLR 587 Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 Strange v Fooks (1863) 4 Giff 408; 66 ER 765 Tang Man Sit v Capacious Investments Ltd [1996] AC 514 Tataurangi Tairuakena v Mua Carr [1927] NZLR 688 Tito v Waddell (No.2) [1977] Ch 106 Vassos v State Bank of South Australia [1992] V Conv R 54-443 Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668 Williams v Frayne (1937) 58 CLR 710 Wulff & Billing v Jay (1872) LR 7 QB 756 Yerkey v Jones (1939) 63 CLR 649
DECISION:	No personal equity established against mortgagee of premises. Damages awarded against vendor for failure to convey. Liability against one guarantor reduced by value of security lost through negligence of plaintiff. Another guarantor discharged completely from liability through National Australia Bank v Garcia equity, and also undue influence.