Doug Pascoe Investment Pty Ltd v Urban Cube Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2018 02820

BETWEEN:

DOUG PASCOE INVESTMENT PTY LTD (ACN 006 838 106) & ORS (according to the attached Schedule)	Plaintiffs
v
URBAN CUBE PTY LTD (ACN 134 535 523) (RECEIVERS AND MANAGERS APPOINTED) & ORS (according to the attached Schedule)	Defendants

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JUDGE:	Matthews J
WHERE HELD:	Melbourne
DATE OF HEARING:	11 November 2024
DATE OF RULING:	28 November 2024
CASE MAY BE CITED AS:	Doug Pascoe Investment Pty Ltd and Ors v Urban Cube Pty Ltd and Ors
MEDIUM NEUTRAL CITATION:	[2024] VSC 737

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PRACTICE AND PROCEDURE — Summary judgment — Whether defendants have real prospects of success on their third party notice — Civil Procedure Act 2010 (Vic), ss 62 and 64 — Supreme Court (General Civil Procedure) Rules 2015 (Vic), rule 22.16 — Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 — Where defendants are guarantors in respect of secured property — Where defendants bring a standalone claim against mortgagees in respect of equitable and statutory duties concerning the sale of secured property for alleged undervalue — Transfer of Land Act 1958 (Vic), ss 76 and 77 — Corporations Act 2001 (Cth), s 420A — Irani v St George Bank Limited (No 2) [2005] VSC 403, considered — Webster Investments Pty Ltdv Anderson (2016) 52 VR 610, Williams v Frayne (1937) 58 CLR 710, GE Capital Australiav Davis (2002) 180 FLR 250, Jovanovic v Commonwealth Bank of Australia (2004) 87 SASR 570, Florgale Uniforms Pty Ltdv Orders (2004) 11 VR 54, Jamesv Australia and New Zealand Banking Group Ltd (2018) 97 NSWLR 663, MBF Investments Pty Ltdv Nolan (2011) 37 VR 116, Bruecknerv Satellite Group (Ultimo) Pty Ltd (2002) 15 BPR 28,885, applied — Application for summary judgment allowed.

PRACTICE AND PROCEDURE — Strike out application — Supreme Court (General Civil Procedure) Rules 2015 (Vic), rule 23.02 — Whether defendants’ third-party claim should be struck out — Unnecessary to decide.

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APPEARANCES:	Counsel	Solicitors
For the First, Second, Sixth, Seventh, Ninth, Fourteenth to Twenty-First, Twenty‑Fourth to Twenty‑Sixth, Twenty-Ninth to Thirty-Second, and Thirty-Fourth to Thirty‑Seventh Third Parties	Mr G Lubofsky of counsel	Rotman & Morris Solicitors
For the Third to Seventh Defendants	Mr D Harrison of counsel	Wantrup & Associates Lawyers Pty Ltd

HER HONOUR:

Introduction and overview

On 7 August 2024, a number of named third parties to this proceeding, whom I shall call the Relevant Third Parties,[1] filed a summons seeking summary judgment against the third to seventh defendants[2] (Guarantor Defendants) or, in the alternative, that the Guarantor Defendants’ statement of claim on third party notice dated 11 February 2022 (TPSOC) be struck out.[3]
[1]The Relevant Third Parties are the first, second, sixth, seventh, ninth, fourteenth to twenty-first, twenty-fourth to twenty-sixth, twenty-ninth to thirty-second, and thirty-fourth to thirty‑seventh third parties.
[2]Pursuant to r 22.16 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules) and/or s 62 of the Civil Procedure Act 2010 (Vic) (CPA).
[3]I note that the first and second defendants (being the borrowers under the Baccus Loan) do not make any claims themselves against the Relevant Third Parties, therefore this application is not made against Urban.
The Relevant Third Parties seek this relief on the contention that the Guarantor Defendants do not have standing to bring the claim that they have brought against the Relevant Third Parties, and therefore the TPSOC does not disclose a cause of action. Alternatively, the Relevant Third Parties say that the Guarantor Defendants have failed clearly to identify the rights on which they rely and the basis on which they seek relief against the Relevant Third Parties and the TPSOC is, accordingly, liable to be struck out pursuant to r 23.02 of the Rules.[4]
[4]In particular, the Relevant Third Parties submit that the Court should strike out paragraphs [32]-[34] and [36]-[37] of the TPSOC, and the Prayer for Relief, on the basis that they fail to disclose a cause of action.
For the reasons which follow, I will grant the application for summary judgment in favour of the Relevant Third Parties against the Guarantor Defendants. It is therefore unnecessary for me to make orders striking out the TPSOC.

Pleaded matters

The matters pleaded and the causes of action relied upon by the Guarantor Defendants in the TPSOC are summarised by the Relevant Third Parties as follows:[5]
[5]The Guarantor Defendants do not dispute this summary.
(a)the first and second defendants (collectively, Urban) owned the properties located at 54-56 Clarke Street, South Bank (collectively, the Property) (TPSOC [8]);
(b)Baccus Investments Limited (Baccus) was the responsible entity of the Kremnizer Mortgage Fund, being a managed investment scheme (TPSOC [2]);
(c)in May 2014, Baccus loaned the sum of $8 million to Urban for a term of nine months (Baccus Loan) (TPSOC [10]);
(d)in June 2014, the Guarantor Defendants executed a guarantee in favour of Baccus (Baccus Guarantee)[6] to secure the Baccus Loan (TPSOC [11]);
[6]I describe this as the Baccus Guarantee in order to distinguish it from separate guarantees in favour of the plaintiffs.
(e)also in June 2014, Urban granted registered mortgage AL190028U in favour of the third parties, being the various members of the Kremnizer Mortgage Fund (TPSOC [12]);
(f)the Baccus Loan was extended on 18 March 2015 and 27 May 2015 (TPSOC[13]‑[14]);
(g)on 13 August 2015, the Baccus Loan was varied to reduce the facility to $6.9 million and extend the term for a further six months (TPSOC [15]), which was supported by a further guarantee granted by the Guarantor Defendants (TPSOC [16]);
(h)on 26 August 2015, 10 September 2015 and 7 October 2015 the Baccus Loan (as varied) was further extended for short periods (TPSOC [18]-[20]);
(i)on 8 March 2016, the existing mortgage instrument (AL190028U) was removed and mortgage AM617647G was registered on the title to the Property in favour of the third parties (Baccus Mortgage) (TPSOC [23]);
(j)on 1 July 2016, the third parties purported to serve a notice of default on Urban under s 76 of the Transfer of Land Act 1958 (Vic) (TLA) on the basis that Urban had defaulted under the Baccus Loan. The Guarantor Defendants contend that the notice was invalid because:
(i)it did not describe with reasonable accuracy the nature of the default; and
(ii)there was no default to support service of the notice;
(k)in August 2016, the third parties exercised their rights as mortgagees (pursuant to s 77 of the TLA) to take possession of the Property (TPSOC [27]);
(l)in late 2016, the third parties appointed Castran Gilbert Real Estate Agents to sell the Property (TPSOC [28]);
(m)on 9 February 2017, the third parties sold the Property for $9.2 million, notwithstanding that the market value of the Property was $18 million (TPSOC [29]-[30]);
(n)the third parties breached their equitable duties, along with their statutory duties under s 420A of the Corporations Act 2001 (Cth) (Corporations Act) and s 77 of the TLA (collectively, the Mortgagee Sale Duties) by failing to take reasonable care in selling the Property, in particular by reason of the steps pleaded at [35] (TPSOC [33]-[36]); and
(o)by reason of the third parties’ breaches of duties, the Guarantor Defendants have suffered loss and damage, being the additional sale proceeds that would have been received had the third parties’ duties been complied with (TPSOC [37]).
The application for summary judgment relies on the contention that the Guarantor Defendants do not have a cause of action against the Relevant Third Parties. Consequently, for the purposes of the application, the Court proceeds on the basis that the Guarantor Defendants can prove the matters claimed in the TPSOC. I am therefore not required to make any factual findings with respect to those matters. The Relevant Third Parties frame their application in accordance with this.
The Guarantor Defendants say that the TPSOC must be considered in the context of the totality of the issues, by having regard to the matters alleged by the plaintiffs in their amended statement of claim, dated 6 November 2020 (ASOC). The Guarantor Defendants summarise those allegations as follows:[7]
[7]This summary has been amended by me to ensure consistency in defined terms in these reasons.
(a)Under a Loan Agreement made on 18 December 2015, the first to third and fifth plaintiffs (Lenders) lent Urban $2.35 million (ASOC [8]).
(b)Under the First Guarantee dated 18 December 2015, the Guarantor Defendants agreed to guarantee and indemnify the Lenders (ASOC [10]).
(c)Under a deed made on 26 February 2016 (LL Loan Agreement), the fifth plaintiff lent $650,000 to Urban (ASOC [13]).
(d)Under the LL Guarantee and Indemnity made on 26 February 2016, the Guarantor Defendants agreed to guarantee and indemnify the fifth plaintiff (ASOC [15]).
(e)On 18 April 2016, Urban breached the Loan Agreement by not repaying the sum of $2.35 million (ASOC [18]).
(f)On 26 June 2016, Urban breached the LL Loan Agreement by not repaying the sum of $650,000 (ASOC [20]).
(g)Under a Forbearance Deed made on 7 July 2017 between the Lenders, Urban, the Guarantor Defendants and Additional Guarantors (being the eighth to eleventh defendants),[8] the Lenders agreed to forbear temporarily from enforcement action (ASOC [24]).)
(h)As at 25 May 2020, the first to twelfth defendants[9] are indebted to the first to fourth plaintiffs in the sum of $9,765,250 (ASOC [49]).
(i)As at 25 May 2020, the first to twelfth defendants are indebted to the fifth plaintiff in the sum of $3,910,041.80 (ASOC [50]).
(j)Further or alternatively, under the Forbearance Deed, the first to eleventh defendants acknowledged that they were indebted to:
(i)the first to fourth plaintiffs under the Loan Agreement for $2,350,000 plus interest and costs under the Loan Agreement; and
(ii)the fifth plaintiff under the LL Loan Agreement for $650,000 plus interest and costs due under the LL Loan Agreement (ASOC [51]).
[8]Those parties are Goss, Sarunda Pty Ltd, Brenkin Pty Ltd and Persalus Pty Ltd.
[9]Urban and the Guarantor Defendants, as well as defendants who were guarantors under the Second Guarantee made on 5 October 2017 between the first to fifth plaintiffs, the Additional Guarantors and the twelfth defendant.
The Guarantor Defendants say that the plaintiffs allude to having mortgage security, but do not plead that they have such a proprietary interest or claim to have an interest in the Property. However, the defendants plead in their defence to the ASOC (Defence to ASOC) that:
(a)As security for the Loan Agreement, Urban granted the Lenders a mortgage (Lenders’ Mortgage) over the Property (Defence to ASOC [53]).
(b)The Lenders’ Mortgage was the second-ranking mortgage over the Property (Defence to ASOC [56]).
(c)The Baccus Mortgage was the first-ranking mortgage over the Property (Defence to ASOC [57]).
(d)At around time that the Lenders purported to exercise their powers of sale under the Lenders’ Mortgage, all of the named third parties (being the first to thirty‑seventh third parties)[10] purported to do the same under the Baccus Mortgage (Defence to ASOC [58]).
[10]This group is defined as the ‘Baccus Parties’ in the Defence to ASOC.
The Guarantor Defendants say that the issue of mortgage security is central to their claim under the third party notice. Their summary of its importance largely repeats what is set out of sub‑paragraphs 4(a)-4(e), (g), (i), and (m)-(o). As against the third parties, the Guarantor Defendants seek damages, equitable compensation, an account of the dealings of the defendants in the sale of the Property, and an inquiry be held as to the amount of damage suffered by the Guarantor Defendants by reason of third parties’ conduct in carrying on the sale. In essence, the Guarantor Defendants say that as a result of the third parties selling the Property for around half of what it was worth, there were fewer funds available to flow to the plaintiffs as second-ranked mortgagees. Had the Property been sold for what it was actually worth, the additional money would have reduced Urban’s obligations to the plaintiffs by $8.8 million and the Guarantor Defendants’ liability to the plaintiffs (in their capacity as guarantors of Urban’s liabilities) pari passu by that same amount.
In their submissions, the Guarantor Defendants criticise the Relevant Third Parties’ defence to the third party notice for including many non-admissions to matters within their knowledge and bare denials (many of which are said to be evasive) as well as few positive assertions (which are also said to be vague and unparticularised). They also note that the contentions raised in this application were not included in the pleadings or raised before this application was made. I do not regard this submission as relevant to the summary judgment application and the Guarantor Defendants did not articulate how it was relevant or, indeed, whether it was relevant.

Applicable law

The relevant sections of the CPA concerning summary judgment are set out below:
62 Defendant may apply for summary judgment in proceeding
A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.
…
64 Court may allow a matter to proceed to trial
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a)it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
In this instance, the Relevant Third Parties are defendants to the TPSOC.
Rule 23.02 of the Rules provides that the Court may order that the whole or part of an indorsement of claim or pleading be struck out or amended if it does not disclose a cause of action or defence; is scandalous, frivolous or vexatious; may prejudice, embarrass or delay the fair trial of the proceeding; or is otherwise an abuse of the Court’s process.
The principles which apply to summary judgment applications and strike out applications are well-known and do not need to be set out here; suffice to say that I have followed those principles.[11] In short, the Court may summarily dismiss a claim where it is satisfied that there are no real prospects of it succeeding.
[11]In respect of summary judgment, see the decision of Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27. I have previously summarised the principles applicable to summary judgment in Padella Pty Ltd v Elliott [2018] VSC 301, [19]-[28] which have been adopted, for example, by Sloss J in One Capital Pty Ltd v Casada Holdings Pty Ltd [2024] VSC 520, [82].
Sections 76(1) and 77 of the TLA are in the following terms:
76 Procedure in case of default in payment of moneys secured
(1)If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).
…
77 Power of sale under a mortgage or charge
(1)If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.
…
(3)The purchase money received arising from the sale shall be applied—
(a)firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b)secondly in payment of the moneys which are due or owing on the mortgage or charge;
(c)thirdly in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d)fourthly in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein, or if the sale is made by a mortgagee and the land is charged with a subsequent annuity or if the sale is made by an annuitant, in payment of the said residue into an account on deposit at interest in an authorised deposit-taking institution within the meaning of the Banking Act 1959 of the Commonwealth in the joint names of the annuitant and the Registrar to satisfy the accruing payments of the charge and subject thereto for the benefit of the parties who are or become entitled to the residue of the deposited money.
(4)Upon the registration of any transfer under this section all the estate and interest of the mortgagor or grantor of the annuity as registered proprietor of the land mortgaged or charged shall vest in the purchaser as proprietor by transfer, freed and discharged from all liability on account of such mortgage or charge and (except where such a mortgagor or grantor is the purchaser) of any mortgage charge or encumbrance recorded in the Register subsequent thereto and the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised but any person thereby damnified shall have his remedy in damages against the person exercising the power, and for the purposes of Part III the purchaser shall be deemed to have dealt with the registered proprietor of the land.
Section 420A of the Corporations Act provides:[12]
[12]The definition of Controller is found in s 9 of the Corporations Act.
420A Controller’s duty of care in exercising power of sale
(1)In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a)if, when it is sold, it has a market value—not less than that market value; or
(b)otherwise—the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
(2)Nothing in subsection (1) limits the generality of anything in section 180, 181, 182, 183 or 184.

Relevant Third Parties’ submissions

Submissions on summary judgment

The Relevant Third Parties refer to the elaboration of the principles pertaining to summary judgment applications in Business Service Brokers Pty Ltd v Optus Mobile Pty Ltd[13] and Silver Chef Rentals Pty Ltd v Makong Australia Pty Ltd.[14] Relying on those principles, the Relevant Third Parties submit that the Guarantor Defendants’ third party claim against them has no real prospects of success.
[13][2021] VSC 310, [29]-[34].
[14][2019] VSC 703, [49]-[60].
The Relevant Third Parties submit that the equitable and statutory duties on which the Guarantor Defendants rely in the TPSOC do not give rise to a cause of action in the manner pleaded. The Guarantor Defendants’ positive claim, in the absence of any claim by Baccus under the Baccus Guarantee and seeking damages against the Guarantor Defendants, has no basis in law and therefore no prospects of success.
The Relevant Third Parties say that:
(a)there is no claim made in this proceeding by Urban (being the borrower and mortgagor) in respect of the Relevant Third Parties’ conduct of the sale of the Property;
(b)the Guarantor Defendants are not mortgagors and they did not own the Property;
(c)the third parties (as lenders or mortgagees under the Baccus Loan) have not made any claim against the borrowers (ie Urban) or the Guarantor Defendants. It is not pleaded, nor is it the case, that Baccus (as lender) has sought to pursue any shortfall in the amount owing under the Baccus Loan against the Guarantor Defendants, nor is there any evidence that Baccus intends to make such a claim under the Baccus Guarantee. Baccus and the third parties have not filed a counterclaim and are parties to this proceeding solely as defendants to the third party claim brought by the Guarantor Defendants;
(d)in effect, the Guarantor Defendants have brought an independent and standalone claim for unliquidated damages based on the difference between the sale price and market value of the Property, rather than seeking an indemnity or contribution against the Relevant Third Parties;[15] and
(e)in the TPSOC, the Guarantor Defendants have pleaded that the Relevant Third Parties owe the Mortgagee Sale Duties in an abstract way without specifying to whom each of the Mortgagee Sale Duties is owed.
[15]The Relevant Third Parties acknowledge that the claim is brought by way of third party procedure in the usual manner, on the condition that the plaintiffs’ claim against the Guarantor Defendants succeeds, and that there is as a result a contingent nature to the claim.
The Relevant Third Parties do not cavil with the notion that there is a causal relationship between the alleged sale for undervalue and the absence of funds available to satisfy the plaintiffs’ claim. However, the existence of a causal relationship is not sufficient in and of itself to give rise to rights. The Guarantor Defendants must point to a source of rights, either in equity or under statute, that entitles them to make the claim that they seeks to make against the Relevant Third Parties. They have not done so.

Equitable obligations

The Relevant Third Parties submit that the analysis of the position in equity of guarantors vis-à-vis the mortgagee begins with the analysis of the mortgagee’s obligations to the mortgagor.
The Relevant Third Parties submit that the mortgagee’s obligations to the mortgagor in respect of the power of sale have equitable origins, breaches of which give rise to the equitable remedy of an obligation of the mortgagee to account to the mortgagor.[16] This is submitted to be a very simple proposition. The mortgagor has access to an equitable remedy in the taking of accounts, but does not have a freestanding right to damages if they allege that there has been a breach of the mortgagee’s equitable obligations in connection with the power of sale of mortgaged property. As was said by Jordan CJ of the NSW Court of Appeal in Coroneo:[17]
The proper remedy of the plaintiff is a suit in equity in which, upon his offering to redeem or account, he may, if he so desires, litigate the question of any alleged equitable delinquencies on the part of his mortgagee.
[16]Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391, 394-395 (Jordan CJ, Halse Rogers and Street JJ agreeing) (Coroneo); Thambiappah v Commonwealth Bank of Australia [2010] NSWSC 520, [43]-[54] (Harrison J) (Thambiappah); MBF Investments Pty Ltd v Nolan (2011) 37 VR 116, 174 [246]-[247] (Neave, Redlich and Weinberg JJA) (MBF Investments). See also Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614, 620-2 [35]-[49] (Beazley JA, Mason P and Bryson JA agreeing) (CBA v Hadfield).
[17]Coroneo (1935) 35 SR (NSW) 391, 395.
In addition to Coroneo, the Relevant Third Parties refer to Thambiappah.[18]In that case, the Supreme Court of NSW found that the Commonwealth Bank did not have a right to sell the plaintiff’s property because notice had not been properly served, and went on to consider whether, as a result, the plaintiff had a claim against the Commonwealth Bank for damages in connection with the sale. The Court went on to conclude that, as the Commonwealth Bank contended, the plaintiff’s sole action was for a taking of accounts once the property was sold.[19]
[18][2010] NSWSC 520 (Harrison J).
[19]Ibid, [34], [38], [43]-[54].
In Thambiappah, Harrison J refers to the decision of the Court of Appeal of NSW in CBA v Hadfield.[20]In that case, Beazley JA described the various legal writings as speaking ‘with one voice’ to say that an account is the appropriate form of relief for a mortgagor for sale of a mortgaged property by the mortgagee for undervalue or otherwise in breach of the mortgagee’s duty.[21]
[20]Ibid, [45], discussing CBA v Hadfield (2001) 53 NSWLR 614, 620-1 [36]-[44] (Beazley JA).
[21]CBA v Hadfield (2001) 53 NSWLR 614, 620, [41]. See also Thambiappah [2010] NSWSC 520, [54].
From this, the Relevant Third Parties submit that there is no conflict in the authorities in terms of the equitable remedy of a taking of accounts being the remedy available to a mortgagor who complains that a mortgagee has exercised its power of sale improperly. This is the context in which the rights of the guarantor emerge. The principles applying to guarantors are somewhat different, given that the law treats guarantors with particular caution, but the principles are informed by those rights between mortgagor and mortgagee.
The Relevant Third Parties submit that a mortgagee owes an independent equitable obligation to a surety to preserve the value of the surety’s security, that duty being to act in good faith in connection with the sale of the mortgaged property. However, they say that the duty is only enlivened when a claim is made by a mortgagee against the surety under the guarantee and operates only to reduce the value of the amount owing by the surety to the mortgagee. That is, the surety’s rights are limited to an equitable defence to a claim by the mortgagee creditor; they cannot raise an independent claim for damages if a mortgagee improperly exercises its duties in connection with a power of sale.
In respect of the surety’s equitable rights, the Relevant Third Parties refer to the summary of principles by Croft J in Webster Investments Pty Ltd v Anderson:[22]
[22](2016) 52 VR 610, 649-50 [95] (Webster Investments) (citations omitted). See also paragraphs [94] and [96]‑[100]. Those principles are derived generally from: GE Capital Australia v Davis (2002) 180 FLR 250, 276‑9 [85]-[92] (Bryson J) (GE Capital); Brueckner v Satellite Group (Ultimo) Pty Ltd (2002) 15 BPR 28,885, 28,910 [130]-[131] (Campbell J) (Brueckner).
The cases on equitable principles establish the following propositions concerning a mortgagee and a surety and sale of the secured asset:
(a)equity will allow a guarantor to raise an equitable defence in part or in whole against the claim for its contractual liability under the guarantee;
(b)the protection extended to the guarantor in equity is related to the guarantor’s right to be subrogated to the rights of the principal creditor against the security if the guarantor pays out all the secured debt;
(c)the guarantor of a secured debt is entitled to show that his liability to the secured creditor has been reduced (or extinguished) as a result of some shortcoming and the realisation or management of the security by the mortgagee/lender, ie a flawed selling process;
(d)guarantors have remedies in their own right for the conduct of secured creditors which sacrifices the security or diminishes the value which the security could have yielded;
(e)the guarantor is responsible only for the obligation which he has guaranteed;
(f)the surety can complain if the creditor sacrifices or impairs a security or allows it to be lost or diminished;
(g)the equitable defence does not have to be taken by way of a counterclaim or cross claim;[23]
(h)the equitable duty comes to be in force at the time that the guarantee is sued on. It is at that time that the equity court enquires whether the creditor once had a security from which it could have satisfied the debtor’s obligation (in whole or part) and whether that security has been lost through the negligence of the creditor. If that situation exists, that is enough to give rise to the equitable defence; and
(i)equity is concerned to protect the guarantor from an ‘arbitrary’ choice of the creditor about from whom it seeks recovery. Equity does not adopt the same approach as is analogous to that of the common law of negligence. Rather, equity gives a remedy which will fulfil the purpose for which the equitable duty was held to exist in the first place.
[23]That is, as meaning that the equitable defence can be taken purely defensively.
The Relevant Third Parties places importance on sub‑paragraph (h) above, as a limitation on when such duty comes to be in force. There, the guarantor raised an equitable defence and the Court ultimately extinguished the liability of the guarantor under the guarantee because of the mortgagee’s conduct in breach of its obligations in connection with the power of sale. Relevantly, in that case, the mortgagee as lender had made a claim against the guarantor and the guarantor raised an equitable defence. That case is not this case.
As was said by Bryson J in GE Capital, the ‘protection extended in Equity to the guarantor has the effect that the guarantor can raise an equitable defence in part or in whole against a claim for its contractual liability’.[24] In other words, in respect of a claim for amounts owing under a guarantee and where the mortgagee has impaired the value of the relevant security, the guarantor can rely on an equitable defence in order to be credited with the amounts of such impairment.
[24](2002) 180 FLR 250, 276 [85].
The Relevant Third Parties refer to a further passage in GE Capital and the decisions cited therein by Bryson J:[25]
[25]Ibid, 278-9 [90]-[92].
Opinions in judgments in the High Court of Australia, which have a primary claim as sources of the law which I am to apply, do not state the test with great precision. In Williams v Frayne (1937) 58 CLR 710 at 738 Dixon J said:
if the guarantee is given upon a condition, whether express or implied from the circumstances, that a specific security shall be obtained, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the security and the discharge is complete. But otherwise the surety can complain only if the creditor sacrifices or impairs a security, or by his neglect or default allows it to be lost or diminished, and in that case the surety is entitled in equity to be credited with the deficiency in reduction of his liability. The cases are collected in the ninth chapter of Sir Sidney Rowlatt's book, and there is an examination of some of them in the judgment of Hanna J in Northern Banking Co v Newman & Colton.
In Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 at 675; 37 ALR 543 at 556 Brennan J 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 surety's entitlement is lost, however, if he bargains away his right to complain of the act which occasions the deficiency. The respondent submits that the appellants, by the terms of the guarantee, had precluded themselves from complaining of any deficiency consequential upon the respondent pursuing against the mortgagor its remedies under the debenture. If that submission be right, the case is distinguishable from Pearl v Deacon, where a creditor by exercise of a paramount right, sacrificed a security to the benefit of which a surety was entitled, and the surety had not agreed to the exercise of the right or to accept the prejudice flowing from the sacrifice of the security.
These authoritative statements appear to me to have the effect that the surety may complain of anything of which the debtor may complain, and has further rights where the value or realisation of the security has been diminished by the creditor's neglect or default…. if the guarantors show that the mortgagors would, if they made a claim, be entitled to a remedy under s 420A(1), the guarantors are, in my opinion, entitled to a similar remedy by way of an equitable defence to the claim against them, subject to the provisions of the guarantee.
The Relevant Third Parties also refer to the following statement by Campbell J in Brueckner:[26]
As well as there being unanimity in the remedy which decided cases have allowed, when a creditor has prejudiced a security, there are reasons of principle why the appropriate remedy for equity to offer, when a guarantor is prejudiced through loss of a security which the creditor had, is to reduce the guarantor’s liability by the value of the security which has been lost. It is a fundamental principle that (absent some contractual stipulation to the contrary) a guarantee is a secondary liability. While a creditor who has the benefit of a guarantee is free, if he chooses, to sue the guarantor rather than to sue the principal debtor, if the creditor takes that choice the guarantor will be given a remedy by equity, of subrogation to the rights which the creditor had against the principal debtor. What is driving equity here is that, while the creditor is free to choose which of the means of recovering his debt he will adopt, his choice ought not determine where the loss ultimately lies, as between the guarantor and the principal debtor. It is for this reason that the surety is entitled, upon payment of the guaranteed debt, to be subrogated to any securities which the creditor had for that payment.
If the creditor has, through neglect, caused a security to be lost or impaired, the value of the guarantor’s right of subrogation is correspondingly diminished. In other words, equity’s capacity to ensure that the arbitrary choice of the creditor about from whom he seeks recovery, does not decide where the loss ultimately falls, is diminished There then arises an equity between the creditor and the guarantor — because, as a result of the creditor’s neglect, in losing or impairing a security, equity’s ability to ensure that the arbitrary choice of the creditor about whom to sue does not decide where the loss ultimately falls has been diminished, equity decides that the ability of the creditor to enforce the guarantee must be correspondingly diminished. When all that is driving equity in this area is ensuring that a guarantor does not suffer in consequence of the arbitrary decision of a creditor about who to sue first, the area of equity’s concern, the scope of the purpose which the equitable obligation is aiming to achieve, is fully satisfied if a remedy is provided which reduces the guarantor’s liability by the value of the security which has been lost. Equity does not, in this situation, adopt an approach analogous to that of the common law of negligence, of saying, “has there been a breach of duty, and if so what (subject to questions of remoteness of damages) are its consequences?” Rather, equity gives a remedy which will fulfil the purpose for which the equitable duty was held to exist in the first place.
The equitable duty comes to be enforced at the time that the guarantee is sued on. It is at that time that the equity court inquires whether the creditor once had a security from which it could have satisfied the debtor’s obligation (in whole or part) and whether that security has been lost through the negligence of the creditor. If that situation exists, that is enough to give rise to the equitable defence.
[26](2002) 15 BPR 28,885, 28,910 [130]-[132].
The Relevant Third Parties submit that the abovementioned authorities are entirely consistent. The extract directly above makes plain that the surety’s right arises only when the secured creditor seeks to make a claim against the surety, and operates only to reduce the liability under the guarantee. The surety does not have positive rights giving rise to an entitlement to seek damages. This is also plain from the following passage of Besanko JA in Jovanovic v Commonwealth Bank of Australia:[27]
For breach of the equitable duties in relation to the exercise of the power of sale, a mortgagor would be entitled, on the taking of accounts between mortgagee and mortgagor, to have brought to account the loss it has suffered. Guarantors would be entitled to an equitable set-off in relation to any claim on the guarantee to the extent of the loss caused by the mortgagee’s breach of duty. Guarantors are entitled to no more than a set-off of the claim on the guarantee. They are not entitled to make a counterclaim.
[27](2004) 87 SASR 570, 598 [114], [118] (Mullighan JA agreeing [1]) (Jovanovic).
From the above, the Relevant Third Parties say the Court should conclude that the Guarantor Defendants are not able to rely on the third parties’ breaches of equitable obligations in connection with their power of sale as giving rise to a right to damages or equitable compensation, or for a taking of account, where the Baccus Guarantee has not been sued on, and where what is sought is not a reduction in the amount owed under the Baccus Guarantee. The Guarantor Defendants have no standing to do so and therefore their claim for damages has no prospects of success, insofar as equity is concerned.

Statutory provisions

The Relevant Third Parties’ position in respect of s 420A of the Corporations Act and s 77 of the TLA is that neither of those statutory provisions give rise to any further rights in favour of the surety as against the mortgagee. Rather, the provisions re-state or re-formulate the existing equitable duties as between the mortgagee and mortgagor and operate only for the direct benefit of the mortgagor. Put another way, the Relevant Third Parties say that while the statutory provisions impact the content of the obligations owed (by strengthening or enhancing the obligations on mortgagees in selling property), they do not change the nature of those obligations. Fundamentally, the statutory provisions do not change the position in law; they do not allow guarantors to bring new standalone claims as the Guarantor Defendants have done here.
Insofar as the Guarantor Defendants say that a right flows from the rights that the second mortgagee might have against the Relevant Third Parties, and that a breach of obligation to the second-ranked mortgagee might give rise to rights in favour of the Guarantor Defendants, the Relevant Third Parties say that this argument is legally impermissible. Section 77 required the Relevant Third Parties to have regard to the interests of the mortgagor and subsequent interests holders (Urban and the plaintiffs respectively). There is no obligation in that section on a mortgagee to have regard to a guarantor, as a guarantor is not a subsequent interest holder.

The only basis on which the surety can take advantage of the mortgagor’s rights under either s 420A of the Corporations Act or s 77 of the TLA is to rely on them as an equitable set-off to the mortgagee’s claim under the guarantee. They cannot take advantage of those rights to make a positive claim against the mortgagee. No such claim has been made, although it could have been.

Section 420A of the Corporations Act

The Relevant Third Parties refer to GE Capital for the proposition that s 420A of the Corporations Act does not give rise to rights in favour of guarantors of secured property. In that case, Bryson J of the Supreme Court of NSW noted:[28]
No provision of the Corporations Act expressly confers any right to damages or any other remedy on the corporation, or on anyone else, if the controller does not comply with the mandatory requirement of s 420A(1). By contrast a number of other provisions of the Corporations Act expressly provide for compensation, damages or other remedies or for penalties for breaches: examples include provisions in Pt 5.7B relating to insolvent trading and Ch 6B relating to takeover provisions: and there are others. Section 420A(1) is markedly unlike s 85 of the Property Law Act 1975 (Qld) in that s 85 expressly confers a right to damages. On the face of s 420A(1) it was enacted for the protection of the corporation over the property of which a controller exercised power of sale, and it might also be that it was enacted for the protection of other persons who had interests in property owned by a corporation. There is nothing in the terms of s 420A, or elsewhere in the Corporations Act, which indicates that it was enacted for the protection of persons who do not have interests in the property of the corporation, such as guarantors who incur obligations by reference to the obligations of the corporation. Their obligations are not obligations to the corporation, they do not have an interest in its relevant property and they have not entered into any relevant contractual relationship with the corporation, in respect of its property or otherwise; they have guaranteed an obligation of the corporation to a third party. There is in my opinion no basis for the view that s 420A, alone or with the aid of context, operates or was intended to operate so as to confer a right to recover damages or any other right to a remedy on guarantors. The subsection speaks with Delphic simplicity and exemption from interrogation by saying what the controller must do without referring to consequences of failure to comply.
[28](2002) 180 FLR 250, 263, [45].
In that case, Bryson J went on to hold that:[29]
Section 420A can readily be given full and effectual operation without resorting to any implication of an intention to confer a remedy in damages on corporations which mortgage their property, still less to confer such a remedy on guarantors of the debts of those corporations; s 420A can readily take a place in the existing remedies without supposing that it was intended to confer or that it does confer any rights at all upon guarantors.
In my view s 420A was plainly enacted for the protection of the corporation the property of which is referred to, and the implication that the duty created by s 420A(1) should be enforced by a remedy conferred on the corporation is irresistibly clear, notwithstanding that the legislation does not specify what that remedy is to be. In the context of the exercise of a power of sale in an [sic] mortgage over property of a corporation the corporation had, before s 420A was enacted, a remedy against the mortgagee, and an efficacious and reasonable operation can be attributed to s 420A if the duty in that subsection takes the place of the test of entitlement of the corporation to what would otherwise be its remedy. There is no context of an existing entitlement under common law to damages, and no reference in the legislation to any such entitlement, in strong contrast to the Queensland legislation. The intention of the legislature should be understood to be that the corporation as mortgagor was to have the remedies already available to it, but the availability of the remedies was to be tested by reference to the duty in s 420A(1)
…
In my view there is nothing to indicate that it was the intention of the legislature that s 420A(1) should confer any right or remedy on guarantors or other persons who involve themselves contractually in consequences of the exercise of the power of sale, but the guarantor is entitled to rely on the availability to the mortgagor of a remedy, whether the remedy was that previously established by Pendlebury v Colonial Mutual Life Assurance Society Ltd or is now the remedy available to the mortgagor on breach of the duty declared by s 420A(1); the guarantor is entitled to have an equitable remedy on the basis that the mortgage accounts are taken on whatever may be the principle truly applicable to taking mortgage accounts. In my opinion the equitable remedies which in an earlier state of the law were available to a guarantor where there was a breach of the mortgagee's duty to a mortgagor corporation are now to be tested by reference to whether there was a breach of the duty stated in s 420A(1).
[29]Ibid, 266-7 [54]-[56].
The Relevant Parties say that s 420, in effect, expands the content of obligations (from an obligation to act in good faith) by inserting an objective standard (requiring controllers to take reasonable steps to obtain the best price), but does not create a separate right to damages.
The Relevant Third Parties say that the above analysis of Bryson J has been followed and approved by numerous decisions and is settled law. It has been adopted and affirmed in Victoria. For example, in Florgale Uniforms Pty Ltd v Orders, Dodds‑Streeton J stated:[30]
In my opinion, Bryson J’s analysis of s 420A is persuasive. The Australian Law Reform Commission General Insolvency Inquiry recommended that a guarantor should be able to bring an action for breach of the statutory duty … but the recommendation was not reflected in the legislation. The section does not vest an independent cause of action, but extends the duty owed by a controller, with the effect that all existing entitlements (including those of guarantors and collateral mortgagors) to equitable remedies in respect of a faulty or deficient exercise of the power of sale are enhanced and strengthened, by reference to the higher duty established by s 420A.
[30](2004) 11 VR 54, 73 [388] (Dodds-Streeton J) (Florgale Uniforms).
The Relevant Third Parties also point to the following cases:
(a)In Jovanovic, Besanko JA stated:[31]
[31](2004) 87 SASR 570, 598 [115] (Mullighan JA agreeing [1]) (citations omitted).
In those circumstances, a question arises as to whether s 420A merely adds to the duties the bank was under, or whether it does that and provides an additional remedy to Fortson and/or the Jovanovics. This issue was considered by Bryson J in GE Capital Australia v Davis and his Honour decided that s 420A does not provide an additional remedy. I respectfully agree with his Honour’s analysis. Bryson J noted that the Corporations Act did not provide a remedy for a breach of the duty in s 420A. Section 1324(10) of the Law could not be relied upon because at the time the action was commenced there was no prospect an injunction would be granted. Furthermore, there was nothing in the section or elsewhere in the Law which suggested that it was enacted for the benefit of persons who do not have an interest in the corporation’s property. Bryson J referred to the authorities which deal with the question of the circumstances in which an individual has a remedy in damages for breach of a statutory duty.
(b)In Ultimate Property Group Pty Ltd v Lord, Young CJ in Equity approved of the analysis of Bryson J and stated:[32]
[32](2004) 60 NSWLR 646, 658 [80], [87], 659 [94] (Ultimate Property Group).
In Australia, it is clear that if the mortgagee sues the guarantor, then the guarantor is able to say that the quantum of the claim must be reduced by the amount at which the creditor sold the security at an under-value as the guarantor was entitled to have the security sold for its proper value.
(c)In James v Australia and New Zealand Banking Group Ltd, Leeming and Sackville JJA stated in a joint judgment:[33]
[33](2018) 97 NSWLR 663, 679 [67]-[68] (James v ANZ).
In our view, Bryson J’s analysis in GE Capital as to the construction of s 420A of the Corporations Act is correct. Not only has it been followed in the first instance decisions to which we have referred, but it was endorsed by the Full Court of the Supreme Court of South Australia in Jovanovic v Commonwealth Bank of Australia. We certainly do not consider that the construction of s 420A adopted in Jovanovic or in the other decisions is plainly wrong.
It follows from what we have said that a guarantor continues to be entitled to the remedies available under the general law in answer to proceedings seeking to enforce the guarantee. Specifically the guarantor is entitled to insist by way of a pro tanto defence on a reduction in the amount due under the guarantee, should the principal creditor breach the duty owed to the principal debtor when realising any assets provided by way of security for the debt.
(d)In Boz One Pty Ltd v McLellan, the Court of Appeal stated:[34]
The precise relationship between the general law duty of good faith and the s 420A statutory duty of reasonable care in the context of a receiver’s exercise of a power of sale need not be analysed in the present case. That is because the appellants relied exclusively on s 420A. This is not surprising, as s 420A imposes a more rigorous statutory duty upon a receiver in relation to a power of sale, and was clearly intended to provide corporate mortgagors with additional protection. Nonetheless, its legislative history provides no foundation for a suggestion that s 420A was intended to overturn the receiver’s primary duty to a secured creditor.
(e)In National Australia Bank Ltd v C & O Voukidis Pty Ltd, Davies J stated, in respect of Bryson J’s analysis in GE Capital:[35]
What Bryson J said … has direct application here. The Fourth Defendant has no claim based on s 420A. The rights given by the section are not rights a guarantor has.
[34](2015) 105 ACSR 325, 350 [157] (Whelan, Santamaria and Kyrou JJA) (citations omitted).
[35][2015] NSWSC 185, [79].
The Relevant Third Parties submit that a surety does, however, derive indirect benefits from s 420A of the Corporations Act; the surety is entitled to rely on rights available to a debtor against a creditor by way of an equitable set-off to a claim brought by a creditor against the surety.[36] Those rights include the expanded content of the duty as expounded in s 420A. That reliance requires a nexus to exist between the creditor’s claim and the debtor’s cross-claim (relied upon by the surety), such that the crossclaim can be said to impeach the creditor’s claim.[37]

Section 77 of the TLA

[36]Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14, 18 (Hope, Hutley and Samuels JJA); Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436, 440 (Drummond J); Jinhong Design and Constructions Pty Ltd v Xu [2010] NSWSC 523, [112] (Johnson J).

[37]Indrisie v General Credits Ltd [1985] VR 251, 254 (Young CJ, Crockett and Nicholson JJ).

Section 77(1) of the TLA imposes on a mortgagee an obligation to sell secured property in good faith and having regard to the interests of the mortgagor, grantor or other persons.
In respect of the scope of s 77, the Relevant Third Parties point to the decision of the Court of Appeal in MBF Investments:[38]
(a)a mortgagee is not a trustee of the power of sale, which is given to the mortgagee to enable the realisation of the security interest;
(b)a mortgagee must act in good faith, that is conscionably, and cannot sell for a purpose other than that for which the power of sale is conferred;
(c)a mortgagee is not required to place the interests of the mortgagor above the mortgagee’s interests in recovering the debt. For example, the mortgagee can sell the property at a time of the mortgagee’s choice, even though the property might realise a higher price if the sale were postponed;
(d)the mortgagee cannot disregard the interests of the mortgagor by simply selling for a price which will cover the amount of the loan. The mortgagee must take reasonable steps to obtain the best price consistently with its right to enforce its security interest. This requires the mortgagee to consider how the property should be advertised and to allow an appropriate time between the advertisement and the sale;
(e)the mortgagee must also have regard to the interests of subsequent security holders; and
(f)if there is no doubt that the sale of the lots preferred by the mortgagor would be sufficient to discharge the debt owed to the relevant mortgagee and of any other security holders whose interest the mortgagee is required to consider, a failure to sell the preferred lots may breach the mortgagee’s duty to sell in good faith.
[38](2011) 37 VR 116, 144-5 [100] (Neave, Redlich and Weinberg JJA) (citations omitted).
Section 76 of the TLA provides for notice of an intended exercise of a power of sale to be given by a mortgagee to the ‘mortgagor or grantor … and such other persons as appear by the Register to be affected’ (ie including all persons with a registered interest in the secured property). That section also provides that ‘other persons as appear by the Register to be affected’ (ie subsequent registered interest-holders, and typically second- or third-ranked mortgagees) are entitled to seek relief against a mortgagee in respect of the improper exercise of the mortgagees’ power of sale. The Relevant Third Parties say that the ‘other persons’ referred to in s 77(1) are the ‘other persons’ referred to in s 76. That is, other persons with registered interests in the subject property.
Section 77(4) sets out the consequences of contraventions of either ss 76 or 77(1) on the rights of subsequent purchasers and provides that ‘any person thereby damnified shall have his remedy in damages against the person exercising the power’.
The Relevant Third Parties submit that s 77(4) has been held not to give rise to a positive remedy against a creditor in favour of a surety. This is because, properly construed, ‘damages’ in s 77(4) refers only to the existing equitable remedies between a mortgagee and mortgagor already outlined.[39]
[39]Clyde E Croft and Robert Hay, The Mortgagee’s Power of Sale (LexisNexis Butterworths, 4^th ed, 2019), 213-4 [11.10].
The Relevant Third Parties say that this construction is traced back to the following passage from the judgment of Irving CJ in McGinnis v The Union Bank of Australia Ltd:[40]
It is contended that the words “any person damnified by an unauthorized or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power” have the effect mentioned above. In my opinion they have no such effect. These words must be read in connection with the words immediately preceding them, and the words “improper exercise” have no wider scope than the words “improperly exercised”. It is, I think, clear that in both cases what is referred to is the injury to the mortgagor from a “professed” exercise of the power of sale, which, but for the validating words at the beginning of the sub-section, could have been set aside at his instance as being an invalid exercise of the power. The words “improper” and “improperly” are apt to cover sales which, though regular in form, are deemed in equity to be voidable, as for instance sales by the mortgagee to himself or some person or company in which he is interested. In my opinion it was never intended by the words used, read with their context, to create a new cause of action for any of these matters which, not affecting the purchaser's title, may give rise to a claim for damages or compensation as between mortgagee and mortgagor only.
[40][1935] VLR 161, 164-165 (McGinnis).
The Relevant Third Parties say that the decision in McGinnis has been approved on a number of occasions and is not the subject of any relevant controversy.[41] They submit that it is consistent with the notion that the rights of a mortgagor are equitable in nature and are limited to the equitable remedy of taking of accounts, and that the TLA provisions in question were not intended to expand those rights to include a common law damages remedy. The surety can only take advantage of the mortgagor’s rights under s 77 by raising a claim for an equitable set-off to a claim by the creditor under the guarantee. That being the case, the Guarantor Defendants’ claim reliant on s 77 of the TLA cannot succeed.
[41]See, for example McCourt v National Australia Bank Ltd [No 2] [2010] WASC 151, [74] (Murphy J).

Submissions on strike out

In support of their alternative argument that paragraphs [32] to [34] and [36] to [37], together with the Prayer for Relief, in the TPSOC be struck out, the Relevant Third Parties refer to the statement of relevant principles by Dixon J in Wheelahan v City of Casey (No 12).[42]
[42][2013] VSC 316, [25].
The Relevant Third Parties make the following criticisms of the TPSOC:
(a)at [32], the Guarantor Defendants plead that they have suffered loss and damage, but they have not identified a cause of action flowing from the breach of an obligation owed to them, nor the basis for a right to loss and damage being sought against the Relevant Third Parties;
(b)at [33], the Guarantor Defendants plead that the third parties owed a duty under s 420A of the Corporations Act, but the TPSOC does not identify to whom the duty is owed;
(c)at [34], the Guarantor Defendants plead that the third parties owed duties in equity and under s 77 of the TLA, but they so not identify to whom those duties are owed;
(d)at [36], the Guarantor Defendants plead that the third parties breached the Mortgagee Sale Duties, but they do not identify to whom those duties are owed;
(e)at [37], the Guarantor Defendants again plead that they have suffered loss and damage, without making clear the basis on which are entitled so to claim, and the TPSOC does not otherwise identify who would have received the relevant sale proceeds and how the receipt gives rise to loss and damage in this case; and
(f)it is not pleaded pursuant to what cause of action the principal claim for damages is said to arise, and none of the causes of action as between a mortgagor or surety and a mortgagee entitle a surety to claim damages.
The Relevant Third Parties submit that this is not an instance in which the pleading might be amended to remedy its key defect. It would not change the key proposition that the rights available to a guarantor are purely defensive and enlivened only upon a claim being made against the guarantors under the guarantee.
The Relevant Third Parties submit that the fact that the Guarantor Defendants are left in a difficult position does not mean they have standing to make the claims that they do. In the absence of a claim by the third parties against the Guarantor Defendants, the way that this may have been agitated is either by Urban, as mortgagor, or by the plaintiffs, as second-ranked mortgagees, making a claim under the duties that the Relevant Third Parties owed to them. That has not occurred.

Guarantor Defendants’ submissions

Submissions on summary judgment

The Guarantor Defendants submit that the third‑party claim can only be viewed properly together with the claim as between the plaintiffs and the defendants. This context means that the Guarantor Defendants are, in effect, sandwiched between two different sets of mortgagees. While the plaintiffs’ case does not raise a suggestion of their security over the Property, this is pleaded by way of defence.

The Guarantor Defendants say that the Relevant Third Parties’ submissions are based on a narrow view of things.
The plaintiffs sue the Guarantor Defendants under guarantees in circumstances where the plaintiffs, as mortgagees, have no mortgage to call upon; there were no funds left over after the third parties exercised their power of sale over the Property. Thus, the plaintiffs, as lenders, received nothing from the sale. The Guarantor Defendants allege that Property was sold for about half of its true value. Had the Property been sold for its true value, that additional money could have gone to the plaintiffs (as second-ranked mortgagees) in satisfaction of their claims against the Guarantor Defendants. This factual situation is suggested to be slightly different from the situations in the cases to which the Relevant Third Parties refer. Counsel for the Guarantor Defendants was not able to point to any case in which a guarantor has found themselves in this situation.
At the hearing, counsel for the Guarantor Defendants submitted that, by the inclusion of the word ‘if’ in the TPSOC, the Guarantor Defendants have not sought to make a freestanding and at-large claim for damages, albeit the pleading could be clearer about this. In other words, the Guarantor Defendants’ claim against the third parties is expressed as conditional upon the Guarantor Defendants being found liable to the plaintiffs. The Relevant Third Parties focus on the issue of damages (this may be equitable damages or in respect of breach of a statutory obligation and the Guarantor Defendants accept that this is not made clear in the TPSOC), but the Guarantor Defendants also seek equitable compensation and an account of dealings (with an enquiry as to any amount of damages suffered).
The Guarantor Defendants accept that the TPSOC needs to be re-pleaded so as to make the claims made against the Relevant Third Parties clearer, but the Guarantor Defendants say this is different from whether they are able to maintain their claims. The Guarantor Defendants say they do have standing to bring their claims against the Relevant Third Parties.

Equitable obligations

In respect of the equitable principles applying to guarantors, the Guarantor Defendants also rely on Webster Investments, and say that sub‑paragraphs (c), (d), (f), (g) and (i) are of particular relevance.[43]
[43](2016) 52 VR 610, 649-50 [95].
Justice Croft in Webster Investments clarified that the protection of guarantors in equity is ‘related to the guarantor’s right to be subrogated to the rights of the principal creditor against the security if the guarantor pays out all the secured debt’.[44] However, the Guarantor Defendants submit that the guarantor’s right is not strictly limited, and that protection is not limited to those literal circumstances. They say that a guarantor’s ability to reduce their liability as a result of a flawed sale process cannot be seen as separate for the first and second mortgagees over the one Property, where the actions of the Relevant Third Parties have directly impacted upon the liability of the Guarantor Defendants in respect of the plaintiffs' claim.
[44]Ibid, 649 [95(b)].
According to the Guarantor Defendants, Webster Investments stands as authority in support of their having remedies in their own right for the conduct of the Relevant Third Parties, and they are not limited to maintaining such a claim as a counterclaim or in direct reply to a claim by the secured creditor.[45]
[45]Ibid, 649-50 [95(d), (f) and (g)].
The Guarantor Defendants submit that for the purposes of this application, it must be concluded that the Relevant Third Parties have not obtained the best price or taken reasonable steps to get the best price at the time of sale. I do not accept this characterisation. For the purposes of this application, I assume that the Guarantor Defendants would be able to prove this at trial, but I am not making a finding of fact or drawing a conclusion in that regard.

Statutory provisions

Section 77 of the TLA

In respect of s 77 of the TLA, the Guarantor Defendants cite as ‘particularly apposite’ the propositions in sub-paragraphs (d) and (e) of the Court of Appeal decision in MBF Investments.[46] Those propositions are that a mortgagee cannot disregard the interests of the mortgagor by selling for a low price which will cover the amount of the loan, they must take reasonable steps to obtain the best price consistent with their right to enforce their security interest, and they must also have regard to the interests of subsequent security holders. The Guarantor Defendants submit that the last is a different proposition from what has been put by counsel for the Relevant Third Parties.
[46](2011) 37 VR 116, 144-5 [100] (extracted at paragraph 43 above).
The Guarantor Defendants submit that it would be too narrow an interpretation of the law to ignore that the Relevant Third Parties have sold without regard to the interests of subsequent interest holders here, and have sold for undervalue. The action of the Relevant Third Parties directly impacts on the quantum of that second secured party's claim against the Guarantor Defendants. The Guarantor Defendants ought not, in the TPSOC, be confined to the immediate issue of whether or not a guarantor could have an accounting as between the guarantor and the mortgagee.
According to the Guarantor Defendants, the Court of Appeal in MBF Investments is making clear that a mortgagee must also have regard to the interests of subsequent security holders.[47] The Guarantor Defendants are still being sued under a guarantee, albeit a different guarantee, and there is no relevant difference between Urban suffering the loss and damage as a result of the sale for undervalue and the plaintiffs suffering the loss and damage as second-ranked mortgagees. Indeed, as the plaintiffs would receive funds from the sale of the Property in discharge of Urban’s liabilities to the plaintiffs before Urban could see any surplus, there is no relevant difference.
[47]Ibid.
The Guarantor Defendants also refer to the following descriptions of the mortgagee’s obligations under s 77:
(a)In Vasiliou v Westpac Banking Corporation, the Court of Appeal said that:[48]
[48](2007) 19 VR 229, 242 [63] (Maxwell P, Neave and Kellan JJA) (Vasiliou).
The mortgagee is obliged to obtain the best price consistent with its entitlement to realise its security.
(b)In Goldcel Nominees Pty Ltd v Network Finance Ltd, Murphy J said:[49]
[T]he mortgagee, on selling, must take reasonable steps to ensure that, at the time of sale, he is getting the best price then available for the mortgaged property.[50]

Section 420A of the Corporations Act

[49][1983] 2 VR 257, 261 (Goldcel Nominees).

[50]The Guarantor Defendants refer to Kravchenko v The Rock Building Society (2009) 26 VR 400, 404 [19]‑[20] (Buchanan JA).

The Guarantor Defendants say that it appears to be accepted by all that the Relevant Third Parties were a controller for the purposes of s 420A of the Corporations Act.
In respect of s 420A, the Guarantor Defendants refer to the following statement Whelan J (as his Honour then was) in Irani v St George Bank Limited (No 2):[51]
[51][2005] VSC 403, [142] (Irani).
There was no significant difference in the parties’ submissions as to the legal principles which should be applied concerning s 420A. It seems to me that the applicable principles are as follows:
1.At general law, in dealing with charged property in the course of enforcing a security, a mortgagee must use its powers of enforcement in good faith and for the purpose for which they were conferred. A receiver is subject to the same requirement.
2.The mortgagor, later-ranking chargees, and guarantors all have standing to complain about a breach by the mortgagee of this duty.
3.The onus of establishing a breach of this duty lies on the complainant.
4.The enactment of s 420A of the Corporations Act 2001 (Cth) has diminished the significance of the general law duty where what is in issue is the exercise of a power of sale.
5.Section 420A extends the general law duty owed by the mortgagee. The existing entitlements of guarantors and later chargees to equitable remedies in respect of any faulty or deficient exercise of the power of sale are enhanced and strengthened by the higher duty it establishes.
6.When considering a claim of breach of the duty concerning sale, as now provided for in s 420A, it is necessary for the court to determine whether the property in question has a "market value". If it does, sub‑s (1)(a) applies. If it does not, sub-s(1)(b) applies.
7.The question of whether a property has a "market value" depends upon the degree of certainty with which value is ascertainable by reference to events in a market. For the purposes of s 420A, a property does not have a "market value" where market experience does not yield a value with sufficient certainty to be used as an integer. In that circumstance, sub-s (1)(b) will apply.
8.Both limbs of s 420A are concerned with the process of exercise of the power of sale. On the one hand, breach of the duty provided for is not established merely because market value or the best price reasonably obtainable is not achieved. On the other hand, breach may be found to have occurred even where it is established that market value or the best price reasonably obtainable was achieved.
The Guarantor Defendants say that Whelan J’s analysis in respect of the eighth principle above was accepted on appeal.[52] It is true that the analysis of Whelan J in respect of aspects of the duty in s 420A was accepted on appeal, but this does not advance the Guarantor Defendants’ position. The passage from the Court of Appeal’s judgment referred to by the Guarantor Defendants concerns the analysis regarding selling separate lots. It is irrelevant to the case before me. As to the eighth principle, it goes to the content and scope of the duty under s 420A; not to whom it is owed or whether it gives rise to an independent action for damages.
[52]Irani v St George Bank Limited [2007] VSCA 33, [39] (Buchanan, Chernov and Neave JJA).

The Guarantor Defendants submit that Whelan J’s second proposition in Irani supports their position on standing and refer to the judgment of Dixon J in Williams v Frayne,[53] which Whelan J cited as authority for that position.[54] After quoting that passage from Williams v Frayne, at footnote 21 of the Guarantor Defendants’ written outline of submissions, they also refer to the following cases:
(a)Buckeridge v Mercantile Credits Ltd;[55]
(b)Upton v Westpac Banking Corporation;[56] and
(c)ING Bank (Aust) v Leagrove Pty Ltd.[57]
[53](1937) 58 CLR 710, 738. See the extract cited from Williams v Frayne) in GE Capital as set out in paragraph 29 above.
[54]Irani [2005] VSC 403 [142(2)] n 9.
[55](1981) 147 CLR 654, 675 (Brennan J) (Buckeridge).
[56][2016] QCA 220, [38]-[40] (Philip McMurdo JA, Holmes CJ agreeing at [1], Fraser JA agreeing at [2]]).
[57][2012] 1 Qd R 140, 150-151 [23]–[24] (Margaret McMurdo P, White JA agreeing at 157 [45], Martin J agreeing at 157 [46]).
The Guarantor Defendants say that if this second proposition in Irani conflicts with the authorities relied on by the Relevant Third Parties, then this is properly a matter to be dealt with at trial and not in this application for summary judgment.
Similarly to the Relevant Third Parties, the Guarantor Defendants say that s 420A has enhanced and strengthened the situation in equity. However, they are not aligned as to what the situation in equity was and therefore there is a similar lack of alignment on what changed with the introduction of s 420A. The Guarantor Defendants say that the statutory provision has enhanced and strengthened the existing entitlements of guarantors and later chargees to equitable remedies in respect of any faulty or deficient exercise of the power of sale.
The Guarantor Defendants submit that the entitlement to be ‘credited with the deficiency in reduction of his liability’ is not available only in the strict circumstances for which the Relevant Third Parties contend. This was not articulated with precision by the Guarantor Defendants. As best as I can ascertain, the Guarantor Defendants contend that the Relevant Third Parties construe the principle too narrowly by restricting the Guarantor Defendants’ rights to instances where it is the mortgagee to whom they gave a guarantee who sues them under that guarantee, in circumstances where that mortgagee exercised the power of sale in a manner which was wrongful.
In the circumstances of this case (where a subsequent-ranking mortgagee suffers loss because of the conduct of the first-ranking mortgagee and is suing under a guarantee connected with the subsequent-ranking mortgage), the Guarantor Defendants submit that equity will step in and protect the Guarantor Defendants, notwithstanding the lack of privity in contract. It is said that the Guarantor Defendants can maintain their claim for equitable compensation as that money would not go into their own pockets. The Relevant Third Parties failed to take account of the interest of the second mortgagee and, as guarantors under one or other of the liabilities of Urban in respect of the Property, the Guarantor Defendants should be able to make a claim.

The Guarantor Defendants’ submissions as to why summary judgment should be refused

As set out above and in summary, the Guarantor Defendants’ primary position is that it is tolerably clear that a guarantor has standing to complain about a mortgagee’s breach of their obligations under s 77 of the TLA, s 420A of the Corporations Act or in equity, regardless of whether the obligations are expressed as being owed to the principal debtor.
In addition, they make some other points regarding the summary judgment application.
In written submissions, the Guarantor Defendants said that, if I conclude that the TPSOC has no real prospects of success, I have a discretion not to order summary judgment under s 64 of the CPA. They submitted that I should not order summary judgment because, even if the TPSOC cannot be maintained, Urban will still have the right to claim against the Relevant Third Parties in respect of the undervalue sale. In the event that those claims are made by Urban, the Guarantor Defendants would be entitled to benefit from that relief. However, that submission was not pressed at the hearing. Instead, the Guarantor Defendants said that if I am of the view that no arguable claim is raised by them, then that is the end of the TPSOC.
Insofar as the Relevant Third Parties say such a claim by Urban would be prevented by limitation period issues, the Guarantor Defendants say that there is complexity in whether the relevant guarantees and loans are simple agreements or deeds, which would mean a significant difference in the limitation periods that would apply. It was submitted that, if those agreements are deeds, then the relevant claim would be based on a bond or speciality, with a 15-year limitation period applying.[58] Section 20 of the Limitations of Actions Act refers to actions to recover money secured by a mortgage or charge which, again, have a 15-year limitation period. Counsel suggests that it would be a strange situation if a mortgagee had 15 years in which to pursue a claim, but a mortgagor or guarantor only had six years in which to seek an accounting. The Guarantor Defendants seek an account, being an equitable remedy. They say that, while the doctrine of analogy may apply to equitable claims, it does not follow that the analogy would be six years (as a limitation period for a claim regarding a simple contractual agreement), to the contrary, the analogy would indicate a 15-year period applies (or, at least for the purposes of this application, the Court cannot not be satisfied that a six-year period applies).
[58]Limitations of Actions Act 1958 (Vic) (Limitations of Actions Act), s 5(3).
The Guarantor Defendants say that it is in the interests of justice for the Relevant Third Parties to remain parties to this proceeding for reasons of finality and to ensure all relevant parties are bound by the one judgment, as well as avoiding inconsistent verdicts and duplication of proceedings.

Submissions on strike out

The Guarantor Defendants submit that the Relevant Third Parties’ reading of paragraphs [33] to [37] of the TPSOC is incomplete and incorrect, insofar as those paragraphs are treated as unrelated.
In respect of the criticism of paragraph [32] of the TPSOC (summarised at sub‑paragraph 50(a) above), the Guarantor Defendants say they are entitled to claim damages limited to their liability to the plaintiffs, and the fact that those damages are not ‘at large’ does not make the pleaded paragraph defective.
In respect of paragraphs [33], [34] and [36] of the TPSOC, the Guarantor Defendants say that paragraph [37] of the TPSOC makes it apparent that the relevant defendants claim to have suffered loss and damages as a result of the third parties’ failure to comply with their obligations. The entitlement in paragraph [37] is expressly stated to arise from the matters pleaded in paragraph [36] which, in turn, refers to the breaches alleged at paragraphs [33] and [34]. Paragraph [35] sets out the alleged facts which point to breach of those relevant duties.
In the context of oral submissions on s 420A, the Guarantor Defendants accept that the pleading does not identify to whom the duty was owed, and that this needs to be properly reformulated. It is not entirely clear if this defect in the pleading was accepted in respect of the other duties asserted in the TPSOC.
Lastly, the Guarantor Defendants submit that they are not required to set out a prayer for damages in respect of each cause of action which sounds in damages and, even if the prayers for relief were pleaded that way, it would not assist a defendant to the claim to respond to it.
If the Relevant Third Parties succeed on the strike out application, the Guarantor Defendants submit that the Court should grant them leave to re-plead.

Relevant Third Parties’ reply submissions

The Relevant Third Parties reject the Guarantor Defendants’ submission that Irani creates a conflict within the authorities, which the Guarantor Defendants contend is a basis for refusing the summary judgment application. The Relevant Third Parties say that Irani is precisely on all fours with the authorities.[59] That case did not involve consideration of the circumstances in which a guarantor can bring a claim because it was not relevant to the Court’s decision. Nothing in the case casts doubt on the propositions advanced by the Relevant Third Parties.
[59][2005] VSC 403, [142].
The Relevant Third Parties also submit that in Irani, Whelan J recognised that s 420A simply extends the equitable duty of the mortgagee to the guarantor. His Honour also agreed with Bryson J in GE Capital[60] and Dodds-Streeton J in Florgale Uniforms[61] that the section does not give rise to a standalone or novel statutory cause of action.[62] Accordingly, s 420A does not change the fundamental proposition that the guarantor’s rights are defensive only and available only to establish a credit to the account with the mortgagee creditor.
[60](2002) 180 FLR 250.
[61](2004) 11 VR 54.
[62]Irani [2005] VSC 403, [142(5)].
Further, the Relevant Third Parties submit that the extract of Williams v Frayne (referred to in the Guarantor Defendants’ Submissions) makes this point plain. That case was expressly relied on by Whelan J[63] in respect of the relevant principles.
[63]Irani [2005] VSC 403, [142(2)], n 9.
Neither decision supports there being a stand‑alone positive right to damages arising from s 420A.

The Relevant Third Parties say that the Guarantor Defendants’ written submissions fail to engage with the principles and authorities relied on by the Relevant Third Parties, even at a surface level or to show support for the proposition that a surety can make a positive claim against a mortgagee for damages in respect of misconduct in the sale of a secured property. The Guarantor Defendants have not pointed to a single authority for this, because no court has allowed it; to do so would be contrary to the state of the law.
The Relevant Third Parties do not deny that, on the authority of Webster Investments alone, the Guarantor Defendants have remedies in their own rights against creditors (see the submission summarised at paragraph 60).[64] But the Court in Webster Investments clearly outlined two limitations on those remedies (neither of which apply here), namely:
(a)those rights can be agitated only by way of an equitable defence to a claim brought by the mortgagee creditor; and
(b)the mortgagee creditor’s equitable duty only comes into force when the guarantee is sued on.
[64](2016) 52 VR 610, 649-50 [95].
The above limitations are also supported by a careful examination of the equitable principles by Bryson J in GE Capital[65] and by Campbell J in Brueckner.[66] The Guarantor Defendants simply ignore them.
[65](2002) 180 FLR 250.
[66](2002) 15 BPR 28,885.
Further, the Relevant Third Parties submit that it would be inconsistent with the principles outlined in the cases and forming the underlying justification for the statutory provisions for guarantors to have a positive, freestanding right to damages.[67] Mortgagors do not have such rights and there is no reason why a surety would have such a right.
[67]With reference to Jovanovic (2004) 87 SASR 570.
The Relevant Third Parties reject the Guarantor Defendants’ submission that the Court should exercise its discretion not to order summary judgment because Urban might make claims against the Relevant Third Parties, of which the Guarantor Defendants would enjoy the benefit. No such claim has been made, nor is there any evidence that any claim will be made. There is a high unlikelihood of such a claim being made because Urban has been under the control of a receiver and manager since 2018 and would now be statute-barred if it sought to make such a claim, the secured property having been sold in February 2017 (more than six years ago). They say that if I were to decide not to order summary judgment, I would be acting purely on speculation and it would cause significant wasted costs for the parties and resources for the Court. What is more, if I find that there is no standing to bring the claim, then no exercise of discretion should permit the Guarantor Defendants to maintain the claim as it would be futile. The Court is in just as good a position today as it would be at trial to assess the question of standing based on the state of the law; this is not an application depending on disputed facts which might require caution in awarding summary judgment before trial.

Consideration

The summary judgment application

From my review of the case law, it is tolerably clear that the Guarantor Defendants cannot bring the claim for damages or compensation as they have in these circumstances. That is, guarantors do not have standing to make a positive claim for damages against a mortgagee in respect of their conduct of a power of sale.
The position in equity in respect of a sale of a secured asset as between a surety and mortgagee is set out by Croft J in Webster Investments.[68] That statement of principles is referred to and relied on by both the Relevant Third Parties and Guarantor Defendants, albeit they disagree on the application of those principles to this case.
[68](2016) 52 VR 610, 649-50 [95].
Careful review of the authorities relied on by the parties establishes that those authorities do all speak with one voice: in equity, guarantors do not have a standalone action against the mortgagee in respect of the mortgagee’s power of sale. They do not have a freestanding right to damages. What guarantors do have is the right to raise an equitable defence in a claim made against them under the guarantee, for the amount impaired by the mortgagee’s actions. This defence serves to reduce, or extinguish, their liability to the mortgagee depending on the amount owing under the guarantee.
In particular, there is clear appellate authority on this point.[69] The Full Court of the Supreme Court of South Australia makes this abundantly clear. It is worth restating Besanko JA in Jovanovic:[70]
For breach of the equitable duties in relation to the exercise of the power of sale, a mortgagor would be entitled, on the taking of accounts between mortgagee and mortgagor, to have brought to account the loss it has suffered. Guarantors would be entitled to an equitable set-off in relation to any claim on the guarantee to the extent of the loss caused by the mortgagee’s breach of duty. Guarantors are entitled to no more than a set-off of the claim on the guarantee. They are not entitled to make a counterclaim.
[69]James v ANZ (2018) 97 NSWLR 663; Jovanovic (2004) 87 SASR 570.
[70](2004) 87 SASR 570, 598 [114].
True it is that I am not bound by that decision, but as a decision of an intermediate appellate court which is consistent with all other authorities on the point,[71] including first instance decisions in this state,[72] I can and do find it persuasive. It is also consistent with High Court authority, by which I am bound.[73]
[71]See, for example, GE Capital (2002) 180 FLR 250; Brueckner (2002) 15 BPR 28,885; and Ultimate Property Group (2004) 60 NSWLR 646.
[72]See, for example, Webster Investments (2016) 52 VR 610; Florgale Uniforms (2004) 11 VR 54.; Irani [2005] VSC 403.
[73]See Williams v Frayne (1937) 58 CLR 710; Buckeridge (1981) 147 CLR 654.
It is also clear on the authorities that the equitable duty comes to be in force at the time that the guarantee is sued upon.[74] In Williams v Frayne, Dixon J held that where there has been a breach of the mortgagee’s power of sale ‘a surety is entitled in equity to be credited with the deficiency in reduction of his liability’.[75]
[74]Webster Investments (2016) 52 VR 610, 650 [95(h)]; Brueckner (2002) 15 BPR 28,885, 28,910 [132].
[75](1937) 58 CLR 710, 738.
Thus, in equity the Guarantor Defendants are entitled to raise an equitable defence against a claim for their liability under the Baccus Guarantee, but here there has been no claim made in respect of that guarantee. The guarantee must be sued on for a guarantor’s rights against a mortgagee to be enlivened. Even then, those rights only allow a reduction in the amount owing under the guarantee.
The Guarantor Defendants were not able to take me to any authorities to the contrary. They did not have a clear answer to the strong submissions put against them in this regard. Rather, they appear to rely on the notion that because the plaintiffs are suing them under the First Guarantee and the LL Guarantee and Indemnity, in circumstances where those plaintiffs had a second-ranking mortgage over the Property and where it had been sold at undervalue by the first-ranking mortgagee, to whom the Guarantor Defendants had given the Baccus Guarantee, they could make a claim against the first-ranking mortgagee if found liable to the second-ranking mortgagee. Put more simply, in argument the Guarantor Defendants effectively conflated the Baccus Guarantee with the First Guarantee and the LL Guarantee and Indemnity, contending that it does not matter that they are not being sued under the Baccus Guarantee. Such a proposition finds no support in the authorities. I reject the Guarantor Defendants’ submissions as set out at paragraphs 72 and 73 above.
At the hearing, I remarked to Counsel for the Guarantor Defendants that equitable set-off, as a remedy, generally requires mutuality. Leaving aside the deficiencies in the pleading, what the Guarantor Defendants are effectively doing is seeking to rely on that equitable set-off but not in relation to a claim made by the third parties, but in relation to a claim made by the plaintiffs. Counsel for the Guarantor Defendants responded that there is no mutuality between the situation where a mortgagor borrows money and mortgages their property as security to a lender and in the second instance, the mortgagee takes a guarantee of that debt, albeit both agreements are with the mortgagee. There is no mutuality there as between the borrower mortgagor and the guarantors, and yet, equity allows the guarantors to raise the defences or the complaints that the borrower mortgagor could raise in relation to the sale process. I did note that in those circumstances, the equitable set-off arises between the person making the claim, which is the mortgagee, and the person resisting the claim, which is the guarantor, and that contrasts to what the Guarantor Defendants are trying to do. Counsel submits that there is no relevant difference here, as the sale for undervalue has directly impacted on the quantum of the plaintiffs’ claim. I reject this response.
The Guarantor Defendants sought to get around this by emphasising the conditional nature of their third party claim. They pointed to the fact that the TPSOC is expressed to be conditional on them being found liable to the plaintiffs; that it was only if they were liable to the plaintiffs that they make the claims they do against the Relevant Third Parties. However, this ignores the key point: for the Guarantor Defendants to make claims against the Relevant Third Parties those claims must be based on a cause of action known to the law. Expressing the claims as conditional does not assist the Guarantor Defendants in this regard.
As already stated, the Guarantor Defendants do not have a freestanding claim to damages. Thus, at least part of the relief sought by the Guarantor Defendants in the TPSOC is not available to them.
The Relevant Third Parties do not owe the Guarantor Defendants an equitable duty in respect of their exercise of the power of sale of the Property, as that duty has not arisen since the Relevant Third Parties have not sought to enforce the Baccus Guarantee against the Third Defendants. Even if the Relevant Third Parties did so, the only rights available to the Guarantor Defendants are to raise an equitable defence so as to reduce/extinguish their liability by reason of the impairment of the Property.
The Guarantor Defendants seek to deal with this by pointing to the fact that they do seek, as forms of relief, a taking of accounts. However, that ignores the fact that such relief only comes into play when they are sued under the Baccus Guarantee.
The statutory claims under s 77 of the TLA and s 420A of the Corporations Act do not relevantly assist the Guarantor Defendants.
I accept the submissions of the Relevant Third Parties in this regard. Insofar as the Guarantor Defendants are concerned, the statutory duties under s 77 of the TLA and s 420A of the Corporations Act enlarge the content of the mortgagee’s equitable duties, but they do not establish standalone causes of action for guarantors against mortgagees.
Section 77 of the TLA requires the mortgagee (in this case, the Relevant Third Parties), when exercising the power of sale, to have regard to the interests of the mortgagor (ie Urban) and to subsequent interest holders (ie the plaintiffs).
I do not accept the submissions of the Guarantor Defendants as set out at paragraphs 63 and 64 above. I was not taken to any authorities in support of those submissions.
As I raised with counsel for the Guarantor Defendants at the hearing, the Court of Appeal’s proposition in MBF Investments[76] that a mortgagee must also have regard to the interest of subsequent security holders suggests that the person to agitate a breach would be the subsequent security holders; for the Guarantor Defendants to rely on this, they would have to be able to show that it extends to guarantors. They have not been able to do so. The Guarantor Defendants are not subsequent security holders. They have no interest in the Property.
[76](2011) 37 VR 116.
The same can be said in respect of the mortgagee’s obligation to have regard to the interest of the mortgagor (ie Urban). It is for Urban to pursue any claim arising from an alleged failure by the Relevant Third Parties to do so. If the mortgagee (the Relevant Third Parties) were to pursue the Guarantor Defendants for the outstanding debt, then the Guarantor Defendants could rely on Urban’s claim (whether that claim is made by Urban or not) as a defence. Again, that has not occurred here.
The Guarantor Defendants’ reliance on the citations from Vasiliou[77] and Goldcel Nominees,[78] as set out in paragraph 65 above do not relevantly assist their opposition to the summary judgment application. Those passages go to the content of the mortgagee’s duty under s 77, not to the question of whether guarantors have a standalone cause of action by reason of s 77.
[77](2007) 19 VR 229.
[78][1983] 2 VR 257.
The position in respect of s 420A of the Corporations Act is also clear. It expands the content of the duty owed by controllers (which includes a mortgagee) to the company in respect of the company’s property, but it does not create a standalone cause of action for damages. It does not give guarantors a standalone claim for damages. In this regard, I agree with the analysis conducted by Bryson J in GE Capital and note that it has been followed in several cases, as set out above.
I do not accept the Guarantor Defendants’ submission that Irani runs contrary to that proposition. Rather, I accept the Relevant Third Parties’ submission that Irani is on all fours with the other authorities on the question. Indeed, Whelan J expressly states that he prefers Bryson J’s analysis in GE Capital and that he rejects the alternate view that s 420A creates an independent cause of action.[79] Whelan J also relies on Williams v Frayne for the proposition that guarantors, along with the mortgagor and later-ranking chargees, have standing to complain about a mortgagee’s breach of s 420A.[80] As set out in paragraphs 29 and 99 above, it is clear that Williams v Frayne does not consider that guarantors have an independent cause of action. The three cases to which I was referred by the Guarantor Defendants as set out in paragraph 69 are all consistent with Williams v Frayne and none of them support the Guarantor Defendants’ position in respect of s 420A, the equitable duty, or the existence of a standalone cause of action.
[79][2005] VSC 403, [142(5)] n 12.
[80]Ibid, [142(2)], n 9.
In my view, for all these reasons, the TPSOC has no real prospect of success and the Relevant Third Parties’ summary judgment application should be granted. I see no reason at all to invoke s 64 of the CPA to allow the Guarantor Defendants’ third party claims to proceed to trial. The dispute is not of such a nature that only a full hearing on the merits is appropriate: I agree with the Relevant Third Parties that I am in as good a position now to determine whether the Guarantor Defendants have standing to make the claims they do as the trial judge would be, should the matter proceed. The Guarantor Defendants submit that it is in the interests of justice for the Relevant Third Parties to remain parties to the proceeding, for the reasons set out in paragraph 78 above. I disagree. It is not in the interests of justice for several parties to be kept in a proceeding where in the circumstances of this case the Guarantor Defendants do not have standing to bring their claims against the Relevant Third Parties.
I do not need to resolve the difference of opinion on the limitations point referred to by the parties. The fact of the matter is that no claims which would alter the standing of the Guarantor Defendants to make their claims against the Relevant Third Parties have been made, despite the proceedings being on foot since 2018, the defendants being granted leave in December 2021 to file and serve a third party notice, and the Guarantor Defendants filing and serving the TPSOC on 14 February 2022. Whether or not such claims which might be made may be statute barred is not to the point. What is relevant is that the prospect of such claims being made is purely speculative. I am not going to allow the TPSOC to continue to trial based on speculation that relevant claims may be brought in the future, particularly when there has been abundant opportunity to do so.

The strikeout application

Given the findings I have made above in respect of the primary relief sought by the Relevant Third Parties in their application, it is not necessary for me to decide the strikeout application.
However, I will say that I agree with the Relevant Third Parties’ criticisms of the TPSOC. While the Guarantor Defendants conceded that there were amendments they should make to their pleading, I do not think that those concessions go far enough. They do not address the fundamental problem with the TPSOC and that is the failure to identify a cause of action which they law would allow the Guarantor Defendants to pursue. Were it necessary, I would strike out the TPSOC and require the Guarantor Defendants to provide a proposed amended pleading so that any application for leave to re-plead could be determined in light of what was actually proposed.

Disposition

From the above, I have found that summary judgment ought be given against the Guarantor Defendants in favour of the Relevant Third Parties. I will so order.
As to costs, my preliminary view is that I do not see any reason to depart from the usual rule, such that the Guarantor Defendants should pay the Relevant Third Parties’ costs associated with the application and with the proceeding more generally on a standard basis. If either party wishes to make submissions to the contrary, I will hear from them at the directions hearing scheduled for 29 November 2024.
---

SCHEDULE OF PARTIES

S ECI 2018 02820
BETWEEN:
DOUG PASCOE INVESTMENTS PTY LTD (ACN 006 838 106)	First Plaintiff
SUPACO PTY LTD (ACN 083 214 484)	Second Plaintiff
MYDELL FALLS PTY LTD (ACN 056 976 151)	Third Plaintiff
CALDOR HALL PTY LTD (ACN 065 449 158)	Fourth Plaintiff
LIQUID LENDER PTY LTD (ACN 145 073 430)	Fifth Plaintiff
- v -
URBAN CUBE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 134 535 523)	First Defendant
URBAN MATRIX PTY LTD (ACN 132 253 840)	Second Defendant
MICHAEL JOHN MURPHY	Third Defendant
GAVIN JOHN BRENAN	Fourth Defendant
LEANNE MAREE KING	Fifth Defendant
DUNCAN SKINNER	Sixth Defendant
CHRISTINA STROUZAS	Seventh Defendant
ANTHONY JOHN GOSS	Eighth Defendant
SARUNDA PTY LTD (ACN 140 898 746)	Ninth Defendant
BRENKIN PTY LTD (ACN 140 264 204)	Tenth Defendant
PERSALUS PTY LTD (ACN 129 291 907)	Eleventh Defendant
FROZEN MOTION PTY LTD (ACN 600 188 690)	Twelfth Defendant
- and -
MICHAEL JOHN MURPHY	First Plaintiff by Counterclaim
GAVIN JOHN BRENAN	Second Plaintiff by Counterclaim
LEANNE MAREE KING	Third Plaintiff by Counterclaim
DUNCAN SKINNER	Fourth Plaintiff by Counterclaim
CHRISTINA STROUZA	Fifth Plaintiff by Counterclaim
ANTHONY JOHN GOSS	Sixth Plaintiff by Counterclaim
- v -
DOUG PASCOE INVESTMENTS PTY LTD (ACN 006 838 106)	First Defendant by Counterclaim
SUPACO PTY LTD (ACN 083 214 484)	Second Defendant by Counterclaim
MYDELL FALLS PTY LTD (ACN 056 976 151)	Third Defendant by Counterclaim
CALDOR HALL PTY LTD (ACN 065 449 158)	Fourth Defendant by Counterclaim
LIQUID LENDER PTY LTD (ACN 145 073 430)	Fifth Defendant by Counterclaim
- and -
GRAHAM DOUGLAS OWENS	First named third party
HELEN MARGARET OWENS	Second named third party
PAMELA MAUDE BRADSHAW	Third named third party
MARGARET MAE HIPSLEY	Fourth named third party
PATRICIA RUTH HIPSLEY	Fifth named third party
PETER JOHNSTONE	Sixth named third party
JEANNE JOHNSTONE	Seventh named third party
KEITH HENRY SUMMERS	Eighth named third party
NORMA SMITHERS	Ninth named third party
RAYMOND HOWES	Tenth named third party
HELEN LINSEY HOWES	Eleventh named third party
STANLEY PAUL ROGERS	Twelfth named third party
PHYLLIS YARED	Thirteenth named third party
DIERDRE LYNN LOVE	Fourteenth named third party
KEITH LOVE	Fifteenth named third party
WARWICK HOOPER BOWES	Sixteenth named third party
ROBYN ANNE BOWES	Seventeenth named third party
ROBERT CONWAY MILNE	Eighteenth named third party
BERYL MARGARET MILNE	Nineteenth named third party
MARTIN SPEISER	Twentieth named third party
MERILYN SPEISER	Twenty-first named third party
PETER ROBERT BAXTER	Twenty-second named third party
ELIZABETH MATHIE	Twenty-third named third party
JUN LIN	Twenty-fourth named third party
ASHISH KUMAR VATSA	Twenty-fifth named third party
PRIYADASHINI ROY	Twenty-sixth named third party
COLIN DAVID PATTERSON	Twenty-seventh named third party
LEEANN PATTERSON	Twenty-eighth named third party
ANNETTE MARY PARRY	Twenty-ninth named third party
PKS ADMIN PTY LTD	Thirtieth named third party
JOROZ PTY LTD	Thirty-first named third party
SISSEL PTY LTD	Thirty-second named third party
RL INVESTMENT GROUP PTY LTD	Thirty-third named third party
FALK & CO PTY LTD	Thirty-fourth named third party
W J & G CLARSON PTY LTD	Thirty-fifth named third party
NBVR PTY LTD	Thirty-sixth named third party
4570 PTY LTD	Thirty-seventh named third party

[2024] VSC 737

28 November 2024