Forsyth v Blundell

[1973] HCA 20

HIGH COURT OF AUSTRALIA

. Menzies, Walsh and Mason JJ.

FORSYTH v. BLUNDELL ; ASSOCIATED SECURITIES LTD. v. BLUNDELL.

(1973) 129 CLR 477

7 August 1973

Mortgage

Mortgage—Sale by mortgagee—Powers and duties of mortgagee—Sale by private treaty—Failure to stimulate competition—Calculated indifference to interests of mortgagor—Remedies of mortgagor—Injunction—Whether limited to cases where purchaser guilty of collusion or fraud—Real Property Ordinance 1925-1961 (A.C.T.), s. 94 (2)*. * Section 94 (2) of the Real Property Ordinance 1925-1961 (A.C.T.) provides that "All sales, contracts, matters and things made, done or executed in pursuance of the last preceding sub-section shall be as valid and effectual as if the mortgagor or encumbrancer had made, done or executed them, and the receipt or receipts in writing of the mortgagee or encumbrancee shall be a sufficient discharge to the purchaser of the land, estate or interest, or of any portion thereof, for so much of his purchase money as is thereby expressed to be received."

Decisions

1973, August 7.
The following written judgments were delivered:-
MENZIES J. As I have the misfortune to differ from the other members of the Court, I will content myself with a short statement of why I consider that this appeal should be allowed. (at p481)

2. The rule to be applied here is not in doubt; it was stated authoritatively by Lord Herschell in the last century. In Kennedy v. De Trafford (1897) AC 180 , which has been followed by this Court in Barns v. Queensland National Bank Ltd. (1906) 3 CLR 945 and Pendlebury v. Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 , the Lord Chancellor said (1897) AC, at p 185 :

"... if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J. in the Court below, says that 'it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mortgagor.' Well, I think that is all covered really by his exercising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words 'good faith', but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith." (at p481)

3. I do not think that statements in some cases, such as McHugh v. Union Bank of Canada (1913) AC 299 or Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch 949 , that the mortgagee is under a duty to take reasonable precautions to obtain a proper price, are at odds with the rule stated by Lord Herschell. To take reasonable precautions to obtain a proper price is but a part of the duty to act in good faith. This duty to act in good faith falls far short of the Golden Rule and permits a mortgagee to sell mortgaged property on terms which, as a shrewd property owner, he would be likely to refuse if the property were his own. (at p481)

4. In the circumstances of this case, which are fully stated in the judgment of Walsh J., it seems to me critical to decide whether what Associated Securities Ltd. ("A.S.L.") knew about the interest of XL Petroleum Pty. Ltd. ("XL") in the mortgaged premises required it as a matter of good faith to decline the conditional offer which it had received from the Shell Oil Company of Australia ("Shell") of $120,000 to be accepted forthwith, in order to give XL the chance to buy the mortgaged property either at a higher price privately or at auction. Having regard to the current valuation of the property at less than $100,000, and the failure over a long period of endeavours to realize the property, I do not consider that A.S.L. was as a matter of good faith bound to jeopardize its chance of selling for $120,000 merely because of the limited interest evinced in the property by XL through its representative Mr. Sykes. (at p482)

5. I have no doubt that A.S.L. was fully entitled to treat with scepticism any representations made to it by the mortgagor Blundell. His record as a borrower was not good. It might also have regarded the newspaper statements of what the property would bring - which it seems likely Mr. Sykes stimulated as part of a little scheme of his own to make money out of the auction - as somebody's kite flying. Furthermore, whatever else XL did, it made no offer to buy the property although it knew it was for sale. All A.S.L. had from XL was a statement by Mr. Sykes that XL would bid at the auction and some knowledge that if it did buy it could pay the price. This was of little importance. A mortgagee is not bound by the requirement of good faith to the mortgagor to hold an auction to give a person, who professes an interest in a mortgaged property but makes no offer to buy, the opportunity to be a bidder. It seems to me that it would have been eminently reasonable to regard the statement on behalf of XL that it would be a bidder at the auction as of small significance in comparison with the intimation by Shell that if its offer were not accepted forthwith it would no longer be interested in buying the property. An auction with the possibility of XL being the only bidder would no doubt have been unattractive to the mortgagee. XL's assurance could hardly outweigh the uncertainty whether Shell would remain in the market. In such circumstances I am not ready to conclude that A.S.L. was bound either to give XL another opportunity to make a private offer or to take the chance of getting a price higher than $120,000 at auction. (at p482)

6. If XL were a genuine buyer and not merely using the sale for the purpose of making money for itself, I consider that A.S.L. would not have been bound as a matter of fair dealing to decline Shell's offer and go ahead with the auction. (at p482)

7. However, I consider that the officers of A.S.L. had ample reason to place less than full assurance in the protestations of Mr. Sykes. It is not necessary for me to retrace what happened between Mr. Sykes and the officers of A.S.L. but those officers were, I think, justified in treating Mr. Sykes' statements with reserve. It did, indeed, appear at the hearing that Mr. Sykes and the mortgagor Blundell had entered into a strange underhand arrangement whereby Mr. Sykes would share with Blundell in what could be extracted from a purchaser at the auction. This, of course, was not known to the officers of A.S.L. and its primary importance now is that it does reveal that the real interest XL had was in what it might make out of a purchaser from A.S.L., forced by XL's bidding at auction to pay more than the property was worth, rather than as a purchaser of the property itself. The arrangement explains why XL made no offer to A.S.L. to buy the property. The very fact that there was such an arrangement indicates, too, how unwise A.S.L. would have been to have put itself in the hands of XL and Blundell by declining Shell's offer and going ahead with the auction without knowing that Shell would be a bidder. To have done so would have been for A.S.L. to have acted in a manner plainly contrary to its own interests. This a mortgagee is not bound to do. The demands of good faith do not require a mortgagee, who has tried in vain to realize his security, to refuse to sell the property privately at a price above valuation when the consequences of doing so may be, on the one hand, its own loss, or, on the other hand, the mortgagor's gain. A mortgagee is entitled to put his own interests first. In my opinion A.S.L. did no more than that in selling to Shell at a price above valuation which covered what was owing to it by the mortgagor. (at p483)

8. For the foregoing reasons I would allow the appeal. (at p483)

WALSH J. The plaintiffs Roger Gordon Blundell and Joan Blundell brought a suit in the Supreme Court of the Australian Capital Territory against Associated Securities Ltd. (A.S.L.), Shell Oil Company of Australia Ltd. (Shell) and Walter John Charles Forsyth, in which the plaintiffs claimed (inter alia) a declaration that the sale of certain property at Fyshwick in the Australian Capital Territory by A.S.L. as mortgagee to Forsyth as agent for Shell was not a bona fide exercise of the powers of sale conferred on A.S.L. and that the plaintiffs were entitled to redeem the mortgages over the property. The suit was heard by Fox J. who made a declaration that the plaintiff Roger Gordon Blundell (Blundell) was entitled to redeem the mortgages given by him over the property and ordered that A.S.L. be restrained from completing the agreement for sale made by it with Shell on 19th March 1970. An appeal was instituted by A.S.L. against the whole of the judgment and order of the Supreme Court. By a separate notice of appeal Forsyth and Shell instituted an appeal against the whole of the judgment and order and gave notice that they sought an order that the action be dismissed with costs or alternatively that it be dismissed against those defendants, that the claim for injunctive relief be dismissed and that there be an order for an inquiry as to damages and for the taking of an account as between the plaintiffs and A.S.L. The appeals have been heard together. (at p484)

2. The suit arose out of the following transactions. On 29th March 1968 Blundell borrowed $125,000 from A.S.L., secured by a mortgage over the Fyshwick property, of which he was the registered proprietor. The plaintiff Mrs. Blundell joined in that mortgage as guarantor. Both plaintiffs gave a mortgage over another property as further security for that loan. In the suit a challenge was made to a sale of that other property but the Court is not presently concerned with that sale, which did not go on, or with the mortgage over that other property. The fact that it was being sold would have had to be taken into account if any bargain had been made as a result of the discussions with Mr. Sykes which will be described later, and the additional security over the other property and its proposed sale affected the price at which the Fyshwick property could be sold without loss to A.S.L. But these details are not now of importance. In November 1968 Blundell obtained a further loan of $10,000 from A.S.L., secured by a second mortgage of the Fyshwick property. There were detailed provisions in both mortgages dealing with the remedies of the mortgagee on default. By these the powers conferred by the Real Property Ordinance 1925-1961 (A.C.T.) ("the Ordinance"), as varied, extended or qualified by the mortgage documents were made applicable. There is no dispute in the present case that default occurred and continued or that the conditions were fulfilled which made the power of sale exercisable. (at p484)

3. Early in 1969 A.S.L. obtained possession of the Fyshwick property, upon Blundell complying with a notice to quit. The property was put in the hands of agents for sale. Until August 1969 the title to Blundell's lease of the property from the Crown showed a sub-lease to Shell for a term ending in 1981; that sub-lease was then surrendered. During the period when the property was in the hands of several agents for sale and up to the giving of instructions in February 1970 to sell it by auction, only one firm offer of purchase was made, this being an offer at the price of $90,000. Although it may be, as the trial judge thought, that a sale was hindered for part of that year by the Shell sub-lease and by the presence on the site, even after August 1969, of Shell bowsers and signs, it seems to me that a purchaser who was really interested could soon have ascertained the facts that after August 1969 Shell had no control of the site and that although it had been used as a service station, there was nothing in the Crown lease to prevent its use for other purposes. A letter sent in January 1970 to ten petrol distributing companies brought no response. (at p485)

4. The disputed contract for sale was at the price of $120,000. In the light of such testing of the market as occurred between February 1969 and February 1970, and in the light of the evidence of value put forward at the trial, I think it is plain that, if one leaves aside for separate consideration the interest in the property which was displayed by Shell and by one other prospective purchaser, XL Petroleum Pty. Ltd. (XL), no case was made out that the sale to Shell was at such an undervalue that it should be set aside on that ground. The price at which the property had been listed by the agents was $150,000. It seems that that was based on a valuation at $151,200, which had been given in 1967 by a valuer named Gorman and supplied by Blundell to A.S.L. The same valuer in August 1970 valued the property at that date at $152,900 and as at 15th March 1970 at $151,700. But several other valuations of which evidence was produced placed values on the property of less than $100,000. (at p485)

5. It is necessary now to consider some of the evidence and the learned judge's findings concerning negotiations that took place between Blundell and Mr. Sykes acting for XL and the extent to which the officers of A.S.L. were aware of the stated intentions of XL concerning the acquisition of the property, before and during the time when the discussions took place between A.S.L. and Shell which led to the making of the disputed contract of sale. Sykes went to Canberra about November 1969 and inspected the property and discussed it with Blundell. But he made no offer for it. On 23rd February 1970, after a long discussion between Blundell and Sykes, an agreement or arrangement was made between them. A document recording the arrangement or part of it was signed by them. It seems clear that there was no disclosure at any material time of the terms or of the existence of that document to any of the officers of A.S.L. It has some curious features. It recorded that Blundell granted to XL "the right to acquire, on or before 30.6.1970, a 50 per cent undivided interest in the property, unencumbered by debt, for $75,000 or a pro rata lesser amount if any mortgage then exists on that property". It provided that if the property were sold then 50 per cent of the proceeds less 50 per cent of $150,000 would be the amount paid to XL "in full satisfaction of this agreement". It is to be observed that no binding obligation is there undertaken by XL. But the arrangement gave XL a great advantage over prospective purchasers, if XL took part in the bidding at an auction sale. This discussion took place at a time after an auction of the property, to take place on 24th March, had been advertised on 21st February, but this fact was not then known to Blundell or Sykes. (at p486)

6. The learned judge found that this document was not intended to cover the whole of the understanding between the parties. But he did not make findings as to what exactly was agreed upon or understood. He found that Sykes made a genuine inquiry of Blundell as to whether he would accept $175,000 but was told he would not. Both men expected an auction would take place. His Honour found that "the possibility was referred to of Sykes' paying out the total mortgage indebtedness (taken as about $150,000) in exchange for a 15 years' lease" (1971) 19 FLR, at pp 22-23 . His Honour said that in these discussions Sykes showed that he was prepared to back his keenness with money and "it was genuinely believed, by both Sykes and Blundell that $150,000 or more, perhaps much more, might be paid, or might have to be paid, for the land" (1971) 19 FLR, at p 23 . (at p486)

7. In argument there was criticism of many of the findings of the learned judge. However, I am not persuaded that I should reject the findings to which I have just referred. It may be said, however, that the acceptance of them creates some difficulties in understanding the subsequent conduct of Blundell and Sykes, in failing to take positive action to come to a firm bargain with A.S.L. Of course if it were part of the arrangement or understanding between Blundell and Sykes that the auction sale must take place, that would have precluded a purchase of the property by XL from A.S.L. by private treaty earlier than the date fixed for the auction. But in that event it might have been expected, in view of the findings to which I have referred, that XL would proceed promptly to pay out the mortgage debt and would not be content with telling Mr. Owen of A.S.L. that XL would take that course "if necessary". But as his Honour observed, what is of major importance in the case is not so much what Blundell and Sykes believed or thought, but what was told to or became known to the officers of A.S.L. It would be little to the point that it is now known that Sykes was prepared to back his interest in the property with money or that he believed that the selling price of the property would be $150,000 or more, unless it appeared also that the officers of A.S.L., upon the information available to them, were or should have been satisfied at the time when they dealt with Shell that XL would probably bind itself to pay a higher price or that a higher price would be reached if the auction went forward or that XL would in any event pay off the whole of the mortgage debt, in order to prevent a private sale to Shell. (at p487)

8. On 24th or 25th February 1970, Blundell spoke to Owen (of A.S.L.) about the discussion which had taken place with Sykes. Owen was given to understand that Sykes might find the money to pay out the mortgages. But Owen understood also that Blundell wanted the auction to proceed even if the mortgages were paid out. Owen was given to understand that Sykes was very interested in the site. On 25th and 26th February newspapers in Canberra contained reports of the interest of XL in the site, including a statement that Sykes had offered Blundell $150,000 for the lease of the service station and including also a statement, attributed to Sykes, that XL would be at the auction and would be trying to get the site. On 24th or 25th February Owen had proposed to Blundell that Blundell and Sykes should come to see him. According to Owen an appointment was made for 4th March. His Honour expressed the view that an appointment in the strict sense was not made and that the most that Owen could have reasonably understood was that Sykes with Blundell might be able to see him on 4th March. Blundell, himself, gave evidence that he rang Owen later to say that Sykes should have arrived in Canberra but had not turned up and that Blundell had rung Sykes who stated that he would be in Canberra the following Thursday (5th March). (at p487)

9. There was evidence that on 5th March in a further telephone conversation with Owen, Blundell said that Sykes had not arrived and asked that Owen should ring Sykes in Melbourne "to confirm with him that XL will be paying out our mortgages". Owen did ring Sykes about that time. Sykes gave evidence that he told Owen that if there was any question that the property was not going to auction his company would immediately satisfy the mortgagees' interests in full. He said he stressed that "if necessary we would pay out the mortgages". He said that he hoped to be in Canberra in the next week or two and, if so, would call to see Owen. The learned judge said in a passage in his reasons, which will be set out later, that Sykes was adamant that no firm appointment was made for 9th March (as Owen claimed), and, said his Honour, "it seems to me that what he says is correct" (1971) 19 FLR, at p 25 . I think that this must be taken not merely as a finding that no day and specific hour were fixed for the meeting, but as an acceptance of the evidence of Sykes that he had not made any appointment for any day or given any definite undertaking to go to Canberra to see Owen. This does not accord with some of the evidence of Blundell himself, who spoke of an intended visit of Sykes on 5th March. But I do not think that I am justified in rejecting his Honour's view concerning the evidence of Sykes on this matter. It is a finding to which I attach much importance. If, about 4th or 5th March, Owen was told by Sykes that XL would pay out the mortgages if there was any question of the property not going to auction, then this statement, coupled with evidence that it was arranged that a Canberra bank would be able to certify as to the financial standing of XL, is important in considering the conduct of A.S.L. in relation to the sale of the property to Shell. Owen may have had good reasons for not putting much trust in any assurance given to him by Blundell, and Owen's evidence that Blundell said he had "made a deal" with Sykes and that they would be in Owen's office early in the week to settle the matter up would not by itself give much support to the case made against A.S.L., having regard to the fact that they did not come to settle the matter up at that time or at all. However it appears to me that the telephone conversation which Owen had with Sykes himself is of greater significance than his talks with Blundell or his impressions as to the reliability of the reports which he had read in the newspapers about the interest of XL in the site. (at p488)

10. Owen said in evidence that Sykes did not give any firm undertaking to pay out the mortgages. Although he said also that Sykes confirmed that he and Blundell had "arranged a deal" and said that he had arranged that if necessary he was prepared to pay off the mortgages, Owen's evidence was to the effect that no definite commitment was made by XL, either by means of an offer to buy the property or by means of a promise to pay off the mortgages, and that everything was left to turn upon what occurred at the forthcoming meeting in Canberra. The learned judge made the following statements in relation to this telephone conversation:

"I do not think it is doubted that Owen understood as a result of his conversation with Sykes on this occasion that the latter was genuinely interested in the property and the conversation must have confirmed with Owen the broad substance of what he had been told by Blundell and what he had read in the newspapers. I think too, that it is beyond question that Owen knew that Blundell wanted an auction and that Sykes was acting on the basis that an auction would probably take place. Owen says that Sykes suggested that XL might be able to make some deal direct with A.S.L. This was not, however, to be behind Blundell's back because, according to Owen, an arrangement was made that Sykes see him with Blundell on 9th March. Owen again says that there was a firm appointment for this date. It is common ground that there was no time appointed and that Owen frequently spent much of the day out of the office. Blundell had not been consulted about an appointment before the telephone call took place, and no definite plan was proposed in the conversation. Sykes is adamant that no firm appointment was made for 9th and it seems to me that what he says is correct. Sykes says that he undertook to send a credit reference through his bank so as to provide Owen with more assurance as to XL's financial position and he in fact arranged for this to be done immediately the conversation was over. I should mention that I can understand Owen being somewhat cautious about any proposition from Blundell but the evidence does not show any reason for scepticism concerning what Sykes had to say and he does seem, in fact, to have been taken seriously. Sykes and Owen did not meet on 9th March, or thereafter." (1971) 19 FLR, at pp 24-25 . (at p489)

11. I do not think it would be helpful to analyse the evidence in an effort to ascertain all that was involved in the statement by his Honour that the conversation confirmed with Owen "the broad substance of what he had been told by Blundell and what he had read in the newspapers". But one thing that Blundell had told him was that XL would pay off the mortgages and that was confirmed by Sykes. Later in his reasons his Honour said this (1971) 19 FLR, at p 26 :

"When Sykes spoke to Owen on 4th or 5th March he 'stressed that if necessary we would pay out the mortgages and therefore take over the position of A.S.L. entirely, so therefore they couldn't have any risk of loss'."

That is a direct citation from the evidence of Sykes and it is clear that his Honour accepted what Sykes said on this point. (at p489)

12. The disputed contract of sale resulted from discussions between Mr. Wilkie then acting in Sydney as project manager of A.S.L. and Mr. Goddard, acting in Sydney as a development manager of Shell, which began about 5th March 1970 and ended on 13th March with the acceptance by Wilkie of an offer on behalf of Shell to buy the property for $120,000. The first approach on 5th March was made by Goddard who asked whether the Fyshwick property was still for sale and said that Shell wished to register an interest in it. On 9th March Goddard rang Wilkie and said that Shell had obtained a valuation of $80,000, to which Wilkie replied that A.S.L. had a valuation at about the same figure but $120,000 was needed to clear the property. The statement of Wilkie about the valuation appears to have been inaccurate. Wilkie went on to say to Goddard that if $120,000 was not acceptable to Shell the property would have to go to auction. He said also that there had been no firm offers for the property although Sykes of XL had "talked generally of offering $150,000" but seemed more interested in leasing the property. On 13th March Goddard offered $120,000, provided contracts would be exchanged within seven days. He said that if the offer were not accepted Shell might not be at the auction and, even if present, it might not repeat an offer of $120,000. The offer was accepted by Wilkie. In evidence Wilkie said (1971) 19 FLR, at p 26 :

"I was personally concerned that had the property gone to auction and had Shell's interests not been continued they may not in fact have bid at the auction and that we may have finished up, perhaps, in a worse position than we had started from."

The learned trial judge referred in his judgment to Wilkie's lack of the full information which Owen had of the discussions with Blundell and Sykes and stated that conversation between Wilkie and Owen on relevant matters "seems to have been minimal". According to Wilkie, he rang the Canberra office and sought information as to the extent of the indebtedness and the extent of apparent security. He did this after the initial approach by Shell. He said, also, that after the first approach it was mentioned to him that "XL had expressed some interest in the sale" and he was told that an appointment had been made and not kept. In cross-examination he said that before agreeing to the sale to Shell he had seen a newspaper article showing that XL was interested in getting into Canberra and he believed the article would have been submitted to him from the Canberra office, but he would have taken the article "with a large grain of salt". He did not suggest that Owen gave him any details of the talks that had taken place with Blundell and with Sykes or that he sought Owen's views about the contents of the newspaper article. If Wilkie's evidence gave a full account of the information he obtained from Canberra, the conclusion is inevitable that there were such important omissions that what he was told was quite misleading. (at p490)

13. Owen's evidence-in-chief on this matter was limited to a statement that on 12th March 1970 he had a telephone conversation with Wilkie. In cross-examination he said that the Sydney office was advised that XL had shown an interest in the property. He believed that he mentioned the newspaper articles, not to Wilkie, but to another A.S.L. officer and told him something of what they contained. He told Wilkie on 5th March that XL was showing an interest. He knew from that conversation that Shell was considering making an offer. This date is significant. It was on that day or on the previous day that Owen had had his only conversation with Sykes, to which I have already referred in some detail. A further important piece of evidence was given by Owen. This was that he did not tell the Sydney office that he had someone who would be prepared to discharge the mortgages. It must be taken therefore that the statement, included in a note made by Owen of a conversation on 12th March with Wilkie, that Owen "told him of the XL deal with Blundell which does not appear as though it will now come off" does not mean that he told Wilkie that Sykes had said that XL would discharge the mortgages. In his explanation of his failure to inform Wilkie of this, Owen said he knew that this was some arrangement Sykes had with Blundell, but Sykes had failed to keep a first and then a second appointment with him and "I didn't know whether he would or he would not." Now even if the learned judge had found that there was a firm arrangement for Sykes to see Owen, as Owen asserted but Sykes denied, the comment could still have been made that it might be expected that Owen, after learning on 5th March that Shell was considering making an offer, would have communicated again with Sykes, if not immediately then at any rate after Sykes had failed to come to Canberra on 9th March, in order to let Sykes know of the need for prompt action on his part. Instead of that, what Owen did was to suggest to the Sydney office the price of about $120,000 as that which should be put to Shell and to allow negotiations with Shell to proceed, without any knowledge of their existence being conveyed either to Sykes or to Blundell. (at p491)

14. In his judgment Fox J. said (1971) 19 FLR, at p 28 :

"The probabilities are, I believe, that if A.S.L. had referred Shell's offer to Blundell or Sykes, the financial result to Blundell would have been much more satisfactory than was the sale to Shell at $120,000."

Then his Honour after referring to several consequences that might have followed upon the communication of Shell's offer to Blundell or Sykes went on to say (1971) 19 FLR, at p 28 :

"It is not necessary for present purposes to attempt to evaluate these different possibilities; it is sufficient to see that Blundell would in all probability have been better off. More precisely, perhaps, it is sufficient to be able to conclude, as I do, that a reasonable mortgagee, in the position of A.S.L. could and should have seen that Blundell might be better off."

It has been argued that these conclusions were not warranted by the evidence and that in any event they indicate an erroneous view of the extent of the obligations of a mortgagee exercising a power of sale. But, in my opinion, there is no good reason to differ from the learned judge's view of the facts as expressed in the passages I have quoted. Although Wilkie said in evidence that Goddard had told him that Shell might not bid at the auction or even attend it, it is, in my opinion, not credible that it would have been thought likely, or even possible, that Shell would have given up all interest in the property, if its offer of $120,000 had not been immediately accepted. But even if it be considered that A.S.L. as mortgagee was entitled to suppose that Shell might not take part in the auction and that it was possible that there would be no bid of $120,000 or more, it is clear, in my opinion, that in the circumstances that existed those considerations did not justify the proposal by A.S.L. of a sale at that price to Shell and its subsequent acceptance of Shell's offer, without any attempt to find out whether or not XL would pay more or alternatively would provide the money to pay off the mortgage debt. In my opinion, it could not be regarded in the circumstances as anything more than a very remote possibility that if A.S.L. had taken that course and it had failed to produce any satisfactory result, then A.S.L. would have lost the opportunity to sell to Shell at the price of $120,000. If the mortgagee had been able to procure the payment of the mortgage debt, it was not concerned with what might occur subsequently as to the sale or leasing of the property. Having been told that if necessary XL would pay the debt A.S.L. was not justified, in my opinion, in using its power of sale to obtain payment, without exploring an alternative method of obtaining payment which would protect fully its own interests and which was likely to produce a much better result for the mortgagor. (at p492)

15. There was some discussion in argument of the question whether the offer which Goddard made on 13th March 1970 on behalf of Shell was put forward as one which must be accepted immediately during the same telephone conversation. No finding was made that this was stipulated and, in my opinion, the evidence does not establish definitely that it was. But I do not think the point is of much importance, in relation to the question whether or not A.S.L. should have communicated to Blundell or Sykes what was taking place between A.S.L. and Shell. This could have been done before 13th March, at a time when the price of $120,000 had already been suggested by Wilkie to Goddard. (at p492)

16. After a review of many cases in which the duty owed by a mortgagee when exercising a power of sale has been discussed, Fox J. appears to have accepted the view that there is a breach of duty if the mortgagee fails "to take reasonable steps to obtain the best price available in all the circumstances" (1971) 19 FLR, at p 38 . His Honour found that A.S.L. had failed to do that. But his findings went further. He said that the conduct of A.S.L. reflected "calculated indifference" to the position of the mortgagor and that in the language used in the authorities it was "reckless" and it "sacrificed" the interests of the mortgagor (1971) 19 FLR, at p 38 . On those latter findings which, in my opinion, this Court should not disturb, there can be no doubt that there was a breach of duty. (at p493)

17. In the authorities there are to be found conflicting views on the question whether the obligation cast upon the mortgagee is simply that he should act "in good faith" (which means, in my opinion, in the language used in most of the authorities, that he should act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor) or is an obligation which is broken also if there is negligence in carrying out the sale. Support for the former view may be found in the statements in Kennedy v. de Trafford (1896) 1 Ch 762, at p 772 by Lindley L.J. and in the same case on appeal (1897) AC 180, at pp 184-185 , by Lord Herschell, in the adoption of those statements by this Court in Barns v. Queensland National Bank Ltd. (1906) 3 CLR 925, at pp 942-943 and in Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR 676, at pp 680, 694, 700 and in the definite opinion expressed by Isaacs J. in the latter case (1912) 13 CLR, at p 700 , that the mortgagee is not answerable for "mere negligence or carelessness". On the other hand, it appears that the view that negligence is enough to make the mortgagee liable to account to the mortgagor for loss arising from a sale is supported, not only by the recent cases of Holohan v. Friends Provident and Century Life Office (1966) IR 1 and Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch 949 , but also by the decision of the Privy Council in McHugh v. Union Bank of Canada (1913) AC 299 . But I do not think it necessary to resolve this question in this appeal. The breach of duty which has been found to have been committed by A.S.L. did not consist merely of a careless failure to carry out the sale in a manner which reasonable care required. Although His Honour thought that a partial explanation of what occurred was to be found in the lack of sufficient communication between Wilkie and Owen, it appears that in proceeding with the sale to Shell without referring to Blundell or Sykes, A.S.L. acted in a way which would produce enough money to satisfy its own interests, and it was those interests alone that were really considered. While A.S.L. as mortgagee was entitled to have regard primarily to its own interests, it was not entitled, if those interests were not at risk, to act in a manner which sacrificed the interests of the mortgagor. What the mortgagee did in this case was done deliberately and not through carelessness. (at p494)

18. In my opinion, the decision that there was a breach of duty on the part of A.S.L. should not be set aside by this Court. (at p494)

19. The next question is whether or not the plaintiffs were entitled, in consequence of that breach of duty, to obtain an injunction to restrain the completion of the contract between A.S.L. and Shell. (at p494)

20. In the Supreme Court Fox J. was not satisfied that at the time of the contract Shell had notice of the breach of duty or of facts from which an inference of conclusion of breach of duty should have been drawn. It has been urged for the plaintiffs that this Court should interfere with that finding. But I do not think that we should do so. In my opinion, the reasons stated by his Honour for his conclusion have not been shown to have been based upon a misunderstanding of the evidence or otherwise affected by error which would warrant us in refusing to accept it. I do not propose to examine all the evidence relating to this question. The breach of duty that was found to have occurred depended mainly upon the facts and circumstances consisting of or disclosed by the discussions between Blundell and Owen and between Sykes and Owen which took place before the making of the contract. The officers of Shell were not parties to those discussions and were not given any full account of them. There is, however, one matter of evidence to which particular reference should be made. A set of documents from the records of Shell was tendered in evidence. It has been argued that these were admissible in evidence against A.S.L., as well as against Shell. It appears that they were not put forward at the trial as evidence against A.S.L. and I do not think any basis was established for the use of them against that defendant. As I am of opinion that the finding made against A.S.L. in the Supreme Court should stand upon the other evidence, without aid from these documents, the question of their admissibility against A.S.L. loses importance. But they need to be considered upon the question whether or not Shell had notice, at the time of the contract, of a breach of duty. They established that Shell's officers were told that A.S.L. had been approached by Sykes "who talked of offering $150,000 but no firm offer made" and they were told that no offer of less than $120,000 would stop the property from going to auction. They decided that they should not risk the site going to auction. It is clear that they wished to prevent XL from acquiring the property. But neither their knowledge of XL's interest in obtaining the property nor their desire to forestall XL placed Shell under any obligation to offer more than the price at which A.S.L. had indicated it would sell, unless that price were known to be well below the value of the property. This was not shown. The knowledge that Sykes "talked of offering $150,000" could not be regarded as making it known to Shell's officers that a sale at $120,000 would be a sale at an undervalue. (at p495)

21. There is one other piece of evidence in the documents which raises a question whether, to the knowledge of Shell's officers, a disclosure was made by A.S.L. which ought to have been regarded as an impropriety on its part. A message sent on 11th March 1970 from the Sydney to the Melbourne office of Shell mentioned that A.S.L. had said that the reserve at auction would be $120,000 and if that was not reached the property would be retained and would possibly be leased for a short term. The message went on to say that if that occurred Shell might be faced with a high rental resulting from strong competition for the site on a lease basis. It has been said that the disclosure of a reserve price to an intending purchaser is or may be an impropriety on the part of a mortgagee exercising a power of sale: see Barns v. Queensland National Bank Ltd. (1906) 3 CLR, at p 944 . In the present case, no doubt the disclosure may have had the result that Shell felt confident that an offer of $120,000 by it was likely to be accepted and, therefore, that there was no need to make a higher offer. But in the circumstances I am of opinion that this circumstance does not require a finding that Shell was affected by knowledge that A.S.L. was in breach of its duty. In the oral evidence a few questions were asked of Mr. Wilkie about Shell being told of the reserve price, but the matter was not fully explored with him or with Mr. Goddard and no reliance appears to have been placed upon it at the trial. (at p495)

22. I proceed to consider whether the plaintiffs were entitled, having regard to the findings made at the trial, to injunctive relief. I stated earlier that I did not think it was necessary to decide whether or not a breach of duty for which a mortgagee can be held liable is made out if all that is found is that he has acted negligently, although in good faith, in carrying out a sale. That statement needs some elaboration. If a mortgagee has acted in breach of his duty, it may become necessary to decide whether the available relief is limited to making him liable to make good to the mortgagor such loss as has been caused by that breach of duty or includes the obtaining of an order to set aside a conveyance or transfer by which a sale had been carried into effect or, in cases in which the contract of sale has not been completed, an injunction to restrain the mortgagee from completing it. On behalf of Shell it was argued that if a mortgagor has any remedy in respect of negligence in carrying out a sale, this must be limited in all cases to holding the mortgagee liable to account for the loss suffered. In this case there is a question whether or not in the circumstances it was proper for the Supreme Court to grant an injunction to restrain A.S.L. from completing the agreement made with Shell. But, in my opinion, the answer to that question does not depend upon the acceptance or rejection of the distinction made in the submissions to which I have just referred. This is not a case in which the only relevant finding against A.S.L. was a finding of negligence. In effect, there was also a finding that in making the contract there was a reckless disregard of the interests of the mortgagor. I am of opinion that in such circumstances the completion of the contract may be restrained. (at p496)

23. It has been argued that a passage in the judgment of Kay J. in Warner v. Jacob (1882) 20 Ch D 220, at p 224 , which has often been quoted in subsequent cases, is an exhaustive and correct statement of the circumstances in which a sale will be set aside or an injunction granted and it is said, therefore, that if a mortgagor has any remedy in respect of a sale not shown to have been affected by "corruption or collusion with the purchaser" or to have been at a price so low as in itself to be evidence of fraud, his only remedy can be in damages. In my opinion, this submission should not be accepted. There may be an improper exercise of a power of sale (that is one which constitutes a breach of the duty owed to the mortgagor) where although there is not any actual fraud (in the ordinary sense of that term) or any collusion between the mortgagee and the purchaser, there is improper conduct which goes beyond mere negligence in carrying out the sale. There may be impropriety of various kinds. What has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor and sometimes as a sacrificing of the interests of the mortgagor does not necessarily involve, in my opinion, the commission of actual fraud. It has been said that the word "recklessly" as used by Lord Herschell in Kennedy v. de Trafford (1897) AC, at p 185 and in other judgments, was used in a sense analogous to that in which it was used in Derry v. Peek (1889) 14 AC 337 : see Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR, at p 680 . Whether or not that view is accepted, I think it is in accordance with authority and that it should be affirmed that there may be conduct which amounts to a reckless sacrificing of the interests of a mortgagor, although it is not shown that there is an actual intention to defraud him or that there is corruption or collusion with the purchaser. It is concerning conduct of that kind that inquiry must be made in this case whether or not it warranted the granting of an injunction. (at p497)

24. I do not doubt that as between himself and his mortgagee who has conducted himself in that way in entering into a contract of sale, a mortgagor is entitled to invoke the aid of the Court to prevent the completion of the contract. As between those parties, the proprietary right of the mortgagor will be protected against such a wrongful alienation by the mortgagee. But the critical question is whether the purchaser under the contract acquires a right which entitles him to have the contract completed and therefore precludes the grant of any injunction to restrain its completion. In dealing with that problem I leave aside for the present the statutory provisions which are said to have a bearing upon it. (at p497)

25. It has been submitted that a person who has entered into a contract as purchaser cannot be affected in any case by impropriety on the part of the mortgagee, not involving collusion with the purchaser. It has been put as an alternative argument that, if a purchaser may be affected by notice of the facts which constitute the impropriety (not involving collusion), he can be affected only if he has such notice at the time when he enters into the contract. In my opinion, if the mortgagee does not exercise the power of sale "in good faith" (in the sense explained above) and the purchaser has knowledge of the facts which show the lack of good faith, the purchaser cannot obtain a right superior to the right of the mortgagor. Even when a contract made in such circumstances is carried to completion, in many cases the transaction may be set aside, or, alternatively, the conveyance or transfer treated as operating only as a transfer of the mortgage and of the debt secured by it, and not as a transfer of the mortgagor's interest: see Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liquidation) (1965) 113 CLR 265, at pp 274-275 . But if the person who agrees to purchase has no notice of any impropriety at the date of contract and continues to have no notice at the time when it is completed, he will obtain a title which cannot be challenged by the mortgagor. (It is here assumed that all statutory and contractual conditions essential to the exercise of the power of sale have been fulfilled.) (at p497)

26. If the purchaser is without notice of the relevant facts at the date of the contract, but the mortgagor takes action to challenge its propriety before completion and proves that on the part of the mortgagee it was improper, the question is whether the purchaser has a right which prevails over the right which the mortgagor would have, as between himself and the mortgagee, to restrain the completion of the contract. That is the question in this case. (at p498)

27. The mortgagor's interest was, of course, prior in time to any interest acquired by the purchaser. The right of the mortgagor was not merely an equity of redemption. The mortgages did not operate as transfers of his title to the land: see the Ordinance, s. 93 (1). His title could be divested by a transfer in pursuance of a contract of sale made by the mortgagee in the exercise of the power of sale. But until that occurred, he retained a legal interest in the land. (at p498)

28. Even if the contest between these parties should be resolved on the basis that there is a competition between equitable interests, in my opinion the position of the purchaser, so far as the applicable general principles are concerned, would not be any better. In my opinion, the situation was not one in which it was open to the purchaser to claim that, although it had not acquired a legal estate, it could maintain, against a claim by the mortgagor to prevent the completion of the sale, a defence that it was a purchaser for value without notice. After a consideration of the decision and of the judgments in Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liquidation) (1965) 113 CLR 265 , I am of opinion that the circumstances in which the interest of the trustee for the debenture holders in that case was held to prevail over the claim of the mortgagor were so different from those upon which the contest here depends that the case is not an authority upon which Shell can rely. (at p498)

29. I am of opinion, also, that the contest cannot be resolved in favour of Shell by the application of the principles upon which in Abigail v. Lapin (1934) AC 491 and in Breskvar v. Wall (1971) 126 CLR 376 the claims of the parties whose interests were first in time were postponed to the claims of the other parties. This is not merely for the reason that in the present case Blundell had more than an equitable interest. If his interest is considered as being for present purposes no more than an equitable interest, his conduct did not contribute in my opinion, to any false assumption or belief upon which Shell acted in entering into the transaction (see Breskvar v. Wall (1971) 126 CLR 376 ), nor did it affect Shell in any other way which would make it inequitable to assert against Shell the interest of Blundell. (at p498)

30. By executing the mortgages and defaulting in payments under them, Blundell did bring about a situation in which A.S.L. was empowered to sell the property. But if the mortgagee did not act bona fide in the exercise of the power of sale, and the purchaser, being unaware of this, assumed that the mortgagee was acting bona fide, that assumption was not one which any conduct of Blundell caused the purchaser to make. (at p499)

31. If a contract of sale had been made which was not affected by any impropriety, it would not have been open to the mortgagor to claim that until the contract had been completed his right to redeem the mortgage continued notwithstanding the contract and was superior to the right of the purchaser. Although he retained his title to the land this was subject to the power of sale as defined in the Ordinance and as incorporated into the mortgage instruments. In my opinion, a contract of sale properly made in the course of the exercise of that power is binding upon the mortgagor, not because the mortgagee contracts as agent for the mortgagor, but because by entering into a mortgage to which the Ordinance applies the mortgagor makes his own rights subject to its provisions, including those which confer and regulate the power of sale, and, therefore, subject to any action which is properly taken in good faith by the mortgagee. On this question, I regard as applicable and as correct the decision in Waring (Lord) v. London and Manchester Assurance Co. Ltd. (1935) 1 Ch 310 , approved in Property &Bloodstock Ltd. v. Emerton (1968) 1 Ch 94 , that a contract by the mortgagee to sell the property is binding, before completion, upon the mortgagor unless it be proved that the mortgagee exercised his power of sale in bad faith. But here it is contended that as a matter of general principle and independently of the meaning and effect of the provisions of s. 94 (2), 94 (3) and 94 (5) of the Ordinance, such a contract is binding before completion upon the mortgagor, even if the mortgagee acted in bad faith, unless he acted in collusion with the purchaser, or, alternatively, unless the purchaser had knowledge at the date of the contract of the facts which affected the propriety of the sale. In my opinion, this proposition should not be accepted. If the matter is to be determined in accordance with the general principles by which disputes as to priority between competing claims are resolved, there is no principle which operates to postpone the right of the mortgagor to that of the purchaser. In my opinion, the authorities to which we were referred do not support the foregoing submission. As Fox J. said, many of the cases dealing with the matter were cases in which there had been a conveyance or transfer. In Lukass Investments Pty. Ltd. v. Makaroff (1964) 82 WN (Pt 1) (NSW) 226, at p 227 , Jacobs J. said, that he accepted the submission that in that case the relevant time at which a purchaser could be affected by notice of impropriety was the time of the making of the contract. His Honour did not give reasons for that opinion and upon the view that he took of the facts the question did not affect the decision of the case. In Davis v. Taylor (1948) 48 SR (NSW) 514 , it was not necessary to decide the question now under consideration. The decision in Brigers v. Orr (1932) 32 SR (NSW) 634 , to which I shall refer again, turned entirely upon the terms of a protection clause in the bill of sale there considered. The observations of Crossman J. in Waring's Case (1935) 1 Ch 310, at p 318 , are opposed to the submission made on behalf of Shell: see also Holohan v. Friends Provident and Century Life Office (1966) IR 1, at p 26 . (at p500)

32. It was argued that the position of a purchaser from a mortgagee is analogous to that of a purchaser who makes a contract with an agent acting within his ostensible authority but in breach (unknown to the purchaser) of his duty to his principal. In my opinion, the analogy is not acceptable. The mortgagee in making a sale is acting on his own behalf and primarily in his own interests. The sale is not one by which the mortgagor, through the medium of an agent, is disposing of his own property. It is one by which his property is being divested from him. If the power vested in the morgagee is properly exercised the mortgagor is bound. But if it is not exercised in good faith there is, in my opinion, no reason that can be derived from any general principle for holding that before completion the purchaser gets a good title as against the mortgagor. (at p500)

33. It is necessary now to refer to some provisions of the Ordinance. In the Supreme Court it was argued that Shell had a title which was made unimpeachable by s. 94 (5) of the Ordinance which is in these terms:

"Where a transfer is made in professed exercise of the power of sale conferred by this Ordinance, the title of the transferee shall not be impeachable on the ground that no case has 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 damnified by an unauthorized or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power."

In my opinion, his Honour was correct in rejecting that submission, which was not pressed at the hearing of these appeals. The provision applies where a transfer is made and is not applicable in this case. (at p500)

34. But counsel for Shell relied on s. 94 (2) which is in these terms:

"All sales, contracts, matters and things made, done or executed in pursuance of the last preceding sub-section shall be as valid and effectual as if the mortgagor or encumbrancer had made, done or executed them, and the receipt or receipts in writing of the mortgagee or encumbrancee shall be a sufficient discharge to the purchaser of the land, estate or interest, or of any portion thereof, for so much of his purchase money as is thereby expressed to be received."

In the Supreme Court Fox J. said that counsel for Shell mentioned that provision but without making any submission thereon. His Honour then expressed the view that the first part of the provision, which derives from the earliest Real Property Acts, was introduced to ensure that a mortgagee could give title and could contract to do so, although he himself had not title. His Honour said that the purpose was not to give more protection to a purchaser than he had under the general law. I agree with respect with that view. The second part of s. 94 (2) does give protection to a purchaser in relation to his payment of the purchase money and its subsequent application by the mortgagee. But the first part of the provision should be regarded as supplementary to the powers conferred upon the mortgagee by s. 94 (1) to sell the estate and interest of the mortgagor and to make and execute all such instruments and documents as are necessary for effecting the sale thereof. (at p501)

35. A literal reading of the words of s. 94 (2) might lead to the result that no challenge could be made by a mortgagor to a contract of sale made by a mortgagee after default had occurred for the period mentioned in s. 94 (1) upon any ground at all relating to the improper conduct of the mortgagee, regardless of whether or not the impropriety was at all times known to the purchaser. Thus, if a contract provided for a sale at such an undervalue as would be regarded, according to the authorities, as being itself evidence of fraud, it could not be said that if an owner had himself entered into such a contract he could have it set aside as fraudulent merely because of the inadequate contract price, without any proof that he was induced by the fraud of the purchaser to enter into it. If s. 94 (2) is read as rendering such a contract immune from challenge when made by a mortgagee, it goes further in protecting the contract of a purchaser prior to completion than does s. 94 (5) in protecting a purchaser to whom a transfer has been made. In my opinion, it should not be so read. (at p501)

36. The protection given by s. 94 (5) extends, when a transfer has been made, not only to a case where the sale is unauthorized or made without due notice, but also to a case in which the power is being "otherwise improperly or irregularly exercised". This provision is similar to that contained in sub-s. (3) (b) of s. 112 of the Conveyancing Act, 1919 (N.S.W.), as amended, in which sub-s. (3) (a) provides, also, that a purchaser shall not either before or on conveyance be concerned to see or inquire whether a case has arisen to authorize the sale or due notice has been given or the power is otherwise properly and regularly exercised. That section does not apply, however, to mortgages or encumbrances under the Real Property Act. In s. 94 (3) of the Ordinance a purchaser is given a limited protection against failure to make inquiries. He is not concerned to inquire as to the fact of any default or notice having been made or given as provided in s. 939 But he is not expressly relieved from inquiry as to whether the power is otherwise being properly and regularly exercised. That circumstance has no direct bearing on the present case, where the question is not whether the purchaser has lost, by failure to inquire, a protection to which otherwise it would have been entitled. But the inclusion in s. 94 of sub-s. (3), together with the inclusion of sub-s. (5) , indicates, in my opinion, that one ought not to give to sub-s. (2) an effect which would give a purchaser, before completion, a complete immunity from the intervention of the Court to restrain the completion of a contract made by him with a mortgagee who did not exercise the power of sale in good faith. (at p502)

37. In Brigers v. Orr (1932) 32 SR (NSW) 634 , the Court considered a clause which, as well as relieving from any obligation to inquire into any matter connected with the propriety or regularity of any sale or sales, contained the further provision that the purchaser shall not be affected by express notice that the same is or are irregular and improper. It was decided that this clause protected the title of a purchaser prior to completion. Long Innes J. drew attention (1932) 32 SR (NSW), at p 638 to the absence of the latter provision in Parkinson v. Hanbury (1860) 1 Dr &Sm 143 (62 ER 332) and Selwyn v. Garfit (1887) 38 Ch D 273 , in which cases it was held that the protection clause did not protect a purchaser who knew that the sale was irregular and improper. His Honour referred (1932) 32 SR (NSW), at p 639 also to the difference between the clause before him and the language of s. 21 (2) of the Conveyancing and Law of Property Act 1881 (Eng.) (the equivalent of s. 94 (5) of the Ordinance) which was held in Life Interest and Reversionary Securities Corporation v. Hand-in-Hand Fire and Life Insurance Society (1898) 2 Ch 230 to give protection only after conveyance. In my opinion, a consideration of the cases to which his Honour referred lends support to the conclusion that s. 94 (2) has not such an extensive operation as the argument on behalf of Shell seeks to put upon it. (at p503)

38. It was submitted that the immunity of the purchaser (before as well as after completion) afforded by s. 94 (2) is no greater than the purchaser would have under the general law without its aid. It was said that the sub-section is directed only to cases in which the occasion for the exercise of the power of sale has in fact arisen and the formalities for its exercise have been duly carried out, whereas s. 94 (5) applies if the power of sale has not become exercisable, because some condition upon which the power depends has not been fulfilled. In the former class of case, it was submitted, the purchaser may rely on the contract, against a challenge to its propriety made before completion, except where he has himself been guilty of collusion or fraud. I have already given reasons for rejecting the view that the right of a mortgagor to impugn a contract of sale made by his mortgagee is confined in that way. I cannot accept as correct the narrow limitations placed upon that right in Davis v. Taylor (1948) 48 SR (NSW) 514, at p 519 . In my opinion, if the submission on behalf of Shell as to the effect of s. 94 (2) were accepted, it would extend greatly the protection to which a purchaser from a mortgagee has been regarded as being entitled, according to general principles and according to the interpretation which has been placed judicially on various protection clauses commonly contained in mortgage instruments or in legislation regulating the exercise by mortgagees of their powers of sale. In particular, the provisions in similar terms, contained in various Acts, which have been in force since the establishment of the Torrens system, have not been interpreted as having the effect which the submission seeks to put upon s. 94 (2). In my opinion, the submission should not be accepted. (at p503)

39. In the Supreme Court the question was raised whether an injunction should be granted against Shell and Mr. Forsyth, as well as against A.S.L. But counsel for the plaintiffs did not then press for this and the injunction was therefore limited to an injunction against A.S.L. In this Court it has been submitted that there should be an injunction against Shell. I think that that is correct and that the order of the Supreme Court should be varied by adding an order restraining Shell its servants and agents from completing the contract of sale. It is not necessary, in my opinion, to make a similar order directed personally to Mr. Forsyth. (at p503)

40. The question has been raised, also, whether there should be an order setting aside the contract of sale. It has been put that this is a necessary first step if any injunction to restrain the completion of the contract is to be granted. But, in my opinion, the relief to which the plaintiffs were entitled could properly be granted without first setting aside the contract. What is of importance to the plaintiffs is that the parties should be restrained from completing the contract, thereby depriving Blundell of his proprietary interest. The question whether the contract is set aside or remains on foot as a possible source of rights and obligations as between A.S.L. and Shell is one which concerns those parties only and which was not fully litigated in the action. In my opinion, it is not necessary to make an order setting aside the contract. (at p504)

41. One other matter remains for consideration. When an interlocutory injunction was granted in April 1970 a condition was imposed that the plaintiffs were to bring into Court the sum of $155,000, which payment into Court might be made in whole or in part by the deposit of securities to the satisfaction of the Registrar. It appears that the sum was accepted by the parties as being sufficient to cover all moneys secured by the mortgages. In making the order Gibbs J. applied what he described as "the ordinary rule" that the Court will not grant an interlocutory injunction restraining a mortgagee from exercising a power of sale, except on the condition that the mortgagor pay into Court the sum sworn to be due. In pursuance of the order securities were deposited. After the hearing before Fox J. is was submitted for the plaintiffs that the contractual interest under the mortgages should be taken to have ceased as from the date of that deposit. After a full discussion of the matter and of the operation and the purpose of the rule which was applied when the interlocutory injunction was granted, his Honour held that in the taking of any account the mortgagee should not be entitled to interest after 23rd April 1970. He said, however, that A.S.L. was entitled to the interest produced since that date by the securities. (at p504)

42. It has been submitted that there was no jurisdiction to make that order. It was said that the payment into Court did not constitute payment of the money due under the mortgages nor did it amount to a tender of those moneys and that until payment or a proper tender had been made the interest must continue to run and the Court has no jurisdiction to interfere with the contractual right to interest. But, in my opinion, the question to be decided is not to be determined by considering whether what occurred was the equivalent of payment of the debt or was a proper legal tender of the amount due which the mortgagee had a duty to accept. The payment into Court was not an act done under and in accordance with the contract between the parties in order to satisfy a contractual right of the mortgagee. The mortgagee had no doubt a contractual right to payment of the debt, including interest, secured by the mortgages. But it had no contractual right, when the plaintiffs were claiming that they were still entitled to redeem and A.S.L. was disputing that claim, to have the amount of the debt paid into Court. The deposit of the securities was made in accordance with a condition imposed on the mortgagor by the Court, for the benefit of the mortgagee and as a means of doing justice between the parties. In my opinion, the Court when making such an order had power to make it upon such terms and conditions as it thought proper in the circumstances to ensure that the objective of doing justice between the parties was achieved. I am of opinion, therefore, that when the order was made in April 1970, it would have been open to the Court to define the consequences as to the running of interest, which compliance with that order was to have. If it appeared reasonable to vary in this respect what would otherwise have been the contractual rights of the parties the Court could properly do so. This would not constitute an improper interference with the rights of the mortgagee, at whose instance an onerous term was being imposed upon the mortgagors as a condition of obtaining an interlocutory injunction and of maintaining an action for redemption of the mortgages: see Bank of New South Wales v. O'Connor (1889) 14 App Cas 273, at p 283 , as to the power of a Court of Equity to do complete justice between the parties. (at p505)

43. There is no dispute in this case as to whether or not the ordinary rule should have been applied so as to impose that term upon the plaintiffs. The scope and purpose of the rule were examined by Fox J. who referred to several authorities relating to it. To these may be added a reference to my judgment in Inglis v. Commonwealth Trading Bank of Australia (1971) 126 CLR 161 and to the cases therein mentioned. I find no need to review those cases again. As I have said no question arises as to whether the rule should have been applied. In my opinion, the Court could have provided as a term of the order that as from the date of the payment in, the interest should cease to run. Although the Court did not then include that term in its order, I am of opinion that the Court in which the suit was pending continued to have control of the manner in which the rights of the parties in this respect should be adjusted and had power to direct that on the taking of any account the mortgagee should not be entitled to interest after 23rd April 1970. Having decided that the making of the order was within the power of the Supreme Court, I find no reason to interfere with its judgment as to what was just and reasonable in the circumstances between the parties. (at p506)

44. In my opinion, the order of the Supreme Court should be varied by adding to it an order restraining Shell its servants and agents from completing the contract of sale of 19th March 1970. Otherwise the appeals should be dismissed with costs. (at p506)

MASON J. I have had the advantage of reading the reasons for judgment prepared by Walsh J., where the primary facts as found by the primary judge are set out in some detail. I agree for the reasons there stated that the appellants' challenge to those findings must fail. However, even on the facts as so found there is a question whether A.S.L. was in breach of its duty to the mortgagors and, if so, as to the nature of that breach. (at p506)

2. It will be seen that the conclusion which I reach is that A.S.L. was in breach of its duty to the mortgagors in that it exercised its power of sale without taking reasonable steps to obtain a proper price and in so doing acted otherwise than bona fide, that is, recklessly, not caring whether the price obtained was in the circumstances a proper price or not. Accordingly, I need not consider the vexed question whether the mortgagee's duty is merely to act bona fide or whether, in addition, he is bound to take reasonable precautions to obtain a proper price. The conflicting authorities have recently been reviewed by the Court of Appeal in Cuckmere Brick Co. v. Mutual Finance Ltd. (1971) Ch 949 : see also Holohan v. Friends Provident and Century Life Office (1966) IR 1 . It was held in these cases that the mortgagee is bound to act bona fide and take reasonable precautions to obtain a proper price, or, as Salmon L.J. would prefer to express it, "the true market value". In any resolution of the question in this Court account must be taken of what was said in Barns v. Queensland National Bank Ltd. (1906) 3 CLR, at pp 942-943 , and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. (1912) 13 CLR, at pp 692, 693-695, 699-702 . However, as I have said, on the view which I take of the facts this problem does not arise for decision; nor is it necessary for me to determine the related question whether a mere failure to take reasonable precautions to obtain a proper price is a sufficient ground for setting aside a mortgagee's contract of sale of for restraining its performance (see Property &Bloodstock Ltd. v. Emerton (1968) Ch 94 ). (at p506)

3. Fox J. expressed his ultimate finding in these terms:

"Certainly, A.S.L. failed to take reasonable steps to obtain the best price available in all the circumstances. But the matter really goes beyond that. It seems to me that the conduct of A.S.L. at and about the time of sale reflected calculated indifference to the position of the mortgagor. It could well be said, using the language of the cases, that A.S.L. was 'reckless' and that it 'sacrificed' the interests of the mortgagor."(1971) 19 FLR, at p 38.

I take this to constitute a finding that A.S.L. failed to act bona fide and did not merely fail to take reasonable precautions to obtain a proper price. (at p507)

4. It is essential to keep in mind that this is an unusual case. The property had a special value to a limited class of potential purchasers, the oil companies. What is more, neither the evidence, nor the findings of his Honour, reveal the true value of the property at the time when it was sold to Shell. Expert evidence as to value was not called, although evidence was given of valuations obtained by, or known to, A.S.L. before the sale. Accordingly, the plaintiffs were unable to show that the sale was at an undervalue. Nor did they show that A.S.L. failed to take usual steps to test the market or bring the property to the attention of potential buyers. The breach of duty alleged arose from A.S.L.'s selling privately to Shell, knowing, as it did, that XL had expressed interest in buying the property at the forthcoming auction, instead of proceeding to auction at which Shell and XL could be expected to compete against each other, or informing XL of the Shell offer and giving it the opportunity of improving upon that offer. (at p507)

5. There are some points which can be made in favour of A.S.L. For twelve months before the sale the property had been in the hands of agents for sale. In this time only one unconditional offer had been received, an offer of $90,000. A.S.L. was aware that a valuer selected by the plaintiffs had valued the property in 1967 at $150,000 and this was the price at which it had been listed with the agents. Before deciding to go to auction, A.S.L. had obtained one valuation in 1966; it placed a value of $98,000 on the property. Subsequently A.S.L. was informed by Shell that it had a valuation of $80,000. Had it not been for XL's expression of interest, Shell's offer of $120,000 and the possible outcome of competition between the two companies, there was no reason why A.S.L. should have concluded that the value of the property was greater than the amount of Shell's offer. (at p507)

6. Once the Shell offer was made, conditioned as it was upon exchange of contracts within seven days, and accompanied by the intimation from Goddard that if the offer was not accepted Shell might not attend or bid at the auction, it was for A.S.L. to decide what was the best course to pursue. The case for A.S.L. was that, in the light of circumstances as they were then known, it was in the interests of the plaintiffs, as well as A.S.L. itself, to accept the offer. In A.S.L.'s judgment the amount of $120,000 exceeded the true value of the property and represented the additional value to Shell in keeping XL out of Canberra. In addition the amount possibly reflected a desire on Shell's part to obtain A.S.L.'s goodwill, for A.S.L. had service station sites for sale in the course of its business. There was the risk that XL would not attend the auction or, if it did, might not make a worthwhile bid. Finally there was the important consideration that acceptance would result in payment in full of A.S.L.'s liabilities; if a lower price were received, A.S.L. would sustain a loss. All in all, according to A.S.L., it was a matter for fine commercial judgment and if any error was made it was not of such a kind as to involve A.S.L. in a breach of the duty owed by a mortgagee to its mortgagor. (at p508)

7. To be set against this picture of a difficult question calling for a finely balanced decision are admitted or established facts which indicate that the path of duty led in an opposite direction to that taken by A.S.L. First, there was clear evidence that XL was keenly interested in acquiring the property and that it might pay an amount in the vicinity of $150,000. Even if the statements made by Blundell to Owen should have been disregarded, Sykes in his telephone conversation on 4th or 5th March 1970 with Owen of A.S.L. clearly confirmed his company's interest in buying. Owen admitted in evidence that Sykes confirmed the general substance of what Blundell had said and the two reports in the Canberra Times. Moreover, Owen admitted that Sykes had mentioned that XL would be prepared to pay $150,000 for a lease of the site, if not for a purchase. The learned judge rejected, and in my opinion correctly so, the claim that XL was not genuinely interested in the site and the claim that A.S.L. was justified in so thinking. His Honour found, contrary to A.S.L.'s evidence, that there was no failure on Sykes' part to keep two appointments with Owen. Owen had raised a question concerning XL's ability to pay. Sykes had, as arranged with Owen, established a satisfactory credit reference at the Canberra branch of XL's bank for $155,000, but A.S.L. had not followed the matter up. In these circumstances there was clear evidence that XL was genuinely interested in the site and that there was a distinct possibility that it would pay in the vicinity of $150,000 for it. (at p508)

8. A.S.L.'s failure to follow up XL's expressed interest in the property was in my view a serious departure from accepted standards in seeking to obtain the best price then available. Knowing that there were two interested potential purchasers, with no reason to think that either was not genuine, A.S.L. should have brought them into competition so as to obtain the highest price which either would offer. Yet it made no attempt to bring Shell and XL into competition. For no justifiable reason A.S.L. decided to disregard XL's announced interest as a potential buyer of the property. Its action in so doing in my view constituted a failure to take reasonable precautions to obtain a proper price. (at p509)

9. An examination of the circumstances in which A.S.L. came to disregard XL's interest in acquiring the property shows, in my opinion, that A.S.L. thereby acted recklessly, without caring whether the price which it obtained was a proper price. A.S.L. attempted to justify its disregard of XL's interest by claiming that XL had every opportunity of submitting a firm offer but did not do so. But his Honour found that in the conversation between Sykes and Owen, Sykes made it clear that he was acting on the basis that an auction would take place. Owen admitted in evidence that Sykes had stated that Blundell wanted the property to go to auction. Yet A.S.L. did nothing to disturb Sykes' belief that an auction would take place. The claim that XL made no firm offer was therefore entirely specious. (at p509)

10. Next, there is the manner in which the negotiations with Shell were conducted by Wilkie on behalf of A.S.L. In his discussions with Goddard of Shell, Wilkie did not place reliance on those factors which would indicate that A.S.L. placed a high value on the property. A person anxious to obtain the highest price available might have been expected to say to Goddard that A.S.L. had already rejected a firm offer of $90,000, that it had obtained a valuation of $98,000 that there was another valuation of $150,000 and that XL had expressed real interest and had mentioned a figure of $150,000. These matters were not mentioned. Instead, Wilkie said that A.S.L. had a valuation in the vicinity of the valuation of $80,000 that Goddard had mentioned, and proceeded to decry the interest expressed by XL by saying that Sykes had "talked generally" of offering $150,000. Wilkie's conduct in the negotiations was therefore not consistent with that of a mortgagee endeavouring to obtain the highest price available. (at p509)

11. Moreover, it was Wilkie who first suggested the figure of $120,000 and that figure represented the amount which he believed A.S.L. should receive on sale in order to meet the principal debt, interest and expenses owing to it. It was that amount which Goddard subsequently put by way of a firm offer to A.S.L. No attempt was made at any time by Wilkie to negotiate a higher figure which would yield something for the mortgagors. Yet there is no reason why he should not have done so. (at p510)

12. I cannot agree that in the circumstances there was a grave risk of losing all in the event that the Shell offer was not accepted according to its terms. If Shell was prepared to offer $120,000 privately to retain a site which had previously been tied to it as an outlet for its petroleum products, there was every reason for thinking that it would repeat that offer at auction, notwithstanding the suggestion that it might not do so. But in any event there was no risk whatsoever in A.S.L. informing XL that it had received a firm offer of $120,000 and inquiring whether it was prepared to do better. Its failure to inform XL and Blundell, its determination to sell privately to Shell for $120,000 and not proceed to auction all indicate that its sole interest was to obtain payment of its debt, interest and expenses. (at p510)

13. Finally, there is the circumstance that no further reference was made to XL, although, as his Honour found, Sykes in his telephone conversation on 4th or 5th March with Owen "stressed that if necessary we would pay out the mortgages and therefore take over the position of A.S.L. entirely, so therefore they couldn't have any risk of loss". And on 4th March, A.S.L. accepted an offer of $45,000 for the Red Hill property; yet no attempt was made by A.S.L. to inform Blundell and Sykes that the mortgage debt would be correspondingly reduced. (at p510)

14. I am left with the overwhelming impression that A.S.L. determined willy nilly on a sale to Shell for a price which would cover the moneys owing to it, notwithstanding that there was a real possibility of selling at a higher price to XL and despite its knowledge that XL would take over the mortgage and preserve the mortgagors' equity, if the need arose. (at p510)

15. It seems that in a contest for the site between XL and Shell, A.S.L. preferred that Shell should become the purchaser. Why this should have been so, is not entirely clear. But it is not to be overlooked that in June 1969 A.S.L. gave Shell an undertaking in a letter signed by Wilkie that "we will do as much as we can in selling the property to assist Shell in retaining its connection with the site as an outlet for Shell's petroleum products. We will put you in immediate contact with the purchaser and will try to persuade them to affiliate with Shell." This undertaking would not have required A.S.L. to sell the site to Shell, but it is consistent with, and may explain, A.S.L.'s preference for the sale to Shell. (at p510)

16. In these circumstances I conclude that A.S.L. in exercising its power of sale did not act bona fide in the sense that it was reckless, not caring whether the price obtained was a proper price or not. I do not accept that the sale to Shell should be characterized as "mere negligence" on the ground that it can be attributed to a failure on the part of Owen to inform Wilkie of all the material circumstances. The character of the breach of duty is to be ascertained by reference to the circumstances as they were known to the two officers of A.S.L. who were handling the matter. It was not A.S.L.'s case that it was due to carelessness or oversight on Owen's part that he did not give an accurate and comprehensive account to Wilkie. Instead A.S.L. endeavoured to show, unsuccessfully as it transpired, that the account given by Owen was sufficiently accurate and comprehensive. The suggestion that it was a case of mere negligence therefore disappears. (at p511)

17. With respect to the questions which arise in consequence of the conclusion that A.S.L. was in breach of its duty I agree with what Walsh J. has written, save only that I express no opinion as to the correctness of the proposition stated in Waring (Lord) v. London and Manchester Assurance Company Ltd. (1935) Ch 310 and Property &Bloodstock Ltd. v. Emerton (1968) Ch 94 , that an exercise by the mortgagee of his power of sale is binding on the mortgagor, before completion, unless the power of sale was not exercised bona fide. (at p511)

18. In the result I agree with the orders proposed by Walsh J. (at p511)

Orders

That the order of the Supreme Court of the Australian
Capital Territory be varied by adding an order that
the defendant Shell Oil Company of Australia Limited
by itself its servants and agents be restrained from
completing the agreement for sale entered into with the
defendant Associated Securities Limited by document
in writing dated 19th March 1970.

That the defendant Shell Oil Company of Australia
Limited and the defendant Associated Securities
Limited pay the costs of the plaintiffs of the appeals.

That otherwise the appeals be dismissed with costs.