Higton Enterprises Pty Ltd v BFC Finance Limited

[1994] QCA 558

IN THE COURT OF APPEAL	[1994] QCA 558
SUPREME COURT OF QUEENSLAND	Appeal No. 108 of 1994
Brisbane
Before	Fitzgerald P. McPherson J.A. Pincus J.A.

[Higton Enterprises Pty Ltd & ors v. BFC Finance Limited]

BETWEEN:

HIGTON ENTERPRISES PTY LTD

(First Plaintiff and Defendant

by Counterclaim) First Appellant

AND:

JOHN SIDNEY ERNEST HIGTON, JUNE
ISABELLA HIGTON, CHRISTOPHER JOHN

HIGTON and MALCOLM PETER HIGTON

(Second Plaintiffs and Def-

endant by Counterclaim) Second Appellants

AND:

BFC FINANCE LIMITED

(First Defendant and Plaintiff

by Counterclaim) First Respondent

AND:

HFC FINANCIAL SERVICES LIMITED

(Second Defendant and Def-

endant by Counterclaim

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 21/12/1994

Both appellants and respondent challenge a judgment delivered in the Trial Division on 27 May, 1994, which awarded the appellants damages of $4,450,000.00 against the respondent, but ordered that the respondent recover possession of a property, "Goodacres", from the first appellant and declared that the respondent "is not precluded from exercising its power of sale under Bill of Mortgage No. H327670" in respect of that property or "from exercising its rights" against the appellants "pursuant to the Deed of Guarantee ... dated .. 28 June 1994." The respondent seeks merely that the judgment against it be set aside or that the damages be reduced. The appellants seek to have the damages increased "to the present debt claimed by the Respondent", and a declaration that they are "entitled to be discharged from liability pursuant to the guarantee and bill of mortgage" and ancillary orders, or, alternatively, that the judgment be set aside and they be allowed to amend their statement of claim and there be a new trial. I have not found it necessary to consider the alternative claims.

On 28 January, 1984, Jalbekna Pty. Ltd., a company controlled by the individual members of the Higton family who are appellants on this appeal, entered into a loan agreement with the respondent, by which the respondent agreed to provide finance in connection with a development of a large area of land on the Gold Coast (the "Sungold" project). Repayment was secured by a Bill of Mortgage No.H327672 over the Sungold land. The appellants also signed a document described as a "Guarantee and Indemnity" in relation to Jalbekna's obligations, and the first appellant gave Bill of Mortgage No. 327670 over "Goodacres" by way of further security.

By September 1986, the first stage of the project was completed, but Jalbekna was in dispute with the builder and in default under the loan agreement and Bill of Mortgage No. H327672. The respondent contended that the appellants were also in default. On 17 September 1986, Jalbekna, the appellants and the respondent executed a further Deed, which was referred to by the trial judge as the "moratorium agreement", by which the respondent effectively gave Jalbekna and the appellants until March 1988 before it would take any action to enforce its rights. Further, clause 5 of the moratorium agreement provided:

"5. The Lender further covenants that, if for any reason it hereafter becomes entitled to and does enforce for whatever reason its rights under the Loan Agreement and/or the securities or guarantees then the Lender shall use its best endeavours to enforce such rights in the following manner:

(i)  firstly by exercise of the Power of Sale under the Mortgage granted by the Borrower on the Sungold development property at Murev Way, Cararra in relation to the Borrower's units and/or the balance area whether separately, collectively or howsoever otherwise as to the Lender seems most appropriate;

(ii) secondly by exercise of the Power of Sale under the Mortgage granted by Higton Enterprises Pty. Ltd. on the farm property at Bongeen;

(iii) finally by enforcement of the guarantees against the Guarantors and enforcement of any of the personal covenants contained in the Loan Agreement and supporting securities."

Jalbekna went into liquidation on 4 January 1989, after earlier abandoning its litigation against the Sungold builder.

On 27 April, 1988, the respondent gave notice of its intention to exercise its power of sale under both mortgages. It has done so under the mortgage over the Sungold land, but has not yet done so under the mortgage over "Goodacres".

A contract of sale in relation to the Sungold land was entered into by the respondent as mortgagee on 15 November, 1988, with completion initially due on 31 May, 1989. There is no suggestion by any party that that property should have been sold prior to that time, perhaps because values were increasing in 1988, as was found by the trial judge. The purchaser under the November 1988 contract was Jenhut Pty. Ltd., a shelf company associated with Mr. Colin Robert Bennie, who was a client of the respondent, at least in the sense that other of his companies had from time to time borrowed from the respondent. The purchase price was $4,950,000.00. A deposit of $240,000.00 was paid, and Mr Bennie and his wife and another of his companies, Rex Forte Group Ltd., guaranteed Jenhut's performance of the contract subject to a limit on their liability of a further $240,000.00.

The trial judge found that the appellants as well as the respondent were very anxious that the Sungold land be sold, but unduly optimistic as to its value, which he found was $5,750,00.00 at the time of the Jenhut sale. This was more than Jalbekna's debt to the respondent, and considerably more than the purchase price payable under the Jenhut contract.

The circumstance that the Jenhut sale took place at an
undervalue does not fall for consideration in isolation.
There were other unsatisfactory features to that
transaction. Despite advice that the Sungold property
should be put to auction, the respondent did not do so. The
trial judge held that it should have done so. Further, he
held that an adequate advertising campaign was not
conducted. Instead, the respondent dealt privately with its
other client, Bennie.
From at least February 1988, a company controlled by Bennie
was in default in respect of a loan from either the
respondent or its parent company, HFC Financial Services
Limited. The loan, which related to a development in NSW,
the "Tokara project", had been guaranteed by Mr and Mrs
Bennie and other people. The expected shortfall from the
realisation of the Tokara project was about $300,000.00 to
$400,000.00. The trial judge found that the respondent
entered the contract to sell the Sungold property to Jenhut
in order to gain personal advantage. Shortly stated, he
concluded that the respondent knew that Jenhut had no assets
and would be unable to complete its purchase unless it was
able to resell the Sungold property prior to the date for
completion, but anticipated that the purchase price agreed
to would permit Jenhut to resell at a profit, thereby
increasing Bennie's ability to pay the respondent what it
was owed in relation to the Tokara project loan. Of course,
another consequence of the sale to Jenhut was that the
anticipated proceeds would not be sufficient to meet
Jalbekna's debt to the respondent. But, with respect to
that debt, the respondent held the appellants' guarantees
and the mortgage over Goodacres. The trial judge accepted
evidence that two of the appellants, John Sidney Ernest and
June Isabella Higton, were told by an employee of the
respondent in December 1988 that there was "no certainty"
that Jenhut was going to complete its purchase from the
respondent unless Jenhut was able to resell the Sungold
property before the date for completion. Mr and Mrs Higton
were also told that the purchase by Jenhut would not
discharge the Jalbekna debt, and the respondent would
require payment of the shortfall from the appellants and
"Goodacres" would have to be sold for that purpose.

Although the date for completion of the Jenhut purchase of the Sungold property was extended to 31 August 1989, Jenhut failed to complete. The trial judge held that, at the times when it entered the Jenhut contract of sale and later extended the date for completion, the respondent was aware of a contraction of the property market, resulting in a fall in values. In fact, "prices accelerated throughout 1988 and peaked in the first half of 1989." His Honour recorded that it was agreed at trial that "when Jenhut failed to settle on 31 August, 1989 the value of the [Sungold] property was $3.9 million ...".

A finding was made by the trial judge that, "if properly marketed", in the latter half of 1988 or the first half of 1989, the Sungold property "should have yielded a surplus after discharging the debt" owed to the respondent by Jalbekna. Such a sale by either the respondent or by Jalbekna was rendered impossible by the existence of the Jenhut contract. However, but for the Jenhut contract, the Sungold property would probably have been sold for more than what was owed to the respondent. His Honour said:

"I am satisfied on the balance of probabilities that had the [respondent] not entered into the contract with Jenhut on 15 November, 1988 the Sungold land would have been sold to a competent buyer prior to 31 August, 1989 at a price substantially in excess of $3.9 million and probably for $5.75 million or thereabouts. ... I am satisfied that had a proper advertising campaign been undertaken and the property offered at auction, a sale at market price would have been obtained, either at the auction or thereafter."

Later, when introducing the topic of damages, he said:

"... I must assess the damage suffered as a result of the loss of opportunity to sell the [Sungold] property in late 1988 or early 1989, having regard to the events which have happened."

After 31 August, 1989, property values continued to fall, and the Sungold property "was eventually sold on 19 April, 1991 for $2.5 million. There is no suggestion that this was other than market value at the time."

Obviously, the amount received by the respondent from that sale was far less than was needed to satisfy Jalbekna's debt to the respondent, even bringing to account in the appellants' favour amounts received under the Jenhut contract, and the respondent claims to be entitled to recover the difference from the appellants. The appellants, on the other hand, contend that the respondent breached its duty to them by entering into the Jenhut sale and that, in consequence of that breach of duty, they have suffered loss.

The measure of that loss, for which they contend, is the amount which would have been received by the respondent if the Sungold property had been sold for $5,750,000.00, plus the interest which would not have accrued in favour of the respondent if that amount had been received by the respondent, less the amount in fact received by it from Jenhut and the sale of the Sungold property. The appellants do not seek to recover any amount from the respondent, no doubt because any surplus after payment of Jalbekna's debt to the respondent would have gone to Jalbekna's liquidator, but contend for the conclusion that, on their hypothesis as to the measure of their loss, there is no remaining indebtedness to the respondent. It was not disputed by the respondent that this consequence would follow if the appellants' arguments are otherwise correct.

The primary basis on which the appellants base their claim, and the basis on which the trial judge found in their favour, is section 85 of the Property Law Act 1974 as amended. Subsections (1) and (3), as presently material, provide:

"85(1) It is the duty of a mortgagee, in the exercise ... of a power of sale ..., to take reasonable care to ensure that the property is sold at the market value.

...

(3) ... a person damnified by the breach of duty [imposed by this section] has a remedy in damages against the mortgagee exercising the power of sale."

The first matters which need to be established are the nature, and consequence, of any breach by the respondent of its duty to take reasonable care, in the exercise of its power of sale as mortgagee, that the Sungold property was sold at market value. It was argued by the respondent that it was not under a duty to sell the Sungold property at any particular time, even though it was known that the property could be sold for more than the mortgage debt and that there would be a fall in the market, with a resultant drop in the price for which the property could be sold. Reliance was placed on Omlaw Pty Ltd v. Delahunty (C.A. No. 271 of 1992; unreported judgment delivered 21/10/93). However, it was not merely the respondent's failure to enter into a satisfactory contract, but its entry into an improvident contract, for the sale of the Sungold property which constituted the respondent's breach of duty. The entry into the Jenhut contract was a breach of the respondent's duty to take reasonable care to ensure that the property was sold at the market value not only because of the unsuitability of that contract but because, while it subsisted, it prevented the sale of the property at market value until after the market had fallen heavily. And what was found by the trial judge adversely to the respondent goes considerably further than a finding that the property could have been sold for $5,750.00 at or about the time that the Jenhut contract was executed. The trial judge's finding that, but for the Jenhut contract, the property probably would have been sold for $5,750,000.00 carries with it the conclusion that the probable consequence of the respondent's breach of duty was the loss of such a sale.

The respondent submitted that the breach of duty thus identified did not occur "in the exercise" by it of its "power of sale" as mortgagee, because the Jenhut contract was not completed and therefore did not constitute a sale. This is mere semantic gymnastics. Irrespective of whether or not a sale is completed, a mortgagee's entry into a contract of sale to sell the mortgaged property is a step taken "in the exercise of" the mortgagee's "power of sale", which is the only power which the mortgagee has to take such a step.

The respondent further submitted that the appellants, relevantly being "mere" guarantors of the mortgagor, Jalbekna, had no proprietary interest in the mortgaged property and, therefore, were outside the ambit of ss.85(1) and (3). Consideration of that submission requires that regard be had to two groups; the persons to whom the duty to take reasonable care under subsection 85(1) is owed, and the "persons damnified by" breach of that duty, spoken of in subsection 85(3).

There is no sufficient reason to read down the general words of subsection 85(1) to restrict its operation by reference either to common law limits on the liability of a mortgagee or to those with a proprietary interest in the mortgaged property, and no authority was pointed to which requires such a conclusion. In my opinion, the duty of care imposed by subsection 85(1) is imposed in favour of all who are "damnified by" a mortgagee's failure "to take reasonable care to ensure that the [mortgaged] property is sold at the market value", at least in the absence of any issue as to foreseeability or proximity.

A guarantor of a mortgagor's obligations to the mortgagee is such a person, unless any detriment which results to a guarantor as a result of mortgagee's failure "to take reasonable care to ensure that the property is sold at the market value" is not caused "by" that failure. "By" means "by reason of" or "as a result of": cf. Neilson v. Hempston Holdings Pty Ltd (1986) 65 A.L.R. 302, 308. Whether detriment to a guarantor, consequent upon a mortgagee's sale not achieving market value by reason of want of reasonable care by the mortgagee, is always caused "by" the mortgagee's breach of duty or may in some circumstances not be sufficiently directly related to the mortgagee's breach need not be considered on this occasion. Here, the respondent's failure to take reasonable care to ensure that the Sungold property was sold at its market value of $5,750,000.00 probably caused the loss of such a sale. Because Jalbekna was unable to meet its liability to the respondent, the loss of that sale exposed the guarantors to a liability which would not have existed, or continued a liability which would have ceased, if the failure had not occurred and the property had been sold. That liability was not merely a contingent liability as guarantors; on the proper construction of the "Guarantee and Indemnity" and Bill of Mortgage No. H327670, the appellants were primarily liable to the respondent, along with Jalbekna. The respondent's breach of duty directly caused them loss; it operated directly to increase, or to fail to reduce, the amount of their obligation.

The trial judge's approach to the assessment of the appellants' damages took as its starting point the amount which would be owed to the respondent by Jalbekna as at 31 May 1994, a few days after the delivery of his judgment. He calculated that the "total indebtedness will be $7,931,109.

This debt would have been avoided had the Sungold land been sold for $5.75 million in later 1988 or early 1989. However part of that debt has been incurred because the property was not realized at $3.9 million in 1989, but was sold for $2.5 million in April, 1991. It is therefore necessary to ascertain what part of the loss is attributable to that fact."

It is a matter of crucial significance that, in assessing damages, his Honour acted on the basis of a conclusion, which I consider erroneous, that the appellants had an opportunity to sell the Sungold property "$3.9 million in 1989"; i.e., as will appear, after 31 August 1989.

That this was the trial judge's approach emerges quite clearly. Thus, he continued:

"Immediately prior to the contract with Jenhut, the [appellants] had the opportunity to pay out the debt and sell the property themselves or to introduce an appropriate purchaser to the [respondent]. The debt then stood at $5,029,057. Sale at market value at that time would have

yielded $5,548,750, sufficient to discharge the total debt and yield a surplus, which would have gone to Jalbekna. From the date of the contract until its termination on 31 August, 1989 the [appellants] were deprived of that opportunity.

After the latter date, they had the opportunity to benefit from realisation of the property, but only to the extent of its diminished value, namely $3.9 million, less than the amount necessary to extinguish the debt. The decline in the [appellants'] position attributable to the [respondent's] breach should be evaluated by reference to that loss of opportunity."

Because he concluded that the appellants were aware after 31 August 1989 of the collapse of the Jenhut contract, his Honour held that they had what he described as a "residual opportunity" to sell the Sungold property for its then value of $3,900,000.00. This finding was then seen to be material to "an examination of the causal link between the [respondent's] conduct" (presumably, its breach of its duty under subsection 85(1) of the Property Law Act) "and subsequent events."

The significance of this was then explained:

"The [appellants] ... submitted that to take this approach is to charge them with failure to mitigate their loss, a matter which was not pleaded. The [appellants] bear the onus of proving damage, and they have chosen to do so by placing these various facts before me, leaving it to me to make what I can of them. Loss can only be attributed to the [respondent's] conduct to the extent that it was caused by it. The property was again available for sale after 31 August, 1989.

That fact cannot be overlooked in assessing
damages attributable to the earlier breach.
Fortunately, it is not necessary to consider the
role of foreseeability in assessment of damages
pursuant to s.85 as the damages suffered in this

case were clearly foreseeable. ...

... ."

After expressing the opinion that, although the damage recoverable for a breach of the duty imposed by subsection 85(1) would usually "... be calculated by reference to the difference between market value and sale price, his Honour said that ".. the section does not exclude other appropriate measures", and then continued:

"I propose to value the [appellants'] opportunity of deriving benefit from sale of the subject property as at 15 November, 1988 and then to ascertain what part of that opportunity was restored when the Jenhut contract was terminated on 31 August, 1989. This is an exercise in valuation of a lost chance, and I have had regard to the recent decision of the High Court in Poseidon Ltd. v. Adelaide Petroleum NL (1994) 66 ALJR 313, especially in the judgment of the majority at pp.322-3. As I understand their Honours, the proper approach is firstly, to ask whether or not I am satisfied on the balance of probabilities that the [appellants] have suffered loss caused by the conduct of the [respondent] and if so, then to value that loss. In considering the various contingencies incidental to the latter exercise, I must have regard to the degree of likelihood that particular contingencies would have occurred and adjust the valuation accordingly.

I am satisfied on the balance of probabilities that had the [respondent] not entered into the contract with Jenhut on 15 November, 1988 the Sungold land would have been sold to a competent buyer prior to 31 August, 1989 at a price substantially in excess of $3.9 million and probably for $5.75 million or thereabouts. ...

...

... I do not conclude that the Sungold property would necessarily have been sold at this value at any particular time. I infer that a buyer would probably have been available within a reasonable time after 15 November, 1988 at that price. It must be kept in mind that property values continued to rise well into the first half of 1989. As prices rose, a sale at $5.75 million would have become increasingly likely. Given the heated nature of the market, a conservative approach is to infer that a sale would have been effected and completed by 31 March, 1989, that is four and one-half months after the sale to Jenhut.

After the deduction of expenses and agent's commission, that sale would have yielded 96.5 per cent of the sale price, that is $5,548,750.

... realisation at this time would have resulted in a complete discharge of the debt and a small surplus which would have gone to Jalbekna. ..."

His Honour next went on to consider further the "residual opportunity" which the appellants had to sell the property after 31 August 1989, at which time, as he found, "there was no longer any prospect of discharging the debt from the proceeds of sale." Speaking of that "residual opportunity" to sell the Sungold property after 31 August, 1989, he said:

"Once again, it would be unrealistic to contemplate a sale on 31 August, 1989. Time would have been taken up in advertising, possibly an auction, and preparing for settlement. I am satisfied to allow the same time frame as I allowed for a notional sale in early 1989, namely a period of four and one-half months. I will therefore assume a completed sale as at 15 January, 1990. Of course, by that time, prices were falling. Mr Peterson's figures which appear above, show a gradual decline in the second half of 1989, a steep decline in 1990 and a less steep decline in the first half of 1991. I pointed out, in considering the prospects of sale after 15 November, 1988, that as time went on and prices increased, the prospects of sale at $5.75 million probably increased. On the other hand, through the second half of 1989, 1990 and early 1991, the prospects of sale at $3.9 million probably declined as prices declined.

A sale completed on 15 January, 1990 at $3.9 million would have yielded 96.5 per cent thereof, $3,763,500."

Although, for reasons which will emerge, the error is of limited significance, there was no foundation for the finding that a sale on 15 January 1990 would have been effected at a price of $3,900,000.00. As his Honour said, prices declined in the period between 31 August, 1989 and 15 January, 1990. A sale at the latter date would have resulted in a price of less than $3,900,000.00, the value of the Sungold property as at 31 August 1989.

His Honour then calculated the effect of such a sale as he had postulated, and concluded that, "subject to certain discounting factors", the "value" of such a sale to the appellants would have been $3,907,550.00. The calculation used is not presently important, but is not easily comprehended. By a process based upon the asserted effect of the hypothetical sale on the amount owed to a respondent, the unlikely conclusion was reached that a sale resulting in net proceeds of $3,763,500.00 had a "value" to the appellants of a considerably higher sum, $3,907,550.00.

Again, for other reasons, it is not necessary to pursue the significance of this, or to decide whether it involved error.

Before proceeding further, it is desirable to emphasise crucial findings which underpinned the trial judge's approach. In rejecting a theory that the appellant's damages should be measured by the difference between the values of the property before and after the Jenhut contract, perhaps with interest pursuant to the Common Law Practice Act, he said:

"... However that would not fully recognise the loss suffered by the appellants as a result of the [respondent's] breach. The lost capacity to pay out the debt from the proceeds of sale meant that the debt would subsequently increase by additional amounts of interest and other outgoings up to the present time. Those increases would not have occurred had the Sungold property been realised at market value in late 1988 and early 1989. After 31 August, 1989 the appellants could have sold the property at a reduced price and paid out the debt, but only by using their own assets to meet the shortfall, a step which would not have been necessary had the [respondent] not breached its duty. On the other hand, once the contract with Jenhut had collapsed, the [respondent] was under no duty to find another purchaser. It was again entitled to remain inactive. Therefore it cannot be said that the [appellants] should be fully discharged as a result of the [respondent's] default. That result would imply a duty upon the respondent to effect a further sale after the Jenhut contract had collapsed."

I will come shortly to the appellants' so-called "residual opportunity", that is, that, after 31 August 1989, the [appellants] "could have sold the property at a reduced price." This, as can be seen, is associated with the premise that, with such a sale, the appellants could have "paid out the debt, ... using their own assets to meet the shortfall ...". For the moment it is necessary to comment only on the other premise involved in the passage last quoted; namely, that only if there was "a duty upon the [respondent] to effect a further sale after the Jenhut contract had collapsed" could a conclusion be reached that the appellants "should be fully discharged as a result of the [respondent's] default", i.e., breach of its duty of care under subsection 85(1) of the Property Law Act. Absent any such duty on the respondent to effect a further sale once the Jenhut contact had been breached, the appellants are entitled to total exoneration from their liability to the respondent if the proposition that, after 31 August, 1989, "they could have sold the property at a reduced price" is, as I think, incorrect.

A passage has already been quoted from the trial judge's reasons for judgment in which, after reference to Poseidon Ltd. Adelaide Petroleum N.L., he spoke of a need to value the appellants' lost opportunity to sell the Sungold property for more than the amount owed to the respondent, and its later "restored" opportunity to sell the property for $3,900,000.00 by estimating the degree of probability of such sales, discounted by reference to appropriate contingencies: cf. Malec v. J.C. Hutton Pty Ltd (1990) 169 CLR 638. His Honour next embarked upon that exercise.

"Although I have assumed a sale with completion on 31 March, 1989 in the absence of the Jenhut contract, the sale may have been earlier or later and at a higher or lower price. Allowance should be made for these contingencies. Market conditions at the times in question suggest that the chances of a more favourable sale in 1988-89 were quite high. Of course, the [appellants] could only benefit to the extent of the debt. Any surplus would have gone to Jalbekna.

Had a scale at $5.75 million been completed at any time prior to 29 June, 1989 the proceeds would have been sufficient to extinguish the whole debt. On that date, a further instalment of interest fell due ... for the ensuing six months. From some point in that period, the debt exceeded the likely proceeds of sale, and complete discharge became impossible. In view of my findings, the contingencies which may have reduced the value to the [appellant] of a sale in 1988-89 are the small possibility of a sale at leas than $5.75 million and the chance that the [appellants] and the [respondent] would not have effected a sale in that period, also a relatively unlikely possibility.

After 29 June, 1989 the position was worsening as prices fell and interest accrued. ... . In the twenty months between 31 August, 1989 and April, 1991 (when the final contract of sale was signed), the value of the Sungold land declined from $3.9 million to $2.5 million. To assume a decline of $70,000 per month is not unreasonable, although perhaps a little arbitrary. The gap between the debt and the realizable sale price was therefore increasing ... for every month that sale was deferred. This increasing shortfall would mean the incurrence of additional interest charges. ...

...

These figures provide some guidance in the
discounting exercise.

I discount the figure of $7,931,109 to $7,750,000 and the figure of $3,909,000 to $3,300,00. The difference between these figures $4,450,000 is the damage suffered by the [appellants].

Because of the nature of the exercise, it does not matter that I have used figures as at 31 May, 1994. Any date between the trial and 30 June, 1994 would have produced virtually the same result. It may appear that I have not made allowance in these calculations for moneys actually received from the Jenhut sale, the ultimate sale and by way of rent prior to sale.

However, these items were credited ... and so have been included in my calculations."

As appears from what was stated at the outset, the judgment given by the trial judge was in conformity with these conclusions.

As I have already said, I consider his Honour's conclusion that the appellants had a "residual opportunity" to sell the Sungold property "restored" to them when the Jenhut contract collapsed on 31 August 1989 to be incorrect. The evidence does not support such a conclusion; on the contrary, there is a strong inference that they could not have effected such a sale.

The appellants were only in a position to effect a sale of the Sungold property when they were in control of Jalbekna and could cause it to do so. Their control ceased on 4 January 1989, when Jalbekna was placed in liquidation. At that time, and for a further 8 months (less a few days), the property was subject to the Jenhut contract and unavailable for sale. By 31 August 1989, the value of the property had fallen to $3,900,000.00. It could not then be sold without the respondent's consent unless the deficiency between the indebtedness to the respondent and the sale price could be satisfied from other funds, and there is no basis for an inference that the respondent would, at that time, have released its mortgage over the property to enable completion of a sale which would still leave it with a substantial indebtedness secured only by the "Guarantee and Indemnity" and the other mortgage over "Goodacres". Jalbekna was in liquidation and, apparently, insolvent, and could not have paid the balance of its indebtedness to the respondent. Nor is there evidence that the appellants could have done so.

It is a more reasonable inference that, in view of the sums involved, they could not have done so, especially unless they sold "Goodacres" and perhaps realized any other assets they might have had.

In my opinion, the appellants were not obliged to take such a course, and their failure to do so did not detract from the damages which they were entitled to from the respondent.

A number of factors support the conclusion that the appellants lost the amount equivalent to their entire indebtedness to the respondent by its breach of duty in preventing the sale of Sungold for more than Jalbekna's debt which, it was found, would have been effected but for the Jenhut contract.

In the first place, the finding that, after the Jenhut contract fell through, the Sungold property could have been sold in early 1990 for considerably more than was ultimately realized is applicable to a sale by the respondent. Although, as I have indicated, there were major obstacles to such a sale by the appellants, there was nothing to prevent or hinder a sale by the respondent. The trial judge held that there is no duty owed to guarantors by a mortgagee to exercise its power of sale at a particular time, and that it is not liable if less is received from a delayed sale because of a drop in the market. I am prepared to assume that, generally speaking, that is correct, but it cannot be universally valid. The circumstances of individual cases, including the terms of the parties' bargain, must be able to affect the nature and extent of a mortgagee's duty. Here, the respondent had bound itself by the moratorium agreement to use "its best endeavours" to enforce [its] rights in a particular order and, consistently with that commitment, it had commenced to exercise its power to sell the Sungold property. By an improvident contract, it prevented the sale of that property for a considerable period, during part of which a satisfactory sale could have been had and the last part of which corresponded with a quickly falling market. Then, it became able, once again, to sell, i.e., to further exercise its power of sale. In my opinion, in the situation which it had created and with the market

continuing to fall rapidly, it was under a duty to act promptly and was not entitled merely to do nothing but watch the value of the property depreciate and the appellant's debt, and the difference between it and what could then be obtained from a sale, continue to increase.

In any event, it is my opinion that it is incorrect to view any omission by the appellants to sell the Sungold property after 31 August 1989 (if, contrary to my view, they could have done so) as interrupting or terminating the loss which flowed from the respondent's breach of its duty of care by entry into the Jenhut contract: cf Burns v. MAN Automotive (Aust.) Pty. Ltd. (1986) 161 C.L.R. 653, 668-699. Contrary to his Honour's view, I think that, in the circumstances, that omission could only be relevant if it could support a contention by the respondent that the appellants had failed to mitigate their loss. Apart from any issue as to the need for that to be pleaded or with respect to the onus of proof, I am satisfied that the appellants did not have a duty to sell the Sungold property and pay out the deficiency of the respondent's indebtedness in early 1990. In Burns, Gibbs CJ said at p.659 "... a plaintiff's duty to mitigate his damage does not require him to do what is unreasonable and it would seem unjust to prevent a plaintiff from recovery in full damages caused by a breach of contract simply because he lacked the means to avert the consequences of the breach."

Then, after reference to English authority, his Honour continued at p.660 "... a defendant cannot rely on the plaintiff's failure to mitigate the consequences of the defendant's wrongful act when that wrongful act itself made it impossible for the plaintiff to take the necessary steps in mitigation". See also per Brennan J. at pp. 675ff.

Taking these principles into account, I am satisfied that the respondent's liability in damages to the appellants corresponds with their indebtedness to it which, on the trial judge's findings, would have ceased to exist by about the end of March, 1989 but for the respondent's breach of duty, which prevented a sale at the price which could then have been achieved and caused the need for a subsequent sale which was insufficient to satisfy the debt owed to the respondent.

The only remaining point raised by the respondent was that the appellants had, "by the terms of their guarantees, agreed not to enforce any claim pursuant to s.85 of the Property Law Act until such time as they had discharged the principal debt". In the trial judge's view, "such an agreement would, or might relieve the mortgagee from the duty imposed by s.85 and is therefore void pursuant to subs.(5)."

Whether or not that is correct, it seems a simple but complete answer to such a submission that the respondent did not point to any damage caused by such a breach. Once it is accepted that, but for the respondent's breach of duty, the appellants' liability to it would have been discharged by the about the end of March 198, any delay in the appellant's establishing their claim for damages against the respondent would increase those damages in exact correspondence with the increase in the appellants' indebtedness to the respondent.

I would allow the appeal and dismiss the cross-appeal. The orders made by the primary judge are set aside. The parties are to file submissions within 28 days limited to the orders which should replace those set aside, and the orders which should be made as to costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 108 of 1994.

Brisbane

Before Fitzgerald P.
Pincus J.A.
McPherson J.A.

[Higton v. BFC Finance Limited]

BETWEEN:

HIGTON ENTERPRISES PTY LTD.

(First Plaintiff and Defendant

by Counterclaim) First Appellant

AND:

JOHN SIDNEY ERNEST HIGTON, JUNE
ISABELLA HIGTON, CHRISTOPHER JOHN

HIGTON and MALCOLM PETER HIGTON

(Second Plaintiffs and Defendant

by Counterclaim) Second Appellants

AND:

BFC FINANCE LIMITED

(First Defendant and Plaintiff

by Counterclaim) First Respondent

AND:

HFC FINANCIAL SERVICES LIMITED

(Second Defendant and Defendant

by Counterclaim) Second Respondent

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 21 December 1994

I have read the reasons for judgment of the President and those of McPherson JA. Those reasons contain a discussion of two questions of construction of s. 85 of the Property Law Act 1974, which were raised in these proceedings. I am, like the President and McPherson JA, of the view that guarantors of a mortgage debt whose position is worsened by a breach of the duty imposed by s. 85 may fall within the description of persons "damnified by the breach" in s. 85(3); further, I agree with their Honours that a mortgagee may commit a breach of the duty imposed by the section, giving rise to a remedy in damages, by steps taken with a view to sale of the mortgaged property, even if the sale is never completed. Subject to what follows, I concur in the reasons given by their Honours.

I shall for simplicity round figures off to some extent. When the contract of sale, the making of which was held to constitute a breach of duty, was executed on 15 November 1988 the property in question was according to the judge's findings valued at $5.75M. The contract was at $4.95M, but the trial judge held that "it is difficult to criticise [the first respondent] for selling the property at $4.95 million...". Had the property been sold at the lower figure and the sale completed there would have been a deficiency, the amount of which depends on the expenses of sale. The purchaser failed to settle on the extended date for settlement, 31 August 1989; at that time the valuation of the property was $3.9M. There had been a substantial fall in value since November 1988; the value peaked, according to the findings, early in 1989. Ultimately the property was sold on 19 April 1991 for $2.5M.

An important finding, as it seems to me, was that but for the contract of 15 November 1988 the property would have been sold before 31 August 1989 "probably for $5.75M or thereabouts". One must read this finding as referring to a likely sale within a few months of 15 November 1988, because, as I have just mentioned, the value on 31 August 1989 was only $3.9M.

The trial judge rejected the notion that the damages for breach of duty should be the difference between the value at 15 November 1988 (the contract date) and that at 31 August 1989 (the settlement date). What the judge did was to assume that the property would have been sold on 15 January 1990 at $3.9M less a small discount. His Honour then attempted to assess how much would have been saved by the appellants if there had been such a sale and so reached a figure of $4.45M. The main submission for the appellants was that his Honour should have taken the simpler course of treating the mortgage debt as expunged, on the basis that, but for the sale made in breach of duty by the contract of 15 November 1988, there would probably have been a sale which would have paid out the debt.

It is convenient first to consider the position, ignoring the finding the judge made in favour of the appellants that, but for the 15 November 1988 contract, the land would probably have been sold for $5.75M. It is also convenient initially to ignore the fact that, on the findings, the property's value rose for some short time after 15 November 1988.

Then the problem, thus simplified, becomes the following: what damages should, in a falling market, be assessed against a mortgagee which agrees to a sale in breach of duty, when the sale, because of that breach, is not completed? Referring to his own judgment in Omlaw Pty Ltd v. Delahunty (Court of Appeal, 21 October 1993) the primary judge said that:

"I suggested that in the case of mere delay, it may be difficult to establish a causal link between that delay and diminution in value, the latter being attributable to market forces rather than to the delay".

It appears to me that this observation points up the difficulty in answering the question posed. The appellants said that their loss was the entire discharge of the debt, which discharge would have taken place if there had been no breach of the statute. They did not contend that the judge should have given damages for mere delay in selling; they said, that applying a "common sense test", the damages flowing from the breach of duty in respect of the sale of 15 November 1988 consisted in the whole debt.

If a mortgagee sells the mortgaged property, but it appears that a better price would have been obtained if there had been an earlier sale, that does not necessarily show that there has been any breach of duty. To take the figures from the present case, it would not necessarily avail the appellants merely to point out that the mortgagee could have sold early in 1989 for $5.75M but sold instead two years later for $2.5M; as Dowsett J suggests, one would ordinarily treat that loss as flowing from the decline in the market, not from a breach of duty. Here, the position is not so simple, for there was an abortive sale which fell through in August 1989.

One may ask why the abortive sale should have worsened the mortgagee's position when, prima facie at least, it would have incurred no liability if it had not managed to arrange any contract until that of April 1991 was made. It does not appear to me a sufficient answer to this query to point out that there was reason to think, early in 1989, that prices might fall. There is always reason to think that, as well as reason to think they might rise; the balance of opinion within the market on that subject is reflected in the current value.

The critical finding, to my mind, is that there would have been a sale before August 1989, probably at about $5.75M. But for that finding, it appears that no damages should have been awarded. In its absence, one would be left with no more than proof of a slow sale by a mortgagee in a market which, by the time of sale, is seen to have been a falling one - a set of facts which does not ordinarily involve any breach by the mortgagee.

There were reasons advanced against the conclusion which the judge arrived at, that there would have been a sale before August 1989 at about $5.75M, but for the abortive sale of 15 November 1988. As was pointed out on behalf of the respondents, there were unrealistic opinions held on the appellants' side with respect to the value of the property in question. On 22 December 1988 a letter was written to the first respondent on behalf of the first appellant and others, complaining that "you have not obtained the proper market price for the property" and relying on a valuation made in January 1988 at $7.15M. The appellant Mr J S E Higton admitted that he had relied on that figure in applying for an injunction to restrain the sale of a property in February 1989. Nevertheless, the primary judge's finding, depending as it did in part upon his Honour's impressions of the witnesses, does not appear to me to be one which should be upset. The appellants' case then becomes simply that had it not been for the abortive sale of November 1988 there would have been a sale at a price sufficient to discharge the debt, so that the abortive sale, the deficiencies of which were due to breaches of s. 85, was the cause of the debt's not being discharged about that time.

The result is perhaps open to the criticism that it produces an outcome which places upon the shoulders of the mortgagee a loss which is in substance a result of a decline in the market, as well as the related criticism that the decision may discourage mortgagees from attempting to sell, even at a satisfactory price, if there is reason to be uncertain about the purchaser's ability to complete. But in my view, on the judge's findings, the mortgagee's having made the abortive sale rather than that which would probably have been made must be identified as the cause of the loss claimed.

The only other matter which arises, with respect to quantification of the damages, is that it involves an assessment of the degree of probability that a sale would have been made and completed at a proper price early in 1989. In the judge's view, the possibility of a sale at less than $5.75M was "small" and although there is reason to treat that as a view which is rather generous to the appellants, no sufficient ground appears to set the finding aside.

In the result, I agree with the conclusions arrived at by the President and by McPherson JA as for the proper mode of disposition of the case.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 108 of 1994

Brisbane

Before Fitzgerald P.
McPherson J.A.
Pincus J.A.

[Higton Enterprises v. BFC Finance Ltd.]

BETWEEN

HIGTON ENTERPRISES PTY. LTD First Appellant

(First Plaintiff)

AND

JOHN SIDNEY ERNEST HIGTON, JUNE ISABELLA HIGTON, CHRISTOPHER JOHN HIGTON and MALCOLM PETER HIGTON

(Second Plaintiffs)Second Appellants

AND

BFC FINANCE LIMITED Respondent

(First Defendant)

AND

HFC FINANCIAL SERVICES LIMITED

(Second Defendant)

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered the 21st day of December 1994

This appeal raises questions about the interpretation and effect of s.85(1) and s.85(3) of the Property Law Act 1974. The provisions of those subsections, as well as the facts of the case, are set out in some detail in the reasons for judgment of Fitzgerald P., which I have had the advantage of reading. It is consequently not necessary to repeat them here except to expose the questions involved.

Section 85(1) imposes on a mortgagee, "in the exercise .. of a power of sale conferred by the instrument of mortgage or by this or any other Act", a duty "to take reasonable care to ensure that the property is sold at the market value". The subject land, conveniently described as the Sungold land, is land which until 1991 was registered in the name of Jalbekna Pty. Ltd. In 1984 it gave a registered mortgage over the land in favour of the first defendant BFC Finance Limited to secure money borrowed for development of the site. Under s.57 of the Real Property Act 1861, that meant that BFC had the powers of sale conferred on a mortgagee by s.83 of the Property Law Act, which are exercisable subject to the requirements imposed by s.84 of that Act, which are that there be a default under the mortgage and a notice of intention to sell.

At some time in about 1988, Jalbekna defaulted under the mortgage, and on 27 April 1988 BFC gave the requisite notice of intention to sell. It was not until 19 April 1991 that the Sungold land was sold and transferred for $2.5 million, leaving a deficit payable under the mortgage which, at the time of trial early in 1994, was approaching $8 million. The plaintiffs, who guaranteed the mortgage debt, will be liable to pay that sum unless this action succeeds, Jalbekna having gone into liquidation early in 1989.

The plaintiffs' claim to avoid that liability depends

on establishing a breach by BFC of its duty under s.85(1).
The learned trial judge found that the Sungold land could
have been sold for $5.75 million in 1988, which would have
discharged the mortgage debt and left a small surplus. At
that time property values were rising. It is easy to be
wise after the event, but the possibility of a fall in the
level of market prices was, as was found by the trial judge,
known to BFC in late 1988. Instead of taking advantage of
the prevailing market, BFC sold the land for $4.95 million
to Jenhut Pty. Ltd in November 1988 under a contract which
was never completed. The original settlement date, which
was 31 May 1989, was extended to 31 August 1989; but Jenhut
failed to complete at that date, and the contract was
rescinded by BFC.

The fact that in 1988 the land could have been sold for more than Jenhut contracted to, but in the end did not pay for it, was not by itself sufficient to establish a breach by BFC of the duty imposed by s.85(1). However, there were other features of the Jenhut transaction that were unsatisfactory. The property was not advertised for sale, and it was not offered for sale by public auction.

Further, the purchaser Jenhut was a "shelf" company, which paid a deposit of only $240,000 on the contract price of $4.5 million. It had no assets of its own from which to meet the purchase price, and its only prospect of completing the contract was by reselling the property before the date for settlement. The controlling principal of Jenhut was a Mr Bennie, of the Rex Forte Group of companies, which at the time were heavily indebted to BFC or its co-defendant.

Guarantees were given by Bennie, Mrs Bennie and the Group in respect of the purchase moneys for the Sungold land, but they were limited in total to only $240,000. By contrast, the liability of the plaintiffs on their guarantee of the indebtedness of Jalbekna was secured by registered mortgage over "Goodacres", which was the property of the first plaintiff. This meant that BFC had security from the plaintiffs to fall back on if Jenhut defaulted.

It would be difficult to acquit BFC of a lack of good faith to the plaintiff in selling the land to Jenhut on the terms and in the circumstances that it did. It appears to have dealt with the property in such a way as to sacrifice the interests of the mortgagor, so as to attract even the rather exiguous duty applied to a mortgagee exercising power of sale in Kennedy v. de Trafford [1897] A.C. 180, 185.

Surprisingly, however, no allegation to that effect appeared in the plaintiffs' pleadings at the trial except as a particular of breach of the duty to take reasonable care under s.85(1). A late attempt to incorporate it as an independent allegation in the statement of claim was rejected by the judge who subsequently presided at the trial.

It can, however, scarcely be doubted that, given the trial judge's findings of primary fact (which were not contested on appeal), BFC failed to take reasonable care to ensure that the property was sold at market value. The finding to that effect was not challenged before us. What was questioned was whether the statutory duty so to act had ever attached. It was submitted by Mr Bain Q.C. for the defendants on appeal, that the duty imposed by s.85(1), and correspondingly the liability under s.85(3), did not arise at all until there was a completed sale by the mortgagee.

It is, in my opinion, not possible to accept such an approach to the section. To do so would be to give the words "in the exercise of ... a power of sale ... conferred by this ... Act" a meaning that would confine their operation to the moment at which the sale was settled, or even perhaps completed by conveyance or transfer, disregarding everything that had taken place before. It would restrict attention to the act of settling the contract or transferring the property to the exclusion of critical earlier activities such as valuing the property, advertising it for sale, auctioning it, investigating the financial standing of prospective purchasers, negotiating terms of sale, and so on.

Such a conclusion would also be inconsistent with the terms of s.85(1), which speaks of exercising the power of sale "conferred by this or any other Act ...", and so, through s.57 of the Real Property Act, incorporates by reference various particular powers conferred by s.83(1)(a), which include selling the mortgaged property in part, or in subdivided lots, in one sum or by instalments, with power to vary or rescind, etc. Making use of powers like that in appropriate cases may help to ensure that the property is sold at its market value. Those are in appropriate circumstances some of the matters as to which reasonable care must be exercised well before a sale is completed. No doubt there are many others. To take advertising as only one example, the decision holding the mortgagee liable in Commercial v. General Acceptance Ltd v. Nixon (1981) 152 C.L.R. 491, affg. [1980] Qd.R. 153, would not have been possible if such a restrictive approach to s.85(1) had been adopted. At the final stage of settling or completing the contract entered into, it is obviously far too late to think about taking reasonable care in advertising the property for sale.

It would not really do justice to Mr Bain's submission to regard it as suggesting the contrary. His target was not so much the duty arising under s.85(1) but the liability imposed by s.85(3) for breach of it. The point being urged, although perhaps not in so many words, is that the remedy in damages conferred by that subsection is confined to a claim against a mortgagee who has exercised the power of sale, and who, in doing so, committed a breach of the duty cast upon him by s.85(1). The principal difficulty about such an interpretation of s.85(3) is, however, that it is not what the provision says. The remedy is conferred on a person who is "damnified" (i.e. suffers loss) by a breach of the duty, and it is given against a mortgagee "exercising the power of sale". There can be no doubt that, in contracting to sell the land to Jenhut in November 1988, BFC was, within the meaning of s.85(1), exercising the power of sale conferred by the Act, even if, in the end, the sale was not carried through to completion. In doing so BFC committed a breach of its duty to take reasonable care under s.85(1). The only questions that remain are whether the plaintiffs suffered loss recoverable under s.85(3); and, if so, in what amount.

As to the first question, there are sound reasons for holding that someone in the position of a guarantor is capable of satisfying the description "person damnified" in s.85(3) without further investigation of the sometimes complex rules of law governing relations between mortgagees, mortgagors, and their sureties. The fact that a guarantor has no direct proprietary interest in the proceeds of sale, and may not be entitled to redeem, does not mean that a guarantor is not a "person damnified". As it happens, the plaintiffs in the present case, in addition to executing the deed of guarantee, also signed the bill of mortgage as mortgagors, and so are liable on it as primary parties and not as guarantors liable only contingently for the mortgage debt.

The more difficult question is the amount of the recoverable loss. It is here that I find myself in respectful disagreement with the approach adopted by the learned trial judge. He concluded that the plaintiffs' claim under s.85(3) was for loss of the opportunity of selling the property in 1988, when the property values were at or close to their zenith. That opportunity had, he considered, been curtailed by the contract of sale entered into by BFC with Jenhut. While that contract subsisted the power of sale was in abeyance; but it was resurrected when, after the time for settlement had been extended, the contract was rescinded on the failure of Jenhut to settle it in August 1989. From that time forward, the property market progressively declined and values fell steadily, until the land was finally sold in April 1991 for its then current market value of $2.5 million.

At the date in August 1989 when the land was freed from the incubus of the Jenhut contract, its market value was, as his Honour found, $3.9 million. It was that figure, rather than $5.75 million which he had found to be its market value late in 1988 at about the time the Jenhut contract was entered into, that supplied the basis for arriving at the loss, which the learned judge assessed as amounting to $4.45 million at the date of the trial. Since the amount of the indebtedness to BFC was then close to $8 million, the damages calculated in that way fell well short of the sum required to discharge the mortgage. In consequence, the first plaintiff failed in its claim to recover possession of "Goodacres" and in its claim to restrain BFC from exercising its power of sale as mortgagee in respect of that property.

The judgment further declared that BFC was not precluded from enforcing its rights against the plaintiffs under their guarantees.

In rejecting the plaintiffs' claim that its loss under s.85(3) fell to be assessed by reference to the market value of $5.75 million in late 1988, the learned judge appears to have been influenced by one or both of two factors. One was that when the Jenhut contract was brought to an end in August 1989, they could themselves have taken steps, but did not do so, to locate a purchaser willing and able to buy for $3.9 million, which was what the market value was then found to be. This has the appearance of a finding that the plaintiffs were bound to mitigate their loss and had failed to do so; but any duty on their part to mitigate was, as his Honour acknowledged, neither pleaded nor proved, and it was not relied upon by the defendants at the trial or on appeal.

The matter that evidently proved decisive against the plaintiffs' contention was his Honour's conception of the duty of a mortgagee to exercise the power of sale, or, more accurately, the absence of any positive obligation resting upon it to do so. There is authority under the general law for saying that a mortgagee may with impunity defer sale and remain inactive without concern for the interests of the mortgagor : China & South Sea Bank Ltd. v. Tan Soon Gin [1990] 1 A.C. 536, 545. His Honour's conclusion was that "once the contract with Jenhut had collapsed, the first defendant [BFC] was under no duty to find another purchaser.

It was again entitled to remain inactive". Having exercised the power of sale in a way that, as it happened, turned out to be ineffectual, BFC ceased to be under any active duty to do so again, with the consequence that it incurred no liability under s.85(3) for the ensuing loss, which was the product, so his Honour reasoned, not of any failure to take reasonable care in exercising the power of sale, but of the operation of independent market forces.

With great respect, I cannot accept that this was the proper approach in assessing the plaintiffs' damages under s.85(3). Even if the remedy conferred by the statute is correctly viewed as compensation for loss of an opportunity, what was lost in the present case was the prospect as it existed in late 1988 of selling the property at a price of $5.75 million, which would have been sufficient to discharge in full the plaintiffs' indebtedness under the mortgage.

The opportunity was lost at that time because of BFC's breach of its duty under s.85(1) to take reasonable care to ensure that the property was sold at that market value. That breach of duty occurred not in consequence of any inactivity on the part of BFC, but because it chose to exercise its power of sale by entering into the improvident contract of sale to Jenhut in November 1988. By doing so, BFC placed it beyond its power at that time to sell at a price that would have cleared the mortgage debt and avoided loss to the plaintiffs. Thereafter prices fell while interest continued to accrue to such an extent that such an opportunity could never recur.

In my opinion the plaintiffs established their right to damages under s.85(3) in an amount sufficient to extinguish their indebtedness to the first defendant BFC. The value of the opportunity lost through the improvident sale to Jenhut falls to be measured by the amount that would be needed to restore the plaintiffs now to the position they would have occupied had the mortgage debt been discharged by taking reasonable care to ensure that the Sungold land was sold at market value when BFC first exercised its power of sale in November 1988. On any view, that has the effect of reducing to nil their indebtedness under the mortgage.

I agree that the appeal should be allowed and that the orders proposed by the President should be made.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 108 of 1994

Brisbane
[Higton Enterprises v. BFC Finance Ltd.]

BETWEEN

HIGTON ENTERPRISES PTY. LTD First Appellant

(First Plaintiff)

AND

JOHN SIDNEY ERNEST HIGTON, JUNE ISABELLA HIGTON, CHRISTOPHER JOHN HIGTON and MALCOLM PETER HIGTON

(Second Plaintiffs)Second Appellants

AND

BFC FINANCE LIMITED

(First Defendant) Respondent

AND

HFC FINANCIAL SERVICES LIMITED

(Second Defendant)

Fitzgerald P.
McPherson J.A.

Pincus J.A.

Judgment delivered 21/12/94

Separate concurring reasons for judgment of each member of the Court.

APPEAL ALLOWED, CROSS-APPEAL DISMISSED. THE ORDERS MADE BY THE PRIMARY JUDGE ARE SET ASIDE. PARTIES ARE TO FILE SUBMISSIONS WITHIN 28 DAYS LIMITED TO THE ORDERS WHICH SHOULD REPLACE THOSE SET ASIDE, AND THE ORDERS WHICH SHOULD BE MADE AS TO COSTS.

CATCHWORDS	MORTGAGES - POWER OF SALE - DUTY OF CARE - Section 85 Property Law Act 1974 - Notice of intention to sell given 27 April 1988 when market price $5.75 million - Actually sold 19 April 1991 for $2.5 million - Contract to sell in November 1988 for $4.95 million never completed - Prospective purchaser a "shelf" company with no assets - Deposit of only $240 000 - whether respondent breached duty under s.85(1) - Not advertised for sale nor offered for public auction - whether duty under s.85(1) does not arise until there is a completed sale by mortgagee - whether guarantor capable of being "person damnified" under s.85(3) - Assessment of loss considered.
Counsel:	S. Couper Q.C. for the appellants R. Bain Q.C. for the respondent
Solicitors:	Gadens Ridgeway for the appellants Clayton Utz for the respondent

Hearing Date: 19 and 20 July 1994