Nolan v MBF Investments Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL & EQUITY DIVISION

No. 4991 of 2007

DAMIEN JOHN NOLAN	Plaintiff
v
MBF INVESTMENTS PTY LTD (ACN 006 778 641)	Defendant

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JUDGE:	VICKERY J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	29–30 APRIL; 1, 4-6, 11 MAY 2009
DATE OF JUDGMENT:	18 JUNE 2009
CASE MAY BE CITED AS:	NOLAN v MBF INVESTMENTS PTY LTD
MEDIUM NEUTRAL CITATION:	[2009] VSC 244

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Mortgages – Sale by mortgagee – Statutory power of sale – Good faith – Regard to mortgagor’s interests – Section 77(1) Transfer of Land Act 1958 (TLA) – Whether mortgagor’s ‘interests’ confined to interest in proceeds of sale – Whether retaining family home occupied by the mortgagor a relevant ‘interest’ under s.77(1) TLA – Right to occupation of dwelling house situated on mortgaged land an incident of real property ownership.

Contract – Release - Interpretation of terms – Clear words required to exclude a statutory obligation – Principles of construction – Meaning of ‘arising out of’.

International Law – Protection of the home from arbitrary interference – Whether a fundamental human right – Principle of legality – Application of international law to statutory interpretation.

Statutory Interpretation - Charter of Human Rights and Responsibilities Act 2006 (Vic.) - Protection of the home from arbitrary interference – Section 32 - Whether retrospective in operation – Whether indicative of contemporary values.

Accounts - Remedy for breach of mortgagor’s duty pursuant to s.77(1) TLA.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr CWR Harrison SC and Mr T Souden	Nicholas O’Donohue & Co
For the Defendant	Mr RM Garratt QC and Mr L Hawas	Cornwall Stodart Lawyers

HIS HONOUR:

Introduction

The issue on liability in this case is whether a sale of real property owned by the plaintiff, conducted by the defendant in the exercise of its statutory power of sale arising under a mortgage, was undertaken in contravention of the statutory duties provided for in s.77(1) Transfer of Land Act1958 (the “TLA”).

Section 77(1) TLA relevantly provides:

(1)If within one month after the service of such notice or demand [the notice to pay or demand on a default under s.76] or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell [the mortgaged land] ...

The plaintiff alleges that the defendant breached its duties in that it failed to act in good faith and have regard to his interests in the conduct of the sale, and further that its conduct resulted in a fraud on the power of sale. The plaintiff claims damages, equitable compensation or such other relief as is considered appropriate by the Court.

The reported cases on the exercise of the statutory power of sale and the duties provided for by s.77(1) TLA centre on allegations that the sale of the mortgaged land by the mortgagee was undertaken at an undervalue.[1] That is not the case here.
[1]See, for example: Goldcel Nominees Pty Ltd (Provisional Liquidator Appointed) v Network Finance Ltd [1983] 2 VR 257.

At the time of the mortgagee’s sale, the plaintiff was the owner of three adjoining parcels of land in the residential suburb of Kew in Victoria. All three parcels were mortgaged to the defendant and, there having been default under its mortgage, all three were subject to the exercise by the defendant of its statutory power of sale. Two of the parcels (Lots 2 and 3) comprised vacant land. However, the plaintiff’s home, where he and his family had resided for some 10 years, was sited on Lot 1. The plaintiff alleges that the sale of Lots 2 and 3 alone was all that was necessary to discharge his indebtedness to the defendant, after paying proper regard to other persons having security and other interests in the mortgaged property. However, the defendant at public auction, sold all of the allotments, including Lot 1. In this way, the plaintiff and his family came to be deprived of their dwelling house. And, it is on this basis that the plaintiff claims that the defendant, by selling his house on Lot 1, when it was unnecessary to do so, breached its obligations under s.77(1) TLA by failing to have regard to his interests, and acting in bad faith.

It is well settled that a mortgagee, in the exercise of its statutory power of sale under s.77(1) TLA, has a duty to take reasonable steps to obtain the best price for the land sold, consistent with its entitlement to realize its security. Such a duty recognises an accepted interest of the mortgagor in the land, namely a proprietary interest in the proceeds of sale.

However, is the mortgagee also required to have regard to the ‘interest’ which the mortgagor claims to have in this case - namely his interest in retaining Lot 1 of the property as a home to be occupied by his family?

The issue raises the question as to whether the interest of the mortgagor in his family home was merely an emotional interest unprotected by s.77(1). Such an ‘interest’ may be typified by the popular Australian film “The Castle” (1997) in which the central character Darryl Kerrigan says in a key passage of the screenplay:

They don't get it. They're judging the place by what is looks like, and if it doesn't have a pool, or a classy front, or a big garden. And because of that its not worth saving. But its not a house, its a home. Its got everything. People who love each other, care for each other. Its got memories, great memories! Its a place for the family to turn to, come back to.

On the other hand, on close analysis, did the mortgagor’s claimed interest have a tangible dimension of such a kind as to attract the statutory protection?
The Facts
The Property

The plaintiff, Mr Nolan, was the registered proprietor of the property described in Certificate of Title Volume 9473 Folio 608 and known as 16-18 Walmer Street, Kew (“the property”).

Mr Nolan resided with his family in the dwelling house on the property between January 1975 and November 2001. Mr Nolan and his wife had five children. In 2001 the two youngest children in the family were both undertaking their year 12 schooling, and, I infer, were both living at home with their parents. The elder children by then were pursuing tertiary education and professional training, and although their belongings remained in the house and they returned to live in it from time to time, they were not full time residents of the dwelling.

MBF

MBF is an investment company which was controlled by the Christian religious order, known as the Good Shepherd Sisters based in Abbotsford in Victoria. In 2001 the head of the order was Sr Anne Dalton. ‘MBF’ is the acronym for the name of a very prominent Christian, Sister Marie Bernadette Fox, in whose honour the investment company was named.

Mr John Date Snr was a foundation director of MBF, and remained a director during the relevant period of 2000 and 2001. He was also a consultant to Cornwall Stodart, a firm of solicitors, who at all times acted for MBF. Mr Date Snr has been a solicitor for 50 years and looked to be well into his 70’s. He was the decision maker on behalf of MBF in relation to the mortgage and the realization of this security which is the subject of the proceeding.

Mr Peter Macnish is an Australian Legal Practitioner, a solicitor and special counsel engaged by Cornwall Stodart. At the times relevant to the dispute in this proceeding in 2000 and 2001, Mr Macnish was a senior associate with the firm. During this period, Cornwall Stodart acted for MBF and Mr Macnish was responsible for dealing with Mr Nolan and all other relevant parties in relation to the MBF Mortgage, although he had assistance from another solicitor with the firm, Mr Chamberlain who managed some of the conveyancing aspects of the matter. Mr Macnish took his instructions from Mr Date Snr.

The Mortgages

The property was subject to a first mortgage No.V744368X (“the MBF mortgage”) granted by Mr Nolan in favour of MBF. The loan advance provided by MBF, which was secured by the MBF mortgage, was settled on 15 June 1998 with the provision of $975,000 advanced to Mr Nolan. However, the MBF mortgage was not registered with the Registrar of Titles against Mr Nolan’s title for the property until 13 November 1998. Until that time, it remained in a dealing awaiting registration.

The MBF mortgage was not registered because it was in a dealing behind a transfer of the property to Mr Nolan. Registration of this dealing was prevented by an injunction which remained in force in proceedings initiated by Geoffrey Malcolm Collie (“Mr Collie”) in proceedings in the Supreme Court between himself and Mr Nolan. In or about July 2000, following an application by MBF in the Supreme Court, MBF negotiated a settlement with Mr Collie permitting the injunction restraining the transfer to be lifted, and the registration of the MBF mortgage thereby to proceed.

The MBF mortgage was an interest only mortgage. Under its terms, Mr Nolan was required to make payments of interest to MBF on the first day of each month commencing on 15 June 1998 until 1 July 2001.

The property was also subject to a second mortgage No.W904177L in favour of the Australian and New Zealand Banking Group Limited (‘ANZ’) registered 11 July 2000 (“the ANZ mortgage”).

The Collie Litigation

The present proceeding is but part of the long-running saga of litigation between Mr Nolan and Mr Collie and companies associated with those parties. In these reasons for judgment I will make reference to these matters only insofar as they bear directly on the issues presently before the Court. Thus confined, it will be unnecessary to recite the long history of the disputes between these persons and detail the extensive litigation in which they have been involved. The subject matter of the litigation is well described in preceding judgments of this Court.[2]
[2] Collie v Merlaw Nominees Pty Ltd [1998] VSC 2003 & [1999] VSC 84; Collie v Merlaw Nominees Pty Ltd & Anor [2001] VSC 39; Collie v Merlaw Nominees Pty Ltd (No. 2) [2001] VSC 60.

Mr Nolan was the trustee of the Prudent Trust, a trust established for the benefit of the Nolan Family, and held the property as trustee of the trust. The former trustee of the trust was Merlaw Nominees Pty Ltd (“Merlaw”).

In Supreme Court proceeding No.6265 of 1991 (“the 1991 proceeding”),[3] by order of Byrne J made 24 November 1999, judgment was entered in favour of Mr Collie for the sum of $92,784.74 together with interest of $106,052.96 (a total of $198,837.70) against Merlaw.
[3] Collie v Merlaw Nominees Pty Ltd [1998] VSC 2003 & [1999] VSC 84.

Upon Merlaw ceasing to be the trustee of the Prudent Trust, and Mr Nolan assuming that position, Mr Collie pursued the judgment debt owed to him by Merlaw by seeking to subrogate to himself the right of indemnity of that trustee company from the assets of the trust of which it was formerly the trustee. A principal asset of the trust was the property. To achieve this objective, Mr Collie issued a further proceeding against Merlaw - which was then in liquidation - and others (“the 2001 proceeding”).[4]
[4]Collie v Merlaw Nominees Pty Ltd & Anor [2001] VSC 39.

By order of Warren J in the 2001 proceeding, made 9 March 2001,[5] the Court declared that Mr Nolan was acting as the trustee of the Prudent Trust and that Merlaw was entitled to indemnity out of, and exoneration from, the assets of the Prudent Trust in respect of the judgment in favour of Mr Collie, including costs and interest thereon. It was further declared that Merlaw had an equitable charge or lien over all the assets of the Prudent Trust, including the property, to the full extent of its entitlement to indemnity and exoneration, and that Mr Nolan held the assets of the Prudent Trust subject to the right of indemnity and exoneration of the former trustee, Merlaw. Mr Collie was also declared entitled by subrogation to an indemnity out of the trust estate of the Prudent Trust in respect of his judgment, including costs and interest. Warren J also made orders directed against Mr Nolan restraining him from dealing with the property. It was ordered that:

7.Until further order the second-named defendant (Nolan) is restrained from dealing with or disposing of any of the assets or property of the Prudent Trust, or taking any action whatsoever as trustee of the Prudent Trust. [Emphasis added]

[5] Collie v Merlaw Nominees Pty Ltd (No. 2) [2001] VSC 60.

As at 16 May 2001, Mr Collie estimated that the judgment debt in his favour amounted to $548,000, comprising $238,000 in respect of the judgment in the 1991 proceeding, together with $150,000 in respect of the taxed costs of those proceedings, and $160,000 in respect of the taxed costs of the 2001 proceeding.

However, Mr Collie never took any step to execute upon his judgments. Two caveats prepared on his behalf founded upon an alleged interest in the property arising from the judgments in his favour, although lodged at the Land Titles Office, were never registered on the title to the property. At all relevant times, Mr Collie remained merely judgment creditor, with an equitable charge or lien to the extent of his judgment debt over the property and the proceeds of any sale of the property, should a sale occur. As a result, he never placed himself in a position to force a sale of the property, or any part of it. His rights to initiate recovery from the property were confined to seeking an order for possession founded on his judgment debt, or directing the Court Sheriff to take that step on his behalf, neither of which were pursued by Mr Collie at any time.

Mortgage Defaults

Mr Nolan fell into default under the MBF mortgage by not paying the monthly payment of interest which fell due. Mr Nolan defaulted in payment of instalments of interest due under the MBF mortgage commencing on 1 May 2000. Thereafter, he failed to meet any of the interest payments which fell due.

Following the registration of the MBF mortgage, by notice dated 28 September 2000, MBF served a notice to pay under the MBF mortgage giving Mr Nolan notice pursuant to s.76 TLA that he had failed to pay all of the interest payable under the MBF mortgage when it fell due and demanded payment of the whole of the outstanding moneys secured by the mortgage. It gave further notice that if the amount demanded was not paid to MBF within 7 days, it would exercise the power of sale pursuant to s.77 of the TLA and all other powers it may have under the MBF mortgage, including the power to take possession of the property.

As at 30 April 2001 each mortgage was in arrears as follows:

(a)The MBF mortgage - an estimated amount of $1,158,473.49 increasing at approximately $8,000 per month owed to MBF;
(b)The ANZ mortgage - an estimated amount of approximately $275,000 owing to ANZ.

In or about May 2001 MBF, as mortgagee, determined to exercise its power of sale pursuant to its mortgage and s.77 of the Transfer of Land Act1958 (Vic) and to sell the property at public auction.

However, ANZ did not require the property to be sold by mortgagee auction in order to satisfy the debt owed to it. ANZ’s position was that it wished its debt paid and its mortgage discharged. However, it did not require a mortgagee sale in order to achieve payment. Had the plaintiff retained Lot 1 and then been able to refinance ANZ’s debt of $275,000, ANZ was content to be repaid by that mechanism.

Subdivision of the Property

Mr Nolan, by letter dated 16 October 2000, wrote to Cornwall Stodart, the solicitors engaged by MBF, setting out a proposal for repaying the MBF mortgage. The proposal was for MBF to proceed with the sale of the property in three subdivided Lots, rather than selling the property in its then current condition as one lot. Mr Nolan anticipated that the property realized as three lots would achieve a better price than if it was sold as one lot. Mr Nolan referred to a valuation prepared by valuers Preston Rowe Paterson dated 25 September 2000 which valued the property, if sold in three allotments as follows:

Lot 1 House lot   $750,000
Lot 2 Corner Allotment        $725,000
Lot 3 Tennis Court               $500,000
$1,975,000.

Mr Nolan’s proposal was rejected by MBF by a letter from its solicitors, Cornwall Stodart dated 20 October 2000. MBF insisted on possession of the property. It did not provide any reasons for taking this course.

On 24 October 2000 MBF issued a Writ for Possession of the property. A letter from Cornwall Stodart to Mr Nolan dated 24 October 2000 stated:

We have obtained instructions from our client regarding proposals from you generally.
The position is that the entire loan is now due as a result of your default. Without prejudice to that position, our client is prepared to consider proposals from you.
However any proposal must:
1.    Be preceded by payment of all arrears;
2.    Be in writing;
3.    Include a consent to judgment for possession.

Only proposals put to our client as above will be considered. We look forward to hearing from you or your solicitor. You may expect the Writ to be served shortly.

MBF issued a summons for summary judgment for possession based on its writ on 30 June 2000. Judgment for possession was entered by consent. On 19 December 2000 MBF issued a Warrant for Possession.

On 8 January 2001 Phillip Rhoden of the firm Rhodens, a solicitor acting for Mr Nolan’s wife, Mrs Margaret Nolan, put a further proposal to Cornwall Stodart. The proposal contained an offer for Mrs Nolan to purchase the property for $1,400,000.00 with settlement by 30 April 2001. It was to be an express condition of the proposed contract that Mrs Nolan be permitted to complete the subdivision of the property. Further, and subject to MBF’s ‘in principle’ approval of the proposal, Mrs Nolan was to provide by 22 January 2001, satisfactory evidence in the form of a letter of offer of finance for the completion of the purchase, in accordance with the proposed contract. The letter concluded:

You will also be aware that Mrs Nolan is currently living in the house with her husband and their five children.

On or about 12 January 2001 Mr Nolan received a letter from the Sheriff's Office requiring him and the Nolan family to vacate the property by 2 February 2001.

Cornwall Stodart on behalf of MBF responded to Rhodens’ proposal on behalf of Mrs Nolan by letter dated 15 January 2001. In this and in the ensuing correspondence, MBF demonstrated an apprehension about Mr Collie. It did not want to become embroiled in any legal dispute with him. Cornwall Stodart in its letter said:

Our client is still considering the offer to purchase by Mrs Nolan. Our client must bear in mind its obligations to any other party having an interest in Walmer Street.
Further, our client has to be satisfied that whatever price is ultimately paid for the property represents fair market value at the time.
A preliminary question which arises is the attitude of the second mortgagee. What is your client able to tell us about the ANZ Bank's attitude to her offer to purchase?
We understand that a Mr Collie may or may not have an interest in the method of sale of Walmer Street. Our client does not wish to become engaged in a dispute with Mr Collie as to the method of sale. Has there been any discussion with Mr Collie about this proposal?
Whilst our client is interested in and sympathetic to the arrangement being suggested it will need more information before it can decide whether or not to proceed. Please give us your client's response to the matters raised in this letter as soon as possible. In the meantime the warrant remains active with the Sheriff. [Emphasis added]

Rhodens responded on behalf of Mrs Nolan by letter dated 17 January 2001:

Thank you for your letter of the 15th January 2000. We are aware of your client's obligations to the parties having an interest in the property and we assume that you are referring to the provision of Section 77 of the Transfer of Land Act.
The provisions of this Section clearly state that the obligations are to those having an interest in the property and we are of the understanding that the only parties on Title are Damien Nolan, MBF and ANZ.
Our instructions from Mrs Nolan are that the Mr Collie to whom you refer does not have an interest in the property. He is not on Title, nor has a caveatable interest. We are instructed that the current proceedings in the Court are not ever likely to give rise to such an interest.
As to the ANZ Bank's attitude to the offer to purchase, we believe that in the event that the ANZ Bank is to be paid out in full, they would view that proposition with alacrity. Mrs Nolan's offer to purchase is on the basis that all registered mortgagees will be paid out in full.
We note your comments as to price.
We believe that the price represents the figure that will be reflected in a valuation to be obtained by you. Mrs Nolan's offer however is net of the saving of agents commission and advertising.

Cornwall Stodart on behalf of MBF responded by letter dated 19 January 2001:

Thank you for your letter of 17 January 2001.
The fact that you were instructed that the current proceedings involving Mr Collie are not every (sic) likely to give rise to an interest in the land does not help our client. Our client remains nervous about Mr Collie.
Our client notes that Mr Collie has proved to be a litigious person in the past. Regardless of what Mr Nolan may think Mr Collie appears to think that he does have an interest in the property.
The fact that Mr Collie has an injunction preventing dealing with the property indicates to us that the court at the time that it granted the injunction accepted there was at least an argument that Collie had an interest in the property.
In the circumstances our client will auction the property rather then (sic) take up Mrs Nolan's offer.
You should note that the Sheriff has informed us that the warrant will be executed as soon as possible after 2 February 2001. [Emphasis added]

Cornwall Stodart then wrote to Mr Van Staveren of ANZ on 19 January 2001 advising what had occurred and offering ANZ the opportunity to pay out MBF's mortgage. The letter included the following passage:

Our client [MBF] is not satisfied with the assurances given by Rhodens in its letter to us of 17 January 2001 and remains concerned about Mr Collie. For that reason we have informed Rhoden our client rejects the offer made to (sic) Mrs Nolan. [Emphasis added]

ANZ responded by letter dated 23 January 2001:

I have been requested to respond to your letter to Mr Van Staveren dated 19 January 2001 and wish to raise the following matters:
·The Bank does not understand the basis of your concerns regarding Mr Collie. Mr Collie has not lodged a caveat over the property and as far as we are aware does not have a caveatable interest.
·Should you be in possession of any information which provides a basis for your concerns regarding Mr Collie, your suggestion that the Bank pay the amount owing to your client and receive an assignment of your security seems quite unconscionable.
·Accordingly, we consider that your client's rejection of the offer by Mrs Nolan, without any apparent basis of your concerns regarding Mr Collie and, more particularly, without the benefit of a sworn valuation, puts your client in breach of its obligations as mortgagee in possession and in particular in breach of its obligations to the Bank.
·The Bank therefore puts you on notice that in the event that the property is sold at auction for an amount less than the offer made by Mrs Nolan and which results in a shortfall to the Bank, the Bank will be looking to your client to recover any shortfall.
·Finally, while you point out in your letter that the amount owing to your client increases monthly, we do not see that you have done anything to mitigate your client's loss.

The consistent position adopted by Mr Collie was for the proposed subdivision to be completed before the property was sold and that all three lots be sold at the same time at a mortgagee’s sale to be conducted by MBF.

The second mortgagee, ANZ, also preferred to have the property, or such of it as was necessary to realize its security, offered for sale with the subdivision in place to maximise the value of the property as a whole.

As things stood prior to 2 May 2001, there was no agreement between MBF, Mr Nolan and Mr Collie on how the proposed subdivision of the property should proceed or how MBF should sell the property.

On 2 May 2001, Mr Nolan wrote a letter to the solicitor acting for MBF, Mr Macnish of Cornwall Stodart, in which he repeated his request for the proposed subdivision to be completed before the property was sold. The letter also stated that it was only necessary for MBF to sell Lots 2 and 3 to realize the outstanding sum due under its mortgage, thereby leaving Lot 1 (the house lot) untouched by the sale. Mr Nolan also enclosed with his letter an affidavit sworn by Peter Mitchell of Collins Simms Real Estate Agents dated 1 May 2001. Mr Mitchell was a director of Collins Simms, and a real estate agent of 28 years’ experience. He was the responsible person in charge of the Kew office, and had first hand knowledge of the property. Mr Mitchell deposed in his affidavit that the property would realize its highest value if sold in individual Lots, and that Lots 2 and 3 should be sold first with the marketing of Lot 1 to commence after the sale of Lots 2 and 3. Mr Mitchell swore in his affidavit:

In my view it is better for Lots 2 & 3 to be sold first and that the marketing of Lot 1 commence after the auction of Lots 2 & 3. There is an extremely strong demand for vacant Lots in Kew and mixing the house lot with the vacant Lots is likely to reduce the focus on these two unique building blocks. I believe that selling this way will enhance the values obtained for all three Lots, if all are to be sold.

If Mr Mitchell’s proposal had been adopted, the sale of Lots 2 and 3 may well have achieved the necessary sale prices to pay out MBF under its mortgage, leaving Lot 1 for Mr Nolan and his family to occupy pending the necessary refinancing to pay out ANZ and Mr Collie. On the other hand, if the sale prices for Lots 2 and 3 did not realize sufficient to pay out MBF, Lot 1 could then be sold if necessary. Although in advance of the auction sale there was continuing disagreement between estate agents on the proposed order of sale of the three allotments, the only agreement being that Lot 3 should not be put up for sale first, on the face of it, Mr Mitchell’s plan was a reasonable proposition.

Mr Nolan also said in his letter that the second mortgagee, ANZ, “has indicated its clear consent to this process”, a position which I accept as correct.

However, Mr Macnish on behalf of MBF wrote in reply on 3 May 2001 that:

Our client’s instructions remain unchanged. Our client intends to take possession of the property and sell “as is”.

Mr Nolan then arranged to serve a writ and statement of claim dated 4 May 2001 issued in the Supreme Court of Victoria (proceeding No.5653 of 2001) (the “method of sale proceeding”) seeking, amongst other things, permanent and interlocutory injunctions restraining MBF from selling the property other than as three separate Lots and restraining MBF from selling Lot 1. A summons seeking interlocutory relief, together with supporting affidavits were also served.

Mr Collie was also served with the method of sale proceeding instituted by Mr Nolan. He opposed Mr Nolan’s application and, consistent with the position he had previously adopted, insisted on the sale of all three lots at the same time, if the subdivision proceeded.

Between about 8 May and 16 May 2001 negotiations were entered into between Mr Nolan, MBF, the ANZ, Mr Collie and Mr Rambaldi (the liquidator of Merlaw) in an attempt to achieve agreement as to whether the property would be subdivided prior to sale, how the subdivision would be funded, and once subdivided, how the property should be sold (whether all three lots at the same time, or only some of the lots should be sold). The parties could not agree at this time on the manner of sale, assuming a subdivision was to proceed. Mr Collie wanted all three lots to be sold at the same time, while Mr Nolan wanted Lots 2 and 3 to be sold so that he could retain Lot 1 (the house lot). However, by this time, all parties agreed, or appear to have agreed, that the proposed three lot subdivision should be completed prior to a sale of the property by MBF.

On 16 May 2001, Beach J heard Mr Nolan’s application in the Practice Court for interlocutory relief in the method of sale proceeding which he had issued against MBF.[6] It was agreed by all parties that if the property was subdivided into three allotments, each allotment then being sold separately, the overall proceeds of the three sales would exceed the amount recovered in the event that the property was sold as it was.
[6]Nolan v MBF Investments Pty Ltd [2001] VSC 175.

The parties dug in on their previously adopted positions. Mr Nolan maintained that the property should be subdivided into the three proposed allotments and that allotments 2 and 3 should then be sold at auction. He maintained that no sale of Lot 1 (the house lot) should take place because the funds produced by the sale of Lots 2 and 3 would be sufficient to discharge MBF's first mortgage, pay the subdivisional costs of $125,000 and either discharge or significantly reduce the amount outstanding under the second mortgage to ANZ. If a sale of Lot 1 should, however, become necessary, this should occur after the auction sale conducted in respect of Lots 2 and 3. MBF was prepared for the subdivision to proceed, but wished not to be bound by any particular method or order of sale. Mr Collie maintained that the subdivision should proceed and insisted that all three allotments be sold at auction on the same day, one after the other.

However, if a subdivision was to proceed, the City of Boroondara required Mr Nolan to enter into an agreement pursuant to s.173 agreement of the Planning andEnvironment Act 1987 before sealing any plan of subdivision in respect of the property. Subsection (1) of that section provided that a responsible authority (in this instance the City of Boroondara) may enter into an agreement with the owner of land in the area covered by a planning scheme for which it is a responsible authority. Section 174 of that Act provided:

(1)An agreement must be under seal and must bind the owner to the covenants specified in the agreement.
(2)An agreement may provide for any one or more of the following matters –
(a)the prohibition, restriction or regulation of the use or development of the land;
(b)the conditions subject to which the land may be used or developed for specified purposes;
(c)any matter intended to achieve or advance –
(i)the objectives of planning in Victoria; or
(ii)the objectives of the planning scheme or any amendment to the planning scheme of which notice has been given under section 19;

(d)any matter extendable to any one or more of the above matters.

Further, if Mr Nolan entered into such an agreement, he would have found himself in breach of paragraph 7 of the Orders of Warren J of 9 March 2001, to which I have referred.

In the course of the application heard by Beach J in the method of sale proceeding on 16 May 2001, MBF consented to a variation of paragraph 7 of Warren J's order to enable Mr Nolan to execute the necessary s.173 agreement, following which MBF agreed to then take the necessary steps to subdivide the property into the three allotments and sell by auction such of the allotments as was necessary to pay out its mortgage. MBF required any costs incurred by it in doing so to be repaid to it, and also required such co-operation from Mr Nolan as was necessary to subdivide the property.

In the course of his reasoning, Beach J said (at paragraphs [26]–[28]):

26.As I intend to vary the order of Warren J to enable Nolan to sign a Sec.173 agreement, in my opinion there is no basis for the grant of any of the injunctive relief sought by Nolan in his writ and summons.
27.It is not for this court to direct a mortgagee as to whether it should sell the three allotments on the one day. As to whether that is done or allotments 2 and 3 are offered for sale on the same day with allotment 1 being offered for sale on a later date, assuming of course that it becomes necessary to do so to discharge MBF's mortgage, is a matter for MBF to determine.
28.In making such a determination MBF will be expected to obtain appropriate advice from an experienced real estate agent and then, unless there is very good reason not to do so, to act upon that advice.

Beach J ordered that paragraph 6 of the order of Warren J made 9 March 2001 be varied so that the paragraph read:

6.Save that the Secondnamed Defendant is permitted as mortgagor to sign the agreement under s.173 of the Planning andEnvironment Act 1987 (Vic) between Boroondara City Council and himself entered into pursuant to Planning Permit No. BOR/98/01353, until further order, the Secondnamed Defendant is otherwise restrained from dealing with or disposing of any of the assets or property of the Prudent Trust, or taking any action whatsoever as trustee of the Prudent Trust.

Beach J said further (at paragraphs [30]–[31]):

30.During the course of the hearing before me there was much debate as to whether I should make orders in favour of Collie the effect of which would be to require MBF to pay to Collie the amount awarded to him by Byrne J in his judgment in proceeding No.6265 of 1991 and further sums to cover the costs awarded in his favour by Byrne J and the costs awarded to him by Warren J on 9 March 2001, neither of which have as yet been taxed.
31.In my opinion it would be inappropriate for me to make any such orders. Those matters do not concern MBF. Collie has his judgments and should execute them in the appropriate fashion.

The Deed of 8 June 2001

Following the hearing before Beach J in the Practice Court in the method of sale proceeding, the parties continued their negotiations in an attempt to resolve the outstanding issues between them. In the course of these negotiations, Mr Macnish drafted a deed (“the Deed”) which he proposed would be executed by MBF, Mr Nolan, Mr John Arthur (a friend of Mr Nolan’s) and Peter Mulcahy & Associates Pty Ltd (land surveyors). Pursuant to the Deed, MBF would agree to delay taking possession of and selling the property on the terms set out in the document. These terms included the provision of $126,555 to MBF to effect the subdivision, the delivery to it of an irrevocable bank guarantee in the sum of $50,000 as a surety to be provided by a friend of Mr Nolan’s, Mr Arthur, and the completion of the subdivision by 20 July 2001. The Deed also provided for the sale of the property, distribution of the subdivision funds, distribution of the sale proceeds, settlement of the method of sale proceeding, and a release.

The Deed was executed by the parties to it on 13 June 2001.

Mr Collie was not a party to the Deed. Furthermore, the clause of the Deed dealing with the distribution of the sale proceeds did not include any reference to Mr Collie or his judgment debt. It did, however, make provision for payment out of the MBF debt, and the ANZ debt, with the balance of the proceeds of sale to be paid to Mr Nolan “unless prevented by order of the Court from doing so”.

Following entry into the Deed, on 26 June 2000 a plan of subdivision was issued by the City of Boroondara pursuant to planning permit No.B0R/98/01353 for the subdivision of the property into three allotments.

This resulted in the property eventually being the subject of an unregistered three lot plan of subdivision comprising:

(a)Lot 1 (the “house lot”) containing a substantial house in which Mr Nolan and his family resided;
(b)Lot 2 being a block of vacant land situated on the north west of the property; and
(c)Lot 3 being vacant land (formerly a tennis court) situated on the north east of the property.

The “Method of Sale” Provision of the Deed

The Deed included a provision as to the method of sale proposed by MBF to realize its security. Clause 4 of the Deed provided:

4. SALE OF SECURITY
4.1It is agreed by Nolan and Arthur that the method and timing of sale of the security is to be at the absolute discretion of MBF Investments and no reasons need or will be given to Nolan and Arthur by MBF for any decision made and action taken with respect to the sale of the property.
4.2Notwithstanding the sub-clause above, provided Nolan, Arthur or Mulcahy are not in breach of the terms of this deed, MBF acknowledges that it will sell the security after completion of the works in accordance with the advice that it receives from reputable and competent selling agents, which advice need [sic] and may not be disclosed to Nolan and Arthur.

In my opinion, clause 4 of the Deed did not operate to exclude the statutory obligations of MBF as the mortgagee selling the property, as they are provided for under s.77(1) Transfer of Land Act1958. In Duncombe v Porter[7], Dixon CJ observed in relation to the construction of contractual terms:

First and foremost is the general rule which is expressed by Scrutton LJ in Szymonowski & Co v Beck and Co. Scrutton LJ describes it as a principle repeatedly acted upon that if a party wishes to exclude the ordinary consequences that would flow in law from the contract that he is making he must do so in clear terms.

In the same case, Fullagar J described it as a “well-established rule of construction” that:[8]
Rights which exist at common law or by statute are not to be regarded as denied by words of dubious import. Before any such denial is accepted, it must appear with reasonable clarity from the language used that the denial is intended.

[7](1953) 90 CLR 295 at 306.

[8] Duncombe v Porter (1953) 90 CLR 295 at 311.

Applying these principles to the words of clause 4 of the Deed, which make no reference to MBF’s obligations under s.77(1) TLA, the clause on its face does not explicitly or unequivocally exclude or curtail the statutory obligations.

Indeed, the words actually used can be read consistently with the obligation expressed in s.77(1) TLA. That is to say, the discretion referred to in the words “the method and timing of sale of the security is to be at the absolute discretion of MBF” may be construed as having to be exercised consistently with the obligations of the mortgagee under s.77(1) TLA. Clause 4, interpreted in this way, would sit harmoniously alongside the statutory obligation, and I can see no proper basis for implying into the clause any intention to exclude it.

Further, in construing written contracts, the parties to it may be taken to have not intended the terms of their bargain to operate in an unreasonable fashion. Indeed, as Lord Reid put it in L Schuler AG v Wickman Machine Tool Sales Ltd,[9] if the parties did intend an unreasonable result, it is essential that this intention be made “abundantly clear”.
[9][1974] AC 235 at 251.

In my opinion, clause 4 could operate in an unreasonable manner if it was construed free of the statutory protection provided to the mortgagor by s.77(1) TLA. If the clause was to be construed in this way, a method of sale could be capriciously selected by the mortgagee which might result in a sale at a gross undervalue, to the manifest detriment of the mortgagor. Such an outcome would be unreasonable and unjust and would defy “business commonsense”.[10]
[10] Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 per Lord Diplock; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 198 [43] per Gleeson CJ, Gummow and Hayne JJ.

The intention to exclude the operation of s.77(1) TLA by clause 4 of the Deed, is not evidenced sufficiently by the text of the clause and falls well short of the test propounded by Lord Reid in Schuler.

The Release Provision of the Deed

The Deed also provided the following by way of a release in favour of MBF:

9. RELEASE
9.1In consideration of the covenants and agreements of the parties contained in this deed, Nolan hereby fully and forever releases MBF from all claims, suits, actions and demands which he now has and/or which he might but for the execution of this deed have had and/or may in [sic] future have against MBF arising out of all and any of the acts, facts and circumstances the subject of this deed, the possession proceeding and the method of sale proceeding.

The “possession proceeding” was defined in the deed to mean the Supreme Court proceeding No.7348 of 2000 pursuant to which MBF claimed and was granted an order for possession of the property. The “method of sale proceeding” was defined in the deed to mean the Supreme Court proceeding No.5653 of 2001 pursuant to which Mr Nolan claimed an entitlement, inter alia, to have Lots 2 and 3 in the subdivision of the property sold prior to Lot 1 (the house lot).

In Karam v ANZ Banking Group Limited & 1 Ors[11] Santow J summarized the principles applicable to construing releases or purported releases in the following way:
[11][2001] NSWSC 709 at [406].

(1)In construing a release ... the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS[1997] UKHL 28; [1998] 1 All ER 98 per Lord Hoffman at 114.
(2)In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon[1758] EngR 153; (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley.
(3)Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and SonsPty Ltd [1954] HCA 23; (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed).
(4)Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali (supra) at 971-72 who was of the view that for the purposes of construction a general release is simply a term in the contract).
(5)Although each release should be considered against its own matrix of facts, an example of this line of "cautionary principle" (Lord Bingham’s phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Limited (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his “Principles of Contract” (Stevens: London, 1950) 13th ed at 412, that "in equity a release shall not be construed as applying to something of which the party executing it was ignorant".
(6)Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman.
(7)In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realizes might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973. (The Bank made no such disclosure here.)
(8)Most recently in this Court in Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited[2001] NSWSC 324, Bergin J adopted the principles of construction broadly as outlined above, including the "cautionary principle" and taking into account the purpose of the contract and the circumstances in which made.

The principles distilled by Santow J in Karam were recently adopted and applied by Einstein J in Shepherds Producers Co-op Ltd (in Liq) v Lamont & Ors[12] with the necessary caveat that: “Naturally however the particular circumstances which arise whenever it becomes necessary to construe a release become of the utmost significance”.[13]
[12][2009] NSWSC 294.
[13] Ibid at [12].

In this case the particular circumstances of the conduct of the auction of the property by MBF, particularly following the sale of Lot 2, could not have been anticipated by the parties at the time when the Deed was entered into. In these circumstances, I should be slow to infer that Mr Nolan, in executing the Deed, would have intended to surrender rights and claims of which he was unaware and could not have been aware at the time.

"Arising out of”

The release in this case is expressed to apply to all “claims” and the like “arising out of all and any of the acts, facts and circumstances the subject of this deed, the possession proceeding and the method of sale proceeding”.

The words “arising out of” are not otherwise qualified in the clause. This may be contrasted with cases in which the reach of the release is expanded by use of qualifications in the clause.

In IBM Australia Ltd v National Distribution Services Ltd[14] the Court of Appeal of New South Wales considered a clause in a release which provided:

[a]ny controversy or claim arising out of or related to the Agreement or the breach thereof will be settled by arbitration. [Emphasis added].

Kirby P regarded the words "or related to" as extending the meaning of "arising out of".[15] Clarke JA, with whom Handley JA agreed, explained the position in these terms:[16]
The phrases "in relation to" or "related to" are of the widest import and should not, in the absence of compelling reasons to the contrary, be read down: Fountain v Alexander[1982] HCA 16; (1982) 150 CLR 615 at 629; Dowell Australia Ltd v Triden Contractors Pty Ltd[1982] 1 NSWLR 508 at 511 and Ashville Investments Ltd v Elmer Contractors Ltd[1989] QB 488.

[14](1991) 22 NSWLR 466.

[15] Ibid at 477.

[16]Ibid at 483.

The words “or connected with” or the even wider phrase, “or in any way connected with”, are often added to the words “arising out of” when describing the subject matter intended to be covered by a release. Such words also operate to give an extended meaning to the subject matter said to arise out of the designated class. Similar to the cosanguinous phrase “or related to”, these words are of the widest possible import and should not, in the absence of a clear statement to the contrary, be read down.

In Elkateb v Lawindi[17] Giles CJ CommD held:

The phrase “in connection with” has on many occasions been said to be of considerable width, satisfied by a link or an association (Commissioner for Superannuation v Miller[1985] FCA 445; (1985) 8 FCR 153) or a relationship (Our Town FM Pty Ltd v Australian Broadcasting Tribunal [No 1][1987] FCA 301; (1987) 16 FCR 465; Drayton v Martin(1996) 137 ALR 145) and summed-up in the phrase “having to do with”: see the same cases and Nanaimo Community Hotel Ltd v Board of Referees[1945] 3 DLR 225. As with the phrase “in relation to”, no doubt the context or the purpose may require that the link, association or relationship be of a particular kind, sometimes described as an appropriate or relevant relationship (Perlman v Perlman[1984] HCA 4; (1984) 155 CLR 474; R v Ross-Jones; Ex parte Green [1984] HCA 82; (1984) 156 CLR 185 and O'Grady v Northern Queensland Co Ltd[1990] HCA 16; (1989) 169 CLR 356), but it should not be read down unless there be compelling reason to do so (Fountain v Alexander[1982] HCA 16; (1982) 150 CLR 615).

[17](1997) 42 NSWLR 396 at 402.

Further, in relation to the expression “in connection with” in Health Insurance Commission v Freeman[18] the Full Federal Court (Von Doussa, Carr and Merkel JJ) held:

The words “in connection with” have been accepted as capable of describing a spectrum of relationships between things, one of which is bound up with or involved in another: see Collector of Customs v Pozzolanic Enterprises Pty Ltd[1993] FCA 456; (1993) 43 FCR 280 at 288. However, as was pointed out by Sackville J in Taciak v Commission of Australian Federal Police(1995) 59 FCR 285 at 295, the question that remains in a particular case is what kind of relationship will suffice to establish the connection contemplated by the statute. That requires a “value judgment about the range of the statute”: see Pozzolanic (at 289).

Effect of the Release

[18](1998) 158 ALR 267 at [273].

In this case the release applied to “claims” and the like “arising out of all and any of the acts, facts and circumstances the subject of this deed, the possession proceeding and the method of sale proceeding”. [Emphasis added]. Its reach was not expanded by the addition, for example, of further words in common usage in this context such as “or related to”, “or in connection with”, “or in any way connected with”.

Although the phrase “arising out of’’ may in certain circumstances be of considerable width, in this case the phrase is confined by the subject matter described in the sub-clause, namely “acts, facts and circumstances” which were:

(a)       the subject of the Deed;
(b)      the possession proceeding; or
(c)       the method of sale proceeding.

The phrase “arising out of” in its textual context is not synonymous with the phrase “having to do with”. It is more circumscribed.

Clause 4 of the Deed, as I have found, was subject to the mortgagee’s obligations under s.77(1) TLA, not by any express reference in the clause, for there was none, but because the clause did not exclude its operation. A future claim pursuant to s.77(1) TLA was therefore not the subject of the Deed. Further, the “acts, facts and circumstances the subject of this deed” did not extend to acts facts and circumstances which might constitute a breach of s.77(1) TLA.

The ambit of the release was circumscribed not only by its text, but also by what was specifically in the contemplation of the parties at the time the release was given. The events which occurred on the day of the auction sale, which may have given rise to a breach of s.77(1), were not in the contemplation of the parties at the time of entry into the Deed, nor could they have been anticipated.

A future claim pursuant to s.77(1) TLA was not the subject of the possession proceeding or the method of sale proceeding.

Properly construed, the release does not bar Mr Nolan’s cause of action and he is not estopped from pursuing it.

Duty of the Mortgagee Under S.77(1)

It is well settled that a mortgagee in general is not a trustee as he of she has a substantial beneficial interest in the property. Nor is a mortgagee a trustee in respect of the exercise of the power of sale, whether statutory or conventional, although it has been recognised that the mortgagee becomes a constructive trustee of any surplus purchase money.[19]

Forsyth v Blundell

[19] See: Sykes, E.I. & Walker, S. The Law of Securities, Fifth Edition (1993) at 117-118.

However, a conflict of views existed as to the duty of a mortgagee in exercising its power of sale. The conflict was clearly articulated by Walsh J in Forsyth v Blundell[20], a case in which, on the facts, it was found by the majority that the mortgagee had acted with calculated indifference to the mortgagor’s interests and thereby acted in bad faith. The proceeding concerned the exercise of a power of sale by a mortgagee in respect of property under the Real Property Ordinance 1925–1961 (ACT). Walsh J said:[21]

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 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 p772 by Lindley LJ and in the same case on appeal (1897) AC 180, at pp184-185, by Lord Herschell, in the adoption of those statements by this Court in Barns v Queensland National Bank Ltd (1906) 3 CLR 925, at pp942-943 and in Pendlebury v Colonial Mutual Life Assurance Society Ltd[1912] HCA 9; (1912) 13 CLR 676, at pp680, 694, 700 and in the definite opinion expressed by Isaacs J in the latter case (1912) 13 CLR, at p700, 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.

[20](1973) 129 CLR 477.

[21]Ibid at 493.

However, in Forsyth, both Walsh J and Mason J who constituted the majority, found it unnecessary to determine the issue in that appeal. Menzies J, on the other hand, although he dissented on the application of the principle to the facts of the case, did venture an opinion with a view to resolving the debate argued before the Court. Menzies J said:[22]
[22] Forsyth v Blundell (1973) 129 CLR 477 at 481.

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] HCA 9; (1912) 13 CLR 676, the Lord Chancellor said (1897) AC, at p185 :
"... 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 LJ 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".

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.

Text of s.77(1)

The particular text of s.77(1) of the TLA in Victoria, presented an opportunity for the adoption of the broader approach to a mortgagee’s duty in the exercise of its power of sale, foreshadowed in the judgment of Menzies J in Forsyth v Blundell. In Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd[23], Lush J provided a more precise analysis of the content of the mortgagee’s obligation, observing that:
[23][1976] V.R. 309.

So far as I am aware, it is only the Victorian Transfer of Land Act 1954 in which a statement of the criteria [sic] appears.

After drawing attention to the division in the authorities as to the duty of a selling mortgagee, Lush J proceeded:[24]
In my opinion s.77 must be regarded as containing a statement of the obligation of the mortgagee in effecting a sale. It sets out as a matter of language two requirements cumulatively, a requirement of good faith and a requirement that regard should be had to the interests of the mortgagor, grantor or other persons. The effect of its words is to bring together the concepts of an obligation to act in good faith and an obligation akin to an obligation to exercise care in much the same way as they are blended in the dissenting judgment of Menzies J in Forsyth v Blundell, supra, at (CLR) p481, and in that of Salmon J in the Cuckmere Brick Co’s case, at (Ch) p966. I have likened the statutory requirement of regard to a requirement of care deliberately because I think it is impossible to distinguish in this context between having regard to the interests of another and taking care to protect the interests of that other.
A mortgagee in exercising his powers is entitled to give first consideration to his own interests, a concept which is consistent with having regard to the interests of others or with taking reasonable care to protect the interests of others, what is reasonable being assessed in the light of the fact that not only is the mortgagee entitled to give his interests first consideration, but also that the reason for the existence of the power is to protect those interests …
The words of the section do not, as I have said, require the mortgagee to place the interests of others on the same level as his own, but do require that he shall have regard to those interest. The section does not detract from the general law that the mortgagee is entitled to sell at the time of his choice and without waiting for a time which a selling owner might consider more propitious.

[24]Ibid at 312– 313.

However, the approach of Lush J in Henry Roach, although recognised and not disagreed with, was not adopted by Murphy J in Goldcel Nominees Pty Ltd v Network Finance Ltd[25]. In that case, his Honour observed:[26]

The High Court in that case [Forsyth] declined to resolve the conflict of opinion as to whether at general law the duty of a mortgagee goes beyond a duty to act in good faith, or includes also an obligation which may be broken if negligence in carrying out the sale is established …
This important issue could be involved in a consideration of the meaning and application of the words “and having regard to the interests of the mortgagor” in s.77(1) of the Victorian Transfer of Land Act 1958. But in the present case I have not found it necessary to base my decision on such considerations.

[25][1983] 2 V.R. 257.

[26]Ibid at 263.

Resolution of the question was not achieved in Victoria until the Court of Appeal decided Vasiliou v Westpac Banking Corporation[27]. Maxwell P, Neave and Kellam JJA in quoting the passages of Lush J in Henry Roach to which I have referred, stated that these were “the principles under which a mortgagee must act in exercising a power of sale under s.77”.[28]
[27][2007] VSCA 113.
[28] Ibid at [23]–[24].

Vasiliou also settled the position in Victoria that the mortgagee, in selling a property pursuant to the exercise of the statutory power of sale, is required under s.77(1) to take reasonable steps to obtain the best price consistent with its entitlement to realize its security.[29] As was said by the Court of Appeal in Vasiliou:[30]

Whether advertising is required in such a case depends on the circumstances. The mortgagee is obliged to obtain the best price consistent with its entitlement to realize its security. Whether advertising is a necessary step in the securing of that price will vary from case to case. By itself, the presence, or absence, of advertising will rarely be decisive. What matters is the price obtained. If the price is satisfactory, a failure to advertise will be immaterial. Conversely, if the price is unsatisfactory, as a result of the mortgagee’s acts or omissions, the fact that the property was advertised would be unlikely to be an answer to the allegation that the duty under s.77(1) had been breached.
In the present case, the price was satisfactory. The failure to advertise was immaterial.

[29]Compare with the distinction noted by Ashley J in Guss v Geelong Building Society (in liq)[2001] VSC 37, and the differing approaches to s.77(1). Whereas Lush J in Henry Roach held that the mortgagee’s obligation was to take reasonable care to obtain a proper price, Murphy J in Goldcel Nominees held that the duty was to take "reasonable steps to obtain the best price".

[30]Vasiliou v Westpac Banking Corporation [2007] VSCA 113at [63]–[64].

However, the text of s.77(1) TLA does not on its face confine the “interests” of the mortgagor to his interest in obtaining the best price for the property consistent with the mortgagee’s entitlement to realize its security. The word is not qualified in any way, a course which was well open to the draftsman had this been the legislative intention.

Apart from Tasmania[31], the requirements of s.77(1) TLA differ markedly from those contained in a number of other pieces of legislation in Australia where the duty of a mortgagee in selling mortgaged property is confined to achieving the market value of the property. Section 85(1) Property Law Act 1992 (Qld) defines the mortgagee’s obligation as that of taking “reasonable care to ensure that the property is sold at the market value”.
[31]See: s.78 Land Titles Act 1980 (Tas), which relevantly mirrors s.77(1) TLA.

Section 77(1) is framed more broadly than s.420A Corporations Act 2001 (Cth), which is confined to achieving the best possible price where the mortgagor is a corporation and the mortgagee has taken possession of corporate property, or has appointed a receiver who has undertaken this task. When selling the property, the mortgagee or the appointed receiver on its behalf must comply with the duty in s.420A, which provides:

Controller's[32] duty of care in exercising power of sale
(1)In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a)if, when it is sold, it has a market value not less than that market value; or
(b)otherwise the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

[32]“Controller” is defined in the dictionary in s.9 Corporations Act 2001 to mean : In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value--not less than that market value; or (b) otherwise--the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

On 25 March 2009 the Real Property and Conveyancing Legislation Amendment Bill 2009, was introduced into New South Wales Parliament. The Bill if passed will impose duties on financiers, mortgagees and chargees in exercising a power of sale. By clause 111A of the Bill the Conveyancing Act 1919 (NSW) is proposed to be amended to mirror s.420A Corporations Act 2001.

Case Law on s.77(1)

The case law on the meaning of “interests” under s.77(1) TLA, such that it is, does not work to confine the concept. Rather, the indications are that the term has scope for application to a variety of potential interests.

The defendant relied on statements of principle such as those contained in Barns v Queensland National Bank Ltd.[33]In this case the jury found that the mortgagee Bank had exercised its power of sale recklessly and without due regard for the interests of the mortgagor owner by selling at an undervalue. Griffith CJ, Barton and O'Connor JJ cited Lindley LJ in the case of Farrar v. Farrar's Ltd as stating the principles to be applied – namely that:

"A mortgagee with a power of sale, though often called a trustee, is in a very different position from a trustee for sale. A mortgagee is under obligations to the mortgagor, but he has rights of his own which he is entitled to exercise adversely to the mortgagor. A trustee for sale has no business to place himself in such a position as to give rise to a conflict of interest and duty. But every mortgage confers upon the mortgagee the right to realize his security and to find a purchaser if he can, and if in the exercise of his power he acts bona fide and takes reasonable precautions to obtain a proper price, the mortgagor has no redress, even although more might have been obtained for the property if the sale had been postponed: Cholmondeley v Clinton 22 Jac & W, 1, 182; Warner v Jacob 320 Ch D 220".

[33](1906) 3 CLR 925 at 943–944.

However, this passage, an others to similar effect, although undoubtedly correct in their application of the principles to the cases at hand, which invariably involved allegations of breaches of duty arising from a mortgagee’s sale of mortgaged property at an undervalue, are not specifically confined to such factual situations. This is illustrated in the passage of the judgment of Griffith CJ, Barton and O'Connor JJ in Barns which immediately followed:

In Kennedy v de Trafford, Lord Herschell LC said: "My Lords, I am myself disposed to think that 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 LJ 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.

In Forsyth v Blundell[34], Menzies J held that: “To take reasonable precautions to obtain a proper price is but a part of the duty to act in good faith”.
[34](1973) 129 CLR 477 at 481.

In Henry Roach, Lush J said:[35]

In my opinion s.77 of the Transfer of Land Act formulates the test by which a mortgagee’s sale is to be examined and in relation to land to which the Transfer of Land Act applies there is no longer room for disputes as to what the test is. Its application to any given set of facts is another matter. [Emphasis added]

[35] Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 313.

In Goldcel, Murphy J adopted an inclusive approach when he said:[36]

In my opinion, for the purposes of the present case, s.77(1) requires that the mortgagee, on selling, must take reasonable steps to ensure that, at the time of sale, he is getting the best price then available for the mortgaged property, and reasonable steps to obtain the best price must be taken, irrespective of the amount of the mortgage debt. The “interests of the mortgagor” must in my opinion include at least his interest to see that the mortgagee takes reasonable steps to get on sale the best possible price available for his property. The mortgagee must have regard to this interest. [Emphasis added]

[36]Goldcel Nominees Pty Ltd v Network Finance Ltd [1983] 2 VR 257 at 261–262.

Although an interest in the proceeds of sale is no doubt included in the concept of interest as it is used in the section, the text of s.77(1) contains no words limiting the scope of the word ‘interest’ in the manner contended for by MBF.

Object and purpose of s.77(1)

I can see nothing in s.77(1) or the Act generally, in the context of its object and purpose, which would lend its aid to the construction contended for by the defendant. Section 35(a) of the Interpretation of Legislation Act 1984 (Vic) provides for a well known principle which is to be applied as an aid to interpretation. It is in the following terms:

35. Principles of and aids to interpretation
In the interpretation of a provision of an Act or subordinate instrument -
(a)a construction that would promote the purpose or object underlying the Act or subordinate instrument (whether or not that purpose or object is expressly stated in the Act or subordinate instrument) shall be preferred to a construction that would not promote that purpose or object.

The purpose or object of the Transfer of Land Act 1958 is shortly stated in its preamble to be: “An Act to consolidate the Law relating to the simplification of the Title to and the Dealing with Estates and interests in Land”. Nothing contained in this statement assists in advancing the construction contended for by the defendant.

Section 77(1) itself is a facilitative provision the purpose of which is to provide a statutory scheme to enable to mortgagee to realize its mortgage security consistently with the terms of the section. The requirement for the mortgagee to exercise good faith in carrying out the statutory process is a reflection of the general law. The requirement that in addition, the mortgagee is to have “regard to the interests of the mortgagor” and other persons, is designed to provide a further measure of protection to the mortgagor on the one hand, and impose a further measure of responsibility on the mortgagee in the exercise of its power. The additional words enabled Lush J in Henry Roach to include the obligation of a mortgagee having to exercise reasonable care to protect the interests of the mortgagee (and others), an approach which has recently attracted the approval of the Court of Appeal in Vasiliou.

The section as it is drafted, and as it has been properly interpreted, in my opinion reflects a purpose or object to provide a reasonable measure of protection to a mortgagor, consistently with the right of the mortgagee to realize its security. The provision is designed as a protective counterbalance to the otherwise unfettered power of the mortgagee upon a sale of the mortgaged property.

In my opinion, a construction of s.77(1) which ascribes to the word “interests” in the sub-section a meaning which includes the home occupation interest of the mortgagor, is more consistent with the promotion of the purpose or object of the section than not.

Novelty of the Factual Situation

No reported case on the question of the meaning of the word “interests” in s.77(1) TLA was cited to the Court beyond those cases which dealt with a sale of mortgaged property at an alleged undervalue. However, the lack of reported case law on the issue of whether a mortgagee has any relevant “interest” in his family home situated on mortgaged land, for the purposes of the section, in itself is no answer to the question as to whether it is a relevant “interest”. Still less does the fact that the case law on the subject of a mortgagee’s obligations under s.77(1) TLA is limited to cases where it is alleged that the mortgagee has sold at an undervalue operate to confine the obligations of a mortgagee under the section only to that circumstance.

The novelty of the factual situation and the issue thrown up by that situation is no bar to applying the law in a manner which enables s.77(1) to fulfil its proper function in providing a reasonable measure of protection for the mortgagor, consistently with the mortgagee’s right to realize its security.

This case must be considered on its own facts and on the proper construction of s.77(1) TLA in the light of those facts.

Mortgagor‘s Right to Redemption

As the mortgagor, Mr Nolan’s interests in the property included his right to redeem the MBF mortgage.

A mortgagor’s right to repay the loan and demand a reconveyance, in the case of general law land, or the discharge of the mortgage, in the case of Torrens land, is the mortgagor’s most fundamental right. As Lord Macnaughton said at the beginning of the last century in Noakes & Co. Ltd v Rice:[37]

Redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself. And it is, I think, as firmly settled now as it ever was in former times that equity will not permit any device or contrivance designed or calculated to prevent or impede redemption. It follows as a necessary consequence that, when the money secured by a mortgage of land is paid off, the land itself and the owner of the land in the use and enjoyment of it must be as free and unfettered to all intents and purposes as if the land had never been made the subject of the security.

[37][1902] AC 24 at 30.

The mortgagor’s right to redeem the mortgage at general law and under the TLA was thoroughly considered by Herring CJ in Re Forrest Trust; Trustees Executors & Agency v Anson.[38] His Honour the Chief Justice said of the nature of the right of redemption: [39]
[38][1953] VLR 246.
[39]Ibid at 255.

The essence of redemption would thus seem to be, whether it takes place in or out of Court, the fulfilment by the mortgagor of his obligations under the mortgage, that is to say, payment of the moneys due thereunder, followed by whatever is necessary on the part of the mortgagee to free the land itself and the mortgagor in the use and enjoyment of it, to use the words of Lord Manaughton in Noakes & Co Ltd v Rice (supra).

Herring CJ said of the position under the TLA: [40]
The nature of a mortgage under the Act being what I have described, it necessarily followed that there was inherent in it a right on the part of the mortgagor, upon his fulfilling his obligations under the mortgage. To have the land freed from the mortgage and from all the powers and rights of the mortgagee, which formed a substantial curtailment of the mortgagor’s dominion over the land. This is a right to redeem in the sense in which equity understood that term, and the effect of its exercise, by payment off of the money secured by the mortgage, is aptly described in the last sentence of the passage set out above from the judgment of Lord Macnaughton in Noakes & Co. Ltd v Rice (supra).
The proceeding that a mortgagor under the Act can bring against his mortgagee are, I think, the same in essence as that which a mortgagor under the general law can bring against his, viz, proceedings to redeem the mortgage. The right to redeem that is being enforced may not be derived from the same source in each case, nor may the relief required to free “the land itself and the owner of the land in the use and enjoyment of it … to all intents and purposes as if the land had never been made the subject of the security”, to use the words of Lord Macnaughton (in Noakes & Co Ltd v Rice (supra)), be the same in each case, but in each case what equity does is to free the land and the owner in the way described upon the mortgagor fulfilling his obligations under the mortgage. And though what is required for this purpose appears very different in the two cases, viz, a reconveyance in the one case and the discharge of the mortgage in the other, yet the result achieved is substantially the same.
A reconveyance in the one case and a discharge of the mortgage in the other destroy the rights and powers of the mortgagee, and in each case restore to the mortgagor his dominion over the land.

[40]Ibid at 256-258.

Accordingly, the “equity of redemption”, which is often said to be vested in a mortgagor under a TLA mortgage, is more accurately described as the mortgagor’s “right to redeem”, although for practical purposes, the effect of the exercise of the right is the same.

The right is partly contractual. In Latec Investments Ltd v Hotel Terrigal Pty Ltd[41], Kitto J noted that, under the Torrens system, the mortgagor had a legal title, not an equity of redemption. The mortgagor remains the proprietor of the fee simple in the land both at law and in equity. He has a contractual right to pay off the debt and have the mortgage removed from the register.[42]
[41](1963) 113 CLR 265 at 275.
[42] Windella (NSW) Pty Ltd v Hughes (1999) 49 NSWLR 158; Fisher, William Richard Fisher and Lightwood's Law of Mortgage. 2nd Australian ed. (2005) at 124 [4.7].

The right is also partly founded in equity. Steytler J in Sandgate Corporation Pty Ltd v Ionnou Nominees Pty Ltd[43] said:

… it seems plain that in Australia the expression “right to redemption” has come to comprehend the legal right to have the mortgage discharged as a matter of contractual right if the mortgagee is paid by the due date and also the truly equitable right to “have the land restored” if there is a payment after the due date but before foreclosure.

[43](2000) 22 WAR 172 at 184.

There is another important component of the right which also has its source in equity. After the mortgagee has taken possession of the property following a default, but prior to the exercise of the power of sale, the mortgagor is in a position to restrain the sale by court order provided he pays into court or to the mortgagee the amount of the mortgage debt, or if this is disputed, the amount claimed by the mortgagee to be due for principal, interest, costs and expenses of the sale.[44] As Herring CJ said in Re Forrest Trust:[45]

Express provision might, of course, be made for a contractual right to redeem in the contractual part of a mortgage under the Act and possibly such a right might be said to exist by implication, where repayment took place on the day appointed for payment by the covenant to repay on the mortgagor’s part. But after the time fixed for payment has passed, after, in other words, the mortgagor is in default, a right to redeem does undoubtedly exist ...
And it would be to a Court of Equity that a mortgagor would have to turn to recover possession from a mortgagee who had entered into possession, upon default by the mortgagor, in the exercise of the statutory right to take possession conferred upon him by the Act. For this right in the mortgagee would defeat any proceedings at law, based upon the mortgagor’s legal title, for the recovery of possession. An equity, for its part, could only come to the assistance of the mortgagor in default upon his fulfilling his obligations under the mortgage. It could not compel the mortgagee to sign and hand over a memorandum of discharge or to deliver up possession except upon payment by the mortgagor of all the money due by him to the mortgagee.

[44]Inglis v Commonwealth Trading Bank of Australia [1972] 126 CLR 161 at 164 per Walsh J; Allfox Building Pty Ltd v Bank of Melbourne Ltd (1992) NSW ConvR 55-634 (Supreme Court of NSW, Equity Division, Powell J).

[45] Re Forrest Trust. Trustees Executors and Agency Co Ltd v Anson [ 1953] VLR 246 at 256 and 257.

If there has been, or will be, some impropriety as the Plaintiff says it fears, the Plaintiff will still be entitled to seek an account on a wilful neglect and default basis, and if, on that account being taken, a balance be found due to it, to have an order for that balance.

[112](1992) NSW ConvR [55-634] at 59,629.

It may be noted that in Pendlebury and the New South Wales cases to which I have referred, accounts were ordered where the mortgagee improperly exercised its power of sale by selling at an undervalue.

The principal texts on the subject are all to the same effect.[113] In Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th Ed, 2002, the learned authors say:[114]
[113]See: Fisher and Lightwood, Law of Mortgage (Second Australian Edition) 2005 at 812-813 [39.24]; Sykes and Walker, The Law of Securities, 5th Ed, 1993 at 142; and Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th Ed, 2002, at 875-876 [25-035] and 881–2 [25-070].
[114]Ibid at 870 [25-015] and 881-882 [25-070].

Where the plaintiff was relying on his equitable right, he was always entitled to a decree for accounts if an account was necessary to give effect to his equitable right;

and further:
Accounts between a mortgagor and his mortgagee are essential in all redemption and foreclosure actions; in addition, in the case where a mortgagee has exercised his power of sale, the mortgagor may successfully demand accounts if he is suing to recover surplus proceeds of sale.

The last observation was made in the context of a party suing for surplus proceeds following the exercise of a power of sale.

I see no reason in principle to confine the remedy of accounts to the factual circumstances which have hitherto arisen. The remedy is equally appropriate to other breaches of a mortgagee’s obligations under s.77(1) TLA, such as the breach I have found in this case.

The Remedy of Accounts

An account of profits is an equitable remedy and is hence discretionary.[115] It is also a flexible remedy. It has its roots in equity. It bears no analogy to common law damages or its equitable equivalent. From at least the year 1200, there was a common law action of account in England. However, as a consequence of the elaborate technicality of the action and the lengthy and cumbrous nature of the associated procedure, which has been described as a monstrum horrendum, it fell into disuse. By the mid-18th century the common law action was superseded by the more versatile equitable remedy of account.[116]
[115]Patricia Loughlan, ‘The Historical Role of the Equitable Jurisdiction’ in Patrick Parkinson (ed), The Principles of Equity (1996) 3, 17 [109]; Ian Davidson, ‘Taking Accounts’ in Patrick Parkinson (ed), The Principles of Equity (1996) 880, 887 [2605].
[116]Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th Ed, 2002, at 869-870

The scope of the modern remedy has not been authoritatively determined.[117] Whilst its principal application has been in the area of the equitable wrongs of breach of fiduciary obligations and obligations of confidence, the remedy has also been available to common law wrongs, although the limit of such applications remains open. The learned authors of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies say:[118]

Where the plaintiff was relying on a common law right, the position was not so clear. The Chancery Court refused to say when it would grant and when withhold its remedy. Lord Cottenham LC said in North-Eastern Railway Co v Martin (1848) 2 Ph 758 at 762; 41 ER 1136 at 1138 that it was "impossible with precision to lay down rules or establish definitions as to the cases in which it may be proper for this court to exercise this jurisdiction". Again and again it was said that the jurisdiction would not be exercised where the case could be disposed of as fully and conveniently by a court of common law but, in view of the admitted deficiencies of the common law remedy, it is not easy in retrospect to imagine many cases which would fit this description.

[117] Doyle and Wright, “Restitutionary Damages—The Unnecessary Remedy?”[2001] MULR 1.

[118](4th ed, 2002) 870 [25-015].

The equitable remedy of account has been applied principally in two circumstances. The first is where an order is made by which the wrongdoer is “stripped” of any net gain and is ordered to pay it to the other. By this means, a monetary relief is achieved, in the nature of a payment of what, in conscience, belongs to the other. An example of this application was considered by Windeyer J in ColbeamPalmer Ltd v Stock Affiliates Pty Ltd[119] where his Honour noted, in the context of a case of trade mark infringement, that “the account of profits retains the characteristics of its origin in the Court of Chancery. By it a Defendant is made to account for, and is then stripped of, profits he has made which it would be unconscionable for him to retain”. Windeyer J also observed in relation to the distinction between damages and the taking of accounts in this context:[120]

As profits, not damages were asked for, it is irrelevant to contrast the position in regard to damages. … I merely mention that different considerations may govern an enquiry as to damages; for damages being in origin a common law remedy …

[119][1970] 122 CLR 25 at 34–35.

[120] Ibid at 35.

The second principal type of case where accounts are taken arises from circumstances in which it becomes necessary to undertake a detailed inquiry into the financial liability of one party to another. One of the instances where the taking of an account may be ordered is where damages at law is inappropriate as a vehicle for relief because what is involved is essentially an accounting exercise where a specific sum is sought to restore the position of the parties. In such a case the taking of an account may be ordered to determine precisely what is owing by one party to the other. An example of this application is Denmark Productions Ltd v Boscobel Productions Ltd.[121] A taking of an account may also be ordered in cases in which a claim for damages is too complex to be determined at law: O’Connor v Spaight[122]; Taff Vale Railway Co v Nixon.[123]
[121][1969] 1 Q.B. 699 at 727 per Salmon LJ.
[122](1804) Ch 305.
[123][1847] 1 HL Cas11.

Reference is made to Nocton v Lord Ashburton[124] which underlines the flexibility of courts of equity in measuring damages. Although equity follows the law and equitable relief such as the award of equitable damages may often be assessed on principles which follow those applied in a consideration of common law damages,[125] this is not a rigid rule. For example, the variety of situations in which equitable damages may be assessed may not always lend themselves to the application of the principles which apply to the common law remedy of damages.[126]
[124][1914] AC 932 at 958 per Viscount Haldane LC.
[125]See for example the assessment of Dixon AJ (as he then was) in McKenzie v McDonald [1927] VLR 134 at 146.
[126]Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [2000] 2 Qd 359 per Thomas JA at 371 [38].

This was the approach preferred by Megarry J in Wroth v Tyler[127] in assessing damages available to the plaintiffs under Lord Cairns’ Act in a case where the defendant refused to proceed with the sale of his house to the plaintiffs in the face of a demand for specific performance. His Honour said:[128]

… the court has jurisdiction to award such [equitable] damages as will put the plaintiff in as good a position as if the contract had been performed, even if to do so means awarding damages assessed by reference to a period subsequent to the date of breach.

Megarry J then proceeded to award date of judgment damages.[129] In Grant v Dawkins[130] Goff J determined that the property in issue should be valued for the purposes of determining damages in addition to specific performance under Lord Cairns’ Act, at the date for completion in the court order, rather than the date of breach, thus giving the plaintiff the benefit of appreciation in value between those dates.

[127][1973] 2 WLR 405.

[128] Ibid at 407.

[129]Compare. Johnson v Agnew [1979] 2 WLR 487 in which Lord Wilberforce disagreed with Wroth v Tyler in so far as it suggested that damages under Lord Cairns’ Act should be awarded on a different basis from common law damages.

[130][1973] 1 WLR 1406.

However, as observed by the learned authors of Meagher, Gummow and Lehane, Equity Doctrines and Remedies,[131] the cases in this area are “tortuous”.
[131] 4th ed., 2002, at 848-851.

For example, in Bosaid v Andry,[132] Sholl J held[133] that both at common law and under Lord Cairns’ Act damages should be awarded “at the time when the contract goes or is deemed to be gone”, which, in that case however, coincided with the date of the judgment declaring the plaintiff’s right to judgment.
[132][1963] VR 465.
[133] Ibid at 490.

On the other hand, in a Canadian case which followed, the more liberal approach was adopted. In Elsey et al v J.G.Collins Insurance Agencies Ltd,[134] Dickson J said:[135]

It will generally be appropriate to adopt in equity rules similar to those applicable at law… This is so not because the court is obliged to apply analogous legal criteria, but because the amount of compensation which would satisfy the loss suffered, and which the court considers it just and equitable to be paid, usually happens to be equivalent to the amount of legal damages which would be appropriate. The award is still governed, however, by general equitable considerations which would not apply if the plaintiff were seeking damages at law rather than in equity.

In my opinion, this statement of principle is entirely correct.

[134](1978) 83 DLR (3d) 1.

[135]Ibid at 12.

Although the question of whether an award of equitable damages must follow the common law has not been settled, the remedy of taking accounts clearly does not operate in its shadow. It is a distinct remedy which operates on equitable principles.

Application of Accounts to this Case
Approach

In this case, it is necessary to determine Mr Nolan’s entitlement to monetary relief, if any. This is to be done by comparing the position arising from the loss of his legal interest in Lot 1 and the dwelling house situated on the land, with the position he would have been in had he retained Lot 1 and the house. If Mr Nolan would have been worse off by reason of the loss of Lot 1 and the house, this would arise directly from MBF’s breach of duty which I have found, and a money sum would be payable by it to Mr Nolan so as to, as nearly as possible, put him in the position which he would have been had it not been for MBF’s wilful default. In other words, the account must reflect the difference between the hypothetical situation of Mr Nolan in the absence of the infringement of his rights, and his actual situation given the infringement.

In my opinion, in order to properly restore Mr Nolan to the position he would have been in but for the transgression on the part of his mortgagee which I have found, it is essential that an account be taken to give effect to Mr Nolan’s right. An examination of nearly eight years of transactions on the part of Mr Nolan is called for in order to arrive at a specific sum to adjust the position of the parties. The exercise is likely to involve a degree of complexity which will make it suitable for the taking of accounts. The remedy also has the advantage of its inherent flexibility, which also makes it the appropriate vehicle for relief.

Date on Which Accounts Should Commence

The time for the commencement of the calculation should be 15 November 2001, the time of the settlement of Lot 1 pursuant to the binding contract of sale entered into on 18 August 2001. This was the date by which Mr Nolan and his family were required to vacate the property and occupy alternative premises.

Date to Which Accounts Should be Taken

In order to properly restore Mr Nolan to the position he would have been in, but for the infringement of the mortgagee, it is just and equitable in this case for the final date of the account to be the date of judgment.

Any assessment based on the taking of an account in this case, if it was to be undertaken, would be analogous to the exercise involved in accounting for a trust asset, for example a business which has been mismanaged by a trustee. This will commonly be determined by assessing where the business ought to have been at the time of the accounting, had it been managed properly. As such a court of equity may assess the value of the diminished asset which it should have had at the time of judgment.[136]
[136]Getzler 'Am I My Beneficiary's Keeper? Fusion and Loss-Based Fiduciary Remedies' in S Degeling and J Edelman (eds.), Equity in Commercial Law, LBC (2005), at 262.

I bear in mind the observation of the Strasbourg Court in Cosic v Croatia[137] that “the loss of one’s home is a most extreme form of interference with the right to respect for the home”. I also take into account the long term and adverse effect on Mr Nolan caused by the wilful default of MBF as I have found it to be. A detrimental financial impact, if there was such an impact, is likely to have continued for numbers of years. The conduct of MBF on the day of the auction was harsh, unreasonable and unnecessary. I had the advantage of observing Mr Nolan in the witness box during the trial. I accept that he was justifiably and deeply upset by the conduct of MBF on that day. He was visibly affected by having to recount the events at the auction sale leading up to the decision by MBF to sell his home.
[137]Judgment of 15.01.2009, Application No. 28261/06.

I also take these matters into account on the question of delay. The breach of duty on the part of MBF occurred on the day of the auction sale, 18 August 2001. Mr Nolan did not issue his writ until 7 March 2007. Although, this may be considered an unusually lengthy delay in prosecuting his rights, properly considered as it should be by a court of equity in the context of the circumstances of the case as a whole, I do not consider that the delay was such that it would be just and equitable to set an earlier date for the assessment.

Furthermore, a court of equity may undertake the exercise with the full benefit of hindsight. Foreseeability has no part to play in the assessment involved in the taking of accounts in equity. With the object of putting the wronged plaintiff back into the position he would have been in, but for the infringement of his rights, the equitable approach is to look at what has actually happened to the value of assets, and what transactions took place, in later years. If necessary, the calculation can also embrace an assessment of loss of a chance.[138]
[138]See: Getzler 'Am I My Beneficiary's Keeper? Fusion and Loss-Based Fiduciary Remedies' in S Degeling and J Edelman (eds.), Equity in Commercial Law, LBC (2005), at 262.; and the Canadian case, Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 556, per McLachlin J.

Accordingly, the time to which the account should be calculated should be the date of the pronouncement of the judgment ordering the defendant to pay to the plaintiff the amount, if any, found due on the taking of the account.

Suitability of Accounts for this Case

The plaintiff has presented his case on quantum thus far in a manner consistent with the taking of accounts, although it was framed in terms of a claim for equitable compensation. He did not formally seek an order for the taking of an account and his case, if it is to be put on this basis, is not complete.

The particulars of loss and damage, which took the form of accounting calculations undertaken by the plaintiff, were only produced on the first day of the trial. I am not satisfied that the defendant has had an adequate opportunity to address the account, so far as it goes. To take one example: the plaintiff’s account makes reference to $101,250 expended in stamp duty and legal costs arising from the acquisition of a new dwelling house. The account also includes reference to the cost mortgage payments on the new dwelling house totalling $39,000 at the rate of $13,000 per annum for 3 years. However, no further details of this property purchase were provided, and no cross-examination was conducted by the defendant on the details of this seemingly important transaction.

The statement of claim seeks, in addition to the other relief claimed: “E. Such further or other orders as this Honourable Court considers appropriate”. If an order was made granting the relief sought by the plaintiff in paragraph E of its statement of claim it would be open to make an order for the taking of an account. Such an order would be within the scope of the paragraph. It would also be clearly appropriate that I should make such an order, in the light of the authorities to which I have referred.

However, neither party addressed this line of cases or made submissions as to whether the taking of an account was the appropriate relief, if any was to be granted. There may well be factors which would militate against the making of an order for the taking of an account at this point, and I am not prepared to make such an order without having the advantage of hearing further from the parties.

Orders

Were I to make an order for the taking of an account, I would follow the principles referred to by Whelan J in St George Bank Ltd v Irani.[139]
[139][2007] VSC 382.

The taking of the account, if the order is to be made, would be undertaken on the basis of the findings of fact and law which I have made in this judgment. Issues already determined against a party should not be sought to be re-litigated in the course of any accounting.

Further, given the extensive material produced on discovery in the proceedings thus far, and that liability has been finally determined in this proceeding, and further given that some key findings on the quantum of loss are able to be made, like Whelan J in St George Bank, I would not be prepared to order further discovery in relation to any accounting in the absence of affidavit material demonstrating the existence, or likely existence, of specific relevant undiscovered documents.

The orders I would make would finally dispose of this proceeding save for any accounting to be undertaken by an Associate Judge. I would reserve liberty to the parties to apply so that any dispute which arises before the Associate Judge can be brought before me if it is considered that this would be appropriate.

Were I to make orders for the taking of an account, and subject to hearing the parties on the question, they would be the following orders:

1.That an account be taken before an Associate Judge of the Court pursuant to Order 52 of the Supreme Court (General Civil Procedure) Rules to determine the amount owing by the defendant to the plaintiff arising from the wilful default of the defendant which I have found in accordance with the reasons here delivered.
2.The account be taken in accordance with the following directions, and otherwise as the Associate Judge may direct from time to time:
(a)The proceeding is referred to the Associate Judge responsible for listing for allocation to an Associate Judge in accordance with this order.
(b)The Associate Judge so appointed shall determine the amount, if any, owing by the defendant to the plaintiff.
(c)In accordance with the directions of the appointed Associate Judge, the parties may file and serve any further affidavits which are relevant to the taking of the account and rely upon the same.
(d)The defendant may file and serve interrogatories for the interrogation of the plaintiff in accordance with the directions of the appointed Associate Judge.

(e)The costs of the accounting are reserved to the Associate Judge taking the account.

3.Pursuant to Rule 52.01(2) of the Supreme Court (General Civil Procedure) Rules, the defendant is to pay the plaintiff the amount, if any, found due on the taking of the account.

4. Liberty to apply is reserved to the parties.

Pending the further hearing which is proposed, I make the following orders:

1.The proceeding be adjourned and re-listed to enable the parties to make submissions on the question as to whether an order for the taking of an account should be made, and the form of any such order.
2.At the re-listed hearing I will also hear the parties on the question of the costs of the proceeding to date, including whether those costs should be awarded now, or whether the award should await the outcome of the taking of the account, should this be ordered.

---

[2009] VSC 244

18 June 2009