Ronan v ANZ Banking Group Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL Not Restricted

No. 11583 of 1992

GERARD MICHAEL RONAN & ORS

Appellants

AUSTRALIA & NEW ZEALAND BANKING
GROUP LTD.

Respondent

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JUDGES:	ORMISTON, CALLAWAY and BATT, JJ.A.
WHERE HELD:	MELBOURNE
DATES OF HEARING:	2, 3 and 4 August 1999
DATE OF JUDGMENT:	12 May 2000
MEDIUM NEUTRAL CITATION:	[2000] VSCA 77

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MORTGAGE – Security for partnership account – Successive changes in partnerships under same name – Whether default and whether mortgagee entitled to possession and balance owing on partnership account – Whether mortgage secured repayment of moneys advanced to later partnerships after death of mortgagor – Construction of terms "mortgagor" and "customer" – Whether proper notice of death of mortgagor given by executors to determine collateral liability of estate for future advances – Whether (alternatively) land subject to equitable mortgage by deposit of title deeds and whether estate estopped from denying equitable mortgage – Whether mortgage discharged upon repayment of farm development loan – Whether offer to repay debt which bank wrongly refused to accept – Whether mortgagee wrongly refused to sell one mortgaged property to two mortgagors – Whether breach of duty in selling that property at $5000 less than price offered by two mortgagors – Bias – Whether trial judge disqualified by reason of moderate shareholding in plaintiff bank.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr R. Gillard, Q.C. and Mr M.P. Pirrie	Purcell, Balfe & Webb
For the Respondent	Mr B.J. Shaw, Q.C. and Mr M.L. Sifris	Dunhill Madden Butler

ORMISTON, J.A.:

BATT, J.A.

This appeal has been brought by three of the defendants to an action in which the respondent Australia & New Zealand Banking Group Ltd. ("ANZ", or "the Bank") successfully sued those defendants: (i) for an amount which at the trial was agreed at $225,000 (including interest to the start of the trial) said to be owing to the Bank on an overdraft account and (ii) for recovery of possession of a property known as the "Springbank" land, being land which the Bank claimed secured that amount and the title to which was vested in three of the defendants as executors of the estate of their father John James Ronan who died on 2 November 1975. The first two appellants Gerard Michael Ronan and John Thomas Ronan, together with a defendant who is not an appellant, namely Patrick John Ronan, were those executors, but all defendants were (on the face of the judgment) made liable for the debt and for possession, though the other three defendants had no title to the land and though, as the learned judge stated, judgment for the debt had been sought only against the appellant-defendants. The third appellant is Margaret Mary Ronan who is the wife of John Thomas Ronan who, together with the other defendants including those who are not appellants but who are the wives of the other two executors, carried on business in partnership farming that property as well as other properties in the Springbank area, although the members of those partnerships changed from time to time. In particular, Patrick John Ronan and his wife Patricia Ann Ronan withdrew from these partnerships in 1985 and were sued only because the primary debt in question, originally in the order of only $95,000, was incurred before that time. It will be necessary briefly to refer to the parties to this appeal at a later stage. A counterclaim brought by the defendants seeking a number of remedies was dismissed.

The action for recovery of possession and to recover the money sum with interest and the counterclaim raised a large number of issues which required an examination of the parties' relationships from before 1975 to almost the present day, especially as the appellants' counterclaims raised issues as to other mortgage securities. However, because of a disagreement as to the ANZ's conduct of their bank accounts in 1985, effectively the Ronans had taken their business elsewhere at that time, so that what remained at issue between them was the outstanding partnership debt of $200,938.35 (as at 26 August 1985), with its burgeoning liability for interest, and the enforcement of what the Bank claimed to be its registered mortgage (alternatively, its mortgage by way of deposit of title deeds or by estoppel) over the Springbank land. Various reasons led to the Bank's deferring action until 1992, at which stage it had already sold other property at Wallace ("the Wallace land"), also mortgaged to secure the same debt (or part thereof), to one Mayer in 1989, but the Bank's right to make that sale and its method of selling were raised as issues in the present proceeding, to which two grounds of appeal relate (grounds 8 and 9).

Thus the issues raised in the appeal cover a wide range. Apart from the grounds which assert that the Bank breached its duties as mortgagee when selling the Wallace land to Mr Mayer because it breached an alleged undertaking as to enforcement and because it sold at a price less than that offered by the first and second appellants, the notice of appeal raised an issue as to the alleged ostensible bias of the trial judge inasmuch as it was said that he had a proprietary and/or a pecuniary interest in the outcome of the proceeding in that he had an "indirect interest" in a "moderate number of shares" issued by the respondent Bank (ground 1). The other grounds, ground 3 to 7 (ground 2 being abandoned in argument), raised issues as to the relationship of the parties and in particular issues whether the amount outstanding by the partnerships was secured by the Springbank land, whether the debt had been repaid, and whether any moneys otherwise were owing in respect of the mortgage obligations.

It is first necessary to say something of the circumstances which give rise to the appeal, although further facts raised in relation to particular grounds of appeal will be set out as we deal with each such ground. The learned judge stated most of the relevant detail in his comprehensive judgment at pages 2 to 26, although the appellants disagree as to the emphasis given on some matters and in relation to a limited number of facts which will be mentioned more specifically below.

In 1961 John James Ronan, the father of the first two appellants and of their brother Patrick, entered into a partnership with his wife Margaret Ronan and his three sons to carry on farming and in particular growing and selling potatoes under the name "J. Ronan & Sons", which was the first partnership to carry on business under that name. The father effectively managed the partnership, at least until the last few years of his life. It seems that from about 1939 he had conducted his banking business with the ANZ but in about September 1972 the first partnership opened a trading account with the Bank in the firm name. As security for the facilities which the Bank would provide the partnership, John James Ronan executed a mortgage on 20 September 1972 over two parcels of land, for present purposes called "the Springbank land", one of which he had obtained by way of Crown grant in 1936 and the other by transfer of Crown grant in 1948, which remained in his name to that time. The mortgage, described in detail in paras.47 to 49 below, took the form customary at that time, containing some 40 elaborate and minutely printed covenants. It is sufficient to state at this stage that it was given in consideration of "all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given" "to for or on account of the Mortgagor and/or to for or on account of The Firm of J. Ronan & Sons ...". Presently in issue is whether that mortgage is enforceable against the first two appellants (as well as their brother Patrick) as executors and trustees of their father's estate and in particular whether the mortgage continued to provide security in respect of successive partnerships' liabilities pursuant to a specific clause to that effect, where it is contended that notice was given of the father's death pursuant to a clause which entitled the personal representatives to give such notice in order to relieve the estate from liability for future debts, but where in the present case the Bank came to know of that death only on an informal basis. The question also has arisen whether the father and his personal representatives should be treated as "the customer", or at least encompassed by that expression, for the purpose of the application of certain of these provisions, which will be set out in detail later in the course of discussing ground 3, which raises the proper interpretation and operation of the mortgage.

As John James Ronan grew older so, as the learned judge found, the sons took on greater responsibilities (although that was denied by the first appellant), inasmuch as the latter and his brothers discussed with their father the opening of various bank accounts on behalf of the partnership and the means by which the partnership might obtain funds. Margaret Ronan died on 22 June 1975, while the account was overdrawn to the extent of $3,126, but the remaining partners continued to conduct the business under the firm name by way of a second partnership using the same bank account. John James Ronan died on 2 November 1975. The three sons, including the first two appellants, were not merely the executors of his will but took the Springbank land beneficially as specific devisees. It is common ground that the Bank learned of the father's death on about 3 November and in due course it likewise became aware of the interest of the three brothers in the land. On 3 November the Bank's manager, one Richards, wrote to each of the appellants expressing its sorrow and sympathy, and advising that in due course ANZ "would need to take a fresh authority for operations in respect of the firm's accounts ...". On 28 November 1975 it obtained the signature of the three executors by way of an authority for operations.

At the time of the father's death the partnership account was overdrawn to the extent of $5,103.79. On 1 December the sum of $5,180.69 was transferred into the account from other partnership accounts, which put that account in credit, so that the Bank statement contained a notation in relation to that transfer that it was "to close account". Perhaps it would be more accurate to describe that transaction as paying off the overdraft, for the three sons took over the partnership business, operating it otherwise as before and under the name J. Ronan & Sons until 1 July 1979, and thus being the third partnership to operate under that name. Throughout that period they continued to operate on the same bank account. At one stage an approved temporary advance ("ATA") for $7,500 was made available but, as the judge found, the account limped along until January 1978, generally with a fluctuating debit balance but without any formal arrangements relating to overdrawing that account.

It seems from the Bank diary at that time that the Bank looked primarily to an "investment and term deposit" account held by the partnership as a source from which funds could be obtained to cover the debit balance. It also seems that at the trial it was accepted by counsel for the Bank that there was no evidence that the Bank at this time, i.e. before 1980, actively regarded the mortgage as a security for those informal facilities. That did not mean, the judge found, that the Bank did not consider that the mortgage was a security, but the appellants disagree with his Honour's view of the relationship. In January 1978 the Bank agreed to provide an overdraft facility of $6,000 on that bank account. The account continued to fluctuate until 1982 although more often than not it was overdrawn. Some time before 1982 the facility was increased to $15,000.

On 6 October 1978 the first two appellants and their brother Patrick obtained probate of their father's will. The following year, effective from 1 July 1979, they formed a new partnership ("the Fourth Partnership") with their three wives, using again the name J. Ronan & Sons. It seems, however, that the Bank was not informed of the existence of this Fourth Partnership until 1984 and that it assumed throughout the period that the business was operated only by the three brothers.

In February 1982 the three brothers purchased another property for use in the business, the Wallace land, consisting of some 150 acres and appearing on two certificates of title. For various reasons the title comprising the smaller area was ultimately registered in the name of the first appellant and that comprising the larger area was registered in the name of the second appellant and his brother Patrick as tenants in common in equal shares. To acquire this land the partnership drew down funds from other accounts and borrowed from the Bank some $80,000 by way of a "farm development loan" on or about 31 March 1982, although the Bank assumed still that the persons borrowing the money were the three sons. For this purpose the ANZ prepared an offer of loan document dated 23 March 1982 setting out the terms and conditions upon which the Bank was prepared to lend the money. The learned judge found that the Bank had forwarded the document to the brothers, although that was disputed upon the hearing of the appeal on the basis that the second appellant had said that he signed it only in the Bank's offices and without having had time to read or understand it. It contained the following term (clause 9(a)) upon which the respondent Bank relied:

"The making of the Loan shall be conditional upon the Bank holding the following securities:–
HELD
Registered Mortgage over farm property.
TO BE TAKEN
Registered Mortgage over farm property being purchased…."

The latter four lines were in typed form and the Bank contended that it was clear from them that it would continue to hold the existing mortgage over the Springbank land and was requiring new mortgages over the Wallace land. The learned judge accepted that upon its proper construction and having regard to all the circumstances the expression "farm property" under the word "HELD" must refer to the Springbank land and he pointed out that a document, signed 31 March 1982 and accepting the offer, contained a clause whereby they acknowledged that they had read, understood and accepted the terms and conditions set out in the loan document. The appellants have argued that this inference as to the operation of the security and their knowledge was not open to the judge (ground 4).

From March 1982 until about early 1985 (and thereafter) both accounts were usually overdrawn and the overdrawing increased with time. The members of the partnership at that time fell significantly behind in their payments under the farm development loan. To meet that situation a bill facility was provided by ANZ in 1983 which likewise grew over the next year or so. By late 1984 the total debt exceeded $170,000. The bank manager said that his power to grant further facilities was limited, so that, if more were required, authority had to be obtained from head office. An application for authority was ordinarily put forward on a form entitled "Abridged Advance Application" ("AAA"), which set out, among other matters, the security applicable to the facility and its value. Numerous AAA forms were put in evidence with each of the parties placing reliance upon them both at the trial and on this appeal. It is unnecessary to say anything further at this stage about them other than that the learned judge concluded, notwithstanding the arguments based on them put to him by the appellants, that the respondent regarded itself as holding the title of the Springbank land as security and not merely for safekeeping purposes, as was argued.

In the latter part of 1984 a dispute arose between Patrick Ronan and his wife on the one hand and the other members of the partnership on the other. As a result Patrick and his wife effectively walked out of the partnership in late October. The Bank had been pressing John Ronan to reduce the partnership debt, discussing with him the possible sale of the Wallace land if that was not done. Then on 22 November Patrick wrote to the Bank stating that he was not allowing further debts to be incurred on the account. The following day the Bank wrote to the other two brothers stating that it would have to stop the account until further notice but suggesting that the problem might be overcome if all partners were required to sign cheques. Consequently the Fourth Partnership temporarily ceased trading with the respondent Bank. Shortly afterwards Patrick Ronan lifted his restriction upon condition that all future cheques were countersigned by him, so that a fresh authority for operations was then signed by all six partners on 11 December 1984. A further AAA form was then completed which referred to total securities as being "2 x RGM/-F'hold" and which valued the land at a total of $191,900 but added the words "(revaluation to be carried prior to 31.12.84)". The acting bank manager, one Turnbull, then visited the farm on 18 December with a view to meeting all the partners and also to inspecting the lands which might be the subject of new securities for the purpose of the loan facility. It seems that Mr Turnbull inspected several properties at the appellants' invitation but they contended that he did not inspect the Springbank land, only other land at Springbank then held by one or more of the partners and which is not the subject of the present proceedings. Nevertheless the learned judge accepted the evidence of the acting bank manager that he did inspect the Springbank land for the purpose of updating the valuation and that he walked over it "with the knowledge, if not at the invitation, of the Ronans". A card containing Mr Turnbull's contemporaneous note and describing the Springbank property in some detail was put in evidence, but the appellants have contended on this appeal that the evidence was insufficient to establish that such an inspection took place.

It was hoped that at this meeting some agreement might be reached between all six partners. There was only qualified success in the sense that they agreed to pay all outstanding creditors, but, apart from a few cheques paid in accordance with that arrangement, there were no further transactions effected through the account, though it continued to accrue interest and charges. Not long after, early in 1985, Patrick Ronan resiled from the agreement and the relationship of the parties became more acrimonious. Effectively the Fourth Partnership was at an end but of course its debts remained unpaid. As a further consequence the other Ronan brothers and their wives commenced a new partnership ("the Fifth Partnership"), opening a new account and providing separate security inasmuch as it was not over either the Springbank or Wallace land.

In May 1985, however, a further disagreement arose between the Bank and the Ronans, or at least the members of the Fifth Partnership. Some time in May the Bank dishonoured a cheque drawn by the new partners in relation to the payment for a potato harvester in the sum of $13,500. The non-payment probably arose out of a misunderstanding but it came on top of the dishonour of a smaller cheque the previous December. When Mr John Ronan raised the matter with the Bank, Mr Ronan seemed unwilling to accept its explanation nor did he seem willing to put forward any new proposals as to the payment of the existing partnership debts. This conversation led the Bank to send a letter to each of the partners pointing out that the total debts as at that time amounted to $199,925. It observed that the Bank was not prepared to let the matter continue indefinitely and threatened the possibility of legal action to recover the debts in full if agreement were not reached. Whether or not the dishonouring of the cheque had a detrimental effect on the Ronans' commercial reputation, as Mr John Ronan asserted, the combination of events led to his telling the Bank that the Ronans would leave it and commence banking with the Commonwealth Bank.

The next series of events is seemingly confused inasmuch as the appellants contend that they asked the respondent for the figure to pay out the relevant account and that the Fifth Partnership obtained approval from the Commonwealth Bank (which seems to have included its related entities) for a loan of $200,000 to effect that payment out, but that the respondent Bank refused to accept the offer to pay out the account. The learned judge did not accept this contention, finding that there was neither offer nor tender of payment by the members of the new partnership after the pay-out figure had been obtained from the ANZ and the Commonwealth Bank had approved the loan.

There is much dispute and a great deal of assertion and counter-assertion as to the circumstances surrounding this allegation of the appellants based on events which occurred between August and November of 1985. Some details must here be examined for the purpose of considering ground 7 of the appeal, as follows. Although the appellants assert that it had been difficult to obtain a pay-out figure from the Bank, the latter had first informed them of the figure at the end of May 1985 and then, apparently before any of the matters upon which the appellants now rely occurred, it sent letters to each of them on 26 August 1985 stating that it had retired a commercial bill of $100,000 to the current account, so that the total debt outstanding was marginally increased at the relevant time to $200,938.35. As to this the Bank said that it was in their best interests to arrange settlement as soon as possible.

This is said to have led to a conversation between Mr John Ronan and Mr Dickson of the ANZ in which the latter was informed of the appellants' intention to pay out the debt. The former claimed to have asked Mr Dickson to inform the manager of the local branch of the Commonwealth Bank, one Hardwick, of the sum required. The appellants assert that, although this conversation took place some time between 23 and 29 August, the four members of the Fifth Partnership were then able to make a firm offer to pay out the full sum. Notwithstanding that, it seems that the first evidence of the Commonwealth Bank's approval of any loan to the Fifth Partnership was an "in principle" approval for a loan of precisely $200,000 on 30 August 1985. We did not understand it to be asserted that this approval was immediately communicated to any officer of the ANZ except later orally by one or other of the brothers. The only documentary evidence of approval for this amount is a letter sent much later by the Commonwealth Bank, dated 18 October 1989, to the appellants' then solicitors Doyle Cinque & Co. which said that it confirmed that on 30 August 1985 "the Bank approved in principle a term loan of $200,000 for J.T., M.M., G.M. and H.M. Ronan to assist them purchase their brother's land at Wallace".

Whether or not the members of the Fifth Partnership believed that loan could be applied immediately to paying out the joint debt of the former partnership is not clear. In any event the "in principle" approval was reduced on 16 September 1985 to a formal approval for a loan of only $185,000, evidence of which clearly appears in a letter from the Commonwealth Bank to Mr and Mrs John Ronan of the same date. The relevant documents suggest that this was subject to completion of an application for finance, the terms of which do not directly appear in the court documents. A later document, however, indicates that one of the stated purposes was also to assist to purchase a property for a new business venture, but that was subject to the giving of security over the Springbank land which was, of course, still held by all three brothers in their representative capacity and also beneficially. An internal memorandum of the Commonwealth Bank dated 23 September 1985 suggests that the manager sought approval from the Branch Lending Department in Melbourne for a term borrowing "to enable us to pay out the ANZ".

The proposed loan of $185,000 must have been clearly seen by the new partnership to be inadequate as by 30 September 1985 a further memorandum from the Branch Lending Department in Melbourne to the Ballarat branch indicated approval of a term loan of $200,000 as originally sought on the basis submitted. However, a bank statement from the Commonwealth Development Bank shows that on 4 October a debit for only $185,000 appeared in that new account, although it clearly did not represent any actual drawing. Then on 2 October 1985 the ANZ rang the appellants' solicitors to ascertain the latest position "in relation to dissolution". It seems that the other two brothers were prepared to purchase Patrick's share of Wallace but that proposal was seen by them to be unlikely to come to pass for various reasons. Letters were sent by the Bank to each of the Ronans on 4 October 1985 asking their solicitors to advise of the current position relating to dissolution and informing them that the former partnership account's debit balance was $140,964.34. Eleven days later Doyle Cinque & Co. on behalf of the Fifth Partnership wrote to the ANZ a detailed letter setting out what they understood the position was in relation to the various proposed changes. It said that they understood that the ANZ required the overdraft accounts (including the partnership account) to be paid out by 1 November 1985, which amounted to a sum they believed to exceed $200,000. They continued: "We would go along with this and we are instructed that our clients are ready willing and able to purchase the share of Pat Ronan and his wife in the partnership lands and other assets." The rest of the letter went into some detail about their frustration with Mr Patrick Ronan and his solicitors as to the basis upon which Mr Patrick Ronan would settle the partnership dispute, laying full blame "at Pat Ronan's doorstep". They concluded by saying they wished to demonstrate their clients' desire to finalise this matter but that it has only been "frustrated by the inaction and indecision of Mr Pat Ronan".

A number of mortgages of other land by one or more members of the Fifth Partnership were registered in favour of the Commonwealth Bank to support the proposed loan but no other positive step seems to have then been taken either to pay or tender the required amount to the ANZ. Consequently by 8 November the Bank again sent letters to the new partners setting out the amount of the current debt of the (former) partnership account and requiring it to be cleared. On 15 November 1985 Doyle Cinque & Co. again wrote to the respondent stating its desire to settle but no direct steps were then taken. It seems that the appellants assert that they had made constant communications with the ANZ and that it had failed to specify the amount required to pay out their obligations, but it is not clear on the evidence before the Court what form these communications took or what that Bank had failed to do. It seems that no other relevant correspondence was exchanged between the parties at this time. The loan offered by the Commonwealth Bank remained available for some time and on 4 February 1986 was extended to 30 April 1986, but it was never availed of.

As we have noted, the learned judge rejected the appellants' claim that these events resulted in either a tender or an offer to make tender which the Bank could not properly refuse. In substance he said that the only unconditional offer made, if it could be so described, was the offer made in August before the Commonwealth Bank had even given approval in principle and that no such other offer was made when the Commonwealth Bank had finally agreed to lend the full $200,000 to the Fifth Partnership. Thereafter, as his Honour concluded, resolution of the one dispute and payment out of the ANZ was tied by the new partners to settlement of their other dispute with their brother Patrick and his wife, as the letters from Doyle Cinque seemingly made clear. Consequently he held that it was those partners who were tying repayment of the Bank debt to the resolution of that dispute and it was the Bank which was seeking to find out when that dispute would be concluded, so that it might be assured that it could receive the payment which might then result. These conclusions are challenged by ground 7 of the appeal. In fact the dispute with Patrick was not resolved until September 1990, some five years later, and in that period there was no tender of the sum outstanding or even any offer to pay it, as we would understand the evidence.

Subsequent events, set out in detail in his Honour's judgment, appear to confirm both that the parties viewed the Springbank land as being held by the Bank as some kind of security for debts of the appellants (although the contrary is contended in ground 6 of the appeal) and that no tender of the amount outstanding was thereafter made. For its part the Bank wrote to the Ronans on a regular basis seeking to persuade them to pay the amounts outstanding, referring from time to time to "the risks they faced in relation to the properties" (expressed in the plural) held as security. Mr John Ronan alleged in evidence that he approached the area manager from the Bank showing him a letter from the Commonwealth Bank to demonstrate that they had the necessary funds available. But all the area manager stated was that they had not yet resolved the partnership dispute and that they should get on with settling that.

In March 1987 the Bank wrote to the Ronans saying that in the absence of satisfactory arrangements the Bank would have no alternative but to serve demands for payment as a means of forcing action. By July 1987 the relationship between Patrick Ronan and his wife on the one hand and the other members of the Ronan family on the other had become so entrenched that John and Gerard Ronan and their wives commenced proceedings against Patrick Ronan and his wife seeking relief in relation to the partnership dispute.

On 12 July 1988 the Bank served notices of demand on each of the Ronan brothers seeking payment of sums amounting to a little over $340,000 due on the partnership and farm development loan accounts, pursuant to what were now three mortgages, referring expressly to the mortgage over the Springbank land. Two days later the appellants' solicitors wrote asserting that their clients had done everything possible to resolve the problems which they blamed on Patrick Ronan. They asked that the Bank refrain from issuing a writ until the partnership dispute was resolved. They stated that little purpose would be served by commencing an action "when your bank has adequate security", there being no denial in the letter that the debt was secured by the mortgage over the Springbank land referred to in the notice. The solicitors added by way of comment a threat to make a counterclaim for damages in relation to an earlier transaction which from its context could only refer to the dishonouring of the cheque for the potato harvester, but there was no assertion by way of answer that the partnership debt ought to be treated as having been paid three years earlier or that the interest component should be substantially decreased for that reason.

A further notice was served the following month, the debt now amounting to close on $350,000. Two further replies were received from the appellants' solicitors, again containing the assertion that the matter would have been "settled long ago" but for Patrick Ronan's reneging on an agreement between the family. Negotiations with the Bank followed and in October 1988 counsel for the appellants made a general offer on their behalf to buy the two properties and to use the proceeds of any such sale to pay out the Bank, but no precise offer followed and the negotiations came to nothing.

On 9th November 1988 the Bank informed the appellants' solicitors that they desired to proceed with a mortgagee sale of the properties in question and enclosed forms of written consent to the Bank's taking possession of each of the mortgaged properties including the Springbank land. The appellants' solicitors wrote on 30 November saying their clients would be quite happy to sign those letters of consent for the purposes of a mortgagee sale. Other minor matters were referred to but there was no suggestion that their clients did not consider the Springbank land as security for the relevant debt.

However, on 19th January 1989 the appellants' solicitors wrote to the Bank's solicitors referring to the fact that their clients had not so far signed the draft consent to possession and stating that, so far as they were concerned, they believed that it would damage their credit rating if a mortgagee sale were effected, in particular that it might have consequences for their operations as producers of mineral water. They were, nevertheless, still prepared to discuss the matter provided they could avoid advertisements announcing mortgagee sales. Their potential counterclaims were again discussed but no reference was made to any of the issues now in dispute.

The Bank clearly felt that it was being frustrated at this stage and decided to file a writ, though one at that stage confined to claiming possession of the Wallace land, which writ was filed in the Supreme Court on 23 January 1989. This brought an immediate response from the appellants' solicitors who orally and by letter of 26 January indicated that they were prepared now to sign a consent to allow the Bank to enter into possession of the Wallace land for the purpose of its being sold. They also told the Bank that the appellants were prepared to make an offer to purchase the land at the Bank's valuation and would even purchase at the higher of two valuations if one was obtained by the Bank itself. After discussing other aspects the letter concluded:

"We confirm your undertaking to us that when we sign the Writs of Possession with acceptance of service you would not then proceed to Judgment until all of these avenues have been exhausted, and then only if they are unsuccessful. To save entering Judgment against our clients for possession of the Wallace land irrespective of what you may have to do with Pat Ronan, our clients would still be prepared to give you possession by written consent. This to save entering a Judgment which would again have some effect on their credit rating ...."

It is argued that the Bank's solicitors accepted the proposal in the letter of 26 January with the consequence, according to the appellants, that the Bank agreed to sell to them the Wallace land at the higher of the two valuations (ground 8(a)) and that in any event it would not proceed to a mortgagee's auction "until it exhausted all avenues to facilitate [the first and second appellants'] retention of ownership of the Wallace land ..." (ground 8(b)(i)).[1] The recollection of the solicitor acting for the Bank (Mr Wharton) was that no such agreement was entered into and that the letter then sent (on 3 February 1989), which stated that it was in answer to appellants’ letter of 26 January, as well as a letter subsequently sent on 14 February 1989 by the appellants' solicitors to him, merely reflected an undertaking by him that the Bank would not proceed to enter judgment until he had obtained full instructions as to the appellants' offer. This is said by the Bank to follow not merely from the notes Mr Wharton made at the time but also from the letter of 3 February, where he stated that he was instructed that his client was prepared to accept the appellants' consent to the Bank's taking possession of the mortgaged properties for the purpose of a sale. The letter proceeded:
"Our client has instructed us not to enter judgment against your clients provided:-
1.We receive the signed consent by Wednesday 15 February 1989;
2.We receive a Notice of Appearance by the same date; and
3.Your clients continue to co-operate with our client in a manner satisfactory to our client."

It continued by saying that, if these conditions were not met, his client reserved the right to act on the consent so as to enter judgment for possession. His client would, however, give further consideration, after receiving the valuer's report, "to the other matters you have raised", which the Bank says refers to the continuing negotiations. To this the appellants' solicitors had replied on 14 February enclosing a written consent and commenting that they had "therefore complied with all conditions and would be prepared then to discuss further matters as raised by us". The appellants also relied on a letter of 1 February 1989 from their solicitors to Mr John Ronan setting out the terms of what they believed had been agreed in a conference with the Bank's solicitors on 25 January. It referred to the solicitors’ accepting service of the writ on their behalf and to steps taken in order that a valuation be obtained for the land. It stated that the solicitors would then put to the Bank an offer by John and Gerard Ronan to buy at valuation and that they would agree that a further valuation might also be obtained for that purpose. It reported that John and Gerard Ronan would consider giving the Bank an indemnity against any possible claims by Patrick. It concluded by noting that the Bank's solicitors undertook not to enter judgment until negotiations were "fully exhausted". As it did not pass between the parties the letter may not be not strictly relevant, but in broad terms it describes the kind of negotiations which were being conducted between the parties at that time, although giving them a greater certainty than may be deduced from the Bank's letter of 3 February.

[1]This ground was not pursued: see below para.47, esp. the footnote.

A valuation (by the Bank’s valuer) of the Wallace land at $337,000 was received in March and there were various discussions at that time but it would seem no precise offer was made, the Bank in the meantime expressing the necessity that the appellants should give a written indemnity to the Bank against any claims to be made by Patrick Ronan against the Bank. On 9 June 1989 the Bank received, so the agreed summary states, a further valuation of the land at $240,000 from Elders Real Estate.

By 13 June 1989 the Bank's solicitors wrote to the appellants' solicitors stating that they had now obtained judgment against Mr Patrick Ronan for possession of the Wallace land and that they could therefore now proceed to sell it. They advised, "Unless we receive a firm written proposal from your clients by 16 June 1989", they had instructions to proceed to auction the land. They continued by stating that the Bank needed an offer to purchase the land for a sum sufficient to discharge the whole of the debt (then estimated to be in excess of $420,000) and an indemnity against any claim from Patrick Ronan and that the Bank would discharge its remaining mortgages over the Springbank land if the first two matters were resolved satisfactorily.

Doyle Cinque's response on 15 June 1989 made no such firm proposal, merely referring back to their client's offer in January to buy the land at the Bank's valuation. Although the appellants agreed to give an indemnity against any claim that Pat Ronan might make against the Bank, they said that the Bank's present requirements, presumably to discharge the whole of the debt, were inconsistent with their earlier offer and they would have to discuss the matter further with their clients. The Bank's solicitors, by letter dated 5 July, disputed that the Bank had in fact made new requirements or had altered its position. They therefore said that the Bank had instructed agents to start preparations for a mortgagee’s sale of the Wallace land.

There followed a series of correspondence which might be described as negotiations between the parties, as they were characterised by the learned judge, but for the most part they might be more accurately described as attempts to justify the attitudes of each side, none of the appellants' offers meeting the basic requirements laid down by the Bank. At one stage, in a letter dated 13 July 1989, they appeared close to accepting the Bank's requirements, but they insisted on a conference between representatives of the parties before any firm offer would be made. This proposal was rejected by the Bank on 27 July as too vague in effect and its solicitors sought a specific proposal from the appellants. In the same letter they advised that the auction of the Wallace land would take place on 1 September 1989.

In the succeeding few weeks there were a few imprecise proposals sent on behalf of the appellants but none met the Bank's requirements. On 1 September an auction of that land took place, conducted by Dalgety Farmers Ltd., at which Gerard and John Ronan bid up to $240,000, but the property was passed in at $285,000, although there were no genuine other bidders above $240,000.

Shortly after the auction the Bank received an offer of $272,500 from Mr Eric Mayer, the Chief Executive Officer of the National Mutual Life Association of Australasia Ltd., as it was then known. At about this time it also obtained a further valuation of the land, this time at $276,000. The appellants' solicitors then wrote on 13 September complaining of what they alleged to be the misleading way in which the auction had been conducted. A few days later, on 21 September, Mr Mayer increased his offer to $280,000 upon the basis that settlement would be within 30 days. On the same day Gerard and John Ronan made an offer for $285,000 to be payable within 60 days. The Bank took the view that the offer made by Mr Mayer was in all the circumstances the better offer and so instructed their solicitors to accept it the same day. The contract was not signed until 9 October 1989 but settlement was agreed to take place on 26 October. Although the appellants through their solicitors made attempts to purchase the land and sought to complain generally about the auction and the subsequent sale, settlement in fact took place on the latter day with the residue being paid, which amounted to $251,919.15 making allowance for adjustments. Consequently, on 30 October $195,919.15 was credited to the partnership overdraft account while $56,000 was credited to the Farm Development Account, which was sufficient to close that account. It was argued, however, under ground 5 that extinguishment of the farm development loan also discharged the mortgage over the Springbank land. A few days later some $10,986.04 out of the deposit of $28,000 was also credited to the overdraft account. The end result was that there was some $184,454 outstanding. The Bank's solicitors informed the appellants' solicitors of this fact and said that it intended to proceed with the sale of the Springbank land. That sale did not take place in the first instance, there being continuing fruitless discussions between the parties as to various ways and means of extinguishing the amount owing on the overdraft account.

It was these events in 1989 which have led to the arguments and grounds of appeal 8 and 9, whereby in substance the appellants complain that the Bank had agreed with the appellants and was thereby precluded from selling the Wallace land without offering it to the appellants and that, secondly, it had breached its duty as mortgagee when it sold that land to Mr Mayer for a price less than the offer of the first and second appellants.

Various subsequent attempts to reach agreement to discharge the overdraft account over the succeeding two and a half years were unsuccessful, although, as we have said, in late 1990 the first two appellants reached agreement with Patrick Ronan. The appellants, or more precisely Gerard and John Ronan, paid various sums during this period, as follows: on 19 January 1990, $62,109.74; on 13 February 1990, $6,500; on 30 August 1990, $7,821.54; on 9 September 1990, $6,749; on 12 September 1990, $41,542.92. During 1991 the appellants proposed subdividing the Springbank land but the respondent refused consent to any such application.

By early 1992 the Bank was becoming impatient inasmuch as something over $100,000 still owing on the overdraft account. In April 1992 it again threatened to commence proceedings to recover possession of the Springbank land. There was no effective response, so on 11 November 1992 the Bank served notices to pay pursuant to the terms of the mortgage. In a letter accompanying the notices it alleged that some $127,963.38 including fees and interest remained payable. There was no response, so on 2 December 1992 the Bank issued a writ against the first two appellants and Patrick John Ronan as executors of the estate of their father. (Their wives were added as defendants to the proceedings in April 1995.) The bank as plaintiff sought both recovery of the moneys owing and possession of the Springbank land. The defendants counterclaimed seeking a variety of relief, including orders that the mortgage was void or unenforceable, that it should be discharged, and that various dealings should be reopened and an account taken, and damages under the Trade Practices Act and for breach of the Bank's duty as mortgagee.

After a trial extending for two weeks, the learned judge gave a reserved judgment whereby he made orders in favour of the Bank as plaintiff for possession of the Springbank land and for payment of $225,000, which was agreed as the amount due if the appellants' defences were unsuccessful. The counterclaim was wholly dismissed. The appellants have brought this appeal challenging most of the principal findings of the judge at first instance, as mentioned above and which will be discussed below, seeking orders setting aside those of the learned judge and seeking in their place various orders in their favour.

Ground 1 – Allegation of Perceived Bias of Trial Judge

The first ground relied upon by the appellants states that the learned judge erred "in not disqualifying himself from hearing and determining the case, in the absence of consent from all parties, because, at the time, the judge had a proprietary and/or a pecuniary interest in the outcome of the proceeding in that he had an 'indirect interest' in a 'moderate number of shares' issued by the respondent (the plaintiff in the proceeding)".

In relation to this ground we have had the benefit of reading in draft form the reasons for judgment of Callaway, J.A. Subject to what we are about to say, we are in agreement with his reasoning and with his conclusion.

In the first place we are inclined to the conclusion that counsel then appearing on behalf of the appellants saw fit not to persist in the application, thereby effectively abandoning it. The relevant part of the transcript is set out in the judgment of Callaway, J.A. The judge had said only that he was "mind[ed] to disallow the objection" but that he was prepared to give counsel more time to look at the cases. That invitation was deferred while counsel "clarified" his position with his instructing solicitor. This led to his expressed conclusion that "that won't be necessary", referring not only to the clarification of his position but also to any need to consult the case law in order to present a more detailed argument. Although the judge had earlier stated in the course of his exchange with counsel that he thought that there could be "no reasonable apprehension of bias notwithstanding the indirect shareholding" which he had, it was clear that he was inviting argument on the matter, which counsel, no doubt sensibly, declined.

Even if we were wrong in our conclusion as to what counsel thereby intended, we are not persuaded, in applying the test perhaps most favourable to the appellants, that a fair-minded and informed observer might reasonably apprehend or suspect that the judge might not have brought an impartial and unprejudiced mind to the resolution of the issues in the case: State of Victoria v. Lamb[2]. Moreover, applying the test recently laid down as applicable to the pecuniary interests of judicial officers, we are not satisfied that the trial judge’s interest in the Bank was one of which it can be reasonably said that, as a direct result of the decision made, or of any decision which he was asked to make, that interest might be affected: see Clenae Pty. Ltd. v. Australian and New Zealand Banking Group Ltd.[3] Criticism was levelled at the learned judge because he did not disclose the precise size of his "moderate" holding. As pointed out by Callaway, J.A.[4], this alleged oversight was not the subject of any ground of appeal. We are cautious about suggesting that judicial officers should be under any obligation to disclose their private affairs unless it is absolutely necessary: cf. Clenae[5]. In any event, whatever may be comprehended by the term "moderate", that ought not to have led to his Honour's disqualification in the circumstances of this case. One may assume for the purposes of this argument that the value of his indirect holding was not inconsiderable but in our opinion, in the present case, which by chance relates to a shareholding in the very same public company as was the subject of the decision in Clenae, it is not the size of the judge's holding which is important in itself but the potential for his suffering any significant loss by reason of a decision adverse to that company, or for his making any significant gain by a decision to the contrary, which ought to be considered. Here the successful claim was for a mere $225,000, plus continuing interest, together with the additional right to ensure payment by enforcement of a security. The counterclaim raised the same questions but also put in issue other claims against the bank which might be thought hardly likely to exceed $1 million in total. The outcome of the litigation would therefore have minimal significance in relation to the overall income and assets of the respondent and nobody might reasonably perceive otherwise. Even if one were to view the decision relating to the construction of the mortgage as having some greater overall significance for the respondent, the decision related to a document prepared a quarter of a century or more previously.
[2][1999] VSCA 193 at para.46
[3][1999] VSCA 35 esp. at paras.3 and 59
[4]at para.98
[5]at para.62

Exercises of the latter kind, i.e., attempting to see how a decision in a particular case might have more general operation, show the vice of concentrating too firmly on the precise financial outcome of a particular case. Many decisions made by judges of superior courts can and frequently do have ramifications beyond the resolution of the particular case. The importance in terms of precedent may be of far greater significance to a judge or his or her family or close friends, and in theory might affect the mind of that judge to a much greater extent, than the mere alteration to share values. After all, judges are given permanence of tenure and salaries and pensions of a kind which should make ordinary share transactions of only incidental significance. Even those matters are intended to form merely the background to a judge's sworn obligation to determine matters "without fear or favour". That oath, and what one may fairly assume to be a proper selection of those who are to be invested with judicial power and who might be expected to have an understanding of what that oath demands, ought to be a far greater protection to the public than the possible consequences of a mere calculation of an incidental change of the value of a shareholding. Whatever may be the considerations relevant to persons not having tenure of judicial office and who are therefore dependent on other sources of income, the judges' task is to do their best to resolve disputes regardless of the effect on themselves or those close to them. One can think of innumerable examples of decisions on tax and revenue law, on banking law, on company law, on personal injury claims and on criminal liability and sentencing to take but a few, which may have serious repercussions, if not on the judge, then potentially on members of his or her family and friends. The judge's sworn obligation is to ignore those consequences in determining what should be the right outcome in each individual case. That ought to be the perception of right-thinking members of the community.

The present case was no different. There was no basis for the judge to disqualify himself on account of perceived bias.

Ground 3 – Extent to which mortgage secured repayment
of all moneys advanced after death of John Joseph Ronan
Ground 4 – Whether mortgage secured repayment of Farm
Development Loan

Grounds 3 and 4 raise a matter which was one of the principal issues both at trial and on this appeal, inasmuch as they raise for consideration the proper construction and operation of the mortgage given by John James Ronan on 20 September 1972. Ground 3 of the amended notice of appeal contends:

"That the Judge erred in holding that a mortgage instrument over the Springbank land (registered in the name of John James Ronan deceased, who died on 2^nd November 1975, the father of the first and second appellants), retained by the Respondent after the father's death, secured repayment of loans advanced by the Respondent to any partnership, or partnerships, established after the father's death ('the later partnerships')."

Ground 4 also raises questions substantially as to the construction of the mortgage but limited to the effect of the borrowings made in March 1982 by the Fourth Partnership. That ground asserts that the learned Judge erred in holding that the mortgage over the Springbank land "secured the repayment of the Farm Development loan made to the first and second Appellants and the said Third Defendant".

It was submitted for the appellants, correctly in our view, that the issue raised by the third ground and the fourth ground was the extent to which the mortgage was operative after the death of John James Ronan. In support of the third ground in particular the appellants contended that on its true construction and in the events which happened the mortgage did not secure loans or advances made by the Bank to the various partnerships known as "J. Ronan & Sons" (in particular the Third and Fourth Partnerships) after the death of John James Ronan.

The instrument of mortgage in question is dated 20 September 1972 and was registered in the Land Titles Office in dealing No.E553775. By it John James Ronan mortgaged the Springbank land in favour of the Bank in order to secure loans provided by the Bank "To the Firm of J. Ronan & Sons", as has been described above. At the death of John James Ronan on 2 November 1975 the account was overdrawn by $5,103.79. His three sons were appointed executors by his will and under it were the specific devisees of the Springbank land after a life interest to Mrs Ronan, which lapsed. The Bank continued to provide financial accommodation to the Third and Fourth Partnerships. That accommodation consisted of an overdraft or working account, a farm development loan (from 1982) and a commercial bill of facility.

The mortgage executed by John James Ronan (who is referred to in it as "the Mortgagor") is expressed to be made –

"in consideration of all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given in its discretion by [the ANZ] (hereinafter referred to as 'the Bank') to for or on account of the Mortgagor and/or to for or on account of The Firm of J. Ronan & Sons Farmers of Springbank (hereinafter referred to as 'the Customer') or at the request of either the Mortgagor or the Customer and [in consideration] of forbearance on the part of the Bank to immediately demand and sue for payment of any moneys then owing by the Mortgagor and/or the Customer to the Bank".

Besides mortgaging the Springbank land to the Bank to secure payment of principal, interest and other moneys intended to be secured by the mortgage, the Mortgagor agreed in clause 1 that he would on demand in writing pay the Bank the amount or balance for the time being owing or unpaid by the Mortgagor and/or Customer to the Bank. By clause 3, so far as material, the Mortgagor agreed that "if the Mortgagor shall be surety for the Customer" then without in any way limiting any of the other provisions of the Mortgage –

"(a) This Mortgage shall be security to the Bank for
(i)the whole of the amount or balance referred to in Clause 1 hereof whether or not the Customer should be legally liable to pay the same to the Bank ...

......
(d)This Mortgage shall be a security for all loans advances credits and banking accommodation together with interest thereon made created or given by any Branch of the Bank at which any account of the Customer shall for the time being be kept … to or for the Customer after the death ... of the Mortgagor ... and before notice in writing of such death ... signed by one or more of the personal representatives of the deceased ... shall have been received by the Manager for the time being of such Branch.
(e)If the Mortgagor shall not be in default under any of the provisions of this Mortgage and the Bank shall not at the time of the service of the notice of determination be under any obligation to make any further payments or advances to for or on account of the Customer the Mortgagor may determine this mortgage as to future transactions at any time by service of a notice in writing of such determination signed by the Mortgagor ... upon the Manager for the time being at every [such] Branch of the Bank ... and upon payment to the Bank of the whole of the moneys hereby secured."

Clause 3 concluded:
"Notwithstanding anything in this Clause contained the Mortgagor shall be considered principal debtor to the Bank for the moneys intended to be hereby secured".

Clause 10 provided that until finally discharged the mortgage should be and remain
"a continuing security for the due payment of all [moneys secured by it] and for the time being remaining unpaid irrespective of any sums which might from time to time be paid to the credit of any account of the Mortgagor and/or the Customer with the Bank and that notwithstanding the account of the Mortgagor and/or the Customer might at any time appear to be in credit and notwithstanding any settlement of account or any other matter or thing whatsoever."

The clause also provided that nothing therein contained or implied should render it in any way obligatory upon the Bank to make any further advances whether any agreed limited overdraft had or had not been reached. Clause 27, so far as material, provided:
"THAT this Mortgage shall not be discharged or affected by the death ... of the Customer or any one or more of them (if more than one) or any principal debtor or by the death ... of the Mortgagor … or by any change which may take place in the person or persons now or hereafter comprising any partnership or Firm for the time being constituting the Customer ... or by any other circumstance or event but shall continue to be operative until actually discharged by the Bank ..."

Finally, by clause 40, so far as material, it was agreed and declared that the expression "the Mortgagor" included his executors, administrators and transferees, and that:
"...
(d)The expression 'the Customer' used herein ... when the Customer is a partnership or firm includes such partnership or firm and not only the persons constituting the partnership or firm at the date of this security but also all and every persons and person who for the time being and from time to time shall be members of such partnership or firm and their respective executors administrators and transferees and all successors in business of such partnership or firm ...;
...
(i)In the event of the Mortgagor and the Customer being identical then notwithstanding anything herein this Mortgage shall not in any way be prejudiced by reason of the Mortgagor being sometimes called 'the Customer'."

There was no evidence that a notice in writing of the death of John James Ronan signed by one or more of the executors named in his will had been sent or given to, let alone received by, the manager for the time being of the relevant branch of the Bank, namely the Ballarat branch. But, as previously stated, the Bank was well aware of the death of John James Ronan, for on 3 November 1975, the day after his death, the then manager of that branch, Mr E.R. Richards, wrote to the mortgagor's three sons, expressing sorrow at learning of their father's death, and stating that in due course the Bank would need to take a fresh authority for operations in respect of the firm's account. It seems clear from a diary note of the Bank that it learned of the death of John James Ronan from the Ballarat "Courier" newspaper. (The summary of facts and the chronology lodged on behalf of the appellants state also that on 3 November the appellants' accountants Keith Russell & Associates wrote to the Bank advising it of the death of John James Ronan. There is no such letter in the Appeal Book: it seems that it was not tendered in evidence, so that neither its terms nor its purpose are known. But the same chronology, relevantly, was before the trial judge and the evidence of the second appellant in his witness statement made it likely that the accountant and also the solicitor to the estate reported the death to the Bank manager.)

For the appellants it was argued by reference to clause 3(d) of the mortgage that because it was clear that the manager of the Ballarat branch of the Bank had notice in writing of the death of John James Ronan the mortgage was not security for any loans or advances made after 3 November 1975. Reliance was placed on National Australia Bank Ltd. v. Macrae[6]. In that case the principle that, even where personal service is required, it is sufficient if the document to be served comes to the notice to the person to be served was applied and it was held that the plaintiff bank could rely on a conclusive evidence certificate which had come to the notice of the defendant even though it might not have been "given" to him "by or on behalf of the Bank" within the meaning of the relevant clause in the guarantee in issue.
[6](unreported, Batt, J., 14 June 1994)

Assuming that cl. 3 applied here, the appellants' submission cannot be accepted. Save for reference to some statements of general principle and to Macrae and one other case mentioned below, counsel cited no cases at all on the meaning and effect of the relevant clauses in the mortgage. Nor have any cases more specifically applicable than those referred to below come to our notice. The clauses in the mortgage that are in question should be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve, but otherwise the intention of the parties is to be ascertained from the language used: Re Bankrupt Estate of Murphy; Donnelly v. Commonwealth Bank of Australia[7]; cf. also Darlington Futures Ltd. v. Delco Australia Pty. Ltd.[8], though it is to be remembered that the mortgage is a standard conveyancing document as opposed to a single or specific business agreement. The ordinary rule is that, in the absence of contrary stipulation, notice, even informal or indirect, of death, though not the mere fact of death, will discontinue a continuing guarantee in respect of future advances: In re Crace; Balfour v. Crace[9] and Coulthart v. Clementson[10], although the point was left open by James and Cotton, L.JJ. in Lloyd's v. Harper[11], by Cotton, L.J. (only) in Beckett & Co. v. Addyman[12] and by Lord Selborne, L.C. and Lord Coleridge, C.J. in Re Sherry; London and County Banking Co. v. Terry[13]. (Notice of a will, referred to additionally by Bowen, J. in Coulthart v. Clementson, is treated as unnecessary: cf. Re Silvester; Midland Railway Co. v. Silvester[14] and In re Crace at 739, pace In re Whelan; Dodd v. Whelan[15].) But an express provision for notice of termination will usually be construed as requiring the surety's personal representatives to give notice to terminate in accordance with its terms and mere notice of the surety's death will not usually have such an effect: Paget's Law of Banking[16]; Rowlatt on Principal and Surety[17]; Phillips & O'Donovan, The Modern Contract of Guarantee[18]; Halsbury's Laws of England[19]; and Coote on Mortgages[20]. Paget cites Re Silvester. In that case, however, the clause for notice of determination of liability was construed as expressly applying, like paragraph (d) of the present clause 3, to the surety's personal representatives. On the other hand, the clause in Coulthart v. Clementson for three months' notice of withdrawal under the sureties' hands was construed at 47 as applying only during the life of a surety, as paragraph (e) of clause 3 does here. (Harriss v. Fawcett[21] turned on its special facts, as explained in Coulthart v. Clementson at 46, as corrected at p.xiv.) The question is simply as to the true construction of the particular clause (Egbert v. National Crown Bank[22]), though ambiguous provisions are to be construed in favour of a surety (Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd.[23] and Chan v. Cresdon Pty. Ltd.[24]); and Bowen, J. in Coulthart v. Clementson[25] and Chatterton V-C in In re Whelan recognised that, if contracting parties desire that on the surety's death a special notice shall be necessary to determine a guarantee, they can so provide. Such a provision would, as Bowen, J. said, bind the surety's estate.
[7](1996) 140 A.L.R. 46 (Hill, J.)
[8](1986) 161 C.L.R. 500 at 510
[9][1902] 1 Ch. 723 at 737-738
[10](1879) 5 Q.B.D. 42
[11](1880) 16 Ch.D. 290 at 314 and 317-318
[12](1882) 9 Q.B.D. 783 at 792
[13](1884) 25 Ch.D. 692 at 703 and 705
[14][1895] 1 Ch. 573 at 577
[15][1897] 1 I.R. 575
[16]11th edn., 637
[17]4th edn., 64-66
[18]3rd edn., pp.439-441
[19]4th edn., (reissue), vol. 20, paragraph 293
[20]9th edn., Vol. 1 p.113
[21](1873) L.R. 8 Ch.App. 866
[22][1918] A.C. 903 at 907
[23](1987) 162 C.L.R. 549 at 561
[24](1989) 168 C.L.R. 242 at 256
[25]at 48

Paragraph (d) of the present clause 3 is precisely such a provision, requiring a special notice and therefore excluding the ordinary rule stated in the last paragraph. (The special nature of a notice of determination may arise from its length. Here it arises from its signatory.) Paragraph (d) is substantive, not procedural. It is a clause inserted for the benefit of the Bank in order to give it security in respect of advances made to the Customer, as defined, after the death of the Mortgagor, and even after the Bank's becoming aware of his death, unless a particular kind of notice of his death should have been received by the relevant branch manager. The foregoing is the clear and natural meaning of the paragraph. That notice is one signed by a specified person or persons. (Although it is unnecessary to decide the point, it would seem that, in the case of an executor, the notice could be given before probate was granted, having regard both to the purpose of the notice and the principle that an executor may generally before grant do all things which pertain to the executorial office: Ballas v. Theophilos [No. 2][26]; Kelsey v. Kelsey[27]; Meyappa Chetty v. Supramanian Chetty[28]; and Halsbury's Laws of England[29].) By virtue of paragraph (d) the Bank was entitled to proceed on the footing that the legal personal representatives of the Mortgagor were agreeable to the mortgage's operating as security for advances made to the continuing partners, or successor firm, after the Mortgagor's death. Macrae is not analogous: it was concerned with what constitutes service or notification, whereas paragraph (d) is concerned with form of the notice. Having regard to the apparent purpose of the paragraph, the Bank is entitled to insist upon having received a notice of the kind for which it stipulated, if post-mortem advances were not to be secured by the mortgage. Paragraph (d) cannot assist the appellants.
[26](1957) 98 C.L.R. 193 at 204
[27](1922) 91 L.J. Ch. 382; 122 L.T. 86
[28][1916] 1 A.C. 603 at 609
[29]4th edn., vol. 17, paragraph 730

There is, however, another argument which, although barely noticed by counsel's argument, falls within the third and fourth grounds and might assist the appellants. It was in fact advanced for the Bank to avoid the argument of the appellants which we have just rejected. The argument is that clause 3 is inapplicable because the Mortgagor, John James Ronan, being a member of the first and second partnerships and in particular being a member of the firm J. Ronan & Sons at his death, was not "surety for the Customer" within the opening words of clause 3, since he was one of the Customers. In other words, the case was one where one of the partners was providing security for the debts of the firm for which he was jointly liable. The unexpressed second step in this argument is that, if clause 3 may be disregarded, there is no provision in the mortgage which makes the estate of a sole Mortgagor liable for further advances to the Customer after the Mortgagor's death.

On the face of it, the first step in the argument appears attractive. Clause 3 is found in a document executed only by the Mortgagor and the Bank, and it might be said that as between them the words "shall be surety for the Customer" should receive a strict interpretation, under which the word "surety" is confined to one who is answerable to a creditor for the debts or liabilities of a third person[30]. The firm's indebtedness to the Bank arose out of a single joint promise by all partners, including Mr Ronan, (or perhaps, with the successive partnerships, a series of single joint promises of that kind) as opposed to several or separate promises by each partner. Thus, on this argument, Mr Ronan was not "surety for the Customer" within the meaning of the opening words of clause 3 because he was one of the persons constituting the Customer. The question is far from easy, but in the end we have come to the opinion that the argument should not be accepted. The whole tenor of the mortgage is treat the Mortgagor and the Customer as different entities except when they are identical, and here the persons constituting the Mortgagor and the Customer are not identical, but overlapping. In that regard reference may be made to the expression of the consideration for the mortgage, to the numerous separate references to the Mortgagor and the Customer, and to the terms of clause 27 and of the definition of "the Customer" in clause 40(d). Clause 40(i) recognises the exception mentioned. In addition, besides the above-mentioned joint promise (or series of joint promises) of the partners, the Customers, there is a separate promise to pay by the Mortgagor in clause 1 of the mortgage. Clause 3 is needed for making provision where the Mortgagor and the Customer are not identical. Moreover, to describe Mr Ronan as a surety for the firm of which he was a member is by no means an unusual use of language, as is shown by Huon v. Dougharty[31]; In re Whelan; Colonial Bank of New Zealand v. Smith[32], where all members of a firm gave a joint and several "guarantee" of the firm's debts, which was held not to be unmeaning; and Coote[33]; cf. Backhouse v. Hall[34]; a decision of the Court of Queen's Bench given by Blackburn, J., where the document described as a guarantee of a firm's indebtedness had been signed by a member of the firm and another person. It is, in our view, the appropriate use here. In essence the mortgage was collateral security for the firm's debts.
[30]Halsbury’s Laws of England, 4th edn., Vol.20, (reissue) paras.101n4, 103n3 and 185
[31](1894) 20 V.L.R. 30, especially at 32 per Madden, C.J. for the Full Court
[32](1888) 6 NZLR 659, esp. at 661
[33]op. cit., 117
[34](1865) 6 B&S 506 at 519-521; 122 E.R. 1283 at 1287-8

It follows that at all material times from the execution of the mortgage the opening condition of clause 3 was satisfied. The position, then, is as follows. The mortgage was not a specific mortgage. Clause 10 ensured that it afforded security for further advances by excluding the rule in Clayton's Case[35], as is explained in Sibbles v. Highfern Pty. Ltd.[36]. Clause 10, however, is general and does not deal with the effect of death. As to that, clause 27 ensured that the mortgage was not discharged or affected by the death of John James Ronan as one of the persons constituting the Customer or as the Mortgagor but continued to be "operative". Clause 27, and, if need be, clause 3(d) read with the definition of "the Customer" discussed below, so far as they each related to partnerships, constituted an "agreement to the contrary" within the contemplation, and thus excluding the operation, of s.22 of the Partnership Act 1958, whereby, so far as material, a continuing guarantee given to a third person in respect of the transactions of a firm is revoked as to future transactions by any change in the constitution of that firm. That is the principle which before the passing of the Partnership Act 1890 (U.K.) had been stated in, amongst other cases, Royal Bank of Scotland v. Christie[37] and which could similarly be expressly excluded (Strange v. Lee[38]).
[35](1816) 1 Mer.572; 35 E.R. 781
[36](1987) 164 C.L.R. 214 at 222
[37](1841) 8 Cl&F 214 at 226-7; 8 E.R. 84 at 89
[38](1803) 3 East 484 at 491; 102 E.R. 682 at 685

Since John James Ronan did not before his death serve written notice of determination of the mortgage as to future transactions pursuant to paragraph (e) of cl. 3 and since, after his death, none of his executors caused the requisite notice under paragraph (d) of that clause to be received by the manager of the Ballarat branch of the Bank, the mortgage, by virtue of the last-mentioned paragraph, was security for all advances made by that branch to the Customer after the death of John James Ronan. By virtue of the definition of "the Mortgagor" the obligations and liabilities of the Mortgagor after his death fell upon his executors on behalf of his estate. Finally, the nature of the further advances after the death of John James Ronan for which, by virtue of clause 3(d), the mortgage stood as security and his executors were as such liable on the agreement in clause 1, is made clear by the definition of "the Customer" in clause 40(d). They are advances made to persons who for the time being and from time to time were members of the partnership J. Ronan & Sons (as constituted from time to time[39]) or made, to use another part of the definition, to the partnerships that were successors in business of the partnership existing under that name immediately before Mr Ronan's death. It is clear that by their adoption of the same name and by their conducting the same business the later partnerships were successors of that partnership. In concrete terms, each of those limbs of the definition leads to the conclusion that the further advances in question were those made to the third and fourth partnerships. The Fifth Partnership is here irrelevant for no new advances were made to it, except to the extent that during its existence interest and charges were debited to the account of the former partnership in relation to earlier advances.
[39]In the commercial sense in contradistinction to the strict legal position, as explained in, e.g., Lindley and Banks on Partnership (16^th ed.) 591: cf. Carter v. Renouf (1962) 111 C.L.R. 140 at 148; Tikva Investments Pty. Ltd. v. F.C.T. (1972) 128 C.L.R. 158 at 167-168; and Re F. [1941] V.L.R. 6 at 11.

The first step in the argument now under consideration having failed, it is unnecessary to consider the second.

The appellants contended that the Bank's reliance upon the strict letter of paragraph (d) was unconscionable. In view of the purpose of clause 3(d) explained earlier, we do not accept that submission.

Since we are of the view that the mortgage secured repayment of the subsequent advances mentioned, no occasion arises to consider the appellants' contention, dependent upon a contrary view, that there was no evidence of any relevant debt owed by the appellants, or indeed to consider whether that contention would have been open to the appellants.

Ground 3 is therefore not made out.

Ground 4 of the notice of appeal, it should be noted, also raises the issue whether the learned judge erred in deciding that the mortgage given by the deceased secured the repayment of the farm development loan of $80,000 advanced to the Fourth Partnership on or about 31 March 1982. If the mortgage given by John James Ronan bears the construction which we have placed upon it, then there could seem little dispute that any borrowings made by the Fourth Partnership at this time would likewise be secured by that mortgage. For this purpose the parties' intentions were irrelevant, except to the extent that it might have been proved (as it was not) that they both intended that the loan should not be secured by the mortgage. As we understood the argument it was not suggested that because the advance was described as a farm development loan it fell outside the language of the mortgage if properly construed in this way. Nor did we understand that there was any argument advanced that the language of the loan document dated 23 March 1982 should be construed as excluding the possibility that the Springbank land secured that loan if one accepts the interpretation we have reached. Rather it was contended that, if any of the alternative bases for holding the Springbank land to be a security were to be adopted, then there was insufficient evidence to conclude, as did the judge, that the Springbank land was intended to be comprehended by any mortgage by way of deposit of title deeds in relation to the farm development loan or that there was likewise any representation or assumption of a relevant kind which might form the basis of an estoppel precluding the appellants from denying that the land was likewise mortgaged to secure the farm development loan. This will require some consideration of the document prepared on 23 March 1982, in particular clause 9(a) set out above in paragraph 10. These matters, therefore, should be discussed under grounds 6(a) and 6(b), where the alternative findings that the Bank had an equitable security over the Springbank land and that the appellants were estopped from denying such a security are challenged. Otherwise, having regard to our conclusions as to the construction of the mortgage, ground 4 has not been made out.

Ground 6(a) – [Alternatively] whether Springbank land
subject to equitable mortgage by deposit of title deeds
Ground 6(b) – [Alternatively] whether appellants estopped
from denying equitable mortgage of Springbank land

In the circumstances it is preferable at this stage to deal with these grounds. Our conclusions on ground 3 make it strictly unnecessary for us to reach any conclusion on either ground 6(a) or ground 6(b), as the mortgage signed by the father John Joseph Ronan had continued binding effect throughout the period of the parties' relationship so as to secure the whole of the Bank's advances, interest and costs, including the farm development loan raised by ground 4. This is perhaps fortunate for the Bank in that we would be inclined to think, if it were necessary to reach a final conclusion on these grounds, that there was insufficient evidence to support the learned judge's conclusions as to either the existence of a mortgage by deposit of title deeds or a mortgage by estoppel over the Springbank land.

One may accept that the Bank acted in a way which showed that it considered the Springbank land subject to a mortgage in its favour. Even on that score there seemed originally some doubt in that the Bank stated in relation to the first few years after John Joseph Ronan's death that it did not consider the land to be a security, but we think that that must be capable of explanation inasmuch as the dealings and the extent of the appellants' overdraft in those first few years were modest and it seems that questions of security were of little consequence at the time. Later there seems no doubt that the Bank always viewed it as one of the relevant securities. This was made clear at least from the time the loan document was sent in relation to the farm development loan on or about 23 March 1982 which made the loan conditional upon the existence of the "registered mortgage of the farm property" which was said to be "held" at that time.

However, that does not necessarily have the consequence that there was an equitable mortgage by way of deposit of title deeds either before or after that time. The difficulty is in part in assuming matters which do not have to be assumed. The title deeds over the Springbank land were already in the hands of the Bank because it held a registered legal mortgage which had never been discharged and which had not to that time been the subject of a request for discharge. Thus the deeds were deposited many years before and there was, so it seems to us, no act which could be construed as a form of notional redeposit of the deeds, or otherwise as altering relevantly the basis on which they were held, so as to support an equitable mortgage.

What was communicated, several weeks later, was approval for a loan for $15,000 less, namely $185,000. How that came to pass is of no present importance, but it was necessary for the appellants to persuade the Commonwealth Bank to restore what had been approved in principle to the fact of an actual offer to lend $200,000. It is not precisely clear when the offer of a loan of $200,000 was communicated to the appellants or their solicitors.

The true nature of the dispute, however, appeared from the letter sent by Doyle Cinque on 15 October 1985, the substance of which is set out in paragraph 19 above. Although there is an assertion that the appellants were ready, willing and able to pay out the bank, the whole tone of the letter makes clear that it was the appellants, not the Bank, who were making settlement dependent on reaching a resolution with Patrick Ronan. That is not entirely surprising, for the reasons already stated and expanded in some detail in the letter. The appellants' irritation, and that of their solicitors, is made clear, but at no stage is there any suggestion that the Bank is responsible or that the Bank has been laying down any unreasonable terms for settlement. The Bank made clear its desire to have the debt paid out by 1 November. There was nothing stopping the members of the Fifth Partnership making payment of $200,000 on that date or, if their contention as to the Bank's position was right, making a tender of that sum on that date. If they are right about the irrelevance of Patrick's position, as is now argued, then the Commonwealth Bank would not have prevented them from drawing the money for that purpose. Subsequent correspondence from the ANZ referring to the partnership dispute is merely a reflection of the fact that it was essential to get Patrick to settle, as the solicitor's letter of 15 October made abundantly clear.

In our opinion the learned trial judge was fully entitled to reach the conclusions he did as to payment and tender and this ground therefore fails.

Ground 8 – Alleged failure to hold that Bank gave undertaking to first
and second appellants to sell Wallace land at higher of two valuations

Ground 8 is expressed in very elaborate terms but as presented on this appeal argument was confined to paragraph (a), there being no reference to paragraph (b), which in some ways was merely a further exposition of paragraph (a), in the appellants' outline of argument.[46] That paragraph reads:

"That the judge erred:
(a)in holding that the Respondent did not give an undertaking to the first and second Appellants that it would sell to them the Wallace land at the higher of two valuations, such undertaking being given in consideration of the first and second Appellants signing a letter in which they consented to the Respondent taking possession of such land..."

[46]We have no recollection of any separate discussion of para.(b) during argument but there was an impermissible attempt to raise it in the written submissions in reply. Paragraph (b) raised in elaborate terms an alleged failure by the judge to address certain arguments put at trial as to the appellants' contention that the Bank had agreed to offer, and presumably sell, the Wallace land to them before any auction and thereby "exhaust all avenues" to enable them to retain the land. Much of the matter so raised is discussed below, in any event, but it is not appropriate to allow the reply to raise issues not earlier argued.

This ground, and ground 9, relate only to the Wallace land and in particular to the sale of it effected by the Bank in enforcement of its security over that land. It formed one of the claims made in the defendants' counterclaim which in this respect, as in all others, was unsuccessful. It is not entirely clear what remedy was sought but one may assume that what is asserted is that the Bank failed to get as high a price as possible for the land and that therefore the partnership's debts might have been extinguished or reduced to a greater extent. We do not understand that any evidence was led on this issue, but the apparent advantage of a higher price must be seen as largely, if not entirely, set off by the fact that each of the offers to which the appellants refer in relation to these grounds came from the appellants themselves, or at least from the first two appellants, and that thereby they would have been either $57,000 or $5,000 further out of pocket. The advantage seems negligible, especially as the appellants were able to make a payment of over $60,000 in January the following year, a sum which one may assume might not have been available, or might not have been available entirely, if they had paid more for the land. Consequential damage does not seem to have been raised.

The facts relating to this ground 8(a) are set out in details in paragraphs 26 to 31 above. They do not, upon our understanding of them, lead to the conclusion that there was any concluded or unconditional agreement between the parties for the sale of the Wallace land. The Bank was ever hopeful that they would not have to enforce the mortgage but none of the proposals ever seemed to come to anything. In November 1988 the appellants had seemed willing to give their consent to possession to enable the sale to take place, but by January they were unwilling because of what they believed to be the effect on their business reputation. They had to be jogged into a sense of reality by the Bank’s issuing the writ claiming possession. The appellants immediately replied by expressing their consent to possession if the Bank would agree not to enter judgment. Over the next few weeks the consents were eventually provided but in the meantime there had been a number of general proposals (not amounting to offers), some of which were seen as capable of coming to fruition. Each time, however, the Bank merely indicated that it would consider the proposals as and when they arose. Thus the appellants' solicitors' letter of 26 January was phrased in terms that the Bank would be provided with written consents to possession upon its undertaking not to "proceed to judgment until all of these avenues have been exhausted, and then only if they were unsuccessful."

Even if that had been the basis of the parties' agreement at the time, that is what occurred, inasmuch as the Bank waited patiently for some months for a definite offer from the appellants. In fact, the Bank's letter of 3 February made clear that it was prepared to accept the appellants' consents only on the basis of their continued co-operation and that it would give "further consideration to the matters raised". Nothing else in the material suggests that the Bank went any further, nor was it likely in the circumstances that it would have done so. The appellants had been in default for many years; the amount needed to buy the Wallace land at valuation would have been considerable, as indeed was confirmed within a few weeks as being at least $337,000; and there was therefore no real likelihood that the appellants could raise that money, unless they were able to borrow it. There was no agreement, as alleged, that the Bank would sell the land to them at the higher of two valuations. At best the Bank had agreed not to enter judgment "until all … avenues [had] been exhausted", but even that would seem to go beyond the very limited terms of the Bank's reply of 3 February.

The consents were given and the Bank therefore did not enter judgment for possession. However, the weeks went by and on 20 March 1989 the valuation of $337,000 was received from the Bank's valuer but still no definite offer was made, certainly of the kind which could properly be accepted. By 13 June the Bank had obtained judgment for possession of the land against Patrick Ronan, so its solicitors wrote with a degree of impatience to the effect that, unless they received "a firm written proposal" by 16 June, the Bank would proceed to auction the land. The appellant's solicitors' response merely referred to their clients' earlier "offer", which had never been translated into final form and which is quite inconsistent with the agreement now asserted.[47] In all the circumstances it seems that by June 1989 all "avenues [had] been exhausted", insofar as the Bank had undertaken to do that, in consideration of receiving the consents. The ground is not made out.

Ground 9 – Alleged breach of duty as mortgagee in selling Wallace land to Mayer

[47]At that time it seems that $337,000 was the highest valuation, but no offer at that price was ever made, nor, for obvious reasons, has it ever been asserted by the appellants that the Bank had agreed to sell at that price.

The full terms of the ninth ground of appeal are as follows:

"That the Judge erred in holding the Respondent had not breached its duty as a Mortgagee when it elected to sell to one Eric Mayer the Wallace land for a price which was less than that offered to it by the first and second Appellants."

This ground again relates solely to the Wallace land and the facts surrounding it appear in paragraphs 32 to 34 above. There was no dispute as to the principles applicable so that the issue is whether the learned judge was correct in not holding that the Bank had failed to act "in good faith and having regard to the interests of the mortgagor ... or other persons", to use the words in s.77(1) of the Transfer of Land Act 1958, in selling the land to Mr Mayer. Of course the "interest" of the mortgagors in this case is not to be confused with their personal concern to repurchase the land but is only their interest as registered proprietors of land subject to a mortgage.

Unfortunately the appellants seem to have taken the view that, even if the alleged undertaking to the Bank was not made out, they had a right to purchase the land in all circumstances and regardless of the history of the relationship between the parties. Of course, if they had come up with an offer substantially better than all other offers which they could fulfil, the Bank not only would have been obliged, but doubtless would have been pleased, to accept it. The difficulty in the present case is that they were given months to come up with an offer and came up with none. They then proceeded to complain about the conduct of the auction upon the apparent assumption that their offer should in some way be given priority. Up to the time of the auction they were given many opportunities to make offers but they did not do so. At the auction itself they put in a bid of $240,000. The land was passed in for the very good reason that that offer was well below the land's real value. The Bank had no obligation to sell to them merely because they had made the highest bid at that time.

Thereafter the Bank's solicitors received a private offer from Mr Mayer of $272,500. At the same time it had received a further valuation of the land which this time fixed $276,000 as the land's proper value. Mr Mayer's first offer was refused and he then made a new offer of $280,000 with the balance to be paid within 30 days. On the same day the appellants, or more precisely John and Gerard Ronan, made their first unconditional offer of $285,000 payable within 60 days. This the Bank rejected, preferring to deal with Mr Mayer. Although the contracts were not entered into until 9 October, settlement took place on 26 October. In the meantime the appellants' solicitors had enquired whether they might make a further offer but had been told that the land had been sold.

In our opinion the Bank was justified in accepting Mr Mayer's offer and rejecting the appellants' offer.[48] The difference was of no consequence. The Bank was entitled to take the view that John and Gerard Ronan were not reliable persons to deal with for this purpose in the sense that the Bank was well aware of the financial difficulties which they faced and which had led effectively to the need for the sale of the Wallace land. There was no guarantee at the end of the 60-day period offered by them that they would have the money to complete the transaction, and the consequence, if they did not, was that the Bank would have to go through the process of selling the land yet again. It is circumstances of that kind which justify a mortgagee in selling land for the lower or lowest of a number of offers. It is not necessary to examine further precisely the duties of mortgagees in these circumstances for in our opinion the answer in the present case is plain. The ground should be rejected.

Conclusion

[48]It was also argued that the Bank was in breach of duty in failing to allow the appellants to make another offer at "the Bank's or higher valuation". There never had been any agreement which bound the Bank to accept the so-called "standing offer" (see the discussion of the agreement alleged under ground 8, in paras.85-89). In any event any such offer had long since lapsed and was subsumed in the offer of $285,000. There is no substance in the contention.

For the reasons stated above, the appeal, both as to claim and counterclaim, should be dismissed. In the light of our conclusions it is unnecessary to amend the parties to this appeal, inasmuch as the third executor, Patrick Ronan, is already bound by the original order.

CALLAWAY, J.A.:

The first ground of appeal reads:

"1.That the learned trial judge erred in law in not disqualifying himself from hearing and determining the case, in the absence of consent from all parties, because, at the time, the judge had a proprietary and/or a pecuniary interest in the outcome of the proceeding in that he had an 'indirect interest' in a 'moderate number of shares' issued by the respondent (the plaintiff in the proceeding)."

At the beginning of the trial the learned judge said that he thought he should inform the parties that he had "an indirect interest in some ANZ shares" and that his wife also had an interest in ANZ shares. (Nothing turns on the latter interest. No submission was made about it below. His Honour did not refer to it again and it is not mentioned in the grounds of appeal.) Counsel for the appellants asked for an opportunity to obtain instructions.

After a short adjournment, the following exchanges took place:

"MR PIRRIE: Your Honour, I'm indebted for the time. Your Honour, the history of this matter, and I won't go into detail in relation to that issue, but it goes back a number of years, Your Honour, and the relationship between the parties at this point in time, Your Honour, is such that no matter how independent Your Honour will no doubt be in his adjudications in this particular proceeding, my instructions are that my clients would always be concerned, depending on the outcome of this proceeding, as to what part, if any, that shareholding may have had in any conclusions Your Honour may ultimately make. To that extent, Your Honour, I am instructed to ask Your Honour to disqualify himself from hearing the matter.
The perception is, Your Honour, that – or the basis of it is that justice must not only be done, obviously that must be seen to be done, and as I've indicated the position between the parties is such that there would be concern at the end of the day as to whether or not any shareholding, and to what extent that shareholding may be, would impact upon any decisions Your Honour would make in the time of the trial, and in ultimately deciding the case.
HIS HONOUR: Yes. I hope I made it plain, Mr Pirrie, that the shareholding is indirect, and it's moderate. But in any event, those are your instructions - - -
MR PIRRIE:Yes, they are, Your Honour.
HIS HONOUR: And I understand what your submissions are. Yes, Mr Sifris, do you have any submissions to make?
MR SIFRIS:Your Honour, we oppose that course. It's a matter for Your Honour. But the relationship between any indirect interest and the matters that require adjudication are so tenuous, with great respect, so as not to excite any reasonable apprehension of bias on the part of any bystander in the court. There's really no grounds.
HIS HONOUR: Mr Pirrie, I'm mind[ed] to disallow the objection, and to proceed with the case. In my view, the circumstances are such that there could be no reasonable apprehension of bias notwithstanding the indirect shareholding in which I have an interest. Now, I don't want to make the position more difficult for you than it is.
MR PIRRIE:No.
HIS HONOUR: If you wish to have more time to look at some cases, I'm prepared to give you some time, but not much time.
MR PIRRIE:No, I appreciate that, Your Honour.
HIS HONOUR: I think we're all familiar with the [cases] on the perception of justice - - -
MR PIRRIE:Yes, Your Honour, it has a long protracted history this matter, and Your Honour will obviously be aware that the proceedings commenced in 1992. I think it's fair to say, Your Honour, that all parties are at this point in time keen to have the matter determined with some finality.
HIS HONOUR: Yes.
MR PIRRIE:Would Your Honour just bear with me just for one second while I clarify my position with my instructing solicitor?
HIS HONOUR: Of course, Mr Pirrie, yes.
MR PIRRIE:No, Your Honour, that won't be necessary."

Mr. Gillard contended that the judge erred in failing to disclose the nature and extent of his interest, by describing it only as "indirect" and "moderate". That deprived the appellants, so the argument proceeded, of an opportunity properly to consider their position and to make submissions. It was also said that it deprived this Court of the means of deciding whether his Honour should have disqualified himself. Reliance was placed on certain observations of Winneke, P. and Charles, J.A. in Clenae Pty. Ltd. v. Australia and New Zealand Banking Group Ltd.[49]. I do not think it necessary or prudent to express an opinion on that contention, because it does not fall within the grounds of appeal. The possibility that the Court might take that view was mentioned at the hearing.
[49][1999] VSCA 35 at [6-7] and [47].

The question ground 1 requires us to decide is whether the judge erred in not disqualifying himself in the absence of consent from all parties. Mr. Shaw submitted that Mr. Pirrie's objection was eventually abandoned, so that there may ultimately have been such consent. All his Honour said, so this argument proceeded, was that he was minded to disallow the objection. He expressed a tentative view but invited further submissions. Counsel sought instructions in open court and took the matter no further. The contrary interpretation of the exchanges is that his Honour expressed a firm conclusion that the circumstances were such that there could be no reasonable apprehension of bias but invited further submissions on the law. I am prepared to assume that the latter is the correct view. In my opinion ground 1 must fail for other reasons.

Until recently it was widely perceived that a judge who held shares in a litigant should ordinarily disqualify himself or herself. (I put to one side cases of waiver and necessity and exceptional cases of the kind referred to in the first two sub-paragraphs of [89] in the Clenae Case and I shall assume in favour of the appellants that the judge's "indirect" interest was equivalent to such a shareholding.) The strict view to which I have referred is, however, no longer open to us in the light of the Clenae Case. Winneke, P. and Charles, J.A. determined, as one of their Honours' rationes decidendi, that either the ordinary test of reasonable apprehension of bias is to be applied or else a special test, which Charles, J.A. described as follows at [59]:

"If there is a separate rule for automatic disqualification for financial interest, unrelated to a reasonable apprehension of bias, in my view the irrebuttable presumption of bias only arises (subject to questions of waiver or necessity) where the judicial officer has a direct pecuniary interest in the outcome of the proceeding. Such an interest would exist when the judicial officer has a pecuniary interest in one of the parties, and, as a direct result of the decision made, it can reasonably be said that that interest might be affected. If the question arises at the outset of a hearing, and the judge, after an objection is taken, remains in any reasonable doubt as to whether the judge's pecuniary interest might be affected by the outcome, doubt should be resolved in favour of recusal. Different considerations, such as necessity and fairness to all parties, would be involved if the question arises, as here, at a later stage in the hearing. In the present case, I would conclude that the learned judge's interest in the Bank, by reason of his shareholding or under the debenture, would not have been affected by the outcome of this action. Accordingly, on this test, the judge had no direct pecuniary interest requiring his disqualification. On this view, it is unnecessary to consider whether there is scope for a de minimis exception to the rule." (Emphasis added.)

See also [3] per Winneke, P.; Dovade Pty. Ltd. v. Westpac Banking Group[50] and Locabail (UK) Ltd. v. Bayfield Properties Ltd.[51]

[50](1999) 46 N.S.W.L.R. 168 at [85] and [112].

[51][2000] 1 All E.R. 65 at [8-9].

The other ratio decidendi of the Clenae Case appears at [2], [60] and [91-93][52]. As to cases with more than one ratio, see R. v. Perfili[53] and the authorities to which reference is there made.
[52]A critical witness had died. The alternative ratio was concerned with necessity, in the light of the authorities explaining the significance of a trial judge's personal assessment of a witness.
[53](1995) 84 A.Crim.R. 26 at 31.

On the assumption in [100], the question is whether it can reasonably be said that an indirect and moderate interest in shares in the respondent might be affected as a direct result of the decision in the present case. There was some debate as to the time at which that question should be answered. Mr. Shaw relied on the judgment of Deane J. in Webb v. R.[54], where his Honour said:

"If the test of a reasonable apprehension on the part of a fair-minded observer with knowledge of the material objective facts fell to be applied by reference only to those facts which were apparent at the time, there would be much to be said for the view that the real likelihood or real danger test should be retained to be applied in cases where some of the damaging material facts – whether prior, contemporaneous or subsequent – as ascertained by the appellate court were not known at the time of the proceedings. In my view, however, the material objective facts are not so confined for the purposes of the test. The fair-minded observer is a hypothetical figure. While the question is not settled by any decision of the Court, it appears to me that the knowledge to be attributed to him or her is a broad knowledge of the material objective facts as ascertained by the appellate court, as distinct from a detailed knowledge of the law or knowledge of the character or ability of the members of the relevant court. The material objective facts include, of course, any published statement, whether prior, contemporaneous or subsequent, of the person concerned." (Emphasis added but footnotes omitted.)

[54](1994) 181 C.L.R. 41 at 73.

The relevant time may depend on the purpose for which evidence of subsequent events is adduced in an appellate court. Here we are concerned with whether the judge erred in not disqualifying himself at the beginning of the trial by reason of interest. It is difficult to believe that subsequent events could be relevant to that issue.[55] The point need not, however, be decided. For, whether the matter is considered as at the first day of the trial or now and whatever a "moderate" interest may be in this context, it cannot reasonably be said that that interest might be affected as a direct result of the decision. Indeed the contrary view would be inconsistent with the opinion of the majority in the Clenae Case[56].
[55]Compare State of Victoria v. Psaila [1999] VSCA 193 at [32], dealing with disqualification by conduct, including published statements.
[56]See [28], where an idea is given of the scale of the respondent's operations and the size of its operating profit after tax, and [29], where reference is made to the much larger sums involved in that litigation.

Ground 1 asserts only that the judge erred in not disqualifying himself because he had a proprietary or pecuniary interest (or both) in the outcome of the proceeding. The case was nevertheless argued on the footing that we should apply not only the test described by Charles, J.A. but also the ordinary test of reasonable apprehension of bias. Rather than assume that the Clenae test is necessarily and always stricter than the test of reasonable apprehension of bias, it is better to accede to the parties' invitation and test the matter in both ways.

The ordinary test is whether, in all the circumstances, a fair-minded lay observer with knowledge of the material objective facts might entertain a reasonable apprehension that the judge might not bring an impartial and unprejudiced mind to the resolution of the questions involved in the case[57]. In my opinion that test is not satisfied either, and again irrespective of the time at which it should be applied. A fair-minded lay observer with knowledge of the material objective facts, and making the most favourable assumptions in favour of the appellants with regard to the nature of his Honour's "indirect" and "moderate" interest, would not entertain a reasonable apprehension of bias. It would be foolish to do so. That is doubtless one of the reasons Mr. Pirrie made the submission below in the terms set out in [97] and did not press it any further when his Honour expressed the view that he did.
[57]See, for example, Livesey v. New South Wales Bar Association (1983) 151 C.L.R. 288 at 293-294; Webb v. R. at 67 and Rozenes v. Judge Kelly [1996] 1 V.R. 320 at 329.

Accordingly I would not uphold ground 1. The main difficulty about ground 7 is that there was no proof of tender or of an intimation, even by implication[58], that a tender would be refused. So far as the other grounds of appeal are concerned, subject to two qualifications, I agree in the reasons of the other members of the Court.
[58]Compare Mahoney v. Lindsay (1980) 55 A.L.J.R. 118 at 120.

At [57] their Honours say that each of the limbs of the definition of "the Customer" in clause 40(d) leads to the conclusion that the further advances in question were those made to the third and fourth partnerships. That may very well be so, but the construction of clause 40(d) is not without difficulty. I am content to say that, on the facts of this case as recounted in the leading judgment, at least one of those limbs leads to that conclusion.

I attach less significance to the appellants' solicitors' letters of 26th January and 1st February 1989.[59] The respondent's solicitors' reply to the former was in very guarded terms. The respondent had instructed them not to enter judgment if the appellants continued to co-operate in a manner satisfactory to the respondent and agreed to give further consideration to the other matters raised once it had received the valuer's report. There was no obligation to pursue the avenues described in the appellants' solicitors' letter.
[59]See [26-31] and [85-89].

- - -

[2000] VSCA 77

12 May 2000