Almona Pty Ltd v Parklea Corporation Pty Ltd

1. [1]

   BATHURST CJ: I agree with the orders proposed by Basten JA and generally with his reasons. I wish to address two matters. The first is whether or not it was open to Almona Pty Ltd to rely on a collusive arrangement between the first respondent, the third respondent, Dyldam Developments Pty Ltd, and Wesco Capital Pty Ltd or its associated companies Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd in support of its claim that the sale by the third respondent of the appellant’s property, Parklea Markets, was an improper exercise of the mortgagee’s power of sale. The second is whether the sale was a fraud on the mortgagee’s power of sale or otherwise in bad faith.

2. [2]

   As Basten JA has comprehensively set out the facts surrounding the dispute, I will only repeat them to the extent necessary to understand my reasons. For convenience I will use the same abbreviations as those used by Basten JA.

Background facts

1. [3]

   In considering the issues it must be remembered that at the time of the exercise of the power of sale, Almona had been in default under the facilities secured by the mortgage for a considerable period. Default had occurred by 31 May 2014. On 5 June 2014, SAP confirmed to Almona that the amount owing was $58,911,301.00 and rejected a request for extension.

2. [4]

   Notwithstanding, no action was taken at that time, and on 12 September 2014 the solicitors for SAP wrote to Almona, indicating that it was prepared to consider a forbearance letter in respect of existing breaches of the facilities on certain terms. It is not clear whether those terms were complied with.

3. [5]

   On 12 December 2014, the solicitors for Almona wrote to the solicitors for SAP stating their client was in the process of refinancing the facility with a “major bank”. Nothing appeared to result from those negotiations, and on 2 February 2015 the solicitors for SAP advised the solicitors for Almona that the amount due as at 31 January 2015 was $65,566,970.91.

4. [6]

   On 15 April 2015, the solicitors for SAP wrote to Almona demanding payment of $66,720,149.08, and on 17 April SAP appointed receivers and managers to Almona.

5. [7]

   It should be noted that around this time a number of valuation reports were obtained. A valuation prepared by Abbotts Valuers on behalf of Mr Con Constantine, the managing director of Almona, valued the property as at 1 June 2015 at $115 million. The valuation was not admitted into evidence as proof of the value of the land, and the receivers were not provided with a copy of the report.

6. [8]

   The receivers obtained two valuations. One dated 29 June 2015 valued the property at $45 million on an “as is, where is” basis and at $67.5 million assuming a residential master plan over the Parklea Markets and adjoining land. The other dated 18 July 2015 valued the property at $48.7 million on an “as is – subject to continuing use” basis and at $70 million on the basis of alternative use based on a residential development scenario. The primary judge noted that it was not suggested by Almona that it was unreasonable for the receivers or SAP to rely on these valuation reports.

7. [9]

   On 7 August 2015, Mr Dixon-Smith, a partner of King & Wood Mallesons who had commenced acting for SAP, sent a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) stating the amount payable was $71,262,096.22.

8. [10]

   On 18 August 2015, the solicitors for Almona wrote to the solicitors for the receivers, stating the target date for refinancing was 31 August 2015. In anticipation of settlement on that date, various documents were prepared necessary to effect a release of the securities, but on 31 August settlement was postponed, the solicitors for Almona requesting a payout figure as at 4 September 2015. Settlement was again postponed until 18 September 2015, then postponed to 23 September and finally to 30 September 2015. Settlement did not occur.

9. [11]

   By the start of October 2015, Colliers on behalf of the receivers had called for expressions of interest in the property. Basten JA sets out the process leading up to the first and second round of offers (at [122]-[129] of his judgment) and it is unnecessary to repeat what is there set out.

10. [12]

    As Basten JA has pointed out, Wesco was registered on 8 October 2015 with Mr Merhi as the sole shareholder and director. On 12 November 2015, associated companies, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd, were registered.

11. [13]

    It should be noted that Wesco first attempted to obtain an interest in the property through negotiations with Mr Constantine. The primary judge noted that it emerged during the cross-examination of Mr Constantine that on 27 October 2015, Mr Constantine, Mr Merhi and a company, Australia International Investment Holdings Group Pty Ltd, entered into a Deed of Agreement which recited that Mr Constantine and Mr Merhi were contemplating a joint venture and/or a share sale and/or another transaction involving the assets of Almona. Clause 2 of the Deed provided that, if an agreement was reached that involved Mr Merhi injecting money into Almona to allow it to discharge all securities granted to SAP, with each of Mr Constantine and Mr Merhi holding an interest in Almona or its assets, they would procure that Almona pay a commission of $5 million to Australia International Investment Holdings Group Pty Ltd.

12. [14]

    The primary judge stated that Mr Constantine’s evidence on the issue was “most unsatisfactory”, noting that he “grudgingly admitted” the existence of the Deed but seemed to deny he ever made an agreement as to some of its terms (PJ[87]). The primary judge went on to make the following remarks:

13. [15]

    In a time entry narration Mr Dixon-Smith records that on 13 November 2015 he completed a review of funding arrangements required for buyers seeking funding on acquisition of assets and “advice to PAG”. This is unusual, as all the buyers who were admitted to the second round of bids, including Dyldam, indicated in their expressions of interest that they had finance to complete the purchase. The time entry narrative records that the review followed meetings Mr Dixon-Smith had with representatives of PAG on 10 November and 11 November, the latter being recorded as a meeting re the sale process. It can be inferred in those circumstances that PAG by that time was interested in retaining an involvement with the property, at least as a potential financier.

14. [16]

    On 10 December 2015, Mr Dixon-Smith travelled to Hong Kong. His time entry narrative records “Parklea Joint Venture – Meeting with Dyldam in Hong Kong. Prepare and edit Parklea Profit Distribution Table … compose email to James McMurdo and Anshumann Woodhull”. The document which was emailed to Messrs McMurdo and Woodhull on 11 December was attached to an email which stated, “how I see the profit ratchet working”. That document showed a distribution of net profit between Dyldam and PAG in respect of the venture, Dyldam’s share of the profit increasing from a base of 25 per cent at a profit level of $50 million to 40 per cent at a profit level of $400 million, but thereafter constant at 40 per cent (presumably the ratchet).

15. [17]

    This document demonstrates at least two things. First, to the extent that it can be concluded that it was prepared on the instructions of PAG, it demonstrates confidence that Dyldam would be the preferred bidder, notwithstanding the fact that second round bids had not come in and Wesco’s initial bid was higher than that of Dyldam. Second, on its face, leaving aside the risk involved, it appeared to be a commercially attractive proposition to PAG. I agree with Basten JA that it could readily be inferred that the discussion with Dyldam representatives in Hong Kong was in connection with this proposal.

16. [18]

    It is apparent from Mr Dixon-Smith’s time entry narrative that by 21 December 2015, Dyldam was the nominated purchaser and PAG (or its associated company) would provide finance. It was also determined by that stage that the sale would be a mortgagee sale rather than a sale by the receivers. On 23 December, Mr Dixon-Smith emailed solicitors acting for Dyldam’s nominee Parklea, attaching a diagram described as the “Diamond Entity Structure (based on total funding of $90m, with $51m from the senior debt facility) discussed at those meetings”. The document shows two entities (Dyldam Parklea Holdings #1 Pty Ltd and Dyldam Parklea Holdings #2 Pty Ltd) holding 20 per cent and 80 per cent interests respectively in the development company (Dyldam Parklea Developments Pty Ltd). Although the document is not entirely clear, it seems to envisage equity contributions of $24 million and $2 million from PAG and Dyldam respectively and $5 million mezzanine finance. The total capital, both loan and equity, thus amounted to $82 million. The structure is silent as to where the balance of $8 million was to come from.

17. [19]

    The structure on its face did not align with Mr Dixon-Smith’s calculation of net profit share of 11 December. However, Mr Dixon-Smith explained the position in his email to the solicitors for Parklea of 24 December 2015. That email, which was copied to Mr McMurdo of PAG, was in the following terms:

18. [20]

    It is unnecessary to deal with the further negotiations leading up to the date of the contract.

19. [21]

    Contracts were exchanged on 13 January 2016. The vendor was SAP as mortgagee exercising power of sale, and the purchaser was Parklea. As has been explained by Basten JA, the purchase price was $85,350,000 if the residence on the property, then occupied by Mr Constantine, was vacated, or otherwise $81,100,000. The contract provided for a payment of a deposit of $1 million on the date of contract, $3,267,500 within three business days from receiving written confirmation of Investment Committee approval and the balance of 10 per cent on completion.

20. [22]

    Clause 36 of the contract provided that completion was to take place on the latest of 28 January 2016, 14 days after Investment Committee approval or any extended completion date provided for in special condition 59.1. That special condition provided that if proceedings were instituted against the receivers or vendors relating to the contract, the vendor could serve a notice delaying completion.

21. [23]

    Clause 63 of the special conditions provided that the agreement was conditional on approval by the PAG Investment Committee. As Basten JA has pointed out, as a result PAG had control over the sale process. Investment Committee approval was required by 14 March 2016; however, the date was extended to 29 April 2016. It should be noted that prior to the latter extension being given, it appeared that the PAG Investment Committee had approved the transaction. This appears from a note in Mr Dixon-Smith’s time entry memorandum of 29 February 2016 to the following effect:

22. [24]

    On 14 January 2016, Parklea lodged a caveat over the property claiming an “equitable interest in the land pursuant to the Contract of Sale of Land dated 13 January 2016” between SAP and Parklea.

23. [25]

    At the time of exchange of contracts, documentation relating to the funding arrangements had not been completed. On 10 March 2016, Mr Dixon-Smith sent a draft Heads of Agreement to the solicitors for Parklea. The Heads of Agreement were ultimately entered into on 22 March 2016 along with certain other security documents.

24. [26]

    The parties to the Heads of Agreement were Parklea (“Landowner”), a related company, Quatro 88 Pty Ltd (“Development Manager”), Parklea Holdings 1 Pty Ltd as trustee of the Parklea Holdings 1 Unit Trust (“Holding Trust 1”), Parklea Holdings 2 Pty Ltd as Trustee of the Parklea Holdings 2 Unit Trust (“Holding Trust 2”) and Lord Business Holding VIII Ltd, a British Virgin Islands company (“LBH”). Clause 2.1 of the Heads of Agreement recorded that Parklea had entered into the purchase of the property based on discussions regarding the funding of the Project by members of the LBH group. It should be noted that the Project was defined as meaning “the acquisition, development and sale of the Land”. It was not in issue that LBH was an associated company of PAG and SAP.

25. [27]

    Clause 2.2 of the Heads of Agreement set out the intention of the parties, including that LBH would provide debt, credit and mezzanine finance to Parklea in its capacity as Trustee of the two Holding Trusts, and that the Development Manager would manage the Project under the Development Management Agreement.

26. [28]

    By cl 3 LBH agreed to grant the facilities. Details of the facilities were set out in cl 8 of the Agreement and it is unnecessary to set out the somewhat complex structure. However, it should be noted that the total amount proposed to be advanced was well in excess of the amount required to discharge the mortgage.

27. [29]

    Clause 4.1 provided that the parties would procure the entry into the Development Management Agreement, whilst cl 6 gave LBH and the Security Trustee negative control over the Project.

28. [30]

    Clause 5 provided for the shareholding and unit holding arrangements in the entities to carry out the Project. The structure was set out in an annexure to the Heads of Agreement. It provided that 80 per cent of the shares in Parklea be held by Parklea Holdings 1 Pty Ltd, and 20 per cent by Parklea Holdings 2 Pty Ltd as trustee of the respective Holding Trusts. The structure provided that 800 units in each trust were to be issued to entities associated with Mr Fayad, the managing director of Dyldam, whilst 200 were to be issued to Visy Group Holdings, a company associated with Wesco. However, LBH VIII was granted a call option to purchase all of the Holding Trust 1 shares in Parklea in consideration for payment of $100,000. Thus, LBH VIII could by exercise of the option acquire an 80 per cent interest in Parklea, diluting the interests of entities associated with Dyldam to 16 per cent and those with Wesco to 4 per cent. Basten JA has explained the confusion in the various Heads of Agreement in [156]-[164] of his judgment.

29. [31]

    The Heads of Agreement also provided for a “development management fee” based on the net profit of the venture. A worked example was given, which showed that the total return of what might be described as the non-PAG interests was identical to that calculated by Mr Dixon-Smith in his document of 11 December 2015.

30. [32]

    It is not clear why the mechanism of a call option was used rather than a direct allocation to LBH of either units in Holding Trust 1 or shares in Parklea. However, nothing turns on it.

31. [33]

    In the period between January and March 2016, Almona was still endeavouring to refinance the property.

32. [34]

    On 22 February 2016, the solicitor for Almona wrote to the solicitors for the receivers requesting a payout figure. The email asserted that Mr Constantine had requested a payout figure just before and just after Christmas. The email stated that Mr Constantine’s ability to refinance had been hindered by the lack of information about the level of debt.

33. [35]

    The request was eventually referred to Mr Dixon-Smith, who advised the solicitors for the receivers in the following terms:

34. [36]

    As a result, the solicitors for the receivers informed Almona’s solicitors on 23 February 2016 that it had referred the request for a payout figure to King & Wood Mallesons which would respond directly.

35. [37]

    Mr Dixon-Smith’s time entry narrative records that on 11 March 2016 he had a meeting with PAG senior executives to discuss completion of the sale. The entry is in the following terms:

36. [38]

    On 14 March 2016, the solicitors for Almona sent an email to Mr Dixon-Smith in the following terms:

37. [39]

    On the same day Mr Dixon-Smith replied as follows:

38. [40]

    On the evening of the same day, Almona’s solicitors responded in the following terms:

39. [41]

    The transaction with Mackycorp Pty Ltd and AMB Capital Partners was not as certain as the solicitors for Almona would seem to suggest. On 14 March 2016, Mackycorp wrote to Mr Constantine, stating that a company associated with Mackycorp would offer to purchase the property for $65 million and on other terms, including the engagement of Almona to manage the market garden, with Almona having the right to retain the existing residence. It also provided for the parties to that agreement to approach SAP to negotiate the payout sum “which is understood to be no greater than $65 million”. The offer was said to be subject to satisfactory due diligence and board approval.

40. [42]

    On 15 March 2016 at 1.22pm, the solicitors for Almona emailed Mr Dixon-Smith, attaching a letter from AMB Capital Partners to Mr Constantine indicating that company was prepared to provide finance of $65 million subject to a three week due diligence period, and seeking confirmation from the receivers that they would not enter into or complete the sale of any assets of Almona during that due diligence period.

41. [43]

    Prior to receipt of that email, Mr Dixon-Smith sent an email to PAG in the following terms:

42. [44]

    Subsequent to the receipt of the email from Almona, Mr Dixon-Smith again emailed PAG. The email attached the letter from AMB Capital Partners and made the following comments:

43. [45]

    On 21 March 2016, the solicitors for Almona were informed by Mr Dixon-Smith that the amount outstanding was $70,872,398.57 and a contract for $81.1 million had been exchanged. Basten JA has explained the circumstances in which the contract price was varied to only include that amount rather than the alternative amount if Mr Constantine gave vacant possession.

44. [46]

    On 22 March 2016, the solicitors for Almona wrote to King & Wood Mallesons and the solicitors for the receivers, stating that whilst Almona had been aware since 18 January 2016 that a caveat had been lodged on the property, it had not been made aware of the details of the contract. The letter stated that Almona would not stand in the way of completion of the transaction.

45. [47]

    The contract was completed on 22 March 2016.

Was Almona entitled to rely on a collusive arrangement between SAP, Dyldam and Wesco in support of its claim?

1. [48]

   As Basten JA has pointed out, Wesco reduced its first round bid of $92 million to $79 million in the second round, thus leaving Dyldam as the highest bidder. The essence of the collusion case was that the reduction in the Wesco bid was as a result of collusion between SAP, Dyldam and Wesco, whereby Wesco agreed to reduce its bid in return for an interest in the ultimate purchaser. This essentially was an allegation that SAP, Wesco and Dyldam had fraudulently manipulated the bid process.

2. [49]

   The first thing to note is that no such allegation was pleaded. The further amended Statement of Claim, filed in court on the first day of the hearing before the primary judge, alleged that SAP breached its duty of good faith essentially by first, failing to respond to requests for information concerning the payout figure, second, failing to advise of the terms of the proposed sale and third, implementing Mr Dixon-Smith’s action plan to which I have referred at [43] above. There was no allegation of collusion to cause the reduction in Wesco’s bid price.

3. [50]

   Particulars of fraud, breach of duty and unconscionability were supplied on 20 February 2019 and 1 March 2019. As with the further amended Statement of Claim, they made no reference to any collusion with Wesco.

4. [51]

   The involvement of Wesco was first raised in the particulars supplied on 6 March 2019. It is convenient to set them out in full:

5. [52]

   These particulars did not expressly refer to an agreement or arrangement with Mr Merhi that Wesco would lower its bid price in return for a company controlled by him obtaining an interest in the property or the proposed development. Whilst some impropriety may be suggested, particularly having regard to the fact that pars (6) and (7) of the particulars are said to be particulars of fraud, no particular fraudulent conduct is specified.

6. [53]

   Fraud must be pleaded distinctly and with particularity: Banque Commerciale S.A., en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279 at 285, 295; [1990] HCA 279; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 573; [1995] HCA 68. Deliberate manipulation of the bid process to deprive a mortgagor of its right to receive the best price available for the mortgaged property is fraud and requires specific pleading in accordance with these principles. The particulars fell well short of meeting these requirements.

7. [54]

   I accept that the nature of the transaction in the present case, involving a sale to a corporation in which an associate of the mortgagee had an 80 per cent economic interest, was such as to cast upon the purchaser and the mortgagee the onus of satisfying the Court that the power of sale was exercised in good faith and that reasonable steps were taken to obtain a fair price: Farrar v Farrars Ltd [1888] 40 Ch D 395 at 398, 410; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 273; [1965] HCA 17. However, the discharge of that onus does not, in my view, extend to disproving allegations that have not been made against the mortgagee and the purchaser.

8. [55]

   In the present case, both Parklea and SAP were entitled to proceed on the basis that the price offered by Dyldam was the best price which emerged from the sale process. In the absence of any allegation of collusion there was no need for them to adduce evidence that there was no collusion with Wesco either jointly by Dyldam and SAP, or by Dyldam with the knowledge of SAP. In these circumstances the challenge to the sale, insofar as relies on collusive conduct between Wesco, Dyldam and/or SAP, has not been made out.

Was the sale in bad faith or a fraud on the mortgagee’s power of sale?

1. [56]

   The obligation of a mortgagee in the exercise of its power of sale has been expressed in various overlapping ways. Thus, in Farrar v Farrars Ltd Lindley LJ at 411 described that the mortgagee’s obligation was to act bona fide and take reasonable precautions to obtain a proper price. That statement was approved by Griffith CJ (delivering the judgment of the Court) in Barns v Queensland National Bank Ltd (1906) 3 CLR 925 at 942; [1906] HCA 26, who added (at 943) that the power of sale must be exercised honestly for the purposes of the power.

2. [57]

   In Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9, Griffith CJ (at 680) stated that the obligation was that the mortgagee not recklessly or wilfully sacrifice the interest of the mortgagor, and that if the mortgagee does so he is to be regarded as not having acted in good faith. Barton J (at 694) stated that if the mortgagee confines his attention to his own interests, and sacrifices the mortgagor’s property by doing so, he acts in bad faith, emphasising that the mortgagee only considers his own interest “if he cares no jot whether a fair price be obtained, so only that the price pays his debt”. Isaacs J (at 700) stated that the mortgagee’s power must be exercised bona fide and having regard to the purpose for which it is conferred.

3. [58]

   In Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20, Walsh J at 493 described the obligation to act in good faith as an obligation to “act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor”. He stated (at 496) that “[w]hat has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor does not necessarily involve … the commission of actual fraud”. In Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; [1978] HCA 21, Jacobs J stated (at 201) that the obligation of the mortgagee once the decision to sell has been made is concerned with a genuine primary desire to obtain the best price obtainable consistently with the right of the mortgagee to realise his security. He also considered that when there is a possible conflict between that desire and a desire that an associate should obtain the best possible bargain, the facts must show that the desire to obtain the best price was given absolute preference over any desire that an associate should obtain a good bargain. Aickin J, after extensively reviewing the authorities, stated the critical question was whether there was a “truly independent bargain”.

4. [59]

   In Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15,581, McLelland CJ in Eq (at 15,583) warned against construing and applying particular phrases in judgments “as if embodied in an Act of Parliament”, stating that what matters is whether what occurred was unconscionable.

5. [60]

   In each of the High Court cases to which I have referred, it was clear that no regard was paid to the interest of the mortgagor. In Barns v Queensland National Bank Ltd, there was evidence the property was sold at a price equal to the amount of the debt, the property was worth more than that price, the sale was inadequately advertised and the reserve price was disclosed prior to the auction.

6. [61]

   In Pendlebury v Colonial Mutual Life Assurance Society Ltd, farming land the subject of the mortgage was not advertised at all in the local papers, and was sold to a person who knew the reserve and who it was found had no money and could only complete the sale by on-selling the property, which he did at a substantial profit. The sale was not authorised by the board of the respondent,

7. [62]

   In Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq), the property was sold to a wholly owned subsidiary of the mortgagee at a price slightly higher than the highest bid at an auction, which was found to have been conducted so as to make it virtually impossible for a sale to be effected.

8. [63]

   In Forsyth v Blundell, the mortgagee arranged for an auction with a reserve of $120,000, the amount of the mortgage debt. Prior to the auction a petroleum company, XL Petroleum Pty Ltd, indicated it would pay $150,000 for the property. Notwithstanding, the mortgagee did not proceed with the auction and sold the property to another petroleum company for the amount of the mortgage debt. It was held to constitute a reckless disregard of the mortgagor’s interest.

9. [64]

   Finally, in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd, the mortgagee took an assignment of the mortgage at a time when the mortgagor was in substantial default. The mortgagee thereafter listed the property for auction at a reserve price less than it had paid for the assignment of the mortgage, whilst at the same time failing to ensure that those entrusted with the arrangement of the sale so timed and advertised the holding of the auction as best to attract interest on the part of potential buyers. The result was that there was only one genuine bidder, a wholly owned subsidiary of the mortgagee, who acquired the property at a price less than the total amount owing under the first mortgage, leaving nothing for the appellant, the second mortgagee.

10. [65]

    In the present case, the question of whether the sale was carried out in the absence of good faith and whether the interest of the mortgagor was sacrificed to that of the mortgagee must first be considered at the time of entry into the contract of sale.

11. [66]

    At the time of the contract of sale, the mortgagor had been in default for a considerable period of time and had been given a number of opportunities to discharge the mortgage. Further, unlike the cases to which I have referred above, no criticism was levelled at the bid process which produced bids well in excess of the valuations obtained by the receivers. Third, as the bidding process must be considered in the absence of any collusion with Wesco, it follows that Dyldam emerged as the highest bidder as a result of a legitimate process which did not sacrifice the interests of Almona.

12. [67]

    The fact that the purchaser was a company in respect of which the mortgagee had a significant economic interest does not lead to the conclusion that there was a lack of good faith on the part of the mortgagee or a disregard of the interest of the mortgagor. As has been pointed out in a number of the cases to which I have referred above, the mortgagee is not a trustee of the mortgage and its duty is to ensure the interests of the mortgagor are not sacrificed. In my view they were not sacrificed by the entry into the contract of sale.

13. [68]

    In these circumstances, I do not think the entry into the contract with Parklea could be said to be a fraud on the mortgagee’s power of sale.

14. [69]

    It remains necessary to consider the events of March 2016. Having regard to my conclusion on the entry into the contract, the initial question is whether the mortgagor’s right of redemption or more accurately, a right to have the mortgage discharged was lost or suspended as a result of the entry into the contract.

15. [70]

    As at 15 March 2016, the contract remained subject to an unfulfilled condition, namely, notification of Investment Committee approval. However, the condition was a condition subsequent rather than a condition precedent to a binding contract. This is clear from the fact that cl 63(b) expressly stated that completion of the contract was conditional on Investment Committee approval. Thus in March 2016, notwithstanding the fact that the approval had not been confirmed, there was a subsisting binding contract for the sale of the property: see Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 541-543, 551-552; [1982] HCA 29.

16. [71]

    In Waring (Lord) v London and Manchester Assurance Co Ltd [1935] Ch 310, Crossman J held that it was the entry into the contract to sell the mortgaged property rather than the conveyance which extinguished the mortgagor’s equity of redemption. His Lordship made the following remarks:

17. [72]

    The decision was followed by the English Court of Appeal decision in Property & Bloodstock Ltd v Emerton [1968] Ch 94, a case involving a contract which was conditional upon the mortgagee obtaining the consent of the landlord of the leased premises to the assignment of the lease the subject of the mortgage. The condition was held to be a mere matter of title and the contract was held to be equivalent to an unconditional contract. The decision was also followed by the English Court of Appeal decision in National & Provincial Building Society v Ahmed [1995] 2 EGLR 127, where Millett LJ (as his Lordship then was), with whom Russell and Rose LJJ agreed, made the following remarks at 128:

18. [73]

    Waring was approved by Walsh J in Forsyth v Blundell at 499. However, Mason J (at 511) left open the question of whether the decision was correct.

19. [74]

    The United Kingdom decisions were approved by Young J (as his Honour then was) in Chia v Rennie (1997) 8 BPR 15,601. His Honour held that the principles in those cases were equally applicable to mortgagee sale of land under the Real Property Act 1900 (NSW).

20. [75]

    It must be emphasised that the principles only apply to a contract entered into as a result of a valid exercise of the mortgagee’s power of sale. On my view, they do not extend to the actions of the mortgagee and the purchaser in varying the contract by deleting the alternative purchase price if Mr Constantine gave vacant possession.

21. [76]

    If these principles are correct, they preclude any complaint by Almona against what was in effect the expedition of completion of a valid contract of sale. However, if they are incorrect, I do not think the actions of SAP and Parklea in implementing the action plan was conduct such as to wilfully disregard the interest of the mortgagee and in fraud on the power of sale.

22. [77]

    Subject to one qualification, SAP and Parklea were entitled to complete the contract at the time of their choosing. The qualification is that a mortgagor in the position of Almona may well be entitled to complain if there was substantial delay in completion leading to an increase in the amount of interest payable. Further, SAP in my opinion was entitled to serve notice of Investment Committee approval, thus causing the contract to become unconditional.

23. [78]

    It can be readily inferred that the steps taken pursuant to Mr Dixon-Smith’s action plan were designed to protect the purchaser from challenges and frustrate any right Almona may have had to impede the transaction. However, once it is accepted that the contract was validly entered into, it does not seem to me that steps taken to ensure its completion could be said to be in bad faith or in disregard of Almona’s rights. This is particularly so in the present case when Almona was not in a position to tender the amount due under the mortgage but had indicated that it had funds available in an amount less than the amount due and the availability of finance was subject to three weeks’ due diligence. It does not seem to me that SAP was required to delay completion of the contract to wait and see if the finance became available and Almona was able to fund the difference between the $65 million offered and the amount outstanding. Whilst it is true that on 22 March 2016, the solicitors for Almona wrote to Mr Dixon-Smith, enclosing a copy of a letter from AMB Capital Partners which confirmed to Mr Constantine that, subject to due diligence, AMB Capital Partners was prepared to fund the total amount said to be owing, that letter was enclosed in the context of the solicitors for Almona also indicating that they would not stand in the way of the sale being completed.

24. [79]

    In these circumstances, I agree with the orders proposed by Basten JA.

25. [80]

    BASTEN JA: The appellant, Almona Pty Ltd (“Almona”), was until 22 March 2016 the registered owner of a large site in western Sydney on which Parklea Markets operated. In 2013 a receiver and manager was appointed to Almona by its then financier, Westpac Banking Corporation. Almona and its principal, Mr Con Constantine, arranged a refinancing facility with a company known as Secured Asset Portfolio III Ltd (“SAP”). SAP was a special purpose vehicle within a group of companies known as Pacific Alliance Group, or PAG. Almona defaulted under the new financing agreement and, in April 2015, a receiver and manager, PPB Advisory Pty Ltd (PPB), was appointed by SAP. PPB appointed Colliers International as their agent for the marketing and sale of the property. Following a process by which expressions of interest were obtained, an agreement was reached to sell the property to the highest bidder, identified as the Dyldam Group. Dyldam’s principal, Mr Sam Fayad, established a special purpose vehicle, Parklea Corporation Pty Ltd, to be the purchaser. Funding for the purchase was organised through other entities within PAG. On 13 January 2016 SAP, as mortgagee exercising a power of sale, entered into a contract to sell the land to Parklea Corporation.

26. [81]

    The sale price, as originally agreed, was stated to be $85.35 million with vacant possession, or $81.1 million if Mr Constantine remained in possession of the house and curtilage he and his family then occupied. On 22 March 2016, Mr Constantine still being in possession, SAP and Parklea Corporation entered into a deed of variation which reduced the purchase price to $81.1 million. That variation (a reduction of $4.25 million) reflected the alternative price in the contract as payable if Mr Constantine did not vacate the house. Settlement occurred the same day.

27. [82]

    Some two years and seven months later, on 17 October 2018, Almona filed a summons in the Equity Division (followed by a statement of claim) which sought to set aside the various transactions involved in the sale on grounds of fraud, breach of duty, unconscionable conduct and misleading or deceptive representations on the part of SAP and Parklea Corporation. Following a contested process for the production of documents, the trial commenced on 4 March 2019. It was not completed in the five days allocated and resumed on 29 August 2019. Despite the volume of material involved and the complexity of the issues, the trial judge, Robb J, delivered judgment on 20 December 2019. [1]

28. [83]

    In substance, the judge upheld Almona’s claim that there had been a breach of duty on the part of SAP in failing to reveal to Mr Constantine that a higher price would have been obtained by Almona if he vacated the premises prior to settlement. The judge awarded Almona an amount of $4.25 million plus interest on that account. Otherwise Almona’s claims against SAP and Parklea Corporation failed. Further, the judge said he would in any event have declined to set aside the mortgages entered into by Parklea Corporation in relation to the financing of the purchase, which mortgages were registered in the name of PT Ltd, as trustee of the securities. Final orders were entered on 9 June 2020.

29. [84]

    On 13 July 2020 Almona filed an appeal in this Court. Parklea Corporation filed a cross-appeal challenging the order that it pay $4.25 million plus interest to Almona. SAP sought leave to appeal the refusal of the trial judge to award it costs of the trial.

Overview

1. [85]

   It is convenient at this stage to explain, by way of an overview, the case run by Almona, both at trial and on the appeal, and note the resolution, both at trial and on appeal.

2. [86]

   Whilst in control of Almona, Mr Constantine entered into a loan transaction with SAP which provided short term finance to Almona. There was an opportunity to obtain an extension of the credit facility, but subject to conditions. Almona did not satisfy the conditions and, being unable to repay the loan, fell into default. SAP appointed the receiver and manager PPB, which proceeded to conduct a sale of the property

3. [87]

   At various times during the following year, Mr Constantine (although no longer in control of Almona) attempted to obtain funding to pay the outstanding balance owing by Almona to SAP. The first and primary claim made at trial was that SAP was in breach of its duty as a mortgagee exercising a power of sale to the extent that it failed to facilitate attempts by Almona to repay the loan. Almona maintained that position after SAP issued a notice under s 57(2)(b) of the Real Property Act 1900 (NSW), and the property had been placed on the market, and after the agent had obtained final bids from a number of prospective purchasers. Indeed, Almona continued to maintain its entitlement to recover the property by repaying the debt to SAP after a contract of sale had been entered into with the highest bidder. The claim that SAP was in breach of its duty to Almona as mortgagor by failing to provide payout figures when requested, and halt the settlement of the contract to allow a financier dealing directly with Mr Constantine to conduct due diligence, dominated the pleadings at all stages and much of the argument presented at trial. At least from the time the contract of sale became unconditional (and possibly before that point) Almona’s claim was bound to fail, unless it could demonstrate that SAP was otherwise carrying the sale process in breach of its duty to Almona. That aspect of the case was properly rejected by the trial judge.

4. [88]

   Secondly, once Mr Constantine became aware of the “occupation condition” in the sale contract, Almona pursued a claim of fraud, unconscionability and misleading or deceptive conduct against both the mortgagee (SAP) and the purchaser (Parklea Corporation) for failing to disclose that the sale contract contained a higher price and a lower price, the higher price being payable if Mr Constantine vacated the house and curtilage he occupied on part of the land. He was not told of that fact until after the contract had been settled and thus Almona failed to obtain the benefit of the higher price. Almona succeeded on that claim at trial and a cross-appeal by Parklea Corporation challenging that part of the judgment must be rejected.

5. [89]

   The third basis upon which Almona sought to challenge the propriety of the sale process was an allegation, raised belatedly and then only obliquely in particulars to the pleadings, that the highest bidder in the initial round of offers obtained by the selling agent had reduced its final offer so that it was no longer the highest bidder, but ended up with a 20% share of the ownership of Parklea Corporation. The trial judge rejected the oblique allegation of collusive bidding, because it had not been adequately pleaded, nor pleaded in a timely fashion, and because the necessary factual inferences should not be drawn. That decision also should be upheld.

6. [90]

   Finally, although both parties had some measure of success at trial, the trial judge declined to apportion costs as between Almona, SAP and Parklea Corporation, directing that each party bear its own costs of the trial. Both Almona and SAP challenged that decision. The decision of the trial judge was not shown to be erroneous and Almona’s appeal in that respect should be dismissed, whilst SAP should be refused the leave it required in order to run an appeal limited to costs.

7. [91]

   It follows that the appeal must be dismissed, the cross-appeal by Parklea Corporation must be dismissed and SAP should be refused leave to appeal with respect to the costs order. The costs of the various proceedings in this Court should follow those events.

Issues raised on appeal

1. [92]

   Before exploring the factual complexities, it is convenient to note a number of issues arising from the appellant’s claims in this Court. First, some grounds of appeal spoke of a breach of duty on the part of the mortgagee in the exercise of its power of sale; others referred to a “fraudulent exercise” of the power of sale, as if the concepts were interchangeable. [2] A number of circumstances were said to give rise either to a breach of duty or to constitute fraud.

2. [93]

   Secondly, the orders sought on the appeal included (i) the setting aside of the contract for sale and the registered mortgages which financed the purchase by Parklea Corporation, (ii) the revesting of the land in the appellant and (iii) the taking of accounts as between the appellant and Parklea Corporation and SAP. Conduct which might warrant one form of relief might not warrant another. Fraud will cover a range of different forms of conduct of which some, but not others, may be sufficient for particular purposes, such as setting aside the indefeasible title obtained by registration. [3]

3. [94]

   Thirdly, there were two themes underlying the appellant’s claims. The first was that PAG effectively manipulated the sale process by its subsidiary and agent, SAP, and by providing funding to the purchaser, Parklea Corporation, which was set up through an arrangement between PAG and Dyldam Developments Pty Ltd. Dyldam was a developer of land in Australia with which PAG (based in Hong Kong) had an established relationship. SAP was therefore exercising the power of sale in part to protect its own interests and in part to ensure that those controlling it obtained a majority interest in the land for the purpose of profit through development. Secondly, although it was not submitted that the land was sold at an undervalue, it was submitted that (i) a better price might have been obtained and (ii) steps were taken to prevent Almona from refinancing and thereby exercising its right of “redemption”. [4] The claims appeared to suggest at least an analogous situation to a mortgagee purchasing the land itself, a course not permitted by the exercise of a power of sale.

4. [95]

   Fourthly, although not expressed in these terms, there were suggestions of fraud on a third party within the fourth category of fraud identified in Earl of Chesterfield v Janssen. [5] In that case Lord Hardwicke LC referred to a transaction which was transparent and consensual between the parties, but which involved a clandestine and private agreement between them to the detriment of a third party. Thus, an entity associated with Mr Tony Merhi, Wesco Capital Pty Ltd, lodged an initial expression of interest at $92 million, well above the conditional offer of $85.35 million made by Dyldam. Wesco’s final bid was $79 million. Two other companies controlled by Mr Merhi emerged with a 20% ownership interest in the purchaser, Parklea Corporation. The highest final bid was the original amount offered by Dyldam. The allegation was, in effect, that Mr Fayad and Mr Merhi had colluded to the detriment of Almona.

5. [96]

   Bearing these considerations in mind, it is convenient to turn to the amended notice of appeal filed on behalf of Almona. The 18 grounds are discursively formulated under a number of headings. The thrust of grounds 1-14 was to identify the basis upon which the judge should have found that SAP acted dishonestly (that is, for an improper purpose) in exercising its power of sale. Thus, in dealing with the “occupation condition”, Almona alleged in ground 6:

6. [97]

   The contract of sale was entered into on 13 January 2016. Logically, the primary grounds related to conduct undertaken before that date. Grounds 7, 8 and 11 addressed the precontractual conduct. Ground 7 commenced with a series of factual propositions (consistent with the findings of the trial judge):

7. [98]

   In addition, Almona relied upon the fact that the purchase by a Dyldam entity was to be funded by one of two PAG companies, referred to as Lord Business Holdings VI and Lord Business Holdings VIII. These facts, it was alleged, should have led the judge to the conclusion that SAP’s entry into the contract was not “a proper exercise of its mortgagee’s power of sale and undertaken in good faith”.

8. [99]

   It is convenient to set out ground 8 in full. That is because at trial there had been some difficulty in identifying the precise elements of the claims made by Almona. The judge explained the issue in the following passages:

9. [100]

   The reliance on the reversal of the onus of proof in 8(d) was expanded upon in ground 12, which read as follows:

10. [101]

    Finally, in terms of the precontractual events, it is necessary to refer to ground 11, which relied upon four factual propositions accepted by the trial judge:

11. [102]

    It is convenient to summarise the effect of these grounds, which appeared to be as follows:

    1. (1)

       SAP, as mortgagee exercising a power of sale, allowed the terms on which the sale was effected to be dictated by its own funder and holding company, PAG;

    2. (2)

       PAG entered into a joint venture with Dyldam to purchase the land and fund the vehicle established for that purpose;

    3. (3)

       Dyldam’s initial bid in the expression of interest process was below that of Wesco;

    4. (4)

       although there is no direct evidence as to the arrangements between the joint venturers and Wesco, in making final bids, Wesco reduced its bid by $13 million so that it was no longer $6.65 million above the higher of the Dyldam bids, but was more than $2 million below the lower bid and Wesco ended up with a 20% interest in the ownership of Parklea Corporation;

    5. (5)

       there is an inference available that the joint venturers caused Wesco to lower its bid below their bid, in exchange for a share of the profits of the joint venture;

    6. (6)

       in the absence of evidence from the joint venturers and Wesco, in their roles as owners of Parklea Corporation, the Court should have been satisfied that the available inference was established;

    7. (7)

       the result was that SAP obtained an amount which was $6.65 million below the amount which Wesco was prepared to pay;

    8. (8)

       the shortfall was caused by SAP submitting to the direction of PAG, which was funding the purchaser, in breach of its obligation to the mortgagor.

12. [103]

    Almona supported that reasoning by relying on the failure of SAP to reveal to Almona the effect of the occupation condition in the offer made by Dyldam. That was the subject of a lengthy statement in ground 6.

13. [104]

    After identifying the relevant legal principles and the factual framework, it will be convenient to address the claims made by the appellant under four headings, namely:

    1. (1)

       Appellant’s first claim of impropriety – mortgagor’s right to repay loan;

    2. (2)

       Appellant’s second claim of impropriety – sale transaction not independent;

    3. (3)

       Appellant’s third claim of impropriety – accommodation condition, and

    4. (4)

       Appellant’s fourth claim of impropriety – involvement of Wesco.

Legal principles

1. [105]

   The interest of SAP as mortgagee arose under s 56 of the Real Property Act 1900 (NSW). The mortgage constituted a security interest pursuant to s 57(1). Upon default by the mortgagor (Almona), SAP exercised its power to appoint a receiver to the mortgagor and take possession of the land. It also exercised a power of sale. [8] Subject to the requirements of the Real Property Act, the mortgagee had power to sell the mortgaged land. In doing so, it acted in its own interests in order to recover moneys owing under the mortgage, but had obligations with respect to the interest of the mortgagor in any surplus. However, statements of the duty owed to the mortgagor under the general law include the propositions that it “must conduct the sale properly, and must sell at a fair value, and … could not sell to [itself].” [9] At a similar level of generality, it is said that the mortgagee must act “in good faith”. In Forsyth v Blundell, [10] Mason J stated that there was a breach of duty by a mortgagee in exercising its power of sale “without taking reasonable steps to obtain a proper price and in so doing acted otherwise than bona fide, that is, recklessly, not caring whether the price obtained was in the circumstances a proper price or not.”

2. [106]

   That obligation has been expanded by s 111A of the Conveyancing Act to a duty to take reasonable care to ensure that the land is sold for not less than its market value. [11] Breach of that obligation does not permit the title of the purchaser to be impugned, but may found an action in damages by the mortgagor who has suffered loss: s 111A(4). (It will be necessary to return to the question of relief for breach of duty.)

3. [107]

   Underlying the various expressions of the duty is a principle involving protection of the financial interest of the mortgagor. Where the land is worth more than the debt owing under the mortgage it is, in the absence of other creditors, the interests of the mortgagor which requires that the best value be obtained by the sale.

4. [108]

   The critical issue in this case, as in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd, [12] “was whether it was a truly independent bargain.” [13] In so identifying the issue in Bangadilly Pastoral, Aickin J relied upon the following passage in the judgment of Lindley LJ in Farrar v Farrars Ltd: [14]

5. [109]

   In Farrar v Farrars, using similar language, Chitty J made a finding that “there was an honest and independent bargain”. [15]

6. [110]

   Aickin J in Bangadilly applied these principles in the following circumstances: [16]

7. [111]

   Immediately following this passage, Aickin J compared the circumstances with those in Forsyth v Blundell: [17]

8. [112]

   Aickin J also referred to the question of onus: [18]

9. [113]

   The appellant set considerable store by the decision of the High Court in the earlier case of Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq). [19] The appellant in Latec was the mortgagee in possession. It was owed an amount of some £86,000. The circumstances in which the sale was effected were described by Kitto J in the following terms: [20]

10. [114]

    With respect to the question of onus, Kitto J stated: [21]

11. [115]

    It was held that the mortgagee acted with “a lack of that kind of good faith which in the eyes of a court of equity is essential to the validity of a mortgagee’s sale”; further, “the collaboration of the mortgagee and the purchaser through their common directors amounted to fraud in the sense of ss 42 and 43 of the Real Property Act, 1900 (NSW), so that the mortgagee’s claim to have the sale set aside is not defeated by the indefeasibility which those sections accord to a registered title.” The last point was the subject of further consideration in the light of interests obtained by those holding a subsequent security over the property.

Circumstances constituting collusive dealing

1. [116]

   There were in substance two limbs to the appellant’s case with respect to the sale of the property by SAP to Parklea Corporation. The first concerned the relationship between the mortgagee exercising its power of sale (namely, SAP) and the purchaser (Parklea Corporation); the second concerned the circumstances by which the highest bidder on the first expression of interest became the beneficial owner of a 20% interest in Parklea Corporation. With respect to the first limb, the case differs from both Bangadilly and Latec in that there was no common shareholding or directorship in vendor and purchaser. Rather, there was a complex web of corporate interests, which demonstrated that PAG controlled and financed both SAP and Parklea Corporation.

2. [117]

   With respect to the second limb, there are only three known facts, namely that (i) Wesco made the highest bid in the first expressions of interest, (ii) Wesco’s final bid was below that of Dyldam, and (iii) Wesco ended up with a 20% shareholding in the purchaser. The appellant contended that, absent any explanation from the respondents, the Court should have inferred that Wesco reduced its bid from the highest to one below Dyldam’s as a result of an arrangement by which it obtained a beneficial interest in the joint venture between Dyldam and PAG. The absence of any documentation available to the appellant was a consequence of the belated exposure of the fact of Wesco’s interest in the joint venture, after the trial was due to have commenced.

(a) events in 2015

1. [118]

   There was no dispute that SAP, via a web of related companies, was a member of the Pacific Alliance Group, both through directorships and ownership via subsidiary companies. Its authorised signatory was Mr Jon Lewis, who was a principal of PAG. In 2013, pursuant to a “loan notes subscription agreement”, SAP provided Almona with funds in an amount of $53.2 million, which refinanced bank finance previously procured by the Almona from Westpac, in respect of which Almona had defaulted, resulting in the appointment of receivers by Westpac. The SAP loan was provided for a period of 12 months. The loan could be extended if certain conditions were met, but they were not met and the loan thereupon became repayable on 31 May 2014. Almost 12 months later, on 17 April 2015, SAP appointed PPB Advisory as receiver and manager of Almona. The amount outstanding at that time was in excess of $66 million.

2. [119]

   The receiver obtained a number of valuations of the land, which ranged from $115 million down to $45 million, the lower valuations being based on a continuation of present use. It concluded that a fair value was between $80 million and $91 million.

3. [120]

   On 20 August 2015 SAP served a notice under s 57(2)(b) of the Real Property Act, as a preliminary to the exercise of its power of sale. In August 2015 the receiver appointed Colliers International as its selling agents. An initial report identified Dyldam as one of 10 local buyers who might be interested in the property.

4. [121]

   On 8 October 2015 Wesco Ventures Pty Ltd was registered with Tony Merhi as the sole shareholder and director. A month later, on 12 November 2015 a further company, Visy Group Holdings Pty Ltd was registered, with Wesco Ventures and Mr Merhi as the shareholders. On the same day, Visy Projects Pty Ltd was registered with the same shareholders as Visy Group Holdings.

5. [122]

   On 30 October 2015 Dyldam Developments lodged an expression of interest, signed by its director, Sam Fayad, offering $85,350,000. Wesco Capital lodged an expression of interest in the sum of $92 million. Eleven other expressions of interest were lodged, ranging from $40 million to $84,250,000. Colliers advised the receiver that of the 14 expressions of interest six were between $80 million and $92 million and the bottom eight between $60 million and $70 million. Colliers suggested that they should notify the top six parties on 16 November 2015 that a second round of expressions of interest would run for two weeks closing on 30 November 2015. (The proposal was not immediately adopted and the closing date was later extended to 18 December 2015.)

6. [123]

   By early November 2015 King & Wood Mallesons (KWM) were the solicitors acting for Pacific Alliance Investment Management (HK) Ltd, a part of PAG, in relation to Parklea Markets. The responsible partner was Stuart Dixon-Smith. On 10 and 11 November 2015 Mr Dixon-Smith had meetings with PAG in relation to the sale process. On 13 November he undertook a review of funding arrangements “required for buyers seeking funding on acquisition of assets” and gave advice to PAG. On 27 November 2015 Mr Dixon-Smith met at PAG with representatives of the receiver and Colliers. On 3 December he had discussions with PAG as to whether the sale should be conducted as a mortgagee sale or as a receiver sale.

7. [124]

   On 11 December 2015 Mr Dixon-Smith provided to Anshumann Woodhull of PAG a spreadsheet indicating how a “profit rachet” would work, which envisaged a starting apportionment between PAG (80%) and Dyldam (20%) but allowed the ratio to vary in favour of Dyldam on a sliding scale as profits increased. Almona relied on the document as demonstrating an expectation that by purchasing the property, PAG would share net profits of as much as $700 million. At the highest level, Dyldam would obtain 36.4% and PAG 63.6%. It is apparent that, by that stage, there must have been a reasonably sophisticated proposal being discussed by PAG (the email went to two officers of PAG, under the heading “Almona”) as to a joint venture with Dyldam involving both PAG and Dyldam sharing ownership of the development. The mechanism to achieve that would later crystallise in the purchaser granting the PAG company funding the purchase a call option over 80% of the unit holdings in two trusts which owned the purchaser.

8. [125]

   By this time, on 11 December 2015 Mr Dixon-Smith had met “with Dyldam in Hong Kong”. On the morning of Monday, 14 December 2015, Colliers wrote to Messrs Fayad and Jarrett of Dyldam noting that there was an updated closing date for final expressions of interest, being Wednesday 16 December at 4pm. Mr Meynell (Colliers) also emailed Mr Carter (receiver) to say that he had a meeting that day at Dyldam’s office and was flying to Hong Kong the following morning. At that stage it was clear that the sale of the land would attract an amount well in excess of the SAP debt funded by PAG. It is unclear why the selling agent of land in Australia would take the trouble to fly to Hong Kong to discuss the sale with the funder of the mortgagee.

9. [126]

   The meeting with Dyldam in Sydney had involved “three main items of discussion”:

10. [127]

    Three parties submitted second round expressions of interest on 16 December 2015. Each made an offer subject to vacant possession as follows:

11. [128]

    Dyldam’s final expression of interest, together with a copy of the contract with marked up special conditions, was emailed to Colliers at 4:04pm on 16 December 2015. The document was still in the form of a sale by Almona, to be executed by the receiver and manager. The change to a mortgagee sale was agreed in the course of a conference call on 21 December between Mr Dixon-Smith and PPB Advisory and Gilbert + Tobin. The file note read:

12. [129]

    An important qualification to the terms of the Dyldam offer was identified in an email of Monday 21 December, from Mr Meynell at Colliers to Mr Schofield at PPB, noting that the first offer based on vacant possession meant “Con [Mr Constantine] gone, understand licence holders will still be there until 2019”. The offer “subject to existing leases” meant “Con will still be there as well as all licence holders until 2019”. Accordingly, the difference in the price was identified by reference to Mr Constantine remaining on the land as at settlement date.

13. [130]

    On 22 December 2015 the time entry for Mr Dixon-Smith read:

14. [131]

    On 23 December 2015 at 7:29pm, Mr Dixon-Smith emailed Ramy Qutami, the solicitor at Madison Marcus acting for Dyldam, as follows:

15. [132]

    On 23 December 2015 Madison Marcus proposed a variation, in that the purchaser (yet to be incorporated) would be Parklea Corporation Pty Ltd, with 50% of its shares held by each of two holding companies under a unit trust arrangement, with the unitholders yet to be determined. On 24 December 2015 Mr Dixon-Smith responded noting that the shareholding between the two holding companies was to reflect the 80/20 share of economic interests, with “any ‘earn up’ by Dyldam Group earned through a performance based component” of the development fee.

16. [133]

    There followed, on Christmas Eve, an exchange of emails between Madison Marcus acting for Dyldam and the receiver and the receiver’s solicitors, Gilbert+Tobin. Mr Weinberger at Gilbert+Tobin sent an email at 2:27pm on 24 December to Mr Carter (the receiver). One issue concerned a request that special condition 59, relating to proceedings against the vendor, be extended. Mr Weinberger wrote:

17. [134]

    Mr Dixon-Smith’s email made two further points relevant to the present issues. First, he commented on a third party security interest registered on 31 October 2015 in favour of Anastasia Constantine (Mr Constantine’s wife and accountant) on the personal property securities register, noting the difficulty in releasing a purchaser from the effect of such an interest but stating, “this is exactly why we are selling as mortgagee not receiver.”

18. [135]

    Secondly, Mr Dixon-Smith noted a query raised in respect of a term in the contract (cl 63) requiring consent of the “Vendor’s Investment Committee”. Its role was explained as follows:

19. [136]

    There were further emails between Madison Marcus (for Dyldam) and Gilbert + Tobin (for the receiver) after Christmas and prior to the new year. In particular, Dyldam requested that the deposit be $1m to be paid on exchange of contracts, the balance of the deposit to be paid on 14 January 2016 and settlement to be on 28 January 2016. At that stage, it appeared that Madison Marcus believed that the receiver was conducting the sale. The request, initially sent to Mr Weinberger, was forwarded to Mr Dixon-Smith who stated that, there being no requirement that the contract be unconditional, the requests were acceptable, but needed the approval of Mr McMurdo or Woodhull at PAG. Mr Woodhull indicated his approval.

20. [137]

    There are aspects of the foregoing communications which may be noted at this stage. First, although it is clear that PAG and Dyldam had entered into a joint venture in order for the latter to purchase the property, each was, at this stage, pursuing its own interests. Thus Dyldam, or at least its solicitors, were not fully informed about the role of the PAG investment committee, nor had they been told that the sale was to be a mortgagee sale. They were seeking to reduce the immediate payment (and amount) of the deposit.

21. [138]

    Secondly, it is clear that PAG was dictating the terms of the purchase, including the form as a mortgagee sale and the need for a condition in the contract as to approval from its investment committee, although it was not the purchaser. Although Mr Dixon-Smith said that investment committee approval was needed by the vendor, the condition operated as a protection for PAG as the funder of the purchaser. SAP was to be paid an amount which more than covered its entitlements under the loan agreement; its interest was limited to its parent, PAG, making arrangements to fund the purchase. The effect of the purchase, however, was for PAG to substantially increase its financial commitment with respect to the land by investing in a major development with an Australian partner. Nevertheless, withholding the communication to the purchaser of investment committee consent allowed SAP to continue to book interest at penalty rates.

22. [139]

    Thirdly, a representative of the receiver, Mr Carter, appointed by PAG’s special purpose vehicle SAP, attended at least one meeting with PAG and Dyldam (the proposed purchaser and its funder) prior to the lodging of the final offers. It could be inferred that, either through SAP or Mr Carter, PAG and Dyldam were aware of the first round offers and the likely final offers before they were made. If so, there was an opportunity for Mr Fayad to learn of Wesco’s bid and to speak with Mr Merhi before final bids were lodged. However, there was no evidence of any arrangement with Wesco or Mr Merhi. Accordingly, it is difficult to draw an inference from this material that Wesco reduced its bid by $13 million, resulting in an unsuccessful bid, on the basis of an arrangement with PAG or Dyldam.

(b) Negotiations in 2016

1. [140]

   Although the heading to emails from Madison Marcus refer to the transaction with SAP as vendor, being a mortgagee exercising power of sale, it continued to correspond with Gilbert + Tobin on behalf of the receivers. Parklea Corporation was incorporated on 4 January 2016.

2. [141]

   On 8 January 2016 Madison Marcus requested that the top up of the deposit to 5% of the contract sum be conditional upon investment committee approval and be no later than 14 January 2016 or confirmation that the vendor has obtained investment committee approval; a similar request was made with respect to settlement, namely that it be “the later of 28 January 2016 or 14 days after the confirmation the vendor has obtained the investment committee approval”. The contract as executed provided for investment committee approval to be communicated by 14 March 2016. Pending investment committee approval, the contract remained conditional. From 14 March 2016, if no investment committee approval had been communicated, either party could rescind.

3. [142]

   After further minor changes to the agreement, contracts were exchanged on 13 January 2016. The following day Parklea Corporation lodged a caveat. Almona was provided with a copy of the caveat on 18 January 2016.

4. [143]

   Throughout the period whilst the receiver was in possession, Mr Constantine had been attempting to obtain finance to repay SAP. Those efforts continued after 18 January, when Almona was formally notified of the caveat. Mr Dixon-Smith was kept informed of the requests on behalf of Mr Constantine for payout figures, the requests being made to Gilbert + Tobin initially.

5. [144]

   As noted above, Mr Dixon-Smith (acting for PAG) prepared a profit distribution table based on an anticipated purchase by Dyldam and PAG, and attended a meeting with Dyldam in Hong Kong on 11 December 2015. On 23 December 2015 Mr Dixon-Smith prepared a draft Parklea “funding term sheets” and reviewed a “purchaser purchase structure”. Then, on 17 February 2016 Mr Dixon-Smith prepared a “Parklea Markets funding heads of agreement”, the drafting of which continued through to 22 February 2016 when a document was emailed to Mr McMurdo and Mr Woodhull at PAG. On 10 March 2016 Mr Dixon-Smith went to Hong Kong where he attended meetings concerning the funding arrangements for the acquisition of the property and the reviewing of the heads of agreement which he had been drafting. Before turning to the heads of agreement document, it is convenient to note an exchange of emails between Gilbert + Tobin and Madison Marcus on 8 March 2016, in the course of which Mr Weinberger advised Ms Carter at Madison Marcus that the purchaser had agreed to vary the sunset date from 14 March 2016 to 29 April 2016. A deed was prepared for that purpose by Gilbert + Tobin. In its amended form, cl 63 of the contract read:

6. [145]

   By 10 March 2016 Mr Dixon-Smith was in a position to send to Dyldam and to Mr McMurdo (PAG) a copy of Parklea Markets – Heads of Agreement “outlining the funding arrangements proposed for the Parklea Markets acquisition reflecting discussions with PAG and the proposed structure previously discussed. It is based very closely on the Wolli Creek document.” The funding was to be undertaken pursuant to a Loan Note Subscription Agreement Parklea Markets (LNSA). A document identified as “Schedule 5 – Structure Chart” to the LNSA, dated 8 March 2016, bore the insignias of both Madison Marcus and KWM. The structure chart, following the pattern of earlier discussions, showed Parklea Corporation with two shareholders, Parklea Holdings 1 Pty Ltd and Parklea Holdings 2 Pty Ltd. The director, secretary and shareholder of each of the three corporations was Mr Fayad. Each of the Parklea Holdings 1 and 2 was identified as trustee for a unit trust. Each unit trust was divided into 1,000 units, of which 800 were held by Mr Fayad’s family trust company. The remaining 200 units in each were held by two Visy companies, controlled by Mr Merhi, as trustees for Visy trusts. This was the first reference in the documents to Mr Merhi’s interests. The chart showed the full detail of the ownership of Parklea Corporation. It did not involve PAG.

7. [146]

   On 16 March 2016 Jessica Jordan, a solicitor with KWM, forwarded a copy of the LNSA to Madison Marcus. PAG was included in the email. Schedule 5 was blank.

(c) Heads of agreement

1. [147]

   The structure provided in the draft heads of agreement of 10 March 2016 had an ownership structure involving separate Holding Trusts 1 and 2 which held, respectively, 20% and 80% of the units in an intermediate holding trust. The property was owned immediately by an ownership trust. PAG was to supply mezzanine debt to the two holding trusts and senior debt to the ownership trust. The ultimate holding trust was to grant PAG an option to acquire its units in Holding Trust 2, which held an 80% interest in the property. Clause 2.1 stated:

2. [148]

   Pursuant to cl 5, Trust 2 was given majority decision-making powers over the intermediate holding trust and the landowner, but PAG and the security trustee were given negative control over the affairs of Trust 2. Further, there was a call option:

3. [149]

   Other terms of the draft heads of agreement may be put to one side for present purposes. A final form of the heads of agreement was executed on 22 March 2016: it will be convenient to consider further details of the agreement at that stage. For present purposes the following features of the terms set out above may be noted.

4. [150]

   First, although the solicitors for Dyldam were acting independently of PAG in questioning aspects of the contractual documentation, two factors suggest that the degree of independence was limited. Thus, it is clear that PAG and Dyldam had acted together on at least one earlier project as reflected in Mr Dixon-Smith’s reference to using as a precedent, “Wolli Creek”. There was also reference to discussions in Hong Kong between PAG and Dyldam in mid-March 2016 with respect to another venture. Importantly, there was no evidence that Dyldam had any alternative source of finance in the order of $90 million.

5. [151]

   Secondly, the fact that SAP, under instruction from PAG it may be inferred, had inserted a condition in the sale contract requiring PAG investment committee consent, effectively allowed PAG to control the terms of the sale contract. Further, PAG had access to immediate advice as to the circumstances of Almona and the property through Almona’s receiver, who attended a meeting in Hong Kong prior to the final round of offers.

6. [152]

   This understanding is confirmed by the diary entry for Mr Dixon-Smith for 11 March 2016, reporting meetings with PAG senior executives in Hong Kong, “to discuss completion of sale of Parklea Markets, including comprehensive review of status of sale, including PAG’s capacity to complete, purchaser funding arrangements, review of sale process to confirm PAG has complied with all duties of mortgagee exercising power of sale, status of receivership and vacant possession issues.” The file note continued:

7. [153]

   On 14 March 2016 Mr Dixon-Smith reported to Gilbert + Tobin on his instructions from Hong Kong (PAG) and anticipated sending notice of approval from the IC.

(d) final transaction documentation

1. [154]

   A succinct statement of the scheme, as it existed on (or shortly before) 18 March 2016, is found in a document prepared by Perpetual as proposed security trustee, on instructions of Madison Marcus:

2. [155]

   In fact, the settlement took place on Tuesday, 22 March 2016, and the deed of variation providing that the price would be $81.1 million; otherwise the description of the proposed transaction set out above was followed, subject to the following additional elements.

3. [156]

   The first document, critical to the appellant’s case, was the call option with respect to the unit shares. As noted above, the shareholding in Parklea Corporation was divided between Parklea Holdings 1 (80 shares) and Parklea Holdings 2 (20 shares). Each was trustee for an eponymous unit trust. Thus, 80% of the value of Parklea Corporation was held by the Parklea Holdings 1 unit trust.

4. [157]

   Of the purchase price of $81.1 million, $1 million was paid as a deposit, leaving a balance on settlement of $80.1 million payable on settlement. Of this amount, $79.1 million was paid by a PAG company, the identity of which appears to have changed very late in the hurried arrangements. The confusion is reflected in the judgment of the trial judge and should be identified in order to put it to rest. Thus, in the opening paragraphs of the judgment, the judge stated:

5. [158]

   The final version of the “Parklea Markets – Heads of Agreement” was executed on 22 March 2016. There were five parties to the agreement, namely Parklea Corporation (“Landowner”), Quatro 88 Pty Ltd (a company associated with Dyldam) (“Development Manager”), Parklea Holdings 1 Pty Ltd (“Holding Trust 1”), Parklea Holdings 2 Pty Ltd (“Holding Trust 2”) and Lord Business Holding VIII Ltd (“LBH”). Recital C noted: “LBH has agreed to provide funding to the Landowner Group along [sic] term senior debt credit wrap facility and long term mezzanine funding.” Secondly, LBH was referred to in the definition of call option in the following terms:

6. [159]

   It is apparent from these provisions that the financier was to be the grantee of the call option: if the financier was LBH VIII, the call option must have been provided to LBH VIII. The Parklea Markets heads of agreement did not contemplate separation of the financier and the grantee, as suggested in the opening paragraphs of the judgment below.

7. [160]

   In concluding his discussion of the head of agreement, the judge further noted:

8. [161]

   It should be noted that the copy of the heads of agreement not only bore the date 22 March 2016, but was signed by a director of the PAG, Jon Robert Lewis, for LBH VIII. Bearing the same date and signature, was a document entitled “Call Option to Purchase Shares”. The grantor was identified as Parklea Holdings 1; but the grantee was LBH VI.

9. [162]

   Finally, the Loan Note Subscription Agreement Parklea Markets, dated 22 March 2016 and executed by all the relevant parties, including Mr Roberts on behalf of the financier, identified the financier as LBH VI.

10. [163]

    It is not easy to resolve the source of the confusion, which was not addressed by the parties on the appeal. However, it may be noted that at 5:36am on Monday, 21 March 2016, Mr Dixon-Smith emailed a set of documents to Peter Law at PAG. The documents, it was said, “were all signed by the relevant companies at our offices yesterday and are held in escrow pending your signoff.” The documents included the loan notes subscription agreement, the call option and the heads of agreement. Mr Law emailed back, somewhat cryptically, at 9:37am, referring to the heads of agreement and the definition of “LBH” as Lord Business Holding VIII Ltd. He also stated that “[u]nder the Option Deed as drafted, it is granted to Lord Business Holding VIII Ltd.” In response (the final email in the chain), Mr Dixon-Smith wrote at 9:52am:

11. [164]

    There appear to have been three drafts of the heads of agreement available on 20 March 2016, one having a reference only to PAG as the financier and two referring to LBH VIII. On any view, the funding came from a PAG company and the call option must properly have been in favour of the same company, pursuant to the transaction documents.

Appellant’s first claim of impropriety – mortgagor’s right to repay loan

1. [165]

   The appellant’s first claim of impropriety was reflected in the proceedings instituted on 18 March 2016, being an attempt to prevent the settlement of the contract of sale to Parklea Corporation. The claim was based on the proposition that, at any time up to the transfer of title pursuant to a mortgagee sale, the mortgagor was entitled, on tender of the outstanding loan amount, to obtain a discharge of the mortgage.

2. [166]

   The appellant relied on the failure of those representing SAP (including Mr Dixon-Smith acting for PAG) and the receiver, to inform Mr Constantine of what was happening, thus preventing him from organising funding to pay out the mortgage and recovering control of Almona. The argument had two limbs: first, the refusal to supply payout figures on request and, secondly, the non-disclosure of the terms of the sale contract entered into on 13 January 2016, together with the steps taken to accelerate settlement under that contract.

3. [167]

   Following Almona replacing Westpac with SAP as its financier, on 31 May 2013, it was clear in early 2014 that Mr Constantine either needed to persuade SAP to extend the twelve-month period of the loan or needed to refinance with another lender. His attempts to extend the period of the loan failed: on 5 June 2014 SAP rejected the request for an extension and noted that the amount outstanding (as at 31 May) was $58,911,301. On 9 July 2014 Bartier Perry advised SAP’s solicitor, Clayton Utz, that Almona would be in a position to secure refinancing within three months. On 28 November 2014 the outstanding figure was confirmed as $60,649,040. Whilst a period of forbearance was provided, by 2 February 2015 the amount outstanding was $65,566,970. SAP appointed receivers on 17 April 2015.

4. [168]

   On 30 July 2015 Bartier Perry assured Mr McMurdo (PAG) that refinancing was expected within four weeks. On 3 August 2015 KWM advised Bartier Perry that the amount owning as at 31 July 2015 was $70,989,568. A notice pursuant to s 57(2)(b) dated 7 August 2015 identified the outstanding amount as $71,262,096. Bartier Perry notified a target date for refinancing as 31 August 2015. KWM and Gilbert+Tobin prepared documents required for settlement of the loan repayment, including discharges of mortgage. Settlement was not achieved on 30 August and a new date was fixed for 4 September 2015. Settlement did not occur on that date but Bartier Perry sent an email on 11 September advising that the refinancing would occur on 18 September. The financier, International Corporate Funders, advised Bartier Perry that settlement could not occur on that date as relevant documents had not been provided. (On 16 September a proposed purchaser, Abacus Property Group, withdrew.) On 17 September 2015 KWM advised that the payout figure was $75,615,868 as at 18 September. Settlement did not occur and was rescheduled for 23 September 2015. Settlement did not occur by 30 September 2015.

5. [169]

   In the meantime, SAP was preparing for a sale of the property. It is clear from a letter dated 11 September 2015 from PPB Advisory (the receiver) to Mr Constantine that he was being kept informed of the steps being taken by the receiver to sell various properties and pay down the mortgage, whilst noting that Mr Constantine’s proposed refinancing had not eventuated.

6. [170]

   It appears that by October 2015 Mr Constantine was attempting to raise funds through the sale of his shares in Almona. To that end, he signed an agreement with a company known as Australian International Investment Holdings Group Pty Ltd, described as “the agent”. The deed said that the agent was to be paid a commission of $5 million for the sale of the shares in Almona. It was followed by a deed between Mr Merhi, Mr Constantine and the agent, agreeing that they had been introduced by the agent and that if a sale eventuated, Almona would be obliged to pay the commission. A copy of the agreement signed by Mr Constantine was dated 27 October 2015.

7. [171]

   The background to these documents was obscure. Mr Constantine gave evidence and was cross-examined about them in some detail. He agreed that he had met Mr Merhi on one occasion at his office. He denied he had reached any agreement with him, and denied that he had ever sold, or attempted to sell, shares in Almona, or any other company. He denied any recollection of the document bearing his signature when it was shown to him. [23] Mr Constantine also denied knowing that Mr Merhi had put in a bid on 30 October 2015 in an amount of $92 million. [24]

8. [172]

   Whatever is to be made of Mr Constantine’s evidence, there can be little doubt that Mr Merhi was, in October 2015, exploring means of obtaining an interest in Parklea Markets. On 8 October 2015 he had incorporated Wesco Ventures Pty Ltd.

9. [173]

   There was one final attempt by Mr Constantine to obtain the finance to pay out the SAP mortgage. By 18 January 2016, Mr Constantine was aware that a caveat had been lodged over the land by the purchaser under the contract of sale exchanged on 13 January. He stated in his affidavit that during the period “December 2015 to March 2016” he attempted to obtain payout figures from the receiver on a number of occasions. During the same period he stated that he had “numerous conversations with Michael Hercus … from Mackycorp Pty Ltd.” He said he had been dealing with Mr Hercus “since about November 2015 in an attempt to negotiate a deal to repay Almona’s loan facility”. [25] He further stated that on 11 March 2016 Mr Hercus had told him that he needed to obtain a payout figure and that Mackycorp was negotiating on behalf of an entity associated with Angela Bennett. He also stated that on 14 March 2016 he advised the receiver that he had obtained funding to pay out the loan and needed a payout figure as soon as possible. On the same day, he signed heads of agreement with the prospective funder, AMB Capital Partners.

10. [174]

    The appellant’s contention is that from 14 March 2016 PAG (mainly through its solicitor, Mr Dixon-Smith) stalled in providing payout figures to allow time for PAG to settle the sale to Parklea Corporation. Evidence in support of that contention was to be found in Mr Dixon-Smith’s “action plan” prepared on 15 March 2016. On 17 March 2016 the purchaser was notified of investment committee approval, rendering the sale contract unconditional.

11. [175]

    However, at no stage was the agreement with AMB Capital an unconditional offer. It remained subject to the receiver providing an exclusive three week period for due diligence, and not completing the sale to any other party.

12. [176]

    It is convenient to explain the attempts by Mr Constantine and his solicitor, Norman Donato of Bartier Perry, to abort the sale process by arranging independent finance to pay out the debt to SAP. On 11 March 2016 at 6:52pm Bartier Perry requested an up to date payout figure. At that time, Mr Constantine had been negotiating for a payout funded by AMB Capital Partners. On 15 March, AMB Capital provided a letter to Mr Constantine noting that the debt owed was “in the vicinity of $65 million” but that he did not have a recent payout figure. The letter further stated that AMB Capital was in a position to provide finance “for the purpose of refinancing the Facility in full, subject to completion of a three (3) week exclusive due diligence period to review the further information and finalise the necessary documentation”. The letter further stated that AMB Capital “has liquid funds available to complete this transaction at or above the amount stated above and can provide support if required.”

13. [177]

    However, AMB Capital required “written confirmation from PPB Advisory that during the Due Diligence Period … they will not enter into or complete any agreement for the sale of any assets of Almona (including Parklea Markets) … over which security has been granted to secure Almona’s obligations under the facility.” On 15 March 2016 Mr Dixon-Smith was provided with a copy of the letter from AMB Capital. He wrote to Mr Woodhull and Mr McMurdo at 1:34pm stating “as envisaged by you, those involved on the proposed refinancing do actually have the firepower to fund this if Con can make it stack up.” The email continued:

14. [178]

    Earlier in the day, Mr Dixon-Smith had sent Mr Woodhull and Mr McMurdo a lengthy email outlining an “action plan” for the Parklea Markets’ sale. It proposed a settlement, commencing as follows:

15. [179]

    After some further explanation as to the amount payable on settlement (to which further reference will be made below), the action plan continued:

16. [180]

    Mr Dixon-Smith concluded with a proposal for dealing with Mr Constantine:

17. [181]

    The appellant placed significant weight on Mr Dixon-Smith’s emails as demonstrating that PAG, as mortgagee in possession through SAP, was not exercising its power of sale in good faith, but rather to ensure that the party it was funding and with which it had a joint development venture would acquire the land at the expense of the mortgagor. Mr Dixon-Smith, the appellant submitted, had put forward a proposal suggesting that extraordinary steps should be taken to ensure that the sale went ahead before a sufficient sum was proffered to SAP, which it would be obliged to accept. Mr Dixon-Smith appears to have thought that this might be so until a transfer occurred.

18. [182]

    That view may have derived from s 59 of the Real Property Act, providing that the estate or interest of the mortgagor shall pass to and vest in the purchaser “by transfer”, recorded in the register. Dealing with related (though not identical) provisions in the Real Property Ordinance 1925-1961 (ACT), Walsh J in Forsyth v Blundell [26] stated:

19. [183]

    However, Walsh J went a little further, stating: [27]

20. [184]

    It is not entirely clear whether the mortgagor loses the right to tender the full amount owing where a mortgagee contract of sale is subject to an unfulfilled condition. [28] Nevertheless, Mr Dixon-Smith appeared to be acting on the basis that a registered transfer was at least the desirable outcome to resolve the issue.

21. [185]

    There are two other matters to be noted in relation to the action plan. First, the suggestion of “vendor finance” by PAG, as a result of which SAP got no cash immediately, was intended to gain time for PAG to arrange the financing: there was no suggestion that Dyldam should (or could) contribute. Secondly, it is clear from the discussion of vacant possession that Mr Dixon-Smith was still of the view that Mr Constantine should be offered an opportunity to vacate the premises, so that a further payment would be made in favour of Almona of $4.25 million.

(a) accelerated settlement

1. [186]

   Although there appears to have been no file note indicating confirmation of the proposal to notify the purchaser that the investment committee had approved the contract in January 2016, on 17 March 2016 at 9:15am Mr Dixon-Smith emailed Mr Weinberger at Gilbert + Tobin to give him notice confirming that fact and setting the completion date of which the purchaser should be notified. On the same day, Ms Hempel (Gilbert + Tobin) advised Madison Marcus that the vendor had obtained the approval of its investment committee and that the date for completion was Friday, 1 April 2016. The contract thereby became unconditional.

2. [187]

   There were clearly undocumented conversations between Mr Hall of Madison Marcus, Ms Hempel at Gilbert + Tobin and Mr Dixon-Smith at KWM. Further, it is likely that all parties obtained instructions from their clients in the course of Thursday, 17 March 2016. There is, however, no documentary record of the telephone calls or the instructions. However, at 5:05pm Mr Hall sent Ms Hempel an email referring to recent telephone calls, and the letter advising that the investment committee had given approval. He further noted the contemplation of the parties that the completion would take place on Monday, 21 March 2016 (providing only one full working day and the weekend to ensure that both finance and the documentation for the transactions were in place). This was, potentially, three days faster than the accelerated settlement and registration of the transfer proposed by Mr Dixon-Smith. Further, Mr Hall proposed that “[t]o reflect the discussions between the parties” a deed of variation should be entered into with a new front page of the contract showing the purchase price as $81.1 million. That was an abandonment of the proposal to allow Mr Constantine an opportunity to vacate the home on the land and thereby obtain the higher price under the original offer by Dyldam.

3. [188]

   At the same time, that is, in the course of Thursday 17 March, Mr Jarrett (on behalf of Dyldam) made arrangements with Mr Greg White of Perpetual to undertake a role as trustee of the mortgages to be entered into by Parklea Corporation for the funding of the purchase.

4. [189]

   The events of the following three days may be briefly summarised. On Saturday 18 March 2016 KWM produced a further version of the Parklea Markets – Heads of Agreement. Also on 18 March 2016 Mr Constantine, dissatisfied with the responses which his solicitor had obtained from KWM, commenced proceedings seeking to injunct the settlement of the contract. However, those proceedings were abandoned the following Monday, 21 March 2016.

5. [190]

   Although aspects of Mr Dixon-Smith’s “action plan” were not adopted, it may be inferred that his message of urgency was accepted by PAG, and, by inference, accepted by the other parties at the instigation of PAG. Given that PAG controlled the vendor and was providing the bulk of the finance for the purchase, it should be inferred that it dictated the timing of the settlement. Thus, KWM, acting for PAG, prepared the heads of agreement, the call option deed, the security trust deed, the general security agreement, the loan note deed poll, utilisation notices, compliance certificate, verification certificate and mortgages, as well as the loan note security agreement. [29]

(b) conclusions

1. [191]

   Treating the complaint that Mr Constantine had been denied an opportunity to pay out the mortgage in isolation from the appellant’s other complaints, it would not be possible to find in the circumstances set out above a breach of the mortgagee’s duty to the mortgagor. There had been a considerable period of forbearance before the receiver was appointed, and a further period during which Mr Constantine had opportunities to refinance and was unable to do so. If there were indeed a third party willing to put up the necessary funds it had every opportunity to do so in the course of the expression of interest process undertaken by Colliers. Although Mr Constantine said he was negotiating with Mackycorp in November 2015, it is clear that Mackycorp did not engage with Colliers at any stage. Once contracts had been exchanged on 13 January 2016, whether conditional or otherwise, the mortgagee was entitled to pursue that arrangement and, indeed, may have been liable in damages if it had reneged. In fact the investment committee of its funder had approved the contract of sale in January and it is proper to infer that delay occurred in advising the purchaser of the satisfaction of that condition only because time was required to make the necessary arrangements to fund the purchase, a matter which was also ultimately under the control of PAG.

2. [192]

   While it is true that Mr Dixon-Smith was anxious to render the sale contract unconditional, by notifying the purchaser of investment committee approval, the effect was, in his view, to make the contract “unconditional and unquestionably shuts down any right that Almona has to refinance the facility.”

3. [193]

   There was little consideration given in the course of the appeal to the possibility that Almona might have a right to refinance the mortgage after the sale contract had been entered into, but before settlement. The submissions, particularly before the trial judge, were formulated in terms of Almona’s right to “redeem”, a right which would presumably be protected in equity. However, that language was inapt: Almona was the registered proprietor of the land under the Real Property Act, but as explained in Bangadilly Pastoral, its rights as owner were subject to the power of sale vested in the mortgagee. The question was, therefore, whether Almona had any power to prevent the mortgagee, which had exercised the power of sale by exchanging contracts, from carrying out its obligations under the contract. There was also a live issue as to the extent to which Mr Constantine, as a director of Almona, could properly institute proceedings to prevent the sale, whilst the receiver was managing the company.

4. [194]

   Ultimately, there were two reasons, one legal and one factual, why the appellant’s claim based on a failure to allow repayment of the loan failed. First, whilst the mortgagor remained the registered landowner, its rights were subject to the power of sale vested in the mortgagee. It follows that, unless the power were otherwise challenged as involving a breach of its obligation to the mortgagor, the conclusion by the mortgagee of a contract with a purchaser terminated, or at least suspended, the right of the mortgagor to insist on settlement of its debt with the mortgagee so as to remove the qualification of its title effected by the power of sale. (It might be proper to refer to the effect of the contract as suspending the mortgagor’s right in the sense that it might revive if the contract did not proceed to settlement.) In the present case the contract was conditional until the vendor notified the purchaser of its investment committee’s approval. That occurred on 17 March 2016. However, even before that time, it is arguable that the purchaser would have been entitled to insist upon notification once the investment committee had given approval. In any event, until the period within which approval could be given expired, the mortgagee had no right to rescind the contract. Once approval was given within the period, the contingent right of rescission fell away. Accordingly, it is at least doubtful that the appellant had a right to tender payment to SAP at any time after 13 January 2016 when contracts were exchanged.

5. [195]

   Secondly, as a matter of fact, the appellant did not at any stage tender payment of the outstanding amount under the loan agreement secured by the mortgage. Had a tender of such an amount been made and refused, the appropriate course would have been to pay the amount into court. That did not happen. It did not happen because, even at 18 March 2016 when proceedings were commenced, the appellant did not have finance available to it. AMB Capital had made a conditional offer, on the basis of a payout figure well below the amount owing under the loan agreement with SAP, and subject to a condition requiring three weeks exclusive due diligence. The mortgagee was not required to comply with such a condition. It was entitled to settle the sale to Parklea Corporation.

6. [196]

   The appellant sought to make much of the accelerated settlement proposed in Mr Dixon-Smith’s action plan and ultimately undertaken, partly in accordance with that plan. Whatever Mr Dixon-Smith’s concerns were, they did not affect the analysis set out above. Indeed, it seems likely that Mr Dixon-Smith did not consider that the mortgagor had any right to pay out the loan agreement; had he taken that view he might have referred to it in his advice, which he did not. Rather, his primary concern appears to have been to avoid the possibility of litigation (which in fact eventuated) with the accompanying likely delay (avoided only by the withdrawal of the litigation).

7. [197]

   The first basis of the appellant’s case was properly rejected by the trial judge.

Appellant’s second claim of impropriety – sale transaction not independent

1. [198]

   The appellant’s second claim was that the funding of the purchase by PAG, the owner of the mortgagee, prevented the sale being an independent transaction undertaken by the mortgagee. Accordingly, the sale could not be upheld as a good faith exercise of the power of sale, unless the mortgagee demonstrated that the best available price had been obtained by a fair process. It is convenient at this stage to identify the findings of the trial judge with respect to these matters. The conclusions were as follows:

(a) finding on opportunity to vacate premises

1. [199]

   The circumstances underpinning the third basis upon which the appellant sought to challenge the exercise of the power of sale involved the failure to inform Mr Constantine of the opportunity to increase the sale price by $4.25 million by vacating the premises, in accordance with the occupation condition.

2. [200]

   The trial judge upheld this complaint, requiring the payment to Almona of the additional amount of $4.25 million, together with interest. Although challenged by way of a cross-appeal by Parklea Corporation, that aspect of the judgment should be upheld. The complaint by Almona is that the finding of impropriety should have resulted in the setting aside of the contract of sale, rather than an adjustment to the sale price. The issues will be addressed in considering the consequences of the finding that there was no independent transaction. The cross-appeal by Parklea Corporation should be addressed here.

(b) Cross-appeal – Parklea Corporation

1. [201]

   Parklea Corporation challenged its liability to Almona in the amount of $4.25 million plus interest. That entitlement arose from its involvement in the reduction of the agreed price of the land to $81.1 million, thereby depriving Almona of the opportunity to obtain the additional $4.25 million. The substance of the cross-appeal was that the judge ought not to have inferred, in the absence of evidence, that Parklea Corporation was aware that Almona had not been informed of the occupation condition.

2. [202]

   As there was no challenge to the finding of fraud on the part of SAP in this respect, it is convenient to set out the reasoning of the trial judge before identifying the process by which Parklea was found to be complici:

3. [203]

   Turning to the decision to accelerate settlement of the contract, the trial judge’s reasoning as to the knowledge and intentions of both SAP and Parklea Corporation were as follows:

4. [204]

   Having concluded that the “failure of SAP to inform Almona of the occupation condition in a timely manner was dishonest”, [30] the judge returned to the question of whether Parklea was a party to SAP’s dishonesty. He rejected the proposition that it was party to the statement by Mr Dixon-Smith, and continued:

5. [205]

   In addition to this reasoning, it is convenient to refer to the discussions which occurred with Madison Marcus, the solicitors for Parklea Corporation, on or about 17 March 2016 and referred to by the judge:

6. [206]

   Further, as Almona submitted in response to the cross-appeal, it is clear from the extensive survey of material by the trial judge [31] “that the communications between KWM, G+T and MM were constant, frequent and at all times well-informed. That is, whilst there are matters which arise in the communications which are unexplained due to a gap in the documentary record, it is a striking feature of the communications that the parties appear always to ad idem despite the rapid pace at which the events were moving.” [32]

7. [207]

   As the person responsible for the development of the site, as well as for the payment of the purchase price, it is entirely likely that Mr Fayad, who had lodged the bid which was accepted with its dual pricing component, was well aware of Mr Constantine’s situation and therefore whether or not he had been informed of the occupation condition. That inference is given added weight by the failure of Parklea Corporation to call evidence to the contrary.

8. [208]

   It may be noted that, in contrast to the next matter, the relevant steps involved in this conduct all occurred after the incorporation of Parklea Corporation.

(c) Conclusion – cross-appeal

1. [209]

   The cross-appeal by Parklea Corporation should be dismissed.

(a) factual background

1. [210]

   The fourth claim concerned the involvement of Mr Merhi. It is necessary to outline the factual background. As noted above, the sale of the land was organised by the receiver, which appointed Colliers International as the agent for the sale of the land. Colliers undertook a comprehensive exercise of canvassing interested parties and obtaining expressions of interest. The result was the obtaining of 14 expressions of interest, described by Colliers as “highly creditable”. [33] The highest expression of interest was that of Wesco Capital Pty Ltd, a company owned and directed by Mr Tony Merhi, for an amount of $92 million. The bids were lodged on 30 October 2015. The first report by Colliers International to the receivers was dated 11 November 2015. Two days later, Colliers suggested that the six highest expressions of interest should be invited to participate in a second round, with time to allow for two weeks due diligence, with offers to be provided by 30 November 2015. [34]

2. [211]

   On 12 November 2015 Mr Merhi incorporated two companies, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd. The shares in both were held by Wesco Ventures Pty Ltd on trust for Mr Merhi.

3. [212]

   Colliers did not obtain final instructions until 27 November 2015. Evidence as to the activities over that fortnight is limited. The entries in the KWM fee invoice included the following entries for Mr Dixon-Smith:

4. [213]

   On 24 November 2015 the receiver wrote to Messrs Fayad and Jarrett at Dyldam Developments, inviting a resubmitted offer, with clarification as to “headline purchase price, due diligence period and settlement terms.” An amount of $25,000 was offered towards due diligence costs if the offer was unsuccessful. It is not known if similar letters were sent to Wesco and other bidders, but that may be inferred. However, on 27 November at 5:34pm, Mr Carter emailed Colliers, referring to recent conversations and consultation with SAP, giving instructions to proceed with a second round of expressions of interest on the basis that the four top bidders would be advised that there would be a second round to be completed at midday on Friday 18 December 2015. A revised contract was to be circulated, although not expected until the week commencing 7 December. The receivers were to contribute “a maximum of $20k” to each party for due diligence costs. On the same day, a letter was sent to Dyldam (and presumably the other three nominated parties, being Wesco, Toplace and Billbergia).

5. [214]

   By letter dated 14 December 2015, the closing date for resubmission of expressions of interest was brought back to 4pm on Wednesday, 16 December 2015. However, before that step was taken other events had occurred, which have been noted above. In brief, they included the meeting in Hong Kong on 11 December 2015 between Mr Dixon-Smith and representatives of PAG and Dyldam, suggesting that Dyldam was the preferred bidder. This inference is confirmed by the fact that on 14 December 2015, shortly after sending the emails updating the closing date for expressions of interest, Mr Meynell (Colliers) sent a copy to Mr Carter advising:

6. [215]

   At 4:11pm on Monday 14 December, Mr Meynell emailed the receiver noting:

7. [216]

   In the final round of expressions of interest, Dyldam maintained its offer of $85,350,000, but provided the lower offer of $81.1 million on the basis that Mr Constantine remained in his premises. Billbergia reduced its offer from $83m to $80 million, subject to vacant possession, or $60m without vacant possession. Toplace did not engage in the second round. Significantly for present purposes, Wesco reduced its offer from $92 million to $79 million.

8. [217]

   The second, and arguably critical, factor upon which the appellant relied was that when the contract was finalised, Visy Group Holdings owned 20% of Parklea Holdings 1 Unit Trust and Visy Projects owned 20% of Parklea Holdings 2 Unit Trust. The former holding was subject to the call option in favour of the PAG funding company, LBH VI (or VIII); the 20% holding in the second trust was not. Thus, depending upon whether the call option were to be exercised, Visy (and Mr Merhi beneficially) would have an interest in Parklea Corporation of between 20% and 4%. There was no evidence that either Visy company contributed any part of the funding for the sale contract or the development. Accordingly, the appellant submitted that, in the absence of any explanation from Parklea Corporation or its controllers, the Court should infer that the price paid by Wesco for an ownership interest in the development was the reduction of its bid so that it would not be successful.

(b) available inferences

1. [218]

   The reduction in the Wesco bid by the large amount of $13 million cleared the way for the Dyldam bid to be the highest offer. That in itself might not have required explanation, but for two further circumstances. The first was that steps were taken prior to the final offers which suggested confidence that Dyldam would be the successful offeree without varying its original bid. Although the evidence did not reveal the contents of the discussions in Hong Kong on 11 December 2015, some five days before final bids were due, the fact that there was a meeting between PAG and Dyldam representatives in Hong Kong, together with the heads of agreement which later emerged, demonstrates a basis for inferring that those parties believed Dyldam would succeed. Further, for the sales agent to travel to Hong Kong, after meeting with Dyldam in Sydney, a day before the final bids were due provides support for that inference.

2. [219]

   No doubt there may have been other explanations for the lowering of the Wesco bid, but taken in combination with its interest in the final purchase arrangement, the inference that the bid was lowered so as to allow Dyldam’s offer to succeed was available. For example, an alternative explanation may have been that Mr Merhi did not have the finance available to complete at $92 million, but that was an explanation which could have been demonstrated by evidence, had the respondents sought to do so. Mr Merhi, through his ownership interest in Parklea Corporation, was squarely in their camp. No such evidence was called.

3. [220]

   It was not shown that $81 million was not fair value for the land, the valuations obtained by the receiver having varied from $48 million to $115 million. If there were an offer of $92 million available, then the price accepted was not the best price reasonably available to the mortgagee.

4. [221]

   There were further factors which supported the inference that the sale process did not result in a truly independent bargain, in the sense considered by Aickin J in Bangadilly Pastoral. Thus, although the corporate identities of the purchaser and the mortgagee were separate, and the primary ownership interest in the purchaser was a third party, Dyldam, nevertheless both mortgagee and purchaser were subject to financial control by the one entity, PAG. PAG therefore had the power to control the sale process. It exercised that control, first, by including in the contract for sale a requirement that the sale be approved by its investment committee, and thus ultimately controlled the terms on which the sale would take place. Further, it is clear that as funder it was closely involved with the structuring of the successful bid. Mr Dixon-Smith noted in his email to Mr Qutami of Madison Marcus of 23 December 2015:

5. [222]

   It is true that there was no paper trail revealing how the Visy companies came to be participants in the ownership of Parklea Corporation. It is also true that no lawyer representing Mr Merhi or the Visy companies appears to have participated in the lengthy process of settling contractual documentation in the two months from 13 January 2016 until 21 March 2016. On the other hand, the resulting ownership structure cannot have been created without discussion between the affected parties. Few notes were taken (or retained) setting out the matters discussed at various meetings; a number of emails exchanged between solicitors for the respective parties in the period immediately following 13 January 2016 were redacted, primarily by Parklea Corporation.

6. [223]

   There is, taking the circumstantial evidence as a whole, a sufficient case to establish, in the absence of evidence to the contrary, that the mortgagee failed to obtain the best bargain available, both by reference to the $4.25 million option based on vacant possession being abandoned and because Wesco did not maintain its position as the highest bidder.

(c) challenge to findings of trial judge

1. [224]

   The trial judge did not reach that conclusion with respect to the involvement of Wesco. The reasoning by which he rejected that conclusion was the subject of a number of grounds of appeal. However, the thrust of the appellant’s case lay, not in what the trial judge affirmatively found, but in the finding which was not made. Thus, the complaints about the reasoning of the trial judge were complaints of omission rather than commission. Nevertheless, it is appropriate to explain those aspects of the grounds of appeal which should be accepted.

2. [225]

   Almona contended that the primary error made by the trial judge lay in failing to consider the conduct of the respondents “holistically, as an overall pattern of conduct”. [35] The appellant asserted in ground 2 that, “from at least 10 December 2015, the evidence.” [36] That plan was said to be reflected in Mr Dixon-Smith’s “action plan”, formulated in March 2016 when it appeared possible that Mr Constantine might raise the necessary funds to pay out the mortgage. This was the thrust of ground 3.

3. [226]

   With respect, these criticisms cannot be accepted. First, there was no evidence to support the view that PAG intended to purchase the land, directly or indirectly, prior to 10 December 2015. There was passing reference to PAG and Dyldam being involved in other joint ventures, but no evidence that they had an established relationship prior to 30 October 2015. Although, in developing the transaction documents in March 2016, Mr Dixon-Smith referred to a precedent involving a development at Wolli Creek, there was no evidence as to when that development was undertaken, nor as to the structure of the venture. Further, there was no evidence that the steps taken by the receiver and its sales agent, Colliers International, were part of some preconceived plan. Rather, what may be inferred from the evidence is that when Dyldam emerged as a serious contender in October 2015, either Dyldam sought out PAG as a financier, or PAG developed a plan which resulted in the heads of agreement.

4. [227]

   Secondly, the evidence did not demonstrate that the opportunity for Almona to receive the higher price offered by Dyldam would be subverted arose until a matter of days before settlement, when the second deed of variation was prepared. It will be recalled that when, on 15 March 2016, Mr Dixon-Smith developed his “action plan” to hasten settlement, he envisaged that the vendor would be given until 17 April 2016 to obtain vacant possession, “giving a month for Con to vacate after settlement.” The subversion of the occupation condition may well be viewed as a fraud on Almona, but it was separate from the arrangements made in the week prior to the final offers lodged on 16 December 2015.

5. [228]

   Thirdly, although his personal motivation was to ensure that PAG’s business arrangements were effected, if those arrangements were not in themselves unlawful and if the process proposed were not unlawful, there was nothing sinister in the action plan, nor did it demonstrate any form of fraud or breach of SAP’s obligations as mortgagee exercising its power of sale.

6. [229]

   There was one aspect of the action plan which might, if adopted, have demonstrated a lack of independent process underlying the sale, namely the proposal that the settlement be effected on the basis of “vendor funding”, that is, by the mortgagee in possession funding the purchaser for the purpose of settling the transaction. However, it is not necessary to pursue the significance of that element of the plan, as it was not adopted by PAG. Nor indeed was the highly expedited settlement process proposed by Mr Dixon-Smith adopted; settlement did not in fact take place until the week after his proposal, rather than two days later. The extended time appears to have allowed PAG to put in place the appropriate financial arrangements for Parklea Corporation to settle the purchase with cash.

7. [230]

   Finally, for the reasons set out above, Almona’s refinancing proposal, whilst it provided the incentive to settle the contract hastily, did not itself constitute a basis for alleging a breach of the mortgagee’s duty to the mortgagor, if for no other reason than that it required the suspension and possible abandonment of the existing contract of sale before the proposal itself became unconditional.

8. [231]

   For these reasons, grounds 3, 4 and 10, should be rejected.

9. [232]

   The remaining question is whether the appellant’s case with respect to the Wesco bid should be accepted. As the primary judge declined to draw an inference of fraud in that regard it is necessary to examine the underlying reasoning for that conclusion.

10. [233]

    In recounting the second round expressions of interest, the judge noted that Wesco’s price offer had been reduced by $13 million. He also noted that Toplace, which had originally proposed a price of $84.25 million did not submit an expression of interest in the second round. The analysis concluded as follows:

11. [234]

    It was no doubt true that the reduction of $13 million “only served to invite suspicion”; however the difference between the Wesco offer and the failure of Toplace to make an offer was that Wesco ended up with a 20% interest in the successful purchaser, which was the critical element in Almona’s case.

12. [235]

    The trial judge was concerned at the inadequacy of the pleading in relation to the Wesco transaction. He noted that the “second statement of further particulars”, served on 6 March 2019, had failed to allege a causal connection (collusion) between the reduction of the offer and the negotiations between SAP, PAG and Dyldam. [37] The particulars were as follows:

13. [236]

    As the judge noted, and as SAP submitted in the course of the appeal, the particulars did not allege that SAP, PAG or Dyldam engaged in bid-rigging. However, the defendants at the trial did not object to the reliance on the further statement of particulars, nor did the trial judge ultimately decline to consider what was in substance an allegation that Wesco had reduced its bid in exchange for a share of the ownership of the purchaser. But, in considering what he described as “the course of the pleadings”, [38] the judge concluded that “Almona should not be permitted to introduce this new claim of fraud involving collusion between SAP, Dyldam and Mr Merhi’s companies.” [39]

14. [237]

    Nevertheless, the judge returned to the issue in dealing with the closing submissions, noting SAP’s submission that “Almona now alleges that the alleged fraud goes back to the point in time of entering into the Sale Contract by alleging that there was collusion involving SAP/PAG that resulted in the Wesco bid being lowered in the second round of the EOI, thereby guaranteeing that Dyldam/Parklea Corp was selected as the highest bidder.” [40] The judge accepted SAP’s submission. [41]

15. [238]

    Putting the Wesco matter to one side, the judge addressed the contention that SAP and PAG had otherwise acted in breach of SAP’s obligation to Almona. He held that the “accelerated completion of the contract” was undertaken “to avoid being caught up in legal proceedings threatened by Almona.” [42] That conclusion, for reasons set out above, cannot in my view be impeached. However, the judge continued:

16. [239]

    The first of the “two matters” was the alleged fraud based on the joint venture with Mr Merhi. In short, the trial judge continued by addressing the claim which he had earlier found was not available to Almona. As explained shortly, he rejected it. The second of the “two matters” was the finding of fraud based on non-disclosure of the occupation condition, which he upheld and which has already been addressed.

17. [240]

    The reasons for rejecting the inference of fraud based on the change in the Wesco bid were in effect threefold. First, the judge held that the reduction in Wesco’s initial bid was plausible for innocent reasons, namely (i) that the initial bid was an “outlier”, [43] and (ii) that Wesco did not engage with Colliers in relation to the process. [44] Secondly, he relied on (i) the absence of any suggestion of collusion with other final round bidders, [45] (ii) the absence of reference to Wesco or Visy in the exchanges between Mr Dixon-Smith and Mr Qutami on 24 December 2015, [46] and (iii) the fact that “there was no assurance that Dyldam’s second round expression of interest would be accepted”. [47] Thirdly, he noted that a finding of bid-rigging is sufficiently serious to require clear evidence.

18. [241]

    In response it should be said in relation to the first set of arguments that although it was the highest of the bids received in the first round of offers, Wesco’s bid was below the highest valuation which the receivers had obtained, and was only $2 million above Colliers’ estimated range of value. In relation to the second point, it appears that Mr Merhi was sufficiently serious about his bid to have incorporated two companies between the first round and the final offers. Those were the companies which ultimately obtained ownership interests in the purchaser, through the unit trust arrangement.

19. [242]

    As to the second set of arguments, it is true that there was no suggestion of collusion with other bidders, but none ended up with a share in the ownership of Parklea Corporation. It may also be accepted that Mr Dixon-Smith and Mr Qutami did not discuss Wesco or Visy on 24 December 2015, but the fact remains that the Visy companies appeared in the ownership structure in March 2016. The available inference is that the principals must have known how that arose, even if the lawyers did not. As to the third point, Mr Dixon-Smith acted with confidence that Dyldam would be successful, prior to 16 December 2015. In fact, PAG, through either SAP or its investment committee, could have ensured that result.

20. [243]

    Were it not for the pleading point, the circumstances invited an explanation from Dyldam or PAG. The trial judge considered that the late (and inadequate) pleading precluded the drawing of any adverse inference from the absence of explanation. Further, he found on the evidence that there had been an established link between Mr Merhi and Mr Constantine which Mr Constantine and Almona had not been able or willing to explain. [48] He therefore concluded that it may well have been open to Almona to call further evidence from Mr Merhi, although that would, on Almona’s case, have involved Mr Merhi admitting his involvement in bid-rigging.

21. [244]

    There was a further objection that the Visy companies were not party to the proceedings and, accordingly, not in a position to defend themselves against such allegations, in which they must have been inculpated. However, if the parties to the bid-rigging were Mr Fayad and Mr Merhi, Mr Fayad as the sole director of Parklea Corporation was available to give evidence had he wished to.

22. [245]

    After noting that there was “no basis in the evidence” to find that the receiver did not obtain the best market price available, the trial judge continued:

23. [246]

    The last sentence in [670] suggests that coincidence was established, but not collusion, and then states that Almona did not allege collusion. The earlier finding was that Almona had alleged it in closing submissions, but had not pleaded it. The precise conclusion at [670] is unclear but must have involved reliance on the lack of an express pleading.

24. [247]

    The further reasoning at [671] is also puzzling. The suggestion of an agreement between Dyldam and Mr Merhi without the involvement of PAG is inconsistent with the direct evidence in the documents. It is of course possible that an arrangement was made between Mr Merhi and Mr Fayad, but it is implausible that PAG had no knowledge of it. Given that PAG owned and controlled SAP, the proper inference should have been that SAP’s knowledge with respect to the first round offers and offerors, and the identity of the purchaser was that of PAG. Further, the effect of the call option, if exercised, would have been to deprive Visy Group Holdings of a 20% interest in Parklea Holdings 1 Unit Trust and leave it with a 4% interest in the joint venture. It is to be recalled that the ownership structure document dated 8 March 2016 bore the insignias of both KWM and Madison Marcus. Thus, the inference that the acquisition of the 20% interest must have followed an agreement between Dyldam and Mr Merhi, whilst correct, ignores the fact that PAG and SAP probably knew of the arrangement and, in the case of PAG, consented to it.

25. [248]

    Accordingly, the documentary evidence gave rise to a level of suspicion as to whether the mortgagee obtained the best available price which called for an answer. The appellant should succeed unless its failure to plead collusion, or seek to articulate such a case until final submissions would render reliance on such an inference, in the absence of explanation, unfair to the respondents.

26. [249]

    Before resolving that issue, it is convenient to turn to the submissions on the appeal.

(d) submissions on appeal

1. [250]

   In order to succeed on the appeal with respect to this aspect of its claim, Almona needed to demonstrate error in the finding that it should not be entitled to allege fraud of a kind not clearly pleaded. Its response was that it had “encountered significant resistance from the defendants” in obtaining the documentation upon which this aspect of the claim was based. It stated that numerous notices to produce had been issued, but had been challenged either on the basis of their formulation or by claims for privilege. Its pleadings, it asserted, were reformulated promptly when relevant material was produced, and, in particular, no objection was taken by the defendants to the three statements of particulars filed and served on 19 February, 1 March and 6 March 2019. [49] An example of the late production of an essential document was the release of Mr Dixon-Smith’s email of 17 March 2016 setting out the “action plan”, following the rejection of a privilege claim only on 17 May 2019, that is, between the two tranches of the trial which occurred in March and August 2019.

2. [251]

   This example did not, however, address the problem raised by the late pleading of the fraud claim. There was nothing in the email from Mr Dixon-Smith of 15 March 2019 which supported that claim. Indeed, the reference to it reveals the true thrust of the case as run at trial (and to which the action plan was highly material), namely that SAP and Parklea Corporation, under instruction from PAG, had disregarded the interests of the mortgagor by undermining or thwarting attempts by Mr Constantine to make arrangements to pay back the loan to SAP and thus clear Almona of that debt and retain the property. On the other hand, the critical elements of the case against Dyldam and Mr Merhi lay in the ownership structure of Parklea Corporation. That was documented in annexure A to the Parklea Markets – Heads of Agreement, a document headed “Structure of the Landowner’s corporate group”. However, as late as 20 March 2016, the draft of that document did not identify the unitholders of the two unit trusts. Nor, indeed, did the annexure to the executed heads of agreement signed on 22 March 2016.

3. [252]

   The second place in which the document was to be found was as schedule 5 to the loan note subscription agreement, which had, since a draft of 8 March 2016, identified the unitholders of the two unit trusts as including 80% of each held by the trustee of Mr Fayad’s family trust No 2 and, as to 20% of each, by Visy Group Holdings and Visy Projects as trustee for two Visy trusts. In particular, the document appeared in that form in the final version of the loan note subscription agreement. There was no indication before this Court that there had been undue delay in obtaining copies of the final executed transaction documents which appeared in the plaintiff’s tender volume (other than the call option). Similarly, there was no suggestion that there had been difficulty in obtaining access to the expressions of interest, both at the first round and in the final offers, which were contained in the tender bundle provided by Parklea Corporation. Accordingly, to the extent the pleadings were inadequate, the submission that the difficulty arose from the late production of relevant material by either Parklea Corporation or SAP appears to be without foundation.

4. [253]

   The second issue concerns the adequacy of the pleading. The trial judge, as noted above, considered there should have been an express pleading of fraudulent manipulation of the bidding process. It is necessary, therefore, to turn to the “Plaintiff’s second statement of further particulars of fraud, breach of duty and unconscionability” filed and served on 6 March 2019 and set out above at [235]. First, it should be noted that there is no allegation of late access to the LNSA. Secondly, the generality of the statement that the sale was not “an arm’s length transaction” had been raised in other parts of the statement of claim, and turned on the funding of the purchase by Parklea Corporation. For present purposes, the relevant detail came in clauses 5, 6 and 7. Clauses 5 and 6 were purely factual and are not in dispute. The closest that the pleading came to an allegation of collusion was in clause 7, which alleged that at about the time Wesco reduced its second round bid, “arrangements of the nature that came to be reflected in the LNSA, HOA and COD were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi.” As noted, the ownership structure of the purchaser was reflected in Sch 5 to the LNSA and Annexure A to the HoA.

5. [254]

   There is no doubt that the trial judge was correct to conclude that Almona, deliberately or otherwise, had eschewed an express pleading of bid-rigging involving the representatives of PAG, Dyldam and Mr Merhi’s companies. The appellant submitted, however, that what had been pleaded was sufficient to place an onus on the mortgagee and Parklea Corporation to satisfy the Court that the transaction was an arm’s length transaction and that it did not involve an agreement between Dyldam and Mr Merhi as a result of which he lowered his bid to an unsuccessful level, but, in exchange, obtained a 20% interest (possibly reducible to 4% if the call option were exercised) in exchange.

6. [255]

   Although, in principle, there is an obligation on the mortgagee to satisfy the Court that the mortgagor’s interests have been properly pursued if an issue is raised in that regard, there are two potential limitations to that principle which are presently relevant. (That is not to say that there will not be a range of issues relevant to the transfer of the onus and the weight of the burden cast on the mortgagee, as discussed in some detail by the trial judge at [455]-[483].)

7. [256]

   The first issue of present relevance is the circumstance which may trigger the shifting of the onus. In Bangadilly Pastoral, “a case where the same two people are directing the activities of two companies, one the vendor and the other the purchaser, so the vendor knows what is in the mind of the purchaser and vice versa”, [50] it was conceded by the defendants that the connection between the vendor and associated company “was such that the onus lay on the purchaser to prove the bona fides of the sale.” [51] In the present case, the documents proved a sufficient similarity and circumstances to warrant the same conclusion as to the onus of proof. However, the level of scrutiny, and hence the burden of rebuttal imposed on the mortgagee, will depend on the particular circumstances of the case.

8. [257]

   Secondly, the scope of the burden of rebuttal will depend upon the nature of the circumstances raised by the mortgagor. Thus, a mortgagee will not be required to call evidence to rebut a claim of collusive bidding unless it can be seen, from the pleadings and the material relied upon by the mortgagor, that such a claim arises.

9. [258]

   In the present case, there was sufficient material to raise an issue as to the independence of the process. Thus, it could be inferred that, at least from 10 December 2015, PAG was negotiating an agreement with the prospective purchaser, Dyldam Developments. A principal of PAG, Mr Jon Lewis, was the authorised signatory for SAP and for the Lord companies, one of which funded the purchase and was the grantee of the call option over 80% of the unit holdings of the majority shareholder of Parklea Corporation. Through its receiver, SAP was aware of the progress of the sale of the property, information which, it could be inferred, was known to Mr Lewis and hence to the entities in PAG involved in funding the purchase. Although the added level of complexity created by the incorporation of Parklea Corporation and the ownership through unit trusts, which were subject to the call option, differed from the circumstances in Bangadilly Pastoral, the situation was analogous. However, subject to the clear breach of the mortgagee’s obligation to the mortgagor created by the acceptance and then removal of the occupation condition in the contract of sale, there was no reason to think that the price obtained by SAP was other than a full and fair price, reflecting the market value of the property. At least that was so, unless there was a collusive arrangement by which a higher bidder lowered its bid in exchange for a share in the ownership of the property.

10. [259]

    The reduction of Wesco’s bid in the course of the process, leaving it an unsuccessful bidder, by itself gave rise to no inference of collusive dealing. It was only the appearance of Wesco Group entities as minority unit holders in the owners of Parklea Corporation that gave rise to such a suspicion. However, that suspicion by itself was insufficient to warrant a finding of collusive bidding, unless the failure of either SAP or Parklea Corporation to call evidence to rebut the suspicion could be relied upon to support the necessary inference. There are two reasons to reject the appellant’s claim in that respect.

11. [260]

    First, as noted above, collusion was not clearly pleaded. Secondly, on the evidence, it was not clear that a relevant inference could be drawn in any event. Although it must be inferred that at some stage PAG (and therefore SAP) had knowledge that the Wesco Group was to have a minority ownership in Parklea Corporation, there was no evidence to suggest that knowledge arose before 13 January 2016, a month after the final bids were made. If there were an inference of collusive conduct it must have arisen prior to the final bids on 16 December 2015. An arrangement at that stage must have been made between Dyldam and Wesco, through Messrs Fayad and Merhi. However, even if that were so, it did not of itself infect the sale process undertaken by the mortgagee.

12. [261]

    The foregoing discussion illustrates the difficulties which arise from the failure of the appellant to plead precisely what inference of collusive dealing it sought to allege. In the absence of an allegation of sufficient precision, no inference can be drawn from the failure of SAP to respond. Accordingly, the judge was correct to dismiss that aspect of the appellant’s case.

13. [262]

    Absent reliance on the removal of Wesco as the highest bidder, and putting to one side the removal of the occupation condition, there was no basis for concluding that the lack of independence in the sale process resulted in a sale at under value. That is because the sale process itself was undertaken by an independent sales agent, Colliers International, which engaged in a process of soliciting bids which tested the market and in fact obtained a significant level of responses. There was no evidence to doubt the good faith or competence of the marketing campaign.

14. [263]

    For these reasons, the appeal should be dismissed.

Other matters

1. [264]

   It follows that it is unnecessary to consider whether, if there were a finding that the mortgagee failed to exercise its power of sale having proper regard to the interests of the mortgagor, the sale should be set aside or whether the appropriate relief would be an order for payment of compensation. However, if such a matter required consideration two difficulties would immediately face the appellant. The primary relief sought was the setting aside of the transaction. To obtain such relief it would be necessary to consider whether it would be appropriate to set aside the transaction, some seven years after the breach of the loan agreement and five years after the sale of the property was completed. Although Mr Constantine originally sought to prevent the settlement of the sale contract, that application was withdrawn. It is true that, at that time, he had no knowledge of the bases upon which his challenge was ultimately able to be pursued in the name of Almona (after retirement of the receiver), but the fact remains that it would, in practical terms, be difficult to reinstate the loan agreement, running at penalty interest rates, over the last five years.

2. [265]

   Further, there are the legal issues relating to the mortgages securing the current funding of Parklea Corporation. They are held by PT Ltd, as trustee of the securities. There was no suggestion, as the trial judge noted, that PT was infected by any misconduct of SAP or Parklea Corporation. Nevertheless, the indefeasibility of its interests depended upon it being a bona fide holder of the mortgages, having provided valuable consideration. Whether it had provided valuable consideration, or merely fees for services in administering the securities was hotly contested. Those issues do not need to be resolved, but PT was properly joined as a party entitled to resist the claims of Almona to unwind the current ownership arrangements. What steps if any to pursue the development of the land and thus what costs may have been incurred, are not revealed on the evidence.

3. [266]

   On the other hand, if the appropriate relief were a payment calculated by reference to the failure to permit an unimpeded testing of the market, on the basis of the available evidence, it is not possible to know what final bid Wesco would have made, assuming it would have exceeded the higher of the two bids made by Dyldam, namely $85.35 million.

4. [267]

   In the circumstances, these issues do not need to be resolved.

Challenges by Almona and SAP to costs order

1. [268]

   The principal judgment was delivered by the trial judge on 20 December 2019. It was necessary for the parties to consider what orders should be made in the light of that judgment. However, the matter did not come back before the Court until 9 April 2020, when a significant number of further issues were addressed, leading to a further judgment on 12 May 2020. [52] In the course of that judgment the trial judge noted that the parties had “proposed fundamentally different costs orders”. [53] The final order was that, as between Almona and SAP, each party should bear its own costs. [54]

2. [269]

   As was noted in the course of the appeal, there was a degree of awkwardness in Almona resisting the application for leave to appeal by SAP, given that it had raised as a ground of its appeal, the ruling on costs which it said was manifestly unfair to it.

3. [270]

   In the event, neither party addressed in relation to the question of costs, each relying on its written submissions. The different approaches adopted by the parties, however, had been addressed in great detail by the trial judge. Almona’s position was that, having been successful on a claim of fraud and unconscionable conduct and on a claim of misleading or deceptive conduct against SAP, and obtained a substantial judgment in its favour, although it had not obtained the other relief it had sought, the offending party should not be exempt from paying costs. Almona accepted the finding of the trial judge that the case did not lend itself to apportionment between issues, but submitted that the consequence of non-apportionment should have been that costs followed the event, and it had been the successful party.

4. [271]

   SAP contended otherwise as to apportionment. It noted findings by the trial judge that the focus of Almona’s claim had been to recover title to the land, as to which it failed. [55] The judge had, correctly, rejected the proposition that findings in Almona’s favour with respect to the occupation condition should have resulted in any form of relief beyond the claim for damages. Further, although the amount awarded (with interest) exceeded $5 million, that was a small proportion of the total value of the land and did not involve any commercial disruption of the kind which would have ensued had an order been made by which Almona recovered title to the land.

5. [272]

   The trial judge noted that Almona’s costs amounted to almost one-half of the judgment it obtained; the total costs of all parties exceeded Almona’s judgment. Having noted the ramifications of the various orders sought, the judge noted that the Court was “required to determine the costs orders that should be made in these proceedings, when those costs in aggregate involve amounts comparable to the amount of the judgment in the proceedings, but to do so on a relatively rudimentary basis.” [56] The judge then set out, in terms which are not challenged, the relevant legal principles to be applied. [57] Although he proceeded to analyse the pleadings and particulars, and made some observations as to the conduct of the proceedings, he introduced that analysis with the following observation:

6. [273]

   Although SAP submitted that the failure to assess the extent to which Almona had been unsuccessful was “unreasonable” conduct on the part of the trial judge, that proposition is not self-evidently correct. While different orders may reasonably have been available, the result reached by the trial judge was by no means unreasonable. In the absence of any issue of principle, the appropriate course is to dismiss ground 18 of Almona’s appeal, challenging the costs order at trial, and refuse leave to SAP to agitate the same matter by way of a cross-appeal.

Orders

1. [274]

   For these reasons, the Court should make the following orders:

   1. (1)

      Dismiss the further amended notice of appeal of Almona Pty Ltd.

   2. (2)

      Order that the appellant pay the costs of each respondent to the appeal.

   3. (3)

      Dismiss the cross-appeal by Parklea Corporation Pty Ltd.

   4. (4)

      Order that Parklea Corporation pay the costs of Almona Pty Ltd of the cross-appeal.

   5. (5)

      Dismiss the summons filed by Secured Asset Portfolio III Ltd (in liq) seeking leave to cross-appeal from the costs order made by the trial judge.

   6. (6)

      Order that Secured Asset Portfolio III pay Almona’s costs of the summons seeking leave to cross-appeal.

2. [275]

   WHITE JA: The facts giving rise to this appeal are described in the reasons for judgment of Basten JA, as supplemented in the reasons of Bathurst CJ. Subject to one unimportant qualification (at [289] below) I agree with Basten JA’s conclusions as to the inferences that can be drawn from the documents tendered at trial that were obtained by compulsory process, in the light of the respondent’s choosing not to adduce evidence.

3. [276]

   I conclude that SAP did not exercise its power of sale for the purpose of obtaining repayment of the secured debt but for the purpose of enabling its associate, LBH VIII (another subsidiary of PAG), to acquire an 80% economic interest in Parklea through its option to acquire the shares and rights which Holding Trust 1 held in Parklea. The sale to Parklea was not by way of independent bargain. For each of these reasons Almona would have been entitled to set aside the sale had the facts been known before the sale was completed and Parklea became registered as the new registered proprietor. The fact that it was accepted that the sale price of $85.35 million was a fair market price does not mean that SAP exercised its power of sale in good faith.

4. [277]

   I also conclude that Parklea was registered by fraud and its title is defeasible.

5. [278]

   Almona did not allege that the mortgage to PT Limited (“PT”) was registered by fraud. Instead Almona submitted that it was entitled to a re-transfer of the land from Parklea Corporation free of PT’s mortgage by reason of s 118(1)(d)(ii) of the Real Property Act 1900 (NSW). I reject that submission. Consequently, irrespective of other objections there may be to Almona’s taking a re-transfer of the land (which have not been determined), given the amount now secured by PT’s mortgage, Almona’s remedy appears to be confined to a claim for equitable compensation (or arguably damages) on the taking of accounts.

6. [279]

   I would invite the parties to provide written submissions as to what orders should be made in accordance with these reasons.

Facts

1. [280]

   The essential facts can be distilled as follows by reference to Basten JA’s analysis.

2. [281]

   The mortgagee, SAP, was a special purpose vehicle that was a member of the Pacific Alliance Group (PAG). Particulars provided by Almona of the Pacific Alliance Group by way of a chart reveals a bewildering web of companies incorporated in Hong Kong, Australia, the British Virgin Island and the Cayman Islands. Sitting near the top of the chart is a Hong Kong Company, Pacific Alliance Group Limited. After Almona defaulted under its mortgage to SAP, SAP appointed a receiver and manager. The receiver appointed Colliers International to act as selling agent.

3. [282]

   Valuations of the Parklea Markets ranged from $45 million to $115 million with lower valuations assuming a continuation of existing uses rather than a redevelopment. Colliers embarked on a program of first seeking expressions of interest from identified companies that might be interested in acquiring the mortgaged property. Twelve expressions of interest were lodged, ranging from $40 million to $92 million. Wesco Capital lodged an expression of interest in the sum of $92 million and Dyldam lodged an expression of interest in the sum of $85,350,000. Colliers suggested that the top six parties be invited to lodge a second expression of interest.

4. [283]

   On the second round of expressions of interest, Dyldam lodged the highest bid, again of $85.35 million, subject to vacant possession, or $81.1 million if Mr Constantine remained in occupation.

5. [284]

   There is no criticism of the marketing of the property for sale.

6. [285]

   Parklea was incorporated as a special purpose vehicle to acquire the mortgaged property. The price obtained by SAP was a fair price reflecting the market value of the property, unless it should be inferred that Wesco had lowered its bid in exchange for a share in the ownership of the property.

7. [286]

   I return to that question below at [333] – [336].

8. [287]

   Leaving aside for the present possible bid-rigging by collusive arrangements between Dyldam and Wesco, there would be no reason to impugn the sale to Parklea on the basis of the price of $85.35 million.

9. [288]

   The contract of sale between SAP and Parklea was entered into on 13 January 2016. It was subject to a condition (cl 63) that completion was conditional on SAP notifying Parklea that the “Investment Committee” had approved the sale of the property by 14 March 2016. The “Investment Committee” was defined as:

10. [289]

    A PAG company (LBH VI or LBH VIII) provided $79.1 million of the $80.1 million payable on settlement of the purchase. The fact that LBH VI was identified as the financier in the Loan Note Subscription Agreement suggests that it provided the finance. The call option was granted to LBH VIII. The call option was exercisable on the payment of $100,000, to acquire an 80% economic interest in Parklea. The draft heads of agreement of 10 March 2016 contemplated that the call option would be given to PAG in consideration of PAG’s providing the loan facility for the purchase. It is consistent with the Heads of Agreement that PAG would nominate one of its subsidiaries to provide the facility and another to hold the call option. It makes no difference whether, as the primary judge found, the loan to Parklea was provided by LBH VI and the call option was granted to LBH VIII, or whether the loan was provided by and the call option was granted to LBH VIII. All scenarios are consistent with PAG’s directing all aspects of its subsidiaries’ involvement.

11. [290]

    The director, secretary and shareholder of each of Parklea, and its two shareholders, Parklea Holdings 1 Pty Ltd and Parklea Holdings 2 Pty Ltd, was Mr Fayad. Each of the shareholders was a trustee of a unit trust. LBH VIII’s option to acquire “all issued shares and rights [Holding Trust 1] holds in Parklea Corporation for $100,000” was not visible to Almona or to any third party conducting a company search.

12. [291]

    PAG dictated the terms of the sale, including that the sale be a mortgagee sale and not a sale by the receiver. It required that the contract of sale include a term that the contract was conditional on approval from its investment committee. As Basten JA observes, that condition operated as a protection for PAG as the funder of the purchaser. The directing mind of the entire transaction was the PAG Investment Committee. I agree with the Chief Justice that Mr Dixon-Smith’s email of 11 December 2015 demonstrates that PAG was confident that Dyldam would be the preferred bidder even though second round bids had not come in and Dyldam and PAG were in discussions in connection with the proposal. Those discussions concerned how the anticipated profits from a redevelopment would be shared between them.

13. [292]

    Thus one subsidiary of PAG was the vendor as mortgagee exercising its power of sale. Another subsidiary of PAG provided all but $1 million of the finance necessary for Parklea to purchase the property. Either it or another subsidiary of PAG acquired an option, exercisable on payment of $100,000, to acquire an 80% economic interest in the purchaser.

14. [293]

    Basten JA has described Mr Dixon-Smith’s “Action Plan” that was proposed when Mr Constantine had made it known that he was attempting to raise finance to repay the mortgage debt.

15. [294]

    The primary judge found (at [570]) that SAP understood that the persons who stood behind AMB Capital Partners (Almona’s proposed refinancier) had the financial strength to fund the redemption of Almona’s mortgage.

16. [295]

    Basten JA concludes that although aspects of Mr Dixon-Smith’s plan were not adopted, it can be inferred that his message of urgency was accepted by PAG, and by inference, by the other parties at the instigation of PAG, and this dictated the timing of the settlement. I agree. The haste in settling was such that SAP as vendor and Parklea as purchaser did not give themselves time to calculate usual statutory adjustments such as rates, water charges and the like. The haste in settling indicates that PAG’s (and SAP’s) purpose was not to obtain repayment of the secured debt, but to ensure that the sale to Parklea in which another PAG company had an indirect 80% economic interest went ahead.

Duty of good faith

1. [296]

   The appeal raises a question of principle. Is the only duty of a mortgagee in exercising its power of sale to act reasonably to obtain not less than the market value of the property (in substance the statutory duty imposed on receivers and other controllers having a power of sale (Corporations Act 2001 (Cth) s 420A)), or must the mortgagee’s power of sale be exercised for the purpose of obtaining payment of the secured debt and not for a collateral purpose? Must it be exercised without collusion with the purchaser, but by way of independent bargain?

2. [297]

   Whatever the position might be in England (see [314] below), High Court authority in this country establishes that the mortgagee’s duty to exercise the power of sale in good faith does not merely require that the price be fair, but that the power be exercised for the purpose for which it was conferred, that is, to recover payment of the secured debt, and to do so through an independent bargain with the purchaser.

3. [298]

   The purpose for which a mortgage is given is that the mortgage be security for repayment of the mortgage debt. This is fundamental. It is the basis of the mortgagor’s equity of redemption. As a corollary, the purpose for which the mortgagee is given a power of sale is that the mortgagee obtain repayment of that debt. This was explained succinctly by Stuart VC in Robertson v Norris (1858) 1 Giff 421; 65 ER 983, but his Lordship introduced questions of motive that led to later criticism. In Robertson v Norris, Stuart VC said:

4. [299]

   It was Stuart VC’s reference to “ill motive” that was later criticised. In Nash v Eads, reported only in (1880) 25 Sol J 95, the mortgagor impugned the mortgagee’s exercise of his power of sale because, so it was alleged, the power of sale was not exercised because the mortgagee wanted his money, but because his solicitor desired to obtain payment of some costs he could not obtain in any other way. Sir George Jessel MR was reported to have said that:

5. [300]

   Professor Waters correctly said (Waters, The Constructive Trust, University of London (1964) at 182), that but for Stuart VC’s unfortunate discussion of motive, his reasoning might well have passed without question. The substance of Stuart VC’s judgment in Robertson v Norris was adopted by the High Court in Barns v Queensland National Bank Limited (1906) 3 CLR 925.

6. [301]

   In Barns v Queensland National Bank Limited, Griffiths CJ, giving the judgment of the Court, said (at 943-944):

7. [302]

   In Warner v Jacob (1881) 20 Ch D 220 at 221, Kay J said (at 224):

8. [303]

   In Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, Isaacs J said (at 699):

9. [304]

   In Forsyth v Blundell (1973) 129 CLR 477, Walsh J (at 496) acknowledged that a mortgagee’s exercise of its power of sale could be impugned if the mortgagee acted in fraud on the power, although not in the sense of an actual fraud.

10. [305]

    In Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195, Stephen J referred (at 200) to the mortgagee’s having sought “…some collateral advantage being activated by considerations extraneous to the relationship of mortgagee and mortgagor”.

11. [306]

    The mere fact that a mortgagee finances a purchaser, as in this case, is not sufficient to demonstrate that the sale was made in fraud of the power (Davey v Durrant (1857) 1 De G & J 535 at 553; (1858) 44 ER 1086; Farrar v Farrars Ltd (1888) 40 Ch D 395 at 413-414; Belton v Bass, Ratcliff and Gretton Ltd [1922] 2 Ch 449 at 462-463; Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104 at 109). No inference of a lack of good faith can be drawn from a mortgagee’s substituting a solvent debtor for an insolvent debtor.

12. [307]

    In Farrar v Farrars Ltd, one of three mortgagees, Mr Farrar, was a solicitor. The mortgagees had advanced monies to stone merchants on security that included a quarry. The quarry was put up for sale by auction but received no bid and the mortgagees were advised that there was no prospect of being able to sell the quarry by auction (at 396). Mr Farrar promoted the formation of a company to acquire and work the quarry. The other principals in the formation of the company negotiated with the mortgagees as to the price to be paid by the intended company for the property. There were arm’s length negotiations between Mr Farrar for the mortgagees and the accountant for the company to be formed. An offer was made, not by Mr Farrar, but by a Mr Turner who was involved in the formation of the company, which was not suggested to be at an undervalue.

13. [308]

    The company was in due course formed and Mr Farrar acted as its solicitor and took up a minority shareholding in the company, as did another of the mortgagees (at 396). The purchase was negotiated at arm’s length between the other promoters and shareholders of the company and Mr Farrar and the mortgagees notwithstanding that Mr Farrar was himself a shareholder and acted as solicitor for the company. His shareholding represented one tenth of the company’s subscribed capital (at 397-398). The trial judge (Chitty J) held that there was “…an honest and independent bargain between [Mr Farrar] acting for the mortgagees on the one hand and Mr Riley and Mr Cockcroft acting for the intended company on the other hand and that this bargaining resulted in the price being fixed...conditionally on a company being formed and at this time [Mr Farrar] had no thought of joining the intended company or taking shares in it.” (at 403). It was not practicable to sell the quarries by auction (at 402). The property was sold at the best price that could be reasonably obtained in the circumstances (at 404).

14. [309]

    Chitty J held that “the material terms of the bargain were honestly and independently settled, and…were not in any degree affected by the circumstance that [Mr Farrar] subsequently agreed to become a member of and act as solicitor for the company”. Chitty J refused to set aside the sale.

15. [310]

    That decision was affirmed on appeal. Lindley LJ, who delivered the judgment of the court, said:

16. [311]

    His Lordship referred to its being a suspicious circumstance that Mr Farrar was a solicitor and one of the three mortgagees with the power of sale and that the property was sold to a company which he promoted and in which he had a substantial interest as a shareholder and for whom he acted as solicitor. His Lordship said:

17. [312]

    Farrar v Farrars Ltd raised no issue of fraud on the power. There was no question but that the mortgagees were selling in order to raise monies to satisfy their mortgage debt. Although two of the mortgagees took up minority shareholdings in the purchasing company, the mortgagees were not selling in order to acquire the property for themselves. In contrast, in Robertson v Norris, the mortgagee sold the property to his brother and later took a conveyance of the property from his brother for nominal consideration.

18. [313]

    Kennedy v De Trafford [1897] AC 180 establishes that the mortgagee’s obligation in exercising the power of sale is to exercise the power of sale in good faith “without any intention of dealing unfairly by his mortgagor” (at 185). The facts of Kennedy v De Trafford raised no issue concerning fraud in the exercise of the power.

19. [314]

    In Belton v Bass, Ratcliff and Gretton Ltd, Russell J said that the mortgagee’s sale was impugned not on the ground that it was at an undervalue, nor on the position occupied by the purchaser (at 460), but on the ground that the power was exercised with an indirect motive (at 464). In fact the ground of complaint was that the power of sale was exercised for a purpose outside the legitimate purpose of the power, not to obtain repayment of the mortgage debt but to confer on the purchaser an option to acquire the property (being shares in a brewing company of which he was managing director). Russell J treated Nash v Eads as having decided that a mortgagee’s exercise of its power of sale could not be impugned on the ground of “indirect motive” (by which his Lordship meant collateral purpose) provided the price obtained was fair (at 464, 466).

20. [315]

    Belton v Bass, Ratcliff and Gretton Ltd was cited with approval by the High Court in Sewell v Agricultural Bank of Western Australia only for the proposition that the mortgagee did not go beyond its power of sale by financing and taking a mortgage from the purchaser (at 109).

21. [316]

    In Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd, the mortgagee relied on Belton v Bass, Ratcliff and Gretton Ltd in submitting that there was no bar to a person such as a director who owes a fiduciary duty to the mortgagee in connexion with the auction purchasing the mortgaged property (at 198). But Aickin J, with whose reasons Stephen J agreed, held that the critical issue was whether there was an independent bargain. In that case proper steps for advertising the sale and scheduling the auction were not taken and it could not be said that the sale was for the best obtainable price. But that was an additional reason for setting aside the sale. Aickin J said (at 227) that the absence of an independent bargain was itself enough to require that the sale be set aside.

22. [317]

    Belton v Bass, Ratcliff and Gretton Ltd cannot be reconciled with the observations of Kay J in Warner v Jacob quoted at [302] (which were not cited by Russell J), nor the High Court’s decisions referred to in these reasons.

23. [318]

    The High Court has insisted that the sale by the mortgagee to a purchaser be an independent bargain, a concept that Chitty J called in aid in Farrar v Farrars Ltd quoted at [308] above.

24. [319]

    In Latec Investments Pty Ltd v Hotel Terrigal Investments Pty Ltd (In Liq) (1965) 113 CLR 265 the mortgagee sale was not set aside on the ground that the price was not a fair market price, but because the sale to a subsidiary was made to preclude the mortgagor’s redeeming the mortgage. The sale was a conscious misuse of the power. Kitto J said (at 274):

25. [320]

    Taylor J agreed in this respect with Kitto J (at 280).

26. [321]

    Menzies J said (at 288):

27. [322]

    In Bangadilly Pastoral Co, Aickin J (in the passages quoted by Basten JA at [110]-[112]) referred to the need for an independent bargain.

28. [323]

    Hawkesbury Valley Developments Pty Ltd v Custom Credit Ltd (1994) 8 BPR 15,581 raised no issue about the mortgagee’s sale being made in fraud of the power. There was no question of Custom Credit selling to an associate. The question was whether the sale was adequately advertised and whether the mortgagee’s selling agent properly dealt with a potential purchaser who expressed interest in buying. McLelland CJ in Eq’s discussion of the equitable obligations of a mortgagee exercising its power of sale was wholly directed to the manner in which the power is to be exercised. His Honour said:

29. [324]

    I agree with Bathurst CJ that notification of PAG’s Investment Committee’s approval was a condition subsequent and not a condition precedent to a binding contract between SAP and Parklea. But the directing mind of the sale was that of PAG’s Investment Committee. If PAG’s purpose in causing its subsidiary, SAP, to exercise its power of sale was to enable its other subsidiary, LBH VIII, to acquire an 80% economic interest in Parklea, classification of the condition as a condition precedent to the existence of a contract or a condition subsequent is irrelevant. What is significant is that it was for PAG through its Investment Committee to decide whether the sale would proceed.

30. [325]

    Statute aside, the obligations of a mortgagee in exercising a power of sale are not onerous. But the obligation to act in good faith does not only require that the mortgagee not unconscionably disregard (ie sacrifice) the interests of the mortgagor in how the power is exercised. The obligation to act in good faith also requires the mortgagee to exercise the power for the purpose for which it is conferred, that is, to obtain repayment of the secured debt and to do so without collusion with the purchaser but by independent bargain. Statute has augmented but not supplanted the mortgagee’s equitable duty. Where the power is not exercised for the purpose of obtaining repayment of the mortgage debt but to obtain, directly or indirectly, a collateral benefit to the mortgagee, the exercise of the power cannot stand even though a fair market price is received.

31. [326]

    Applying those standards, SAP did not exercise its power of sale in good faith. Neither Bathurst CJ nor Basten JA holds that PAG’s (or SAP’s) purpose was not to enable LBH VIII to acquire an 80% economic interest in Parklea, nor that the sale to Parklea was an independent bargain.

32. [327]

    In rejecting Almona’s submission that SAP did not exercise its power of sale in good faith the primary judge held that:

33. [328]

    But the question is not merely whether the price obtained was a fair market price but whether the power of sale was exercised for the purpose of obtaining repayment of the mortgage debt, without collusion with the purchaser.

34. [329]

    Both Bathurst CJ’s and Basten JA’s analyses of the facts show that it should be concluded that the power of sale was exercised not for the purpose of recovering payment of the mortgage debt but to ensure a sale to Parklea in which another PAG company had an indirect 80% economic interest. It was a collusive bargain (to use the expression of Kay J in Warner v Jacob) and not an independent bargain (to use the expression of Aickin J in Bangadilly Pastoral Co).

35. [330]

    In any event, it cannot be assumed that a fair market price was the best price obtainable. In Bangadilly Pastoral Co, Jacobs J said (at 201-202):

36. [331]

    That is an aspect of the mortgagee’s obligation to act in good faith.

37. [332]

    It is evident that PAG, Dyldam and Wesco saw significant development potential in the site, and in the case of at least PAG and Dyldam, that they saw a development potential that could increase the value of the mortgaged property significantly above the $85.35 million that Dyldam bid. In these circumstances, it cannot be assumed from the fact that Colliers properly marketed the property for sale that the best price was obtained. The clear inference is that SAP’s duty to obtain the best price consistently with its right to realise its security was not given absolute preference over PAG’s desire that its other associate should obtain a good bargain.

Wesco’s involvement: onus of proof

1. [333]

   I agree with Basten JA that there is an available inference that Wesco’s bid was lowered so as to allow Dyldam’s offer to succeed ([219]). That inference arises from the fact that other companies of Visy acquired call options to obtain an economic interest in Parklea.

2. [334]

   The Chief Justice and Basten JA have quoted the Second Statement of Further Particulars ([51], [235]). Their Honours observe and the primary judge found that those particulars do not allege bid-rigging or fraud involving collusion between SAP, Dyldam and Mr Merhi’s companies. But they do allege matters that raise the suspicion of bid-rigging.

3. [335]

   It is understandable that bid-rigging was not alleged. Rule 65 of the Legal Profession Uniform Conduct (Barristers) Rules 2015 provides that a barrister must not allege any matter of fact amounting to criminality, fraud or other serious misconduct against any person unless the barrister believes on reasonable grounds that available material by which the allegation could be supported provides a proper basis for it. It is at least doubtful that Almona’s legal representatives would have been entitled to allege fraud where there could have been other explanations for the lowering of the Wesco bid (as Basten JA explains at [219]).

4. [336]

   Almona did not need to allege fraud in order to throw upon SAP and Parklea the onus of proving the validity of the transaction (Farrar v Farrars Ltd at 409-410; Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1358). As is clear from Farrar v Farrars Ltd, in the passage quoted at [310] above, the burden of proving the validity of a mortgagee’s sale may be thrown not only upon the mortgagee but on the purchaser. That will be so where collusion between the mortgagee and the purchaser is established as it is in this case.

Parklea Corporation did not acquire an indefeasible title

1. [337]

   It does not follow that because the power of sale was not exercised in good faith that Parklea did not acquire an indefeasible title. It did unless it was registered by fraud (Real Property Act 1900 (NSW), s 42).

2. [338]

   It should be inferred that Dyldam (and through Dyldam, Parklea) was aware of the facts that showed that SAP was not exercising its power of sale for the purpose for which that power was given but to enable another PAG subsidiary to acquire an 80% economic interest in Parklea. It should also be inferred that Dyldam, and through Dyldam, Parklea, knew that the accelerated steps for settlement arising from the adoption of Mr Dixon-Smith’s Action Plan were for the purpose of preventing Almona’s redeeming the mortgage.

3. [339]

   I refer again to Mr Dixon-Smith’s Action Plan of 15 March 2016 after he had been provided with a copy of a letter from AMB Capital and had advised that “those involved on the proposed refinancing do actually have the firepower to fund this if Con can make it stack up” (see J [99]).

4. [340]

   Mr Dixon-Smith’s email of 15 March 2016 is substantially quoted by Basten JA at [178] – [180]. In addition to the matters quoted by Basten JA, Mr Dixon-Smith stated that:

5. [341]

   In the passage from the email quoted by Basten JA at [179], it should be noted that Mr Dixon-Smith stated that if the funding were vendor funding from the mortgagee it would have the advantage of making it appear that the funding provided was short-term funding to assist the buyer which could be considered as beneficial to Almona in generating interest income on the sale.

6. [342]

   On 11 March 2016, Gilbert & Tobin (acting for the receivers) had proposed an extension to the date for receiving PAG’s Investment Committee’s approval to 29 April 2016. That date was varied by a deed executed for SAP on 22 March 2016. The counterpart executed by Parklea Corporation is undated (J [190]). On 11 March 2016 Gilbert & Tobin attached a deed providing for the extension of the sunset date to be executed under the vendor’s power of attorney stating that it had been signed by Mr Fayad (for the purchaser). Mr Dixon-Smith replied on 11 March 2016 saying that he could hand a counterpart to Maddison Marcus (for Parklea). On 11 March the parties were proposing to extend the sunset date to 29 April. But when PAG learned that Almona might be able to redeem the mortgage, it moved with what Almona accurately described as “breakneck speed”. Almona submitted that PAG was determined to ensure that Almona did not impede its transaction with Parklea because it saw great profit potential in the venture. Mr Dixon-Smith’s spreadsheet of 11 December 2015 referred to by Basten JA at [124] calculated net profits for PAG from some unidentified proposed ventures ranging from $40 million to $445.375 million.

7. [343]

   Almona submitted that PAG set out to ensure that Almona did not impede its transaction through a dishonest scheme.

8. [344]

   Almona correctly submitted that Mr Dixon-Smith’s Action Plan could only have been implemented with the cooperation of the receivers, Dyldam and Parklea. The essence of Mr Dixon-Smith’s plan was to accelerate completion in order to obtain registration of the transfer to Parklea whilst keeping Almona ignorant of that strategy. I accept Almona’s submission that in the absence of evidence to the contrary, it should be inferred that Parklea through Dyldam knew of all of the essential elements of Mr Dixon-Smith’s Action Plan. That inference can be drawn from the speed with which the plan was activated, which the primary judge described at length.

9. [345]

   As Almona submitted, in contrast to the speed with which Almona and Parklea moved to completion, Mr Dixon-Smith delayed his response to Almona’s request for a payout figure (most recently repeated on 14 March 2016) until 17 March 2016. His response did not provide a payout figure. Rather, he stated that SAP, together with the receiver, had commenced the preparation of a statement of amounts owing and that information would be available the following week. Mr Dixon-Smith did not disclose that the parties intended to complete the sale contract as soon as possible.

10. [346]

    The contract between SAP and Parklea Corporation was entered into on 13 January 2016. It included a special condition 61 that provided that the purchase price would be $85.35 million if the residence were not occupied as at completion but would be $81.1 million if the residence were occupied.

11. [347]

    As part of the arrangements for completion, SAP and Parklea entered into the Second Deed of Variation on 22 March 2016 that provided a substitute contract which specified the price as being $81.1 million and removed the reference to the higher price of $85.35 million which would have been payable if the property were not occupied as at completion. This gave rise to the primary judge’s limited finding of fraud that SAP did not challenge on appeal. I agree with Basten JA that Parklea’s challenge to the primary judge’s finding as to its liability for the amount of $4.25 million plus interest on the basis of its involvement with the fraud should be dismissed.

12. [348]

    That aspect of the transaction and Parklea’s involvement in it cannot be divorced from the other aspects of the transaction when considering whether Parklea became registered as a proprietor through fraud.

13. [349]

    As Almona submitted, the effect of the Second Deed of Variation was to vary the sale contract so as to give it a façade of regularity. It should be inferred that the purpose of the Second Deed of Variation was to disguise from Almona and others the fact that the occupation condition had ever existed.

14. [350]

    Almona submitted:

15. [351]

    I agree. The steps taken by SAP and Parklea involved more than a mere fraud on a power. They were marked by haste, secrecy, deception and the intention to prevent Almona from redeeming the mortgage. Fraud for the purposes of s 42 of the Real Property Act 1900 (NSW) requires dishonesty, an intention to cheat, or moral turpitude (Assets Co Ltd v Mere Roihi [1905] AC 176; Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101). Just as in Latec Investments Pty Ltd v Hotel Terrigal Pty Ltd, the mortgagee sale in which Parklea knowingly participated was marked by a conscious misuse of the power of sale and constituted fraud within the meaning of s 42. Parklea did not acquire an indefeasible title.

PT’s Mortgage

1. [352]

   Before considering questions of remedy, it is necessary to consider the position of the second respondent, PT. PT is a professional security trustee. On 22 March 2016 it took mortgages from Parklea of the land. Those mortgages were duly registered. The mortgages secured Parklea’s agreement to pay the “Secured Money” in accordance with the terms of the “Finance Documents”.

2. [353]

   “Secured Money” was widely defined as including any monies payable or owing to “the Beneficiary”. “Beneficiary” meant the Mortgagee (PT) either for its own account or for the account of a Financier and each Financier. “Financier” had the same meaning as it had in a Loan Note Subscription Agreement dated on or about the date of the mortgage between Parklea, PT and LBH VI (as financier) and others. “Finance Documents” also had the meaning given to that term in the Loan Note Subscription Agreement.

3. [354]

   In the Loan Note Subscription Agreement there was an elaborate definition of “Finance Documents” that included loan notes to be issued under that agreement. LBH VI was named as “Financier”. Although the agreement was structured in a way that would have accommodated the provision of financial accommodation by multiple financiers, LBH VI was the only named financier. It agreed to provide $84.4 million of financial accommodation to Parklea by subscribing for loan notes to be issued by Parklea. The Loan Note Subscription Agreement was entered into on 22 March 2016.

4. [355]

   Clause 21.2 provided that LBH VI:

5. [356]

   Clause 21.4 provided that LBH VI could direct PT to act or not to act in connection with a Transaction Document as it determined.

6. [357]

   It is at least seriously arguable that PT holds the benefit of the mortgages, not merely as trustee for LBH VI, but as agent for LBH VI.

7. [358]

   Almona did not allege that PT’s mortgage was defeasible on the ground that LBH VI had knowledge of and participated in the fraud of SAP and Parklea. LBH VI was not joined as a party to the proceedings.

8. [359]

   Instead, Almona contended that PT’s interest was defeasible by reason of s 118(1)(d)(ii) of the Real Property Act as explained by the High Court in Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 at [59]-[60] per French CJ, Hayne and Gageler JJ.

9. [360]

   Section 118(1)(d) of the Real Property Act provides:

10. [361]

    Section 45 of the Real Property Act relevantly provides:

11. [362]

    In Cassegrain v Gerard Cassegrain & Co Pty Ltd, French CJ, Hayne, Bell and Gageler JJ said:

12. [363]

    Without deciding the issue, the primary judge expressed a preference for the view that a liberal interpretation should be given to the expression “proceedings for the … recovery of land” in s 118(1)(d)(ii) so that the section applied to a proceeding to establish that the plaintiff was entitled to a re-transfer of the title to the land free of a registered mortgage if the mortgage were obtained otherwise than bona fide for valuable consideration from or through a person registered as proprietor of the land through fraud ([906]). PT submitted that this construction was erroneous. It submitted that the language of “recovery” is inapt to describe Almona’s claim to set aside the PT mortgage.

13. [364]

    PT contended that the primary judge ought to have found that Almona’s claim was not a proceeding for the possession or recovery of land within the meaning of s 118(1) of the Real Property Act. Almona’s claim against Parklea was undoubtedly a claim for the recovery of land as it sought orders setting aside the sale and for re-transfer of the property from Parklea to it, but that was not the nature of its proceeding against PT. “Land” is defined in s 3 as meaning land and any estate or interest therein. PT submitted that the proceeding against it was neither for the recovery or possession of land nor for the recovery of PT’s estate or interest in the land. There is no dispute that PT’s mortgages, that operate as a statutory charge, are an estate or interest in the land (Provident Capital Ltd v Printy [2008] NSWCA 131; (2008) 13 BPR 25, 199 at [23]-[27]).

14. [365]

    By ground 2 of the notice of contention, PT submitted that proceedings permitted by s 118(1)(d)(ii) require an identity between the interests sought to be recovered and the interest of the registered proprietor against whom the proceedings are brought. It submitted that the interest in the land sought to be recovered by the appellant being the fee simple was not the interest of PT being the registered mortgagee.

15. [366]

    The use of the definite article (“the registered proprietor of the land”) in the chapeau to s 118(1) shows that “land” in the chapeau has the same sense on both occasions on which it is used. If the proceedings are proceedings for the recovery of land in the physical sense, then the “registered proprietor of the land” is not the mortgagee who holds an estate or interest in the land but the registered proprietor of the land, in this case Parklea. In the present case, proceedings are also brought against PT as the registered mortgagee of the land. Although PT is a registered proprietor of an estate or interest in the land, the proceedings against it are not for the possession or recovery of the physical land, nor for possession or recovery of the mortgage estate or interest. I would uphold grounds 1 and 2 of the notice of contention.

16. [367]

    It is therefore unnecessary to decide whether PT derives its interest as mortgagee as a transferee from Parklea bona fide for valuable consideration. Almona contended that PT was not a transferee and therefore did not fall within the bracketed words in s 118(1)(d)(ii). I agree. PT did not take a transfer of any estate or interest of Parklea. That is consistent with the proceeding against PT not being one for the possession or recovery of land from it. As this court said in Sahab Holdings Pty Ltd v Registrar General (No 2) [2012] NSWCA 42; (2012) 16 BPR 30, 353 at [32]:

17. [368]

    In any event PT is entitled to the protection of s 45. There is no issue as to PT’s bona fides. Almona did not allege that LBH VI did not act bona fide. It disputed that PT was a mortgagee for valuable consideration within the meaning of either s 45 or s 118(1)(d)(ii). In my view the mortgage was given for valuable consideration. That consideration consisted of the monies advanced by LBH VI on security of the mortgage. The primary judge considered that it would be necessary to identify a consideration provided by PT to Parklea for the grant of the mortgage and considered that on the basis on which the matter had been argued, it was not open to his Honour to base his judgment on an interpretation of the sections that allowed value to be provided by a party other than the holder of the title (J [913] and [914]). His Honour concluded that PT provided valuable consideration to Parklea by its fee agreement with Parklea whereby PT agreed to undertake potentially onerous responsibilities as security trustee set out in the Loan Notes Subscription Agreement (J [919]).

18. [369]

    The fee agreement between PT and Parklea provided for Parklea to pay an establishment fee of $10,000 and an annual fee of 0.01% of the outstanding debt balance at the beginning of each fee period. PT undertook to hold and deal with the security for the benefit of the beneficiaries and to undertake the responsibilities of the Security Trustee as set out in the Finance Document.

19. [370]

    The primary judge held:

20. [371]

    Even if valuable consideration for the PT mortgages were not given by the advances made by LBH VI to Parklea, I agree with the primary judge, for the reasons his Honour gave, that valuable consideration was given by PT itself by its agreeing to assume the position of security trustee and undertaking the duties which it assumed.

21. [372]

    Almona submitted that the PT mortgages were only indefeasible to the extent they secured consideration that PT provided for its becoming the registered mortgagee. That submission was rightly rejected. In the absence of a claim that the mortgage was defeasible for fraud, it was indefeasible for the debts that it was expressed to secure. The primary judge noted that at the time of the hearing it was said that PT’s mortgages secured a debt of the magnitude of about $158 million (J [841]). As his Honour said, it is unlikely that there would be any benefit to Almona to recover the land from Parklea if PT’s mortgages nonetheless secured a debt of that magnitude.

22. [373]

    Almona submitted that it would be an odd result if parties involved in a fraud could avoid a consequence of that fraud by the interposition of a nominee as registered mortgagee. That is true. But the submission assumes that a mortgage registered in the name of the nominee could not be set aside on the ground of fraud by the principal for whom the nominee held the mortgage. That assumption is not self-evident. It is at least equally incongruous that a lender or lenders guilty of no fraud should lose the benefit of indefeasibility because they placed the mortgage in the name of a security trustee who holds the mortgage on trust for them if the security trustee itself does not provide consideration to the mortgagor for the mortgage.

23. [374]

    It is at least seriously arguable that these complexities disappear if the relationship between the registered mortgagee and the lender is not just that of trustee and beneficiary but that of agent and principal. But in this case no claim was made against LBH VI that it was a party to a fraud.

Remedy

1. [375]

   Almona sought declarations that SAP breached its duties as mortgagee in the exercise of its power of sale, that Parklea was an accessory to those breaches, that the registration of Parklea as registered proprietor was procured by fraud and that Parklea was an accessory to that fraud. Those declarations should be made.

2. [376]

   Almona also sought an order that the contract for sale and the transfer of the land by SAP to Parklea should be set aside. It sought the taking of accounts in which there would be an inquiry into the amount payable by it pursuant to the mortgage (this is on the assumption that on the setting aside of the contract of sale, the mortgage debt would be reinstated), and that on the taking of accounts there be an allowance for damages or equitable compensation payable by either SAP or Parklea to it. Presumably on the taking of accounts, if the contract of sale were set aside, account would also need to be taken of the rents and profits received by Parklea Corporation since 2016 and allowance would need to be made for improvements made by Parklea and for expenditure towards the obtaining of whatever development approvals have been sought or obtained, that may have improved the value of the land.

3. [377]

   The primary judge did not rule on Parklea’s submission that an order setting aside the transfer is barred by Almona’s laches. Almona did not commence proceedings until 17 October 2018. His Honour observed that neither party had satisfactorily addressed the issue of laches.

4. [378]

   Apart from the unresolved issue of laches it appears unlikely that the sale would be set aside where third parties’ rights will have intervened, and where the mortgage debt to LBH VI which remains secured over the land is in the order of $158 million or more. That debt would not be discharged except, presumably, to the extent Almona was required to discharge its liability to SAP in order to obtain a re-transfer of the property.

5. [379]

   That does not mean that Almona is necessarily without remedy. It claimed damages or equitable compensation in the taking of an account.

6. [380]

   In Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440, this court held that an account is the appropriate form of relief where a mortgagee is alleged to have sold the mortgaged property at an undervalue or otherwise in breach of its duty (at [41]). Whether the claim be properly characterised as one for equitable compensation or damages need not be determined now (Commonwealth Bank of Australia v Hadfield at [36]-[40], [45]-[46], [63]-[64]). On the inquiry on the taking of accounts it will be open to Almona to investigate the circumstances in which Wesco reduced its offer and to investigate whether $85.35 million was a true market price. It may be open to Almona to argue that even if $85.35 million were a fair market price, that did not represent the real value of the land (Potts v Miller (1940) 64 CLR 282 at 299-300) or the value of the land to it. Whether it would be entitled to compensation for any such additional value over the market price, where SAP was entitled to sell as mortgagee, could depend on whether Almona could have redeemed the mortgage if SAP had not been determined to sell to an associate. These are issues that could only be determined on an inquiry.

7. [381]

   Although it seems unlikely that Almona would press its claim for a re-transfer of the property which remains subject to PT’s mortgages, Almona should be given the opportunity to make submissions on that question. If Almona persists in seeking that order the proceedings will in any event need to be remitted in order for Parklea’s defence of laches to be determined.

8. [382]

   The orders I would make are:

   1. (1)

      Appeal allowed in part.

   2. (2)

      Direct the parties within 21 days to provide written submission as to the orders they contend should be made consistently with these reasons, including as to costs.