Beckmann v Natwest Markets Australia Ltd [1999] QCA 405

IN THE COURT OF APPEAL 99.405 SUPREME COURT OF QUEENSLAND Appeal No. 9168 of 1998 Brisbane [Beckmann v Natwest & Ors] BETWEEN: KENNETH WILSON BECKMANN (Plaintiff) Appellant AND: NATWEST MARKETS AUSTRALIA LIMITED ACN 002 987 957 (formerly called Natwest Australia Bank Ltd) (First Defendant) First Respondent AND: PRD REALTY (SUNSHINE COAST) PTY LTD ACN 010 162 679 (Second Defendant) Second Respondent AND: LAGUNA REALTY (Third Defendant) Third Respondent de Jersey CJ Pincus JA Thomas JA Judgment delivered 24 September 1999 Judgment of the Court APPEAL DISMISSED WITH COSTS CATCHWORDS: PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - striking out of action - whether cause of action disclosed - whether -- 1 of 11 -- 2 any basis for claim that contract of purchase of hotel invalid - whether any basis for claim that valuation of hotel negligently done - whether any basis for claim that mortgagee in possession of hotel negligent in its management of hotel business - whether any basis for claim that mortgagee negligent in failing to get higher sale price for hotel - whether any basis for claim that best price not obtained for land sold by mortgagee Counsel: Appellant appeared on his own behalf Mr P R Dutney QC for the first respondent Mr C Wilson for the second respondent Mr R Douglas SC for the third respondent Solicitors: Appellant appeared on his own behalf MacGillivrays for the first respondent Thynne & Macartney for the second respondent Carter Newell for the third respondent Hearing Date: 19 July 1999 1 THE COURT: This is an appeal against a judgment of White J striking out the appellant's action. Her Honour took this course because she formed the view that the material before the court showed that the appellant had no reasonable cause of action. The case involved the examination of the appellant's evidence, so far as he has gathered any, as well as the pleadings. 2 The suit was begun in 1994. Four statements of claim have been delivered. The first which was delivered against the respondent Natwest Markets Australia Limited ("Natwest") asserted only that Natwest as mortgagee in possession had wronged the appellant by selling mortgaged property too cheaply and by allowing an intending purchaser of part of the mortgaged property to put in survey pegs prior to settlement. Although both complaints have been pursued, it is plain that the complaint about the survey pegs cannot assist the appellant; that is, if survey pegs were put in place prior to settlement there is nothing to show that this caused any harm to the appellant, or indeed to -- 2 of 11 -- 3 anyone else. 3 The second statement of claim was delivered against all three respondents - i.e. against Natwest, against PRD Realty (Sunshine Coast) Pty Ltd ("PRD") and against Laguna Realty ("Laguna") and it made allegations against Natwest of the same kind as those made in the first statement of claim, except that the survey peg complaint was omitted. Against PRD and Laguna the appellant made a similar complaint to that which he made against Natwest, except that as against PRD and Laguna, the assertion that there was negligence in selling property related only to some of the property mentioned in the first statement of claim; it related only to property which will be referred to hereafter as the Cooroy property. The third statement of claim was in the same or substantially the same form as the second. 4 The fourth and last statement of claim, delivered on 12 July 1996 was, again, substantially the same as the second and third except that it made an additional allegation, that Natwest was estopped from disputing the market value of some of the property in question, namely the Fitzroy Hotel Nanango. The allegation of estoppel is not presently pressed by the appellant and nothing more need be said about it. 5 The fourth statement of claim was struck out by de Jersey J, as his Honour then was, on 17 July 1996 and the appellant was given leave to deliver a further statement of claim. That was done on 15 August 1996 when a fifth statement of claim was delivered which added to the allegations made in the fourth by giving further particulars of Natwest's negligence in relation to the sale of the property mentioned in the statement of claim, as well as further particulars of the negligence of PRD and Laguna. Some of these particulars are further discussed below. 6 On 6 March 1998, Moynihan SJA reviewed the case, which was on the supervised case list, and made an order for trial by affidavit. His Honour (presumably to avoid further debate about -- 3 of 11 -- 4 pleadings) ordered that the appellant deliver copies of affidavits detailing the evidence intended to be adduced in support of the appellant's claim. That was done, but Natwest, being dissatisfied with the affidavits, applied to strike the action out on the ground that no reasonable cause of action was disclosed. That application came before White J on 10 June 1998, when her Honour gave the appellant further time to deliver his affidavits and made an order providing that if any affidavit evidence was not available the appellant should deliver a resume of the relevant evidence. Further affidavits were delivered in purported compliance with the order of White J, but on 7 September 1998, having reviewed the whole of the material, White J struck the action out. There is a substantial counter-claim for debt and interest, in a sum which would if calculated up to date well exceed $1M. It will not be pursued, presumably because the appellant has little or no money. 7 In accordance with the practice of this Court each side prepared and delivered outlines of argument. There were four outlines delivered by the appellant, three of which were replies to outlines delivered by the respondents. These three outlines appear comprehensively to set out the matters which the appellant wishes to raise in the suit. The allegations in the outlines raise some matters not covered by any of the five statements of claim. 8 The outlines cover what has always been the core of the appellant's case, namely that the respondents are liable because the properties mentioned in the statement of claim were sold too cheaply; they also put forward other grounds of suit. In these reasons an attempt is made to discuss, so far as necessary, the bases of suit appearing from the outlines, although to do so involves considering issues not mentioned in the pleadings. (1) Contracts of Purchase of Hotel 9 The record contains copies of two executed contracts for the sale of a hotel from people -- 4 of 11 -- 5 called Clancy to the appellant, one at a price of $825,000 plus stock at valuation, and the other at a price of $725,000 plus stock at valuation. The appellant borrowed from Natwest to complete the purchase. It is not clear why the price was reduced; but it was suggested at the hearing before us that the reason had to do with saving stamp duty. In his first outline of argument the appellant pointed out that the memorandum of transfer of the hotel shows that the price of $725,000 was that at which the transaction was effected; the outline also submitted that the fact that on discovery Natwest had produced the contract at $825,000 demonstrates their negligence. A separate point made about the contracts was that, so it was said, they were both invalid. 10 Nothing is raised under this heading which could found or support a cause of action against Natwest. The principal significance of this point is as illustrating what is, perhaps, a misapprehension on the part of the appellant: that it is enough to point to what are said to be unusual circumstances, which the Court is then to investigate, to determine whether they have any relevance. The true position is that under the orders made the appellant was obliged to provide some evidence by affidavit, to prove the respondents' liability. The fact that there may exist circumstances which the appellant finds to be interesting or suspicious cannot justify the Court in launching an investigation into them. Its function, if this case were ever tried, would be to examine the evidence produced on behalf of the appellant and that produced on the other side and determine whether the respondents are liable to the appellant. (2) Valuation of Hotel done for Natwest 11 Natwest, apparently with a view to determining whether it should advance money for the purchase of the hotel, had it valued by one M J Glynn of Melbourne, described in the valuation as among other things a registered valuer for Queensland. Mr Glynn inspected the hotel, or so the -- 5 of 11 -- 6 valuation says, and had access to a financial statement for the year ended June 30 1986. He expressed the opinion that the market value of the hotel at the time of the valuation, October 1986, was $818,000. The appellant stressed that in his opinion Natwest would have been better advised to use a valuer in the area rather than one from Melbourne; but Natwest not having done so cannot possibly be a ground of action against it. The appellant also pointed out that although valued at $818,000 by Mr Glynn as at October 1986 the hotel was ultimately sold, in mid-1989, for $390,000, less than half the 1986 valuation. 12 Apart from the hypothesis that the valuation was simply negligently done - as to which the material before the Court does not permit any opinion to be formed - two reasons for the discrepancy between the valuation and the sale price deserve consideration. One is that the financial information supplied to the valuer was wrong and the other that the business of the hotel fell away between the date of the valuation and the date of the sale by Natwest. As to the former point, we are told that on 21 November 1994 an award of damages in a sum of $335,000 was made by Williams J, in favour of the appellant. It is said that the assessment was for misrepresentations by the agent of the people who sold the hotel to the appellant. The appellant informed us that the misrepresentations related to financial information supplied; so one may safely infer that the figures on which the valuation was based were substantially inaccurate. 13 As to the second point, a decline in the business, it is as will appear, positively asserted by the appellant that the business became a losing one after Natwest went into possession in December 1987; he says that this was due to incompetent management. The hotel was not sold until 18 months later. The appellant says that under his management the hotel was profitable, although he concedes that it attained that state only if one made certain adjustments to the items shown in the -- 6 of 11 -- 7 books. 14 A further aspect of the case which is dependent upon the Glynn valuation is that the appellant argues that as the prospective mortgagee Natwest had an obligation to him, the prospective mortgagor, to obtain a proper valuation, which obligation they failed to discharge. Natwest had no such obligation and in any event the appellant had begun to negotiate with the vendors months before the Glynn valuation. There is no reason to think that the price the appellant agreed to pay was fixed by reference to that valuation. 15 Insofar as the appellant's case is based on the Glynn valuation of the hotel it has no substance. (3) Incompetent Management 16 We have already referred to the fact that the appellant says that the manager who was put in to run the hotel on behalf of the mortgagee, after it took possession, was incompetent. This appears to be relied on as showing that the state of accounts between the mortgagor and mortgagee should have been more favourable to the former and would have been so but for incompetent management. No attack is made by the appellant on the credits in the account which is part of a counter-claim delivered by Natwest. Those credits consist of sums paid by the appellant to discharge his interest obligations and amounts received from the sale of property; they total about $760,000, or $10,000 more than the amount advanced. Since the loan was made in 1986, at varying but always substantial rates of interest - at times the rate exceeded 25% - one would expect the interest charges to be very substantial. According to the Natwest claim, the total due exceeded $1M in mid-1994. The amounts received from the sale of property on which the Natwest loan was secured came in from - putting it generally - mid-1988 to mid-1989, the sums received for the hotel -- 7 of 11 -- 8 having been paid in June and July 1989; the sale price was $390,000. According to the mortgagee's calculations, after receipt of the sale price of the hotel the sum due still substantially exceeded $400,000, a figure which took no account of the mortgagee's expenses, other than those associated with the sale of the mortgaged property. It does not appear that these calculations are contested. 17 From these figures it can be seen that it is, at least, very unlikely that any deficiencies in the management of the hotel would have made such a difference to the position as between mortgagor and mortgagee as to create a positive balance in favour of the appellant. This line of reasoning makes it apparent that even if, as the appellant asserts, the hotel should have been modestly profitable while in the possession of Natwest, it would have left the appellant liable in a very considerable sum. It is in our view proper to take that circumstance into account in determining whether Natwest should be put to the, no doubt very considerable, expense of continuing to contest this action against it, when the evidence available to the appellant appears to be inadequate. 18 The major difficulty the appellant has, however, on this aspect of his case is that there is no evidence or foreshadowed evidence that Natwest acted negligently, in respect of the management of the hotel. It appointed members of a firm of accountants, Messrs Summerson and Ebbage, to act for it and they arranged for a manager, a Mr Clark, to run the hotel. Being dissatisfied with the performance of the hotel they replaced Mr Clark by a Mr and Mrs Perkins. The hotel was unprofitable under the management of these people but there is nothing, apart from the bare fact of the hotel's unprofitability, to suggest that any error was made in the performance of the accountants' functions. To prove a case of breach of duty on the part of Natwest or its agents, it is not enough to show merely that the hotel did not make money after Natwest took possession of it. -- 8 of 11 -- 9 (4) Sales at Undervalue 19 We have mentioned above that the statements of claim allege that the hotel was sold too cheaply by Natwest, the mortgagee. The main ground for this allegation is that the sale price was very much less than the Glynn valuation referred to above. The material does not disclose any reason to think that the sale was incompetently conducted or that it was effected in bad faith, or that if Natwest had taken any steps in addition to those which it did take, to effect a sale, a better price would have been achieved. The material shows that the hotel did not do well enough, under the appellant's management, to service the debt which he had incurred to buy it and that subsequently its returns were even worse. But as we have explained above, a substantial award of damages has been made in favour of the appellant on the basis that the trading figures of the hotel, at the time when he bought it, were over-stated. It is this which appears to have been the most substantial cause of the discrepancy between the valuation, made on the false figures supplied, and the price achieved on the mortgagee sale. 20 The other substantial complaint made under this heading has to do with the sale of property subject to mortgage to Natwest, situated at Cooroy, which was sold for $200,000. It appears that an attempt was made to auction it, but no bid was attracted; the report on the auction says that one of the people in attendance said he had lodged a caveat and that the appellant complained, at the auction, about the location of a sign or signs relating to the sale. The report says that while those comments did nothing to enhance the chance of sale, there were no intended purchasers in attendance anyway. 21 Not having been sold at the auction, the Cooroy property was subsequently sold privately and no evidence is put forward or foreshadowed to show that any errors made in marketing it -- 9 of 11 -- 10 brought about a low sale price. We have already mentioned misplacement of a sign or signs; there is no reason, on the material, to think that this had any adverse effect on the price. The essence of the complaint about the sale of the Cooroy property is that the appellant has been told the price was too low. In this connection the principal document is a note written by the appellant recording conversations with people called Johnston, Entriken, and O'Brien. The only specific piece of information supplied by any of them, according to the note, is that O'Brien "had buyer for one lot at about $150,000 on 25/8/88". But the appellant has subsequently written: "Mr Bill O'Brien has recently stated that he did not submit an offer of $150,000 for Lot 2 alone, even though this is contrary to notes regarding the three conversations the plaintiff made on a scrap of paper in 1988. Mr O'Brien says, however, he remembers walking over the properties and thinks he made a diary note due to the effect he thought the three properties would have been worth about $300,000 and that they were sold too cheaply". 22 That a person or persons has told the appellant that a better price might or should have been obtained would not justify a finding of breach of duty against Natwest, in effecting the sale. If O'Brien had a credible offer for part of the property for $150,000 which should have been but was not accepted, the appellant would have a good ground of complaint. But unfortunately for the appellant, whatever O'Brien initially told him about a buyer at about $150,000 for Lot 2, O'Brien either does not recall or is not prepared to say anything of that sort now. 23 It should be added that the prospective witness Johnston worked, it appears, in a local real estate office and so could be presumed to have some knowledge of local values; but there is nothing to suggest that she is qualified to give expert evidence on that subject and she is not prepared to make an affidavit. (5) Agency 24 The appellant has complained of the appointment of the accountants as agents, -- 10 of 11 -- 11 referred to above. He seemed to suggest that they should have been appointed as the agents of the appellant; but the appellant does not put forward any legal foundation for that and there appears to be none. (6) Accountants fees 25 The appellant has complained about the fees the accountants charged, asserting that they were excessive. There is simply no evidence that they were. Conclusion 26 We can understand the appellant's distress. He informs us that the purchase of the hotel and its consequences have completely ruined him. He has blamed his solicitor, the agent who sold him the hotel, the mortgagee, the accountants acting for the mortgagee, and agents who sold the mortgaged property. There is, as we have mentioned above, a judgment against the agent who sold him the property and so it is safe to assume that he was cheated by that agent. But, although it would be hard to convince the appellant of this, he appears to have no evidence available which would make the pursuit of any of the claims in this action sustainable. Of the matters he has raised, the one which perhaps agitates him most is that, on the basis of the Glynn valuation, Natwest lent him the money to buy the hotel without taking steps to check the accuracy of the trading figures which were supplied. But there is nothing to suggest that Natwest placed itself in the position of adviser to the appellant or that it was in any way responsible for his business decisions. 27 It is our opinion that the learned primary judge was right to make the order which her Honour did and that the reasons given for that order were correct. 28 We dismiss the appeal with costs. -- 11 of 11 --