Commonwealth Bank v Finding [1998] QSC 68

IN THE SUPREME COURT OF QUEENSLAND No. 254 of 1993 Brisbane Before Chief Justice de Jersey [Commonwealth Bank v. Finding] BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (A.C.N. 123 123 124) Plaintiff AND: DAVID JOHN FINDING and JEAN EDNA FINDING Defendants JUDGMENT FOR THE PLAINTIFF FOR RECOVERY OF POSSESSION OF THE LAND SUBJECT TO REGISTERED BILL OF MORTGAGE K407792E, AND FOR MONEYS DUE, BEING $3,903,767 TOGETHER WITH $1,422.27 PER DAY FROM AND INCLUDING 2 APRIL 1998 TO THE DATE OF DELIVERY OF JUDGMENT, TOGETHER WITH ITS COSTS OF AND INCIDENTAL TO THE CLAIM AND COUNTER CLAIM TO BE TAXED. COUNTER CLAIM DISMISSED. LIBERTY TO APPLY FOR DETAILED DIRECTIONS AS TO THE RECOVERY OF POSSESSION. CATCHWORDS: CLAIM FOR POSSESSION BY BANK MORTGAGEE AGAINST DEFAULTING MORTGAGORS - bank as mortgagee sold hotel property to long-standing customers - whether bank subject to conflict of interest - defences based on breach of contract, breach of fiduciary duty, unconscionability, misleading or deceptive conduct, negligence - whether bank obliged to disclose prior valuation of property to be purchased, substantially lower than price offered by purchasing customers - additional claims for relief based on bank’s alleged delay in registering transfer, and alleged unauthorised material alteration of mortgage after execution - whether the bank entitled to register mortgage of house, provided as additional security, relied on for claim for possession. Counsel: Mr Dutney QC and Mrs Mullins for the plaintiff. Mr Gallagher QC and Mr Crawford for the defendants Solicitors: Ryrie A. Bridges for the plaintiff. James Byrne & Rudz for the defendants. Hearing Dates: 23, 24,25,27,30,31 March, 1 April 1998 -- 1 of 26 -- IN THE SUPREME COURT OF QUEENSLAND No. 254 of 1993 Brisbane Before Chief Justice de Jersey [Commonwealth Bank v. Finding] BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (A.C.N. 123 123 124) Plaintiff AND: DAVID JOHN FINDING and JEAN EDNA FINDING Defendants JUDGMENT - de JERSEY CJ Judgment delivered 23 April 1998 Introduction The plaintiff claims possession of the defendants’ house property at 27 Perry Street, Hamilton, pursuant to registered mortgage K407792E (Exhibit 2 page 50). The plaintiff also claims the sum of $3,890,966.64, the balance of outstanding accounts as at 23 March 1998 together with $1,422.27 interest per day thereafter. By the conclusion of the hearing, 1 April 1998, the debt had risen to $3,903,767, to which the plaintiff would add $1,422.27 per day from and including 2 April 1998 to judgment. Plaintiff’s prima facie entitlement to judgment The plaintiff’s prima facie entitlement to possession (and the money sum) was not disputed. -- 2 of 26 -- 2 The entitlement to possession arose, because of default, in light of the proviso to s.60 of the Real Property Act 1861, the action for recovery of possession equating to the action of ejectment referred to in that proviso (Metropolitan Permanent Building Society v. McClymont (1983) 1 Qd.R. 160, 164). I note also clause 12 of the mortgage (page 52, Exhibit 2). The claim for debt is based on the registered mortgage over the house, or alternatively, the registered mortgage number J766090K over the Pinkenba Hotel (Exhibit 2, page 47) or a bill of sale and equitable mortgage over the hotel business (Exhibit 1, page 294). The plaintiff is entitled to judgment for recovery of possession of the land subject to registered bill of mortgage K407792E, and for $3,903,767 together with $1,422.27 per day from and including 2 April 1998 to judgment, as moneys due, subject to the matters relied on by the defendants for their defence and counterclaim. Summary of defences Those defences may be summarised as: (a) breach of contract, breach of fiduciary duty, misleading or deceptive conduct or unconscionability in failing to advise the defendants in relation to the purchase of the hotel (defence paras. 16A1-16R); (b) negligence in failing to register the transfer of the hotel promptly (para. 6(f)to 6(l); (c) material unauthorised alteration to the hotel mortgage by the plaintiff (para 6(f)); (d) misrepresentation, misleading or deceptive conduct, unconscionability, negligence or breach of contract in relation to registration of the house mortgage (paras 8- 16A). Factual considerations The action arises out of the defendants’ purchase of the Pinkenba Hotel by contract dated 19 August 1988 (Exhibit 1, page 243). The vendor was the plaintiff, as mortgagee exercising -- 3 of 26 -- 3 power of sale. The then registered proprietor was Parchment Investments Pty Ltd, with a current five year lease to Tyros Investments Pty Ltd. The plaintiff had placed each of those companies into receivership on 29 January 1988. The defendants agreed to pay $1,375,000 for the hotel, and the contract was completed on 13 September 1988. The plaintiff financed the purchase. The loan to the defendants was approved by the plaintiff on 22 August 1988 (Exhibit 1, page 283). The defendants gave the plaintiff a registered mortgage over the hotel, a bill of sale over plant, stock, fittings and furniture, and a then unregistered mortgage over the defendants’ house at 27 Perry Street, Hamilton. (The plaintiff lodged that mortgage for registration on 21 September 1990, and it was registered.) The defendants had banked with the plaintiff since 1958. They were substantial and well respected customers. Their defence of the plaintiff’s claims is based largely on the plaintiff’s failure specifically to disclose information about the very doubtful financial viability of the hotel business as run by the current operator prior to their application for finance, and the amount of a valuation held by the plaintiff which put the hotel’s value substantially lower than the amount the defendants (directly through the male defendant) were prepared to pay. The critical issue in the case is whether the plaintiff should have disclosed those matters, especially because faced with an arguable “conflict of interest”, and in any event have urged the defendants to seek independent advice before proceeding with the transaction. As at the time the defendants applied for finance to facilitate their purchase, the plaintiff held an independent valuation, by Hall Horrigan, dated 26 April 1988, in the amount of $960,000, which was $415,000 less than the price to be paid by the defendants. The plaintiff did not disclose that valuation to the defendants. Questions of duty aside, to do so would, I accept, have been inconsistent with the plaintiff’s internal policy, if that matters. As I resolve the case, it does not. -- 4 of 26 -- 4 The plaintiff’s consideration of the application involved the recording of views quite pessimistic about the former proprietor’s financial prospects in its conduct of the hotel business, views which if known might reasonably have been expected to bear upon a prospective new purchaser’s own prospects. Notably there was the view of Mr Lefevre, then a senior loans officer at head office. Mr Lefevre’s memorandum included this passage (Exhibit 1, page 235): “Securities originally proposed, R/M (registered mortgage) over hotel freehold and charge over licence would not support on normal lending margins when using current independent valuation. House property is presently held on a without commitment basis, and recommend we seek this in addition to the hotel. Servicing is a little difficult to demonstrate. Proposal commitments require interest only payments totalling $122,375 pa for the first two years, then renegotiation of the FDL on an amortised basis. Receiver/Manager’s trading results attached to Strophairs correspondence show a continuing downward trend under the management of their employee. Applicants are confident trading can be substantially increased by injection of funds and expansion of operation. This may well be so, and receiver/manager agrees. (see Adelaide memo 13/5/88). However, on the statements provided a loss of $5,360 resulted from the four months trade to 29/5/88. We cannot demonstrate servicing on these figures and neither will any other applicant for finance be able to. Applicants financial strength, managerial abilities and assets able to be called on if necessary will have to be relied on.” The plaintiff approved the loan, but on the basis, internally to the plaintiff, that: “Applicants are to be made to clearly understand that: • approval of the facilities does not indicate acceptance of their offer to purchase; and • approval has been given against their sound business record and security available; as intending mortgagee in possession, there is no tacit acceptance on the part of the Bank that the business will satisfactorily trade in the future, such assessment being their responsibility entirely.” See “Internal Memorandum” of Mr Wright, for the General Manager, dated 27 July 1988. The defendants had by then prepared an offer to purchase the hotel, for the sum of $1.4m (Exhibit 1, page 224). I am satisfied that Mr McGrath, the plaintiff’s relevant branch manager -- 5 of 26 -- 5 at Clayfield, communicated the above basis to Mr Finding, as Mr McGrath claimed. Mr McGrath’s contemporaneous note on Mr Wright’s memorandum, at page 237 of Exhibit 1, confirms that Mr McGrath did so, at least through Mr Finding. I consider it highly improbable that that note is relevantly inaccurate. Mr Finding himself did not go so far as to deny that the conversation may have occurred (page 382). So far as Mr McGrath did not communicate directly with Mrs Finding (see for example transcript pages 67-69), he was reasonable in assuming that Mr Finding would communicate the matters to his wife (see page 69, line 1). I accept Mr McGrath’s evidence in these matters, and reject the contrary evidence. I found Mr McGrath’s evidence convincing. It is convenient and important that I now address another point of substantial conflict in the evidence. The defendants plead (para 16A3 defence): “In relation to the purchase of the hotel and hotel land, the plaintiff by its manager, Mr McGrath, orally informed Mr Finding at or about the time of the application for finance that the hotel must have been trading well for the plaintiff to lend the initial money to Parchment Investments Pty Ltd and that provided the defendants upgraded the stock, the hotel would be a success.” Mr McGrath denied making that statement, a statement of which Mr Finding gave evidence. The pleading goes on to assert, and I accept, that: “Mr McGrath, at least since 1983, possessed a detailed knowledge of the businesses and dealings of the defendants as reliable customers.” There was quite contradictory evidence on the alleged representation, from Mr Finding (for example, the last (handwritten) page of Exhibit 21) and from Mr McGrath (transcript pages 117-120). Mr McGrath impressed me as an honest, careful witness who, though valuing the Finding custom, would have been most unlikely to depart from normal banking caution in order to ingratiate or unnecessarily encourage. Speaking generally, I note that in his evidence Mr McGrath readily made concessions, and with apparent candour, where they were warranted. He -- 6 of 26 -- 6 was not evasive. There would undoubtedly have been exchanges between him and Mr Finding not recorded in diary notes, a point made by Mr Gallagher QC, for the defendants, through cross- examination. But to an experienced bank manager, the prospect of offering direct encouragement to a customer to enter into a very substantial purchase, especially of a commercial property with an uncertain past trading history, would ordinarily sound loud alarm bells. Not only was Mr McGrath a careful witness, he also impressed me as an apparently careful bank manager. I think it most unlikely that he would, to this alleged extent, have “entered the arena”. I carefully attended to his oral evidence on this point, and found his denials and explanations especially at pages 117 to 120, convincing. I found Mr Finding’s evidence on this point less credible. The comparative interests of the witnesses have some possible bearing on this resolution: Mr McGrath has not been employed by the plaintiff for a substantial period and has no apparent particular interest in the outcome. He was challenged on the basis that his making the alleged representation would sit comfortably with the views he expressed, internally to the plaintiff, at pages 233 to 234 of Exhibit 1. That may also, however, explain why Mr Finding now believes (though as I would find, erroneously) that Mr McGrath made this alleged representation. I do not accept that Mr McGrath did make it. Having heard all of the evidence, I remain of the view I expressed, albeit in a preliminary and tentative way, when I heard Mr McGrath’s oral evidence - that his denial had the ring of conviction about it (page 117, line 20). I appreciate the arguable importance of my finding on this aspect to the resolution of the case, and have therefore given it considerable thought in light of all of the evidence in the case, including, importantly of course, Mr Finding’s evidence. For reasons based in a normal assessment of credibility, I accept Mr McGrath’s denials and reject the contrary evidence. Before turning to the competing contentions as to the plaintiff’s duty in this situation, I will summarise some other factual considerations which bear on the comparative awareness of -- 7 of 26 -- 7 the plaintiff on the one hand, and the defendants on the other. There is no doubt that when the defendants applied for finance for this purchase, the plaintiff held the $960,000 valuation, substantially below the price Mr Finding was prepared to pay; the plaintiff knew that the hotel was trading at a loss, so could not - as a business in its then state - service necessary borrowings; and the plaintiff had appointed receivers to the hotel under a prior mortgage. The plaintiff would sell to the defendants as mortgagee exercising power of sale. Of course the plaintiff had considerably more detailed knowledge of these matters, as illustrated by Exhibit 1, to some of which I have referred above. As to the defendants, who were approaching this matter largely through Mr Finding, they knew, when applying for finance, that the hotel was in receivership (transcript page 372, line 25), that it was then trading at a loss, and consequently unable to service borrowings (page 372, lines 45 to 55). Mr Finding knew by then that the plaintiff was mortgagee (page 378, line 38). These additional conclusions are drawn from the evidence of Mr Finding. Having heard that evidence, I consider them to be credible conclusions: I have allowed for Mr Finding’s indispositions. Without dwelling on that matter, I was satisfied, hearing and observing him, that his evidence on these matters was accurate and reliable. 1. In the lead up to the transaction, Mr McGrath told Mr Finding nothing he did not know already (cf. page 377). 2. Before the purchase, Mr McGrath informed Mr Finding that the plaintiff had a valuation of the hotel, and when Mr Finding asked for a copy, Mr McGrath refused on the basis of instructions from higher up (page 340, lines 20-40, page 379, lines 28-40). 3. Even had Mr Finding seen a $960,000 bank valuation, it would not have significantly influenced him, as emerges sufficiently from this evidence (pages 381-2): “You wouldn’t take any notice of a bank valuation, would you?-- -- 8 of 26 -- 8 No. You regard them as ludicrously low?-- Yes. And always have?-- Yeah. And banks are ludicrously conservative ---?-- Yes. ...when it comes to business?-- Oh, no, not necessarily. When it comes to lending on other people’s business?-- Yes. All right. But in any event, the fact that the bank’s valuation of a property was less than you thought it was worth would come as no surprise to you?-- That would be correct. And that includes the Pinkenba Hotel?-- That’s correct. If someone had told you the bank valued it at 960,000---?-- I would probably split the--- ---you would have thought it would be twice that, or something like that?-- I would probably split the difference between what I said it was worth and what they said. You said it was worth something over 2 million, didn’t you?-- That’s what I would ask for it. And that’s what you expected to get for it, wasn’t it?-- Oh, yes, after I done it up.” 4. Mr Finding determined to offer the $1.4m quite independently of other influences. See the evidence at pages 372 line 55 to 373 line 15. Mr Finding confirmed that he “obtained no assistance from any party in arriving at that figure” (page 373 line 8). It was based on his own experience and other factually based enquiries. 5. The transaction was left by the plaintiff as a matter for the independent judgment of the defendants. I set out Mr Finding’s evidence at page 379 lines 40-50: “Is it the position that you proceeded knowing the bank had a valuation and knowing that the bank wasn’t going to tell you what that valuation was?-- Yes. All right. It must have been pretty plain to you in light of that, that the bank was -- 9 of 26 -- 9 leaving it entirely up to you to make a decision on whether or not to make an offer for this hotel?-- Yes. They weren’t going to assist in any way, were they?-- No.” Defendants’ contentions The defendants’ essential contention is as follows, as taken from the written submissions of Mr Gallagher QC and Mr Crawford: “In cases where the bank is both a vendor in respect of the interests of one customer and then deals with another long term customer there at least arises a responsibility to ensure that the long term customer fully appreciates the circumstances of the transaction and minimally, is warned to receive or take independent advice. This may be termed the ‘neighbourhood responsibility’ in reliance and assumed responsibility relationships ... The defendants submit that the distinguishing feature or special circumstance of this case is that the bank was in a conflict of interest in a situation where the banker/customer relationship was long-standing and one based on mutual confidence in their business dealings. The bank acted unethically and crossed the line in making a profit without fully informing the defendants of the detail they knew in regard to the business to be purchased or to go elsewhere to obtain alternate finance or to seek independent advice in respect of the transaction or to disclose the valuation by Hall Horrigan..” Counsel helpfully referred me to many decisions and texts, Australian, English and American. I have considered them all, but find it necessary in order to resolve this case to refer to only a few. My doing so implies no disrespect for Counsel’s very well presented submissions. Fiduciary duty The usual banker/customer relationship is founded in contract. A banker, however, may become subject to a fiduciary duty as discussed by Macrossan CJ in Potts v. Westpac Banking Corporation (1993) 1 Qd.R. 135, 138: “It will not be characteristic of dealings between a banker and customer that there will be actively in operation a (fiduciary) duty ... since such parties deal frequently in a relationship of buyer and seller of the services which banks usually provide. In the world of commerce vendors are not thought of as advisors to the purchasers who negotiate with them. The phrase caveat emptor, or buyer beware, is there to remind us of this fact. But this more usual banker-customer stance should not be permitted to obscure the fact that, in a particular case, these parties may stand aside from their customary roles and, knowingly on each side, deal -- 10 of 26 -- 10 with one another on the basis of a relationship which has a higher degree of trust and reliance in respect of the information or advice which is passed between them. Banks may not be under any obligation to assume the role of advisor but the finding of the trial judge in this case is that the defendant bank here chose to do so.” On my findings, the plaintiff did not in this case “assume the role of advisor”. The plaintiff did not give any relevant advice to Mr Finding, but left the matter entirely to the independent judgment of the defendants. What I have found as to the attitude of Mr Finding indicates that he did not, vis-a-vis the plaintiff, have that “higher degree of trust and reliance”, notwithstanding the length of their past relationship. The findings set out in the numbered paragraphs above especially, tell quite strongly against a contrary contention. In a recent case somewhat similar to the present, Truebit Pty Ltd & Ors v. Westpac Banking Corporation (unreported, Federal Court of Australia, No. 1290 of 1997, 27th November, 1997), Branson J provided the following helpful summary, which I respectfully adopt: “In Meagher Gummow & Lehane, Equity, Doctrines & Remedies 3rd Ed. at pp 130-131, the position is put as follows: ‘The distinguishing characteristic of a fiduciary relationship is that its essence, or purpose, is to serve exclusively the interests of a person or group of persons; or, to put it negatively, it is a relationship in which the parties are not each free to pursue their separate interests.’ There is thus an inconsistency between the notion of Westpac assuming a fiduciary duty to the applicants in respect of its treatment of their application for finance and the maintenance of Westpac’s ‘own commercial self interest as lender’. Moreover, there is a commercial, and possibly conceptual, unreality surrounding the contention that Westpac was entitled to consider the applicants’ application for finance both in the applicants’ interest and in Westpac’s own interest as the proposed lender to the applicants, but not in Westpac’s interest as the mortgagee/lender exercising through a receiver the power of sale in respect of Biggera Waters. As Professor Finn, as he then was, pointed out in ‘Contract and the Fiduciary Principle’ (1989) 12 UNSWLJ 76 at 96, Australian case law has favoured an approach to the customer/banking relationship based on unconscionable dealing rather than fiduciary principles: see, for example, Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447; National Australia Bank Ltd v. Nobile (1988) ATPR 40-856. -- 11 of 26 -- 11 This is not to say that a bank will never assume fiduciary responsibilities towards a customer. Commonwealth Bank of Australia v. Smith (1991) 102 ALR 453 shows that circumstances can arise in which a fiduciary relationship will exist between a bank and its customer. The Full Court of this Court, in that case, at 476-477 said: ‘A bank may be expected to act in its own interests in ensuring the security of its position as a lender to its customer but it may have created in the customer the expectation that nonetheless it will advise in the customer’s interests as to the vendor of a proposed investment. This may be the case where the customer may fairly take it that to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture. In such a way a bank may become a fiduciary and occupy the position of what Brennan J has called ‘an investment adviser’. Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 384-5.’” Again I observe, on the findings I have made, that there was no reasonable basis for the defendants’ believing that the plaintiff would advise in the defendants’ interests, and furthermore, I do not accept that the defendants - through Mr Finding - had such a belief. Finally, I refer to Commonwealth Bank of Australia v. Grubic (unreported, Full Court, Supreme Court of South Australia, judgment 27 August 1993) where Debelle J conveniently offered this analysis of Smith, which again I adopt: “The usual relationship of banker and customer does not result in the bank becoming a fiduciary. It may do so, however, where the bank gives financial advice to its customer. The circumstances in which the banker-customer relationship might become that of a fiduciary were examined in Commonwealth Bank of Australia v. Smith (1991) 102 ALR 453. The following propositions can be extracted from the joint judgment at 476. 1. Where the bank gives to a customer advice upon financial affairs, then, in addition to any contractual rights the customer may have, the relationship between the parties may be such as to found either a common law duty of care or a fiduciary duty. 2. In many cases the bank as a financier will have a manifest personal interest of its own in the matter. The question then becomes one of ascertaining when, given the apparent commercial self interest of the bank, the bank may also be taken to assume a fiduciary responsibility towards the customer. -- 12 of 26 -- 12 3. A bank may be expected to act in its own interest in ensuring the security of its position as lender to its customer but it may have created in the customer the expectation that nevertheless it will advise in the customer’s interests as to the wisdom of a proposed investment. This may be the case where the customer may fairly take it that to a significant extent its interest is consistent with that of the bank in financing the customer for a prudent business venture. In such a case the bank may become a fiduciary and occupy the position of an investment adviser. Central to the reasoning is that the bank has given financial advice or has acted in a way that creates in the customer the expectation that it will provide financial advice as to the wisdom of a proposed investment. In considering this question, the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm’s length and on an equal footing has consistently been regarded as important, if not decisive, in indicating that no fiduciary duty arose: Hospital Products Ltd v. United States Surgical Corporation (1984) 156 CLR 41, at 70 and 119.” Consistently with this approach, I find that the plaintiff was not here subject to a fiduciary duty towards the defendants. The plaintiff did not offer financial advice. It did not act in such a way as to create any expectation that financial advice would be given. The long-standing customer/banker relationship was itself insufficient to give rise to such a duty, as was the circumstance that the plaintiff had its own private interest in maximising the sale price. I appreciate that the submission of Mr Gallagher QC was more wide-ranging than the above treatment may suggest. I have, however, encapsulated the essence of it, and it does not survive the orthodox response reflected, sufficiently, by the cases to which I have specifically referred. Unconscionability Central to establishing unconscionability is the feature that the party seeking relief must have been under a special disability in relation to the other, and that other party must unconscientiously have taken advantage of the party under the disability. See The Commercial -- 13 of 26 -- 13 Bank of Australia Limited v. Amadio (1983) 151 C.L.R. 447, 459, 467, 474, Louth v. Diprose (1992) 175 C.L.R. 621, 637 and Blomley v. Ryan (1956) 99 C.L.R. 362, 428. Neither of the defendants could possibly be considered to have been under any such special disability. In terms of the Blomley approach, neither was impoverished, aged, sick, illiterate, unsophisticated, dissolute, or otherwise unable to take care of his or her own interests. In fact, each of the defendants had a long and varied background of business experience. See Exhibit 1, pages 233-4, and transcript pages 349-352, 353, 357, 411-2. Further, the defendants had their own solicitors, and consulted them before making any offer (transcript page 338). Mr Gallagher QC separately submitted that Mrs Finding should be regarded as a “vulnerable co-habitee” who should have been invited to seek independent advice. Mrs Finding was a direct beneficiary of the loan, as a co-proprietor of the hotel: she always appreciated this, and that she would share any loss (transcript pages 414-5). Mr Finding acted with Mrs Finding’s authority throughout (transcript page 405). In support of this contention, Mr Gallagher QC referred, among other cases, to Yerkey & Another v. Jones (1940) 63 C.L.R. 649, a case immediately distinguishable, however, because of Mrs Finding’s personal interest in this transaction (by contrast with the position of Mrs Jones). And see Amadio, supra, p.486. Mr Gallagher QC would have to rest his claim solely on Mrs Finding’s being the spouse of the active participant in the transaction, but that is plainly insufficient to warrant the imposition on the plaintiff of a particular obligation peculiar to her. No case of unconscionability was made out. Misleading or deceptive conduct My factual conclusions excluding a fiduciary duty also exclude any basis for a finding of misleading or deceptive conduct. Without a duty to disclose the relevant information, silence, such as occurred here, cannot constitute misleading or deceptive conduct: Kabwand Pty. Ltd. -- 14 of 26 -- 14 & Ors. v. National Australia Bank Limited (1989) A.T.P.R. 40, 950 at 50, 376-50, 377, Winterton Constructions Pty Ltd v. Hambros Australia Limited (1992) 39 F.C.R. 97, 114-115, and there was no such duty. Indeed, the plaintiff was obliged, to its other relevant customers, Parchment Investments Pty Ltd and Tyros Investments Pty Ltd, not to disclose to the defendants details of their business with the plaintiff. See Tournier v. National Provincial and Union Bank of England [1924] 1 K.B. 461. The plaintiff was also subject to its duty as a mortgagee under s.85 of the Property Law Act. Alleged breach of implied term The defendants alleged that it was an implied term of their contract with the plaintiff that the plaintiff “would observe reasonable skill and care in acting for the defendants” (para 16H defence), and that the plaintiff breached that term, essentially through failing to disclose relevant information and failing to give certain advice (para 16 I defence). The plaintiff did not assume a contractual obligation to the defendants of that breadth. Contractually, its only relevant obligation was, if embarking upon the giving of advice, to do so accurately. It was not, in contractual terms, obliged in this case to make any disclosures or give any advice. See Potts v. Westpac Banking Corporation supra, and Commonwealth Bank of Australia v. Mehta (1991) 23 N.S.W.L.R. 84,92. No authority was cited clearly supporting the existence in this case of any more demanding duty of care. Mr Gallagher QC, for the defendants, relied on Golby v. Commonwealth Bank of Australia (unreported), Federal Court of Australia, No. NG205 of 1995, Hill J. 24 December 1996. In that case, however, the customer had specifically agreed with the bank that the bank should pay certain proceeds into a particular account, yet the bank paid them into another. The Court held that the bank was contractually obliged to deploy the moneys as had been expressly agreed. There was specific agreement on the particular relevant aspect of the -- 15 of 26 -- 15 relationship, from which the bank impermissibly departed. That distinguishes Golby from this case. On the other hand, Hill J did say, significantly for present purposes: “It is not a critical feature of a banker/customer relationship that the banker undertakes or agrees to act for or on behalf of or in the interests of its customer in the exercise of some power or discretion affecting the interests of the customer in a legal or practical sense.” While in some particular respects a banker is under an obligation to exercise care with relation to the business of the customer, that does not extend to a wide contractual obligation of the character asserted by these defendants. To require the bank to give advice and proffer information in this case, on the basis of the claimed contractual obligation, would be contrary to very well established limitations on the contractual obligation of banker to customer to which I have referred. See also Lenin v. Australian Bank Ltd (unreported, Cole J. Supreme Court of New South Wales 21 June 1991) and Truebit Pty Ltd. & Ors v. Westpac Banking Corporation, supra. Mr Gallagher QC also relied on this passage in the judgment of Hill J: “What the bank cannot do, in the absence of a contract providing otherwise, is to prefer one customer to another by acting on the instructions of one when to do so will be contrary to the interests of the others. But that is a matter not dependent upon any fiduciary obligation. It arises from the contractual obligations, express or implied, between a banker and its customer.” Accepting for the moment that rather broadly expressed proposition, it suffices to note that is not the defendants’ pleaded case in this area - although I note that Mr Gallagher QC would seek to amend as necessary (see para 21F reply and answer). But this is not, in any event, a case of a bank preferring one customer over another. It is said, rather, to be a case of the bank preferring -- 16 of 26 -- 16 its own interest over that of its customer. Banks are, generally speaking, entitled to do that: they invariably do it, for example, when they sell property as mortgagee following the customer’s default. This defence, resting in contract, is unsustainable. ( I note the plaintiff’s additional point in response that it was not “acting for” the defendants, as the alleged implied term reads. I would read that, however, as referring simply to the bank’s acting in that capacity (that is, as banker) with respect to the defendants, as its customers.) I turn now to the other matters of defence and counterclaim, in the order in which I summarised them at the outset (paras (b), (c) and (d). Alleged negligence in failing promptly to register hotel transfer The defendants allege that the plaintiff delayed, in breach of contract and negligently, in registering the defendants as proprietors of the hotel land, preventing their sale of the hotel and thereby occasioning loss. (See paras 6(f)-(o) defence and counterclaim). The defendants rely on s.61(1) of the Property Law Act which confirms the availability to a purchaser of land of a right to damages for loss suffered because of a vendor’s failure to perform the contract of sale. Although settlement of this contract occurred on 13 September 1988, the defendants were not registered as proprietors until as late as 4 August 1989 (Exhibit 2, page 37). Clause 2 of the contract of sale (Exhibit 1, page 244) obliged the plaintiff to produce at settlement “a duly executed transfer ... capable of immediate registration ...”. I accept that as at settlement, the defendants expected registration of a transfer within a reasonably short time, and that they hoped, following improvements, to sell the hotel profitably after some months as had occurred with their previous commercial ventures. Registration was delayed because of the time taken for the issue of and compliance with requisitions from the Titles Office. It is necessary to examine the progress of the requisitions -- 17 of 26 -- 17 with some care. Two sets issued, each on 27 September 1988. One related to evidence of the appointment of receivers and managers and the retirement of one, in connection with the execution of a surrender of the lease over the hotel to Tyros Investments Pty ltd (Exhibit 1, page 355). The other related to the transfer and registration of the land tax charge J533091T and a declaration of default (Exhibit 1, page 356). It was necessary to comply with each requisition to allow registration of the transfer of the hotel title to the defendants, and registration of the mortgage by the defendants to the plaintiff. I deal first with the land tax requisition. When settlement figures were calculated in relation to the hotel sale, an adjustment of $1,902.64 was made in favour of the defendants for arrears of 1987 land tax owed by the previous proprietor, Parchment Investments Pty Ltd, and a further amount of $4,800 withheld from the purchase price pending a land tax clearance for 1987 and 1988 (Exhibit 1, pages 344- 345). On 3 November 1988 the defendants’ solicitors paid the 1987 land tax of $1,951.79 (Exhibit 1, page 373), but the clearance would not issue until the land tax for Parchment Investments Pty Ltd for the 1988 year was also paid (Exhibit 1, pages 332, 400). No adjustment of the 1988 land tax which was assessed in respect of the year commencing 1 July 1988 was made at settlement, but the defendants were liable to contribute their portion of that assessment for the period between 13 September 1988, the date of settlement, and 30 June 1989 by virtue of clause 13 of the contract (Exhibit 1, pages 245, 390). The defendants disputed their liability to contribute to the 1988 land tax (Exhibit 1, page 410), but finally accepted liability for their portion on 31 May 1989 (Exhibit 1, page 429, transcript page 390, line 10). They paid the 1988 land tax on 15 June 1989 (Exhibit 1, page 433) and a release of the charge was then obtained from the Commissioner of Land Tax and lodged in the Titles Office -- 18 of 26 -- 18 on 26 June 1989 (Exhibit 2, page 35). I turn now to the other requisition. On 4 July 1989 further requisitions issued relating to evidence of the appointment of the receivers and managers of Parchment Investments Pty Ltd and the retirement of one of them (Exhibit 1, page 450) and as to release of the Charge J53309IT (Exhibit 1, page 450A). The issue of the further requisition relating to the surrender of the lease had been delayed from 11 May 1989 until after the requisition on the transfer in relation to the charge was satisfied on 26 June 1989 (transcript page 320 to line 30). Although the requisition in relation to the receivers and managers was not satisfied until 31 July 1989 (Exhibit 2, page 223), the requisition in relation to the form used for the release of charge was not cancelled until 21 July 1989 (Exhibit 2, page 35, transcript page 320, line 40). Registration occurred on 4 August 1989. The defendants were responsible for delays in registration caused by the outstanding land taxes. The period of that delay terminated on 26 June 1989. But that outstanding issue itself led to deferment from 11 May 1989 of the requisition in relation to the surrender of the lease, for which the plaintiff was responsible. Further, as has been seen, it was not until 21 July 1989 that the requisition in relation to the land tax charge was eventually resolved. Looking at the matter overall, and noting that the defendants were responsible for the delays in registration due to the land tax charge, I find therefore that the problems with the receivers’ documents did not materially delay registration of the transfer. There are other points to be made on the evidence in relation to this aspect of the counter claim. The claim for loss substantially relates to lost opportunity to sell the hotel (para 6(m) defence). As I have already observed, the defendants hoped, following improvements, to sell the hotel profitably after some months. A sale within six months of completion of the contract was impracticable, because of Licensing Commission requirements. See transcript page 391 lines 20- -- 19 of 26 -- 19 40. That takes one to mid-March 1989. Mr Finding listed the hotel for sale in early April at the price of $2.75m (Exhibit 1, page 412). That was an unrealistic asking price, in view of Mr Postle’s valuation of $1.665m in January of that year, and Mr Finding’s own evidence that trading fell off in the early part of the year (page 347 from line 40). An auction in March 1990 attracted a bid of $1.8m, but the bidder was not acceptable to the Licensing Commission. There is no reliable evidence of any other offer capable of acceptance, either within or below the price range Mr Finding had in mind. I interpret Mr Finding’s evidence at page 392 in that way. It follows that even had the defendants established relevant fault in the plaintiff with respect to registration of the transfer, there is no sufficient evidence that the defendants suffered consequent loss. It is not a case where, were liability established, damages could be assessed, though with difficulty. There is simply no evidence of loss. This part of the counter claim therefore fails. Alleged unauthorised material alteration to hotel mortgage The defendants allege (para 6(f) defence) that without the defendants’ consent, an employee or agent of the plaintiff added, to the list of encumbrances to which the title was subject, on the memorandum of transfer and the bill of mortgage, reference to the land tax charge number J533091T. See pages 38 and 47 of Exhibit 2. This is alleged to have occurred subsequently to the defendants’ execution of the mortgage, at some otherwise unidentified time. The defendants allege that the plaintiff thereby rendered the mortgage void, discharging them as from the date of the alteration. I do infer that the alteration to the documents was made by an employee or agent of the plaintiff after execution by the defendants, and I accept the evidence that the defendants did not authorise that alteration, which was made without their knowledge. The Rule in Pigot’s Case (1614) 11 Co Rep 26b, 77 E.R. 1177, that a deed or other -- 20 of 26 -- 20 written contract materially altered after execution without consent, is thereby avoided, on which the defendants rely, has been criticised (cf. Farrow Mortgage Services Pty Ltd (In Liquidation) v. Slade and Nelson (1996) 38 N.S.W.L.R. 636, 640), but would still apply to avoid these instruments, subject of course to the materiality of the alteration. That will generally be determined by whether the alteration, if effectual, would “impose a greater liability on the promisor” (Farrow page 640). That occurred, in circumstances generally like these, in Brunker v. Perpetual Trustee Company (Limited) (1937) 57 C.L.R. 555: but in that case the transfer was “definitely intended by the transferor to be subject to no encumbrance” (page 606). Section 37 of the Land Tax Act creates a charge for payment of outstanding land tax which ranks in priority to all other encumbrances. Its terms follow: “(1) Land tax shall until payment or the Commissioner certifies that he holds security for the payment of the tax be a first charge upon the land taxed in priority over all other encumbrances whatever other than land tax due to the Commonwealth, and notwithstanding any disposition of the land it shall continue to be liable in the hands of any purchaser or holder for the payment of the tax so long as it remains unpaid unless the Commissioner certifies that he holds security for the payment of the tax: Provided that no such charge shall be of effect as against a bona fide purchaser for value who at the time of purchase made inquiry of the Commissioner as prescribed, and was informed there was no liability.” The bill of mortgage was therefore always subject to the land tax charge, regardless of whether it was noted in the instrument. Further, the Commissioner of Land Tax had lodged a charge over the land for the unpaid tax, and the defendants were, prior to settlement, aware of that (Exhibit 1, page 347). They were also aware, as at settlement, that the charge was still outstanding, because moneys to cover it were withheld (Exhibit 1, pages 336-8), and they were prepared to allow the settlement to proceed. Prior to settlement, the Commissioner had, on 8 September 1988, advised the defendants of their liability (Exhibit 1, page 332), cautioning them to withhold moneys at settlement on account of the 1988 liability. On the same day as the -- 21 of 26 -- 21 transfer was registered (4 August 1989), subject to the land tax charge, that charge was released (Exhibit 2, page 8). The inclusion of the words on the mortgage, and on the transfer, therefore did not affect the defendants’ liability to the plaintiff or to the Commissioner of Land Tax in any respect. Counsel for the defendants referred to a statement of Moynihan J in Bridgestone Australia Ltd v. G.A.H. Engineering Pty Ltd [1997] 2 Qd.R. 145, 156 that “the mere possibility of detriment” is enough to relieve the other party of liability in such a situation. The defendants formulated the suggested detriment in this way: “The effect of the alteration was that the defendants’ title was encumbered by a land tax charge contrary to the plaintiff’s duty to provide unencumbered title. This would be detrimental to the defendants when they attempted to sell the properties as the land tax charge would have to be removed prior to a sale.” For the reasons I have already expressed, that contention cannot be sustained. Registration of mortgage over house at 27 Perry Street, Hamilton Approving the loan on 22 August 1988, the plaintiff took an unregistered mortgage over the defendants’ house, and agreed to consider releasing that mortgage after one year, depending on the results of a review of the loan. In accordance with the plaintiff’s letter of that date, the advance was expressed to be subject to: “Security comprising:- 1. Registered mortgage over freehold property being purchased. 2. Registered Bill of Sales over plant, stock, fittings, furniture etc. 3. Unregistered mortgage over house 27 Perry Street, Hamilton, presently held without commitment following repayment of a previous loan. As discussed, consideration will be given to release this security at the annual review twelve months after implementation of the loan. Bank consideration will be based on conduct of accounts, trading results and valuation of remaining security.” The plaintiff registered the house mortgage in September 1990, at a time when the -- 22 of 26 -- 22 defendants were in default under the loan. The plaintiff apparently acted within its rights. Clause 12 of the mortgage gave the plaintiff the right to exercise all powers of a mortgagee should the loan be in default, and those included the right to register the mortgage (section 48 Real Property Act 1877). The defendants do, however, challenge the plaintiff’s reliance on the house mortgage. The defendants plead (para 7 defence) that their “arrangement with the plaintiff was for the third security to remain unregistered and ultimately be released if the defendants still held the hotel in twelve months time from 22 August 1988 and if the plaintiff’s review of the defendants’ account proved satisfactory”. That generally accords, though not precisely, with para 3 above. The defendants go on to allege that no such “review” ever took place, and they challenge the registration of the mortgage and the plaintiff’s reliance on it in its claim for possession, by reliance on notions of unconscionability and estoppel, and alleged breaches of the Trade Practices Act, negligence and misrepresentation (paras 6-16A defence). I am satisfied that the file on the advance was regularly reviewed, such as to fulfil the defendants’ reasonable expectations under para 3 above, and I note that the plaintiff’s maintaining the mortgage, leading ultimately to registration, obviously carried with it the decision not to release it. From time to time, the defendants sought and were granted overdraft extensions. The letters granting the extensions appear in Exhibit 1 at pages 383-4, 396-7, 453-4 and 461-2. Each letter provided as follows (or similarly): “Security is to be to the bank’s satisfaction and is to comprise securities already held by the bank in connection with advances to yourselves.” The letters are dated 2 December 1988, 18 January 1989, 7 July 1989 and 27 September 1989. Over that period, the overdraft to which they refer increased from $50,000 to $600,000, -- 23 of 26 -- 23 corresponding to an increase in the overall approved limit from $750,000 to $1,300,000. The plaintiff was entitled to vary the terms applicable to the advance from time to time (clause 2(a), application for advance dated 25 August 1988, page 292, Exhibit 1). It is fanciful to think that with those increases being approved, the plaintiff was not continually monitoring (or “reviewing”) the file, and consciously determining to maintain its entitlement to the house mortgage, as indeed acknowledged by the express provision, which I have set out, in the letters of approval from time to time. I also note the evidence of Mr Amies, the plaintiff’s Clayfield branch’s manager from October 1988 to October 1991, that what I accept to be relevant reviews did regularly occur: transcript page 215 lines 15-35. By the first anniversary of the loan, the amount of the debt so far exceeded the security value of the loan that any release of the house mortgage would have been improbable. When the plaintiff registered the house mortgage in September 1990, the defendants were in default (as Mr Finding agreed in his evidence, they were almost constantly in default from late 1989 - transcript page 395, lines 20-30), and recovery action was imminent. The plaintiff’s internal consideration of the matter appears in Exhibit 1 from pages 490 to 497, and see also the evidence of the plaintiff’s then deputy regional manager, Mr Hambledon (page 239, lines 1-8). To register the house mortgage fell within the plaintiff’s entitlement under its then current facility letter (Exhibit 1, page 474), requiring that security be “to the bank’s satisfaction”. I also note that, as I find, the defendants did not, when told of the intended registration of the mortgage, assert that the plaintiff lacked an entitlement to take that step. See the diary note Exhibit 1, page 500. Thereafter, the overdraft increased (transcript page 398, sheets 73 to 76 annexure B, Exhibit 8), and that may itself estop the defendants from denying the plaintiff’s entitlement to rely on the earlier registered security. Finally on this aspect, I should mention that in her evidence, Mrs Finding asserted that -- 24 of 26 -- 24 the plaintiff’s Clayfield’s branch manager at the time of the approval of the loan, Mr McGrath, gave her an assurance then “that Perry Street was to remain clear and free at all times” (transcript page 407, lines 1-10 and Exhibit 23, page 2, first para). Although I considered Mrs Finding a generally credible witness, I did not accept her evidence on that point. Among other things, it was contrary to the documentation, not pleaded, not put to any witness for the plaintiff, not particularly relied on as a basis for any claim, and inconsistent with an affidavit relied on by the defendants in opposition to a claim for summary judgment, an affidavit with which she was familiar (Exhibit 24, transcript pages 408 line 26, to 409 line 27). I consider it more likely that her discussion with Mr McGrath concerned registration of the mortgage over the house, not its availability as security. Generally As would be apparent from what I have already said, I accepted the evidence of the plaintiff’s witnesses and that of the defendants’ witnesses except where I have noted its rejection. Only in a few areas was there any significant conflict, and I have specified in those instances the evidence I accepted. During the hearing I reserved the question of the admissibility of Mr McLennan’s evidence. Mr Donnelly gave evidence of comparable scope, to which Mr Dutney QC at the time made no objection. It is not necessary that I now rule on Mr McLennan’s evidence, but having reserved the question I should indicate my attitude. I consider that the evidence was inadmissible: it sought directly to answer the question for ultimate answer by the Court, and further, did not involve the exercise of any relevant expertise, in that a sufficiently informed person of ordinary experience would be as qualified as Mr McLennan - from the Court’s point of view - to express the views he expressed. Of course I do not say that in a derogatory way with relation to Mr McLennan. In fact I found his views interesting and helpful, but they were -- 25 of 26 -- 25 nevertheless, in my respectful view, ultimately inadmissible for the reasons I have briefly expressed. Conclusion In the result, the plaintiff is in fact entitled to the judgment to which I said at the outset it was prima facie entitled. There will be judgment for the plaintiff for recovery of possession of the land subject to registered Bill of Mortgage No.K407792E, and for moneys due, being $3,903,767 together with interest of $1,422.27 per day from and including 2 April 198 to the date of delivery of this judgment; together with its costs of and incidental to the claim and counter claim to be taxed. The counter claim is dismissed. Liberty to apply for detailed directions as to the recovery of possession. -- 26 of 26 --