AGC (Advances) Ltd v Vapono Pty Ltd & Ors [1992] QSC 32

TRANSCRIPT OF PROCEEDINGS State Reporting Bureau, 4th F1oor, The Law Courts, George Street, BRiSBANE. 0. 4000 Tel. (07) 227.4360 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF CIVIL JURISDICTION MACKENZIE J No 934 of 1990 AGC (ADVANCES) LIMITED Plaintif and VAPONO PTY LTD First Defendant and JOHN ROBERT IRELAND Second Defendant and BARBARA AUDREY IRELAND Third Defendant and BRETT WILLIAM GORMAN Fourth Defendant and SUSAN MARGARET SCHOON Fifth Defendant BRISBANE .. DATE 12/02/92 JUDGMENT 1 -- 1 of 32 -- 120292 JUDGMENT HIS HONOUR: In this matter I propose to deliver my written findings and indicate that when one outstanding matter is resolved I will formally enter judgment in accordance with 10 my findings. I thought it was more convenient to adopt 10 course rather than to hear further submissions, having regard to the nature of the calendaring at the moment. are that the defendants' counterclaims should be dismissed 20 20 and that judgment should be entered for the plaintiff against all defendants subject to further submissions on one issue that I am unable to resolve satisfactorily on the written submissions - that is, the right to claim costs 30 1990. At page 27 onwards of my reasons I set out the matters needing further elucidation, and I have also set out a strict timetable for finalising the matter if Mr Crewe's 40 40 client wishes to pursue it. 50 50 2 -- 2 of 32 -- IN THE SUPREME COURT OF QUEENSLAND Before Mr. Justice Mackenzie No. 934 of 1990 BETWEEN: AGC (ADVANCES) LIMITED Plaintiff VAPONO PTY. LTD. First Defendant JOHN ROBERT IRELAND Second Defendant BARBARA AUDREY IRELAND Third Defendant BRETT WILLIAM GORMAN Fourth Defendant SUSAN MARGARET SCHOON Fifth Defendant JUDGMENT -MACKENZIE J. Delivered the 12th day of February, 1992. Counsel: A.B. Crewe for Plaintiff L.A. Stephens for Defendants. Solicitors: Henderson Trout for Plaintiff. Maddern Bridge & Brideaux for Defendants. Hearing date: 18th-22nd March, 1991 9th April and 20th May, 1991 -- 3 of 32 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AGC (ADVANCES) LIMITED VAPONO PTY. LTD. JOHN ROBERT IRELAND BARBARA AUDREY IRELAND BRETT WILLIAM GORMAN SUSAN MARGARET SCHOON JUDGMENT - MACKENZIE J. No. 934 of 1990 Plaintiff First Defendant Second Defendant Third Defendant Fourth Defendant Fifth Defendant Delivered the 12th day of February, 1992. The first defendant is a company incorporated in New South Wales. The fourth and fifth defendants Brett William Gorman and Susan Margaret Schoon were its directors. The first defendant Vapono Pty. Ltd. ( "Vapono") entered into a joint venture arrangement with the second and third defendants John Robert Ireland and Barbara Audrey Ireland for the construction of a -- 4 of 32 -- 2 17 unit residential development called "Bilinga Palms" on land of which Mr. and Mrs. Ireland were the joint registered proprietors situated at 277-279 Golden Four Drive, Bilinga. Vapono was to be the developer in charge of the construction project and Mr. German acted in the capacity of project manager for the construction of "Bilinga Palms". In connection with the financing of the project a finance facility was provided by the plaintiff, the borrowers being Vapono and Mr. and Mrs. Ireland. As security collateral to the facility Mr. and Mrs. Ireland mortgaged to the plaintiff the property upon which the building was to be constructed. Mr. German and Miss Schoon each provided a guarantee in support of the finance facility to the plaintiff and also as security collateral to the finance facility provided a second mortgage over their respective interests in residential property at Ashmore in which they lived together. The amended specially endorsed writ claimed against each of the defendants the sum of $371,933.24 together with interest at 23.5 per cent per annum from the 15th March, 1991 to judgment and "legal costs and other disbursements pursuant to clause 3 of the schedule part AA of the finance facility deed", such monies being due and payable pursuant to the terms of an agreement in writing contained in:- (a) a letter of willingness dated the 28th November, 1988; (b) a finance facility deed dated the 16th December, 1988; {c) a letter of willingness dated the 8th March, 1989; and, (d) a deed of variation and guarantee dated the 28th March, 1989. -- 5 of 32 -- 3 The am.ended defence and counterclaim of the defendants denied that the sums were then outstanding and due and owing. There was a counterclaim for damages and other relief under the Trade Practices Act by reason of contraventions of ss. 52 and 53 of that Act, damages for negligence or breach of duty and for breach of contract, and damages for breach of statutory duty under s. 85 of the Property Law Act or for breach of fiduciary duty or negligence. The background to the matter is that Mr. and Mrs. Ireland owned and operated a motel about 30 years old situated on about -! acre of land on the beachfront at Bilinga. In 1988 Mr. Ireland had discussions with one Harry Magill, to whom further reference will be made later, about redeveloping the site. In consequence of those discussions an architect Gary Garnett was engaged to do conceptual plans and the fourth defendant Mr. German was introduced to the Irelands by Mr. Magill as a prospective joint venture partner. Mr. German was a structural engineer by training and had been involved in design and engineering supervision on a number of substantial projects on the Gold Coast, but had not acted in the role he assumed in respect of the present project. Eventually after some refining of the concept he, on Vapono's behalf, and the Irelands entered into a joint venture agreement under which the Irelands were to get $235,000.00 cash, the penthouse and two two-bedroom units in the building to be built, together with the management rights of the building. Vapono, through Mr. German, was to be project manager at a fee of $45,000.00 per annum. -- 6 of 32 -- 4 In that capacity Mr. German went to the plaintiff's offices at Southport where initially there was general discussion about the project with Mr. I an Wal ther. All other defendants left the substantive financial discussions to Mr. German throughout. Mr. Ireland saw himself as a "silent partner" in the project, with Mr. German attending to all aspects of the construction of the building. Neither Mrs. Ireland nor Miss Schoon took any active part in the discussions with the plaintiff's officers except to the extent that Mrs. Ireland heard at least part of the conversation two days later when there was an inspection of the site involving Mr. Walther and Mr. Caffyn, another employee of the plaintiff, in the presence of Mr. and Mrs. Ireland and Mr. German. The officers of AGC were impressed with the site and in consequence of the requirements of AGC a valuation of the site was prepared for Mr. German by Herron Todd White, valuers, and a cost estimate was obtained from Peter Nelson and Partners Pty. Ltd., quantity surveyors and building consultants. The estimate provided by the quantity surveyors was $3, 168, 000 which included a contingency sum of $58,000 and a provision for cost escalation between the preparation of the estimate and the projected commencement date, of $221,000. The application made from the Southport office to the office in Brisbane was for $3,995,000. It appears that the amount for contingencies and escalations was treated as being $200,000 in the application. It was alleged that a sum under $4 million had been suggested by Mr. Walter so that the application could be dealt with within the limits of the authority of the Brisbane office rather than require the -- 7 of 32 -- 5 application to go to the Sydney office. component of $267,000 provided for interest. There was also a It will be necessary to consider the valuation evidence at a latter stage. It is sufficient in the present connexion to say that at the time when these events occurred the Gold Coast property market was buoyant. One assumption that was made, supported by the Herron Todd White report, was that the subject development would sell at the rate of two units per month over a total selling period of, say, 9 months. The report also noted that units on the Gold Coast were being marketed "off the plan" with relatively good results and that the subject development could also be successfully marketed in that manner prior to completion and registration of the building unit plan. The initial letter of willingness from AGC was sent on 28th November, 1988 and was endorsed with an acceptance by Mr. German and Miss Schoon for and on behalf of Vapono and by Mr. and Mrs. Ireland on their own behalf on 5th December 1988. In connection with the assertion that the sum was initially kept below $4 million for reasons of convenience of approval, it is to be noted that a further sum of $120,000 was advanced pursuant to a deed of variation and guarantee executed by all parties to the action on or about 28th March 1989. So far as the limitation of the sum to less than $4 million was concerned, Mr. German gave evidence that he was not concerned that the initial amount provided less for contingencies than had originally estimated because he was aware that it was "quite a simple process to have the loan extended to cover the actual construction costs" once the initial approval had been given. -- 8 of 32 -- 6 He was also conscious of the fact that the figures from the quantity surveyors were no more than estimates. Following the approval of finance, tenders were called and the tenderer that Mr. Gorman wished to select proved to be acceptable to AGC. The time provided in the contract for completion was 29 weeks but Mr. Gorman gave evidence that, with legitimate delays, he expected it to take about 37 weeks. Work commenced in mid-March 1989 but by the end of May there were concerns expressed by Mr. Gorman that work was not proceeding as quickly as it should. This situation continued throughout the life of the project. In fact, there was great dissatisfaction with the builder 1 s performance. One consequence was that the display unit which was supposed to be available after 20 weeks did not become available until about mid-December 1989. Further, despite the predictions of the rate of sale of the units, no sales were in fact completed prior to the default under the security. This was despite the employment of Mr. Magill to whom I have previously referred to provide an on-site marketing man. In addition the property market on the Gold Coast had during the period of construction sustained a substantial drop in values. This was compounded by the air pilots strike which greatly reduced the number of tourists coming to the Gold Coast amongst whom might be potential buyers. Had it been possible to sell 11 of the units during the construction period at approximately the prices sought it would have been possible to repay AGC 1 s loan. As it turned out, there was sufficient money in the interest component allowed in the approval to pay interest until January 1990. The February -- 9 of 32 -- 7 payment was approved from contingencies and the March 1990 payment was paid by the joint venturers. Eventually, following default, the units were auctioned by AGC in an "in one line" sale. It will be necessary to refer in detail to this later as it is alleged that the sale was conducted in a way which entitles the defendants to relief under s. 85 of the Property Law Act. In view of the relief sought in the counter-claim it is appropriate to deal with that first, as the quantification of the plaintiff's entitlement is contingent on findings that none of the relief sought under the counter-claim is available. The first of the heads of claim with which I shall deal is that which alleges that the plaintiff was negligent in approving the loan. No doubt with the principles laid down by the High Court in Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt (1968) 122 C.L.R. 556 (and, on appeal to the Privy Council, (1970) 122 C.L.R. 628), Shaddock and Associates Pty. Ltd. v. Parramatta City Council (No. 1) (1981) 150 C.L.R. 225 and San Sebastian Pty. Ltd. v. The Minister Administering the Environmental Planning and Assessment Act (1986) 162 C.L.R. 340, in mind, Mr. Stephens submitted that a duty of care had arisen by reason of the following propositions:- 1. The plaintiff had held out Mr. Walther and Mr. Caffyn as having the requisite skill and competence to fashion a financial package for the purposes of the project. 2. Messrs. Wal ther and Caffyn professed to have such skill and knowledge. -- 10 of 32 -- 8 3. The matter of finance for the project was one of a serious or business nature. 4. Mr. Gorman trusted the plaintiff to give him competent advice in relation to the funding of the project and believed that its officers possessed a capacity or opportunity to exercise judgment as to the appropriate funding. 5. Messrs. Walther and Caffyn, as reasonable men, should have realised that Mr. Gorman, on behalf of the joint venturers, was trusting them to give information and use their expertise to determine the appropriate funding for the project. 6. Messrs. Walther and Caffyn should have realised that the joint venturers intended to act upon the information or advice given to them by the plaintiff in respect of the funding of the project. 7. It was reasonable for the joint venturers to seek, accept and rely on the advice of the plaintiff in relation to the amounts necessary for the funding of the project. More particularly, it was submitted that Messrs. Wal ther and Caffyn ought to have realised that they were being trusted by the joint venturers by reason of the following circumstances:- (a) The plaintiff had become aware of the plan to develop the land by building a unit block for profit under a joint venture agreement and that the loan would be repaid out of the proceeds of the sale of units other -- 11 of 32 -- 9 than those which were to be retained by Mr. and Mrs. Ireland pursuant to the joint venture agreement; (b) The initial meeting between Mr. German and Mr. Walther was for the purpose of Mr. German obtaining advice as to the viability of the project and whether it fitted within the lending guidelines; (c) Following that, the plaintiff evaluated the project and assumed the responsibility of using information obtained by Mr. German at its request to calculate the funding (including an appropriate interest provision) and of making a submission for approval to lend the joint venturers the sum calculated; (d) By the sending the letter of willingness on 22nd November, 1988, the plaintiff expressed the opinion - (i) that following evaluation of the project the package proposed and its components were what was required to fund it; (ii) (iii) that the term of 24 months was appropriate for the loan; and, that the defendants would be able to fulfil their commitments under the loan agreement from the proceeds of sale of units and make a reasonable net profit. It was submitted that the plaintiff by its agents did not exercise the skill and diligence of a prudent financier in respect of the transaction. It was submitted that the finance offered was not suitable for the following reasons:- -- 12 of 32 -- 10 The amount was "far less" than the amount that was necessary for the development because the amount - submitted for initial approval had been reduced to bring the loan within the approval limits of the Brisbane office; The appropriate interest provision was not $267,000; The calculation of the interest provision was made not with regard to the interests of the joint venturers but with regard to the interests of the plaintiff; The calculation of the interest provision did not take into account possible fluctuations in interest rates, rate of construction, sale of the units and the level of the property market; The joint venturers were not warned that the development finance offered was inadequate for their purposes or that as a consequence the project was a "very risky one"; The plaintiff did not accept advice from the quantity surveyors as to the escalation of construction costs (evidenced by the reduction of the figure for contingencies); The joint venturers were not warned that any fluctuation in interest rates, delay in construction, down-turn in the property market or delay in sales would cause default under the loan unless further security was provided and more loan funds advanced to cover that contingency. -- 13 of 32 -- 11 It was submitted that the joint venturers would not have proceeded if they had been told of the failure to make provision for the fluctuations referred to above, and it was further submitted that had the plaintiff (having entered into the field and given advice as to construction costs, timing and interest) given the joint venturers correct and complete information and advice as to what was involved in taking out the loan and in particular as to the nature of the risks and the means of mitigating them, they would have foregone the apparent financial advantages involved in the development and would not have proceeded with the joint venture. Mr. Crowe submitted that the plaintiff was not acting as financial adviser to the defendants. It was no more than a financier responding to a request for finance from a client and, in those circumstances, no duty of care arose. He further submitted that an analysis of the evidence indicated that there was nothing to suggest that the defendants were seeking or relying on the plaintiff's advice as a financial adviser as opposed to a lender. The decision to build on the land had been made. The joint venture had appointed its project manager. All that remained was to obtain finance and Mr. Gorman in that capacity had already been to other potential lenders without any suggestion that he had sought financial advice from them. He submitted that the defendants had relied on the manager of the joint venture, on the material in the valuation and the quantity surveyor's estimate and on their own assessment of the property market in deciding whether to proceed. It was submitted, in effect, that the.claim failed at the threshold for these reasons. -- 14 of 32 -- 12 As a fallback position, Mr. Crowe submitted that even if a duty of care was owed the evidence revealed that ·had the reasonable expectations of all parties in late 1988 come to fruition the default would not have occurred. He submitted that it was reasonable to expect that the building would completed in 1989, that, during construction, the necessary 11 units to enable repayment would be sold off the plan and that by late 1989 or early 1990 the proceeds of those sales would be available soon after registration of the building unit plan to pay out the indebtedness of the joint venture to the plaintiff. He submitted that in fact even with interest rate increases the ability to pay interest from the facility did not run out until January 1990, indicating that it had been sufficient had the project progressed as expected. He submitted that there was nothing to suggest that the plaintiff should have foreseen, or taken into account the possibility of a fall in the property market, an airline strike, delays in construction which resulted in the display unit not being available until December 1989, or a failure to sell any units during 1989. He submitted that there was nothing to suggest that a reasonably competent lender or financial adviser would have acted differently from the way in which the plaintiff acted. On the conclusion that I have reached it is sufficient to assume that there was a duty of care. This is not to be taken to imply that such a duty did exist in all of the circumstances. In my opinion there is much to be said for the proposition that this is not the kind of situation in which the kind of duties -- 15 of 32 -- 13 that Mr. Stephens submitted to be incumbent upon the plaintiff arose. In approving a loan of this kind the lender will as a matter of commercial practicality have to achieve a balance between his own interests in maximising his return and the interests of the borrower in committing itself to no more than what is reasonably necessary for the project. In the absence of this kind of balance commercial forces will no doubt have effect. In my view the evidence does not establish that the plaintiff subordinated the interest of the defendants to its own interest in this case. It is, in my opinion, somewhat ingenuous to submit that it was incumbent upon the plaintiff to give the kind of specific warnings that have been suggested. The material provided by the valuers, in the climate of the property market on the Gold Coast at the time when the loan was offered, supported the view that it was reasonable to assume that sales off the plan of two units per month could be achieved. It was not, in my opinion, negligent of the officers of the plaintiff to act on the basis that that prediction was correct. Had that rate of sales been achieved enough units would have been sold by such a time as would enable the defendants to have the building units plan registered, the sales settled, and the debt to the plaintiff paid off before the provision for interest that had been made had run out. So far as the duty to warn that there might be increases in interest rates is concerned it is in my opinion unrealistic to suggest that at a time when fluctuations in interest rates had been the norm such a duty would have existed. -- 16 of 32 -- 14 So far as the devaluation of the property market is concerned it is almost notorious, and would have been well known to anybody in business on the Gold Coast that the property market is cyclical. At the time when the project was conceived and finance was granted for it the cycle was buoyant. I do not accept that there was a duty to warn, in all the circumstances, that the prediction made in the valuation report as to the rate of sale of units might be falsified if there were to be a down-turn in the property market during the period when the units came on the market. Nor can I accept that there was a duty to warn that delays in construction would have had an effect on the viability of the project. Firstly, that would have been obvious to anyone. Secondly, the builder engaged was apparently reputable. It was the preferred contractor of Mr. Gorman the project manager, from the evidence, and acceptable also to the plaintiff. It appears that internal problems in the construction company in respect of this particular project were the cause of the delay and that Mr. Gorman was unable to resolve them as expeditiously as he would have wanted. While the failure to complete the building as soon as possible may have an effect on the rate of sales, there appears to be no necessary connection between that and the incapacity to sell off the plan. It also would have been obvious to anyone that the failure to achieve the rate of sale predicted might result in a failure to accumulate the funds which, upon settlement of the contracts, would be available to pay out the debt to the plaintiff. -- 17 of 32 -- 15 I view the matters that have been referred to as the risks of business in this particular kind of transaction. They are not matters in respect of which there is a duty to warn a borrower who enters onto that kind of project. As to the submission that the joint venturers were not warned that the development finance offered was inadequate for their purposes or that as a consequence the project was a "very risky one" that submission appears to have arisen from an answer given by Mr. Walther in cross-examination. After saying that the assumption in the estimates of costs was that the debt would be paid out 30 days after the titles under the building unit plan had been issued, it was put to him that if the calculations were out by a month the interest would accumulate at $52,000.00 a month. He replied: "If the loan was not paid out, yes. That's why it is a risky business." In my opinion it is not correct to translate that into a proposition that the plaintiff was negligent in that the finance offered was inadequate for the defendants' purposes or that as a consequence the project was a "very risky one". It appears to me that the generalised statement by Mr. Walther as to the nature of the property development business does not logically mean that this particular project was very risky because of the financial package offered. In the circumstances I am of opinion that the allegation of negligence on the part of the plaintiff through its officers fails. I turn now to the question of liability under ss. 52 and 53 of the Trade Practices Act. The allegation is that there was misleading or deceptive conduct as to the competence of the -- 18 of 32 -- 16 plaintiff, ~ ts servants and agents to calculate development finance and to provide such finance with performance characteristics which were fit for the purposes of the defendants. It is alleged that those representations were implicit in the words and conduct of the plaintiff, its servants and agents. It is further alleged that the following representations were to be implied from the letter of willingness of the 22nd November, 1988:- (a) that the appropriate amount of the loan necessary for the development was $3,995,000.00; (b) that the appropriate interest provision for the development and sale of the units was $267,000.00; (c) that the loan was sui table for the requirements of the defendants; (d) that the defendants would be able to fulfil the commitments contained in the terms of the loan from the proceeds of sale of the development; and, (e) that the sale of the home units in the development would yield a reasonable net profit to the defendants. It was submitted that to the extent that these representations were made with respect to a future matter, the plaintiff was deemed not to have had reasonable grounds for making the representations. In my opinion the allegation as to misleading or deceptive conduct apart from that relating to the letter of 22nd November, 1988 has not been made out, largely for the reasons that I have advanced in respect of the issue of negligence. To the extent that representations may be spelt out of the contents of the -- 19 of 32 -- 17 letter, in my opinion the plaintiff, through its officers, had reasonable grounds for making the representations~ said to be misleading, in paras. (b), (c) and (d) above. Paragraph (a) is in my view bound up with the question of reliance which is a necessary element of proof of liability (Kabwand v. National Australia Bank (1989) A.T.P.R. 40-950). In view of the answer given by Mr. Gorman, which I have quoted at p. 5 above, as to his understanding as to the simplicity of extending the loan if necessary, I am not satisfied that para. (a) has been made out. As to para. (e) if any such implication is to be drawn from the letter, I am not satisfied that there has been a failure to establish reasonable grounds for making such representation. I do not think that the passage at p. 331-334 referred to by Mr. Stephens requires any different conclusion to be reached on this aspect of the matter. Accordingly the claim under s. 52 of the Trade Practices Act also fails. Insofar as the pleadings raise a contravention of s. 53 of the Act, I am satisfied that that has not been established on the evidence. I turn now to the submission that there has been a breach of the duty imposed by s. 85 of the Property Law Act 1974. The relevant provisions are the following:- "(1) It is the duty of a mortgagee, in the exercise ... of a power of sale ... to take reasonable care to ensure that the property is sold at the market value. (3) The title of the purchaser is not impeachable on the ground that the mortgagee has committed a breach of any duty imposed by this section; but a person damnified by the breach of duty has a remedy in damages against the mortgagee exercising the power of sale." -- 20 of 32 -- 18 The issues that arise are firstly what was the market value of the property and secondly, whether, the mortgagee took reasonable care to ensure that it was sold at market value. When the defendants defaulted the plaintiff went into possession. It engaged P.R.D. Realty to sell the premises and a marketing campaign was set in train. Prior to the auction, an offer of $4.15 million was received but the auction proceeded. The highest bid from the floor at the auction was $3.45 million. The property was passed in and was subsequently sold for $4.4 million to the person who had made the offer before auction. The plaintiff chose to sell the premises as a whole rather than as individual units. One of the complaints by the defendants was that the valuation of the units if sold as individual units would have been higher. A number of valuations of the project were done. That relied on by Mr. Stephens was one dated the 15th March, 1991 by Mr. Tibor Verebes which valued the property, if the units were sold individually, at $5,475,000.00 with an additional $60,000.00 for management rights, or at $4,960,000.00 if sold in one line. On the other hand Mr. Crowe relied on valuations done by valuers Mr. Lacey of Herron Todd White and Mr. Kevin Stapleton. Mr. Lacey valued the property on the 19th July, 1990 at $4,200,000.00 for an "in one line" sale and Mr. Stapleton in a valuation dated the 15th March, 1991 valued the premises as at 30th July, 1990 within the range of $3,200,000.00 to $4,350,000.00 if sold in one line. As a general proposition I preferred evidence of the valuers called by Mr. Crowe to that of Mr. Verebes. I was left with the clear impression that Mr. Verebes' series of valuations was affected -- 21 of 32 -- 19 by an inadequate initial analysis of appropriate data relating to comparative sales and that at the end point his valuation, especially the valuation of the penthouses, was over-optimistic in the prevailing economic climate. The location and height of the building compared with other buildings in which penthouse sales were recorded were to my mind factors for which inadequate allowance was made by him. This is not to say that I accept unreservedly the evidence of the valuers for the plaintiff. There are factors referred to in cross-examination which produced some concessions that the valuations may have been a little higher than those reached in the written valuations. However, the reality is that the price for which the property was sold was in my view certainly not significantly less, if at all, than the probable value of the units at the time if sold in one line. As to the question whether it was appropriate to sell in one line or not, the fact of the marketing history of the premises cannot be ignored. The defendants were trying to sell the units for many months. It is true that the prices sought by them were not ones that buyers were prepared to pay. Even when prices were reduced at the instigation of the plaintiff after the substantial drop in the property market, and there had been substantial exposure to the public through a vigorous advertising campaign. There was nothing to suggest that it would be easy to sell all of the units quickly. In that climate a commercial decision had to be made how to proceed having regard to the plaintiff's duty to the defendants to take reasonable steps to obtain market value, the practical consideration that the debt would continue -- 22 of 32 -- 20 to escalate if all of the units were not sold and the risk that if they were offered individually a number of them may remain unsold for an extended period with the consequent expense involved. In my opinion it was not inappropriate to decide to offer the units first as an "in one line" sale. To the extent that the submission that this was an element in the failure to observe the obligation in s. 85 of the Property Law Act is concerned, such submission fails. Then, there is the question of the marketing methods used to achieve the sale. This has to be viewed against the background that this was not a case where the property had had little exposure previously. The first complaint made is that it was inappropriate to select P.R.D. as marketing agents. As I understand the allegation, it is that P.R.D. was not an appropriate agent because it had declined an earlier approach by Mr. Gorman to become involved in the marketing of the units individually. The only version of this was from Mr. Gorman in the following passage:- "I spoke with their Mr. Rees Keinander, and his expression was that they weren't interested in manning the site at Bilinga and doing any national sales as they had some 13 substantial clients that they were already servicing and they couldn't effectively service us. I then approached the possibility of him representing us at least off-shore, particularly - well, I guess only in Japan as that's the only presence they appear to have had, in that P.R.D. were well-entrenched in certain areas in Japan and he indicated to me that that would be something that they could look at but be aware that they would not be advertising our product ahead of their other major clients notwithstanding that our product was very much different and it did have an appeal. So, in those circumstances, he was prepared to do something for us. We had subsequent conversation indicating the kind of commissions required which we agreed to, but not -- 23 of 32 -- 21 having had formal notification of same by way of letter or some such thing, within a couple of weeks after repeatedly contacting P.R.D. they eventually said, 'Well, we are not really interested', and everything that went on before was really disregarded." That was some months before P.R.D. was engaged by AGC with respect to the auction and was in respect of individual unit sales. The submission ran that P.R.D. in engaging in the marketing by auction on behalf of AGC could not and did not market the property individually to obtain the best market price. "Because of its conflict of interest with its 1 3 other major clients, it was not prepared to market the property on an individual basis and was only prepared to market the property on an 'in one line' basis without substantial exposure so as to protect its position with its major clients". It was submitted that this was evidenced by:- (a) the earlier rejection of the role in marketing the units individually; (b) the use of the Special Projects Division within P.R.D. to market the project, as such division handled commercial and industrial property and not general or residential real estate; and, (c) the inadequacy of the marketing campaign. There is nothing that enables an inference to be drawn that P.R.D. subordinated the interests of the defendants in the way alleged. The attempt to transform the comments contained in the passage quoted above into such a proposition, in my view, cannot be sustained. The situation had materially changed from a marketing campaign to sell individual units in a relatively small block over a period of time in the ordinary course of business, -- 24 of 32 -- 22 to a sale by auction in one line or, failing that, individually. As to the inadequacy of advertising, the advertising schedule indicates the extent of the advertisements. The major criticism of the advertising campaign came from the evidence of Mr. Magill, who, it will be recalled, was the agent whose employees were on-site during the lengthy period up to about February 1990 during which no sales of units were completed. He said that a 4! week campaign was inadequate. He said that the advertisements were inadequate in number, size and form to draw attention to the project. He said that special interest groups such as Asian investors had not been targeted. It was also submitted on the basis of other evidence that doctors and airline pilots should also have been targeted. Mr. Magill said that the campaign was deficient in that there was no advertisement in the Courier Mail on the Saturday before the auction or on the day of the auction. He said that it was his experience that people were reminded, if they had forgotten, that the auction was on if a notice was put in on the day of the auction and they came along to bid if the conditions were right. I interpolate that there had been an advertisement in the Courier Mail on the Friday before the auction, which occurred on a Wednesday. Mr. Magill would have run the campaign for six to seven weeks with full colour advertising. My overall impression of Mr. Magill was that he was a very self-confident proponent of the views that he expressed. However they were essentially what he would have done rather than an exposition of industry practices and standards. There was evidence from Mr. Walther and Mr. Caffyn as well as from Mr. Lamb -- 25 of 32 -- 23 from P.R.D. that they considered the period allowed adequate and in accordance with normal practice. Mr. Stephens relied, for support of Mr. Magill's evidence as to the undue shortness of the campaign, upon the evidence of Mr. Berry who was on-site during the period leading up to the auction as P.R.D. 's representative. This submission, in my view, rather overstates the effect of Mr. Berry's evidence. It is true that Mr. Berry referred to the "fairly short programme leading up to the auction". However, he said this in the context of manning the project for seven days a week for at least part of the period rather than the normal six days. In cross-examination he was asked if he would normally expect a longer period of marketing leading up to the auction. A reading of the passage as a whole leaves that issue inconclusive. At the most he appears to have thought that about four weeks was the bottom end of the range, but there is nothing to suggest he thought that it was unique. One other complaint that was made was that the brochures for distribution were not available at an appropriate time. According to Mr. Berry they were three to four days late in arriving at the units. critical matter. I do not consider this to be a This is not a case where the steps taken in relation to the sale by auction are proved to be abnormal. What is submitted is really concerned with a question of degree. It is whether the campaign was adequate in duration and extent. As to the former, I am not satisfied that the duration was shorter than normal limits on the evidence. As to the latter, matters of judgment as to what can be done and what ought to be done arise in the -- 26 of 32 -- 24 light of the reality of budgetary constraints. I am not satisfied that what was done falls short of the standards of a reasonable person operating in the relevant field of activity. The duty of the mortgagee is to take reasonable care to ensure that the property is sold at market value. In my opinion, the plaintiff has not failed in that duty. It appointed a competent agent, which on the material before me, is not shown to have fallen short of compliance with proper standards in carrying out what it was employed to do. Therefore this head of claim for relief fails. The defendants also make an allegation of breach of contract by the plaintiff. In broad terms the allegation is that the notices given by the plaintiff under the agreements were invalid, being made in breach of the terms and conditions of the relevant agreements. The letter of willingness referred to an amount of loan of $3,995,000.00. The letter dissected this sum into a number of categories including provision for interest in the sum of $267,000.00. Under the agreements, interest was to be paid on the 21st of each month. A letter of the 11th October, 1989, written in consequence of the coming into force of the Credit Act advised that that procedure of automatically debiting interest payments as they fell due against the amount allowed as the component for interest would apply until the interest provision had been fully drawn. The argument addressed by the plaintiff is that circumstances had not arisen entitling the plaintiff to treat the defendants as being in default under the loan. Mr. Stephens relied on cl. 1 of the finance facility deed which provided for repayment of each part of the total advance in -- 27 of 32 -- 25 accordance with. an agreement in writing. In the absence of such agreement, payment would be on demand, provided that if the borrower performed all terms and conditions of the facility and the securities, no demand would be made before the end of the "demand period" (i.e. 21/12/90). One limb of the argument, as I understand it, is that the terms of the finance facility deed dated the 16th December, 1988 and the deed of variation and guarantee dated the 28th March, 1989 provided for a total advance of $4,115,000.00. It was submitted that as the breach relied on was an alleged failure to pay interest when it became due on the 21st April, 1990 and that on that day only $3,983,578.25 had been drawn against the loan, there was $131,421.75 available under the loan agreement. That was more than adequate to cover the interest that was due on the 21st April, 1990 and that therefore there was no breach of agreement on the part of the plaintiff. Therefore no demand could properly be made for interest outstanding or due under the agreement. Under cl. 1 of the deed of variation and guarantee of the 28th March, 1989, there is a proviso that notwithstanding anything contained therein or in any of the securities or other instruments, the lender was entitled without assigning any reason to decline to lend and advance any amount or amounts requested by the borrower to be lent. It is plain from the letter of the 11th October and from the evidence of Mr. Walther that it had been made clear to the borrowers that once the interest provision ceased they would have to fund payments of interest from their own resources. It is not contested that· apart from that aspect of the matter and from a matter which I shall mention shortly, the interest was not paid -- 28 of 32 -- 26 by them when it fell due in April 1990. The demands resulted from that alleged non-payment of interest, and subject to what I will mention shortly, there is in my opinion no substance in the submission based on an obligation of the plaintiff to advance the whole of the monies contemplated by the agreements and to fund interest payments from the amounts (not forming part of the interest component) that might have been advanced had the facility been fully exhausted. The other matter upon which the defendants rely is concerned with an entry in the records of AGC with respect to the debiting of that interest to the account and the crediting of it to AGC The situation was explained by Narelle Anne Thomas, who was the Accounts Manager at AGC Property Finance, Southport. She said that the state of the account was such that the interest provision ran out with the January payment of interest. The Manager approved that the balance of the January interest payment and the February payment be paid from the contingency provision under the loan. The March payment was made by cheque delivered on behalf of the defendants. When it came to April, while the computer recorded a debit of interest against the account and made a corresponding entry in the account of AGC for that sum, there had in fact been no payment of interest. It is my opinion that there is nothing in the submission made by Mr. Stephens. As a matter of fact the April interest payment was not made. Nor was it the subject of any approval by AGC (unlike the approvals of payments in respect of January and February 1990 from the contingency fund) that the amount be drawn from other amounts contemplated by the security documents. In -- 29 of 32 -- 27 the circumstances, I am of the view that the point fails. Finally, at the commencement of the hearing the specially endorsed writ was amended to claim in addition to $371,933.24 together with interest at 23.5 per cent from the commencement of the trial to the date of judgment "legal costs and other disbursements pursuant to clause 3 of the schedule part AA of the finance facility deed ... pursuant to the terms of an agreement in writing" contained in the contractual documents that I have enumerated at p. 2 of this judgment. This amendment was not resisted by Mr. Stephens. In addition, almost at the conclusion of the hearing the plaintiff filed an originating summons O.S. No. 467 of 1991 in which it sought a declaration that its solicitor/own client costs and disbursements to be paid and incurred by it in the present action were costs and disbursements which pursuant to the documents comprising the finance facility agreement were costs and disbursements within the meaning of cl. 3 of part AA of the finance facility deed, cl. 9 of the deed of variation and guarantee and ell. 24 and 26 of the various bills of mortgage that were executed in connection with the advances. Bills of mortgage had been executed by Mr. and Mrs. Ireland and by Mr. German and Miss Schoon respectively on the 16th December, 1988. They were executed by the respective mortgagors. However, also included in ex. 1 are three bills of mortgage over real property owned by Mr. German and one bill of mortgage over real property owned by Mr. and Mrs. Ireland in New South Wales. Each of these bills of mortgage was executed on the 29th June, 1990 by the plaintiff as attorney for the respective mortgagors. -- 30 of 32 -- • '• 28 Presumably this was done in an endeavour by the plaintiff to ensure that it might recover outstanding sums under the agreement. It will be noted that these mortgages were executed a short time before the auction of the Bilinga Palms property. Draconian as the effect of the clauses relating to costs may be there appears to be no issue taken about the liability except in respect of the additional mortgages executed on the 29th June, 1990. Due to the way in which the issue was raised and as written submissions were made because to do otherwise would have resulted in a lengthy delay in setting the matters down again for oral addresses, this issue was not argued in a way which exposed the basis for Mr. Crowe' s submission that the securities executed on the 29th June, 1990 fell within the description contemplated by the relevant clauses. There were no submissions as to whether they fell within the power of attorney granted under the security documents and, if not, whether their execution was empowered on some other basis. Mr. Stephens submitted that none of the fresh mortgages was contemplated in the original agreement and contractual arrangements entered into between the parties. He submitted that the plaintiff is not entitled to its legal costs for the creation of the extra securities. He also submitted that there ought to be a taxation of any costs that were allowable. The latter submission runs counter to the express words of the relevant clauses. The submission in that regard must fail. However, in view of the unresolved issues in respect of the bills of mortgage executed on the 29th June, 1990 I propose to adopt the following course. I will indicate that I propose to give judgment in accordance with the principles expressed in the -- 31 of 32 -- 29 reasons that I have delivered. bills of mortgage executed on If the claim in respect of the the 29th June; 1990 is to be persisted with, the parties should make written submissions on the subject forthwith. The issues to which I have referred should be addressed. In view of the delay of over two months in receiving the written submissions at the conclusion of the trial I propose to impose deadlines ·for the receipt of further submissions. What I propose is that Mr. Crowe deliver his submissions to Mr. Stephens within seven days of the date hereof on the remaining issues. Mr. Stephens should, within a further seven days provide any reply to Mr. Crowe. Any further material should be exchanged within five days of delivery of Mr. Stephens' submissions and at the end of that process the submissions should be delivered to my Associate. If it becomes desirable to hear further verbal argument I will set time aside when that is possible. It will also be helpful if agreed figures could be provided in respect of costs claimed by the plaintiff in accordance with the security documents. It would also be helpful if such figures were dissected in such a way as to reflect what sum was incurred in relation to the securities other than the disputed ones and what was incurred in respect of those that are disputed. If agreement cannot be reached, schedules demonstrating where the difference lies would be helpful. Once the further submissions have been made available to me and considered, formal judgment in the matter will be pronounced in accordance with the principles already indicated and my decision on the further submissions. -- 32 of 32 --