Commonwealth Bank of Australia v Frederick Joseph Richards and Sundowner Motor Hotels Limited [1987] ACTSC 1 (16 January 1987)

SUPREME COURT OF THE ACT

COMMONWEALTH BANK OF AUSTRALIA v. FREDERICK JOSEPH RICHARDS and SUNDOWNER
MOTOR HOTELS LIMITED
S.C. No. 809 of 1986
Mortgage - Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Mortgage - duty of mortgagee exercising power of sale - appointment of receiver and manager - duty of receiver and manager.

Practice and Procedure - application to strike out defence pursuant to Order 29 Rule 4 - whether pre-requisite to application for summary judgment pursuant to Order 15 Rule 1.

Practice and Procedure - application for summary judgment pursuant to Order 15 Rule 1.

Pendlebury v. The Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676

Forsyth and Another v. Blundell and Another [1973] HCA 20; (1973) 129 CLR 477

ANZ Banking Group Ltd. v. Bangadilly Pastoral Co. Pty. Ltd. and Others [1978] HCA 21; (1978) 139 CLR 195

Brutan Investments Pty. Ltd. v. Underwriting and Insurance Ltd. and Another (1980) 39 ACTR 47

ANZ Banking Group Ltd. v. Tacoma Nominees Pty. Ltd. (1983) 1 ACLC 1081

Cachalot Nominees Pty. Ltd. v. Prime Nominees Pty. Ltd. (1984) WAR 380

Citicorp Australia Ltd. v. McLoughney and Another (1984) 35 SASR 375

Cuckmere Brick Co. Ltd. and Another v. Mutual Finance Ltd. (1971) 2 All ER 633

Standard Chartered Bank Ltd. v. Walker and Another (1982) 1 WLR 1410 at p 1415

HEARING

CANBERRA
16:1:1987

ORDER

The plaintiff be at liberty to enter judgment in the sum of $759,685.84.

The defendants' defence dated 23 September 1986 be struck out.

The defendants pay three-fourths of the costs of the plaintiff incurred by the summons dated 29 October 1986.

The notice of motion dated 15 October 1986 be dismissed, the plaintiff to pay the defendants' costs of that notice of motion.

DECISION

By summons dated 29 October 1986 the plaintiff seeks an order for summary judgment under Order 15 Rule 1 and an order that the defendants' defence filed 23 September 1986 be struck out pursuant to Order 29 Rule 4. The application for summary judgment was initially made by notice of motion dated 15 October 1986, but insofar as Order 15 Rule 2 provides that an application for summary judgment is to be made by summons, the notice of motion has been abandoned. The amount for which judgment is sought is $759,685.84.

2. The plaintiff's writ was issued on 15 May 1986. The amount claimed was $986,072.11, together with interest accruing at the rate of $510.85 per day. In the statement of claim accompanying the writ under Order 4 Rule 5 it was alleged that on 21 October 1982 the firstnamed defendant executed a deed of guarantee in favour of the plaintiff guaranteeing payments of the debts of a company known as Great Western Hotel Cobar Pty. Limited ("the company") and that on 28 May 1982 the secondnamed defendant executed a like deed of guarantee in favour of the plaintiff guaranteeing the payments of the debts of the company.

3. It was further alleged in the statement of claim that it was a term of each of the deeds that the guarantors would make payment to the plaintiff upon demand made in writing at any time, that on 18 September 1985 the company was indebted in the sum of $872,303.48 and that on the same day the plaintiff demanded in writing of the defendants payment of that sum together with interest accruing at a daily rate of $466.02 thereafter. These particular allegations were denied by the defendants in their defence dated 23 September 1986.

4. In addition, the defendants raised the following matters by way of defence:

"2. As to paragraphs 5, 7 and 8 of the Statement

of Claim, the defendants deny the contents and
allege that the plaintiff realised upon real
and personal property held by the plaintiff
under registered mortgage as security and did
not give the defendants the benefit thereof.

3. Further the plaintiff was under a duty of care
in the realisation of the property held by it
as security to obtain for the property such
sum of money as would fairly represent a fair
and proper price.

4. The plaintiff and or its servants or agents
failed to discharge that duty towards the
defendants in that the plaintiff accepted, by
its servants or agents, a price of $500,000
only, that sum being substantially lower than
the true market value.

5. The plaintiff has further failed to give
credit to the defendants for the said sum of
$500,000 and instead has applied a substantial
part of such sum to the payment of expenses
which did not in law rank for payment from
such proceeds of sale."

5. Order 15 Rule 1 enables a plaintiff to apply for summary judgment "on affidavit made by himself or by any other person who can swear positively to the facts, verifying the cause of action and the amount claimed (if any liquidated sum is claimed), and stating that in his belief there is no defence to the action." The affidavit material upon which the plaintiff relies is furnished by two affidavits of Mr. Peter Peters, Assistant Manager, Commercial and Corporate Banking, New South Wales Head Office of the plaintiff. The affidavit sworn by Mr. Peters on 14 October 1986 and re-sworn by him on 15 October 1986 annexes the relevant documentary material. In that affidavit Mr. Peters states that the balance owing to the plaintiff by the Great Western Hotel Cobar Pty. Limited at the date of swearing the affidavit was $724,255.95. That amount is obviously less than the sum claimed in the statement of claim and less than the amount for which demand was made. Calculation of that amount takes into account the proceeds of sale of certain hotel premises at Cobar, New South Wales owned by the company and subject to an equitable mortgage from the company to the plaintiff. In the same affidavit Mr. Peters further deposes to service of letters of demand upon each of the defendants on 18 September 1985 and to the failure of each of the defendants at that stage to make any payment to the plaintiff in reduction of the indebtedness of Great Western Hotel Cobar Pty. Limited.

6. It is unnecessary to set out in any detail the contents of the documentary material annexed to Mr. Peters' affidavit. However, it should be observed that in the deeds of guarantee executed by each of the defendants, clause 17 provides as follows:

"17.A statement in writing made up from the books
of the Bank and signed by an authorised
officer of the Bank of the amount due or owing
of the moneys hereby secured at the date
mentioned in such statement shall be prima
facie evidence that such amount is so due or
owing or secured and of all the other matters
therein set forth without it being necessary
to produce any books or vouchers to verify the
same and without retrospection beyond the
preceding half-yearly balance of account in
the books of the Bank."

7. In the final paragraph of his affidavit of 14 October 1986, Mr. Peters states that he believes that there is no defence to the action available to either the first or the secondnamed defendant.

8. In his further affidavit sworn 29 October 1986, Mr. Peters states that at the date of his prior affidavit the plaintiff had not received any benefit from the sale of the mortgaged property which had been effected by the receivers and managers of the property on 26 March 1986. The sale price was $500,000. It is to be observed that the date of sale was prior to the date of issue of the writ of summons. In his further affidavit, Mr. Peters annexes a further statement in writing made up from the books of the plaintiff and signed by him as authorised officer showing the amount owing by the company as at 31 October 1986. Although he does not expressly say so, it is common ground that the defendants had not then and still have not made any payment in reduction of the company's indebtedness to the plaintiff.

9. In a written statement dated 5 January 1987 which was tendered and received into evidence by consent, Mr. Peters further certifies the indebtedness of the company to the plaintiff as at the date of hearing on 6 January 1987. That indebtedness was $759,685.84. He further certifies that that indebtedness represents the money secured by each of the defendants by their respective deeds of guarantee.

10. In addition to the matters put in issue by the defence dated 23 September 1986, Mr. Wilcox of counsel sought to rely upon an alleged failure by the plaintiff to show how the sum claimed to be owing as at 6 January 1987 was made up. In particular it was submitted that the arithmetical material before the Court did not show that a proper allowance had been made for the proceeds of the sale of the mortgaged property effected by or on behalf of the plaintiff exercising the mortgagee's power of sale. However, whilst it is true that the arithmetical material does not, as far as I am able to understand it, condescend to particulars of exactly how the sum claimed is made up, clause 17 of the deeds of guarantee stand in the way of the defendant relying upon any deficiency in the plaintiff's evidence in this regard. The certificates of Mr. Peters provide in accordance with clause 17 prima facie evidence of the sum owing and nothing has been put before me to show that that prima facie evidence should not be accepted.

11. On the other hand, it is abundantly clear that the amount claimed by the plaintiff in the statement of claim accompanying the writ of summons did not take into account the sum realised on sale of the mortgaged property, and further that the statement by Mr. Peters in his affidavit sworn 14 October 1986 and re-sworn 15 October 1986 that there was no defence to the action available to either defendant failed to disclose that the sum realised upon that sale of the property had not been taken into account in calculating the sum claimed in the writ. Whether or not the net proceeds of sale had come into the hands of the bank from the receivers and managers is not, in my view, to the point. The belief stated by Mr. Peters in the final paragraph of his affidavit that there was no defence to the action was an erroneous belief because it was based upon a miscalculation of the sum owing by the company to the plaintiff at the date of issue of the writ. The calculation should have taken into account the sum realised on the proceeds of sale.

12. I turn now to what the defendants seek to raise as the substantial issue between them and the plaintiff. That issue is raised by paragraphs 3 and 4 of the defence dated 23 September 1986.

13. Paragraph 3 alleges that the plaintiff was, in exercising its power of sale under the mortgage, under a duty of care to obtain a fair and proper price. I leave aside the question whether it is appropriate to plead a proposition of law in so bold a fashion without at least some reference to the facts which it is alleged give rise to the proposition of law. In the course of argument counsel for the respondent submitted that the plaintiff as mortgagee exercising power of sale was under a duty to use reasonable care to obtain the best possible price which the circumstances permitted. However, the law in Australia, or at least in the Australian Capital Territory, is to the contrary. The cases were surveyed by Sheppard J. in Brutan Investments Pty. Ltd. v. Underwriting and Insurance Ltd. & Another (1980) 39 ACTR 47. There are a number of High Court cases on the subject commencing with Pendlebury v. The Colonial Mutual Life Assurance Society Ltd. [1912] HCA 9; (1912) 13 CLR 676. That decision was considered later in Forsyth and Another v. Blundell and Another [1973] HCA 20; (1973) 129 CLR 477 and in ANZ Banking Group Ltd. v. Bangadilly Pastoral Co. Pty. Ltd. and Others [1978] HCA 21; (1978) 139 CLR 195. I would respectfully agree with what Sheppard J. said on p.55 in the Brutan case that the effect of these decisions, which of course I am bound to follow, is that the duty of the mortgagee is simply to act in good faith, that is to say, to act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor.

14. In deference to the argument presented on behalf of the respondent, I should say that reliance was placed upon a decision of Lush J. in the Supreme Court of Victoria in ANZ Banking Group Ltd. v. Tacoma Nominees Pty. Ltd. (1983) 1 ACLC 1081 in which his Honour cited a passage from the judgment of Lord Denning in Standard Chartered Bank Ltd. v. Walker and Another (1982) 1 WLR 1410 at p 1415. In that case consideration was given to the position of a receiver appointed under the provisions of a debenture. Lord Denning expressed the opinion that the receiver was the agent of the company not of the debenture holder and that as such the receiver owed a duty to use reasonable care to obtain the best possible price upon the realization of the company's assets which the circumstances permitted. His Lordship went on to say that the debenture holder was not responsible for what the receiver did "except insofar as it gives him directions or interferes with his conduct of the realization". In those circumstances, according to his Lordship, the debenture holder was under a duty to use reasonable care towards the company and its guarantor.

15. It was submitted on behalf of the respondent that in the light of those observations of law there was evidence in the present case to show that the plaintiff had intervened in the receiver's conduct of the sale of the hotel property. That evidence was contained in the affidavit of Mr. Reginald Arthur Stewart sworn 6 January 1987 in which he stated that just before the sale a senior officer of the plaintiff advised him "that they had had an offer of $500,000 for the sale of the total enterprise and that they would probably accept it". Mr. Stewart deposed that he replied to the effect that such an offer should not be accepted as the defendants considered that a minimum valuation should be $850,000.

16. I would doubt that this evidence would be capable of supporting the conclusion that the plaintiff had intervened in the sale of the mortgaged property by the receiver, but in any event the state of the law is, in my view, such that what was said by Lord Denning in Standard Chartered Bank v. Walker does not represent the law in this Territory. That decision itself depended upon the prior decision of the Court of Appeal in Cuckmere Brick Co. Ltd. and Another v. Mutual Finance Ltd. (1971) 2 A11 ER 633 which is in conflict with the recent decisions of the High Court in Forsyth v. Blundell and ANZ Banking Group v. Bangadilly Pastoral Co. Pty. Ltd.: see Brutan Investments Pty. Ltd. v. Underwriting and Insurance Ltd., and also Cachalot Nominees Pty. Ltd. v. Prime Nominees Pty. Ltd. (1984) WAR 380 and Citicorp Australia Ltd. v. McLoughney and Another (1984) 35 SASR 375.

17. However, in an application under Order 15 the Court is not restricted to looking at the pleadings alone, but should have regard to any matter which is capable of satisfying the Court that the defendant has a good defence to the action on the merits or which is sufficient to entitle the defendant to defend the action generally: Order 15 Rule 1 sub-Rule 2. Accordingly, I should enquire as to whether there is any material before me which is capable of showing that the sale of the mortgaged property for $500,000 was brought about by conduct on the part of the plaintiff which can be categorised as fraudulent or taken in the wilful or reckless sacrifice of the interests of the company. The evidentiary material upon which the defendants rely in this respect is in a narrow compass. First there is the evidence already referred to in the affidavit of Mr. Stewart that he informed a senior officer of the plaintiff that a "minimum valuation" was $850,000. Secondly, there is an affidavit of Mr. Robert Henry Webster sworn 27 October 1986 in which he deposes to the fact that he had at an undisclosed date inspected the hotel premises and estimated that a fair market value was no less than one million dollars and that the action of listing the property for sale on three weeks notice shortly after Christmas in 1985 was "bound not to result in an adequate offer and as such has detracted from the sale of the property". There is a further statement by Mr. Stewart in another affidavit sworn 19 December 1986 that he was present at the auction on 14 November 1985 at the theatrette at the Qantas International Centre in Sydney and during the course of the auction heard "a bid of $600,000".

18. The uncontroverted evidence on behalf of the plaintiff appears in the affidavit of Mr. Peter Peters sworn 14 October 1986 in which he deposes that on 23 September 1985 the plaintiff appointed Mr. Cook and Mr. Kelly as joint receivers and managers of the hotel property and business, that the property and business were offered for auction as a going concern by the receivers and managers on 14 November 1985 when the property "failed to sell", that a valuation was obtained by the receivers and managers from a firm of hotel consultants and valuers and that that valuation, dated 11 March 1986 put the value of the property and business at $535,000.00. In the light of all that evidence, it is my view that it could not be concluded in favour of the defendants that in permitting the receivers and managers to accept the sum of $500,000.00 for the sale of the property and business the plaintiff was acting other than in good faith.

19. In those circumstances the defendants have not made out a defence on the merits nor are there facts such as are deemed sufficient to entitle the defendants to defend the action generally.

20. However, before making a formal order that the plaintiff is entitled to summary judgment, it is necessary to deal with the second leg of the application, namely the application to strike out the defence under Order 29 Rule 4. That rule provides as follows:

"The Court or Judge may order any pleading to be
struck out, on the ground that it discloses no
reasonable cause of action or answer, and in any
such cause, or in case of the action or defence
being shown by the pleading to be frivolous or
vexatious, the Court or Judge may order the action
to be stayed or dismissed, or judgment to be
entered accordingly, as is just."

21. The rules as to summary judgment proceedings in this Court do not require those proceedings to be taken at any particular time whether before or after filing of a defence. This aspect of the case was not the subject of reference to any authority and I do not intend to dwell on it at any length, but I would think that in general a defendant who has filed a defence should not lightly be deprived of a hearing of the action on the merits and in accordance with the issues raised by the pleadings. On the other hand, I doubt whether a plaintiff who wishes to proceed by way of summary judgment proceedings under Order 15 is precluded from success in those proceedings unless he can show that the defence ought to be struck out on the ground required by Order 29 Rule 4, namely that the defence discloses no reasonable answer to the statement of claim. Nevertheless, in the present matter, and again without dwelling on this aspect of the application, I am of the view that the defence filed should be struck out because it does not raise triable issues. As I have already ruled, the defendant is not entitled to rely upon any argument of law that the plaintiff was under a duty of care to obtain on the sale of the property a fair and proper price. The only other allegation of any substance in the defence is that the plaintiff failed to give credit to the defendants for the sum of $500,000.00 received on realisation of the mortgaged property and business. The defendants were correct insofar as proper credit had not been given in calculation of the sum claimed in the statement of claim, but it is clear now, at least as a matter of prime facie evidence, that the sum claimed by the plaintiff in the summary judgment proceedings allows all proper credits. It would be wrong, in my view, to allow the matter to proceed to trial in the normal way simply on the question as to whether the amount claimed in the statement of claim was properly calculated. There is power under Order 15 Rule 2 to enter such judgment as is just having regard to the nature of the remedy or relief claimed and I intend to exercise that power.

22. It was submitted on behalf of the defendants that what the plaintiff should have done was to amend the statement of claim so as to claim the correct amount. Whilst this is probably correct as a matter of strict pleading, I think that the best way to resolve this aspect of the case is by an appropriate order for costs. In the light of the fact that the plaintiff miscalculated the sum originally claimed and of the further fact that Mr. Peters in his original affidavit of 14 October 1986 expressed the erroneous belief that there was no defence to the action at all and the further fact that the plaintiff has declined to take any step to amend the statement of claim, I would not think it fair that the defendants should have to pay all the costs incurred by the plaintiff in this present application.

23. Accordingly, I make the following orders:

1. The plaintiff is at liberty to enter judgment in
the sum of $759,685.84.

2. The defendants' defence dated 23 September 1986 is
struck out.

3. The defendants are ordered to pay three-fourths of
the costs of the plaintiff incurred by the summons
dated 29 October 1986.

4. The notice of motion dated 15 October 1986 is
dismissed, the plaintiff to pay the defendants'
costs of that notice of motion.