Re Michael Vincent Bourke; Terence Marcellin Bourke; L and M Holdings Pty Limited; Lra Restaurants Pty Limited; Hunter Developments Co Pty Limited; Emas Pty Limited; Bonoto Pty Limited and Krys Properties Pty Limited v Beneficial Finance Corporation Li [1991] FCA 7 (30 January 1991)

FEDERAL COURT OF AUSTRALIA

Re: MICHAEL VINCENT BOURKE; TERENCE MARCELLIN BOURKE; L AND M HOLDINGS PTY
LIMITED; LRA RESTAURANTS PTY LIMITED; HUNTER DEVELOPMENTS CO PTY LIMITED; EMAS
PTY LIMITED; BONOTO PTY LIMITED and KRYS PROPERTIES PTY LIMITED
And: BENEFICIAL FINANCE CORPORATION LIMITED
No. G351 of 1990
FED No. 7
Mortgages - Real Estate Valuation

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)

CATCHWORDS

Mortgages - whether respondent mortgagee exercising power of sale in breach of duty to applicants - whether duty to obtain market value of property in addition to duty to act in good faith - discussion of authorities.

Real Estate Valuation - whether illegal for real estate agent, not being a registered real estate valuer, to undertake market evaluation of property to determine the best way of marketing property.

Valuers Registration Act 1975 ss 4, 24

HEARING

SYDNEY
30:1:1991

Counsel and Solicitors Mr M. Bourke appeared in person
for applicants

Counsel and Solicitors Mr T.F. Bathurst QC and

for Respondent: Mr T.S. Hale instructed by Messrs

Bruce and Stewart Turton

ORDER

The application be dismissed.

The applicants pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

On 30 March 1990, I gave judgment in these proceedings for the respondent, Beneficial Finance Corporation Limited ("Beneficial") in respect of that part of the applicants' statement of claim, as alleged that Beneficial had engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive in breach of s.52 of the Trade Practices Act 1974. The parties had agreed that that issue should be heard separately as a preliminary issue, as it would, if the applicants should succeed in it, dispose of the whole proceedings.

2. This course turned out to be to the disadvantage of the applicants, because by the time the remaining issue referred to in the statement of claim was ready for hearing, the applicants no longer had funds to be represented at the hearing, and the first applicant, Mr Bourke appeared, with leave, to argue in person on his own behalf and on behalf of his brother and the corporate applicants. In so doing, the applicants were placed at somewhat of a disadvantage, as Beneficial was represented for some part of the hearing, by senior and junior counsel, and later by junior counsel only.

3. The issue remaining to be decided was stated in paragraphs 23 to 25 of the applicants' Further Amended Statement of Claim in the following terms:

"23. In exercise of its purported right to
exercise a power of sale the respondent
as mortgagee has sold certain of the
second to eighth applicants' properties:-
(a) Lots 1 to 6 Old Northern Road, Farley;
(b) 'Ex-knights' estate on Old Northern Road;
(c) 274 High Street, Maitland;
(d) Lot 2, Station Lane, Lochinvar;
(e) Lot 3 Gardner Road, Rutherford;
(f) 1 Prospect Avenue, Cremorne.
24. At all material times when purporting
to exercise its right to sell the
applicants' properties, the respondent
was under a duty to act in good faith
or alternatively was under a duty to
take reasonable care to obtain a proper
price or true market value of the property sold.
25. The respondent in selling the
applicants' properties acted mala fide
or alternatively failed to take
reasonable steps to obtain a proper
price or true market value of the properties.
PARTICULARS
(i) Failure to make any or any
adequate inquiry or investigation
or seek any or any adequate
advice as to proper method of
sale or to obtain advice as to
valuation in relation to each of
the properties.
(ii) Failure to give any or any
adequate consideration as to the
extent of the actual or
prospective market for the
particular properties respectively.
(iii) Failure to obtain any or any
proper advice concerning the
proper marketing or advertising
of the properties.
(iv) Failure to properly advertise the
properties.
(v) Failure to consider whether the
properties ought to have been
developed in any way prior to sale.
(vi) Failure to properly advertise or
promote the development potential
of the properties.
(vii) Failure to obtain tenants in
respect of the commercial
properties prior to sale.
(viii) Failure to impose any or any
adequate restrictions as to
reserve price.
(ix) Failure to make the property
available for inspection
adequately or at all prior to the sale.
26. By reason of the matters alleged above
the applicants have suffered loss and damage.

4. It should be observed that the statement of claim was prepared while the applicants were represented by solicitors and counsel. Ultimately no attack was made on the sales of the properties at Station Lane, Lochinvar and Cremorne, at least one of which was in fact sold by the applicants and not by the respondent exercising power of sale.

5. In various directions hearings prior to the substantive hearing, the applicants were ordered to further particularise the case which they sought to make and to give discovery. No attempt was made to comply with the orders of the Court, the explanation presumably being that by this time the applicants were no longer represented by solicitors. A hearing day that had been nominated some time in advance was ultimately vacated because Mr Bourke was not able to proceed. A further request for an adjournment when the matter came on for hearing once more was refused.

6. The four properties, the sale of which is central to the dispute between the parties, were the subject of mortgages to Beneficial to secure monies which had been advanced by Beneficial to the corporate applicants, or some of them. Some of the background to these mortgages appears in the earlier judgment. For the purposes of the present matter, the identity of the mortgagor is immaterial. Henceforth, in this judgment I shall refer to the applicants as signifying in respect of a particular property the owner and mortgagor thereof, unless the context otherwise requires.

7. Mr Bourke first approached Beneficial for finance in 1985. At that time he made known to Mr Callaghan, Beneficial's Newcastle manager, the officer of Beneficial who dealt with the matter, the purpose for which the borrowings were required. Suffice it to say here, that the corporate applicants were land developers. As indicated in the earlier judgment, loans were made by Beneficial to three of the corporate applicants between 3 March 1985 and 17 January 1986. In circumstances which are detailed in the earlier judgment, a refinancing took place, which brought the applicants' facility to a total indebtedness of $1,526,000, secured inter alia on the four parcels of land with which the present application is concerned.

8. In or about August 1985, it would seem that Mr Bourke had arranged a come and go facility with Beneficial in the sum of $2,500,000, on the basis that before funds were drawn down, Beneficial was to be provided with adequate security for the amount to be drawn down. For this purpose, a valuation of the property at Gardiner Road, Rutherford ("the Gardiner Road property") was obtained from a Mr Prince of Eric Prince and Associates, a firm of valuers on a panel of valuers acceptable to Beneficial. It would seem that instructions to carry out the valuation were given by Beneficial, although no doubt the valuation was performed ultimately at the cost of the applicants.

9. Objection was taken on behalf of Beneficial to the tender of Mr Prince's valuation report of this property on the ground of relevance, it being a valuation made approximately two years before the mortgagee sale. I admitted the valuation subject to relevance, although, of course, not as evidence of the value of the property at a later date. I am, however, of the view, that the valuation was properly admissible as part of the material that was before Beneficial at the time of sale and as relevant to the duties it had as mortgagee in selling the property.

10. The report described the property in question as a

"... large unimproved industrial site at the
south most end of Rutherford industrial
area...It is level to gently sloping and has
an irregular triangular shape. Most of the
property is covered with fairly dense green
timber.
Other properties facing Gardiner Road have
a gradual fall from north to south and as
the subject land is at the southern end of
the road it is partly low lying. However,
there are higher areas which are suitably
drained to permit industrial development.
That section of the property immediately
adjoining Gardiner Road is low lying and is
cut by a creek. Provision of road access
from this point would therefore be costly.
Alternative all-weather access to the
property is provided by a right of
carriageway through an adjoining property."

11. The report indicated that the land was zoned to permit general industrial development and was suitable for subdivision into smaller industrial parcels, although suitable for a large industrial undertaking for use as a single parcel if a market existed for such an undertaking. The report proceeded to value the property on the assumption that a purchaser would subdivide the land into seven sites of approximately four hectares each with six hectares for roadworks. On this basis, the valuer reported that, as at the date of valuation, 29 July 1985, a fair and reasonable market value for the fee simple was $400,000.

12. Other valuations were made by Eric Prince and Associates around the same time in August 1985. These valuations were not tendered, but the results of them appear in an internal memorandum from Mr Pantel, the Collection Manager of Beneficial. According to this memorandum, the property Lot A Old North Road, Lochinvar ("the Ex-Knight's Estate property") was valued at $190,000, and the property at 274 High St. Maitland, ("the High St. property") at $80,000. The remaining property, ("the Farley Downs property"), was valued at $748,000.

13. Mr Pantel, the officer of Beneficial who was dealing with the applicants' account at the time the power of sale was exercised, visited the Maitland area prior to instructing an agent to sell the properties. According to his evidence, which I accept, Mr Pantel interviewed Mr Murphy, of Raine and Horne, Maitland, and two or three other agents, one of whom was the Maitland representative of L.J. Hooker. He had extensive conversations with each of the agents visited as to the value, saleability and viability of each of the properties. Prior to working with Beneficial, Mr Pantel had been in the real estate business, having worked for four years as a registered sales person with L.J. Hooker and having studied the Real Estate Practice Certificate course which included a course in land valuation. He said, and there is no reason to doubt it, that he had a reasonable deal of ability to come to a conclusion as to what the properties were worth.

14. As a result of the enquiries he had made, Mr Pantel determined to instruct Mr Murphy as agent for the purpose of the mortgagee sales. Prior to so doing, however, Mr Pantel requested Mr Murphy to prepare a submission as to the marketing of the various properties to be sold. This submission, dated 20 August 1987, was prepared by Mr Murphy after inspection of the properties. In brief, it recommended that the properties be sold by auction after a well-promoted campaign to "provide the necessary exposure targeted to market groups likely to pay the highest possible prices for each parcel." The view expressed in the submission by Mr Murphy was that an auction campaign would provide an opportunity to obtain "the best sales results without unnecessary time delay." Mr Murphy rejected alternatives of public tender and private treaty.

15. Mr Murphy, in the submission, made an appraisal of the likely selling prices of each property. He also described each property, and his description gives a convenient picture of the state of each property at or around the commencement of the attempts by Beneficial to sell as mortgagee.

16. The Gardiner Road property was described by him as follows:

"This gently undulating unimproved lot is
bounded to the south by the Great Northern
Railway, to the north and east by the
Rutherford Industrial Estate and to the west
by farm grazing land. Heavy industrial use
would be allowed on the site. The land is
densely covered in trees and services are
not connected. Road access is limited."

17. Mr Murphy's opinion of the likely selling price was in the range of $70,000 to $80,000.

18. The Ex-Knight's estate property was described by Mr Murphy as:

"generally fair to poor grazing land located
20 minutes drive from the City of Maitland.
Road access is fair but may be difficult in
wet weather.
The land is gently undulating with a light
to heavy cover of trees in parts. Boundary
fencing is poor."

19. Mr Murphy's opinion of the likely selling price was in the range of $140,000 to $175,000.

20. The High St. property was described by Mr Murphy as follows:

"This property is located in the C.B.D. area
of Maitland away from the mainstream of
pedestrian traffic and the central retailing area.
It is not located in a prime commercial
position but does have a 9.12 metre frontage
to the main thoroughfare, High Street.
The improvements consist of a single storey
brick and fibro building with an iron roof.
Rear access and off street parking.
The property is tenanted by the operator of
a coffee lounge/book shop. Lease details
were not available for our consideration,
but taking into account the nature of the
property, its location and use, an investor
would expect a 14% - 16% net return in the
current market.
Our opinion of a likely selling price is
$70,000 - $75,000. (Vacant possession)."

21. The submission described the Farley Downs property in the following terms:

"The property is made up of 6 lots with a
total area of 254.21 Hectares located on the
south western edge of the city of Maitland
in the Farley district. The land is zoned
non - urban A but amendment (sic) No. 9 to
Maitland LEP 1986 allows the subject
property to be subdivided into lots of a
minimum of four hectares with an average
area of eight hectares.
While subdivision approval has been granted,
accurate estimates of development costs are
not available making it difficult to
determine for a developer/buyer the engloba
(sic) land price. However, it is known that
a fully developed ten hectare lot in the
proposed subdivision is likely to sell in
the range of $50-55,000.
In its present state the property yields six
attractive rural holdings of approximately
one hundred acres in an area close to the
city."

22. Mr Murphy estimated likely selling prices for each block as follows:

Lots 1-6 in one line with current subdivision approval
$475,000 to $525,000.
Lot 1 $55,000 to $65,000
Lot 2 $60,000 to $70,000
Lot 3 $60,000 to $70,000
Lot 4 $65,000 to $75,000
Lot 5 $65,000 to $75,000
Lot 6 $75,000 to $85,000

23. It will be observed that there was a considerable discrepancy between the valuations of Mr Prince, on the one hand, and the estimated sale prices of Mr Murphy on the other. This discrepancy can be appreciated by reference to the following table which sets out the purchase price payable by the applicants for each property, the Prince valuation, the Murphy estimate, the Parsons valuation referred to subsequently and the ultimate sale price obtained on the sales.

(TABLE OMITTED)

24. Before employing Mr Murphy, Mr Pantel made an assessment of Mr Murphy's ability as an agent, and took note of his experience and standing in the area. Mr Murphy had told Mr Pantel that he had been in the Maitland area virtually all his life and a real estate agent for a large number of years. Mr Pantel found him to be extremely knowledgeable of the properties to be sold and of other properties that had been sold throughout the town.

25. It might at this stage be observed that it was not the applicants' case that Beneficial was negligent in seeking the advice of Mr Murphy, or in acting upon it, although at times some of Mr Bourke's questions appeared directed towards such a case. In any event, nothing in the evidence suggested that Mr Murphy was other than a competent real estate agent carrying on business in the Maitland area where the relevant land was situated. He had told Mr Pantel that he had had experience in selling industrial land in the area, as well as land that was zoned commercial or residential. It is true that Mr Murphy's firm did not specialise in the sale of in globo subdivisional land and that there were firms in Australia that did so specialise, but that fact alone would not lead me to conclude that Beneficial was negligent in employing Mr Murphy.

26. Before Mr Murphy was appointed, Mr Pantel discussed with him who potential buyers for the Gardiner Road property were. Mr Murphy said that a potential buyer was somebody who would want to purchase the property and develop it on an immediate basis, although he thought this unlikely. Rather, he thought that the most likely potential buyer would be someone who wanted to buy and "land bank" for a number of years, ie. just put the land away for a number of years. Mr Murphy advised Mr Pantel that while the use of the Gardiner Road property was obvious as an industrial development, the development costs made it very unlikely that someone would proceed with the development at that time. The property was heavily timbered and Mr Murphy commented that a developer would have to go to enormous expense to remove the timber, although the timber itself might be worth something.

27. By the end of 1986 the applicants had refinanced, in effect by capitalising the next six months interest. By March 1987, The State Bank of NSW, which had also advanced monies to the applicants, was in the course of selling some of their principal security properties. On 20 March 1987, a discussion took place between Mr Bourke and his solicitor, on the one hand, and Mr Pantel on the other, at which the various properties the subject of Beneficial's securities were discussed. At that meeting, Mr Bourke advised of the progress that he had made with respect to the sale of the properties himself. This conversation, and Mr Pantel's comments thereon to his superior, are recorded in a memorandum tendered in evidence as follows:

"274 High Street, Maitland.
M Bourke has arranged to auction this
property through Richardson and Wrench (City),
on 6-4-87. Reserve price to be around
$105,000.00
Old North Rd, Lochinvar.
Listed for sale @ $250,000.00
Farley Downs.
Expects gazette within 2 weeks, for 30 x 15-30
He advised he expects to approach us for
$400,000.00 development costs on a presold
contract basis.
I made it abundantly clear to him and his
solicitor that the purpose of the current
deal is for rationalisation and the quickest
possible full repayment and it is most
unlikely that we would even consider
advancing further funds.
I further advised him that he should
seriously consider selling the entire
development "as is" when it was gazetted,
rather than attempt to develop it himself.
Lot 3 Gardiners Rd, Rutherford (80 acres of
industrial land).
He advised that this property is most
difficult to sell due to the depressed
industrial market in the area. Told him to
consider auctioning it."

28. At the same meeting Mr Pantel made clear that when the interest facility expired in approximately four months time, Beneficial would be seeking payment of future interest, and would take recovery action if it were not forthcoming. Notwithstanding, Mr Bourke was unable to effect a sale of the properties the subject of the present proceedings in that time, or for that matter at any time prior to the ultimate sales in question. This, however, is subject to an arrangement that was entered into in respect of the Farley Downs property which will later be mentioned.

29. As I have already indicated, Mr Pantel approached Mr Murphy in August 1987 requesting him to have a look at the several properties and to advise how best to market them and realise the highest possible price. In accordance with Mr Murphy's advice, an auction of the properties was arranged to be held at the offices of Raine and Horne in Sydney. The choice of Sydney as a location was, according to Mr Murphy's evidence, which I accept, based upon his experience that, where valuable properties are to be auctioned it is preferable to hold the auction in Sydney, because local buyers would not hesitate to come to Sydney, but it was more convenient for Sydney buyers (who traditionally pay higher prices than local buyers) for the auction to be held in Sydney. Further, auctioneers in Sydney were very experienced. In Mr Murphy's view, he did everything to have an auction conducive to obtaining high prices.

30. The authority from Beneficial to Mr Murphy's company to conduct the auction was formally given on 27 October 1988. That authority, authorised promotional expenses of $10,000. The auction campaign involved the preparation and distribution of brochures in respect of the properties to be auctioned. The brochures were distributed at least four weeks before the auction, firstly through Raine and Horne affiliated offices, including the Sydney office, to investors and developers whose names appeared on mailing lists kept by that company's Maitland and Sydney offices. The brochures were also distributed to interstate affiliated offices. In addition, the auction was advertised over three or four weeks in both the "Australian Financial Review" and the "Sydney Morning Herald" newspapers.

31. Mr Murphy, whose evidence I accept, personally set about endeavouring to interest prospective buyers in each of the properties. He detailed the results of these endeavours in a letter to Mr Pantel dated 27 November, 1987. In respect of the High Street property there had, as at that date, been only one serious enquiry from the existing tenant, who indicated a preparedness to pay $75,000. There were several enquiries concerning the Ex-Knight's estate property and Mr Murphy had indicated a selling range in the vicinity of $150,000 - $200,000, "to create interest and encourage higher offers." Mr Murphy commented:

"Unfortunately, all the enquiry has come
from local people and it is generally
regarded in the district that the previous
owners paid too much for the property at the
time of purchase."

32. There were several enquiries concerning the Gardiner Road property and Mr Murphy expressed confidence that there would be interest on the auction day at prices in the order of $1,000 per acre. Of the Farley Downs property Mr Murphy wrote:

"Surprisingly, we have very little enquiry
on Farley Downs at this point in time.
We have two developers giving it
consideration, but it is apparent that
developers are concerned about sale prices
on resale and development costs. There have
been a number of enquiries to purchase the
land as individual lots.
Really it is too early to make any judgement
(sic), but any developer to whom we have
quoted a likely figure of $575,000 has
indicated resistance to that price."

33. The brochure prepared for the Farley Downs property described the auction as being a "rural subdivision" of 630 acres (approx) "good grazing country with immediate subdivision potential". It said:

"The property is made up of 6 lots with a
total area of 254.21 ha located on the south
western edge of the city of Maitland in the
Farley district. The land is zoned non-urban
A, however, ammendment (sic) No. 9 to
Maitland LEP 1986 allows the subject
property to be subdivided into lots of a
minimum of four hectares with an average
area of eight hectares.
Excellent rural development land.
To be offered firstly in one line and if not
sold, individually as six 40 ha approx.lots"

34. The brochure relating to the Ex-Knight's Estate, described it as "Freehold Grazing Land". It was said to offer excellent opportunities for a country lifestyle and the carrying out of genuine primary production, and to have possible sub-division potential.

35. The Gardiner Road property was described in the brochure as an "Industrial Development Opportunity." The zoning of the property was stated as being Industrial 4(b). It was described as an "Excellent location. Bounded by Maitland's major general industrial estate and Great Northern Railway."

36. As no real attack was mounted upon the method of marketing the High St. property, it is unnecessary to set out what was said of it in the relevant brochure.

37. On 9 December 1987 Mr Murphy wrote again to Mr Pantel to report progress. He said:

"Our report should be prefaced by saying
that the Auction campaign has gone very well
in terms of advertising exposure and we have
left no stone unturned in attempting to
generate interest in the properties. In
addition to the newspaper advertising, there
has been an extensive mail out of brochures
on each property through our office and
offices of the Network.
274 High Street, Maitland
As you are aware, early in the campaign the
existing tenants expressed interest in
purchasing the property for $75,000.
During the campaign we have experienced
little or no interest from investor buyers.
We believe the current rent being paid for
the premises is over market and the querie
(sic) has been made as to the rental
prospects should the current tenant vacate
the premises.
On Tuesday I was made aware by the tenants
accountant that he seriously doubted her
capacity to buy the property even at $75,000.
Lot 3 Gardiners Road, Rutherford
It was anticipated that there would be
limited interest in this property due to the
high costs of any proposed development and
the competition from Council owned
industrial land available at virtually give
away prices. We have had two serious
enquiries and the prices suggested by them
have been of the order of $500 per acre or
$43,000.00.
Lot A Old North Road, Lochinvar
We have experienced a disappointing response
on this property, the result being interest
from potentially two buyers, both of whom
are expressing interest at a price of
$100-110,000.00. There has been an adverse
reaction to the poor standard of fencing on
the property and although it has subdivision
potential, prospective buyers are saying
that it is not profitable to buy for
subdivision at prices in excess of that
quoted above.
Lots 1,2,3,4,5,6 Farley
The advertising of this property has been
pitched both to developers and to hobby
farmers who may be interested in owning one
of the lots. The reaction from prospective
buyers looking at developing the property as
provided in the Development Control Plan
No.11 has been cautious for two basic
reasons, namely the cost of development
including prevailing interest rates and poor
market prices for lots generated by the
development as evidenced by the recent
auction sale of the Windella Downs Lots.
There has been very limited interest from
people wanting to buy individual 100 acre
lots. Two likely developers have expressed
that it could be a proposition at around
$300,000.00."

38. Upon receipt of this letter Mr Pantel wrote a memorandum to his superior drawing attention to the "obvious anomalies" between the original Prince valuations, the Raine and Horne expressions of opinion as to value and the current market indications. He recommended reserve prices of $85,000 for the High St property, with latitude to come down to $75,000, if necessary; a reserve of $120,000 with latitude to come down to $80,000 for Gardiner Road; a reserve of $175,000 with latitude to come down to $140,000, if necessary for the Ex-Knight's Estate property and a reserve of $490,000 with latitude to come down to $400,000, for the Farley Downs property. Mr Pantel in commenting on the Gardiner Road property wrote:

"From an original valuation of $400,000 to
$70 - 80,000 to $43,000 ...is difficult to
take. Perhaps we have a case against the
valuer. The fact is, that R and H is correct
in their letter, when they say that the
competition is Council owned industrial land
at virtual give away prices (so as to
encourage industry and employment)."

39. Mr Pantel's recommendation for reserve prices was accepted and communicated to Mr Murphy. The latter, however, regarged and reserve prices as inappropriately high. He was of the view that it was going to be difficult to achieve these figures. Mr Murphy's view proved to be correct at the auction, which was held the next day. The bidding for High St did not reach the reserve, but when the bidding closed Mr Pantel gave the instruction to place the property on the market and it sold at $75,000, that being the highest bid. There were no bidders at all for the Gardiner Road property. The Ex-Knight's estate property attracted two bidders who competed vigorously, until the bidding reached $136,000. Mr Pantel gave instructions to sell at that price, notwithstanding that it was considerably under the reserve. The Farley Downs property attracted no outside bids and was passed in at $385,000.

40. After the auction, Mr Murphy continued to attempt to sell the unsold properties by private treaty. The only interest in the Gardiner Road property was in the order of $30,000. In respect of Farley Downs, Mr Murphy formed the view that Beneficial would realise more for it if it were sold in individual lots and so recommended to Mr Pantel. One lot was sold by private treaty shortly after for $90,000 and instructions were given by Mr Pantel to Mr Murphy to sell the remaining lots at prices ranging from $90,000 to $95,000. Between 14 April and 25 May, sales were negotiated by Mr Murphy of lots 3, 5 and 6, leaving only two lots then unsold.

41. Subsequently, Mr Murphy discussed with Mr Pantel a further auction of the Gardiner Road property and the remaining Farley Downs lots. Mr Pantel expressed concern at the time it was taking to sell the properties and the decision was taken to proceed with further advertising for another auction. Accordingly, a second auction was arranged, this time to be held in the rooms of Raine and Horne in Maitland.

42. The advertising for the second auction was more limited than that for the first. The location of Maitland was stipulated by Mr Pantel, who thought that it would be better that the second auction be held in Maitland, in case the previous auction had been affected by buyer resistance to travelling to Sydney. The reduced advertising campaign was also stipulated by Mr Pantel and arose from his concern at the state of the applicants' indebtedness to Beneficial. The total advertising budget was $2054.58, for newspaper advertisements to be placed twice in the rural and industrual sections of the "Sydney Morning Herald", both double and single column advertisements, in the "Newcastle Herald" and three advertisements in the "Maitland Mercury/Advertiser". Mr Murphy agreed with this budget, although in so doing he had regard to the size of the outstanding loan to Beneficial.

43. At the second auction, only one lot of the Farley Downs property was sold. It attracted strong interest at the auction and was sold to the highest bidder for $80,000. The remaining lot was passed in at $65,000 and was subsequently sold by private treaty. The Gardiner Road property was again unsold. It was subsequently sold by private treaty in August 1988 for $45,000.

44. Mention should here be made of an earlier attempt of Mr Bourke to sell the Farley Downs property. On 12 June 1987 Mr Bourke advised Mr Pantel that he had exchanged contracts with Jenmix Nominees Limited ("Jenmix") for the sale of Farley Downs at $575,000, on a deposit of $2,000. No consent to this sale had been given by Beneficial and Mr Pantel advised Mr Bourke that a deposit of $2,000 was totally unacceptable. Mr Pantel asked Mr Bourke to supply a copy of the contract. Mr Pantel on a number of occasions sought from Mr Bourke a copy of the contract without success. At some time, however, Beneficial obtained a copy and this was tendered in evidence. It is not clear whether the contract was ever stamped, but I am prepared in the absence of evidence to the contrary to infer that it was.

45. The contract provided that the benefit of possession was to be given on exchange. The deposit was to vest forthwith in the vendor (Hunter Development Company Pty Limited). The contract contained the following special condition:

"Completion of this contract shall be made
within twenty-eight days of fifth day of
August 1987 Provided however that the
purchaser company shall have the right to
extend settlement of this contract by a
further thirty days on the condition that
this contract price be increased from five
hundred and seventy five thousand dollars
($575,000) to five hundred and ninety
thousand dollars ($590,000)".

46. It would seem that when no settlement was forthcoming, Beneficial gave to Jenmix notice that if it did not complete within seven days of 7 October 1987, Beneficial would proceed to exercise its power of sale by putting the property to auction. Prior to so doing Beneficial had been advised, presumably by Mr Bourke, that Jenmix "had done some work to the property and made some sales on some lots". Shortly before this notice expired, Beneficial was told that Jenmix could not settle in accordance with the seven days notice given, that a subdivision application was with the council for approval (to 30 lots), that Jenmix had paid fees in respect of that subdivision application, and that the subdivision had been marked or pegged to show roads, etc. Mr Bourke advised Beneficial that he wanted a three month extension of the arrangement with Jenmix to settle and that Jenmix might pay any arrears during the interim periodf. It would seem that Mr Bourke was advised by Beneficial that he had 48 hours to provide a proposal for extension, otherwise Beneficial would proceed with a mortgagee sale via the Maitland office of Raine and Horne.

47. On 14 October 1987 a meeting was held at the offices of Beneficial. Present, representing Jenmix were Mr Morris, the former New South Wales State Minister for Transport, and a Mr J Winter. Mr Pantel and a Mr Norquay represented Beneficial at the meeting. Mr Bourke also attended the meeting. No information seems ever to have been probided to Beneficial as to the share capital of Jenmix, its sources of finance or the identity of those interested. There was a suggestion from the solicitors acting for Jenmix that Mr Bourke was in some way associated with Jenmix, although the nature of any interest was unknown to Beneficial, and indeed not explored before me. At the meeting, a proposal was put to Beneficial, which proposal was subsequently reduced to writing in a letter of 16 October 1987. As set out in the letter the proposal was:

"We propose to pay you interest 2 months in
advance as from 15th October, 1987 at a rate
of 18% per annum.
We will support the loan with Director
Guarantees, details of which have been
provided to you.
Further we will pay for all development
costs of subdivision and return you 100% of
all sales from subdivision until your
principal is extinguished. The advance
would be required for a maximum of six months.
Upon your acceptance we will forward you a
cheque for $17,250 to cover two months
interest as from 15th October, 1987.
If this is not acceptable to you please
If this is not acceptable to you please
advise in writing and your mortgage will be
paid out from another source as previously indicated.

48. Notwithstanding the reference in the letter to details of guarantees having been provided, it is suggested by contemporaneous notes that this was not so. Beneficial replied in writing by letter dated 19 October 1987 rejecting the proposal. It advised, however, that it would grant to Jenmix a further period for completion up to 2 November 1987 (without prejudice to its rights or powers), on the basis that on settlement Beneficial would receive $575,000 net on settlement plus 2 months interest at 18%, ie a total of $592,250 net. It was a further condition of that extension that Beneficial be supplied before 23 October 1987 with "substantial and sufficient evidence" of Jenmix's ability to complete.

49. The correspondence substantially ends with a facsimile letter from Jenmix of 26 October 1987, wherin Mr Winter, on behalf of Jenmix, confirms that the company is proceeding to complete the contract as previously indicated. On 30 October 1987 the solicitors for Beneficial wrote to Jenmix advising, inter alia that Beneficial had entered into possession, that the agreement had not been completed and that the property would be auctioned. It concluded:

"Our client will not negotiate with you
further nor will it permit your
representatives unauthorised access to the
subject lands".

50. No attempt appears to have been made by Jenmix to bid at the auction, when, presumably, it could have obtained the land at a price considerably less than that shown in the copy contract originally sent to Beneficial.

51. The applicants made a number of submissions, some directed at particular properties, others more general. The first submission, relevant to the sales of each of the properties, was that Beneficial had a duty to obtain up-to-date valuations of the properties at any one of more of a number of times commencing with their entering into possession and concluding with the respective auction sales or ultimate sales by private treaty. It was submitted, although there was no evidence to support this, that there was a standard and recognised practice of mortgagees obtaining two independent valuations before exercising power of sale. Beneficial was, so it was submitted, negligent in accepting and acting upon Mr Murphy's "market appraisal", which it was submitted, in any event was illegal for Mr Murphy to carry out, as he was not a registered valuer.

52. This last matter should be dealt with first. Registration of valuers is provided for by the Valuers Registration Act 1975. That Act specifies the requirements to be satisfied for registration as a real estate valuer, among which is the requirement that a course of study in valuation of land be undertaken. The legislation provides by way of sanction to protect the statutory monopoly so created, the following offence:

"24(1) A person shall not-
(a) practise as a real estate valuer;
or
(b) advertise himself or hold himself
out as being entitled or prepared to
practise as a real estate valuer,
unless he is registered under Part 3
(otherwise as a non-practising real estate
valuer).
Penalty: $500 or imprisonment for six
months."

53. The definition of "real estate valuer" is to be found in s.4(1), which reads as follows:

"'real estate valuer' means a person who
values land for a fee or reward which is
paid or payable either to him or to a person
(including the Crown or an instrumentality
or agency of the Crown) who employs him,
whether in the capacity of employee or agent
or in any other capacity;"

54. The prohibition, so enacted, is not a prohibition directed at preventing real estate agents, in the course of their agency business, from making as Mr Murphy did, at the request of Mr Pantel, a market evaluation of a property for the purpose of determining the best way of marketing that property, or for that matter for the purpose of determining the range of probable selling prices. In so doing, Mr Murphy was not either practising as, nor holding himself out as entitled to practise as a real estate valuer. The submission was accordingly misconceived. Further, it does not follow, from the fact that Mr Murphy was not so registered, that Beneficial was not entitled to give weight to his estimates. It is not unusual for real estate agents to make estimates of value, particularly of land in the area in which they carry on their business. Indeed, Mr Murphy's evidence made it clear (and Mr Pantel was impressed at the time he instructed Mr Murphy, with this fact) that Mr Murphy had considerable knowledge of sales of properties in the Maitland area; the starting point of the quest for comparable sales that lies behind the exercise of valuation. Nevertheless, that is not all that underlies the submissions of the applicants.

55. At the forefront of the applicants' submissions is the proposition that a mortgagee owes a duty to the mortgagor when the former is exercising the power of sale conferred upon him under a mortgage to obtain the market value of the property. Statements to this effect are to be found in the cases. Thus, in Cuckmere Brick Co Ltd v Mutual Finance Ltd (1971) 1 Ch 949 at 966, Salmon L.J. said:

"It is impossible to pretend that the state
of the authorities ... is entirely
satisfactory. There are some dicta which
suggest that unless a mortgagee acts in bad
faith he is safe. His only obligation to
the mortgagor is not to cheat him. There
are other dicta which suggest that in
addition to the duty of acting in good
faith, the mortgagee is under a duty to take
reasonable care to obtain whatever is the
true market value of the mortgaged property
at the moment he chooses to sell it:
compare, for example, Kennedy v de Trafford
(1986) 1 Ch 762; (1897) AC 180 with Tomlin
v Luce (1889) 43 Ch D 191, 194.
The proposition that the mortgagee owes both
duties, in my judgment, represents the true
view of the law."

56. The first case in the High Court to deal with the question of the duties of a mortgagee exercising a power of sale was Barns v Queensland National Bank Ltd [1906] HCA 26; (1906) 3 CLR 925. In that case the mortgagee had sold the mortgaged property at auction for the amount of his debt. There was evidence that the properties were worth considerably more, that the sale was insufficiently advertised, and that the reserve price was disclosed before and at the auction. A jury had held that the sale was not made bonafide, and the High Court held that this finding was open to the jury to make. In delivering the judgment of the court, Griffith C.J. took as the starting point of his Honour's discussion, the words of Lindley L.J. in Farrar v Farrar's Ltd (1889) 40 Ch D 395 at 410-411:

"A mortgagee with a power of sale, though
often called a trustee, is in a very
different position from a trustee for sale.
A mortgagee is under obligations to the
mortgagor, but he has rights of his own
which he is entitled to exercise adversely
to the mortgagor. A trustee for sale has
no business to place himself in such a
position as to give rise to a conflict of
interest and duty. But every mortgage
confers upon the mortgagee the right to
realize his security and to find a purchaser
if he can, and if in the exercise of his
power he acts bona fide and takes reasonable
precautions to obtain a proper price, the
mortgagor has no redress, even although more
might have been obtained for the property if
the sale had been postponed."

57. Griffith C.J., also referred to the words of Herschell L.C. in Kennedy v de Trafford (1897) AC 180 at 185:

"My Lords, I am myself disposed to think
that if a mortgagee in exercising his power
of sale exercises it in good faith, without
any intention of dealing unfairly by his
mortgagor, it would be very difficult
indeed, if not impossible, to establish that
he had been guilty of any breach of duty
towards the mortgagor.... It is very
difficult to define exhaustively all that
would be included in the words 'good faith,'
but I think it would be unreasonable to
require the mortgagee to do more than
exercise his power of sale in that fashion.
Of course, if he wilfully and recklessly
deals with the property in such a manner
that the interests of the mortgagor are
sacrificed, I should say that he had not
been exercising his power of sale in good
faith."

58. Subsequently, the High Court again considered the matter in Pendlebury v Colonial Mutual Life Assurance Society Limited [1912] HCA 9; (1912) 13 CLR 676. In that case, Griffith C.J. expressed the view that a mortgagee exercising a power of sale was liable where he showed a reckless disregard of the interests of the mortgagor. In the same case Barton J at 694, expressed the test to be applied in terms of good faith and fairness. His Honour, while acknowledging that a mortgagee was entitled to look after his own interests, pointed out that to sacrifice the mortgagor's interest while so doing was to act unfairly and in bad faith. At 699-702, Isaacs J, who also expressed the law in terms of "good faith", explored the question of what was included in "good faith". His Honour said:

"Lindley L.J. in Kennedy v De Trafford (1896)
1 Ch 762 at 772, said:- 'It is not right, or
proper, or legal, for him, either
fraudulently, or wilfully, or recklessly, or
sacrifice the property of the mortgagor.'
Lord Herschell in the House of Lords (1897)
AC 180 at 185 said that was all included in
good faith. In the same case Lord
Macnaghten (1897) AC 180 at 192 said:- 'If
a mortgagee selling under a power of sale in
his mortgagee takes pains to comply with the
provisions of that power and acts in good
faith, I do not think his conduct in regard
to the sale can be impeached.'...
Regarding the matter from the standpoint of
principle it seems to me clear that the word
'recklessly' cannot include mere negligence
or carelessness in carrying out the sale."

59. In the more recent case of Forsyth v Blundell [1973] HCA 20; (1972-3) 129 CLR 477, Mason J said at 506:

"It will be seen that the conclusion which
I reach is that ASL was in breach of its
duty to the mortgagors in that it exercised
its power of sale without taking reasonable
steps to obtain a proper price and in so
doing acted otherwise than bona fide, that
is, recklessly, not caring whether the price
obtained was in the circumstances a proper
price or not. Accordingly, I need not
consider the vexed question whether the
mortgagee's duty is merely to act bona fide
or whether, in addition, he is bound to take
reasonable precautions to obtain a proper
price. The conflicting authorities have
recently been reviewed by the Court of
Appeal in Cuckmere Brick Co v. Mutual
Finance Ltd (1971) Ch 949: see also Holohan
v Friends Provident and Century Life Office
(1966) IR 1. It was held in these cases
that the mortgagee is bound to act bona fide
and take reasonable precautions to obtain a
proper price, or, as Salmon L.J. would prefer
to express it, 'the true market value'. In
any resolution of the question in this Court
account must be taken of what was said in
Barns v. Queensland National Bank Ltd,
(1906) 3 CLR 942-943, and Pendlebury v
Colonial Mutual Life Assurance Society Ltd.
(1912) 13 CLR at 692, 693-695, 699-702.
However, as I have said, on the view which
I take of the facts this problem does not
arise for decision; nor is it necessary for
me to determine the related question whether
a mere failure to take reasonable
precautions to obtain a proper price is a
sufficient ground for setting aside a
mortgagee's contract of sale or for
restraining its performance..."

60. The question again came before the High Court in The Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Co. Pty Limited [1978] HCA 21; (1977-78) 139 CLR 195 and Commercial and General Acceptance Ltd v Nixon [1981] HCA 70; (1981) 56 ALJR 130. In both, the question was left open. Nevertheless Jacobs J in the former case, spoke of the need for a "genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realize his security." The latter case was concerned with the obligations of the mortgagee in the context of a statutory provision which imposed specifically a duty upon a mortgagee to "take reasonable care to ensure that the property is sold at the market value". Nevertheless, Aickin J expressed the view that at common law, the relationship of mortgagor and mortgagee gave rise to a duty in negligence, as well as the general obligation to exercise the power in good faith. His Honour said:

"The power of sale is an essential part of
the mortgagee's security but it is not to be
exercised exclusively in his own interest
without regard to the interests of the
mortgagor by directing attention exclusively
to the recovery of the mortgage debt,
interest and expenses rather than obtaining
the market value of the property as at the
date of the sale.
It must be borne in mind that a mortgagee is
not a trustee, nor is his position similar
to that of a trustee. A mortgagee has for
his own protection a power of sale but in
its exercise he must not sacrifice the
interests of the mortgagor or of subsequent
encumbrancers. If his agent is negligent in
the conduct of the sale he may recover any
loss suffered by him but he recovers on his
own account, not on account of the
mortgagor, and could not claim more than his
own loss. As a matter of policy these
considerations demonstrate that the
mortgagee is in a very different position
from a trustee and he should be responsible
for his agent's negligence in so far as it
affects the mortgagor, an obligation for
which he would be entitled to an indemnity
from his agent."

61. The decision of Salmon L.J. in Cuckmere Brick Co. (supra) was cited with approval by the Privy Council in Tse Kwong Lam v Wong Chit Sen (1983) 1 WLR 1349 at 1356, where it was said that a sale to a company related to the mortgagee could only be supported, the sale being by auction, if the mortgagee:

"proves that he took reasonable precautions
to obtain the best price reasonably
obtainable at the time of sale."

62. Subsequent cases decided by single judges have consistently followed the High Court, in the absence of a resolution by that Court of the conflict. Those cases prior to 1984 are discussed by Zelling J in Citicorp Australia Ltd v McLoughney (1984) 35 SASR 375. In Wenham v General Credits Ltd (16 December 1988, unreported) referred to by Rogers C.J. Comm D in National Australia Bank v Sproule (1989) 17 NSWLR 505 at 510 McLelland J pointed out that the Australian courts at the trial level had rejected the existence of the higher obligation. His Honour referred to the relevant authorities at that time.

63. On a philosophical level, the existence of the higher obligation was criticised by Zelling J in Citicorp Australia (supra) on the basis that formulating the test as equating common law negligence with the equitable duty of a mortgagee to take reasonable steps in exercising his power of sale, the latter being merely one aspect of the doctrine of equity concerning fraud on a power, involved a "fatal flaw." With respect, I see no reason in principle why it can not be said that in accordance with normal equitable principles the duty of a mortgagee is to act in "good faith", with all that entails, and in addition that the relationship between mortgagee and mortgagor, being a fiduciary relationship, gives rise to the existence of a duty of care upon the mortgagee in favour of the mortgagor. The content of that duty will, of necessity depend upon the circumstances of each case. Be that as it may, the judgment of Aickin J in Commercial and General Acceptance Ltd (supra), to which reference has already been made, demonstrates that there need in fact be no different obligation arising in equity from that that would arise at common law. However, as a single judge, I am bound by, and would follow the earlier cases in the High Court, to the extent that so to do would make any difference on the facts of the present case.

64. Even accepting the test most favourable to Beneficial, it is clear that a mortgagee is under an obligation to ascertain the value of the mortgaged property before putting the property up for sale: Pendlebury (supra) at 683. The method used for advertising the property will be examined to ensure that the circumstances are such that the mortgagee took reasonable precautions to obtain a fair price: Pendlebury (supra) at 683. A "fair price" will not necessarily be market value Pendlebury (supra) at 695; nevertheless a large discrepancy between the sale price and the market value may, in the absence of any circumstances accounting for the difference, lead to a reasonable inference that the price obtained was not a fair price: Pendlebury (supra) at 695. The mortgagee will not be obliged in the ordinary case to wait for his money until a propitious time arrives to sell, so that the mortgagor might profit by the delay: Pendlebury (supra) at 701, nor will the mortgagee, generally, be required to risk an outlay on the property to secure a possibly enhanced return: Pendlebury (supra) at 701. Yet, as Isaacs J observed at the same page:

"But if a further outlay is in the
circumstances reasonable, and apparently
necessary and prudent to conserve the
mortgagor's interest, and to prevent his
residual property being sacrificed, and if,
having regard to what a cautious man would
consider the total selling value of the
property, it is manifestly safe, the
mortgagee is... not justified in refusing to
make or incur it merely because he can get
enough for himself without it. it must,
however, be safe..."

65. On the facts of the present case, it can not be said that Beneficial acted recklessly in such a manner as to sacrifice the applicants' interests, or, in any sense in an absence of "good faith". First, the present is not a case where Beneficial proceeded to dispose of the properties without ascertaining their value. It obtained an appraisal of value from Mr Murphy, and in my view, it was entitled to rely upon that appraisal. It arranged an auction in Sydney, relying upon competent advice in so doing. The present is not a case, such as Pendlebury, where a property in Sydney was advertised in Melbourne, where the result would clearly be different. There is no suggestion that reserve prices were announced before the auction or that the auction was conducted other than in a way designed to obtain the fair price for the property.

66. Even if the proper test to apply were one based upon the law of negligence the result would not differ. Nothing in the evidence suggests that Mr Murphy, for whose acts Beneficial would then be responsible, acted negligently in conducting the auctions or in carrying out negotiations for and subsequently exchanging contracts of the mortgaged properties by private treaty.

67. At first blush, there seems indeed to be a large discrepancy, in the differences in sale price and valuations relating to the Gardiner Road property, and a somewhat reduced discrepancy in relation to other properties. The first comment that must, however, be made, is that that discrepancy should not take into account the Prince valuation, which was made some two years prior to the exercise of the power of sale. Mr Prince was not called to give evidence, so that the assumptions upon which he proceeded could not be tested. Second, there is a great discrepancy between the Prince valuation of the Gardiner Road property ($400,000) and its purchase price around the same time of $65,000, which might cause one to wonder at the correctness of the Prince valuation. The next matter that calls for comment is the evidence of Mr Parsons, a valuer called by the applicants.

68. Mr Parson's valuations, particularly of the Gardiner Road property, were criticised by counsel for Beneficial on the basis that the sales said to be comparable were in truth not so. Certainly Mr Parsons in the report itself made that concession. One reason for this was that the properties examined by him were all considerably smaller in size; second, some were outside the time frame normally considered in determining comparable sales; other sales were not in the immediate vicinity of the property to be valued. Nevertheless this attack alone did not, in my opinion, cast doubt on Mr Parsons' valuations.

69. More significant, however, was that Mr Parsons had made his valuation of Gardiner Road on the basis that it would take years of marketing before a willing buyer and willing seller might come to an agreement, but that this time delay would have no effect on the market value of the property. It is true, that in making a valuation of land, or for that matter any other property, the test of the willing but not too willing vendor and purchaser as enunciated in the cases eg. Spencer v Commonwealth (1906) 5 CLR 418 assumes the existence of such a willing vendor and purchaser, but it does not follow from this that no regard can be had to the time it would take for a vendor to realise the property: cf. Coppleson v Federal Commissioner of Taxation (1981) 81 ATC 4019. A mortgagee, can not be expected to wait some years before realising his security. Indeed, Mr Pantel made the telling point in this case, that the cost to the mortgagor of interest accruing until the time of sale, made it absolutely disastrous to the mortgagor for the mortgagee to wait a considerable period of time to obtain a better price, particularly when there was no guarantee that the price ultimately obtainable would exceed the value of the property at the time plus the interest accrued on the loan in the meantime.

70. In the course of his evidence, Mr Parsons agreed that the best method of testing a valuation for a property would be to see what it brought at a properly advertised public auction, provided that the property being auctioned had been marketed to the people who would be attracted to its highest and best use, being the subdivisional potential of this particular parcel of land. He was, although qualified to answer, not asked whether the way the particular property was marketed was such as to attract the relevant class of potential purchasers.

71. In these circumstances, I am not satisfied on the balance of probabilities that Beneficial in the exercise of its power of sale breached its obligation of good faith to the applicants, and in particular, I am not of the opinion that Beneficial acted with reckless disregard of the interests of the applicants so as to sacrifice their interests in the course of the mortgagee sale. If it matters, I am of the view that in so far as Beneficial owed a duty of care in favour of the applicants to obtain the market value or price of the respective properties it did not, on the evidence, breach that duty.
The applicants' attack on the marketing of the properties

72. The applicants, sought to attack the sales on the basis that in marketing the properties, Beneficial had acted either in a way that was designed to sacrifice the interests of the applicants, or, put in another way, in a way that was unreasonable or negligent.

73. One must first wonder at why Beneficial should so act. The present is not a case where the outcome of the sales was to recoup the mortgagee but leave nothing over for the mortgagor. In fact, the outcome of the sales was to leave Beneficial out of pocket over $1,000,000, with little chance, so the evidence would suggest, of recovering the short fall from the applicants. The attack was mounted in particular in respect of the three properties, Farley Downs, Ex-Knight's estate and High St.

74. The submission was that the advertising brochures were "grossly inadequate" to attract prospective purchasers interested in purchasing the properties for the highest and best use to which those properties could be put. In respect of the Gardiner Road property, it was said that the advertisements and brochures did not even mention, "by way of commercial description, the highest and best use, namely as heavy industrial land... the potential types of industrial development, the potential of that development to service Maitland or elsewhere, the potential returns from leasing or capital gains or the like." Rather, it was said the materials were at best "basic". It was suggested that what was needed was a "sophisticated marketing kit available for interested parties to make a preliminary assessment of the land and warrant the initiation of their own investigations into its commercial potential."

75. It is true, that the advertising brochures were not glossy. They did state the zoning of the property, which to interested developers would immediately have revealed that the properties were zoned for heavy industrial use. A court will, however, be slow to interfere to set aside a mortgagee sale, or to order damages in respect of it, where what is involved is a matter of judgment as to the way in which properties are marketed. In the present case, Beneficial employed and relied upon a competent real estate agent, who advised them upon the best way in which the properties should be marketed. In respect of the first auction, the advertising budget was recommended by Mr Murphy and adopted by Beneficial. Although the second advertising budget was somewhat low, it was not inappropriate for regard to be had to the state of the applicants' account with Beneficial in setting it. It might be added that there was no evidence, other than that of Mr Murphy, as to the amount a reasonable mortgagee should have allocated to advertising.
The specific complaints about the sale of Gardiner Road.

76. In addition to the general submissions made as to the marketing of the properties, the applicants made a number of specific submissions concerning the sale of Gardiner Road.

77. First, it was submitted that Mr Pantel, of Beneficial, acted negligently in accepting the advice of Mr Murphy that there would be limited interest in this property because the Council was marketing industrial land in the vicinity at "virtually give-away prices." It is true, Mr Pantel was unable to say now what these give-away prices were, but that is not evidence that Mr Murphy's advice was incorrect. The applicants bear the onus of proof in this regard.

78. Second, Mr Murphy's assessment of the likely selling price for this property was, at least in part, affected by his view that the "prohibitive development costs make the property unattractive as a commercial proposition." When questioned about this, Mr Murphy said:

"The reality is there are not services
connected to that property, there has to be
a creek crossing with a concrete bridge to
be put across and recent inquiries with the
Water Board suggest that it would cost
something in the order of $500,000 to bring
sewer to the boundary. Now there would be
water amplification charges, extension to
Gardiner Road across the creek crossing not
to mention internal development. Now at the
time I think I had some material that was
handed on to Beneficial by yourself (Mr
Bourke) from John Renny, surveyor, Maitland,
that gave very vague figures of possibly
$250,000 for sewer and water amplification.
In my discussion with your own valuer Eric
Prince those figures were not firm so the
development costs were critical."

79. Mr Pantel gave evidence that he had a conversation with a representative of the Hunter District Water Board on the matter and was told that there was a substantial amount of work to be done to the property before development could proceed. The gravamen of the applicants' complaint is that Mr Pantel had an obligation to commission reports from independent experts as to the likely costs and the effect of those costs on the marketability of the land. It could not be suggested that Beneficial was obliged itself to expend those amounts before marketing it.

80. The evidence fell short of showing what the costs of development would have been at the relevant time. It seems that an amount of $3000 had been paid in 1980 towards the cost of laying a water main in Gardiner Road, but that this had not been laid because the roadworks to the end of Gardiner Road had not been completed. As at the time of trial, the extension of the main to Lot 3 could not be carried out until the roadworks at the end of Gardiner Road were completed. The existing main's capacity was, it would seem, limited and the construction of a new main would be dependent upon "developer contribution". The amount of this contribution in 1980 was unknown.

81. On the balance of probabilities, I am satisfied that there would be substantial development costs to be borne in developing this industrial estate, and I am not satisfied that Beneficial was negligent, either in relying upon Mr Murphy's advice as confirmed by Mr Pantel in telephone enquiries, or by failing to commission, at some expense, experts to advise as to the precise quantum of these costs.
The Specific complaints in regard to Farley Downs

82. The applicants submitted that Mr Bourke had made known to Beneficial the purpose which the applicants had in mind for this property. This may be conceded. It was said that Beneficial knew, or ought to have known, that the Farley Downs project was a major project whereby the property was to be rezoned and sold off in smaller lots. Again, this may be conceded. Mr Bourke had sent to Beneficial, in October 1986, a copy of a rezoning application and a copy of a subdivision layout plan.

83. The evidence suggests that there had been various proposals for subdivision of this land: for 202 lots, for 80 and ultimately for 30 lots, although the 30 lots may have been a first stage of a larger subdivision. Mr Bourke had told Mr Pantel that gazettal of the rezoning was expected within two weeks in March 1987. A memorandum from the files of Beneficial made around the beginning of October 1987, suggests that the application for subdivision for 30 lots was with Council for approval. No evidence was tendered from the Council to show whether the subdivision was ever approved. The evidence suggests that conditions were likely to be imposed in the event of approval, but there was no evidence as to what these conditions were or even were likely to be.

84. Evidence was adduced from a Mr Griffiths, a real estate agent with experience in marketing subdivisional land. He deposed that the most viable method of marketing subdivisional land was to arrange for:

"1. An identification survey to the completed
2. The land and roads to be pegged
3. A scraped surface created to identify roads
4. Create a concept and theme for
marketing purposes
5. Provide speculative builders with an
insentive (sic) to develop
6. Identify those blocks as sold which are
to be developed by spec builders
7. Erect some form of demountable sales
office and public facilities on site
8. Erect directional main road signage
9. Prepare and erect one huge sign
detailing the entire proposed subdivision
10. Prepare and erect individual for sale
signs on each block identifying a plan
of the land, boundary dimensions and prices.
11. Employ skilled advertising personnel
and budget advertising monthly with an
emphasis on maximum exposure initially.
Some of the more obvious but unusual
vehicles for advertising Farley Downs
would have been periodicals, papers,
magazines and circulars which are
published and directed to those of the
public whose interests revolve around
Equestrian events.
12. Employ a sales team to man the
subdivision at weekends.
13. Arrange for other than weekend enquiry
to be directed to sales personnel."

85. Mr Griffiths, however, conceded that in a case where development approval had not been granted, it would be prudent to wait rather than spend tens of thousands of dollars in a marketing campaign that may well prove to be abortive. He could not say whether, at the time of the first auction, the land was in a position to be marketed in accordance with his proposal. The development control plan affecting the area was dated 19 May 1987. That plan, however, did not give consent to the subdivision. Further, as Mr Griffiths conceded in cross-examination, conditions were likely to be imposed by the Council, both on its consent to a development application of the land and to subdivisional approval, likely to involve the expenditure of money, including the provision of services. Mr Griffiths was unable, in the absence of knowing what conditions might be required, to comment on the costs likely to be involved.

86. The duty of a mortgagee to a mortgagor clearly does not extend to carrying out a subdivision of property before commencing selling it, nor, at least in the ordinary case, to expending large sums of money on the land to obtain a better return. There will be cases where the facts show that by the expenditure of a comparatively small and ascertained sum, the return can be significantly increased for the benefit of both the martgagor and the mortgagee, and in such cases the obligation of the mortgagee will be to carry out that expenditure. However, the evidence adduced for the applicants neither establishes that the proposed subdivision would have been approved, nor the conditions likely to be imposed. It further does not establish that the expenditure required was either comparatively small, nor of course, ascertained or ascertainable. In these circumstances, it can not be said that Beneficial breached its obligations to the mortgagor by attempting to sell the land in its current state as a subdivision of six lots. Nor, in my opinion, in the circumstances, can Beneficial be criticised for selling the property through the auspices of Mr Murphy, rather than using the services of a company such as that employing Mr Griffiths.
The specific criticisms concerning the sale of Ex-Knight's Estate

87. The applicants submitted that Beneficial had been negligent in the manner in which it marketed this property. The specific criticisms made were enumerated in the written submissions of the applicants as follows:

"(a) Accepting an advertising campaign that
did not provide full particulars about
the property, together with its
advantages and prospects.
(b) Accepting the market appraisal by Mr Murphy
consideration for (sic) $136,000
(d) Failing to appropriate expenditure to
allow selling off the plan, and,
failing to sell off the plan.

88. At the heart of these submissions is the zoning of the property. The property was advertised for sale as "Grazing Property" with "Future subdivision potential". The land was zoned in such a way as to permit subdivision in six blocks. It was said, but no evidence was adduced to prove it, that:

"All Mr Pantel had to do was expend some
$2,000 to peg-out the allotments and submit
subdivision plan (sic) to Council for
approval. Mr Pantel could then 'sell off
the plan' and then sell the land and assign
the contracts to a developer."

89. In addition to the problem that faces an applicant making submissions without evidence to support them, if the marketing of the land was so simple, it is hard to see why the applicants, who had been seeking to sell the property since 1986, had not already done so, and realised the price which they submitted Beneficial should have realised. There was no evidence as to what the cost of pegging out the subdivision would be, nor as to the costs involved in making a development application in respect of the land, and preparing and lodging a subdivision plan, nor as to the conditions that would have been imposed by Council as a condition of approval, nor the cost of complying with those conditions. A purchaser at an auction, made aware of the zoning, would take into account the cost of subdivision and bid accordingly.

90. The applicants have not shown, in respect of this property, either that Beneficial acted other than in good faith in selling it, or, if it be material, that Beneficial was negligent in the way it went about realising it.
The High Street, Property

91. No specific criticisms were advanced in respect of the sale of 274 High Street, Maitland. The property was sold at auction and there was only one genuine buyer. There is no evidence to suggest that Beneficial, in the way it conducted the sale or in accepting the price it did, acted other than in good faith. In particular, the evidence does not suggest that Beneficial sacrificed the interests of the applicants in making the sale.
The specific allegations of bad faith

92. Although in their pleadings, the applicants alleged mala fides, the particulars supplied made it clear that this was not a ground separate to the matters to which I have already referred. However, the submissions of the applicant sought to develop a separate, and unparticularised ground based on the evident antagonism that developed between Mr Bourke and Mr Pantel. The applicants' submissions drew attention, inter alia, to threats of recovery proceedings and bankruptcy as evidence of bad faith. A solicitor, in a conversation with Mr Pantel concerning a property, the sale of which was not under attack, apparently spoke of the resolve to "kick Bourke to death".

93. I have read the diary notes to which the applicants' submissions referred and, there are some passages which make clear that a personal animosity between Mr Pantel and Mr Bourke existed. I am far from satisfied that this feeling was one-sided on the part of Mr Pantel. However, the evidence falls far short of demonstrating that Beneficial, in exercising its power of sale over the properties, acted in bad faith, even if the applicants should be allowed, at the close of their case, to raise an entirely different case to that which they had particularised in the pleadings. No application so to do was made, and had it been made I would have declined to accede to it at such a late time in the proceedings.

94. I am of the opinion that the application should be dismissed with costs.