Case: State Bank of New South Wales Ltd v Chia [2000] NSWSC 552 ; (2000) 50 NSWLR 587
Outcome: cited
In relation to the Bank, the applicants submitted that the Bank: ...will be liable for the conduct of the Receivers if the Receivers were in fact its agents. If [the Bank] directed or interfered with the Receivers' activities, they will be the agents of [the Bank] (see American Express International Banking Corporation v Hurley [1985] 3 All ER 564 at 568(f) and 571(g); Florgale at [496]). The present case goes "beyond mere consultation or the communication of preferences" by [the Bank] but demonstrates that [the Bank] was "heavily involved in the performance of the Receivers' duties" (see State Bank of New South Wales Ltd v Chia [2000] NSWSC 552 ; (2000) 50 NSWLR 587 at [885-886] ). 109 The effect of rendering the Receivers the agents of the Company is to "relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver" (see State Bank of New South Wales Ltd v Chia [2000] NSWSC 552 ; (2000) 50 NSWLR 587 at [868] per Einstein J and the cases referred to). 110 A mortgagee has no power to direct a receiver in the performance of the receiver's task: Medforth v Blake [1999] EWCA Civ 1482 ; [2000] Ch 86 at 94-95; Chia 50 NSWLR at [881]. Nevertheless, communication between the receiver and the mortgagee is entirely proper. As was stated by Einstein J in Chia 50 NSWLR at [881] (citations omitted): But there is no doubt that the law allows, and even requires, interaction between a receiver and his or her appointors. The receiver occupies a fiduciary relationship with his or her appointors, one aspect of which is the duty of the receiver to keep his or her appointors informed about the progress of the receivership. 111 I accept that if a mortgagee directs the exercise of the powers of a receiver, or interferes with his or her conduct in the realisation of assets, then the usual consequences of the agency relationship between the receiver and mortgagor may be displaced: Florgale 11 VR at [496]; Chia 50 NSWLR at [881]-[886]; American Express International Banking Corporation v Hurley (1985) 3 All ER 564 at 568 and 571. 112 However, more than mere consultation or the communication of preferences by the mortgagee would be required: Chia 50 NSWLR at [885]. 113 The applicants relied upon the following main matters to support their contention that the Bank was heavily involved in the performance of the Receivers' duties: &#8226; The Bank had expressed a preference for a sale to Bundaberg on 6 January 2001. &#8226; On 30 January 2001, Mr Ray Pridmore, Global Credit Manager of the Melbourne branch of the Bank, spoke to members of Tully stating "[the Bank] can't allow the [Bundaberg] offer to lapse. [Mr Pridmore] will attempt to negotiate an extended period." At that time, no final offer had been received by the Bank from Bundaberg (through the Receivers). &#8226; Clause 18 of the Contract, which provided for the Bank to elect to complete the Contract or exercise the power of sale as mortgagee could only have been inserted on the Bank's instruction. The applicants submitted that if the Receivers were simply acting as agents for the Company, there would be no need for them to add such a clause. &#8226; On the morning of 21 February 2001, Tully spoke to the Receivers and wanted to arrange a meeting. The Receivers said they could not arrange a time without first conferring with the Bank at 10.30 am. &#8226; Mr Dennis wrote to Tully on 22 February 2001 and said "the position of our negotiations with [Tully] was duly considered in a telephone conference with [the Bank] on 21 February having regard to the interest of [the Bank] and the other stakeholders and in the context of the information available to me". 114 The applicants submitted that the Receivers were not merely consulting with the Bank but were taking instructions from it regarding negotiations with Tully. The applicants submitted that it was the Bank who considered the proposal of Tully at the telephone conference with the Receivers, which would have been unnecessary unless it was instructing the Receivers about them. The failure of the Receivers to communicate with Tully and bring them into competition with Bundaberg after a telephone conference with the Bank could only have occurred after instructions were taken from the Bank as to the manner in which the Receivers were to proceed. The applicants also submitted that the entirety of the communication between the Receivers and the Bank is within the Bank's and the Receivers' knowledge. As they have chosen not to go into evidence, the Court is entitled to more confidently draw an inference in favour of the applicants in the absence of evidence from the Bank and the Receivers.