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Westpac Bank (PNG) Ltd v Henderson [1990] PGNC 144; [1990] PNGLR 112; N834 (12 March 1990)

N834

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

WESTPAC BANK (PNG) LTD

V

HENDERSON AND HENDERSON

Waigani
Salika AJ

12 March 1990

NEGLIGENCE - Duty of care - Particular relationships - Receiver under company mortgage - Mortgage debt guaranteed - Realisation of assets - Liability to mortgagee, company mortgagor and guarantors.

RECEIVERS - Duties of - Appointment under company mortgage - Mortgage debt guaranteed - Realisation of assets to satisfy debt - Receiver’s duties to mortgagee, company and guarantors.

MORTGAGES - Receivers - Duties of - Appointment under company mortgage - Mortgage debt guaranteed - Realisation of assets to satisfy debt - Receiver’s duties to mortgagee, company and guarantors.

COMPANIES - Receivers - Duties of - Appointment under company mortgage - Mortgage debt guaranteed - Realisation of assets to satisfy debt - Receiver’s duties to mortgagee, company and guarantors.

Held:

(1) Where receivers are appointed pursuant to a mortgage from a company to a bank as mortgagee, the receivers owe a duty of care in respect of the realisation of the assets of the company for the purposes of satisfying the mortgage debt to the company, the bank as mortgagee and any guarantors of the mortgage debt.

Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 at 1415, followed.

(2) The bank as mortgagee will not be responsible for the acts and defaults of the receiver unless and to the extent that he interferes in the acts of the receiver.

Cases Cited

The following cases are cited in the judgment:

ANZ Banking Group (PNG) v Kila Wari (Salika AJ, 16 February 1990, N 801, unreported).
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] EWCA Civ 9; [1971] Ch 949; [1971] 2 All ER 633.
Expo International Pty Ltd (Receivers and Managers Appointed) (In Liq) v Chant [1979] 2 NSWLR 820.
Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410; [1982] 3 All ER 938.

Statement of claim and cross-claim

These were proceedings in which the plaintiff/Bank sought to recover moneys from the defendants as guarantors of a mortgage to it and in which the guarantors cross-claimed for damages for negligence.

Counsel:

J Sleight, for the plaintiff.
W Frizell, for the defendants.

12 March 1990

SALIKA AJ.: This is a matter where the plaintiff advanced some moneys to a company, Agquip Pty Ltd. That advance was guaranteed by the defendants by a deed of guarantee.

The company failed to repay the money and so the plaintiff is suing the guarantors for the unpaid moneys.

The defendants have filed a cross-claim claiming:

1. That the Plaintiff put in a Receiver pursuant to a mortgage that they had over the property of Agquip Pty Limited.

2. That pursuant to the mortgage, the plaintiff appointed as his agents or his servants Messrs Hadwyn & Baker of Price Waterhouse as Receivers of the assets and undertaking of the Company and that on 17 May 1984 the Plaintiff acting under that Deed removed Messrs Hadwyn and Baker and appointed Messrs Telfer and Hall in substitution for them as Receivers of the Company.

3. The defendants then say that the receivers owed a duty of care to the defendants/Cross-claimants and that in breach of that duty of care the Receivers sold the assets of the Company at an under-value.

4. The result of the sale at the under-value was that the Company could not repay the Plaintiff.

5. The Plaintiff therefore enforced its guarantee and therefore the Defendants suffered a loss for which the Plaintiff is responsible.

This matter was set for trial to be heard on 8 March 1990 at 9.30 am. The trial notice was filed at the National Court on 24 October 1989. Prior to that, a default judgment had been entered in favour of the plaintiff on 17 May 1989. That judgment was subsequently set aside on 18 August 1989. All parties were aware that the matter was set for trial on 8 March 1990. On 8 March, Mr Frizell, on behalf of the defendants, applied to the court to have the proceedings adjourned because the defendants and their witnesses were not available. The defendants live outside Rabaul but in Papua New Guinea. Mr Frizell also applied to have the trial conducted at the Rabaul National Court.

I refused this application for adjournment because the matter was set down for trial four clear months ago and in my view that is more than sufficient time in which to bring in the defendants and their witnesses. The application to have the trial shifted to Rabaul is just too late. That application should have been made a long time ago. This is the date for trial and not for changing venues of trial. I then ruled that the trial would proceed as scheduled.

Obviously, the defendants called no evidence as they had no witnesses here.

The defendants used their cross-claim as the defence. In their pleadings they admitted being guarantors of the cash advance by the plaintiff to the company, Agquip Pty Ltd. They also admit the amounts unpaid to date.

The defendants’ counter-claim and defence is that, because the plaintiffs had appointed the receivers to move into Agquip Pty Ltd and run the affairs of the company, they (receivers) owed a duty of care to them (the defendants) to exercise reasonable care, diligence and professionalism so as not to sell its assets at an undervalue and because of that duty, the appointing authority, the plaintiff, is ultimately liable for any acts done by the receiver. Mr Frizell for the defendants, however, made no submissions to support that proposition nor did he call any evidence. The defendants are directors and shareholders in Agquip Pty Ltd and also guarantors of the loan made by the Bank to the company.

The plaintiffs argue that the receivers were appointed for the company and, if any duty of care is owed by the receivers to anyone, it has to be to the company and not the defendants/cross-claimants. However, it is argued that duty to the company is limited. The plaintiff argues that a receiver only has to act in good faith and under the terms of the mortgage deed.

The plaintiffs further argue that a receiver is usually appointed by the mortgagee in cases of this nature but the mortgagee is not responsible for any acts of the receiver. It was submitted that the proposition is enforced by EXPO International Pty Ltd (Receivers and Managers Appointed) (In liq) v Chant [1979] 2 NSWLR 820 at 827g-828a:

"It is clearly enough established that, where a receiver and manager is appointed under the terms of a floating charge, and is expressed to be the agent of the mortgagor, even though the appointment is made by the mortgagee, the latter is not responsible for the actions of the receiver and manager."

The plaintiff went on to argue that the mortgage deed itself puts the issue to rest where it provides under cl 3(iii) that:

"Provided always that every such receiver shall be the agent of the mortgagor and that the mortgagor alone shall be responsible for his acts and defaults."

The plaintiff therefore argues that authorities clearly indicate that in this case the receiver was the agent of Agquip Pty Ltd and the Bank was not responsible for the receiver’s acts and defaults.

The plaintiff says that it therefore follows that, if a receiver has caused loss, it is he who should be sued in his own right as a receiver and not the appointing authority. Furthermore, the receiver’s duty of care is only to Agquip Pty Ltd which alone can sue the receiver.

Recently I dealt with the case of ANZ Banking Group (PNG) Ltd v Kila Wari, a mortgagee — mortgagor case where the plaintiff bank was suing the defendant for the repayment of a loan advance after it had exercised its power of sale. After the proceeds of the sale had been realised, it was still not sufficient to cover the loan. The defendant cross-claimed on the basis that the bank (mortgagee) had been negligent in selling the property at an under-value. In that case, I found the mortgagee negligent in failing to exercise reasonable care to obtain a fair market price for the property. I applied the principles set out in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] EWCA Civ 9; [1971] 2 All ER 633, that a mortgagee has a duty of care in exercising its power of sale to obtain a fair price for the property.

The situation in the present case is different in that there is the Bank which is the mortgagee, Agquip Pty Ltd the mortgagor, the defendants as the guarantors and Tefler and Hall as receivers.

After the mortgagor was unable to meet its responsibilities, the mortgagee then turned to the guarantors but the guarantors could not do anything, so the mortgagee appointed the receivers to enter into the mortgagor’s premises to realise the mortgaged property. After the assets of the company had been realised, there was still K84,175 owing to the Bank by the company.

The defendants alleged that the receivers failed to exercise reasonable care, skill, diligence and competence in carrying out the sale. They allege that the company’s assets were sold at an undervalue by the receivers and as such they had suffered damage. The defendants/cross-claimants argue that the receivers owed a duty of care to them as guarantors to get the best possible price for the company’s assets.

I respectfully do not agree with the submissions of the plaintiff to the extent that the receiver owes no duty of care to the guarantor. I am of the view that a receiver as the agent of the mortgagor owes a duty of care both to the company and to the guarantor. This is because it is in the interests of both the company and the guarantor. Whatever the receiver does in realising the assets of the company, the guarantor will be affected insofar as determining the liability of the guarantor is concerned. The guarantor is liable to the same extent as the company is. I refer to a judgment of Lord Denning MR in the case of Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 at 1415-1416:

"So far as the receiver is concerned, the law is well stated by Rigby LJ in Gaskell v Gosling [1897] UKLawRpAC 40; [1896] 1 QB 669, a dissenting judgment which was approved by the House of Lords [1897] UKLawRpAC 40; [1897] AC 575. The receiver is the agent of the company, not of the debenture holder, the bank. He owes a duty to use reasonable care to obtain the best possible price which the circumstances of the case permit. He owes this duty not only to the company, of which he is the agent, to clear off as much of its indebtedness to the bank as possible, but he also owes a duty to the guarantor, because the guarantor is liable only to the same extent as the company. The more the overdraft is reduced, the better for the guarantor."

However, I agree with the submission that the Bank (mortgagee) is not liable for the acts of the receiver provided the Bank does not interfere with the acts of the receiver, because if the Bank interferes with the duties of the receiver, it becomes liable.

The receiver was appointed to realise the proceeds of sale of the assets of Agquip Pty Ltd and to pay the net proceeds over to the Bank so as to satisfy the indebtedness of Agquip Pty Ltd to the Bank. When he did that, he owed fiduciary duties to the Bank, Agquip Pty Ltd and the defendants/cross-claimants.

It follows, then, that in this case the receivers did owe a duty of care to the defendants/cross-claimants to secure a good price for the assets of the company and the defendants should have included them in their counter-claim. They have not done that. The defendants also did not provide any evidence to suggest that the Bank interfered with the acts or duties of the receivers so as to make the Bank liable but again they have not called evidence in that regard.

I find that the counter-claim has not been substantiated by evidence and I accordingly dismiss it and enter judgment in favour of the plaintiffs claim in the sum of K181,648.35 with interest accruing at a daily rate of K38.05 until satisfaction.

I award costs of the plaintiffs claim and the counter-claim to the plaintiff.

Judgment for plaintiffs

______________

Lawyers for the applicants: Warner Shand Lawyers.
Lawyers for the respondent: Blake Dawson Waldron.