THE MORTGAGEE'S DUTY ON SALE: RETRACING SOME WELL WORN PATHS

Does a selling mortgagee have a duty to act in good faith in respect of the mortgagors interests of the mortgagors interests or a higher duty of reasonable care in respect of those interests? The question has attracted different responses from the courts. In England the response has swung from the former test[1] to the latter [2] and in recent times back to the former[3]. In Australia the test applied is the good faith test following the decision of the High Court in Barnes v Queensland National Bank Ltd [4] and Pendlebury v Colonial Mutual Life Assurance Society Ltd[5] , although more recent cases in the High Court indicate the question is regarded as unresolved.

The issue has been discussed by many writers, and it is not the intention in this article to exhaustively retrace what others have said or examine all the case law on the subject. Rather the article represents some reflections arising from an examination of some of the material on the subject.

THE GOOD FAITH TEST

  Warner v Jacob [6] is seen as the seminal articulation of the "good faith" test. There Kay J stated:

There were two main issues addressed in Warner v Jacob, by Kay J: the first of these was the mortgagee as trustee; the second was the mortgagee's duty on sale. The former issue had been decisively addressed by Sir Thomas Plumer in Cholmondeley v Clinton[8] where he contrasted the differences between the relationship of mortgagee and mortgagor as against that of trustee and beneficiary, highlighting the characteristics of a mortgagee which stood "directly opposite" to that of a trustee[9]. Kay J also drew on Kirkwood v Thompson[10] , Locking v Parker[11], in re Alison and Johnson v Mounsey[12], besides citing Cholmondeley v Clinton, in support of the view that the mortgagee was not a trustee. In respect of the latter issue of the mortgagee's duty on sale, Kay J referred to Jones v Matthie[13] which he noted had reversed the decision in the lower Court of Matthie v Edwards[14]. These two cases dealt with a situation of a mortgagee exercising a power of sale over a reversionary interest within a few weeks of the death of a mortgagor and prior to a grant of probate of the mortgagor's will. The family of the mortgagor offered to pay all the debt as soon as the relevant assignment documentation was prepared, but the mortgagee proceeded to sale. The power of sale was onerous in that it was exercisable if the loan repayment was not made within 2 months of the advance being made. (Default occurred 3 months prior to the testator / mortgagor's death). No notice of exercise of power of sale was required. A further matter that exercised the Court was that the widow on the testator's death was entitled to a life interest and the remainder passed to the issue. There was no issue born at the time of the testator's death, and at the time of sale it was uncertain as to whether the widow was pregnant (that question, of course, affecting the value of the reversion). In the lower Court Vice Chancellor Sir J L Knight Bruce was of the view that it was imprudent "in a high degree[15]" to sell whilst the matter of the pregnancy remained unclear. He thought the conditions of the mortgagee questionable ("That any man having a solicitor should have been allowed, for the sake of borrowing £120, to execute such a deed may be reasonably thought a matter of wonder.[16]") He felt the conditions and circumstances of the sale appeared to have been "calculated to lead to a sale at an undervalue"[17]. He enunciated the principle:

The Vice Chancellor adopted a reasonable care test. He applied the test to the facts as interpreted by him, and found that the mortgagee had in the circumstances proceeded:

It is apparent in reading the judgement that the Vice Chancellor's decision was affected by the terms of the mortgage as much as anything else. This was alluded to in the appeal before the Lord Chancellor who took the view that the obligation was on the mortgagor to consider at the time of contract whether too large a power had been given to the mortgagee. Once given, the mortgagee was entitled to exercise the power which the contract conferred. The Court will only interfere.

The Lord Chancellor further found that decided there was no issue of selling at or under value and there was no requirement to wait nine months to ascertain whether issue of the testator might be born to his widow. It was clear the mortgagee had proceeded "within his right and his power"[22], even though the mortgagee used the solicitor who had also acted for the mortgagor! It is worthy of note that the Lord Chancellor did not clearly enunciate a differing legal duty for a mortgagee from that enunciated by the Vice Chancellor in the case below.

However the Lord Chancellor did indicate that:

without attempting to state what "arbitrarily" might mean (in contrast to the principle stated by the Vice Chancellor above). It is submitted, that the essential difference between the two decisions resulted from the view taken of the facts.

The remaining case referred to by Kay J, namely Davey v Durrant[24], specifically refers to the mortgagee conducting "a bona fide sale at a fair value" that "was warranted by the power"[25] that had been "given by the deed"[27] which in fact allowed a sale by private contract or auction and accordingly meant that the mortgagee was not required to advertise the property to justify the acceptance of a fair offer. The power of sale further provided that[27] "that all arrangements sales conveyances, acts, matters and things done by the mortgagee were deemed done with the mortgagor's concurrence". In Davey v Durrant Lord Justice Knight Bruce stated[28] that a larger sum on sale may have resulted by the mortgagee speculating and waiting a longer time, but the mortgagee was not bound to speculate and wait and the price obtained was in fact reasonable and fair. His Lordship's words must of course be read in light of the specific power of sale.

What this diversion into history demonstrates is that the basis of Kay J adopting the good faith test may not be as clearly founded as initial impressions might indicate. Apart from anything else, the drafting of the power of sale in the cases relied on by Kay J had a specific effect on their outcome. Further the citations used by Kay J from Davey v Durrant and a further case Adam v Scott[29], in Warner v Jacob[30] refer to the position of a purchaser buying from a mortgagee rather than the position of a mortgagee exercising a power of sale.

Whether or not the basis of the formulation of the good faith test by Kay J is open to some questioning, the fact is it was adopted by the Court of Appeal in Kennedy v De Trafford[31](by which time Kay J had been elevated to that Court). The decision of the Court was affirmed by the House of Lords when it went on appeal[32]. In the Court of Appeal Lindley J T sought to clarify his words in Farrar v Farrars Limited[33] where he had stated the duty of the mortgagee was to act bona fide and to take reasonable precautions to obtain a fair price[34]. His Lordship indicated that by "reasonable precautions" he had meant acting in "an honourable and businesslike manner[35]" without sacrificing the mortgagor's interest. Kay L J and A L Smith concurred indicating the proper mortgagee's duty was to act bona fide. Earlier in his judgement Lindley L J stated:[36]

(He also referred to these words as clarifying what he had meant in Farrar v Farrars Limited by "reasonable precautions".)

Taking up these words of Lindley L J in the House of Lord's appeal, Lord Herschell made the point that if the mortgagee:

Lord Herschell then went on to make a somewhat ambivalent statement which has been seen as tending to favour of the "reasonable care" test[38].

Another view is that[39] the statement does not indicate an acceptance by his Lordship of the reasonable care test and this is indicated by his use of the words "if you were to accept". Whatever view is right, there is no doubt that the statement by his Lordship only added to the confusion regarding the status of the appropriate test. It might also be noted that it would have been very easy for Lord Herschell to indicate his non-acceptance by adding after the words "if you were to accept", the words "which I don't" or some other words of a like nature. Lord Macnaghten in his judgement maintained "the good faith" test, Lords Morris and Shand merely concurred.

In Farrar v Farrars Limited[40] Lindley L J in the Court of Appeal (giving judgement on behalf of himself, Cotton and Bowen L J J) stated:

The judgement affirmed the decision of Chitty J in the Lower Court. Interestingly Chitty J had given a broader view of the duty. In respect of the selling mortgagee Chitty J stated[42]:

And later (at the same reference):

(The emphasised words are in contrast to the view expressed by Lord Denning in Standard Chartered Bank Ltd v Walker and Anor[43].

This broad articulation by Chitty J together with that of Lindley L J has been categorised by some as the reasonable care test and others as the good faith test. Professor Tyler [44] saw it in the latter would on the basis of the clarification given by his Lordship in his judgement in Kennedy v De Trafford[45]. However, with respect, the time for his Lordship to clarify his position was in Farrar v Farrars Limited where it was open to him to condemn the articulation of Chitty J in the Lower Court. It would seem that Lindley L J had one position in Farrar v Farrars Limited and a different position in Kennedy v De Trafford. In fact Salmon L J in Cuckmere Brick Co Ltd v Mutual Finance Ltd[46] remarked that in Kennedy v De Trafford, Lord Lindley had resiled from his view in Farrar v Farrars Limited. Croft also saw Lord Lindley's judgement in Farrar v Farrars Limited as representing an articulation of the good faith test[47].

On the other hand, others have seen Farrar v Farrars Limited as representing approval of the reasonable care test. Apart from Salmon's L J statement on the matter above, Cross L J saw the Lord Lindley's views as consistent with the judgement in Wolff v Vanderzee[48]. Professor Butt also sees this case as an example of the duty of care test[49].

If nothing else, the case indicates the confusion that exists about the completing tests.

Cuckmere Brick Co Ltd v Mutual Finance Ltd [50]is seen as the dominant authority on the reasonable care test. The mortgagee through a selling agent had sold the mortgagor's property, advertising that planning approval for townhouses had been granted, when the approval had extended to flats as well. The plaintiffs alleged the misleading advertisement had resulted in less than full value being obtained for the mortgage security. In the Court of Appeal, Lord Cairns stated[51] that he found the authorities impossible to reconcile in a satisfactory manner but on balance thought they favoured a duty of care. Cross L J thought it strange that a mortgagee who acted in good faith would be under no liability should the mortgagee or his agent be negligent[52] . Salmon L J explicitly stated the duty in terms of Donoghue v Stevenson. Speaking of the mortgagor and mortgagee his Lordship stated[53]:

The authorities relied on by the Court of Appeal have received some criticism. Firstly, there came Wolff v Vanderzee[54] where a selling mortgagee in possession through his agent failed to make proper inquiries in relation to the amount of rent being paid by the tenant of the property and accordingly inaccurately described the rent on sale affecting the value realised for the property. The Court in Wolff v Vanderzee cited with approval Marriott v The Anchor Reversionary Company[55] concluding that there had been "neglect and default of the grossest kind", and also that "the greatest care and circumspection was necessary in the exercise of the power of sale"[56]. (The point should be made that the citing of Marriott's case may have been stretching its application. The issue in Marriott's case was the misuse and neglect of a ship by a mortgagee in possession which caused it to deteriorate in value. It was not neglect in the actual exercise of the power of sale, but neglect in the care of the possessed ship prior to sale, that resulted in a reduced price when sale took place.)

Whilst Wolff v Vanderzee may have involved a selling mortgagee in possession, it was firmly focused on the conduct of the sale (and not on the conduct of the mortgagee's possession of the security pending sale). There is no doubt that possession and sale are two distinct concepts. Sale is not dependent on possession. Accordingly it does not necessarily follow that the onerous duty on a mortgagee in possession will be the same duty when that mortgagee sells. Croft[57] dismisses Wolff v Vanderzee as "more concerned with the liability of a mortgagee in possession than his duty on sale". There is no doubt that the rationale of the case may have been based on an authority more concerned with liability of a mortgagee in possession, however the case itself was directed to the duty of a selling mortgagee. Professor Tyler[58] also criticises Wolff v Vanderzee on the basis that the finding that there had been "neglect and default of the grossest kind" indicated it was not a case of mere negligence but "a case of reckless disregard of the mortgagor's interest". Accordingly he argues, the case was no real authority for the reasonable case test. However this line of argument is still faced with the reality that a reasonable case test was enunciated in respect of the selling mortgagee's conduct. If there is anything that may be said with certainty about Wolff v Vanderzee it is this: as a starting point for the reasonable case test its source is about as clear cut as those sources relied on in Warner and Jacob[59] as a basis for the good faith test.

The next case cited by the Court of Appeal as a source of authority was National Bank of Australasia v United Hand-in-Hand and Band of Hope Company . The reasonable care test is seen as advocated by the Privy Council in the words[61]:

Professor Tyler suggests[62] that the use of the words "wilful negligence and default" points to a good faith test. That is to ignore the full sentence which uses "due care and diligence" in the same context as "wilful negligence and default". The context leaves it open to argue logically just as much for a reasonable care test.

Tomlin v Luce[63] was also cited by the Court as an authority. In this case the mortgagee's agent on sale described the security as having kerbed roads when in fact it did not. The purchaser claimed compensation and the first mortgagee was held liable to the second mortgagee for the neglect of first mortgagee's agent on sale. Kekewich J stated the mortgagee owed a duty to the person entitled to the equity of redemption and cited the judgement of Lord Lindley in Farrar v Farrars Limited[64]. When Tomlin v Luce went on appeal, the Court of Appeal[65] made no criticism of Kekewich J formulating a duty being owed by the mortgagee. The criticism on appeal was restricted to the damages awarded.

(Farrar v Farrars Limited was also relied on in Cuckmere that case having previously been dealt with.)

The final major authority dealt with by the Court in Cuckmere as supportive of its decision was the Privy Council decision in McHugh v Union Bank of Canada[66]. Both Lord Justices Salmon and Cross cited[67] with approval this statement of Lord Moulton:

One of the major criticism of this case as an authority for the reasonable care test is that it concerned the sale by a mortgagee of horses particularly the manner in which the horses had been cared for after the mortgagee had taken possession. The lack of care had resulted in the horses reaching less than their potential value on sale bring forth the mortgagor's complaint as Lord Justice Cross stated:

It has been said[70] that the words cited by Lord Justices Salmon and Cross from McHugh's case must be read as referring to the lack of care of the horses pending sale. There is no doubt however that Lord Justice Cross at least was aware of the context in which the words were used and was confident that they could be severed from reference to the mortgagee's conduct pending sale and applied to the actual execution of sale. It is submitted the test stated by his Lordship was one that had been indicated in earlier cases and referred to by Salmon L J as "entirely consonant with the general principles" later evolved by the common law. As his Lordship stated:

The members of the Court in Cuckmere were also faced with explaining the decision in Kennedy v De Trafford[72]. This they did by referring to the equivocal statement in that case that if the mortgagee had a duty to take care, the mortgagee had in fact taken reasonable precautions in the exercise of the power of sale[73]. Further Lord Justice Salmon noted the cases upon which the Court was relying had not been cited in Kennedy v De Trafford.

It is submitted that this short review of the early authorities indicates that the case for one test as against the other has equal support in the authorities. It also demonstrates that articulations of a reasonable care test were in existence for just as long a period as the good faith test.

The reasonable care test was followed in Bank of Cyprus (London) Ltd v Gill[74] [1979] 2 Lloyds LR 508. There the mortgaged security was a hotel of which possession was taken following the mortgagors default. Following a consultants report the mortgagee closed the hotel, sold it subsequently by private treaty, and later sued the mortgagor for the balance of mortgage debt after deduction of the sale proceeds. The mortgagor claimed the bank had failed to exercise reasonable care citing the subsequent sale of the hotel by the new owner three years later for a sum in excess of the mortgage debt. Lloyd J based his decision on Cuckmere Brick Co Ltd v Mutual Finance Ltd[76] stating[76]:

The decision and statement of principle of Lloyd J is unremarkable as an articulation of the Cuckmere principle. However in Standard Chartered Bank Ltd v Walker and Anor[77] Lord Denning M R seemingly extended the principle. In Standard Chartered a guarantor was called upon to make up the deficiency of the corporations indebtedness upon realisation of the mortgaged security. The guarantor alleged there had been negligence in the conduct and timing of the sale by the mortgagee and that the receiver of the property had acted under the mortgagee's instructions becoming in effect the mortgagee's agent.

In affirming the Cuckmere Brick case Lord Denning firmly placed the mortgagee's duty on sale within the Donoghue v Stevenson principle[78]:

A further significant development in Standard Chartered Bank v Walker was the extension of the Cuckmere principle to guarantors. The duty of care was owed by mortgagees exercising the power of sale not merely to the mortgagors but also to guarantors. Lord Denning M R stated[79]:

Lord Denning, however, went further and extended the duty to receivers. He stated:

In China and South Sea Bank v Tan[81] a debtor defaulted, the debt being guaranteed by a surety mortgaging shares worth twice the debt. The creditor did not exercise its power of sale over the shares and eventually they became worthless. At about that time the creditor demanded payment from the surety and took action for recovery of the debt. The Privy Council held there was no duty to exercise the power of sale cast on the creditor.

The Privy Council decided the matter on equitable principles declaring:

This case represented a turn from expansion of the reasonable care test by Lord Denning M R and a definite preference for confining any duty to equity.

In Parker-Tweedale v Dunbar Bank PLC[84] and Ors the plaintiff's wife was the sole owner of a property mortgaged to the defendant mortgagee which was sold under the power of sale with the wife mortgagor's consent. The husband held a beneficial interest in the property and maintained it was sold undervalue. He issued proceedings against the mortgagee on the basis it had notice of his interest and did not take reasonable care to obtain a reasonable price and against the wife for breach of trust. He ultimately proceeded against the mortgagee only. The Court of Appeal held the mortgagee's obligation to take reasonable care did not extend to a person with a beneficial interest of which the mortgagee had notice Nourse L J stating:

Nourse L J referred with approval to the words of Salmon L J in Cuckmere[86] where the latter had referred to equity developing its own duty of care test:

His Lordship then referred to the Privy Council decision in China and South Sea Bank v Tan referred to earlier[87], and adopted them with approval. Like the Privy Council his Lordship viewed the duty of reasonable care from equitable principles making no attempt to seek consistency with the words of Denning L J in Standard Chartered Bank Ltd V Walker extending the duty in the context of negligence principles[88]. His Lordship stated:

After China and South Sea Bank v Tan and Parker Tweedale v Dunbar Bank PLC, it may be said that there are three duties available to the selling mortgagee that have received judicial approval. Two of those duties belong to equity: to act in good faith, to take reasonable care; one belongs to negligence: to take reasonable care. The equitable duty to take reasonable care has the same characteristics as the negligence duty, except the equitable duty is restricted to the relationship between mortgagor and mortgagee and allows for no extension of the duty outside that relationship to third parties.

The question of mortgagees duty of care was also dealt with by the Privy Council in Downsview Ltd v First City Corp Ltd[90]. Their Lordships held that the:

Their Lordship alluded to warnings of the House of Lords in extending the ambit of negligence to:

They further pointed out that a replacement of the defined equitable duties of mortgagees, receivers and managers by a liability in negligence would cause confusion and injustice. There might be speedy sales by managers and receivers to repay indebtedness in order to escape liability in negligence. This may not be advantageous to the debtor company. The problem with this example given by the Privy Council is that a receiver or manager acting in a disadvantageous manner to the debtor corporation might still not escape liability. Downsview Limited v First City Corp Ltd marked an affirmation of the good faith duty as applicable to mortgagees and subsequent encumbrancers and a re-affirmation of the trend that had become apparent since not to extend negligence principle to the mortgagor / mortgagee relationship. In fact the Privy Council affirmed:

The reasonable care test seemed no longer to be applicable not only as a negligence norm, but also as an "equitable" one.

In Barnes v Queensland National Bank Limited[94] the mortgagee had agreed to allow the mortgagor time to refinance the property and the mortgagor had proceeded on that basis. Following the failure by the mortgagor to support the nomination of the mortgagee's manager as a director of a corporation, the manager on the mortgagee's behalf had advertised the property and caused the power of sale to be exercised in a manner that the jury found to be reckless and without regard to the mortgagor's interest. The High Court in a joint judgement of Griffith C J Barton and O'Connor J J declared[95] :

In Pendlebury v Colonial Mutual Life Assurance Society Ltd[96], the High Court followed its decision in Barns applying the good faith test. In Pendlebury the selling mortgagee gave the barest publicity to the advertising of the auction sale and a paucity of detail in the description of the property. Further the reserve price of the property was disclosed at the auction, the price fixed being the mortgage debt plus costs. The property was sold at a price slightly exceeding the reserve and about 75% below value.

Griffith C J approved a submission by the defendant's counsel that:

Barton J[98] cited with Chitty J in Farrar v Farrars Ltd (1888) 40 Ch D 395 at 398.

Barton J also cited[99] Lindley L J in his Lordship judgement when the case went on appeal:

After citing both these judgements Barton J takes a somewhat ambivalent approach which obliquely was supportive of the reasonable care test[100].

Isaacs J dismissed any duty to take reasonable care[101].

His Honour stated[102]:

In Latec Investments Ltd v Hotel Terrigal Pty Ltd[103] Kitto J indicated the mortgagees duty in exercise of the power of sale was one of good faith[104] a view in which Taylor J[105] and Menzies J[106] concurred, the latter referring to Kennedy v De Trafford as authority[107].

The next major consideration by the High Court of the mortgagees duty on sale was in Forsyth v Blundell[108]. The Court did not take the opportunity to resolve the issue of which test of the duty should prevail. Menzies J adopted the words of Lord Herschell in Kennedy v De Trafford [1897] AC 180 at 185 referred to earlier (see fn 38 and 39) Referring to the duty to take reasonable care Menzies J stated[109] :

Menzies J prefaced this statement with the remark that the reasonable care test enunciated in such cases as McHugh and Cuckmere was not at odds with Lord Herschell words referred to above. This might appear to provide some support for the reasonable care test.

Walsh J found he did not have to address the issue of which test should prevail because the conduct of the mortgagee was done deliberately and not through carelessness[110]. Mason J agreed that in view of the reckless conduct of the mortgagee the issue of the competing tests did not require resolution[111].

The High Court also considered the selling mortgagees duty in Australian and New Zealand Banking Group Ltd v Bangodilly Pastoral Co Pty Ltd[112]. The conduct by the mortgagee in selling to an associate was so far from constituting an independent bargain that it was not necessary to settle the claims of the competing duties. Finally, in Commercial and General Acceptance Limited v Nixon[113], the effect of Section 85 (1) of the Property Law Act 1974 (Qld) conferring a duty on selling mortgagees to take reasonable care, precluded the need for the High Court to consider the competing duties. The Chief Justice expressed the view the authorities were irreconcilable[114].

State Supreme Courts have followed the decision of the High Court in Pendlebury and have overwhelmingly preferred the good faith test to the reasonable care test. As Cole J stated in Westpac Banking Corporation v Kingsland[115].

The paragraph in "Equity Doctrines and Remedies" referred to by Zelling J saw the decisions in Hedley Byrne v Heller and Partners[118] as "a fusion fallacy of a more subtle kind" and the Cuckmere Brick case as affording "another example of the confusion of thought seen in Hedley Byrne". The authors state[119]:

Professor Tyler says[120]:

And he cities Jordan C J in Coroneo v Australian Provincial Assurance Association Ltd[121]:

In exercising the power of sale the mortgagee has two interests to deal with. These interests are the legal estate which is vested in the mortgagee and the equitable estate, the equity of redemption of the mortgagor enforced by the equity court. The legal estate is of the common law. The mortgagee cannot deal with the legal estate in an unbridled fashion because equity hinders that dealing through its enforcement of the equitable right to redeem. Before the intervention of equity the mortgagee, by virtue of the legal estate would not have been so restrained (although it does seem that prior to the Chancellor establishing jurisdiction over mortgagees there was some type of common law action to decree a reconveyance[122]). The source of the mortgagee's power of sale is accordingly in the common law. It may well be that powers of sale were not:

But what that meant was that equity took control of the power of sale. Equity was not the source of that power but the controller of it. To speak of the power of sale as the "creature of equity" or as "not a common law power" is, with respect, misleading. Professor F W Maitland in his equity lectures stated as follows[124]:

And later he continues:

Professor Maitland then proceeds to describe how the power of sale was given first by equity in the mortgage documentation before statute subsequently gave such a power to the mortgagee.

To deal with the power of sale then, purely on the basis of equity is to ignore the reality that its source lies in the common law. It was because of the harsh consequences of the common law (for mortgagors, when mortgagees held the legal estate) that Equity intervened. The common law had no remedy (or perhaps insufficient remedy in view of fn 122) for disenchanted mortgagors divested of their property. However if the common law since the intervention of equity has developed a remedy, should that remedy be ignored? If the basis of ignoring the remedy is that the mortgagees power of sale is the province of equity than it is submitted that basis is incorrect. And there is really no basis for saying that any common law remedy would represent a fusion fallacy because the common law element has always been present in the power of sale as the power's source. Accordingly, given that equity developed its own reasonable care test[125] it does not seem inappropriate for that test to develop into a common law remedy even though it be provided through the invasive tentacles of the tort of negligence.

Isaacs J in Pendlebury v Colonial Mutual Life Assurance Society Limited[127] expanded further on this conflict between mortgagor and mortgagee. Referring to the mortgagee his Honour stated:

His Honour's discounting of any duty of care is premised on the fact that there are adverse interests between mortgagor and mortgagee. But is it true to say that adverse interests cannot co-exist with a duty of care? Most, if not all, tort situations are constituted by the parties being drawn together by a duty of care whilst at the same time having adverse interests. The professional person of the Hedley Byrne variety is mindful of the duty of care owed to the recipient of the proferred information in view of the potential conflict or adversity that might arise between the parties if the advice is not reasonable. The driver of a motor vehicle owes a duty of care to the accompanying passenger, but that does not prevent the driver from having regard to the driver's well being to the adversity of the passenger's well being, in a particular situation, without breach of a duty of care. So that in Cook v Cook[128] the potential adversity that arose from the relationship of passenger and driver resulting from the driver's known inexperience co-existed with a duty of care that arose from carelessness on the driver's part existing over and above that inexperience. It is submitted that the existence of adversity of interests between the selling mortgagee and the mortgagor is not inconsistent with a duty of care.

From another point of view the role of law is after all no more that of a regulator of the adversity brought about by the expression of each persons individual uniqueness among other beings who share different facets of that uniqueness. Part of that regulation is seen in the duty of care. Adversity and duty (or the potential for them) are present in any given situation of human conduct.

The adverse interests of the selling mortgagee in relation to the mortgagor are of course, on a much more confronting scale. They are not merely passive. The selling mortgagee is pro-active in promoting his or her adverse interests. However this does not mean that they cannot co-exist with a duty of care. There can be no more confronting situation than an assault. In that situation the law recognises a defence: retaliation by way of self defence. The parties in such a situation have overt adverse interests. Yet the law recognises a duty of care that any retaliation must not be excessive. It would seem the law of torts is admirably suited to deal with adverse interests co-existing with a duty of care.

Isaacs J adverted to public policy in Pendlebury v Colonial Mutual Life Assurance Society Limited[129] when he said:

In the context of 1912 this statement no doubt was valid. But would it really have validity in modern times where finance is so readily available and the deregulated market is so competitive in making it available. And is there any indication that the imposition of a duty of care by statute in Queensland (see S 85 (1) Property Law Act 1974) for selling mortgagees has resulted in lenders recoiling from making loan advances thereby imposing "a heavy burden upon needy borrowers".

In Downsview Ltd v First City Corp Ltd[130] the Privy Council also raised a fear on behalf of mortgagees (and receivers).

But the fact remains that provided the mortgagee / receiver exercises reasonable care there is no need for fear. Further any disadvantage to a mortgagee must surely be set off against the advantage to mortgagors who maintain they are taken advantage of in some circumstances.[131]

As Biggs CJ stated in Commercial and General Acceptance Limited v Nixon[132], the authorities are irreconcilable on whether the test of the mortgagee's duty on sale is one of good faith or of reasonable care. Certainly both tests have co-existed for so long as to have valid recognition. To argue that the power of sale of the selling mortgagee is the province of equity and that the appropriate test on that basis is the good faith test is to ignore the fact that the source of the power of sale lies in the common law. It is also to ignore the fact that equity always recognised a reasonable care test[133]. For that reasonable care test to be developed in modern times by the Donoghue v Stevenson[134] principle arguably represents a logical development of the law rather than a so called fusion fallacy. Further, the development accommodates the adverse interests of mortgagees and mortgagors. To argue that such a development will put an unwarranted burden on lenders to the ultimate detriment of borrowers does not appear to be sustainable.

Mortgagees duty on sale: retracing some well worn paths .1998 April   Australian Property Law Journal