26 November 2014


Subjects: Power of sale

We previously reported on the first instance decision. This is a case note on the appeal.

Breach of duty in exercising power of sale

The borrower alleged negligence in the way the bank had sold the property. The trial judge applied the now obsolete common law test of good faith. 

The correct action these days, is a breach of s 420A of the Corporations Act (where the mortgagor is a company), or a breach of s 111A of the NSW Conveyancing Act (applies where the mortgagor is an individual).

The bank argued that as the s 420A argument was not raised in the trial the borrower should not be able to raise it in the appeal. 

The Court of Appeal was not impressed noting that:

  1. the borrower clearly complained as to the manner in which the power of sale had been exercised. 
  2. the borrower was represented by a person who did not have a right to practise as a lawyer in Australia, and whose knowledge of the law was, in part, manifestly defective.
  3. the Bank and its lawyers are under a statutory obligation to assist the Court resolve the real issues in the proceeding.

The Court of Appeal therefore proceeded to determine the matter on the basis of s420A. 

The security property was ultimately sold, for $1,200,000, the borrowers submit that there was a breach of duty in preventing the completion of an earlier written contract for sale of the property for $1,500,000.

This was rejected because the evidence at its highest, was that a solicitor had been instructed to draft a contract which included a large component of vendor finance and it was never executed. 

The Court of Appeal endorsed the following comments of the trial judge:

Whilst commercially a lender may permit the mortgagors to sell the property there is no obligation on it to do so and it may take the sale into its own hands if it feels so inclined. In this case with the negotiations with the purchaser had been going on for about five months and were not likely to conclude for another three months and that there had also been a failed auction which there were no bidders. There was no obligation on the mortgagee to agree to the mortgagor selling and in the present circumstances it would seem that waiting five months for something concrete to happen was probably enough forbearance for a reasonable mortgagee to take.

The next complaint was that the property was advertised by the bank as a mortgagee sale. The Court of Appeal held:

Advertising in such a manner does not of itself sustain a conclusion that the price realised is less than market value. It depends, on the conditions of the market and the way in which the reference is made. In the particular circumstances of this case, it would be necessary to have regard to the earlier campaign, which led to the property being passed in at auction several months previously. That earlier campaign did not refer to a mortgagee sale; it is at least arguable that it was in the interests of the vendor for the second campaign to identify a point of difference.

There was a suggestion that the bank's policy prevented it from advertising a mortgagee sale. The Court of Appeal that in any event that it did not matter. Even if there was non-compliance with the bank's policy, that would not of itself be sufficient to establish breach of duty in the facts of the case, in view of the common law on the question.

Costs

The borrower's case was argued by its director who, as the court explained, was no ordinary unrepresented litigant. His letterhead describes him as:

"A HIGH PROFILE AND VERY EXPERIENCED LITIGANT IN THE LOCAL COURT, DISTRICT COURT, SUPREME COURT, COURT OF APPEAL, FEDERAL COURT AND THE HIGH COURT OF AUSTRALIA"

At the end of the hearing, he was given leave to file supplementary submissions, of no longer than 5 pages. The judge commented:

There was literal compliance with that direction. It must be said that the submissions, which occupy precisely five pages, are typed in the smallest font I have ever seen in submissions to a court. There are 57 lines of text on page 3. But much worse than their near illegibility is the fact that the submissions repeatedly accuse the Bank and its lawyers of deliberately misleading the Court. The complaint is a clear misuse of the privilege attaching to statements made in court, by making serious allegations of impropriety with no foundation in the evidence.

The director sought to have himself removed from the proceedings so that he would not be liable to a personal costs order. The judge on appeal would have none of it:

If I were satisfied that there had been a mistake and he found himself a party to litigation and exposed to what must be a large costs order, there might be occasion to exercise the wide discretion conferred by s 98 of the Civil Procedure Act to craft an appropriate order as to costs. That is not this case. It will be evident from the foregoing that much of the cost and delay and complexity both at trial and on appeal has been attributable to his ignorance of basal principle and preparedness to make serious allegations, including of fraud, without foundation. 

Click here to read full judgment.

LesawebLesa Bransgrove holds a Bachelor of Laws and Bachelor of Commerce from the University of Queensland and a Master of Laws from the University of London. Lesa was admitted as a solicitor of the Queensland Supreme Court in 1996 and the UK Supreme Court in 2002 and as a barrister of the NSW Bar in 2009. After working on the Lehman's litigation Lesa left the bar and joined Bransgroves.

Read more about Lesa Bransgrove