In 2007 Mr and Mrs Pola, borrowed $7.2 million from ANZ, the loan being secured by mortgages over their properties. By late 2009 the Polas were in default and ANZ took possession of two adjacent properties in Queensland in December 2009 (the Property). In September 2010 ANZ exercised its power of sale and the Property was sold for $6.1 million.
ANZ brought proceedings against Mr Pola for the balance of the debt.
Mr Pola brought a cross-claim alleging that ANZ had failed to discharge its duty as mortgagee to “take reasonable care to ensure that the property is sold at market value” under section 85(1) of the Property Law Act 1974 (Qld) (the Act) and that ANZ:
- failed to consider and seek advice on the possibility of a separate sale of a valuable water allocation, WA 1518, attached to the Property, and
- failed to refer to the existence of the water allocation in the advertisements for the sale of the Property.
The Act imposes a duty on a mortgagee to take reasonable care to secure the market value of a property.
Section 85 Duty of mortgagee or receiver as to sale price
It is the duty of a mortgagee, including as attorney for the mortgagor, or a receiver acting under a power delegated to the receiver by a mortgagee, in the exercise of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value.
The primary judge found that ANZ had breached its duty in respect of the advertising of the Property, but otherwise dismissed the cross-claim. His Honour found that there was no breach in respect of the consideration of the separate sale of water rights because even if ANZ had considered the option, it would have been justified in not pursuing it. Judgment for ANZ was reduced by $900,000, being the difference between the sale price ($6.1 million) and the market value of the Property (found by the primary judge to be $7 million). Pola appealed and ANZ cross-appealed.
The Court of Appeal:
- dismissed the ANZ cross-appeal holding that the trial judge was correct in finding that ANZ breached its duty under the Act by failing to refer to the valuable water allocation in the advertisements for the sale of the Property;
- dismissed the Pola appeal finding that if ANZ was in breach of the Act in failing to consider a separate sale of the water allocation, there was no consequential damage;
- the primary judge followed a perfectly orthodox and appropriate process of assessing the expert evidence in respect of the valuation of the market value of the Property;
- held that the primary judge’s reduction of the judgment in favour of the Bank by the difference in the sale price and market value under Section 90 of the Civil Procedure Act 2005 (NSW) was without error; and
- held that the primary judge correctly considered the whole advertising package in determining whether the Bank had breached its duty under the Act.
In the present case the print advertisements placed advertising the sale were found to be wanting by reason of the lack of reference to WA 1518 and its “tradability”. This was found to be a serious lack of care to ensure the Property sold at market value and it was correctly found to be in breach of ANZ’s statutory duty under the Act.
Once the breach was established, it was not necessary for the appellants to adduce evidence of some identifiable individual who would have paid more for the Property if WA 1518 had been mentioned in the advertisement to succeed in their claims. The consequential damage in this instance was the sale at less than market value.
This decision again illustrates the duty of mortgagees in exercising a power of sale to achieve market value, but also exhibits that not every breach of such duty will sound in damages. It also demonstrates the importance of pre-sale due diligence and getting good expert valuations to support any subsequent sale process and price result.
For further information and advice on a mortgagee’s duty to achieve market value, contact our expert property specialists.