The mortgagee sale
20 Challenger Managed Investments Ltd (Challenger), the fifth respondent, was trustee of the Challenger Howard Mortgage Fund (formerly, the Howard Mortgage Trust) (the Fund). The Fund provided a loan facility to VA Corporation under which certain advances were made. The repayment of those advances was secured by two mortgages granted by VA Corporation to the then custodian of the Fund, Permanent Trustee Australia Limited (Permanent). As we will later describe, one of these mortgages was transferred by Permanent to Perpetual.
21 In relation to the claim concerning the mortgagee sale of the St Kilda property, the primary judge, after dealing with certain background matters relating to the advances made to VA Corporation under the loan facility (which do not seem to be controversial), noted a submission that Perpetual was not entitled to exercise any power of sale under the mortgage because it was required to extend the term of the loan. The primary judge found that there was nothing in this contention. No ground of appeal is raised in this regard and no submission was advanced by the appellants to identify error on the part of the primary judge in rejecting this contention. The primary judge also found that, by April 2007, interest on the loan had stopped being paid. The appellants did not dispute this finding. Subsequently a notice of default was served. The primary judge's finding in this regard was as follows:
On 2 July 2007 Perpetual served a notice of default as required by s 76 of the Transfer of Land Act 1958 (Vic), calling upon VA Corporation to pay $93,000.00, being the amount of interest then in arrears. The notice stated that if the interest was not paid Perpetual would take possession of the St Kilda Road property with a view to its sale. Mr Vasiliou acknowledged that the company received the notice. Although Mr Vasiliou argued that the notice was not a good one, he could not point to any particular deficiency in it. In particular, he acknowledged that the default referred to in the notice had occurred.
22 In fact, the notice was served by Permanent, not Perpetual, but, for the reasons which follow, nothing ultimately turns on this. This notice and its consequences were the focus of a number of submissions advanced by Mr Vasiliou in this appeal. It is a matter to which we will return.
23 The primary judge then noted a contention by Mr Vasiliou that Perpetual was not entitled to exercise its power of sale because it should have agreed to refinance the loan. The primary judge found that the appellants were not entitled to complain about any failure (if there was one) to grant what would be, in effect, an indulgence. No particular submissions were advanced by the appellants as to how or why the primary judge erred in this finding, particularly in light of other findings by the primary judge that finance, as arranged by the appellants, was conditional and that, at the time when Perpetual effected the sale, there was no certainty that the new lender would put up the required funds. In any event, another significant issue was that, at the time, the appellants did not have title to the St Kilda property. The title was with VA Corporation, then in liquidation.
24 The primary judge recorded that the sum of $4.6 million was obtained from the sale of the St Kilda property and that this was significantly in excess of the valuation provided by the valuer engaged by Perpetual. The primary judge was critical of this valuation, preferring the valuation provided by Mr Dowling who had been retained by the appellants to carry out a valuation for the purposes of the trial. Mr Dowling provided an opinion that, at the date of the sale by auction, the property was worth $5.7 million.
25 The primary judge noted that it was largely, if not exclusively, on Mr Dowling's evidence that the appellants advanced their claim against Perpetual for breach of duty.
26 The primary judge found that, in exercising its power of sale, Perpetual was subject to duties at general law, under the Transfer of Land Act 1958 (Vic) (the Transfer of Land Act) and as a "controller" under s 420A of the Corporations Act 2001 (Cth) (the Corporations Act). The primary judge concluded, however, that there was no evidence to suggest that Perpetual had breached any duties it owed to VA Corporation.
27 In this connection, the primary judge had regard to the line of authority, represented by decisions such as Stone v Farrow Mortgage Services Pty Ltd (in liq) [1999] NSWCA 435; (1999) 12 BPR 22,175 and Stockl v Rigura Pty Ltd [2004] NSWCA 73; (2004) 12 BPR 23,151, which holds that one looks to the price actually obtained on sale as being evidence of the true value of the property (provided proper steps have been taken to advertise and sell the property).
28 In the present case, the primary judge found as follows:
… Here, the evidence shows that the price obtained at the auction followed a reasonable marketing campaign. While Mr Dowling's evidence is that the price was below the property's true market value (a view I do not discount), in the absence of something to show that there had been conduct that amounted to a breach of duty on the part of Perpetual (or its agents who conducted the marketing and auctioning campaign) the claim against it must fail. There is no such evidence. Indeed, there is nothing to suggest any act or omission on the part of Sutherland Farrelly which led to the sale price being below the market price. If there was a sale at an undervalue, that is simply a fortuitous result.
29 By ground 9 of their notice of appeal, the appellants contend that the primary judge erred in not taking into account the evidence given by Mr Dowling as to the value of the St Kilda property. As the above quotation and other findings of the primary judge make clear, his Honour did take that evidence into account. By this ground the appellants also seem to challenge the primary judge's finding that the price obtained at the auction followed a reasonable marketing campaign. However, no submissions were advanced in the appeal as to why the primary judge erred in the finding he had made in this regard.
30 As we have noted, the focus of this aspect of the appeal was the notice of default and its consequences. In this connection Mr Vasiliou advanced three submissions under the overarching contention that the mortgagee did not have power to sell the St Kilda property. First, he submitted that, contrary to the express finding made by the primary judge, no notice of default had been served entitling Perpetual to exercise a power of sale with respect to the St Kilda property. In this connection Mr Vasiliou drew attention to the fact that the notice that was served was one that had been given by Permanent, not Perpetual, as mortgagee of the St Kilda property. Secondly, he submitted that the notice that was served was not for money due under the mortgage to Permanent. He said, somewhat incongruously, that the money was owing to Perpetual, not to Permanent. Thirdly, he submitted that the amount claimed under the notice included penalty interest which VA Corporation was not liable to pay. He said that, but for the inclusion of penalty interest, there was no default entitling Permanent to issue a notice under s 76 of the Transfer of Land Act.
31 The first submission is reflected in ground 3 of the notice of appeal. At trial, Mr Vasiliou accepted in cross-examination that a notice under s 76 of the Transfer of Land Act was served on VA Corporation, which, by then, was in liquidation, and that VA Corporation did not comply with that notice.
32 Section 76(1) of the Transfer of Land Act provides:
If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).
33 Section 77(1) of the Transfer of Land Act provides:
If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.
34 We have already remarked that the requisite notice was served by Permanent, whereas the power of sale was exercised by Perpetual. Those events are explained by the fact that, at the time the notice was served on 2 July 2007, Permanent was, indeed, the mortgagee of the St Kilda property. Evidence before the primary judge showed that Permanent had subsequently transferred the mortgage to Perpetual by instrument dated 22 August 2007, which was, in turn, registered on 27 August 2007. As we have noted, the sale of the property by Perpetual took place on 6 March 2008.
35 On appeal, Perpetual submitted that, as a result of the transfer, it had "stepped into the shoes" of Permanent and had taken all the rights that had accrued to Permanent from having given a notice under s 76 of the Transfer of Land Act. It relied on a general statement to this effect in Tyler ELG, Young PW and Croft C, Fisher and Lightwood's Law of Mortgage (2nd Australian Ed, Lexis Nexis Butterworths, 2005) in para 14.2 on page 368, citing Ashenhurst v James (1745) 3 Atk 270; 26 ER 958.
36 We accept this submission. In our view there can be no doubt that the power of sale conferred by s 77 of the Transfer of Land Act on a "mortgagee" includes a transferee from that mortgagee. So much is made clear by the extended definition of "mortgagee" in s 4(2) of the Transfer of Land Act, which relevantly provides:
In and for the purposes of this Act unless inconsistent with the context or subject-matter any description of or reference to any person as ... mortgagee … shall extend to his executors administrators successors transferees and assigns to the intent that every right power authority liability or obligation vested in or imposed on any such person by or under this Act shall devolve upon any such executor administrator successor transferee or assign.
37 The appellants do not dispute that VA Corporation did not comply with the notice served on it by Permanent. After the period prescribed in s 77(1) of the Transfer of Land Act, Permanent had the "right, power and authority" to sell the St Kilda property as thereby provided. That "right, power and authority" was vested in Permanent "by or under" the Transfer of Land Act. Upon the transfer of the mortgage to Perpetual that "right, power and authority" devolved upon Perpetual by operation of the Act.
38 As to the second and third submissions, it was a point of contention on the appeal that these submissions had been advanced by the appellants at the hearing before the primary judge. The primary judge recorded in his reasons (see at [21] above) that Mr Vasiliou had argued that the notice was not a good one, but said that Mr Vasiliou had pointed to no particular defect in it. Mr Vasiliou contended, but counsel for the fourth and fifth respondents (Perpetual and Challenger) disputed, that each of the second and third submissions had been advanced at the hearing before the primary judge. Neither submission is reflected in any ground of appeal.
39 We have looked at the transcript of the hearing before the primary judge and are unable to see that the second submission had been advanced. Moreover, we are unable to understand the factual basis for that submission. The material currently before us shows that two mortgages were originally registered in respect of the St Kilda property, both in favour of Permanent as mortgagee. The suggestion that money was owing to Perpetual, but not to Permanent, at the time that Permanent served the notice under s 76(1) of the Transfer of Land Act, sits discordantly with the objective fact that Permanent, and not Perpetual, was, at the relevant time, the mortgagee of the St Kilda property. We are satisfied that there is no basis for the second submission.
40 As to the third submission, Mr Vasiliou did complain, in the course of his oral evidence, that VA Corporation was not obliged to pay penalty interest. He was cross-examined on that matter. The cross-examination demonstrated that Mr Vasiliou's complaint was misconceived. Under the Deed of Loan into which it had entered, VA Corporation was obliged to pay interest at a rate defined as the "Higher Rate" (being the aggregate of the "Lower Rate" (as defined) and 4% per annum). In the event that VA Corporation paid interest as provided in the Deed of Loan, and also "duly observed and performed each and every covenant on [its] part contained or implied in each Transaction Document to which it is a party", then interest would be accepted at the Lower Rate (namely, 7.5% per annum) in lieu of the Higher Rate. The Deed of Loan incorporated the provisions of Memorandum No. AA674 filed in the Land Titles Office. An event of default under that document included the filing of an application for, or the making of an order for, the winding up of (in this case) VA Corporation. VA Corporation was wound up by order of the Supreme Court of Victoria on 29 March 2006. From March 2006 VA Corporation was charged interest at the Higher Rate. This is the penalty interest to which Mr Vasiliou referred in making the third submission. In the hearing before the primary judge Mr Vasiliou's only response was that he had never agreed to penalty interest being charged other than for the non-timely payment of interest. The evidence comprising the Deed of Loan and Memorandum No. AA674 plainly shows that contention to be incorrect. The third submission is thus without foundation.
41 There is an additional matter. In the course of his cross-examination, Mr Vasiliou did appear to suggest that, before the St Kilda property could be sold, it was necessary for a notice to be served calling for all moneys due under the mortgage to be paid (which Mr Vasiliou described as a notice of demand), in addition to the notice required by s 76(1) of the Transfer of Land Act (which Mr Vasiliou distinguished as a notice of default). This submission is reflected in the appellants' written outline of submissions to which we have referred, but not in their notice of appeal. The extent to which this point was agitated in the course of the hearing is unclear. Regardless, the point is bad. Section 76(1) of the Transfer of Land Act does not proceed on the basis that a "notice of demand" as well as a "notice of default" must be served before the power conferred by s 77(1) of the Act can be exercised.
42 The appellants did not advance any argument in relation to the other grounds of appeal apparently directed to the mortgagee sale of the St Kilda property: see grounds 11 and 12.