Carver & Anor. v. Westpac Banking Corporation [2002] NSWCA 415

COUNSEL : Mr. D. Murr SC with Mr. S. Davis for appellants Mr. S. Rares SC with Mr. A. Losurdo for respondent SOLICITORS : Star Carver & Sons, Padstow for appellants Corrs Chambers Westgarth, Sydney for respondent CATCHWORDS : MORTGAGES - Remedies of mortgagee - Power of sale - Alleged breach of duties - Sale at undervalue - Whether error by primary judge - ND DECISION : Appeal dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40532/02 SC 4151/00

MASON P HODGSON JA DAVIES AJA

Thursday 19 December 2002 CARVER & ANOR. V. WESTPAC BANKING CORPORATION Judgment 1 MASON P: I agree with Hodgson JA. 2 HODGSON JA: This appeal concerns the exercise by the respondent Westpac of its power of sale under mortgage O481679 in which the appellants are named as borrowers and the first appellant named as mortgagor, and by which the first appellant mortgaged land at Padstow Heights to the respondent to secure an advance of $136,000.00. Following default under the mortgage, on 13 September 1996 the respondent entered into a contract to sell the land for $115,000.00. The appellant brought proceedings in the Equity Division claiming that the respondent breached duties owed to the appellants in relation to the sale, and seeking an account and/or damages. 3 On 31 May 2002, Austin J dismissed the proceedings; and on 5 June 2002 he made an order for costs substantially in favour of the respondent. The appellants appeal to this Court from those orders.

CIRCUMSTANCES 4 The subject property is vacant land known as 1 Villiers Road, Padstow Heights, having an area of about 1,050 square metres and being about 11 metres wide and 100 metres long, running north-south, with its eastern and southern boundaries totalling about 110 metres fronting on to Salt Pan Creek. It is at the end of the reservation for Villiers Road (which runs east-west), but the made road stops short of this property. At the time of the challenged sale, there was no vehicular access to Nos. 1, 3 and 5 on the south side of Villiers Road, or Nos. 2 and 4 on the north side. Access to the subject property is by way of stone steps from the end of the constructed road. The land slopes very steeply in front of these properties down to Salt Pan Creek, and the cost of building an extension to the road has been variously estimated at between $250,000.00 and $540,000.00. 5 On 8 November 1994, the first appellant contracted to purchase this property for $168,000.00. The purchase was settled on 10 March 1995, with the assistance of $136,000.00 advanced by the respondent. It appears that no mortgage was granted at that stage, but the money was advanced on the basis of an arrangement whereby security was to be given over this and/or other property. 6 On 6 July 1995, the respondent obtained a valuation of the property from C.D. Chenoweth & Associates Pty. Limited (Chenoweth) at $170,000.00. The subject mortgage was apparently entered into on 12 July 1995. 7 On 25 July 1995, a Bankstown City Council Working Party Report on the land recommended approval of a subdivision into two lots, without the requirement for extension of Villiers Road, and approval in principle of proposed dwellings on the lots, subject to the subdivision. 8 On 4 August 1995, Bankstown City Council gave approval to subdivision of the subject property into two lots, each about 50 metres long, with access to lot 2 (the lot further from Villiers Road) by means of an easement part of which was on No.3 Villiers Road. The owner of that property had indicated willingness to grant such an easement. 9 On 6 September 1995, Bankstown City Council wrote confirming approval in principle for the construction of dwellings on the subdivided land. 10 Early in 1996, the respondent decided to enforce its security, consequent on the appellants' default. On 17 January 1996, it served a notice under s.57 of the Real Property Act, demanding payment of about $14,000.00. No payments had been made since the mortgage advance. 11 On 15 April 1996, the respondent obtained a valuation of the land by Mr. Hurst of Kenny & Good Pty. Limited, at a figure of $125,000.00. 12 On 22 April 1996, the respondent wrote to Century 21, Padstow, concerning the proposed sale, at this stage contemplating an auction of the property. However, on 23 May 1996, Mr. Holt of Century 21 wrote recommending against an auction. 13 It appears that some time before 22 August 1996, Westpac obtained a copy of the Working Party Report of 25 July 1995; and on 22 August 1996 it provided a copy of this to Mr. Holt. According to Mr. Holt, whose evidence in this regard was accepted by the primary judge, he spoke to an officer of Bankstown City Council about the Working Party Report, and was told that the subdivision application had not been approved. 14 On 6 September 1996, an advertisement for the property was placed in the EAC Multilist booklet, specifying a price of $125,000.00. At about the same time, an advertisement was also displayed in the estate agent's window. By about 12 September 1996, two offers had been received for the property at a figure of $100,000.00. On 13 September 1996, one of the offerors raised her offer to $115,000.00. This was accepted giving rise to the contract referred to earlier. The sale was completed on 30 October 1996.

FIRST INSTANCE PROCEEDINGS 15 At the hearing before the primary judge, a valuer Mr. Stevens of John P. Stevens Pty. Limited provided a valuation on behalf of the appellants at a figure of $380,000.00. For the respondent, a valuation was provided by a valuer Mr. O'Connor of Carritt Taylor Valuations Pty. Limited at a figure of $125,000.00. Both these valuers, and also Mr. Hurst and Mr. Holt, gave evidence at the proceedings. 16 The appellants alleged breaches of the mortgagee's duty, as follows: deficiencies in advertising the property; deficiencies in obtaining valuations of the property; selling by private treaty instead of by auction; selling at a gross undervalue; and failing to have regard to the development consent and approval in principle to construction of a dwelling. 17 The primary judge rejected these contentions. He accepted that Mr. Holt had enquired of the Council and been told there had been no approval of the subdivision, and also that Mr. Hurst had made a similar enquiry with a similar result. He rejected the valuation evidence of Mr. Stevens, and also two other valuers called by the appellants; and he accepted the valuations of Mr. Hurst and Mr. O'Connor. He held that the sale price was in an acceptable valuation range, that is, within a tolerance of ten percent from $125,000.00.

GROUNDS OF APPEAL 18 The appellants rely on the following grounds: 1. His Honour failed to give adequate reasons in relation to the acceptance and reliability of witnesses and issues in dispute, in circumstances of there being a delay of nine months between the conclusion of the evidence on 31 August, 2001 and the delivery of the Reasons on 31 May, 2002.

His Honour erred in finding that the conduct of the respondent, in exercising its power of sale, was other than in bad faith.

His Honour erred in failing to find that the respondent disregarded the interests of the appellants when it exercised its power of sale.

His Honour erred in finding that the respondent's advertising of the property was adequate.

His Honour erred in determining that it was appropriate in the circumstances for the sale to be effected by private treaty with an exchange occurring within 14 days of the property being first offered for sale, at a price less than that first offered.

His Honour should have determined that in exercising the power of sale, the respondent did not act in good faith, or alternatively, failed to take reasonable care to obtain a proper price for the property.

His Honour failed to adequately analyse the strengths and weaknesses of the competing evidence of value added before him.

His Honour erred in finding that the sale price of $115,000 was within an acceptable range of values for the property.

His Honour failed to give full weight and effect to the business records and business procedures of the respondent and evidence of available bank officers.

His Honour erred in failing to have any, or adequate, regard to the unexplained failure by the respondent to adduce evidence at the trial from any bank officer with direct authority and knowledge of the matter, being Messrs. Matheson, Skwarek, Heap, Ross, Jeffery or Boulding.

His Honour erred in his determination of the consequences of knowledge of the respondent as to the existence of DA and in-principle BA and the apparent absence of knowledge by the respondent's agents of that circumstance.

His Honour erred in failing to have any regard to the failure by the respondent to adduce any evidence of the value of the property which took into account the existence of the DA and in-principle BA.

His Honour erred in the approach taken to the evaluation of the evidence of value of the parties.

His Honour erred in finding the evidence of Mr. Holt to be reliable or, if found to be reliable, omitted to give proper weight to the consequences thereof.

His Honour erred in finding the evidence of Mr. Hurst to be reliable or, if found to be reliable, omitted to give proper weight to the consequences thereof.

His Honour erred in finding the evidence of Mr. O'Connor to be reliable or, if found to be reliable, omitted to give proper weight to the consequences thereof.

SUBMISSIONS 19 Mr. Murr SC for the appellants submitted that the primary judge was in error in not finding that the advertising was inadequate. He submitted that the primary judge did not take account of relevant evidence, including the evidence of need for an advertising schedule and budget, evidence that local newspapers should have been used, and Mr. O'Connor's evidence that the advertising on the face of it was "woefully inadequate". He submitted that the primary judge's conclusion was implausible, in circumstances where there was no advertising sign placed on the block itself, no mention of the property having a water frontage on two sides, at the south end being deep enough for a jetty, and no mention of the Council approvals. He submitted that the primary judge's reasoning that a prospective purchaser would find out these matters was erroneous, and he submitted that it was not sufficient for a mortgagee to leave enquiries about Council approvals to agents. Mr. Murr submitted that the sale was entered into with undue haste: Mr. Hurst had recommended a six month marketing campaign, yet the respondent accepted an offer after very few days. 20 On the valuation evidence, Mr. Murr submitted that although Mr. Hurst gave a valuation of $125,000.00, he said that $150,000.00 was achievable, and that the respondent should put the property on the market at $150,000.00 and that, if the property was not sold within a reasonable time, it may be necessary to come down. Mr. Murr submitted that the closest comparable property, 118 Moons Avenue, Lugarno, had been the subject of genuine offers between $155,000.00 and $160,000.00, and was in fact sold on 19 August 1996 for $174,000.00. This block was smaller than the subject block, more difficult to build on, and had a much smaller water frontage. On the other hand, it did have some vehicular access. The next closest comparable was 138A Moons Avenue, Lugarno: vehicular access onto this property was not possible, although there was car parking at both ends of the property. It did not have a water frontage. It had attracted offers of $180,000.00. 21 Mr. Murr submitted that both of the respondent's valuers had disregarded the value enhancing approvals; Mr. Hurst because he did not know, and Mr. O'Connor because he could not cost the development. Both were in error in not giving weight to the purchase price paid by the first appellant, and the circumstance that real estate values had been increasing over the intervening period. Both the primary judge and the respondent should have also given more weight to the Chenoweth valuation of $170,000.00. 22 Mr. Murr submitted that in any event, the respondent did not comply with Mr. Hurst's suggestions. It listed the property for sale at $125,000.00, immediately giving up $25,000.00. Instead of leaving an adequate time for marketing, which was the only justification for not selling the property by auction, it accepted $115,000.00 on the sixth day after a single advertisement had been published. 23 Finally, Mr. Murr submitted that none of the bank officers involved in the marketing and sale of the property had given evidence; and inferences against the respondent could therefore be readily drawn.

DECISION 24 In my opinion, the primary judge gave adequate reasons for his decision, notwithstanding the delay in delivering it. In my opinion also, he was plainly justified in rejecting the valuation evidence led for the appellants, and the contrary has not been submitted. The appellants have chosen to rely on criticism of the respondent's valuations and of the actions of the respondent. 25 In my opinion both the respondent and the primary judge were justified in giving more weight to the valuation of Mr. Hurst than that of Mr. Chenoweth. Mr. Chenoweth did not mention that the land was flood-prone, and apparently assumed that the road would be extended to give access to the property quite soon: he noted that the Bankstown City Council intended to continue the road to service the houses at the end of Villiers Road. In my opinion also, while the price paid by the first appellant was material relevant to valuation which may have been given substantial weight by valuers, both Mr. Hurst and Mr. O'Connor, while having regard to that purchase, considered that other matters justified a finding that the true value was $125,000.00; and there is no error shown in the primary judge's acceptance of their evidence. As regards the comparables, it was open to Mr. Hurst and Mr. O'Connor to regard the absence of road access even to the frontage of the property as outweighing other factors in favour of the subject property. In my opinion, no basis is shown for interfering with the primary judge's acceptance of the respondent's valuers. 26 The appellants have not challenged the view of the primary judge that it is appropriate to allow a tolerance of ten percent: it appears that this was accepted by the appellants' witnesses. Accordingly, even if there had been a breach of the mortgagee's duties, the appellants have not made out a case for damages or for an account by the mortgagee. 27 Turning to the other attacks on the decision of the primary judge, it is relevant in my opinion that the appellant had made no payments under the mortgage and that the mortgage debt had reached about $170,000.00 by September 1996, with interest accruing at about $2,000.00 per month. 28 As regards the criticisms of the content of the advertisements, I see no error in the view of the primary judge that there could be no breach in failing to mention the Council approvals, where the mortgagee's agent had enquired of the Council whether such a consent had been granted and had been told it had not. As regards the failure to mention the extent of the waterfront and the suitability for a jetty, I see no error in the primary judge's view to the effect that a reasonable selling agent would not regard it is necessary to mention such matters, and that interested purchasers could find out about them once they had commenced enquiries. As regards the extent of the advertising, this is very much bound up with the criticism that an offer was accepted about six days after a single advertisement in the EAC Multilist book. However, in circumstances where interest was accruing at $2,000.00 a month and where the respondent had advice that it might have to go as low as $100,000.00, I do not think the primary judge was in error in finding no breach of duty in accepting $115,000.00 after six days. 29 Having regard to these views, it is not necessary to enter into the question as to the precise definition of the mortgagee's duties.

CONCLUSION 30 For those reasons, in my opinion the appeal should be dismissed with costs. 31 DAVIES AJA: I agree with Hodgson JA. **********

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