Gomez v State Bank of NSW Ltd

THE COUNTER-CLAIM, SET-OFF OR CROSS DEMAND 7 The claim relied upon by Dr Gomez has now found expression in a statement of claim filed for Dr Gomez in the Supreme Court of New South Wales ("the Supreme Court"). By his statement of claim Dr Gomez alleges that the Bank, in exercising its power of sale of three specific properties: (a) acted in breach of a duty of care owed to him to take all reasonable steps to sell the properties for a reasonable price; and (b) breached its obligation to Dr Gomez to act bona fide and in good faith. 8 By his statement of claim Dr Gomez also seeks relief from the Supreme Court under the Contracts Review Act 1980 (NSW) but that aspect of his claim was not suggested to have any relevance so far as this application is concerned. 9 The three properties (together "the Properties") referred to in the statement of claim filed in the Supreme Court proceeding are: · 360-362 Catherine Street, Leichhardt ("the Leichhardt property"); · 20/1 Lakeside Road, Eastwood ("the Eastwood property"); and · 15 Eastern Arterial Road, St Ives ("the St Ives property"). 10 The duties of a mortgagee in exercising a power of sale have recently been carefully analysed by Einstein J in State Bank of NSW v Chia [2000] NSWSC 552 esp at [871]-[879]. His Honour identified the "locus classicus" in this area of the law as being found in the judgment of Lord Herschell in Kennedy v De Trafford [1897] AC 180 at 185 where the Lord Chancellor formulated the duty of a mortgagee as a duty to act in good faith, without wilfully or recklessly sacrificing the interests of the mortgagor. Einstein J identified the principle underlying the mortgagee's duty as that of "unconscionability", relying in particular on the statement of McLelland CJ in Eq in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW Conv R 55-731 that: "If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as that expression is understood in equity, then in the taking of accounts between the mortgagee and the mortgagor, the mortgagee will be accountable on the basis of a wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct." 11 I therefore approach the present application on the basis that Dr Gomez is required to satisfy the Court that he has a genuine demand against the Bank, which has a reasonable prospect of success, that the Bank so failed to take reasonable steps to obtain a proper price for the Properties that it was guilty of unconscionable conduct. It will be insufficient for Dr Gomez to satisfy the Court merely that the Properties, or one or more of them, was sold at an undervalue.

CONSIDERATION 12 As Hodgson CJ in Eq observed in respect of an allegation that a mortgagee had breached its duty to the mortgagor in relation to the sale of the mortgagor's property in Stone v Farrow Mortgage [1999] NSWCA 435 at [4]: "In such a case, there are two broad areas of enquiry: first, what steps were taken in relation to the sale; and second, the comparison between the sale price and the true value of the property. These areas are interdependent. A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken." 13 It is thus appropriate for consideration to be given, in respect of each of the Properties, to the evidence which touches on the two areas of enquiry identified by Hodgson CJ in Eq. The purpose of this consideration is not to determine whether or not Dr Gomez is likely to succeed in his claim against the Bank in the Supreme Court but rather whether he has a genuine demand against the Bank, which has a reasonable prospect of success, such that justice requires that the bankruptcy notice be set aside and the Bank required to await the hearing and determination of the Supreme Court proceeding.

The Leichhardt Property 14 The Leichhardt property was auctioned on the instructions of the Bank on 20 May 1999. A contract for the sale of the property was completed on 21 July 1999. The sale price of the property was $1,225,000. 15 Dr Gomez contends that the market value of the Leichhardt property at the time of its sale was $2,140,000. That is, he contends that the property was sold by the Bank for 57% of its true market value. Dr Gomez relies on the expert opinion of Peter Irwin Phippen ("Mr Phippen"), Registered Valuer. In a valuation report dated 11 October 2000 Mr Phippen expressed the opinion that the Leichhardt property as at 20 May 1999 had a fair market value of $1,825,000. However, that figure did not include any allowance for "the inherent development potential of the vacant land area adjoining the western boundary of the subject land". In a supplementary report dated 3 November 1999 Mr Phippen made reference to a town planning report subsequently prepared on the instructions of Dr Gomez. On the basis of the belief of the author of the town planning report that "there is a realistic expectation a development application for an additional 3 medium sized residential units on the subject property would be approved by Leichhardt Council", Mr Phippen revised his opinion of the fair market value of the Leichhardt property as at 20 May 1999 to $2,140,000. 16 I turn to consider the evidence as to the steps taken by the Bank in relation to the sale of the Leichhardt property. 17 The Leichhardt property comprised flats and shops. Business records of the Bank reveal that from early April 1998 the Bank corresponded with tenants of the Leichhardt property principally for the purpose of ensuring the regular and timely payment of rents. On or about 1 June 1998 the Bank retained CDH Properties ("CDH") to advise it on the leasing and sale of, amongst other properties, the Leichhardt property. In respect of the Leichhardt property, CDH recommended that: · required repairs to all premises be carried out; · leases be arranged for the commercial premises that did not have leases; · arrangements be made for overdue rentals to be paid; · new residential leases be arranged with existing residential tenants; · a copy of an existing commercial lease be obtained from the tenant and an attempt made to extend the lease; · potential yields and likely realisation be confirmed; and · sales and marketing submissions called for. 18 Steps were taken to effect repairs to the premises comprising the Leichhardt property and considerable negotiations concerning leases ensued. A nine page marketing brochure described as an "Investment Report" in respect of the Leichhardt property was produced by First Pacific Davies ("FPD"). The brochure described the property as "fully leased" and as offering "significant long term development potential given its strategic city fringe location and corner position." It states "the property provides the distinct advantage of being offered for sale in one line but is spread over four (4) separate titles." 19 A valuation report in respect of the Leichhardt property was obtained by the Bank from Russell J Briggs ("Mr Briggs"), Registered Valuer, of Egan National Valuers. In this report Mr Briggs included the following summary at the conclusion of a description of the accommodation on the property:

"Overall the subject property is considered to be in an average state of repair, order and condition, with significant internal and external painting required. We should point out that a substantial damp area was noted to the rear of 364 Catherine Street and we would suggest that a Building Report be undertaken to ascertain any faulty drainage on the site." 20 As the state of repair of the Leichhardt property at the time of its sale became an issue at the hearing before me, I note that in describing particular accommodation provided by the property, Mr Briggs' report noted that "[o]verall 360 Catherine Street is in substantial need of repair and refurbishment particularly to the Laundromat and first floor residence" and that the residence at 362 Catherine Street "is in substantial need of cosmetic repair and maintenance." 21 Under the heading "General Comments", Mr Briggs reported: "Neighbourhood retail generally has struggled over the last few years with the emergence of the larger centres and supermarkets trading 7 days a week - often with extended trading hours. In this regard it is apparent that the property has lent itself to alternative uses in recent times as noted by the occupation of the architectural office and the photography studio. This property has provided cheaper rental opportunities than limited alternative professional suites and more expensive shop fronts available in nearby Leichhardt." Under the heading "Marketability" Mr Briggs observed: "Although the property has future development potential to incorporate retail and residential use, we consider it initially attracts itself to purchaser investors given the steady level of income generated from the property." 22 After considering a selection of sales for retail neighbourhood outlets in the inner western suburbs of Sydney, Mr Briggs adopted the following "Valuation Rationale": "In providing our valuation on the subject property we have predominantly used a capitalisation approach deduced from the available comparable sales evidence available. Given the large component of residential use within the development (approximately 50%), our valuation calculations (as provided in the annexures), have included variations to the capitalisation rate, management, vacancy and apportioned outgoings to both the retail and residential components. With respect to the capitalisation rate we have adopted a rate of 11.5% on the retail component given the fringe location of the development. The residential rental market is considered to be substantially stronger in the immediate area and in this instance we have adopted a net yield of 7.5%. Our variation in the vacancy factor is again a reflection of the relative strengths of each use in the locality, while the management factors show a minor variation given industry charges sought by property managers for similar retail and residential property. In summary the 'inferred' capitalisation rate on the whole of the property equates to approximately 9.03%. Based on a deduced net rental of $83,623 per annum this equates to $926,000, but say $925,000." 23 Mr Briggs expressed the opinion that the current market value of the Leichhardt property as at 13 May 1999 was $925,000. 24 The Leichhardt property was advertised in The Sydney Morning Herald on 1 May and 8 May 1999 and the Wentworth Courier on 28 April, 5 May and 12 May 1999. FPD by letter dated 7 May 1999, which was copied to the Bank, reported to CDH that response to the media advertising of the Leichhardt property had been excellent. It advised that forty-one enquiries regarding the property had been received, thirty-six copies of the "Investment Report" had been issued, and ten contracts had been requested and sent. The letter included the following comment: "As a result of the formal/ informal inspections conducted, prospective purchasers have indicated interest in the vicinity of $900,000 - $950,000. The comments which support those opinions can be summarised as follows: 1. Fringe location 2. Poor quality tenants 3. Condition of the property is poor. In summary the level of interest generated by the campaign has been excellent and we are expecting a number of bidders will attend the auction." 25 As is mentioned above, the Leichhardt property sold at auction on 20 May 1999 for $1,225,000. 26 Mr Aldridge SC, Counsel for Dr Gomez, was critical of the Bank for not having obtained a valuation of the Leichhardt property on the basis that the land in the four titles comprising the property would be sold separately. Mr Briggs conceded in cross-examination that his valuation could possibly have been different if it had been undertaken that way and that the valuation of the property as a single holding resulted in a higher land tax figure. 27 Mr Aldridge also criticised the extent of the marketing campaign conducted in respect of the Leichhardt property and its failure, as he contended, sufficiently to emphasise the development potential of the property. In addition he argued that the Bank had entered into leases in respect of the property in which the rental was lower than the market rent and that this had resulted in Mr Briggs, who assumed the rents to be market rents, arriving at a valuation figure that was below fair market value. 28 Finally Mr Aldridge criticised Mr Briggs for having adopted, as Mr Briggs agreed that he did, a conservative capitalisation rate for the commercial premises that formed part of the Leichhardt property. Mr Briggs sought to justify the capitalisation rate adopted by him by reference to the poor state of repair of the properties. Mr Phippen, by contrast, adopted the approach of deducting from the value of the Leichhardt property at which he arrived, the costs, other than ordinary maintenance costs, of placing the property into an appropriate state of repair. 29 It is not necessary, in my view, for the purposes of this application for me to undertake a careful critique of the valuations of Mr Briggs and Mr Phippen respectively. First, the property was sold for a figure appreciably higher than Mr Briggs' valuation. For this reason, only criticisms of his methodology which could impact significantly on his valuation will be of relevance. Secondly, the evidence that is before me as to the steps that were taken in relation to the sale does not suggest that the Bank failed in any serious way to take reasonable steps to obtain a proper price for the Leichhardt property. The decision of the Bank to sell the Leichhardt property in one line, and to obtain a valuation of it on that basis, has not, in my view, been shown to be unreasonable in all of the circumstances. Thirdly, and most importantly, the evidence before me suggests that, whatever theoretical criticisms might be open to be made of the marketing campaign in respect of the property, the availability of the property for purchase became widely known amongst persons likely to have an interest in purchasing it. I see no reason to conclude that Dr Gomez has a reasonable prospect of being able to persuade the Supreme Court that the Bank ought not to have placed reliance on the report as to the success of the marketing campaign for the property provided by FPD and on the other professional advice received by it. In this circumstance, the price actually obtained for the property is powerful evidence that Mr Phippen's valuation, prepared well after the date of sale, is not reflective of the true market value of the property as at the date that it was sold. 30 I am not satisfied that Dr Gomez has a reasonable prospect of satisfying the Supreme Court that the Bank so failed to take reasonable steps to obtain a proper price for the Leichhardt property that it was guilty of unconscionable conduct. The Eastwood Property 31 The Eastwood property was auctioned on the instructions of the Bank on 27 May 1999. A contract for the sale of the property was completed on 30 June 1999. The sale price for the property was $590,000. 32 Dr Gomez contends that the market value of the Eastwood property at the time of its sale was $1,200,000. That is, he contended that the property was sold by the Bank for 49% of its true market value. Again he relies on the expert opinion of Mr Phippen. In a valuation report dated 11 October 2000 Mr Phippen expressed the opinion that the Eastwood property as at 20 May 1999 had a fair market value of $1,200,000. 33 The Bank also retained CDH to provide it with advice with respect to the leasing and sale of the Eastwood property. The Eastwood property is part of the Eastwood Village Square shopping centre. The Eastwood property was comprised of a larger area used as a gymnasium and a smaller vacant area ("suite 20A") partitioned as five offices together with reception and waiting room. 34 CDH obtained from LJ Hooker Eastwood ("LJ Hooker") a rental opinion and marketing/advertising plan and budget in respect of suite 20A. LJ Hooker advised the Bank that it had been trying for several months to lease suite 20A for Dr Gomez at a rent equivalent to $577 per week including outgoings. It recommended marketing suite 20A at $450 per week and advertising the property in The Sydney Morning Herald on Saturdays and Wednesdays and in the local Chinese newspaper, the Sing Tao, also on Saturdays and Wednesdays. 35 The Bank appointed LJ Hooker as leasing agent for suite 20A on an exclusive basis for a four week period ending Monday, 20 July 1998. The Bank gave instructions that the space was to be offered at a rent of $500 per week but with a proviso that following negotiations a net rent of $450 per week could be accepted. The advertising program recommended by LJ Hooker was approved by the Bank. On 27 July 1998 LJ Hooker advised the Bank that although it had been advertising and working on the premises for almost a month the results were not positive. It had formed the view that the existing rent was too high and asked if it could "try $450 per week and see how it goes?" The Bank determined at the end of LJ Hooker's four week period of exclusive agency that suite 20A should be the subject of a general listing without advertising with the asking rental remaining at $500 per week net but with the proviso that after negotiations $450 per week would be accepted. 36 CDH obtained comment from Raine & Horne Eastwood ("Raine & Horne") with respect to suite 20A. By letter dated 15 August 1998 Raine & Horne advised, in effect, that while the asking rent was not outside of what appeared to be an acceptable range, several characteristics of suite 20A distinguished it unfavourably from properties recently rented in the local market. Raine & Horne also noted there appeared to be little demand locally for the premises. Subsequently LJ Hooker and Raine & Horne were appointed joint co-leasing agents of suite 20A. On 12 October 1998 CDH instructed Raine & Horne to arrange advertising in respect of suite 20A for three days that week and again in two weeks' time if the premises were not leased. On 21 October 1998 CDH instructed Raine & Horne to arrange for the cleaning of the carpets in suite 20A. A letter dated 20 November 1998 expressing interest in negotiating in respect of a lease of suite 20A at a rent of $20,000 per annum was received by Raine & Horne and provided by CDH to the Bank. It is not clear whether the figure of $20,000 was intended as a gross or a net figure. In either event the figure was below the rent being sought by the Bank. There is no evidence as to the Bank's response to the expression of interest. In the events that happened the Bank was not able to lease suite 20A. 37 Dr Gomez gave evidence that the lease over the area of the gymnasium had expired in early 1995 and that at that time the owner of the gymnasium business had said that he agreed to a rent of $102,000 gross per annum plus a percentage of outgoings and that after two years he would pay all outgoings. Dr Gomez was not cross-examined as to this evidence and I therefore accept it. It was sometime later than early 1995, however, that the Bank obtained possession of the Eastwood property. 38 The Bank obtained a writ of possession in respect of the Eastwood property on 25 May 1998. On 12 June 1998 CDH sought a copy of the executed lease of the gymnasium premises from the tenant. By letter dated 11 August 1998 CDH advised the tenant of its understanding that the lease had terminated on 28 February 1998 without the option to extend the term having been exercised so that a month to month tenancy had resulted. It further advised that there was no record of the tenant having paid its share of the outgoings of the property and that there had been under payment of rent during two time periods. 39 By letter dated 25 September 1998 the tenant of the gymnasium space responded that it had written to Dr Gomez advising that it was willing to consider taking up the option provided by the lease provided that the rent was reviewed. It further advised that it had paid reduced rent following the flooding of the property during a rainstorm and subsequently because Dr Gomez "was difficult to deal with and would not make decisions". It advised that a new lease had been signed between Dr Gomez and the tenant in November 1996 but backdated to March 1996. The letter concluded: "In relation to the current rental situation, our company is currently trading at a heavy loss and we are uncertain if we should continue trading. To assist us in making a decision we would like to make the following offer for a new lease, Annual rental 60,000.00 gross. A rental period of 2 years with 2x2 option. We would like to begin making reduce [sic] payment as from 1st October 1998." 40 It later became apparent that the tenant claimed that in July 1996 it had reached an agreement with Dr Gomez that the rent payable by it would be treated as gross rent with the tenant having no liability for outgoings. The Bank's solicitors advised that this assertion was consistent with Dr Gomez not having taken steps to recover outgoings from the tenant. 41 By letter dated 5 November 1998 the Bank advised the tenant that it required the rent to be paid on time and that "the follow up of this is becoming unreasonable and we must question your Company's status as a worthwhile tenant". It asked the tenant to pay the unpaid rent immediately and either to agree to the terms of the lease or exit the property. 42 By letter dated 10 November 1998 the tenant proposed a new lease commencing on 1 December 1998 with the rent being $79,000 per annum gross for the first year and $82,200 per annum, gross for the second year. It provided to the Bank an extract from a valuation obtained by it which expressed the opinion that the fair market rent for the space used by the gymnasium was $82,000 per annum gross. By the same letter the tenant offered to purchase the Eastwood property for $680,000. 43 Following negotiations a new lease for two years was entered into between the Bank and the tenant of the gymnasium space at a rental of $88,000 per annum gross fixed. That is, at the rental which the tenant asserted had been earlier agreed with Dr Gomez. The offer to purchase the property for $680,000 was rejected on the basis that the Bank would not be able to accept the offer without either commissioning a new valuation or putting the property to auction. Subsequently, as is mentioned above, the tenant decided to sell its gymnasium business and the Bank acted on the basis that the tenant would no longer be interested in purchasing the Eastwood property at a reasonable price. 44 To avoid uncertainty at the date of auction (27 May 1999) with respect to the lease of the area used as a gymnasium, the Bank consented to an assignment of the lease of that area to a newly formed shelf company which had entered into a contract to purchase the gymnasium business conducted on the premises subject to the Bank's giving such consent. 45 Both LJ Hooker and Raine & Horne were requested to, and did, provide marketing submissions for the Eastwood property. On 9 April 1999 the proposal by Raine & Horne was accepted although it involved slightly greater marketing costs than the LJ Hooker proposal.

46 Terrence Alfred Lange ("Mr Lange"), Registered Valuer of Egan National Valuers (NSW) Pty Ltd, inspected the Eastwood property on 14 May 1999 and in a written valuation expressed the opinion that the market value of the property on that day was $620,000. He advised that market conditions for leasing suite 20A were quite poor but that in his opinion the space "would lease for a period of 2-3 years at a rental of approximately $300 per week". He also noted that the fact that the lease of the gymnasium area had only 18 months to run put the property into a higher risk category than if a new five or ten year lease was in pace. By letter dated 18 May 1999 Raine & Horne advised CDH as follows: "The advertising so far has been placed in line with the program i.e. Sydney Morning Herald three times weekly, sing Tao Chinese newspaper, the Chinese Herald and Dan Viet, the Vietnamese newspaper as well as the Northern District Times. A sign is prominently displayed at the entrance to the shopping centre and within the vacant space itself. 250 out of 500 brochures have been hand delivered within Eastwood Shopping Centre. A brochure has been sent to each of eighty-five landlords whose property we manage. A conjunction arrangement has been offered to every metropolitan specialist commercial Raine & Horne office. Enquiry from these various endeavours has been scant." 47 The author of the letter raised the possibility that the highest bid at the auction might fall short of the reserve although no reserve price had at that time been fixed. 48 At auction the Eastwood property was sold to the new owner of the gymnasium business at the price already mentioned, namely $590,000. 49 Mr Phippen's valuation of the Eastwood property includes the following paragraphs: "Our enquiries reveal that around the date of valuation there was very little commercial space available in the area. Agents report that a fairly constant enquiry rate existed for space and that the majority of this enquiry could not be satisfied. The agents did, however, advise that Area 2 of the subject was vacant and had been for some time. This has been attributed to the quality of the managing agent and their attempts to lease the subject premises; in the hands of a competent agent this area would have been leased well before the date of valuation. We have seen a document from the previous Area 2 tenant offering to re-new their lease for this area for a figure in excess of the fair market rental value; why this tenant was not signed to a new lease at the figure offered can only be speculated upon. It is our opinion that if the subject premises become [sic] available for lease, and if a competent agent was [sic] appointed, the subject would be able to be leased in a very short period of time for rentals equal to if not greater than those assessed herein as being the Market Rental Values." 50 Mr Phippen assessed the fair net market rental value of the property as at 20 May 1999 as $113,420. Mr Lange, on the other hand regarded the actual rent being received for the gymnasium area as a fair market rent for that area. I have referred above to his view as to the fair market rent of suite 20A. 51 In my view, the whole of the evidence, particularly that touching upon efforts to lease the two sections of the Eastwood property, suggest that Mr Phippen's assessment of the ease with which, and the price at which, the Eastwood property could have been leased in the period preceding its auction is overly optimistic and that consequently his valuation of the property as at 20 May 1999 is too high. More importantly, the evidence before me as to the professional advice provided to the Bank, and the steps that were taken by the Bank, in relation to the sale of the Eastwood property does not suggest that the Bank failed in any serious way to take reasonable steps to obtain a proper price for the Eastwood property. In particular, I do not consider that the evidence establishes that Dr Gomez has a reasonable prospect of satisfying the Supreme Court that the Bank acted unreasonably in renewing the lease of the gymnasium area and then agreeing to the assignment of the lease to the new owner of the gymnasium business, or in its endeavours to let suite 20A. 52 I am not satisfied that Dr Gomez has a reasonable prospect of satisfying the Supreme Court that the Bank so failed to take reasonable steps to obtain a proper price for the Eastwood property that it was guilty of unconscionable conduct. St Ives Property 53 The St. Ives property was auctioned on the instructions of the Bank on 4 December 1998. A contract for the sale of the property was completed on 29 January 1999. The sale price for the property was $563,000. 54 Dr Gomez contends that the market value of the St. Ives property at the time of its sale was $640,000. That is, he contends that the St. Ives property was sold for 88% of its true market value. Again he relies on the expert opinion of Mr Phippen. In a valuation report dated 10 November 2000 Mr Phippen expressed the opinion that the St. Ives property as at 4 December 1998 had a fair market value of $640,000. 55 On 8 September 1998 the Office of the Sheriff issued a notice to Dr Gomez to vacate the St. Ives property by no later than 24 September 1998. On 24 September 1998 Dr Gomez's solicitors provided to the Bank's solicitors a memorandum from Mildwater Nominees Pty Ltd, signed by Robert F. Mildwater as Director, in which was expressed the "wish to make an offer of Five Hundred Thousand dollars for the purchase of [the St. Ivesproperty]." The Bank regarded this offer as having been made on Dr Gomez's behalf. It regarded the offer as too low to be accepted without a current valuation of the property being obtained. The Bank took possession of the St. Ives property on 24 September 1998. 56 Again the Bank retained CDH to manage the marketing of the property. On 1 October 1998 CDH received from a Licensed Real Estate Agent an expression of opinion that the St. Ives property, by reason of its potential for subdivisions, could attract a "raw price" in excess of $600,000. The opinion was expressed that, if sold as a residence, the selling price would be in the range of $475,000-$500,000. On 7 October CDH received an opinion from another Licensed Real Estate Agent that "the current and reasonable expectation for this block would be around $300,000 - if a subdivision was permitted and successfully completed." On 8 October 1998 Leanne Collins ("Ms Collins"), Licensed Valuer of Metropolitan Valuation Services Pty Limited, expressed the opinion that the market value of the St. Ives property was $580,000. In her valuation, which was made on a standard form of the Bank, Ms Collins observed: "The property has been neglected throughout and is currently poorly presented. Due to the condition of the property and its location on a main road it has a limited market". 57 CDH obtained two marketing submissions with respect to the St. Ives property and obtained quotes to clean the home and the swimming pool and tidy the garden. The marketing submission which was accepted proposed that the property be auctioned on 4 December 1998. The Bank spent $2,500 on the removal of rubbish from the property. In addition it seems that $500 was spent to tidy up the garden. However, a video of the property taken a few days after the sale of the property shows that the property remained somewhat untidy, that not all rubbish had been cleared away and that the swimming pool had apparently not been cleaned. The video shows that the house and its surrounds were not at that time well presented for sale as a home. 58 By letter dated 19 October 1998 the Bank's solicitors wrote to Dr Gomez's solicitors rejecting the offer of Mildwater Nominees Pty Ltd to purchase the St. Ives property for $500,000. The letter included a counter-offer to sell the property in its current state of repair for $560,000 provided that Dr Gomez released the Bank from any claim arising out of a failure to auction the property. The counter-offer did not result in a contract of sale. 59 The auction of the St. Ives property was advertised in the North Shore Times and in The Sydney Morning Herald, by colour brochures and a signboard. By letter dated 20 November 1998 the selling agent advised CDH that the marketing campaign was "attracting a steady stream of inspections and telephone inquiries". By letter dated 30 November 1998 the selling agent advised CDH that four potential purchasers, who it named, had indicated that they would attend the auction. 60 By letter dated 2 December 1998 Jeffrey George Keane ("Mr Keane"), Licensed Valuer of Metropolitan Valuation Services Pty Ltd, advised the Bank as follows: "The original valuation report prepared by Valuer Leanne Collins as at 8 October 1998, indicates a valuation of $580,000. A review of sales has again been undertaken in the area in an effort to determine current market sentiment. Based on the information obtained and anecdotal evidence from agents operating within the area, it is believed that the likely selling price for the subject property will be between $560,000 to $580,000. As always, a competitive auction situation may see this figure exceeded. The market has been slightly uncertain in recent times, with a number of conflicting factors countering the various influences. Currently, low interest rate packages are providing some impetus into what appears to be, otherwise, a slowing market.

Based on the information available, it is suggested that a reserve price of $570,000 be set. Any offer over $560,000 received at the auction should be negotiated to exchange, with any offers below this referred to the valuers for urgent comment. A bidding schedule and a number of genuine buyers acting at the auction, should also be provided to the valuer, if an offer below $560,000 is to be accepted." 61 As is mentioned above, the St. Ives property sold at auction for $563,000. 62 Again, in my view, it is not necessary for me to undertake a careful critique of the valuations of Ms Collins, Mr Keane and Mr Phippens respectively. The evidence before me does not, in my view, suggest that the Bank failed in any serious way to take reasonable steps to obtain a proper price for the St. Ives property. The Bank had received advice, which it was entitled to accept and that Dr Gomez did not challenge, that the highest and best use of the property was as a development site. For this reason it was not unreasonable for the Bank to limit its expenditure on the presentation of the property as a potential residence. No evidence was placed before me to suggest that the poor presentation of the property had any impact on the sale price achieved for it. The sale price achieved for the St. Ives property at auction after an apparently successful marketing campaign is powerful evidence of the true market value of the property as at the date that it was sold. 63 I am not satisfied that Dr Gomez has a reasonable prospect of being able to persuade the Supreme Court that the Bank so failed to take reasonable steps to obtain a proper price for the St. Ives property that it was guilty of unconscionable conduct.

CONCLUSION 64 For the reasons given above, I am not satisfied that Dr Gomez has a genuine demand against the Bank, which has a reasonable prospect of success, that the Bank so failed to take reasonable steps to obtain a proper price for the Properties, for any of them, that it was guilty of unconscionable conduct. I do not consider that the justice of the case requires that the bankruptcy proceeding should await the determination of the proceeding instituted by Dr Gomez in the Supreme Court. 65 For these reasons I am not satisfied that Dr Gomez has a counter-claim set-off or cross demand equal to or exceeding the amount of the judgment debt within the meaning of s 40(1)(g) of the Act.

I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate: Dated: 7 August 2001 Counsel for the Applicant: Mr M Aldridge SC

Solicitor for the Applicant: Dickson Fisher Macansh

Solicitor for the Respondent: Garland Hawthorn Brahe

Date of Hearing: 7, 8 and 15 June 2001