Bassett v Colldale Pty Ltd [2001] QSC 302

-4 2q53 State Reporting Bureau ')(0J.3c (~ Queensland Government ~ Department of justice and Attomey-Gen<!ral Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME .COURT OF QUEENSLAND CIVIL JURISDICTION MULLINS J No S6538 of 2001 SUZANNE FRANCES BASSETT and COLLDALE PTY LTD (A.C.N. 079 100 333) BRISBANE .. DATE 27/07/2001 JUDGMENT th Floor, The Law Courts, George Street, Brisbane, a. 4000 REVISED COPIES ISSUED State Reporting Bureau Date G/ r--- / 0 I Applicant Respondent Telephone: (07) 3247 4360 Fax: (07) 3247 5532 -- 1 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) HER HONOUR: The applicant, Mrs Suzanne Frances Bassett, applies for the removal of caveat number 704854080 over the land described as Lot 115 on Crown Plan HR974, in the County of Herbert, Parish of Dryander. The applicant is the purchaser of Lot 115 from BG Managed Investments Limited, to which I shall refer as "the mortgagee", as mortgagee in possession, exercising power of sale, pursuant to a contract dated 18 June 2001, for the purchase price of $295,000. The respondent, Colldale Pty Ltd, is the registered owner of Lot 115. The grounds of claim of the caveat lodged by the respondent are: "As registered proprietor to prevent sale by mortgagee, pursuant to improper exercise of power of sale under mortgage 704027453." It was conceded on behalf of the applicant for the purpose of the application, that there is a serious question to be tried on whether the mortgagee breached its duty to act in good faith and to take reasonable care to ensure that Lot 115 is sold at the market value. The respondent had borrowed $265,000 from the mortgagee in April 2000. The principal was due to be repaid on 27 April 2001. Monthly interest payments were made up until 27 March 2001, when default in paying interest of $3,533 occurred. The mortgagee accelerated the due date for the repayment of principal and gave notice of exercise of power of sale on 3 April 2001. 2 1 10 2 30 . 50 60 -- 2 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) The sole director of the respondent is Mr Anthony Stephen Brickell. Another company of which Mr Brickell was the sole director had owned Lots 2 and 3 on RP 840155 in the Parish of Dryander, which had joined Lot 115. An application was made for rezoning in August 1997 of Lots 2 and 3 and 115, to special facilities, to permit the construction of a resort to be known as Castaway Bay. Rezoning was gazetted on 12 November 1999. The funding of Lots 2 and 3 was through a solicitors' contributory mortgage scheme, to which a receiver was subsequently appointed. Mr Brickell disputed the receiver's calculations of the debt and legal proceedings were issued which he defended. His solicitors in that action were Grevell McLean. Eventually, Lots 2 and 3 were sold by the receiver to Donald Michael Adams in April 2001. The respondent had obtained a valuation of Lot 115 in May 1999, from ACVAL J Dodds and Associates ("Dodds"). Dodds' valuation of Lot 115 as a rural residential block was $500,000. The finance broker which the respondent had engaged, which resulted in procuring the advance from the mortgagee, required the Dodds' valuation to be up-dated. Mr Brickell was informed by the broker that this valuation was conducted in March 2000 and Lot 115 was valued at $530,000 on the basis of it being a rural residential site. 3 JUDGMENT 1 10 20 30 40 . 50 60 -- 3 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) Mr Brickell also deposes to being involved in discussions with Mr Grevell and Mr McLean and Graeme Mitton, a surveyor, about a shelf company procured by Mr Grevell for purchasing Lot 115 from the respondent, for approximately $320,000, to enable the respondent to pay out the mortgagee and for the respondent to be given an option to re-purchase Lot 115 for $420,000 before October 2002. That proposal did not proceed. The mortgagee organised for an auction of the property on 9 June 2001. The respondent complains about the advertising for the auction, the failure to seek out interested purchasers, such as Mr Adams, and the failure to negotiate with Mr Adams after the auction. Mr Adams appointed Mr Mitton as his agent to bid for Lot 115 at the auction. He gave him a power of attorney for that purpose, authorising him to bid for Lot 115 up to a limit of $380,000. Before the auction, Mr Mitton provided a copy of his authorisation to the agent, which was copied. He also showed the power of attorney to the agent, although he does not state that it was done in a way which revealed the limit to which he could bid. Mr Mitton states that the auction commenced with the auctioneer reading out the general terms of the auction and stating that in the event that the reserve price was not reached and the property was passed in, the highest bidder would have the sole negotiating rights with the vendor, until such time as the 4 JUDGMENT 1 10 2 30 4 . 50 60 -- 4 of 13 -- 27072001 T1-3/JJD24 M/T 1 /2001 (Mullins J) vendor notified the bidder that negotiations could not be taken any further. Mr Mitton, on behalf of Mr Adams, opened the bidding at $250,000. There were no further bids and the property was passed in. Mr Mitton was advised by the agent that he should forward a signed contract, so that negotiations could commence. On 13 June 2001, a contract was prepared by the agent and signed by Mr Adams' solicitor for the amount of $250,000. The applicant and her husband were on holidays in the Whitsundays. They were acquainted with Mr Grevell. They indicated to Mr Grevell that they were interested in purchasing some water front land in the area, with level water access, as they had leg disabilities. As a result, the applicant and her husband inspected properties through agents arranged by Mr Grevell. They first inspected Lot 115 on the morning of 14 June 2001, which was five days after the auction. The applicant states at paragraph nine of her affidavit, filed on 18 July 2001: 9. "By this stage, we were very interested in the property and understood that: (a) It was being sold by a mortgagee because the owner had defaulted; (b) Mr Steve Brickell was the diector of the mortgagor; (c) A recent auction of the property had been unsuccessful as the property was passed in at $250,000." Mr Grevell then invited Mr Brickell to visit the Bassetts at Mr Grevelle's home, which he did, on either 14 or 15 June 5 JUDGMENT 1 10 20 30 40 . 50 60 -- 5 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) 2001 and Mr Brickell gave the Bassetts considerable information about Lot 115, including the rezoning of the property to special facilities. Mr Brickell states: "I informed the Bassetts of the value of Lot 115, either as part of the resort development, with Lots 2 and 3, or as a rural residential site, capable of development and its value in each case." He does not state whether he specified actual money values and if so, what values. Mr Mitton states that he followed up the agent over the few days following the submission of Mr Adams' contract and he was informed that the vendor had not returned the agent's calls. 1 10 2 The applicant signed the contract to purchase Lot 115 on 30 18 June 2001. It appears that the contract was signed on behalf of the mortgagee by 19 June 2001. Subsequently, Mr Adams forwarded an unconditional offer to the mortgagee, to purchase Lot 115, for the sum of $350,000. The caveat was lodged on 26 June 2001. In preparing for this application, the respondent's solicitor telephoned Mr Jeffrey Dodds, who advised him that in late May 2001 he 4 had been contacted by a representative of the mortgagee, inquiring as to the value of Lot 115 in the circumstances of · 50 a forced sale and that he had replied that he thought it was worth approximately $350,000. The principles applicable on this application, as to whether or not the caveat should be removed, are equivalent to those 6 JUDGMENT 60 -- 6 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) applicable where an application is made for an interlocutory injunction to restrain a sale: re: Burman's caveat [1994] 1 QdR 123, at 127-128. l There are therefore two issues: whether there is a serious 10 question to be tried that the respondent is entitled to restrain the sale and whether the balance of convenience favours the caveat remaining until trial. On the first issue, before a sale which has not been completed can be set aside at the instance of the mortgagor, conduct involving bad faith or impropriety on the part of the mortgagee must be proved and that does not appear to depend on the purchaser having actual or constructive notice of that bad faith or impropriety: Forsyth v. Blundell (1973) 129 CLR 477 at 479 and McKean v. Maloney [1988] 1 QdR 628 at 636. Improper conduct must go beyond negligence in carrying out the sale and extends to such conduct as reckless sacrificing of the interests of the mortgagor: Forsyth v. Blundell, at 496-497. If the evidence was simply to point to sale at an undervalue without any such bad faith or impropriety on the part of the mortgagee, section 85(3) of the Property Law Act, 1974, protects a purchaser even prior to completion: McKean v. Maloney, at 635. The support on the material for a case against the mortgagee which is more serious than mere negligence, is sparse. It cannot be ruled out, however, because the motivation for the conduct of the mortgagee in arranging a quick auction, with 7 JUDGMENT 20 30 40 . 50 60 -- 7 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) no seeking out of interested purchasers, such as Mr Adams, minimal advertising and no follow up of Mr Adams after the auction, remains a matter of speculation. I am not prepared to find that there is no serious question to be tried on the question of bad faith or impropriety of the mortgagee. It was submitted on behalf of the respondent, that the applicant was arguably on notice, actual or constructive, about the alleged failure of the mortgagee, to act bona fide in the exercise of the power of sale. As the respondent can be successful on the serious question of the mortgagee's impropriety without needing to prove that the applicant had notice of that impropriety, it is not strictly necessary to consider the submission, although it could affect the exercise of the discretion required in whether or not to make the order sought. The fact that the applicant is a friend of Mr Grevell and had his assistance in locating and entering into a contract for Lot 115, does not mean that the knowledge that Mr Grevell had obtained about Lot 115 can be imputed to the applicant. The applicant's offer to purchase Lot 115 for $295,000 must be looked at in the context of her knowing that there was a bid at the auction for $250,000. On the material before me, 8 JUDGMENT 1 10 2 30 40 . 50 60 -- 8 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) I cannot conclude that the applicant had notice of impropriety or bad faith on the part of the mortgagee. On the second issue of balance of convenience, the most compelling factor is thuat the respondent does not dispute the right of the mortgagee to sell Lot 115, but is disputing the price for which the sale is made. The respondent's claim is therefore to obtain further money. If the respondent's claims about the sale to the applicant are ultimately proven, there is no suggestion on the material from the respondent, that the mortgagee would not be able to meet any sum awarded to the respondent for sale at an undervalue. In view of Mr Adams' offer of $350,000, and Mr Dodds' opinion as to the value in May 2001, the mortgagee would be liable for the sum of $65,000, if the respondent's claim against the mortgagee were successful. Another factor in favour of the applicant is that there are features of Lot 115, such as its level access with the water, which makes it a desirable property for the applicant. The applicant sought to rely on matters affecting the mortgagee as relevant to the balance of convenience. Even though the mortgagee is not a party to this application, its position must be relevant to the overall balance of 9 JUDGMENT 1 10 20 30 40 . 50 60 -- 9 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) convenience. The respondent did not submit otherwise. The respondent is not offering to pay the secured debt into Court, or at the least, to pay the monthly interest until trial of the claims about the sale are determined. The respondent argues that in the circumstances, where the value of the property is adequate to meet the secured debt, it is unnecessary that the debt be paid into Court. The authorities on which the respondent relies, however, namely Glandore Pty Ltd v. Elders Finance and Investment Co Ltd (1984) 4 FCR 130 and re: Cross and National Australia Bank Limited (1992) Q Conveyancing Reports 54-443, are distinguishable. In each of those cases, the mortgagor disputed the liability for the debt. This is a matter where the debt is admitted and if the sale to the applicant proceeds, it will imminently be extinguished. In those circumstances, the failure of the respondent to offer to pay the debt, or to continue paying interest, is another relevant factor against maintaining the caveat. The balance of convenience strongly favours the removal of the caveat. Having regard to the weakness of the respondent's case for a serious question to be tried, the balance of convenience requires the caveat to be removed. It is ordered that: 10 JUDGMENT 1 10 2 30 40 . 50 60 -- 10 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) 1. Caveat number 704854080 over the land described as Lot 115 on Crown Plan HR974 in the County of Herbert, Parish of Dryander, Title Reference 20772059, is removed. It follows that the respondent should pay the 1 applicant's costs of the application, but I will hear lO submissions from the parties on costs. HER HONOUR: On the undertaking of the respondent's solicitors to procure and file the original affidavit of Anthony Stephen Brickell, sworn on 20 July 2001, leave is given to read and file the facsimile copy of Mr Brickell's affidavit. HER HONOUR: On the question of costs, Mr Roney of counsel, on behalf of the respondent, submits that the appropriate order is that each party bear its own costs. Mr Roney points out that the concession that was made at the hearing of the application, that there was a serious question to be tried on the issue of whether there was a breach of the duty of good faith, or the duty to take reasonable care to sell at market value, was not made until the commencement of the hearing of that application and the respondent quite properly put together a case to defend the application, when the respondent was in possession of material which raised the possibility of that serious question. 11 JUDGMENT 20 30 40 . 50 60 -- 11 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) Mr Roney also argues that this proceeding was brought prematurely. He has informed me that since I heard this application on 24 July 2001, the mortgagee has purported to terminate the contract with the applicant, under the special condition 12 in the contract, which gives the mortgagee the option of terminating the contract, if proceedings are commenced to restrain or set aside the sale of the property or a caveat has been lodged. The contract remained on foot at the time of the hearing of the application. Mr Roney argues that as the settlement date was not until 4 August 2001, the applicant should have waited a little longer before bringing the application on for hearing. That overlooks that the hearing of an application for the removal of a caveat, does not result in an immediate judgment and it is prudent to allow time to obtain a judgment from the Court after an application is argued. On the state of the facts as they prevailed on 24 July 2001, I do not consider that it was premature for the applicant to pursue the application to remove the caveat. The applicant obviously desires to purchase this particular block of land and the lodgment of the caveat was the reason that the applicant needed to pursue the application for removal. Although I accept Mr Roney's submissions about the state of the serious question to be tried, that is only one 12 JUDGMENT 1 10 2 30 40 . 50 60 -- 12 of 13 -- 27072001 T1-3/JJD24 M/T 1/2001 (Mullins J) of the two issues that were pecessary to be determined on this application. The balance of convenience issue for the reasons which I have given, strongly favoured the applicant. That was a matter which the respondent should also have taken into account in determining its attitude to the application. I therefore order that the respondent pay the applicant's costs of the application, to be assessed. 13 JUDGMENT 1 10 20 30 40 . 50 60 -- 13 of 13 --