Hoskin v the Sheriff for the State of Victoria
[2018] VSC 216
•7 May 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2017 05259
| JULIE HOSKIN | Plaintiff |
| v | |
| THE SHERIFF FOR THE STATE OF VICTORIA | First Defendant |
| KELVIN GRIFFIN | Second Defendant |
| REGISTRAR OF TITLES | Third Defendant |
| ASK FUNDING LIMITED ACN 094 503 585 | Fourth Defendant |
| MOUHAMMAD MERHABI | Fifth Defendant |
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JUDGE: | Quigley J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6, 7 and 8 March 2018 |
DATE OF JUDGMENT: | 7 May 2018 |
CASE MAY BE CITED AS: | Hoskin v the Sheriff for the State of Victoria |
MEDIUM NEUTRAL CITATION: | [2018] VSC 216 Revised 17 May 2018 |
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EXECUTION – Warrant of seizure and sale – Sale of property conducted by sheriff under the Sheriff Act 2009 – Duties of sheriff compulsorily selling property under the Sheriff Act 2009 – Duties of sheriff at common law – Standard of care required of the sheriff – Substantial value in debtor’s equity in land – Breach of duty to act reasonably in the interests of both the judgment debtor and judgment creditor in order to obtain a fair price – Sheriff Act 2009 ss 7, 13, 24, 25
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms C Nicholson | Matthew Delahunty Lawyer |
| For the First and Second Defendants | Ms R Ellyard | Victorian Government Solicitors Office |
| For the Third Defendant | No appearance | |
| For the Fourth Defendant | No appearance | Hall & Wilcox |
| For the Fifth Defendant | No appearance | Nevett Ford Melbourne |
HER HONOUR:
Introduction
The issue in this proceeding is whether the Sheriff for the State of Victoria (the ‘Sheriff’) has acted in breach of the common law duty to act reasonably in the interests of both the judgment creditor and the judgment debtor in order to obtain a fair price for the interest being sold in the execution of a warrant of seizure and sale under the Sheriff Act 2009 (‘the Sheriff Act’).
The plaintiff, Ms Julie Hoskin, is the registered proprietor of land at 19 Ligar Street, Kennington in central Victoria (‘the Property’). The Property was sold at public auction on 23 November 2017 by the first defendant, Sheriff who was acting on two warrants in relation to a debt owed by Ms Hoskin to the fourth defendant, Ask Funding Limited (‘Ask Funding’). In the lead up to the sale, Ms Hoskin contended at all material times that the market value of the Property was in excess of $700,000. The amount owing at the date of the auction was $386,819.53.
Mr Kelvin Griffin, the second defendant, is the authorised officer who conducted the auction on behalf of the Sheriff. Where appropriate I have referred to Mr Griffin individually, but where it is not necessary to distinguish between Mr Griffin and the Sheriff, I have referred to them collectively as ‘the Sheriff’.
The fifth defendant, Mr Mouhammad Merhabi purchased the Property at the auction.[1] He was the only bidder. He paid $387,000 for Ms Hoskin’s right, title and interest in the Property. This was approximately $180 more than the entire judgment debt and was for an amount equal to the reserve set by the Sheriff.
[1]Mr Merhabi did not participate but was present in Court for much of the trial.
Mr Merhabi paid a $40,000 deposit on the day of the auction and the balance of the auction price on 14 December 2017, at which time he received an executed transfer of land for the Property. The executed transfer of land was filed with the third defendant, the Registrar of Titles.
On 22 December 2017, the Court granted an interlocutory injunction to Ms Hoskin prohibiting the Registrar of Titles from registering the transfer of land until 29 January 2018. On 29 January 2018, the Court extended the injunction prohibiting the Registrar of Titles from registering the title until 13 March 2018. The Court further extended the injunction on 8 March 2018 until the final hearing and determination of this proceeding.
Ms Hoskin, the Sheriff and Mr Griffin asked the Court to deal only with the question of liability in this hearing, with all parties seeking to be heard on subsequent relief, if any.
Consistent with the views expressed in Zhou v Kousal[2] (‘Zhou’) by Vickery J, I have approached consideration of the duties of the Sheriff by taking into account the duties and obligations which arise under the Sheriff Act and the obligations which continue to apply under the common law.[3]
[2](2012) 35 VLR 419 (‘Zhou’).
[3]Ibid 439-40 [117], 441 [123].
For the reasons which follow, I have determined that Mr Griffin and the Sheriff have breached their common law duty of care to Ms Hoskin because the sale for the amount of $387,000 was not a ‘fair price’ for Ms Hoskin’s interest being sold in all the circumstances.[4]
[4]Ibid 441 [124]; Owen v Daly [1955] VLR 442, 447-48 (Dean J).
Whilst the duty owed to Ask Funding as judgment creditor would have been satisfied as the judgment debt would be paid, the process by which the Sheriff made an assessment of Ms Hoskin’s equity was flawed and inevitably led to a sale at auction at significant undervalue, which in all the circumstances was unfair.
Summary of the proceeding
In summary, Ms Hoskin claims that the price achieved for the Property at the Sheriff’s auction was not a fair price for the interest being sold. The sale of the Property was at a significant undervalue, and in the circumstances was in breach of the Sheriff’s common law duty to act reasonably in the interests of both the judgment creditor and the judgment debtor to obtain a fair price for the interest being sold (’the reasonable interests and fair price duty’).
Ms Hoskin claimed that in order to discharge the duty owed, the Sheriff should have:
(a) made reasonable enquiries to establish Ms Hoskin’s equity in the Property;
(b) postponed or cancelled the auction scheduled for 23 November 2017; and
(c) passed the Property in at the bid of $387,000.
Mr Griffin and the Sheriff did not dispute that they owed Ms Hoskin the reasonable interests and fair price duty at common law.[5] The continued existence of the duties at common law is supported by recent authority of this Court.[6] However, Mr Griffin and the Sheriff contended that the duty as pleaded sought to impose a duty of care to Ms Hoskin in priority over other duties.
[5]Kelvin Griffin and the Sheriff for the State of Victoria, ‘Outline of Submissions’, in Hoskin v Griffin, S CI 2017 05259, 2 March 2018, [6], [21]; Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 163.17-19 (L J Middling), 188.22-31, 198.1-2 (K R Griffin).
[6]Zhou (2012) 35 VLR 419, 439 [117], 441 [124].
Mr Griffin and the Sheriff instead say that this duty must be viewed in light of the statutory duty to execute the warrant expeditiously and to act in furtherance of the Court order directing the seizure and sale of the Property.[7]
[7]Kelvin Griffin and the Sheriff for the State of Victoria, ‘Outline of Submissions’, in Hoskin v Griffin, S CI 2017 05259, 2 March 2018, [10].
Background
In 2007, Ms Hoskin incurred a debt to Ask Funding, then known as Impact Capital Limited.
Ms Hoskin was in a dispute with Ask Funding between 2007 and 2009 over the amount of the debt. The dispute was not settled and Ask Funding pursued Ms Hoskin in the Queensland Magistrates’ Court where judgment was entered against her for the debt and costs. Judgment was entered for $165,877.50 on 28 January 2015 with subsequent costs orders made between 26 October 2016 and 21 March 2017 totalling a further $167,210.28.[8]
[8]Exhibit P1, exhibit JH-3.
A caveat numbered AF515529F was registered over the Property to Impact Capital Limited (Ask Funding’s former name) on 5 December 2007.[9]
[9]Exhibit P1, exhibit JH-1.
On 25 August 2015, a warrant of seizure and sale numbered CW–15–04172–2 authorising the Sheriff or its officers to sell the Property was issued by the County Court of Victoria (‘First Warrant’).[10]
[10]Julie Hoskin, ‘Amended Statement of Claim’, in Hoskin v Griffin, S CI 2017 05259, 5 February 2018, [7]; Kelvin Griffin and the Sheriff for the State of Victoria, ‘Defence of the First & Second Defendants’, in Hoskin v Griffin, S CI 2017 05259, 9 February 2017, [7].
On 8 October 2015, Mr Griffin advised Ms Hoskin that the Sheriff had been instructed to sell the Property by public auction unless the debt was paid by 19 October 2015.[11] The Property was consequently scheduled to be auctioned on 3 December 2015 (‘First Auction’).
[11]Exhibit D19, exhibit KG-2.
In preparing for the First Auction, the Sheriff sought a valuation of the Property from the Valuer-General (who in turn contracted a local qualified valuer, County Wide Valuers). The Valuer-General valuation dated 29 October 2015 valued the property at $450,000 (‘First Valuation’).[12] This valuation was conducted on what is known as a ‘kerbside’ basis, as the valuer did not have access to the Property. This was the usual basis upon which the Sheriff’s office sought a valuation of a property for a forced sale.
[12]Exhibit D19, exhibit KG-3.
Ms Hoskin’s then solicitor, Robert Balzola & Associates, advised the Sheriff’s office that Ms Hoskin had appealed the judgment debt that gave rise to the First Warrant.
On 26 October 2015, the solicitors for Ask Funding advised the Sheriff’s office that Ask Funding had agreed to cease enforcing the First Warrant. The First Auction scheduled for 3 December 2015 was cancelled.[13]
[13]Exhibit D19, [12], [14].
The proceedings challenging the debt were heard in the District Court of Queensland in early 2016 with judgment for Ask Funding delivered on 13 May 2016. Ask Funding instructed the Sheriff to recommence execution of the First Warrant on 4 April 2017.[14]
[14]Exhibit D19, [18].
On 5 April 2017, the Sheriff wrote to Ms Hoskin advising her that the Sheriff had been instructed to sell the Property by public auction. The amount of $195,365.64 was demanded to be paid immediately. Details of how the payment could be made were set out in the letter signed by Ms Middling, the Deputy Sheriff.[15] Ms Hoskin received notification from the solicitors for Ask Funding that the Sheriff’s auction of the Property was now scheduled to be held on 18 May 2017 (‘Second Auction’).[16]
[15]Exhibit P1, exhibit JH-4.
[16]Exhibit P1, [16].
Around this time, Ms Hoskin approached Smartline Personal Mortgage Advisors (‘Smartline’) in Bendigo to make an application for finance to pay out the $195,365.64 nominated in the Sheriff’s letter of 5 April 2017. As part of the lending conditions, Smartline asked Ms Hoskin to obtain an unsigned withdrawal of caveat in relation to caveat numbered AF515529F, which was registered on the title of the Property in favour of Ask Funding.
Ms Hoskin sought the unsigned withdrawal of caveat without success.
Ask Funding’s response was to seek immediate payment by Ms Hoskin of the entire amount of the debt (not just the $195,365.64 subject to the First Warrant), which had now grown substantially by virtue of costs orders and interest, to an amount of $367,783.61.[17]
[17]Exhibit D22, exhibit DJM-7.
Further negotiations ensued and on 15 May 2017, Ms Hoskin was informed by the Sheriff that Ask Funding had agreed to cancel the Second Auction and not further enforce the warrant for a period of three months.[18]
[18]Exhibit P1, exhibit JH-7.
On or about 25 July 2017, a second warrant of seizure and sale numbered CW–17–003764–4 was issued by the County Court of Victoria (‘Second Warrant’).
Ms Hoskin retained a new legal adviser, Mr Hugh Melville of Dawes & Vary Riordan, solicitors, to act on her behalf. Mr Melville negotiated with the solicitors for Ask Funding in an attempt to resolve the payment of the debt.[19] Mr Melville’s advice to Ms Hoskin was that to have time to voluntarily sell the Property was her best option.[20]
[19]Exhibit P1, exhibit JH-9.
[20]Exhibit P1, exhibit JH-9.
Ms Hoskin took some steps to place the Property on the market, engaging a local real estate agent, Gavin Butler Real Estate in Bendigo.[21] The Property was listed for sale at an asking price of between $750,000 - $825,000 on realestate.com.au based on discussions between Mr Butler and Ms Hoskin.[22]
[21]Exhibit P1, [39].
[22]Exhibit D19, exhibit KG-8; Exhibit 25 (part). Mr Butler had assessed the property as having a market value of $714,400 as set out in the letter 17 August 2017 to Ms Hoskin.
The Property remained on the market whilst Ms Hoskin sought to obtain alternative finance as the Smartline application had not progressed. There was no effort to actively market the Property (other than its listing with the real estate agent and on realestate.com.au), as it was Ms Hoskin’s aspiration that finance could be secured and that it would not be necessary to sell the Property.
On 9 October 2017, Mr Melville advised Ms Hoskin that Ask Funding intended to proceed with the public auction, which was now set for 23 November 2017 (‘Final Auction’).
In late October 2017, Ms Hoskin retained Mr Andrew McLaughlin to assist her in resolving the debt dispute with Ask Funding. Mr McLaughlin’s expertise was as a mediator and commercial negotiator. He claimed to have considerable experience in negotiating on behalf of debtors and in brokering successful outcomes, especially between rural enterprises and their bankers.
By the second week of November 2017, Ms Hoskin had been informed, through Mr McLaughlin, that she had been successful in obtaining a conditional offer of finance in the amount of $400,000 from Albury Properties Pty Ltd (‘Albury Properties’).[23] The offer was conditional upon:
a) the receipt of an acceptable valuation of the Property;
b) the loan amount not exceeding 60% of the valuation;
c) the usual mortgage securities being executed; and
d)discharge of all encumbrances and confirmation that all debts in respect of her proceedings being discharged.
[23]Exhibit P1, exhibit JH-15 (part).
Despite the offer of funding, it was not possible to secure payment of the debt by the date of the Final Auction as Ms Hoskin had misunderstood the need for a sworn valuation to meet the finance conditions set by Albury Properties. Ms Hoskin believed that the assessments made by the real estate agent at a figure in excess of $700,000 would be sufficient. This was not the case. She was unable to secure a licenced valuer to undertake a sworn valuation prior to the date of the Final Auction.
A delay of the Final Auction was sought by Ms Hoskin but Ask Funding, through its solicitors, would not agree to stop the Final Auction in the absence of full payment of the debt owing. Ask Funding also would not agree to provide an unsigned withdrawal of caveat nor any additional time to allow Ms Hoskin to arrange finance.
The debt now owed by Ms Hoskin was $386,819.53.[24]
[24]Exhibit P1, [86].
To prepare for the Final Auction a new ‘kerbside’ valuation was sought from the Valuer-General (‘Second Valuation’).[25] Mr Griffin did so because the First Valuation dated 29 October 2015 was no longer current.
[25]Exhibit D19, [30]. This request was dated 8 November 2017.
Mr Griffin included the Gavin Butler Real Estate advertisement, which nominated a $750,000–$825,000 sale price range for the Property, in the request for a valuation information. He also referred to the most current Capital Improved Value (‘CIV’) from the rates information provided by the City of Bendigo which valued the Property at $576,000.[26]
[26]Exhibit D19 [34], exhibit KG-8.
The Valuer-General’s Second Valuation dated 20 November 2017 (three days prior to the Final Auction) values the Property at $475,000.[27]
[27]Exhibit D19, [35], exhibit KG- 9.
A copy of the Second Valuation was not provided to Ms Hoskin.
Based on the Second Valuation, a reserve was set by the Sheriff at $387,000. This reserve was calculated by taking the Second Valuation of $475,000 less the rates owing (of $3,431.15), deducting 25% and then increasing the amount up from $353,676.23 (which would have been the arithmetic calculation) to $387,000 to account for the amount owing to the judgment creditor.
There were a number of telephone conversations between Ms Hoskin and Mr Griffin between April and November 2017 in relation to the Property, the debt and the warrants. There were also a number of emails.
One of the matters specifically raised by Ms Hoskin with Mr Griffin was the value the First Valuation attributed to the Property and her strong concern that the First Valuation significantly undervalued the market value of the Property. She also expressed concern about the competency of the valuer (Country Wide Valuers) which undertook the task as the contract valuer for the Valuer-General.[28]
[28]Exhibit P4, exhibit JH-34.
During these communications, Ms Hoskin informed Mr Griffin that:
(a) the First Valuation he had obtained was wrong;
(b) the First Valuation was $200,000 to $300,000 short; and
(c) the Property was worth closer to $750,000.
Ms Hoskin also complained that the First Valuation substantially misdescribed the Property and that it used non-comparable sales to justify the valuation.[29] Additionally, she informed Mr Griffin that the City of Bendigo rates notice showed a CIV valuation of $576,000.[30]
[29]Exhibit P3, exhibit JH-34, 4.
[30]Exhibit P20; Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 185.8-9 (K R Griffin).
Ms Hoskin also raised her concern about the First Valuation with Mr Shane Bloxidge, who was another employee with the Sheriff’s office, and told Mr Bloxidge that she thought the Property was worth significantly more than the First Valuation.[31]
[31]Exhibit P4, exhibit JH-34; Exhibit D19, exhibit KG-5.
Mr McLaughlin also raised the issue of the valuation of the Property with Mr Griffin in the telephone calls between them in the lead up to, and on the day of, the Final Auction. Mr McLaughlin also warned Mr Griffin of the risk of selling the Property undervalued.[32]
[32]Exhibit P13, [7] – [11].
Despite last minute entreaties on behalf of Ms Hoskin to stop the Final Auction to enable a sworn valuation to be obtained and the finance to be secured, the Final Auction proceeded and the Property was sold to Mr Merhabi, as the single bidder, at the reserve of $387,000.
After the Final Auction, on 4 December 2017, a sworn valuation was provided to Ms Hoskin from Herron Todd White which valued the Property at $720,000 (‘HTW Valuation’).[33] The HTW Valuation was consistent with Ms Hoskin’s repeatedly stated belief that the Property was worth in excess of $700,000.
[33]Exhibit 25.
The Sheriff’s process of establishing a reserve
The methodology adopted by the Sheriff to establish a reserve was set out in the affidavits of Mr Griffin and Ms Middling, the Deputy Sheriff, and their oral evidence.[34]
[34]Exhibit D19, [5] – [10]; Exhibit D18, [3] – [12].
Ms Middling’s evidence was that when the Sheriff is required to auction real property the starting consideration is an assessment of value of the property to be sold. She said that it was her responsibility to set the price and in doing so she usually took the following steps:
a)firstly, she considers the value of the interest in the property to be auctioned. To establish the value of the interest to be sold she starts with a ‘kerbside’ valuation provided by the Valuer-General and then subtracts from that valuation the value of any mortgage, caveats and outstanding rates. This provides the value of the debtor’s interest in the property for the purpose of setting a reserve price;
b)secondly, as a guide, a 25% reduction is applied to the remaining debtor’s interest to take into account the differences between a Sheriff’s auction of the interest in a property and an auction of a property on the open market; and
c)thirdly, consideration is given to the encumbrances on the property and the value of the warrant debt on the property and any adjustment to the reserve price based on these considerations. An adjustment was made in this case to increase the reserve price to ensure the debt would be covered if the Property was sold. This increased the reserve from the calculated figure of $353,676.23 to $387,000.
Mr Griffin said that due to the passage of time since the preparation for the Second Auction in May 2017, he renewed enquiries with all parties who held interests recorded on the title, including Bendigo Bank, the caveators and the City of Greater Bendigo to confirm the value of any monies owing or interests claimed. Only council rates owing to the City of Greater Bendigo were payable in the amounts of $2,318.40 and $1,112.75.[35]
[35]Exhibit D19, [29], exhibit KG-7A, KG-6.
Mr Griffin’s evidence was that in the case of the subject Property, other than the First and Second Warrants, there was no encumbrance with any money owing. The only deduction was for the council rates of $3,431.15. The value of the equity in Ms Hoskin’s Property was therefore calculated to be $471,568.85 by deducting the council rates from the Valuer-General’s valuation of $475,000.
If the normal procedure was followed to set the reserve, being usually 25% below the value of the debtor’s equity, this would have put a reserve of $353,676.23 on the Property for the auction.[36] However, as previously noted, Ms Middling decided to increase the reserve to $387,000 to take into account the total warrant debt owing at the time.
[36]Exhibit D19, [39].
Mr Griffin also explained that a sale of residential real estate under a warrant is different to a conventional auction of residential real estate and as a consequence, the sale prices are typically lower by a range of 20% to 30%.
According to Mr Griffin, these differences include:
a)that a purchaser in a Sheriff’s sale is only buying the equity of the debtor in any property that is put up for sale. As such, often what the purchaser is buying is an unknown quantity as, although the Sheriff’s office attempts to identify all encumbrances and interests in the land, this may sometimes not be conclusive, and the Sheriff does not guarantee that all interests are listed;
b)no vendors statement pursuant to section 32 of the Sale of Land Act 1962 is provided;
c)the interest must be sold at public auction conducted by the Sheriff, not a real estate agent;
d)the Sheriff cannot negotiate a sale either before the auction or after the property is passed in;
e)generally, the auction is not conducted at the property because of the risk of interference to the auction by a debtor;
f)the purchaser’s interest in the property must be registered while the warrant remains registered on title otherwise other interests that are queued or registered before receive priority over the warrant. A warrant is registered on the title for three months. The warrant must be registered at the time of auction and when the purchase interest is lodged with the Registrar of Titles;
g) settlement is usually 14 days after the auction;
h)after a purchaser has purchased the debtor’s equity in the land, then that purchaser must deal with those claiming an interest in the land either by way of security or equitable interest;
i)the purchaser does not get a duplicate certificate of title upon a successful purchase;
j)no one has access to the property, nor can the Sheriff’s office hold any open for inspections[37], so in most cases the property cannot be inspected before purchase;
k)a purchaser does not get possession of the property upon settlement of the sale. Often a purchaser has to take further action to obtain possession of the property and it is not uncommon for the property to be left in a damaged or trashed state; and
l)a purchaser cannot use the property as security for an advance of funds from a financial institution to purchase the property. Accordingly, a purchaser must source his or her own funds from alternative sources.[38]
[37]Mr Griffin did conceded that it was possible, with the debtors consent to provide for inspections but he had not sought that consent from Ms Hoskin here.
[38]Exhibit D19.
These factors are relevant to the 25% reduction imposed by the Sheriff in the calculation, not to the market value itself. In submissions made to the Court, Ms Hoskin accepted that a reduction for the consequences of a forced sale in these circumstances was appropriate.
The powers and duties of the Sheriff under the Sheriff Act
The relevant provisions of the Sheriff Act for the purposes of the present proceeding are as follows:
7. Functions, powers and duties of the sheriff
(1)The sheriff has the functions and powers conferred, and duties imposed, on the sheriff by-
(a) court and enforcement legislation; or
(b) a warrant.
(2) In addition, the sheriff-
(a)has all the functions, powers and duties at law that the sheriff employed under section 106(a) of the Supreme Court Act 1986 had immediately before the commencement of section 58(1) that are not inconsistent with a function, power or duty referred to in subsection (1); and
(b)may perform any other function or duty, or exercise any other power, that he or she is authorised to perform or exercise under any other law.
13. Execution and return of warrants and other processes
(1)The sheriff must execute and return every warrant or other process directed to the sheriff as soon as practicable after receiving the warrant or other process.
(2)When executing a warrant or other process, the sheriff may only perform or exercise enforcement functions and powers that are reasonably necessary to execute the warrant or other process.
24. Sheriff may sell or otherwise deal with seized property
Subject to this Act, the sheriff may-
(a)sell property seized in accordance with the relevant court and enforcement legislation, or a warrant that authorises the seizure of property, for the purpose of applying the proceeds of the sale to the payment of a payable amount; or
(b)deal with property seized in accordance with a warrant that authorises the seizure of property.
25. Buyer of property sold by sheriff acquires good title
(1)A person who buys property sold by the sheriff under this Division acquires good title to the property if the person buys the property-
(a) in good faith; and
(b) without notice of any defect or want of title.
(2)The sheriff is not liable in respect of the sale of property under this Division unless it is proved that the sheriff had notice, or might, by making reasonable enquiry, have ascertained, that the property was not the property of the person named or described in the warrant under which that property was seized.
(3)Nothing in this section limits or affects any right or remedy that the previous owner of property sold under this Division has or may seek otherwise than-
(a) against the property sold; or
(b)against the sheriff in the exercise of a power of sale under this Division.
Order 69 of the County Court Civil Procedure Rules 2008 (‘the Rules’) also sets out a number of requirements in relation to the seizure and sale of property, including as to the time, place and mode of sale[39] and the advertisement of the sale.[40]
[39]County Court Civil Procedure Rules 2008 r 69.05 (‘Rules’) (Order 69 of the Rules mirrors Order 69 of the Supreme Court (General Civil Procedure) Rules 2015 with the exception of r 69.02 which does not appear in the Rules).
[40]Rules r 69.06.
The duties at common law
The most recent relevant decision of this Court is Zhou. In that case, his Honour Vickery J determined that the duties of the sheriff which applied under the common law continued to apply to the sheriff after the Sheriff Act came into operation:
The accepted principles governing the duties of sheriffs which have been developed under the common law are important protections for both judgment creditors and judgment debtors alike. They should not be swept away except by clear words which abrogate the duties or which seek to protect the sheriff from suit, provided he observes the statutory requirements.[41]
[41]Zhou (2012) 35 VLR 419, 419 [117].
In Zhou, the relevant facts were that the subject property was valued at $630,000 after a ‘kerbside’ valuation and the plaintiff’s equity was $171,615. At the first auction, the property was passed in with no bids. The sheriff then successfully sought orders to sell the property without a reserve price. Mukhtar AsJ ordered that the sale without a reserve price did not ‘derogate from, or relieve the Sheriff of a duty at law to the owner of the land when exercising a power of sale’.[42]
[42]Zhou (2012) 35 VLR 419, 425 [29]; see also Kousal v Suncorp-Metway Limited [2011] VSC 312.
At a second auction, the sheriff sold the plaintiff’s interest in the property for $1,000. The plaintiff claimed, inter alia, that the sheriff breached his duties.
After reviewing the history of the sheriff’s duties at common law, Vickery J set out the following principles as to both s 24 of the Sheriff Act and the common law:[43]
[43]Zhou (2012) 35 VLR 419, 440 - 441 [122]–[124].
The power of the Sheriff to sell or otherwise deal with seized property is strictly limited by s 24. This section defines the boundaries to be observed by the Sheriff in conducting sales and dealing with property. In terms of a sale, the Sheriff may only sell property seized:
(a)if the transaction can in truth be regarded as a ‘sale’ and not an illusory sale founded upon a price which is so low that it could be said that there was no sale at all, or that it was not a real sale or that it was in fact illusory;
(b)if the sale is undertaken in accordance with the relevant court and enforcement legislation, or a warrant that authorises the seizure of property; and
(c)if the sale [is] undertaken for the purpose of applying the proceeds of the sale to the payment of a payable amount.
In my opinion, the Sheriff is also bound to apply the principles of the common law in the conduct of a valid sale under s 24.
The principles of common law to be applied to a Sheriff’s sale are these:
a)The Sheriff is bound to act reasonably in the interests of both the judgment creditor and the judgment debtor in order to obtain a fair price;[44]
b)A fair price is not necessarily the market value, for it is well recognised that compulsory sales under legal process rarely bring the full value of the property sold.[45] In making a determination as to the adequacy of the highest bid, the Sheriff is entitled to take into account that the sale, being a compulsory process, is usually one at which a full and fair market value for the property will not be expected and some allowance must be made for low prices being obtained at such sales;[46]
c)In determining the fair price in all the circumstances, matters from the prospective buyer’s perspective must be weighed. Such factors may include: the fact that buyers must be prepared to complete their purchases on the spot; the fact that buyers, particularly in the case of real estate, will not have usually have had the opportunity to inspect the property sold (at least internally); the fact that the title to the property may be encumbered or it may be physically occupied, giving rise to risks for the purchaser in acquiring clear title or rights of occupation without undue expense or delay; and other such risks which may be attendant for the purchaser on the purchase;
d)Another factor to be weighed in the balance will be the amount, if any, obtained for the judgment creditor after the expenses of the sale have been deducted;
e)If it is apparent to the Sheriff that in fact or in all probability the highest bid received is so far below the true value of the property offered for sale that he would be acting unreasonably if he was to accept it, the Sheriff should not accept the bid and pass in the property;[47]
f)if the Sheriff breaches his common law duty and sells property at a price which, in all the circumstances is unfair, the following consequences may follow:
(i)the transaction may be set aside.[48] On setting the transaction aside, no damages would arise in the usual case for which the Sheriff could be liable;[49] or
(ii)where the price obtained on the highest bid is so low that it could be said that there was no sale at all, or that it was not a real sale or that it was in fact illusory,[50] there would be no sale within s 24 of the Sheriff Act, and therefore no sale within Div 5 with the result that the immunity of the Sheriff from a suit in damages conferred by s 25 would be removed. There would not in truth be a ‘sale of property under this Division’ for the purposes of s 25(2). In these circumstances, if the transaction is not set aside and loss and damage is in fact sustained, the Sheriff could be exposed to an award of damages at common law.
[44]Owen v Daly [1955] VLR 442, 446.
[45]Ibid.
[46]Smith v Colles (1871) 2 VR (L) 195, 196.
[47]Owen v Daly [1955] VLR 442, 448; Anderson v Liddell (1968) 117 CLR 36, 44–45, 49.
[48]Owen v Daly [1955] VLR 442, 448; Anderson v Liddell (1968) 117 CLR 36, 44–45.
[49]Owen v Daly [1955] VLR 442, 446.
[50]Ibid 447.
Vickery J determined that the enactment of s 24 had not supplanted the common law duties,[51] and that in the circumstances, the sheriff was in breach of the common law duties and s 24 of the Sheriff Act. As to the former, the price the plaintiff’s interest was sold for bore no relationship to the plaintiff’s equity in the property and, in relation to s 24, to a substantial degree the purpose of the sale was to offset the sheriff’s costs, not for the purpose of paying an amount to the judgment creditor. As such, the purported sale was set aside.
[51]Ibid 447-448.
In setting out the relevant principles in Zhou, Vickery J drew from Owen v Daly[52] Anderson v Liddell[53] and Smith v Colles.[54]
[52][1955] VLR 442.
[53](1968) 117 CLR 36.
[54](1871) 2 VR (L) 195.
Owen v Daly was a case before Dean J in the Supreme Court of Victoria. The plaintiff, a landowner, was seeking damages from the sheriff, who sold the plaintiff’s interest in the land under a writ of fi fa.[55] The market value of the house was assessed as £5050, with the plaintiff’s equity assessed as £1500. Attempted notice of the sale to the plaintiff, who was residing at the relevant property, failed. At auction, the plaintiff’s interest in the land was sold to the judgment creditor for £10. The plaintiff claimed that the Sheriff was negligent in the advertising and conduct of the sale, specifically raised was the lack of notice and that the sheriff should have found out more information regarding the land’s location, improvements and charges. The sheriff asserted, inter alia, that his duty as to advertising and conducting the sale was laid down in statute[56] and that as long as he observed those requirements there was no burden upon him to do more.
[55]For background as to the use of writs of ‘fieri facias’ and ‘venditioni exponas’, see Zhou (2012) 35 VLR 419, 433 [82]–[101].
[56]See Property Law Act 1928 sub-s 208(3).
Dean J stated that ‘the duty of the sheriff to act reasonably with due regard to the interests of both sides and his liability in damages if he fails to exercise reasonable care’ had been ‘frequently stated’,[57] and further, that the Property Law Act 1928 did not abolish the duty of care.[58] His Honour also drew from principles established in relation to chattels: that a sheriff is bound to act reasonably in the interests of the judgment creditor and of the judgment debtor in order to obtain a fair price.[59] In the circumstances, the sheriff failed in his duties as the notice was defective and not given to the plaintiff, and because the sale was not for a fair price. According to Dean J, the proper return was for the property to remain in the debtor’s hands and for the creditor to have obtained a writ of venditioni exponas, such that the property could be sold for ‘whatever it may bring’.[60] The sale was set aside, although his Honour also noted authority to the effect that damages was the usual remedy.[61]
[57]Owen v Daly [1955] VLR 442, 446.
[58]Ibid 447.
[59]Ibid 446.
[60]Ibid 448.
[61]Ibid 449.
The approach in Owen v Daly was approved by the High Court in Anderson v Liddell. Anderson v Liddell involved a sale of land by the sheriff in accordance with a writ of fi fa for $16,500, from which encumbrances of $13,293 would have to be paid, in circumstances where the sheriff announced at auction the reserve as $14,000 and the respondent purchaser had previously offered $24,500. The sheriff observed the relevant statutory requirements for the sale. The appellant judgment debtor challenged the sale on a number of bases, including that the sale price was not a fair price and that the sheriff was bound to make inquiries as to the market value of the land.
Barwick CJ (with whom McTiernan J agreed) held that the sheriff was not in breach of his statutory duties. On the separate issue of a fair price, the Chief Justice stated (footnote omitted):
It was said that the sheriff ought to have obtained a valuation by an expert as to the value - presumably the market value – of the land. No doubt the sheriff should know what he is selling to the point that he can decide whether or not a bid at the auction is illusory or unfair: but, in my opinion, he is not required to obtain a valuation of the market value of the land. Clearly he is not required to refuse to accept a bid which is less than the market value of the land. Provided the sale conforms to the statutory requirements, generally speaking the amount bid by members or a member of the public will indicate what the property will bring in the circumstances of such a sale. It seems to me that the sheriff is entitled to accept at the auction any bid which is genuinely made and which bears a fair relationship to what is being sold. It is in this connexion that the sheriff must know what he is selling for it is rightly said, in my opinion, that he must obtain a reasonable price for what he sells: see Keightley v. Birch. It is to be reasonable having regard to what is offered, namely, a debtor's right title and interest, if any, and the circumstances of the sale. If there is no such bid, the sheriff is justified in returning, and he should return, a want of buyers.[62]
[62]Anderson v Liddell (1968) 117 CLR 36, 44-45.
His Honour later continued:
... if the sheriff has taken land or any interest in land owned by the judgment debtor, he must in duty to his judgment creditor offer it for sale though thereby he will recover more than the amount of the levy and, he must accept any bid which is not illusory or unfair, in the sense of bearing no real relation to the evident worth of the land or interest offered. As I have said, the sheriff must know what he is offering but, in my opinion, is not required to have or to have obtained expert knowledge as to its market value.[63]
[63]Ibid 46.
Smith v Colles was similarly an action against a sheriff for negligence in executing a writ of fi fa. In that case, the sheriff mistakenly thought that the property was subject to a mortgage, and sold it for £10. Three weeks later the property was sold for £240. The Court found in favour of the plaintiff, as the improved price must have been attributed in a great degree to ‘the purchaser having satisfied himself by such inquiries and investigations as should have been made by the Sheriff’.[64] Of some note, Barry ACJ also stated:
Whatever may be our inclination to support such public officers, either be protecting them against the consequences of their delay, by issuing a writ of venditioni exponas, in which instance they must in obedience to the order sell the goods for whatever they may bring, or by directing that contesting claimants shall interplead, we do not think this is a case in which the Defendant is entitled to hold his verdict.[65]
[64]Smith v Colles (1871) 2 VR (L) 195, 197.
[65]Ibid 197.
The principles set down in Owen v Daly and Anderson v Liddell have not been doubted in subsequent cases. On the issue of sheriff’s duties, both cases have been referred to in the Supreme Court of Queensland,[66] and recently cited in the ACT Supreme Court, with reference to obtaining a ‘fair and reasonable price’.[67]
[66]Margeorg Pty Ltd v W J and RKB Cavanagh [2009] QSC 211 (25 July 2009).
[67]Owners of Units Plan No 932 v Marhaba [2017] ACTSC 13 (7 February 2017) [33], [44].See also the application of these principles in Robbie v Fitzpatrick [2010] VCAT 959 (8 June 2010).
Interaction between the Sheriff Act and common law duties
The Sheriff Act creates duties and obligations on the Sheriff to execute a warrant as soon as practicable after receiving the warrant and the Sheriff may only exercise enforcement powers and functions that are reasonably necessary to execute the warrant.
These statutory duties and obligations co-exist with the common law duties, as Vickery J has explained in Zhou.
The issue here is the application of those duties both at statute and common law to the circumstances in this case.
What is the standard of care required of the Sheriff?
Ms Hoskin contends that in discharging the reasonable interests and fair price duty owed to her, Mr Griffin and the Sheriff were required to:
(a) make reasonable enquiries to ascertain the market value of the Property and the value of her equity after accounting for the debt and encumbrances;
(b) postpone or cancel the Final Auction; and
(c) pass in the Property after receiving a single bid of $387,000.
Mr Griffin and the Sheriff say that there is a statutory duty to execute the warrant expeditiously and to act in furtherance of the Court order directing the seizure and sale of the Property. To do otherwise would be in contravention of the Court’s order.
Mr Griffin and the Sheriff have relied on the processes that have become the practice in the Sheriff’s office to make an assessment of the market value of the property by engaging the Valuer-General to do a ‘kerbside’ valuation, enquire into the encumbrances, if any, and apply as a guide a discount of 25% to the figure which remains after the debt and encumbrances are deducted to set a reserve for the equity which is to be the subject of the sale by auction.
Mr Griffin and the Sheriff also say they cannot stop an auction if requested by the judgment debtor alone. Their evidence was that the auction could only be cancelled (as opposed to postponed) in one of three circumstances:
a) agreement between the judgment creditor and judgment debtor;
b) payment of the debt in full; or
c) a Court order.
This position seemed to have proceeded on the basis that only this approach is consistent with the Sheriff’s duties and to do otherwise would be in breach of the Sheriff Act, the Rules and duties and would be potentially in contempt of the Court’s order to execute the warrant.
I do not share this view. None of the steps set out above in assessing Ms Hoskin’s equity, nor the stated approach to stopping an auction relied upon by the Sheriff are set out in any legislation, the Rules, authorised policy or procedure.
For the reasons that follow in this judgment, I am satisfied that the standard of care required by the Sheriff was greater than the processes that have become the practice in the Sheriff’s office, and in the circumstances of this case, the Sheriff was required to:
(a) make reasonable enquiries to ascertain the market value of the Property for the purpose of determining the ‘fair price’;
(b) postpone, or in any event stop, the Final Auction; and
(c) pass in the Property after receiving a single bid of $387,000.
Did the Sheriff breach his common law duty by failing to make reasonable enquiries to ascertain the market value of the Property in these circumstances?
Determining whether the Sheriff has breached the reasonable interests and fair price duty by failing to make reasonable enquiries to ascertain the market value of the Property requires an examination of a range of different issues, as set out below.
What constitutes reasonable enquiries to ascertain the ‘fair value’ of what the Sheriff has to sell?
In order to obtain a fair price at auction, the Sheriff must know what he is selling:
no doubt the sheriff should know what he is selling to the point that he can decide whether or not a bid at the auction is illusory or unfair … It seems to me that the sheriff is entitled to accept at the auction any bid which is genuinely made and which bears a fair relationship to what is being sold. It is in this connection that the sheriff must know what he is selling for it is rightly said, in my opinion, that he must obtain a reasonable price for what he sells.[68]
(Emphasis added)
[68]Anderson v Liddell (1968) 117 CLR 36, 44–45.
The announcing of the reserve by the Sheriff, although perhaps an unwise course of action, does not of itself constitute a breach of the Sheriff’s duty to obtain a ‘fair price’.[69] However, given that Mr Merhabi, the sole bidder, was informed that the Property was on the market at $387,000 and that there was no other bidder, it was almost inevitable that the auction price for the Property would be no more than $387,000, being an amount equal to the reserve price.
[69]See Ibid 44 (per Barwick CJ); 49 (per Kitto J).
In these circumstances, where the Property was effectively sold for the reserve price (a price which reflected only $180 more than the debt), the Sheriff could only have discharged the reasonable interests and fair price duty, if the Sheriff was satisfied that the price for which the Property was sold, being the reserve price, was a ‘fair price’. In my view, this would have required the Sheriff to make reasonable enquiries at to what was a ‘fair price’ for the Property.
Generally, the starting point will be to ascertain the market value of the Property. This is not to say that the market value is the value of the interest that the Sheriff has to sell. This is a different proposition to one suggesting that the market value alone is what is required to meet the reasonable interests and fair price duty. What is being sold is the judgment debtor’s right title and interest in the land, not the land itself at a market value or otherwise.[70]
[70]Anderson v Liddell (1968) 117 CLR 36, 44; Humphreys v Pioneer Homes Australia [2000] VSC 10 (19 January 2000), [21]; Stevens v Young [1973] 2 NSWLR 750, 762.
The market price is the starting point after which the Sheriff must reduce that value by any known encumbrances to ascertain the interest of the debtor in the Property.
If, for example, after reasonable enquiries the Sheriff formed the view that there was no equity in the Property it would be futile to proceed with the sale. If there is equity that can be applied to the debt, then that will be a factor in determining what is a reasonable price for what the Sheriff has to sell, being the sale price for the debtor’s equity.
The market price for the Property is a critical issue in determining what is the debtor’s equity in the Property. If the starting point of the exercise is far too low, it will impact on the reasonableness of the amount which can properly be said to be a fair price for the debtor’s equity.
In my view, the key factual issue which underpins the assessment of ‘fair value’ is the market value of the Property. This is acknowledged by the process that the Sherriff undertook in this case.
Can the Sheriff rely upon the expertise of the Valuer-General or any expert in making a determination of the ‘fair price’ for a debtor’s right, title and interest in land?
There is no obligation on the Sheriff to seek expert advice in terms of market value.[71]
[71]Anderson v Liddell (1968) 117 CLR 36, 44.
What appears to be the established usual process adopted by the Sheriff’s office is that the Valuer-General is engaged to assist in providing information to the Sheriff’s office as to market value. Obtaining a ‘kerbside' valuation from the Valuer-General is the usual procedure adopted by the Sherriff’s office. This ‘kerbside’ market valuation also feeds into the calculation of the reserve that the Sheriff sets for an auction.
Mr Griffin said that the Valuer-General will only provide a ‘kerbside’ valuation because the warrant does not give the Sheriff possession of the property and accordingly, no right of access to inspect it.[72]
[72]Exhibit D19, [5] - [10].
I do not accept that obtaining a Valuer-General ‘kerbside’ valuation immunises the Sheriff from liability and automatically satisfies the common law duty to act reasonably in the interests of the judgment creditor and judgment debtor, nor does it automatically ensure that a ‘fair price’ will be obtained for the debtor’s interest in all of the circumstances.
Whilst the Second Valuation Mr Griffin relied upon might be one undertaken by the Valuer-General’s office, and some weight ought be given to that factor, the Valuer-General’s valuations are not infallible and caution ought be taken when a valuation is carried out on a ‘kerbside’ basis.
In these circumstances, I am not satisfied that the Valuer-General’s Second Valuation in this instance ought be the only evidence of market value that should have been reasonably relied upon by the Sheriff.
Did the Sheriff undertake reasonable enquiries to ascertain the ‘fair value’ of what it had to sell?
From April 2017, Ms Hoskin had disputed the First Valuation of the Property at $450,000.
Ms Hoskin complained that the First Valuation substantially misdescribed the Property and that it used non-comparable sales to justify the valuation. Additionally, she also informed Mr Griffin that the City of Bendigo rates notice showed a CIV of $576,000.
The Second Valuation was only $25,000 more than the First Valuation, which had been obtained in October 2015, more than two years before.
Examination of the Second Valuation shows that the document is a short document dealing summarily with the assessment of value.[73] This is particularly so when compared to the HTW Valuation prepared by Herron Todd White for Ms Hoskin.
[73]Exhibit D19; exhibit KG-9.
The difference between the First Valuation and Second Valuation represents an increase in value over the two year period of less than 5%, despite the extent of the details and description of the Property set out in the Second Valuation being far more extensive than the First Valuation. No explanation was given in the Second Valuation for the small increase.
The three comparable properties which are referred to in the Second Valuation do not appear to be sufficiently on par with the Property being valued. None of them, for example, have a second dwelling.
In the Second Valuation, there is no discussion or justification for the difference between the CIV of $576,000 and the valuation prepared by the Valuer-General.
A copy of the Second Valuation was not provided to Ms Hoskin, nor was she told what the valuation was prior to the auction.
Mr Griffin had told Ms Hoskin that if there was a huge variation between the price range she had indicated the Property was worth and the Second Valuation, he would want to know why.[74] When Mr Griffin received the Second Valuation he contacted the Valuer-General to enquire as to the difference between the real estate advertisement which quoted a price of between $750,000 and $825,000 and the Valuer-Generals valuation of $475,000. He was told that the real estate advertisement price was ‘a bit overinflated’.[75]
[74]Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 181.27-28 (K R Griffin).
[75]Ibid 200.22-27 (K R Griffin).
He took no further action. Rather, he proceeded to act on the Second Valuation and set the reserve relying upon that market value of $475,000.
In cross-examination, Mr Griffin conceded that if the Property was worth $700,00, and sold at the reserve of $387,000 this would mean the plaintiff would lose her equity.[76] This had been reinforced by Mr McLaughlin in his conversation with Mr Griffin in the days leading up to the Final Auction and the day of the Final Auction itself.
[76]Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 193.26–31, 194.1–9 (K R Griffin).
In light of the very significant difference between Ms Hoskin’s assessment of the market value and the cursory reply given by the Valuer-General as to the difference, I am of the view that the matter should not have ended there.
In the face of all of the material that was before the Sheriff it is difficult to accept that reliance on the Second Valuation alone was reasonable. In my view, a reasonable person in the shoes of the Sheriff ought to have revisited the assessment of market value by making further enquiries. These further enquiries could have included querying the Valuer-General in relation to the small increase between the First Valuation and Second Valuation, the comparable properties used in the Second Valuation or the lack of discussion of the difference between the Second Valuation and the City of Bendigo CIV. The Sheriff may even have made further enquiries in relation to what was meant by ‘a bit overinflated’.
Was the Property sold for less than a ‘fair price’?
Ms Hoskin consistently contended that the market price of the Property was in excess of $700,000. In support of this value, Ms Hoskin relied upon a real estate agents’ assessment of $714,400 and the asking price advertised on her behalf of between $750,000 and $850,000.[77] In addition, the evidence before the Court included the most recent ratings information provided by the City of Greater Bendigo of the CIV for the Property, which valued the Property at $576,000.
[77]Exhibit P4, exhibit JH-34 (part).
Ms Hoskin was unable to obtain a sworn valuation prior to the Final Auction, but she did obtain a sworn valuation shortly thereafter. That sworn HTW Valuation dated 4 December 2017 valued the Property at $720,000. The HTW Valuation is a comprehensive document.[78]
[78]Exhibit 25.
The HTW Valuation was a value commensurate with Ms Hoskin’s consistently reiterated belief that the Property was worth in excess of $700,000 and was very similar to the real estate appraisal of Mr Butler of Gavin Butler Real Estate who had assessed the Property at $714,400. It was marginally less than the lower of the asking price for the Property that had been advertised by Gavin Butler Real Estate on realestate.com.au, and $145,000 more than the CIV for the Property prepared by the City of Greater Bendigo.
Significantly, the HTW Valuation was $245,000 more than the Second Valuation (and $270,000 more than the First Valuation). This amount is not insignificant.
What is a ‘fair price’ is a question of fact and degree. It is in acting reasonably in the interests of both the judgment creditor and the judgment debtor that the fair price must be obtained.
In my view, the Sheriff should have taken into account all of the information that he had before him. Given that the range between the market values was so great, to press ahead with setting the reserve, based on the lowest of the estimates of market value was not acting fairly in the process of obtaining ‘a reasonable price for what he sells’.[79] It is difficult to see how acting on the lowest price of the range of information he had before him in determining the market value would bear a ‘real relationship to the evident worth of the land or interest offered’.[80]
[79]Anderson v Liddell (1968) 117 CLR 36, 44-45.
[80]Ibid.
It follows that by ignoring the other evidence before the Sheriff that the market value of the Property was well in excess of the $475,000, being the figure provided by the Second Valuation, that there was a very real and significant risk that a ‘fair value’ for Ms Hoskin’s interest in the Property would not be achieved.
In these circumstances, I am satisfied that the Property was not sold for a ‘fair price’.
Further, in this case, of the most significant factors (a) and (h) in paragraph 58 above as to why the Sheriff applies a 25% discount, the risk of other encumbrances or entitlements was reliably removed because it was known to the Sheriff that there were no encumbrances other than the judgment debt and the small amount of rates owed. This was also known to the bidder.
This may have meant that a full 25% discount to the ‘market value’ was not appropriate in these circumstances. However, this argument was not put by counsel for Ms Hoskin and it is not necessary for me to consider whether it also contributed to the Sheriff selling the Property for less than a fair price as I am ready satisfied of this for the reasons I have set out above.
Could the Sheriff rely upon the standard Sheriff’s procedures in the course of discharging his duties?
The Sheriff relies on the actions and usual processes as undertaken by them in this case as being sufficient in all the circumstances to discharge the duty acknowledged to be owed.
There was no real dispute between the parties as to the mechanics of the Sheriff’s process, rather it was the starting point of the market price which was the key issue in dispute in the process.
The approach outlined above at paragraphs 52 to 59, may well be consistent with the duties and obligations of the Sheriff in general terms but a dogmatic adherence to such procedure may well fall foul of the duties owed at common law in a particular case.
As a consequence of starting at a market price which was based only the kerbside valuation obtained by the Sheriff, the methodology for setting the reserve which followed inevitably led the Sheriff to set a reserve which was neither a reasonable price for what it had to sell and bore no real relationship to the evident worth of the interest offered.
I do not accept that the processes and procedures as is the usual practice that were employed in this case are adequate to discharge the Sheriff’s duty to both the judgment creditor and the judgment debtor to achieve a fair price for the interest being sold.
The systems in place do not provide for the necessary checks and balances which would enable the discharge of the duty to achieve a fair price. In particular:
(a) there are no guidelines for setting the reserve other than the way they do it now is the way they have done it for years;[81]
[81]Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 158.13-22 (L J Middling).
(b) there are no instructions or memoranda between the Sheriff and the Valuer-General in relation to the task of valuing properties;[82]
[82]Ibid 158.29-31-159.1 (L J Middling).
(c) there are no processes that check the accuracy of the procedures by which reserves are set;[83]
(d) there was an apparent lack of understanding as to the obligations, powers and duties as expressed in the evidence of both Ms Middling and Mr Griffin in particular in respect of postponing or rescheduling an auction;[84] and
(e) there is no policy or checking procedure that sets out the considerations an officer must take into account in making decisions.[85]
[83]Ibid 161.3-8 (L J Middling).
[84]Ibid 161.24-31, 162, 163.16 (L J Middling), 194.10-31 (K R Griffin).
[85]Ibid 163.20-31, 164.1-17 (L J Middling).
To restrict the actions and processes to the established procedure in every case would be to risk ignoring the actual facts or circumstances which would give rise to harm if reasonable steps were not taken to respond to those actual facts and circumstances. It would also condone the Sheriff turning a blind eye to information which should be considered in determining the timing of any action in the execution of the warrant and the appropriate assessment of the value of the thing it has to auction.
Whilst Ms Hoskin was criticised by counsel for the first and second defendants for not providing a copy of any documents setting out evidence of the assessment or appraisal of the Property at a higher amount, Mr Griffin in his affidavit said ”they would not have assisted me in my task of identifying an appropriate value for the Property. An appraisal is only an indication of what a property may be worth within a range. A valuation, by comparison, in my experience provides a specific monetary value for the property.”[86] This demonstrates that Mr Griffin was inflexible in the information that he was willing to take into account due to this dogmatic adherence to the usual processes and procedures.
[86]Exhibit D19, [33].
The steps taken and the processes in place did not discharge the duty at common law in this case.
I am satisfied that Mr Griffin and the Sheriff have breached the duty of care owed to Ms Hoskin to act reasonably in her interests as well as that of the judgment creditor to obtain a fair price for her interest being sold in the Property in the proper execution of the warrant of seizure and sale under the Sheriff Act.
Did the Sheriff breach his common law duty by not postponing or cancelling the Auction?
The Sheriff argued that the reasonable interest and fair price duty was one owed not just to Ms Hoskin as the judgment debtor, but to the judgment creditor as well. Additionally, they relied on the statutory provisions in the Sheriff Act relevant to the sale under a warrant.
It is correct to identify the reasonable interests and fair price duty as one owed to both judgment debtor and creditors.
There is little doubt that the Sheriff acted in the interests of the judgment creditor. The actions of the Sheriff in setting the reserve adjusted to meet the outstanding debt, and little more, is clear evidence of this.
Further, Mr Griffin acted effectively at the direction of the judgment creditor in proceeding with the Final Auction notwithstanding his knowledge of:
(a) the conditional offer of finance in sufficient amount to fully pay out the debt. Mr Griffin admitted that he received the letter on 21 November 2017, two days prior to the scheduled auction, indicating that finance would be advanced to Ms Hoskin if certain conditions were fulfilled;[87]
[87]Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 197.22-24 (K R Griffin).
(b) the time needed to obtain a sworn valuation which would not be able to be undertaken and provided before the Final Auction date;
(c) the risk that the reserve set at $387,000 would gift a significant sum of Ms Hoskin’s equity to a purchaser;
(d) the assessment of value provided by Ms Hoskin at more than $700,000;
(e) the independently assessed value of the Property as represented by the CIV at $576,000; and
(f) the very significant consequence for Ms Hoskin for the Final Auction to proceed in losing her home, the equity in the Property, compounded by this being her only asset.
The consequences for Ask Funding, the judgment creditor, if the Final Auction had not gone ahead would have been a delay in the payment of the debt and further costs. However, these consequences are not significant when viewed in the context of all the circumstances which affect both Ms Hoskin and Ask Funding. The costs of a further auction, if one was required, would be borne ultimately by Ms Hoskin. Delay in payment of the debt would attract interest. This is at Ms Hoskin’s risk. The delay until February 2018 as deposed to by Mr Griffin (given the time of the year) until a new auction could be arranged was the worst case.[88] Given the time which had expired, such a small delay is nominal.
[88]Exhibit D19, [42]; Exhibit D18, [7].
Mr Griffin was particularly adamant that once a warrant to execute had been given to the Sheriff’s office, he could only stop a scheduled auction from proceeding in three circumstances which were:
(a) where the judgment creditor and judgment debtor agreed to stop the auction;
(b) where there has been full payment of the debt underlying the warrant; or
(c) on an order from the Court.
Mr Griffin said that he could not stop an auction merely because a judgment debtor asks him to, or that the judgment debtor tells him that they will pay the judgment debt.
Ms Hoskin believed that the market appraisal or assessment which had been undertaken by the real estate agent was sufficient evidence of valuation. In this Ms Hoskin was mistaken, and the need to obtain a sworn valuation became urgent. She had left insufficient time for a sworn valuation to be obtained to secure the finance and be able to sufficiently satisfy Ask Funding that the debt would be paid. In these circumstances, Mr Griffin would not agree to stop the Final Auction.[89]
[89]Exhibit D19, [33],[51],[59],[62]; Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 196.17-29 (K R Griffin).
On the day of the Final Auction, Mr Griffin had several conversations with Ms Hoskin and her representative. Ms Hoskin advised Mr Griffin that she was trying to secure funds to stop the Final Auction. On each occasion, Mr Griffin said he advised Ms Hoskin that he could not stop the auction unless full payment was received or Ask Funding instructed him to stop the Final Auction. He made file notes of these calls.[90]
[90]Exhibit D19, [20]; exhibit KG-5.
Mr Griffin could not identify any law or regulation which restricted him from stopping an auction other than in the three circumstances set out above at paragraph 138. This demonstrated to me that Mr Griffin acted without due reference and consideration to the duty he had to Ms Hoskin as well as to the judgment creditor and that by acting according to the usual process he failed to take into account the actual circumstances he had before him.
I do not think that is a sufficient answer to rely on ‘usual practice’ and preference to the judgment creditor and at the same time ignore the specific circumstances which were before him.
I am satisfied on the balance of probabilities that if the Final Auction had been stopped it would have allowed time for Ms Hoskin to secure finance. She had in fact shortly thereafter fulfilled the condition that she provide a sworn valuation in an amount which would allow for $400,000 to be borrowed at a ratio of not more than 60% of the sworn valuation. Stopping the Final Auction would have been a reasonable step to take in all the circumstances and would represent a balance of the best interests of both the judgment debtor and the judgment creditor.
Mr Griffin and the Sheriff argued that there was a duty pursuant to s 13 of the Sheriff Act to execute the warrant expeditiously and that to postpone the Final Auction would be inconsistent with this duty. The section refers to the execution of the warrant ‘as soon as practicable’.
In the circumstances of this case, I do not accept that stopping or re-scheduling of the Final Auction for a period of approximately 8 weeks, or until February 2018 (given the time of year, if necessary) would be a breach of that obligation. This is particularly so when I accept that the prospects of finance for the debt to be able to be paid was a reasonable one.
The duty to act ‘as soon as practicable’ does not mean to the exclusion of consideration of the common law duties owed to the judgment debtor and judgment creditor.
In these circumstances, it is not necessary for me to determine whether the Sheriff should have stopped the Final Auction because of Ms Hoskin’s prospects of securing finance alone. I have already formed the view that the Sheriff should have undertaken further enquiries as to the fair price to be obtained for the Property, and given the proximity of the date on which the Sheriff was provided with the Second Valuation to the date of the Final Auction, it necessarily follows, in my view, that the Final Auction should have been stopped to allow the Sheriff to make those further enquiries.
As the conditional offer of finance in sufficient amount to fully pay out the debt was known to Mr Griffin, the prospect of Ms Hoskin securing finance should also have been taken into consideration by Mr Griffin when deciding whether to postpone or cancel the Final Auction, and in my view this should have assisted his decision to postpone or cancel the Final Auction.
I am satisfied that the Sheriff breached the duty of care owed to Ms Hoskin to act reasonably in her interests as well as that of the judgment creditor by not stopping the Final Auction.
Did the Sheriff breach his common law duty by not passing in the Property after receiving a single bid of $387,000?
The facts and circumstances of this case are such that the assessment of the market value and the setting of the reserve significantly undervalued Ms Hoskin’s interest and the consequences of proceeding to the Final Auction of the Property and knocking it down on a bid of $387,000 inevitably meant that Ms Hoskin would lose her substantial equity in the Property.
Mr Griffin’s evidence was that in this case there were no other interests or encumbrances attached to the Property save for the debt which was the subject of the First and Second Warrants and an amount owing for rates, and that this was both known to him and the potential purchasers at the time of the auction.[91] Mr Griffin conceded that he knew that if a purchaser paid essentially the value of the debt that the purchaser might walk away with a property worth $700,000.
[91]Transcript of Proceedings, Hoskin v Griffin (Supreme Court of Victoria, 2017/052059, Quigley J, 7 March 2018) 193 (K R Griffin).
By proceeding with the Final Auction, and knocking down the Property at the reserve price set at only $180 more than the debt owed, the Sheriff cemented the breach of duty to Ms Hoskin to act reasonably in her interests to obtain a fair price in all the circumstances.
Mr Griffin’s evidence was that if a property does not generate a bid, or receives only one bid that is significantly under the reserve, the property will be passed in. The judgment creditor could then seek an order from the Court to sell the property without reserve. The property is relisted for a further auction, and if the property sells successfully without a reserve, the Sheriff’s office applies to the Court for approval of the sale. This procedure was confirmed by Ms Middling in her oral evidence.
There were clearly other, or additional steps that could be taken by the Sheriff to reasonably protect the interests of both the debtor and the creditor.
I am satisfied that by proceeding with the Final Action and not passing in the Property after receiving only a single bid of $387,000, the Sheriff breached his duty to act reasonably in the interests of both the judgment creditor judgment creditor in order to obtain a fair price, as this was not a fair price for reasons I have already discussed.
Causation and Loss
Ms Hoskin contended that setting the low reserve, accepting a bid at that amount and executing a transfer of land for the Property which entitles the purchaser to have their name recorded on the Register as the registered Proprietor defeats Ms Hoskin’s interest in the Property and extinguishes Ms Hoskin’s substantial equity in the Property.
The actions of the Sheriff in proceeding with the Final Auction put Ms Hoskin’s interests in peril and totally preserved those of the judgment creditor. By setting the reserve based on a low market valuation, any sale based on that value would, in all likelihood, cause Ms Hoskin significant loss.
That loss of equity was not insubstantial, and the loss was clearly foreseeable.
Counsel for the Sheriff focused substantial time seeking to establish that Ms Hoskin would never have been able to obtain the $400,000 finance or sufficient funds by the day of the Final Auction.
I accept the evidence of Mr McLaughlin who gave unchallenged evidence that third-tier lending arrangements often have little or no documentation until the last minute, and that the proposed loan for Ms Hoskin was such an arrangement.[92] I also accept that it was more probable than not that Ms Hoskin would have been able to satisfy the conditions of the loan offer from Albury Properties had the Final Auction been stopped.
[92]Ibid 137.23-31, 138.1-4 (A J McLaughlin).
Ms Hoskin was able to obtain a sworn valuation by 4 December 2017, which would have resulted in the first two conditions of finance being satisfied.[93] Executing the usual mortgage securities was a matter of signing the relevant documents. Ms Hoskin would have had no impediment in being able to satisfy that requirement. The remaining conditions were that all encumbrances be removed from title and that she confirm that the debts are discharged. The only debt was the debt subject to the warrant which would be discharged by the finance.
[93]Exhibit P1, exhibit JH-21.
Having regard to these matters, I accept that insofar as it is relevant that the finance was finalised and documented (as opposed to the conditional offer being in place) that it was more probable than not that Ms Hoskin would obtain finance and pay the debt if the Final Auction was cancelled.
Liability
Warrants of seizure and sale provide a means for executing court orders. This necessary process must be considered in light of the accepted duties attaching to that activity. Courts by necessity are independent and impartial bodies. In the execution of court processes, the Sheriff as a statutory office holder, must also be independent and impartial. This ensures judgment debtors are not unfairly disadvantaged and to the extent possible only property sufficient to satisfy the debt is forfeited by the judgment debtor.[94] These factors are no doubt reasons for the existence of the duty to act reasonably in the interest of the judgment debtor and judgment creditor in order to obtain a fair price.
[94]See, for example, Rules r 69.04.
The sale of the Property for a price which represented a mere $180 more than the debt owing, where there was a real issue as to the value of the Property, cannot be said to be consistent with the duty owed by the Sheriff. The failure to obtain a fair price for the debtor’s interest has the effect of bestowing the debtor’s equity upon a third party. In this case, that transfer of equity is substantial and clearly inconsistent with the obligation to act in accordance with the duty at common law to act in the best interests of the judgment debtor and judgment creditor in order to obtain a fair price.
A sale pursuant to Part 3, Division 5 (Powers to seize, sell and deal with property) of the Sheriff Act must be done in accordance with the common law and the statutory requirements of that Act. The price the Sheriff accepted at $387,000 bears no real relationship to the evident market value of the Property, or to Ms Hoskins equity. The price in all of the circumstances was so unfair that the Sheriff did not act reasonably in accepting it, and was in breach of the common law.
A sale of Ms Hoskin’s Property in these circumstances is not saved by the immunity provided by sub-s 25(2) of the Sheriff Act, as there is in fact no sale under Division 5 to enliven the operation of that immunity.[95] Consequently, the sale in these circumstances is liable to be set aside. I will not say anything further on this until I have heard all parties on relief.
[95]See Sheriff Act 2009 sub-s 25(1).
Conclusion
I find that Mr Griffin and the Sheriff have breached their duty to Ms Hoskin to act reasonably in the interests of both the judgment debtor and the judgment creditor in order to obtain a fair price for the interest being sold in the execution of a warrant of seizure and sale under the Sheriff Act.
As requested by the parties, I have dealt with the question of liability only and I will hear the parties further in respect of the appropriate relief to be granted in the circumstances.
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