JG King Pty Ltd v Kim Ngan Thi Do
[2012] VSC 545
•14 November 2012
| Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 4139
| JG KING PTY LTD (ACN 006 627 210) | Plaintiff |
| v | |
| KIM NGAN THI DO | Defendant |
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JUDGE: | Lansdowne AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 October 2012 | |
DATE OF JUDGMENT: | 14 November 2012 | |
CASE MAY BE CITED AS: | JG King Pty Ltd v Kim Ngan Thi Do | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 545 | |
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EXECUTION – Order sought pursuant to r 66.15 of Supreme Court (General Civil Procedure) Rules 2005 for sale of real property by Sheriff at auction without reserve - Consideration of Zhou v Kousal and ors [2012] VSC 187 - Consideration of sale at “not below” price or sale subject to Court approval - Sheriff seeks sale if without reserve to be subject to Court approval - So ordered.
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APPEARANCES: | Solicitor | Solicitors |
| For the Plaintiff | Mr Champion | Champions Lawyers |
| For the Defendant | No appearance | |
| For the Sheriff | Mr McInnes | Victorian Government Solicitor |
HER HONOUR:
Background
This is an application by a judgment creditor plaintiff on summons filed 20 August 2012 for an order pursuant to r 66.15 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”) permitting and requiring the Sheriff to auction the interest of the judgment debtor defendant in certain real property without reserve but otherwise on the best terms available on the day of auction. The judgment debtor has been personally served, but did not enter an appearance. The summons was also directed to the Sheriff, who has entered an appearance and by solicitor Mr McInnes filed an affidavit.
The summons was returnable before me on 10 October 2012, at which time the judgment creditor and Mr McInnes for the Sheriff made submissions, including submissions in response to possibilities suggested by me that any sale at auction be subject to a “not below” price or Court approval. I raised these possibilities having regard to the unfortunate chain of events that culminated in Zhou v Kousal and ors[1] (“Zhou”). In that case, an order had been made by this Court permitting the Sheriff to sell the interest of a judgment debtor in a property without reserve, provided that the order did not derogate from, nor relieve the Sheriff of, a “duty at law to the owner of the land when exercising a power of sale”.[2] The Sheriff auctioned the judgment debtor’s interest in the property and accepted the best bid on the day, which was $1,000. The sale was subsequently set aside, on the application of the judgment debtor, on the basis that the sum for which his interest was sold was so far below his equity of $164,963.40 as to amount to no sale.
[1][2012] VSC 187.
[2]Ibid, at [29].
I reserved judgment at the conclusion of the hearing. For the reasons now set out I will order that the sale be without reserve, but subject to Court approval.
Facts
Judgment was entered for the plaintiff against the defendant in the Victorian Civil and Administrative Tribunal on 24 November 2012 in the sum of $221,581.52 in respect of the cost of construction of a home by the plaintiff for the defendant on land owned by her at Lot 4 Maireana Street, Maribyrnong (“the property”). The amount owing under the judgment debt as at the date of issue of a Warrant of Seizure and Sale issued by this Court on 10 October 2012 is $265,259.68 together with the costs of execution.
The Valuer General valued the property at $700,000 as at 29 June 2012. The property is unencumbered by a mortgage. The certificate of title, a copy of which is exhibited to Mr McInnes’ affidavit, shows encumbrances in this order- two covenants; a caveat lodged 16 February 2010 (i.e. before judgment) in favour of the plaintiff whose interest is claimed as chargee; a caveat lodged on behalf of Maribyrnong City Council on 7 November 2011; any encumbrance created by the plan of subdivision; and an agreement pursuant to s 173 of the Planning and Environment Act 1987. The evidence is that the caveat by the Council is in respect of unpaid Council rates estimated by the plaintiff and Sheriff to be about $10,000. There is no evidence before me in relation to the interest secured by the caveat lodged by the plaintiff (as distinct from the warrant in respect of the judgment debt) or the other dealings noted as encumbrances.
The effect of a warrant of seizure and sale is that the Sheriff is permitted and required to sell the judgment debtor’s interest in the subject property, not the land itself.[3] How this interest is to be calculated was not the subject of argument before me, but the cases suggest that this is to be calculated by deduction of encumbrances, but excluding the judgment debt.[4] Accordingly, the defendant’s equity in the property, after payment to the Council, if the property was sold at full market value, may be in the order of $690,000, if the plaintiff has, on examination, no chargeable interest, or $420,000 if it does. This is not to say the judgment debtor could expect such a price at a Sheriff’s sale. It has long been accepted that forced sale, particularly in the usual conditions of a Sheriff’s sale, does not usually result in sale at market value, and the maximum bid may be very much less.
[3]Anderson v Liddell (1968) CLR 36, per Barwick CJ at 44 and Kitto J at 50; followed by Beach J in Humphreys v Pioneer Homes Australia Ltd and ors [2000] VSC 10.
[4]Anderson v Liddell per Kitto J at 50; Zhou at [34].
The defendant’s interest in the property was listed for sale by the Sheriff pursuant to a previous warrant for seizure and sale on 18 July 2012 subject to an undisclosed reserve. The Sheriff advised potential buyers that he was not in a position to deliver a certificate of title to the property, and the Sheriff was unable to give access to the property for the purposes of inspection by potential buyers prior to auction. The property was passed in without bids at $400,000.
Submissions
The plaintiff now seeks an order by the summons that the Sheriff be permitted to sell the property for the best price obtainable on the day, without reserve. Following discussion of sale at a “not below” figure, lower than the previous reserve, or sale subject to approval of the Court, the plaintiff sought in the alternative orders permitting and requiring further auction, subject to a sale price not below $350,000, but, if no such bid is made, authorising the Sheriff to negotiate with potential buyers at the auction with a view to concluding a sale of the defendant’s interest in the property (i.e. at a lower figure) subject to Court approval.
The plaintiff also sought orders requiring the defendant to supply the duplicate certificate of title to the Sheriff; authorising the Sheriff to deliver the duplicate certificate of title to the successful purchaser at settlement; and authorising the Sheriff to give access to the property to potential buyers, using a key that the plaintiff as builder holds. The plaintiff says the property is unoccupied.
The plaintiff’s primary position remains that the Court order sale without reserve for the best price obtainable on the day.
The Sheriff does not oppose the proposed orders for delivery of the duplicate certificate of title or supply to the successful purchaser on settlement, although Mr McInnes expressed concern as to whether they were permitted by the Transfer of Land Act 1958. He did not elaborate this concern. The Sheriff did not oppose the proposed order permitting access to the property. The Sheriff does oppose the specification of a “not below” figure, on the basis that this would be inconsistent with the judgment of Beach J in Humphreys v Pioneer Homes[5] (“Humphreys”). In that case, a Master specified a “not below” figure for sale, but on appeal Beach J held that no reserve should have been set.
[5][2000] VSC 10.
The Sheriff seeks that any sale be subject to the approval of the Court, with a view to avoiding what occurred in Zhou.
Discussion
Duties of the Sheriff
In Zhou, Vickery J set aside a sale for $1000 of the judgment debtor’s interest in land at an auction without reserve, on the basis that the sale price was so low as to give rise to an illusory sale. The judgment debtor’s equity at the time of the sale, which was known to the Sheriff, was approximately $165,000; the judgment debt exceeded $100,000; and the Sheriff’s costs amounted to $1,152.73. Vickery J held that the sale breached the common law duty of the Sheriff, by which the Sheriff is bound to act reasonably in the interests of both the judgment creditor, here the plaintiff, and the judgment debtor, here the defendant, to accept only a bid at a “fair price”. Vickery J held that in determining if the proffered price is “fair”, the Sheriff is entitled to have regard to various factors that usually make it unlikely that the market price will be obtained. The Sheriff is also required to have regard to the amount, if any, to be obtained for the judgment creditor after the expenses of sale have been deducted. If it is apparent to the Sheriff that the highest bid 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”.[6]
[6]Zhou, at [124].
Vickery J also held that the sale breached the Sheriff Act 2009. By s24(a) of that Act, the Sheriff is permitted to sell property only for the purpose of applying the proceeds of sale to the payment of “a payable amount”. “Payable amount” is defined in s 1 of the Act to mean the amount specified in the warrant, which is the judgment debt, interest, costs and the Sheriff’s fees and expenses. In Zhou, Vickery J held that as the sale price did not even cover the costs of sale:
(t)he only proper inference to be drawn…is that the sale pursuant to the second auction was carried through, not for the purpose of applying the proceeds of sale to the payment of a payable amount due to the judgment creditor, for there were no such funds available, but for the purpose of offsetting, to a substantial degree, the costs incurred by the Sheriff in conducting the sale.[7]
[7]Ibid, at [134].
Possible orders
Humphreys was not addressed by Vickery J in Zhou. I accept the submission by the Sheriff that it would be inconsistent with Humphreys to specify a “not below” figure. I also accept the submission of the Sheriff that it would be undesirable to imply that the Sheriff is permitted to negotiate with buyers, as this might suggest a private sale. Rule 69.05(2) of the Rules authorises the Sheriff to sell property the subject of a warrant by either private sale or public auction, but it excludes land. The inference is that sale of land must be by public auction.
One risk in making the order primarily sought by the plaintiff, for sale at the best price obtainable on the day, is that, following Zhou, the Sheriff may take a cautious approach in accepting bids, and no bid may be made which the Sheriff considers a “fair price”. Thus there may be no sale at all, which may defeat the plaintiff’s interest in recovery on its judgment and the public interest in the enforcement of judgments generally.
The other risk is that the Sheriff may accept a figure which is considered too low by the defendant, and so expose the buyer and the Sheriff to further litigation as ensued in Zhou. It is no doubt for this reason that the Sheriff seeks that any sale be subject to Court approval. The necessity for Court approval would give the judgment debtor a further opportunity to be heard, before the sale was finalised, and so perhaps limit the possibility for impeachment of the sale after settlement.
On balance, I consider that sale subject to Court approval is the best means canvassed before me to protect the interests of all of the plaintiff, defendant, Sheriff and buyer. I accept that a necessity for Court approval will add some cost and delay. It may deter some buyers, but it may in fact encourage others on the basis that Court approval may limit the prospect of the sale being subsequently impeached, which impeachment would add substantially to cost and inconvenience.
I will make the order sought by the plaintiff permitting access to the property as I consider it may make the sale more attractive to potential buyers, and so result in a better sale price than may otherwise be the case. This is in the interests of both the plaintiff and the defendant, and on the facts before me impose no hardship on the defendant.
The plaintiff also seeks orders for the delivery up of the duplicate certificate of title to the Sheriff and authorising the Sheriff to deliver same to the successful buyer. Mr McInnes expressed some doubt about these orders, but did not elaborate the nature of the concern. I consider the appropriate course is to order the defendant to deliver the duplicate certificate of title to the Prothonotary, to be held in safe custody pending further order. When the matter comes back before the Court for approval of a sale, then the Sheriff can at that time elaborate for the benefit of all who attend that hearing any concerns about delivery of the duplicate certificate of title to the purchaser. The purchaser may by that stage have had the opportunity to communicate with the lodgers of both caveats on the title, the judgment creditor plaintiff and Maribyrnong City Council, as to what is required to be done to secure clean title.
The power under r66.15 is a wide one, and I consider that all of the orders I propose fall within it. There was no suggestion by the plaintiff or the Sheriff to the contrary.
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