Kautto v La Trobe Capital & Mortgage Corporation Ltd [No 2] - [2015] WASC 58

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: KAUTTO -v- LA TROBE CAPITAL & MORTGAGE CORPORATION LTD [No 2] [2015] WASC 58

CORAM: MASTER SANDERSON

HEARD: 1-9 OCTOBER 2014

DELIVERED : 9 OCTOBER 2014

PUBLISHED : 12 FEBRUARY 2015

FILE NO/S: CIV 2720 of 2008

BETWEEN: ASKO JUKKA KAUTTO
MARICE MARTTA ANNIKKI SARIOLA
Plaintiffs
AND
LA TROBE CAPITAL & MORTGAGE CORPORATION LTD
Defendant

Catchwords:

Mortgage sale - Claim property subject of mortgage sold under value

Legislation:

Nil

Result:

Action dismissed
Judgment for defendant on counterclaim

Category: B

Representation:

Counsel:

Plaintiffs: In person
Defendant: Mr R R Cywicki & Mr L J D Barker

Solicitors:

Plaintiffs: In person
Defendant: GV Lawyers

Case(s) referred to in judgment(s):

Pendlebury v The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676

MASTER SANDERSON: This case concerned the sale by the defendant of a property owned by the plaintiffs over which the defendant had a mortgage. The plaintiffs defaulted on the mortgage, the defendant took possession of the property and it was sold by public auction. The plaintiffs maintain it was sold under value. After hearing extensive evidence from the parties I indicated I would dismiss the plaintiffs' claim. These are my reasons for doing so.

The facts

There was no real dispute between the parties as to the relevant facts. On 2 March 1990 the plaintiffs became the registered proprietors of a property at 4521 Scott Road, Yoongarillup. On 17 September 1997 the plaintiffs mortgaged the property to the defendant. On 14 March 2001 the plaintiffs varied the mortgage. It was then an interest only loan with monthly repayments of $2,691.67. On 9 January 2002 the defendant issued a default notice to the plaintiffs calling up the mortgage. As at that date the account balance was $345,586.93.
On 30 May 2002 the defendant commissioned Valuation Partners (WA) Pty Ltd to value the property. Valuation Partners valued the property at $630,000. This valuation put the value for the land at $406,000, the value of improvements at $87,000 and an allowance of $136,000 for a vineyard on the property.
On 24 July 2002 the plaintiffs and the defendant entered into a consent judgment whereby the plaintiffs agreed to pay the defendant the sum of $365,301.34 plus interest. The plaintiffs gave possession of the property to the defendant on or about 13 January 2003.
Prior to the delivery up of possession on or about 22 August 2002 the defendant appointed Property Realisations Pty Ltd to coordinate the sale of the property. On 29 August 2002 Mr Rob Tognela from Elders Real Estate Busselton provided Property Realisations with a report as to the condition of the property and as to the method of sale. He assessed the value of the property as being in the vicinity of $385,000. On 16 September 2002 Ray White Busselton provided Property Realisations with a report as to the condition of the property and they too advised as to the method of sale. Their assessment of the value of the property was between $350,000 and $385,000.
On 20 November 2002 the defendant decided to proceed to sell the property on an 'as is' basis. Prior to that date some consideration had been given to subdividing the property. I will have more to say about this prospect of subdivision later in these reasons. For this general overview of the facts it is enough to say the defendant decided the costs of subdividing the property were not such as to justify any higher price that might be obtained.
Both Ray White Busselton and Elders Real Estate Busselton advised Property Realisations as to the appropriate date for sale of the property. Both agreed the early part of February 2003 would be appropriate. The defendant took possession of the property on 12 January 2003 and on 11 February 2003 Property Realisations appointed Elders Real Estate Busselton to auction the property on 22 March 2003. On or about 20 February 2003 Elders Real Estate Busselton commenced marketing the property.
Just prior to the auction a reserve price for the property was set at $540,000. At the auction, which was attended by approximately 25 people, only one genuine bid of $360,000 was received. An auctioneer's bid was made at $370,000 and the property was passed in. On 25 March 2003 Mr and Mrs Gould made a cash offer to purchase the property for $416,000. A few days later another offer was received from Mr and Mrs Wills in an amount of $440,000. The defendant obtained a valuation of the property which put a value on it of $475,000 with a forced sale value of $430,000. On 23 April 2003 the defendant accepted the offer from Mr and Mrs Wills in an amount of $440,000.

The pleadings and the issues between the parties

Although the plaintiffs appeared in person at trial, the second further amended statement of claim, dated 10 September 2012, was drafted by counsel. In theory then the issues between the parties were crisply drawn. The duty of the defendant in the sale of the property was pleaded in par 12 of the statement of claim. It is in the following terms:
In exercising the power of sale under the Mortgage the Defendant owed the Plaintiffs:
(a)a duty to act in good faith having regard to the interests of the Plaintiffs;
(b)further and in the alternative a duty not to act in willful [sic] and reckless disregard of the interests of the Plaintiffs;
(c)further and in the alternative a duty to take reasonable care in carrying out the sale;
(d)further and in the alternative a duty to take reasonable precautions to obtain a proper market price for the Property.
For their part the defendant rejected that formulation of the duty. Paragraph 5 of the amended further re‑amended defence and counterclaim is in the following terms:
The Defendant denies each and every allegation pleaded in paragraph 12 of the Second Amended Statement of Claim and states that the Defendant as a Mortgagee was under a duty to exercise the power of sale in good faith and in so doing the Defendant was not to willfully [sic] or recklessly disregard the Plaintiffs' interests as a mortgagor.
There is a significant difference between the parties as to the duty owed by the defendant to the plaintiffs. Really the defendant agreed there was a duty or an obligation as set out in par 12(a) and (b). They do not accept the rather more broad duty pleaded in par 12(c) and (d). At least on the pleadings this was an important difference between the parties' respective positions.
There is, in my view, no doubt the defendant's plea as to the extent of any 'duty' owed by the mortgagee is correct. The case of Pendlebury v The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 stands - and has stood for over 100 years - for that proposition. The headnote puts the position succinctly:
A mortgagee, in exercising the power of sale conferred on him by the mortgage, not being at liberty to disregard the interests of the mortgagor, is bound before selling, either by auction or privately, to ascertain the value of the mortgaged property and, if the sale is by auction, so far as the circumstances will permit, give notice of the sale of such a nature, both as to particulars given and as to places in which, and the modes by which, it is given, as is likely to bring the property to the notice of likely buyers and so to induce such competition as will be likely to secure a fair price.
The plaintiffs then pleads a series of alleged breaches of the mortgagee's duties pleaded in par 12. The breaches pleaded were as follows:
1.the defendant's sale of the property at $440,000 was 'substantially below the market value of the property;
2.the defendant attempted to sell the property by auction which was the least appropriate way to sell the property;
3.the defendant allowed too little time to advertise and market the property;
4.the defendant did not advise the market an approval for subdivision had been obtained thereby reducing the appeal of the property;
5.the defendant advertised and marketed the property inadequately and carelessly;
6.the defendant appointed an inappropriate agent to sell the property;
7.the auction was conducted in an incompetent and unprofessional manner resulting in a poor price;
8.the property was not maintained by the defendant between the date the plaintiffs gave them possession and the date of the auction resulting in the property selling for a price less than it otherwise would have done; and
9.the valuations obtained 'for the purpose of justifying acceptance of the offer of $440,000 were not undertaken in good faith'.
There then follows a series of allegations of negligence against the defendant's agents - Elders Real Estate Busselton, Property Realisations, the auctioneer, and two firms of valuers. These allegations need not be detailed. They were not pursued at trial. In any event they seem to proceed on the basis each of these agents owed a duty to the plaintiffs which went beyond the duty owed by the defendant. As a matter of law that cannot be right. Insofar as some duty may have been owed by these agents directly to the plaintiffs they were not parties to the proceedings and would not be bound by any determination. It simply was not open to make the findings sought.

The plaintiffs' evidence

Both of the plaintiffs gave evidence. Given the common ground between the parties the plaintiffs did not have much to say which assisted their case. What they did establish was they came from Europe to Western Australia with a dream of establishing a vineyard. After some searching they located the Scott Road property. Although an amateur vigneron with very limited experience Mr Kautto had a dream. He wished to grow grapes and produce wine in the French tradition. To that end the vines he planted were not irrigated. Neither were they treated significantly, if at all, with pesticides. They were not certified organic or biodynamic or anything of that sort. But they were grown in a way which the plaintiffs, particularly the first named plaintiff, felt was optimum.
This was a point of some significance to the plaintiffs. Throughout the defendant's evidence there is reference to the poor condition of the vines and their stunted growth. The evidence is by way of observation rather than anything else; and in the overall context of this case it is not significant. But it was a point emphasised repeatedly by the plaintiffs. They wanted it made plain the condition of the vines was consistent with their strategy for producing top quality fruit and premium wines. They were firmly of the view the fact the vines were handled as they were should have increased the value of the vineyard. But apart from what I am sure was their honestly held belief there was no evidence to support their proposition.
This leads into a second point. In the years the plaintiffs occupied the Scott Road property it never produced wine on a commercial scale. It ran every year at a loss. There was evidence to the effect the property required a substantial capital injection if it was ever to produce wine on a commercial scale. The plaintiffs were never in a position to make that investment.
As to the way the property was marketed and its eventual sale, the plaintiffs could really say nothing. Mr Kautto did not attend the auction; Ms Sariola did attend the auction but she could do nothing more than report what occurred. She was not in a position to offer an opinion as to the appropriate way the auction was conducted.

Evidence of Rodney Swallow

Mr Swallow was a retired valuer who had more than 20 years experience as a rural consultant with BankWest and 12 years practicing on his own account. He had a Bachelor of Science in Agriculture from the University of Western Australia and a Diploma in Valuation. He was for many years a certified practicing valuer. There is no doubt Mr Swallow was qualified as an expert. Counsel for the defendant did not suggest otherwise. Before going to Mr Swallow's evidence it is worth putting that evidence in context. Given the issues in this case, valuation evidence had two roles - one minor role and one of rather more significance. The minor role was to indicate what a baseline value for the Scott Road property might be. If the opinion of the valuer was the property was worth say $700,000 and it was sold for $440,000 then a suspicion would be raised the property had been sold undervalue.
But the fact the valuer was of the opinion the property was worth $700,000 and it was sold for $440,000 does not, without more, establish the property was sacrificed. If the defendant did everything that it could reasonably have been expected to do and the property did not yield what the valuer anticipated there is no claim. So really all a valuer can do is set a red flag - that is, to point out the property sold for much less than the value given to it by expert opinion. In a claim such as this the valuation evidence used for that purpose is relevant, but of minor significance.
Where the valuation evidence would be highly relevant is if it was established the property had been sacrificed. Then the measure of damage might well be the difference between the expert valuation and the price actually paid for the property. This is the major role expert evidence might play. But it only plays a major role once the plaintiffs have established the property was sacrificed.
Prior to trial Mr Swallow prepared a report a copy of which was provided to the defendant's solicitors. When Mr Swallow was called to give his evidence counsel for the defendant objected to the report. He submitted the underlying facts upon which Mr Swallow relied in reaching his opinion had not been proved. Therefore the opinion based upon these facts was inadmissible. At first I indicated I would allow Mr Swallow to give his evidence and I would receive the report as an exhibit and rule on its admissibility as part of these reasons. Counsel for the defendant pointed out such an approach would be a mistake. Rather a ruling should be made on the admissibility of the report during the course of the trial. If it was ruled inadmissible the plaintiffs should then be given the opportunity to supplement the evidence and shore up their position.
Counsel was right on both grounds - Mr Swallow's report in its original form was inadmissible (almost in its entirety) and it was appropriate to allow the plaintiffs' time to produce a fresh report. Mr Swallow's original report was based upon comparable sales' evidence - that is to say, Mr Swallow had looked at the sale price of properties in the vicinity of the Scott Road property, had compared their attributes with those of the Scott Road property and determined on that comparative evidence the value of the Scott Road property. That methodology was entirely proper and appropriate - it was the same methodology applied by the defendant's valuer. But in Mr Swallow's original report he had not proved anything about the properties used for comparison. For instance, there were no land title searches of the property. So although Mr Swallow gave the size of the property and the price at which it had been sold none of this had been proved.
After an adjournment Mr Swallow did provide a report which became exhibit AR. He analysed a number of properties and their sale price and he made some comments on a limited number of these properties. It is clear he had actually visited most if not all of the properties in question. As I have said, there is also no doubt the methodology used by Mr Swallow was appropriate. He reached the conclusion the Scott Road property was valued at between $640,000 and $700,000 as at the date of sale by the defendant.
There was no doubt Mr Swallow was an honest witness and a man of integrity. I am satisfied the valuation techniques he employed were proper and that he had undertaken a thorough investigation. On balance I preferred the evidence of the defendant's valuer for reasons I will outline in due course. Nonetheless at least so far as the minor issue is concerned I would accept Mr Swallow's evidence raised the prospect there had been a sale undervalue. Again I make the point - the mere prospect there was a sale undervalue is not sufficient to establish the plaintiffs' claim. But at least it does provide some sort of background factual matrix against which the plaintiffs' claim can be considered.

Evaluation of the plaintiffs' case

The plaintiffs did not lead any evidence beyond the evidence they gave themselves and the evidence of Mr Swallow. There was no evidence from anyone on the part of the plaintiff as to how the property should have been marketed. There was no evidence as to how a different marketing strategy from that employed by the defendant would have led to a higher price. In short the plaintiffs did not reach first base, let alone the home plate. Their case failed without the defendant having to lead any evidence. But the defendant did lead evidence, no doubt with the intention of shutting the plaintiffs out entirely. If that was their approach they succeeded admirably. Although strictly speaking it is not necessary for me to do so I will deal in rather short order with the defendant's evidence.

Evidence of Rowan Donohoue

Mr Donohoue is presently in‑house counsel for the defendant. He joined the defendant in 2009 and he therefore had no direct knowledge of the sale of the Scott Road property. But he was able to introduce into evidence a number of relevant documents. On 21 July 2000 the defendant obtained a valuation of the Scott Road property from Valuation Partners. This valuation was obtained prior to the plaintiffs entering in to the mortgage with the defendant. It shows as at that date the property had a value of $710,000.
After the parties had entered into the consent judgment in July 2002 the defendant wrote to Property Realisations with their preliminary instructions as to the sale of the Scott Road property. Relevantly the letter read as follows:
Kindly provide this office with a written Real Estate Agents report as to condition and anticipated selling price of the property. Your Real Estate Agent report is to include the following:
1.Two (2) independent Agents Appraisals.
2.Recommended method of sale.
3.Tentative auction date if applicable.
4.Detailed description of the property in its present state.
5.Minimum maintenance to be undertaken prior to sale, together with expected cost. Obtain quotes where necessary.
6.Confirmation that small 'For Sale' sign has been placed at the property pending any auction instructions.
7.Recommendation if a Caretaker/Manager should be appointed.
Together with your Real Estate Agents report please forward proposed advertising schedule and Auction Authority. Your Advertising schedule is to make allowance for advertisements in the Saturday Age on the two weeks preceding the Auction.
Please ensure that our name or the words 'Mortgagee Sale' or 'Mortgagee Auction' are NOT used in any advertising material.
We have an updated valuation from Valuation Partners (WA) Pty Ltd
(exhibit Z, trial bundle page 494)
For various reasons I will outline below Valuation Partners did not actually provide an updated valuation until 17 February 2003. They put the value of the Scott Road property as at 30 January 2003 at $530,000 (see exhibit V, trial bundle pages 703 ‑ 726).
Prior to Valuation Partners providing the updated valuation consideration had been given to subdividing the Scott Road property. The Western Australian Planning Commission had approved a subdivision. The defendant sought advice as to whether or not if the land was subdivided the value would be enhanced. Valuation Partners considered if the Scott Road property was subdivided into two lots one would achieve a market price of between $390,000 and $430,000 and the other would achieve a price of between $200,000 and $220,000. This advice is contained in a letter sent by Valuation Partners to the defendant on 1 November 2002 (see exhibit S, trial bundle pages 572 ‑ 573). At that time there was no indication of what the costs of subdivision might be.

On 30 January 2003 Valuation Partners provided an updated valuation. They valued the Scott Road property at $530,000 (see trial bundle, pages 727 ‑ 784). It was clearly that valuation which influenced the defendant in setting the reserve price.
Mr Donohoue was cross‑examined by the plaintiffs but to no great extent. Really he was not in a position to shed any light on events as they transpired. It was his role to introduce into evidence certain of the documents which constituted the books and records of the defendant.

Evidence of Kathryn Aldama

Ms Aldama is a qualified real estate agent and was the managing director of Property Realisations in 2002 and 2003. She said that Property Realisations exclusively acted as a conjunctional selling agent for mortgagee sales. All of Property Realisations' clients were mortgagees. In about August 2002 Property Realisations were instructed to act in relation to the Scott Road property. The West Australian agent for Property Realisations at the time was Ms Kate Mitchell. Ms Aldama instructed Ms Mitchell to find two local real estate agents to submit proposals for the marketing and sale of the property. Ms Mitchell advised Ms Aldama two suitable agents would be Mr Rob Tognela of Elders Real Estate Busselton and Mr Jamie Patton at Ray White Busselton.
By letter dated 22 August 2002 Property Realisations wrote to Mr Tognela. That letter was in the following terms:
Subject: 4521 Scott Road, Busselton - Kautto/Sariola
The Mortgagee has instructed us to co‑ordinate the sale of the above property and to obtain the following information within 3 working days from two (2) local agents:-
1.An appraisal of the above property on your Company's letterhead, including as many comparable sales as possible, but excluding the value of chattels.
The Vendor will carry out general clean up works, however in the event that you recommend more extensive works (as per (2) below), you must provide an appraisal of the property both with basic clean up works completed and with the more extensive works carried out.
2.Your opinion of the condition of the property and any recommendations regarding any works or repairs that should be carried out.
3.Suggested method of marketing the property ie. Private Treaty or Public Auction. Please give reasons for your recommendations, taking into account the particular characteristics of this property and the local market rather than the convenience of a particular method of sale.
4.Based on 3 (above) a proposed Advertising Schedule and a copy of proposed Advertisement.
5.Your comments and recommendations as to whether the occupants should remain at the property until Settlement or vacant possession should be obtained before marketing proceeds.
Please contact the occupants/Borrowers (Asko & Marice) on 08 9753 3259 to arrange access to inspect the property.
The Mortgagee has an obligation to obtain the best available price, however DO NOT inflate your estimate of the realistic price in an attempt to 'win' the sale. The Mortgagee does not necessarily appoint the most optimistic agent as they are more interested in the care and accuracy of each agent's appraisal and marketing plan.
Should your submission be successful, Commission will be paid in accordance with the 'old' REIWA scale, which was in place prior to deregulation, and our conjunctional arrangement will be on a 75/25 basis.
When all information has been received by the Mortgagee, we will advise you of their decision regarding the marketing of the property.
This letter is not an appointment of your firm to act as an agent for the Mortgagee in the sale of the property. In the event that the property is, or has ever been listed for sale with your agency, please advise me immediately.
Yours faithfully,
PROPERTY REALISATIONS PTY LTD
(exhibit AB, trial bundle pages 508 ‑ 509) (original emphasis)
A letter in identical terms was written to Ray White Busselton on 10 September 2002.
On 29 August 2002 Mr Tognela responded as follows:
RE: 4521 Scott Road (Kautto/Sariola)
I advise having inspected the above property on 23 August 2002 and comments are as follows.
I do not place a large dollar value on the vineyard as there are no production figures available. It appears the grapes harvested have been for home consumption or have been consumed by the kangaroos, emus and birds.
It is evident that some production has taken place as a small crusher is on the verandah and there is residue under some trees.
It also appears the vendors have attempted an organic structure as no chemicals or chemical fertilizers have been applied, however, no organic fertilizers appear to have been used or organic status applied for to my knowledge.
The vineyard trellising is not consistent with industry standards as the trellis posts are approximately 1.4 metres high and the fruiting wire is low. No additional fruiting wires are in place indicating no prolific vine growth at any stage.
Additionally, the property is not in the Margaret River Wine appellation but lies in the emerging but unknown Geographe Wine Region, although the fruit can be sold into any region. I do not believe that cellar door sales will be of benefit as the property is 22.5 kms from Busselton on a side gravel road off Vasse Highway which is the major route to Nannup and beyond.
Fertiliser history on the balance of the pastured form would be nil, no livestock are being run and the property is overrun with Cape Weed. The northern boundary fence is in very poor condition and it adjoins State Forest.
The property is a very attractive unit being all green, an abundance of water from the Abba River and several dams. There is a small orchard and two steel framed general purpose sheds.
An application to subdivide the property into two lots is currently before the State Planning Commission but I am unaware of what stage the subdivision is at.
Market comparisons are slightly misleading as the last property sold was [sic] Loc 4087 which was 50 acres in July 2001 and was sold to a neighbour who owns Lot 739 and 973.
I would love to say go public auction as it would lift our office profile but I but I [sic] would wait a week to see what happens with Serventys Vineyard at Margaret River which is going to auction then.
I feel that 'Private Treaty' for the sale would be the best approach as I am not attempting to win the sale. I believe the value of to be in the vicinity of $385,000, however I would go to the market place with an asking price of around $450,000-$465,000.
The Vendors should remain on site as they will maintain the property by continuing to spray, prune and generally upkeep the vineyard and surrounds.
Please do not hesitate to contact me if you have any further queries regarding the above property (exhibit W, trial bundle pages 515 ‑ 516).
On 16 September 2002 Ray White Busselton responded to Property Realisations inquiry (exhibit Y, trial bundle pages 527 ‑ 528). They assessed the value of the Scott Road property at between $350,000 ‑ $385,000.
On 11 February 2003 Property Realisations instructed Elders Real Estate Busselton to sell the property. The instructions were in the following form:
Re: 4521 Scott Road, Busselton - Kautto/Sariola
This is to confirm that your agency has been appointed to auction the above property in accordance with the following conditions:-
1/The Auction has been scheduled for Saturday 22^nd March, 2003 at 11.00 a.m. on site.
2/The attached advertising schedule has been approved, with the Mortgagee's contribution to advertising not exceeding $1070.00 and being deducted from deposit monies. The Mortgagee has requested that the property be advertised over a minimum 4‑week period.
3/Prior to the commencement of marketing, please forward, for approval, a copy of your proposed advertisements.
Please note the following when placing advertising:-
- the property is not be advertised as a 'mortgage sale'
- the Vendor's name is not to appear in any advertising
- advertising is not to suggest the property is being sold as a 'bargain'
- the Mortgagee has no legal charge over chattels, and accordingly they are not to be included in advertising or the Contract of Sale.
4/Commission will be paid in accordance with the following schedule of fees:-
Up to $150,000                   $5,125,00
On the next $100,000               2.25%
Thereafter  2.00%
Plus GST
5/Please complete and forward your Sale Authority to us as soon as possible. The Vendor is Latrobe Home Loans of Australia, P O Box 403, Traralgon, 3844.
6/Any maintenance and clean up works are to be completed prior to the commencement of marketing. In this regard please have your handyman provide quotations for any necessary works. We understand these cost [sic] may be higher than usual due to the isolated nature of the property.
Note : All invoices should be made out to 'La Trobe Home Loans of Australia' and forwarded to this office for onforwarding to the Mortgagee for payment. The invoices should clearly specify the contractor's ABN Number and the GST component.
7/The Mortgagee's Solicitors have been advised of your agency's appointment and they will forward Contract of Sale documents to your office in due course. Documentation is not to be completed until we have confirmed acceptance of an offer.
8/All offers are to be referred for consideration.
Do not hesitate to contact me at any time. However, please note that Mortgagee has requested that you do not contact them or their solicitors direct unless it is in answer to a specific enquiry from them.
It is also confirmed that our conjunctional arrangement will be on a 65/35 basis.
Your co‑operation in these matters is appreciated.
Yours faithfully,
PROPERTY REALISATIONS PTY LTD
(exhibit AD, trial bundle pages 839 ‑ 840) (original emphasis)
On the day before the auction, 21 March 2003, Ms Aldama received the defendant's signed authority to auction and advice of the reserved price being $540,000 exclusive of any applicable GST. The same day Ms Kate Mitchell wrote to Mr Tognela advising him of the reserve price. The property did not sell at auction and Mr Tognela subsequently negotiated a sale. At first the likely purchasers were Mr and Mrs Gould at a figure of $416,000. Eventually the sale was concluded at $440,000.
Ms Aldama was an impressive witness. She was clearly very experienced and followed a formula which had been used many times. Local agents were engaged and there was no suggestion Property Realisations 'played favourites'. Rather they employed the agent they thought was best suited to the job. They ensured the property was properly advertised and the fact it was a mortgagee sale was not made known to potential purchasers. In all it is difficult to see what more Property Realisations could have done.

Evidence of Robert Tognela

Mr Tognela became a qualified real estate agent approximately 25 years ago. He worked at a variety of other professions after qualifying as a real estate agent but at the relevant time was working for Elders Real Estate Busselton. He confirmed Ms Aldama's account of how his firm was approached in relation to the Scott Road property and the advice he gave as to its sale.
After being approached by Property Realisations Mr Tognela inspected the Scott Road property. He did this on 23 August 2002. He said he spent approximately four hours at the property including travel time from Busselton. He noted there was a one bedroomed single storey house on the land and a vineyard had been planted. He said approximately 17 ha were under vine. Mr Tognela had previously planted a vineyard of his own known as Beckett Flat. He was therefore reasonably familiar with vineyard requirements. In his witness statement Mr Tognela put the condition of the property in the following way:
The vineyard tressilling I installed on my vineyard was 1.8 metres high and the first wire of the tressilling was at waist height to facilitate commercial picking of grapes by hand and/or machine. I also had wide turning circles at the row ends of my vineyard as automatic harvester machines and the associated tractor and collection bins needs 25 metres clear at the end of the row to turn.
The tressilling at the Scott Road property was only approximately 1.4 metres high and the fruiting wire appeared to me to be too low to easily pick by hand. There was no space for machinery turning circles at the Scott Road property.
During my inspection of the property, the Plaintiffs advised me that they were growing the grapes organically and that no chemicals or chemical fertilisers had been applied to the vineyard.
The Plaintiffs also advised me that they did not have a fertiliser history for the property.
During my inspection on 23 August 2002 it was apparent that the property was overrun with cape weed. I drove across the northern section of the property near the state forest and it was apparent that the northern boundary fence was in very poor condition [10] ‑ [14].
Property Realisations asked Mr Tognela to recommend a marketing campaign. He sets out his recommendations in par 23 of his statement. It reads as follow:
I responded to Property Realisations by letter dated 22 November 2002 (D22) in which I recommend:
(a)A large auction board be placed on the Busselton side of Vasse Highway at Scott Road which would be visible to people travelling from Busselton to Nannup on Vasse Highway;
(b)A second smaller signboard be placed on the Nannup end of Scott Road where there was not such a high volume of traffic;
(c)I also recommended a for sale sign be placed on the actual property;
(d)A window display at the offices of Elders Real Estate in Queens Street, Busselton;
(e)100 printed colour brochures be prepared to hand to people who would be making enquiries about the property;
(f)Two advertisements in the country properties section of the Saturday edition of the West Australian newspaper;
(g)6 advertisements in the Busselton Margaret River Times;
(h)6 advertisements in the Busselton Dunsborough Herald [23].
On 16 January 2003 Property Realisations sent through to Mr Tognela certain valuation information and asked for his opinion. He remained of the view it was worth somewhere around $380,000. After the plaintiffs vacated the property Mr Tognela again inspected it. He suggested some work be undertaken and that was done. The auction date was then set.
Mr Tognela summarises the advertising campaign in the following way:
The newspaper advertisements continued in the lead up to the auction on the following dates:
(a)Busselton Margaret Times Real Estate on 27 February 2003 (D320);
(b)The West Australian on 1 March 2003 (D321);
(c)Busselton-Dunsborough Herald on 4 March 2003 (D322);
(d)Busselton Margaret Times on 6 March 2003 (D323);
(e)Busselton-Dunsborough Herald on 11 March 2003 (D324);
(f)Busselton Margaret Times on 13 March 2003 (D325);
(g)Busselton-Dunsborough Herald on 18 March 2003 (D326);
(h)Busselton Margaret Times on 20 March 2003 (D327); and
(i)Busselton-Dunsborough Herald on 25 March 2003 (D328) indicating that the property was 'under offer' [42].
There was one glitch with the advertising campaign. Mr Tognela sets this out in par 43 of his statement and it reads as follows:
Of the advertisements listed above, the advertisements dated 13, 18 and 20 March 2003 specify incorrectly that the auction is scheduled for 25 April 2003 when in fact the auction was scheduled for 22 March 2003. All the other ads contained the correct date of the auction and I cannot explain why those advertisements specify the incorrect date [43].
Mr Tognela confirmed he was advised of the reserve price the day before the auction. The Scott Road property did not sell at auction and Mr Tognela then entered into discussions with two other interested parties. He confirms that these two parties were the only ones who had shown interest in the property. He was satisfied that the figure of $440,000 was the highest possible price which would be obtained for the Scott Road property.
Mr Tognela was an impressive witness. He struck me as precisely the sort of person to sell a property such as the plaintiffs. It is true he took a hard line as to the worth of the vineyard on the Scott Road property; but having had his own vineyard he knew what was acceptable and what was not. There was a problem the advertising which he acknowledged. There was no evidence this had an adverse effect on the number of people at the auction or the price that was bid. Mr Tognela was unshaken in cross‑examination.

Evidence of Glen William Franklin

Mr Franklin is a licenced valuer who gave expert evidence on behalf of the defendant. Essentially this amounted to his confirming a report he prepared dated 14 December 2011. I do not propose to go through this report in detail. It is sufficient if I say Mr Franklin came to the conclusion the value of the Scott Road property in April 2003 was $440,000.
If it became necessary to decide between Mr Swallow's report and Mr Franklin's report I would accept the evidence of Mr Franklin. He impressed me as a witness. He prepared a careful and thorough report which benefited from clear instructions from the defendant's instructing solicitors. That perhaps is the difference between the two reports. Mr Swallow was not properly instructed and therefore failed to prove many of the facts upon which his opinion was based. It is true parts of Mr Franklin's report also contain some hearsay material - mainly accounts of discussions he had with various property owners: see for instance item 11 of 'sales evidence' at page 9 of Mr Franklin's report. But even allowing for (and ignoring) the inadmissible material the report is impressive and in my view carries the day.

Conclusion

Taken together the evidence led by the defendant establishes without any doubt the best possible price was obtained for the Scott Road property. The method of selling was appropriate, the agents engaged were arm's length, the marketing campaign was in all the circumstances reasonable and when the property failed to sell at auction Mr Tognela was able to negotiate the best possible price.
Regrettably the price obtained for the Scott Road property after deduction of all expenses was not sufficient to pay out the defendant's entitlement. The defendant counterclaimed for $9,022.54 plus accrued interest. It established that amount was owing by the plaintiffs and accordingly there should be judgment for the defendant on the counterclaim.

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Citations

Kautto v La Trobe Capital & Mortgage Corporation Ltd [No 2] [2015] WASC 58

Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9