Nilrem Nominees Pty Ltd v KARALEY Pty Ltd - [2000] WASC 82

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NILREM NOMINEES PTY LTD & ORS -v- KARALEY PTY LTD [2000] WASC 82

CORAM: MASTER BREDMEYER

HEARD: 23 MARCH 2000

DELIVERED : 31 MARCH 2000

FILE NO/S: CIV 2042 of 1999

BETWEEN: NILREM NOMINEES PTY LTD (ACN 050 494 454)
ROBERT GEORGE SMART
SHIRLEY BARBARA SMART
ARVID WILLIAM HOGSTROM
GWEN MARGARET HOGSTROM
Plaintiffs
AND
KARALEY PTY LTD (ACN 076 750 082)
Defendant

Catchwords:

Mortgagee's sale - Duty of mortgagee on sale to act bona fide and to take reasonable precautions to obtain a proper price

Legislation:

Nil

Result:

Application granted

Representation:

Counsel:

Plaintiffs: Mr S Singh
Defendant: Mr D J Miller

Solicitors:

Plaintiffs: Papamihail
Defendant: Marks & Sands

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

ABC v Australian Performing Rights Association Ltd (1973) 129 CLR 99
Bishop v Bonham [1988] 1 WLR 743
Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138

Case(s) also cited:

Adams v Bank of New South Wales [1984] 1 NSWLR 285
Citicorp Australia v McLoughney (1984) 35 SASR 375
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633
Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643
Forsyth v Blundell (1973) 129 CLR 477
Great Western Mines NL (In Liq) v Pembroke Securities Ltd (1990) 2 ACSR 659
John Kennedy v Mary Annette De Trafford & Ors [1897] AC 180
Miles v Bull [1969] 1 QB 258
Nathan Securities Ltd v Stavefield Holdings (No 29) Ltd (1994) 68 ALJ 836
Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676
Thomas National Transport (Melbourne) Pty Ltd v May and Baker (Australia) Pty Ltd (1966) 115 CLR 353

MASTER BREDMEYER: This is an application by the plaintiffs for summary judgment. The plaintiffs loaned $386,000 to the defendant in February 1997 under a mortgage. The loan was due for repayment on 19 February 1998. It was not paid. A notice of demand was issued on 1 March 1998. The land was vacant so the plaintiffs got possession. The property was sold in October 1999 for $270,000. The shortfall on sale, plus interest, costs and expenses comes to $237,387.48. The plaintiffs seek judgment for that sum.
The defendant says it has a set‑off and/or counterclaim in that the plaintiffs, as mortgagees, did not take all reasonable precautions to obtain the true market value for the property when it was sold. According to the Full Court in Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138, a mortgagee's obligation on exercising the power of sale is to bona fide endeavour to obtain the best price reasonably available in all the circumstances of the case. One factor to consider when assessing whether a mortgagee is in breach of this obligation is whether the mortgagee has taken reasonable precautions to obtain a proper price. If the mortgagee has wilfully or recklessly sacrificed the interests of the mortgagor, then the mortgagee has not acted bona fide.
What precautions did the plaintiffs take in this case to obtain a proper price on sale? The first point to note is they at no stage obtained a valuation. I consider that not obtaining a valuation is an indication of lack of prudence, particularly as here when the property was not sold by public auction.
The second point is that the plaintiffs attempted to sell the property by public auction held in August 1998. The defendant has not said that the auction was not advertised adequately. The defendant in an affidavit says this about the auction:
"22.I have read the plaintiffs' comments about the auction that was conducted in August 1998. I dispute their comments that there were no bidders. I was present at the auction. There were two bidders, one of whom was a genuine bidder. I verily believe the mortgagees passed the property in at $450,000."
(I should add that the first two sentences relate to a letter from the plaintiffs' solicitor which is not before me).
The plaintiffs have led no evidence in response to that so, for the purposes of this application, I must consider that evidence as correct. I do not think it inherently incredible. But how far does the evidence go? The defendant does not say that the highest bidder was the last one for $450,000. So that bid could have been non‑genuine, say by a dummy. The defendant does not say that the second highest bidder was the genuine one. The defendant does not say that the plaintiff's representative failed to negotiate with the second highest bidder after the auction. I consider that the defendant has not raised an arguable defence that the plaintiffs' conduct of the auction was improper.
The plaintiffs advertised the property for sale privately in 1999 and this produced a sale in September ‑ October. Was the property advertised adequately in 1999? Seven advertisements were placed in the Sunday Times and another one in the magazine Homebuyer between February and September 1999. I consider the advertisement in the Homebuyer was inadequate in that it was of a vacant lot suitable for subdivision into 28 lots and I understand that magazine is directed, as its name suggests, primarily to home buyers. Nevertheless, I consider that the other seven advertisements in the Sunday Times were adequate in number and content and I consider the Sunday Times was a suitable publication for them. I consider they were adequate, especially when it is known that, in addition, the defendant placed his own advertisements on a monthly basis in the newspaper. He gave his own telephone number and he said he received numerous enquiries about the land but that they did not come to anything.
I consider it was not unreasonable to say in two of the advertisements that the sale was under instructions from a mortgagee in possession. That could depress the price but could, equally well, stimulate interest and produce competitive bids. Neither was the last advertisement of 5 September 1999 unreasonable. It was for $320,000. It said:
"… urgent sale, price dramatically reduced by mortgagee in possession."
I make the same comment. Also it came at the end of a long line of advertisements which had not produced a sale.
Did the plaintiffs' advertisements in 1999 produce any offers that they should have accepted but failed to do so? The plaintiffs accepted one offer of $470,000 in March 1999. It was an offer subject to finance within nine to 10 weeks. I assume that contract fell over because finance was not obtained. Another offer of $630,000 in March 1999 was refused. The offer was subject to the vendor purchasing five properties at stipulated prices from the purchaser. The plaintiffs were justified in rejecting that offer. It is not part of their duties as mortgagees to accept other properties by way of trade. I consider that no good offers were rejected. I consider that the price of $270,000 obtained in September was not unreasonably low, despite the lack of a valuation. I say that because that offer came at the end of a long period of advertising when no better offer was received. It was reasonable to reduce the price progressively over that period. The number of advertisements and the long period of advertising makes up for the lack of a valuation. A lack of a valuation would be most signficiant if a property was sold for a low price after an inadequately advertised auction or after an inadequately advertised private sale. In the circumstances of this case I consider the defendant has no arguable defence that the plaintiffs failed to take all reasonable precautions to obtain a proper price.
If I am wrong in these findings, the plaintiffs, in any event, say that they are exempt from any liability in this regard by virtue of cl 37.4 of the mortgage, which reads:
"37.4No Liability for Loss
The mortgagee is not liable for any loss caused by the exercise, attempted exercise, failure to exercise or delay in exercising any mortgagee's power, whether by reason of negligence or otherwise."
I consider the clause valid and wide enough in its wording to exclude the mortgagee from liability where he has failed to take proper precautions to get a good price. The wording differs from that before the court in Bishop v Bonham [1988] 1 WLR 743. In that case the relevant words in cl 3 read:
"… you may without notice to the depositer sell the securities or any of them in such manner and upon such terms and for such consideration (whether payable or deliverable immediately or by instalments) as you may think fit. You shall have no liability for any loss howsoever arising in connection with any such sale and you may apply the net proceeds of sale …" (My emphasis)
In that case the Court of Appeal comprising of Slade and Russell LJJ considered that the words "as you may think fit" mean within the limits of the duty of care imposed on mortgagees by the general law. But they considered that a properly worded clause could exempt the mortgagee from liability for negligence. In this case I consider the latter words of cl 37.4 are wide enough to exempt the mortgagee from liability for negligence, or for breach of the mortgagee's duties on sale, as set out in Southern Goldfields Ltd v General Credits Ltd (supra).
The plaintiffs seek judgment for the sum of $237,387.48, which is the sum said to be owing in a certificate given to the defendant on 22 November 1999. That certificate is said to be pursuant to cl 51 of the mortgage and the plaintiffs rely on that clause for its conclusive evidence provision. Section 51 provides:
"51. EFFECT OF CERTIFICATES
51.1Certificates Conclusive Evidence
A Certificate signed by the Mortgagee or an Authorised Officer of the Mortgagee in respect of:
(a)the default of a person other than the Mortgagee under a Transaction Document;
(b)demand having been effected on a person other than the Mortgagee under the Transaction Documents;
(c)the amount of the Money Secured or a part of the Money Secured at the date of the certificate or any other date mentioned in the certificate;
(d)the liability of any person to pay the Money Secured or a part of the Money Secured;
(e)the Rate; or
(f)any other factual matter stated in the certificate;
will be conclusive evidence of the truth of its contents and will be binding on the Mortgagor."
Two certificates were given under cl 51. The first on 20 September 1999 for $478,799.83. It was signed "PAPAMIHAIL, Barristers and Solicitors, as Authorised Officer for the Mortgagees". The second was given on 22 November 1999 as I have said, which was after the sale of the property and was for $237,387.48. It was signed in the same way as the first certificate. The second certificate is the more important one, being for the sum for which judgment is sought.
Under cl 51.1 of the mortgage the certificate needs to be signed by the mortgagee or an authorised officer of the mortgagee. "Authorised officer" is defined in cl 1 of the mortgage in (a) in respect of the mortgagee and in (b) in respect of the mortgagor. The relevant definition in this case is in (a) and I quote:
"Authorised Officer" means
(a)in respect of the mortgagee, if the mortgagee is a body corporate, a director of secretary of the mortgagee or any person appointed by the mortgagee to act as an authorised officer for the purposes of this deed by notice to the mortgagor and the borrower;"
The wording of this clause is ambiguous. It could apply only to a corporate mortgagee, in which case the authorised officer is a director or secretary of the company, or some other person appointed by the company to act as its authorised officer for the purposes of the deed by notice to the mortgagor and the borrower. Or, it could apply to both a corporate mortgagee and a personal mortgagee. In that case it should be interpreted to mean (1) that a director or secretary of the corporate mortgagee is automatically an authorised officer, or the company may appoint some other person to be its authorised officer. In addition, it means (2) that where the mortgagee is a person, he can appoint someone else as his authorised officer for the purposes of the deed. In all cases the appointment has to be in writing and notified to the mortgagor and borrower. I consider the second interpretation is the better one because it avoids a result which is otherwise inconvenient or unjust in that it allows a personal mortgagee to appoint an authorised officer. This mortgage is a commercial contract, and, as such, it should be construed "fairly and broadly, without being too astute or subtle in finding defects": ABC v Australian Performing Rights Association Ltd (1973) 129 CLR 99 at 109.
Papamihail was appointed by the firstnamed plaintiff, Nilrem Nominees Pty Ltd, as authorised officer by a letter to the defendant dated 20 September 1999. There was no equivalent letter sent by the other four individual plaintiffs. The plaintiffs endeavoured to overcome that problem by a letter to the defendant dated 1 February 2000. That letter is signed by the four personal plaintiffs and, in addition, is signed by Clive Bedford‑Brown, a director of Nilrem Nominees Pty Ltd. So in relation to that company, it is a second appointment of Papamihail as the authorised officer. The relevant part of the letter reads:
"CERTIFICATE PURSUANT TO CLAUSE 52.2 OF THE MORTGAGE DATED 20.9.97 IN RESPECT OF 14 WESTFIELD ROAD ARMADALE
We hereby certify that a notice has been given to you on 20 September 1999 notifying you that we have appointed Messrs Papamihail, Barristers and Solicitors, as our authorised officer for purposes of the above‑mentioned mortgage."
I consider that an impermissible attempt to backdate to 20 September 1999 the notice of appointment of Papamihail as the authorised officer for the four personal plaintiffs. It refers to a letter of 20 September 1999. The only letter of that date produced to me is the one already referred to from Nilrem Nominees Pty Ltd which, on its proper construction, only relates to that company. I consider that the two certificates are invalid because the signatory was not authorised by all the mortgagees under cl 51. In that circumstance neither certificate is conclusive evidence of the moneys secured.
I do not consider that the defendant has raised any arguable defence or that there is any other reason why I should not grant summary judgment in this case and I propose to do so, without reference to the certificate on which the plaintiff relies, for the sum of $231,233.08. My calculations are set out in a schedule. I have disallowed item 1 in Papamihail's letter of 25 October 1999 (RHG 10) which is "Trust Realty $4000" said to be the costs of the unsuccessful auction in 1998. I would need proof of that. I have disallowed item 2 "Trust Mortgages $4000" said to be for work done by the mortgage broker in trying to recover payment of the principal. The defendant had defaulted and the mortgagees' solicitor took enforcement action. I fail to see why it was necessary to engage the broker to take enforcement action. I have disallowed item 7 "Payment to Trust Mortgages to refund deposit paid - $500" as an unjustified enforcement expense. I do not know what it means.

SCHEDULE
Principal Debt  $386,000.00
Interest at 13% pa            20.2.98 – 19.2.99                  $ 50,180.00
20.2.99 – 15.10.99                $32,720.24           $ 82,900.24
(238 days at $137.48 per day  $468,900.24
15.10.99 = settlement of sale)

Sale proceeds  $266,670.39
Less expenses  $ 17,128.99  $249,541.40
(Items 3, 4, 5 & 6 only)
Balance of principal owing after sale  $219,358.84
Add interest on this sum at 13% pa    16.10.99 – 31.3.00  $11,874.24
(152 days at $78.12 per day)

TOTAL OWING AS AT 31.3.00 $231,233.08