Wu v MA

[2011] VSC 208

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2009 09992

B E T W E E N:

GUAN FENG WU	Plaintiff
- and -
LI MA and  ZHIPING ZHOU	Defendants
JUDGE:	Mukhtar, AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	13 May 2011
DATE OF JUDGMENT:	13 May 2011 (reasons in this form published subsequently)
CASE MAY BE CITED AS:	Wu v Ma
MEDIUM NEUTRAL CITATION:	[2011] VSC 208	Revised 23 May 2011

EXECUTION ― Sheriff ― Sale of land ― Unsuccessful public auction ― Application by execution creditor for conduct of second auction without reserve ― Court’s power ― Interests of execution debtor

REASONS FOR DECISION

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr K Dernelly	Kennedy Guy
The Second Defendant	Appeared in person

HIS HONOUR:

1. There was before the Court an application by summons filed 28 April 2011 by the second defendant which said in handwriting (and I will not denote the obvious errors):

I apply to set side the order made Magister’cs court at Sunshine on 12/03/2009 in Case No X02562013  I apply to stop settlement of the property seized by sheirff’s been the property 2 WIRRAWAY AVE BRAYBROOK VIC 3019.

1. The second defendant appeared in court in person.  He speaks little English but brought with him a friend who was able to interpret for him.  The interpreter seemed to understand what was going on in Court, but I cannot be sure.  The outcome after some time was for me, as a prudential measure, to adjourn the further hearing of this summons before me on 9 June 2011 at 12 pm. 

1. It might be thought unnecessary that the Court should state considered reasons for such an unremarkable course.  But as I wish to make apparent in this short judgment, there are some disquieting features of this case and I consider it is important to expose them for three purposes.  First, to meet the possibility that the second defendant’s predicament may re-arise somehow before another judge of this court who is due to hear a cognate application on 24 May next 2011 in the Practice Court.   Secondly, I do so for the benefit of the second defendant who I have urged to obtain legal advice.  Thirdly, I wish to use this case to expose the restlessness I for one am having, in a search for principle and certitude in the source of judicial power, with applications brought by an execution creditor asking the Court to relieve the Sheriff from selling real property by auction without a reserve price.  I believe such applications are not uncommon and I think legal practitioners ought be conscious of the problems involved.  The facts of this case show why. 

1. What follows is not all proven and should not be treated as findings or in any sense an adjudication.  I have put this narrative together according to materials I have been given by counsel for the plaintiff.

1. This proceeding concerns a warrant of seizure and sale issued by the plaintiff against the defendants on 9 November 2009.  The plaintiff sued in the Magistrates’ Court at Sunshine on 10 November 2008.  The nature of the complaint is described on the Court Complaint this way: “The defendants were in breach of the loan agreement and the Letter of Undertaking”.  An amended statement of claim alleges in essence that: the plaintiff lent the first defendant Renminbi 440 000 (Chinese Yuan) evidenced by a document in the Chinese language entitled “IOU”; the loan was to be repaid a year later with 10% interest; the loan was not repaid; the defendants then signed a Letter of Undertaking which said the loan would be repaid by 30 June 2008 and the plaintiff could live at the first defendant’s home rent free until repayment, and the second defendant  guaranteed the first defendants obligation to repay. 

1. It seems an order was made in the Magistrates’ Court on 12 March 2009 for $96 660 together with interest of $5487.11 and costs of $2008.75.  It was obtained as a default order, maybe in default of a defence. 

1. The second defendant is the registered proprietor of a property at 2 Wirraway Avenue in Braybrook.  A title search in evidence shows there is a mortgage to Suncorp Metway registered in June 2008.

1. I am not sure, but the plaintiff may have filed a warrant in the Magistrates’ Court to seize property of the second defendant.  I do not have a date or a sealed document.   I have a Field Report of the Sheriff’s office saying there was a call on the property on 29 September 2009 but no seizable goods could be located on the property.  The report dated 1 October 2009 says “Please note, as per signboard at front of warrant address, Judgment Debtor’s residence has been sold by G L Lee Real Estate… “.  This is not explained by anybody.

1. A warrant of seizure and sale was then filed by the plaintiff in this Court on 9 November 2009.  The sheriff, acting under the warrant, advertised and then offered the property for auction on 15 July 2010 but it was passed in due to a lack of any bids.  The Valuer General has valued the property at approximately $630 000 for the purposes of the Sheriff’s Office Reserve price for the property. 

1. After the failed auction, the plaintiff’s solicitor says that correspondence was sent to the second defendant before the sale “to seek his advice in regards to his wishes to reconsider his approach to selling the property”.  He says there was no reply to any correspondence. 

1. The next step was for the plaintiff to apply to the Court for an order to enable the Sheriff to sell the property without reserve.  That application came before me on 1 October 2010.  I did not have the benefit of submissions but was told that such orders have been made by this Court in the past.  I gather they have too but for my part, I cannot see any express power under the rules of Court to permit the Sheriff sell without reserve at least on the application of an execution creditor.  The Court’s power under r.66.15 to “make such orders as it thinks fit in aid of enforcement of a warrant of execution” is made under that rule on application by the Sheriff, not by the execution creditor.  I have since had my attention in another case taken to rule 69.04(4).  But that rule and the prescriptions for an advertisement by the Sheriff under rule 69.06 do not say anything about reserve price at all, and I cannot see how an implied power to sell without reserve can be distilled from those rules.  I do not see anything in the Sheriff Act 2009 on the question either.  I asked the applicant to make enquiries of the Sheriff’s office only to be told that the office says such orders had been made in the past.

1. It may be that an order permitting a sale without reserve has been made in the exercise of the Court’s inherent jurisdiction over its own processes, including execution.  There is a Practice Court decision of Beach J in Humphreys v Pioneer Homes [2000] VSC 10. It is important to see that the plaintiff in that case was the Sheriff, not the execution creditor. He held an unsuccessful auction of a property. He then applied to a County Court Master for an order to sell the property for the highest bid without reserve. The Master refused but fixed a reserve. An appeal to this Court was allowed by Beach J who decided that the Sheriff should have been permitted to sell without a reserve because the fixing of a reserve had the practical effect of ensuring the land was not sold: see [2000] VSC 10 at [28], [31]. That is, if an unsuccessful auction had already occurred, then a second auction would inevitably fail unless it was to be sold without reserve and potential buyers knew that. I do not know but the thinking might be that an insistence that in selling with a reserve might frustrate the Court’s process.

1. In so deciding, Beach J relied on a statement of Barwick CJ Anderson v Liddell (1967) 117 CLR 36 at 44. That was a case in which a Queensland Sheriff was sued for an irregular sale. It was argued in that case that the Sheriff acted irregularly in disclosing the lowest sum for which he would sell the land. The Chief Justice held that such a disclosure was unwise and not a course to be commended, but not an irregularity. Again, unaided by submissions, I do not see that as an endorsement of the Court’s power to permit a sale without reserve on the application of the execution creditor.

1. Therefore, I am afraid to say I still do not see a clear basis for the power or the occasion for its exercise.  I am not saying it is unwarranted.  I think the removal of a reserve price over a person’s substantial property is a significant thing as this case shows.  I have had no submissions but I can only suppose one has to consider not only the interests of the execution creditor who is owed money, but also the execution debtor particular where the asset is as substantial as a residential property.  Is the Sherriff’s duty the same as the law imposes on a mortgagee in possession exercising a power of sale or a receiver?  I would doubt it.  Nor does the Sheriff have to emulate a real estate agent in advertising and marketing.  And unlike a mortgagee or receiver, the Sheriff has no object of gaining a price to satisfy the quantum of a secured creditor’s debt.  Whatever the Sherriff’s duty on sale maybe, the duty may well be satisfied even if a sale occurs without a reserve price.    

1. Because all these issues were “up in the air” I fashioned an order on 1 October last to assimilate the interests of the parties and preserving what I supposed to the Sheriff’s duty to be to act in good faith by at least conducting an auction in the verisimilitude of a market albeit as a distress sale with no sight of a willing but not anxious vendor.  I gave leave to the Sheriff to conduct the sale of the property at Braybrook “without a reserve price provided that such leave does not thereby derogate from, or relieve the Sheriff of a duty at law to the owner of the land when exercising a power of sale.”  I have to assume that public officials exercising power will act diligently but I would not wish a Court to be immunising the Sheriff from an allegation of sale at an under value assuming it is actionable.   Moreover, I took the added caution of delaying the operation of that order to give the second defendant a chance to come into court and apply for a discharge of that order or seek some other preventative order.  The order gave the second defendant 10 days after service of the order to make such an application.  The second defendant did not do so. 

1. The sheriff therefore proceeded to auction the property without reserve and he did so on 16 December 2010 under an advertisement saying: “To the Highest Bidder at Best Price Offered”.  It was sold for $1000.  I do not know if that was the price for the whole property or for the equity.  This is, anyway, a startlingly low figure for a property thought to be worth $630 000.  Of course, if the purchaser at a Sheriff’s auction is really only buying the equity of redemption in a property as it may be this property was highly mortgaged but not to the point one would think where the mortgage saturated the value of the property.  The second defendant, through his interpreter, tells me that the mortgage was about $440 000.  I understand that a purchaser has to factor in that he may not be buying with vacant possession, and may have to take expensive legal action to gain it.  Even so, for $1000 the execution creditor surely stands to gain nothing from the execution process.  The only person gaining, so it appears, is the purchaser.  But the Sheriff and the purchaser would say, it was sold to the highest bid. 

1. It appears that the second defendant then tried to obtain a rehearing in the Magistrates’ Court on the judgment which was the foundation of the warrant in the first place.  A letter dated 20 April 2011 from the Civil Registrar of the Magistrates’ Court to the second defendant says:

It has come to the attention of the Registrar that your application for re-hearing is invalid. 

You failed to advise the registry staff that the case had been registered in the Supreme Court of Victoria and that your property was currently subject to a warrant of seizure and sale.  Once this has happened, the Magistrates’ Court no longer has jurisdiction to hear this case.  You must lodge any further proceedings in the Supreme Court of Victoria.

1. Accordingly, his application for a re-hearing due to occur on 29 April 2011 was vacated.

1. By sheer fortuity, a solicitor acting for the purchaser of the auctioned property was present in court on an entirely different matter when I was hearing this application.  On observing the conduct of these proceedings, he, Mr Nottas, announced his involvement in the matter and was invited by the Court to help with an understanding of the facts.  Naturally he has his client’s interests to protect but what matters is that he confirmed that his client has paid the $1000 purchase price, a transfer has been signed by the Sheriff as vendor, but, the mortgagee was refusing to hand over the duplicate certificate of title to enable the transfer to be registered.  I do not know the reasons why that is so.  It might have something to do with the notation on the Sheriff’s report that the property had been already sold according to a signboard.  The important event is this: I am told the plaintiff purchaser has applied to the Court to compel the mortgagee to deliver up the duplicate certificate of title, and that application is due to be heard in the Practice Court on 24 May next.   If that is granted, the purchaser can then register his dealing and gain title.

1. Thus, as things stand, this is the state of affairs as I apprehend it:

(a)The second defendant was given an opportunity to seek a discharge of my orders made on 1 October 2010 permitting the sheriff to sell without reserve.  He did not take that opportunity.   Legal process must take its course, but I wonder whether he understands what is happening.

(c)The purchaser, it is to be assumed, has acted in good faith and is bound to bid no more than what the conditions on the day of auction called for, especially as there was no reserve price.

(d)The execution creditor has got nowhere because its debt is over $100 000 and the property was sold for $1000.

(e)If the purchaser becomes registered, at least without statutory fraud or an in personaam wrongdoing, he will get an indefeasible title.

(f)The most the second defendant can do presently is maybe restrain the Registrar by injunction from registering the transfer, assuming the purchaser succeeds against the mortgagee in obtaining the duplicate certificate of title.

(g)The Supreme Court cannot set aside the Magistrates’ Court order unless there is an appeal from that order (and even then it has to be on the question of law on a final order) or (I am theorising here) applies for an order in the nature of certiorari.

1. It is only natural to be astonished that this property was sold for $1000.  But there may be a plain and ready explanation for this.  For one thing, I do not know the burden of the mortgage.  But even so, the low sale price is enough for the Court to have a real concern to ensure that it proceed with the greatest care and ensure that the second defendant understand the predicament he is in.  Yet, he barely speaks English.

1. It is for those reasons I have adjourned this application to await the outcome of the other application on 24 May next.  It is a matter for the second defendant now what action he wishes to take in that application or in any other proceeding.  I have urged him to get legal advice and to speak to the mortgagee bank to at least understand the facts.  There is no more the Court can do.

1. I should finish by saying that the summons filed in this application, for reasons I have stated, is not legally competent but I will not yet dismiss it.  It is for that reason I have adjourned the matter.  The second defendant has been provided with a bundle of materials produced by counsel for the plaintiff to enable him to obtain legal advice, together with these reasons.