This case was a priority dispute remitted by the Court of Appeal to the Court of Land and Environment between the purchaser and the previous owner of the land, a de-registered company. The land was subject to two mortgages and the lender exercised its power of sale. However before the sale contract completed, the Transport Dept announced that it was compulsorily acquiring the land. The purchaser then asked for extra time and the lender entered into a new contract with the same purchaser on the basis that the second contract replaced the first contract. The effect of the compulsory acquisition was to convert the rights of either the owner or prospective purchaser of the land into a right to receive compensation depending upon the validity of the second contract. The owner would be entitled to compensation not the purchaser if the purchaser’s second contract was entered into in breach of the lender’s duty to obtain the best price reasonably obtainable and was voidable. If not, the purchaser would be entitled to compensation.
The question was whether the lender breached their duty to obtain the best price under the Corporations Law or the general law by granting an indulgence to the purchaser who needed more time to complete, through the entry into of a second contract. The Court of Appeal found the failure by the court to explore this was an error of law, and remitted it. The owner argued that an even higher price could have been obtained by the lender soliciting alternative offers in the market at the time of the second contract, and that this amounted to a failure to take reasonable care to sell the land at market value. The lender argued that it was not required to seek out higher offers because the second contract simply replaced the first and if he did so, he would be taking a gamble on the purchaser being unable to complete the first contract, which was unknown on the evidence. If the second contract was entered into in breach of the lender’s duty, then the interest of the purchaser would not prevail over the interest of the mortgagor to redeem the mortgages. The Court of Appeal noted that the trial judge’s mistake was to find that there was no mortgagor simply because the company had been de-registered, noting that ASIC has the capacity to restrain an improper sale by a lender.
When the case was remitted, the court found that the second contract was part oral and part written because it was only entered into on the basis that it would replace the first contract. The court found that that the mortgagor’s equity of redemption and the mortgagee’s exercise of power of sale did not arise again when the first contract was rescinded and the second entered into because they were interdependent. Hence the court found that the lender was not exercising its power of sale anew and did not have a duty to seek out other buyers. The lender considered himself bound by the first contract. The court found the lender obtained the best price reasonably obtainable when the property was initially sold and did not breach its duties. There was no reckless or wilful sacrifice of the owner’s interest. The court found that compensation should be made to the purchaser.