In this case the borrower sought to restrain the lender from completing the sale of the security on the grounds that:
- The purported power of sale was non-existent due to defects in the s57(2)(b) notice
- The sale of the land was so reckless as to justify the court in preventing the completion of the sale.
The lender had mistakenly referred to himself as the “first mortgagee” in the s57(2)(b) notice when he was in fact a second mortgagee. In finding the error inconsequential Justice McDougall relied upon the High Court decision of Bunbury Foods Pty Limited v National Bank of Australasia Limited (1994) 153 CLR 491 and the comments of Mason, Murphy, Wilson, Brennan and Dawson JJ that:
“… the interests of the parties will be more adequately protected by the principle that the debtor must be allowed a reasonable opportunity to comply with the demand before the creditor can enforce or realize the security … In determining whether the debtor has had such an opportunity it will be relevant to take account of the debtor’s knowledge, lack of knowledge and means of knowledge of the amount due and of the information which the creditor has provided in that respect, including the response which he has made to any inquiry by the debtor”
His Honour then examined the question of whether the lender was reckless in the sale of the property. He noted that although there was valuation relied upon the borrower of $3.2 million against the sale price was $3.1 million there was also valuation evidence the property was worth much less. Moreover it emerged from the evidence that the lender was advised the price of $3.1 million was a premium and should be accepted without delay.
In this case the borrower was an individual and so the standard applied was the old common law test that requires the lender to act in “good faith”. This test allows the lender to be wrong and sell the property at under value without penalty provided that at the time the lender was acting in good faith and not deviously selling the property at undervalue to an associate or being completely reckless as to whether the price achieved was the highest price.
Had the borrower been a company the much more onerous (on the lender) test under Section 420A (1) of the Corporations Act would have applied which reads as follows:
In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
if, when it is sold, it has a market value—not less than that market value; or
otherwise—the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
For more information see chapter 12 the The Essential Guide to Mortgage Law in New South Wales, published by Lexis Nexis authored by Matthew Bransgrove and Marcus Young.