The lender sold the property for $13.5M. The borrower owed $25M. Prior to settlement the borrower lodged a caveat preventing settlement of the sale. The borrower held a valuation of the property at $47mill a year prior to the sale and thus claimed gross breach of the lenders duties noting that the property had not been put to auction.
The Court held that if it was established that there was an arguable case of breach of duty then the borrower had a caveatable interest. This is because the claim for breach could permit the borrower to prevent the sale of the property. However, the Court considered the facts of this case and determined that the claim was not arguable because:
- The higher valuation was more than 15 months before the sale;
- The valuation took into account intended subdivisions,
- The valuation made very strong disclaimers about the likelihood of severe drops in the market
- There is no rule or presumption of law that a lender must sell the property through sale by auction. To the contrary, what is required by reasonable care and the duty of good faith will depend upon the nature of the property, market conditions and many other circumstances.
The court also considered what would be the impact on each party if the decision went against them and they were later found to be in the right. This known as considering the balance of convenience. The Court noted that the lender had been trying to realise the security for years and would likely suffer a larger shortfall then it already was. On the flipside the Court noted that it was open to the caveator to pursue the claim for damages after the sale.
Thus the caveat was ordered to be removed.
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