Westpac v ZH International [2015] NSWSC 607

A developer borrowed money from the bank to develop some apartments and granted the bank a first mortgage. Towards the end the developer sold the builder one of the units at a large discount in lieu of payment.

The sale price of the remaining units failed to discharge the debt to the bank and the bank sought possession of the builder’s unit. The builder argued the bank was not entitled to possession on three bases:

  1. acquiescence in the builder taking possession of the unit;
  2. consent to the sale contract to the builder; and
  3. estoppel to prevent the bank from relying on its mortgage.

The estoppel was said to arise from the bank’s acquiescence in sitting back, once it became aware of the sale contract, and not intervening to inform the builder that all the building work they did from the time of the sale contract might be for nought, since no transfer would take place unless the bank were paid out in full first.

The court did not accept that the builder would not have continued with the development had he been told that the bank continued to rely on its legal rights as first mortgagee. The court found that the builder knew that the bank funded the development and, in return, had priority as first registered mortgagee. The court found that the bank did not convey to the builder, by its conduct or its silence, that it would be prepared to defer its priority. If the builder did interpreted the bank’s conduct in this way, that was unreasonable. 

The court said, dismissing the claims:

It is not to the point that if the builder had known that he would definitely not obtain Unit 8 because the Bank would not be paid out, he would not have completed the construction of the development. The matter is not to be judged by hindsight.

The builder also claimed misleading or deceptive conduct in breach of section 18 of the Australian Consumer Law and unconscionable conduct in breach of section 20 of the Australian Consumer Law and an order for discharge of the bank’s mortgage and specific performance of the sale contract. The builder argued  that the bank’s failure to inform him that it reserved its rights to object to the sale contract until after all other units had been sold was misleading or deceptive in that it amounted to a continuing representation by silence that it would not interfere with the builder taking the benefit of the sale contract .

The court rejected both of these claims and noted the following:

  1. the bank had given no indication that it would not rely on its rights;
  2. neither the bank, nor the builder was in a position to know, until after the building work had been completed and all the units sold, what the ultimate financial position of the developer was and whether the bank would be paid out;
  3. All the Bank did was act in its own interests in the context of the priority of its interest, and was entitled, under its loan and mortgage, to 100% of the net proceeds of sale of all of the units. It had the legal right to reject any sale that was not at arm’s length and for full value. The builder’s contract was neither of those things. The bank had no interest in preventing the builder’s contract from being completed if it was paid in full.

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