LACEY v BANK OF NEW ZEALAND SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, SHELLER and BEAZLEY JJA 5 November 1997, 5 December 1997 [1997] NSWCA 182 TRADE PRACTICES — misleading and deceptive conduct — damage MORTGAGE — sale by mortgagee — duty to mortgagor The Bank sued to recover a debt under a mortgage granted in 1989. Mrs Lacey filed a cross-claim alleging that the Bank had misled her about the terms of the mortgage which was intended to be "portable" ie transferable to another property. Mrs Lacey planned to transfer the mortgage to a rural property but the mortgage did not permit its transfer to such a property. Mrs Lacey contracted to sell the mortgaged property but refused to complete for reasons which were not related to the Bank's misleading or deceptive conduct. The trial Judge found that no damage had resulted from the Bank's conduct as the mortgage could not be transferred to another property until the first property was sold. In 1991 the Bank exercised its power of sale. Mrs Lacey alleged in another cross-claim that the power had been improperly exercised. The trial Judge found for the Bank in its claim for debt and dismissed Mrs Lacey's cross-claims. HELD: (1) As the appellant had not filed a proper defence, she had to begin at the trial by calling evidence in support of her cross-claims. No denial of procedural fairness had been shown. (2) The appellant failed to prove that any damage had flowed from the Bank's misleading and deceptive conduct. (3) There was no evidence that the Bank had acted in bad faith in the conduct of the auction, or had acted wilfully against the interests of Mrs Lacey. (4) Special grounds for the admission of fresh evidence had not been made out. Handley JA This is an appeal from a decision of Herron DCJ in proceedings commenced by the Bank to recover a debt. The proceedings were commenced in the Local Court, but then transferred to the District Court. The claim arose under a mortgage executed on 9 May 1989 over property owned by Mrs Lacey on Dangar Island. Mrs Lacey filed an amended defence on 28 July 1994 in which she denied owing any money to the Bank. On 13 February 1995 she filed an amended cross-claim in which she pleaded several causes of action. The first was that the Bank was in breach of its agreement with her in representing that the mortgage was portable and could be transferred to another property. Mrs Lacey's intention in applying for the portable "Smarter Mortgage" was to transfer it later to a vacant block at Bucketty, on which she planned to build a dwelling known as a "yurt". The second was that the Bank had been negligent in its advice to her concerning the nature of the mortgage and she claimed that this was misleading and deceptive conduct within the meaning s52 of the Trade Practices Act 1974 (Cth). Her final claim was that the Bank had negligently exercised its power of sale over the Dangar Island property following a public auction on 12 November 1991. 2 UNREPORTED JUDGMENTS Mrs Lacey entered into a contract to purchase the block of land at Bucketty on 12 May 1989. She was informed by the Bank on 11 September 1989 that her mortgage could not be transferred to the Bucketty property as the Bank did not provide finance on rural properties. Upon discovering the Bank's attitude, she approached the Commonwealth Bank which agreed to provide finance for the purchase. The terms of that contract and that mortgage are not relevant to this appeal. On 20 September 1989 Mrs Lacey contracted to sell her Dangar Island property to Mr and Mrs Hayden (the Haydens) for $175,000. She claimed that her intention was that the contract should contain a clause that would enable her to occupy the property for two months after completion, so that she could use the nett proceeds of sale to complete the yurt on the Bucketty property before having to vacate. A draft contract in evidence contains a special condition to this effect, but it was not included in the contracts as exchanged. The contract for sale, as typed, contained a special condition 7 in the following terms: "7. The Purchasers acknowledge that the Vendor shall have the right if she so elects to remain in occupation of the property free of consideration up to and including 8 December 1989. The Vendor agrees that she will advise the Purchasers or their solicitors in writing on or before completion whether she elects to so remain in possession. The Vendor further agrees that she will give to the Purchasers or their solicitors seven (7) days notice in writing of the date she will vacate the property on or before 8 December 1989". This special condition in Ex A, the vendor's counterpart, has a line through it and a new handwritten condition, also numbered 7, appeared below as follows: "7. The Vendor shall have the right to occupy the premises under licence until 8 December 1989 Provided That the Vendor shall make such election to so occupy the premises prior to completion in writing to the Purchasers' solicitors". The two clauses did not differ in substance, and Mrs Lacey had no right under either to remain in possession after 8 December. Moreover the first schedule provided for completion within 6 weeks, ie by 1 November. Mr Stratton, the solicitor for the Haydens, could not recall when the contracts were exchanged, or when the new cl7 was added. However the validity of the incorporation of either clause in the contract is not relevant to Mrs Lacey's claims against the Bank, although it could be relevant to proceedings between the parties to the contract, or in the action for professional negligence pending against her solicitors. Mrs Lacey refused to complete the contract with the Haydens because, as the Judge found, it did not contain the occupancy clause that she intended, which would have given her the right to occupy the property for 2 months after completion. On 14 November 1989 a notice to complete was given to the solicitors for the purchasers requiring completion by 17 November but this was obviously ineffective. The purchasers were justified in refusing to settle on 17 November as 14 days notice had not been given as required by Special Condition 4. On 21 June 1990 the Haydens instituted proceedings in the Equity Division of the Supreme Court seeking specific performance of the contract, which provoked a defence and a cross-claim for rectification and specific performance of the contract as rectified. Mrs Lacey could have accepted the Haydens' offer, inherent in their proceedings, to complete the contract but she failed to do so. In the result URJ LACEY v BANK OF NEW ZEALAND (Handley JA) 3 she lost the opportunity to receive the nett proceeds of sale and pay off her mortgage to the Bank. At some stage the proceedings were discontinued. The claim of misleading and deceptive conduct The trial Judge accepted evidence by Mrs Lacey that the Bank represented the mortgage to be fully portable and she had entered into the transaction on that basis. However the terms of the mortgage did not allow its transfer to rural land. His Honour found that Mrs Lacey had not suffered any damage as a result of her reliance on this misrepresentation. Any damage she suffered flowed from her refusal to complete the contract with the Haydens for the sale of her Dangar Island property. The Bank would always require the discharge of the mortgage over that property before it could be transferred to another. Her inability to transfer this mortgage to the Bucketty property therefore causes her no loss. There was ample evidence to support these findings and no error has been demonstrated. In any event she had largely, if not completely, mitigated any loss by taking out the Commonwealth Bank mortgage. The duties of the Bank as mortgagee The Bank exercised its power of sale under the mortgage and submitted the property for sale by public auction on 12 November 1991. It was advertised in appropriate newspapers in accordance with professional advice, and the property was available for inspection on a number of occasions before the auction. According to the agent, Mr Rudge, there was only one bid which came from the Haydens. There was no evidence that the Bank did other than attempt to obtain a proper price and recover its debt. The market for "weekenders" was very quiet at the time, and there was very little interest in this property before the auction. The reserve of $147,000 was not met and the property was passed in. The Bank then contracted to sell it to the Haydens for $140,000. There is no evidence of fraud on the part of the Bank in the conduct of the auction, nor of any improper collusion with the Haydens. There is no doubt that by late 1991 the real estate market was substantially weaker than it had been in late 1989. The price obtained by the Bank was not sufficient to pay off the debt owed by Mrs Lacey under its mortgage. There is a clear line of Australian authority on the duty of a mortgagee in exercising a power of sale. In Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, the High Court held that the duty was to act in good faith and the mortgagee must not act wilfully or recklessly sacrifice the interests of the mortgagor. See per Griffith CJ at 680, per Barton J at 695, and per Isaacs J at 701-2. The matter was further considered by the High Court in Australian and New Zealand Banking Group v Bangadilly Pastoral Company Ltd (1977-78) 139 CLR 195, where Jacobs J said: "Tt is true that bona fides in this connection is not concerned with the motive for exercising the power of sale but, once a decision to sell has been made it is concerned with a genuine primary desire to obtain for the mortgaged property the best price consistently with the right of a mortgagee to realise his security". Ibid at 201. Aickin J, at 224, referred to the decision of the High Court in Forsyth v Blundell (1973) 129 CLR 477, where Menzies J said, at 481: 4 UNREPORTED JUDGMENTS "To take reasonable precautions to obtain a proper price is but a part of the duty to act in good faith. This duty to act in good faith falls far short of the Golden Rule and permits a mortgagee to sell a mortgaged property on terms which, as a shrewd property owner, he would be likely to refuse if the property were his own". The test as formulated by the High Court has been recently applied by Cole J (as he then was) in Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700, where his Honour reviewed the authorities and concluded, at 705: "\.. there is no obligation upon a mortgagee to exercise a power of sale if it does not wish to do so... ... there is no duty owed by a mortgagee to a guarantor to exercise the power of sale at any point in time The mortgagee may exercise its power of sale... when it so chooses". A valuation at $160,000 obtained by the Bank from a Mr Green as at 14 March 1989 was in evidence. The contract for sale with the Haydens was for a price of $175,000. On 15 March 1991 Mr Rudge, a real estate agent, also provided an estimate of $175,000 for Mrs Lacey when she listed the property with him, but this was really no more than an asking price. His estimate at the time of the auction was $147,000 and this became the reserve price. However a properly conducted and advertised auction, in a depressed market, produced only one bidder, and the Bank were fully entitled to accept the best offer they could obtain from that bidder. The claim that the Bank improperly exercised its power of sale must fail. Alleged procedural irregularities Mrs Lacey who was unrepresented, both at trial and before this Court, submitted that the interventions of the trial Judge prevented her from properly presenting her case. The references she provided from the transcript where she suggests she was denied a fair hearing show that the trial Judge was attempting to help Mrs Lacey present evidence relevant to her case. No procedural unfairness or denial of natural justice has been demonstrated. Mrs Lacey said that the Bank misstated her income in her application for the mortgage advance, and she argued that if the correct figure had been shown, her application would have been rejected. There was no evidence at the trial to support these claims, but even if there had been, it would not have assisted her case. The mortgage was entered into, she received the money, and it was far too late to rescind the transaction assuming this had ever been available to her. She also argued that the Bank ought to have called a witness to prove her indebtedness under the mortgage, and she should not have been required to present her case first. The mortgage provided that the debt could be proved by a certificate from the Bank and such a certificate was properly admitted into evidence. In the absence of a defence on the merits to the Bank's claim, Mrs Lacey had to begin on her cross-claim. No error in the course of the proceedings has been shown. Fresh evidence Mrs Lacey also moved the Court to admit the additional evidence contained in her statement provided to the Court. The power to admit fresh evidence is found in s75 A(7) of the Supreme Court Act. URJ LACEY v BANK OF NEW ZEALAND (Beazley JA) 5 The additional evidence related to matters which had occurred prior to the trial which were known to her at the time. S75 A(8) provides that after hearing on the merits, the Court of Appeal is only to admit further evidence on special grounds. Special grounds which would enable the Court to admit this evidence have not been established, and the motion fails. No errors of fact or law have been shown in the reasons of the trial Judge and the appeal must therefore be dismissed with costs. Sheller JA I agree with Handley JA. Beazley JA I agree with Handley JA. Appeal dismissed with costs. The appellant appeared in person. Counsel for the respondent: C R C Newlinds/P T Newton Solicitors for the respondent: Kemp Strang & Chippindall