Stone v Farrow Mortgage [1999] NSWCA 435

Reported Decision : (2000) NSW ConvR 55-929

New South Wales Court of Appeal CITATION : Stone v Farrow Mortgage [1999] NSWCA 435 FILE NUMBER(S) : CA 40353/97 HEARING DATE(S) : 28 July 1999 JUDGMENT DATE : 3 December 1999

PARTIES : Appellant- George Barry Everett Stone Respondent- Farrow Mortgage Services (In Liquidation) JUDGMENT OF : Meagher JA at 1; Hodgson CJinEq at 2; Cole AJA at 19

LOWER COURT JURISDICTION : Supreme Court LOWER COURT FILE NUMBER(S) : 50019/94 LOWER COURT JUDICIAL OFFICER : Bainton J

COUNSEL : Appellant- Mr Stone (litigant in person) Respondent- Mr J E Marshall / Mr White SOLICITORS : Appellant- Mr Stone (litigant in person) Respondent- Abbott Tout CATCHWORDS : Mortgages; Exercise of power of sale; Mortgagor claiming damages; Breach of duty not shown Kennedy v De Trafford (1897) AC 180 at 185 CASES CITED: Forsyth v Blundell;(1973) 123 CLR 477 at 481.493 Australia & New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 at 222 DECISION : Appeal dismissed with costs

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA40353/97

MEAGHER, JA HODGSON, CJ in Eq. COLE, AJA

FRIDAY 3 DECEMBER 1999 GEORGE BARRY EVERETT STONE v FARROW MORTGAGE SERVICES PTY LIMITED (In Liquidation) JUDGMENT

1 MEAGHER JA: I agree with the judgments of Hodgson CJ in Eq. And Cole AJA. 2 HODGSON, CJ in Eq.: The circumstances of this matter are set out in the judgment of Cole, AJA. I agree with Cole, AJA that this appeal should be dismissed, substantially for the reasons he advances. I would add the following reasons of my own. 3 The only real issue in the appeal is whether or not the respondent breached its duty to the appellant in relation to the sale of the appellant's property 2A Duke Place, Balmain. To show such a breach of duty, the appellant must show at least that the respondent failed either to act in good faith or to act with reasonable skill and care or to take reasonably adequate steps to ensure a fair price in relation to the sale. The circumstance, if it be the case, that the sale was at an undervalue is not of itself sufficient. 4 In such a case, there are two broad areas of enquiry: first, what steps were taken in relation to the sale; and second, the comparison between the sale price and the true value of the property. These areas are interdependent. A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken. The relationship between the price obtained and the true value is also relevant in that, if it is shown that the duty has been breached, the measure of damages is the difference between the sale price and the true value; and if there is no difference, there is no remedy. 5 In this case, the appellant addressed both areas of enquiry, and the trial judge's findings in both areas. I will deal first with the appellant's case in relation to the steps taken in relation to the sale. 6 The appellant relied on evidence from Mr. Gardner that the date chosen for the auction of the property was "not ideal"; and evidence from Mr. Hennessy that the advertising did not give sufficient time for a "full listing and awareness of the market". However, it is plainly not a breach of duty to auction a property on a date which is "not ideal". In relation to Mr. Hennessy, it is plain that his opinion was based on wrong information as to the period of advertising for the auction: his opinion was based on information that the auction had been advertised for only two Saturdays, whereas in fact it had been advertised for three Saturdays. Furthermore, there is no suggestion that Mr. Hennessy took into account the previous history of marketing of the property, set out in the judgment of Cole, AJA. 7 Next, there was criticism of one advertisement of the property, which had the heading "Developers/Dealers/Bargain Hunters and Thieves". However, there was no expert evidence that this was likely to depress the price obtained on an auction. Mr. Coleman, the person having the main conduct of the marketing of the property, and a person with experience in the real estate industry since 1979, considered it an appropriate advertisement, and no ground is shown for rejecting that view. 8 Next, it was submitted that, when the under-bidder at the auction came up with an offer of $580,000.00, the agent should not have merely obtained a matching offer from the ultimate purchaser, but should have taken steps to get a better offer. In fact, the agent sought from each of the two candidates its best offer, and in my opinion no ground is made out that that was inappropriate. 9 In the course of oral submissions, the appellant Mr. Stone sought to make out that bad faith was exhibited by the agent, in that it was attempting to dispose of the property to builder friends at a low price; and Mr. Stone referred to an incident when the principal of the agent passed keys of the property to the builder and said "Here are the keys. It's as good as yours". However, Mr. Stone was not able to say whether there was any evidence of that before the trial judge; and on closer examination, it appeared that the only material relating to that incident was a letter written by Mr. Stone, which had been tendered in evidence before the trial judge and rejected. In that letter, dated 11th February 1991, Mr. Stone described an incident where an Elders agent passed keys to a builder saying "Here, you will probably need these now". Complaint was made about the rejection of that letter, but in my opinion that material could not conceivably go to bad faith on behalf of the agent. It is perhaps worth noting that in the same letter, Mr. Stone made the point to the respondent that the under-bidder, who had offered $580,000.00 for the property, did not want to get into a "duelling bid"; a remark that does not sit well with the previous complaint that I considered. 10 Next, Mr. Stone sought to rely on a memorandum, apparently from the file of the agent, referring to an offer from Mr. Stone's brother for the property of $875,000.00. It appears that that memorandum was not in evidence before the trial judge, and there is no material before us to satisfy us that it was not reasonably available to be led. In any event, it is highly unlikely that this would have made any difference to the case. Having regard to the history of the involvement of the appellant's brother in the attempts to market the property, it is unlikely in the extreme that he would have purchased the property for $875,000.00. 11 Accordingly, it seems to me that none of these complaints concerning the steps taken and the way the trial judge dealt with the steps taken are made out. 12 Turning to the valuation question, Mr. Stone submitted that the trial judge was in error in rejecting evidence concerning special value of the property to the owner. It is quite plain that this decision of the trial judge was correct: the evidence of the valuer Mr. Phippen concerning an alleged special value to Mr. Stone of the property of $470,000.00 had absolutely nothing to do with the market value of the property or the duty of the mortgagee. 13 It was submitted that the trial judge was in error in rejecting Mr. Phippen's valuation of $1.065 million. However, as set out in the judge of Cole, AJA, the whole history of the marketing of the property strongly supports the view that its true value approximated the price of $580,000.00 which was in fact obtained. That alone could justify rejection of Mr. Phippen's valuation. 14 Part of this history concerned efforts to market the property prior to the auction campaign itself. As recorded by Cole, AJA, there was an auction held on 27th April 1990, at which no bids reached the reserves of $750,000.00 for the residence and $250,000.00 for the block of land. Thereafter, the property was advertised successively for $890,000.00, $795,000.00, $780,000.00 and $735,000.00, the last mentioned price being that advertised in August and September 1990. It is not made entirely clear in the evidence whether these prices were for the residence alone or for the residence and the land. In so far as advertisements are in evidence, they do not make this matter clear one way or the other. The price of $780,000.00 was represented as being a reduction from $1.8 million, and that strongly suggests that this price at least was for the residence and the land. In any event, there is no evidence of any offers of any significance being elicited, apart from the memorandum to which I referred earlier in this judgment. I note also that on 5th October 1990, the appellant's solicitors wrote a letter seeking approval to sell the residence for $670,000.00 and the land for $130,000.00. 15 There was criticism of the trial judge's reasons for rejecting Mr. Phippen's evidence, in particular his comment that, although Mr. Phippen knew that the property had been listed with several real estate agents, he did not know at what price it had been offered and did not consider that the valuation of the property had anything to do with what real estate agents were asking for it. In the context of the history of the attempted marketing of the property, the trial judge's comments can be seen as simply taking the realistic view that a long history of marketing at prices substantially lower than that given by a valuer, coupled with the lack of success of the marketing even at those lower prices, is strong evidence that the valuation is in error. 16 The trial judge was also criticised for giving, as a reason for rejecting the Phippen's valuation, the fact that Mr. Phippen had valued the property as a development proposition in circumstances where developers were not rushing to invest, without making any particular finding about that matter by reference to the evidence. However, in the light of the whole history of marketing, the reference to lack of interest by developers is plainly supported by the evidence. 17 The evidence of the respondent's valuer, Mr. Heydon, was criticised on the ground that the fact that it coincided exactly with the price received at auction showed it had been a matter of contrivance. This criticism overlooks the circumstance that a price obtained after reasonable marketing of a property is the very best evidence of value. 18 Further criticism was made of Mr. Heydon on the basis of mistakes in his evidence, in particular his assertion that the residence was a pole house, made out of second-hand materials, was in poor condition, had since been demolished, and would require substantial work for the issue of a compliance certificate. I think it is fair to say that all of those comments, apart possibly from the comment concerning the condition of the property, were mistakes. However, they were not made in Mr. Heydon's initial valuation, but in a response to Mr. Phippen's valuation; and particularly having regard to the other factors concerning valuation to which I have referred, it would be reasonable to accept Mr. Heydon's evidence that those matters would not have made any difference to his valuation. At most, they blunted his criticism of Mr. Phippen, which in any event was made out by the other matters I have mentioned. 19 For all these reasons, in addition to the matters referred to by Cole, AJA, this appeal must be dismissed with costs.