Thursday 9 November 2023

How can I have a mortgage discharged if the lender has been wound up?

In an unusual case, the Supreme Court of Victoria was called upon to order the discharge of 2 mortgages in circumstances where one of the mortgagees had been liquidated, and subsequently deregistered. The other mortgagee had become a bank but did not have records dating back over 30 years ago. 

Older readers will recall the demise of the Pyramid Building Society (and its related entities) in 1990. The group collapsed owing over $2 billion, a staggering sum at the time. The liquidation of the group took over 16 years to complete, with final dividend cheques being sent to its investors in 2006. Pyramid was deregistered in 2001. 

In Kam-Sui Ing v Australian Securities and Investments Commission & Anor [2023] VSC 632 Associate Justice Ierodiaconou ordered the removal of the two mortgages in question from the title of the property. 


The plaintiff was the surviving registered proprietor of a residential property in Balwyn. The plaintiff and her husband bought the property and became joint registered proprietors in January 1988. The plaintiff's husband died in 2017, and the plaintiff subsequently became the sole registered proprietor.

A $40,000 loan from Heritage Building Society was secured by a first mortgage on the title to the property, and a later $160,000 loan from Pyramid Building Society was secured by a second mortgage. 

The underlying loans were paid in full in about 1993. As the plaintiff's husband dealt with the family finances, she was unable to provide any further detail. 

The plaintiff provided a copy of a letter from 1993 from Pyramid Building Society confirming that its loan had been repaid and lawyers had been appointed to discharge the mortgage. 

The plaintiff also confirmed that there had been no further demands for money from either mortgagee, and she held the original paper certificate of title.

In the thirty years since, both mortgagees (Heritage Building Society and Pyramid Building Society) had become defunct.  The plaintiff’s solicitors unsuccessfully attempted to find an agent to act on the mortgagees’ behalf and discharge the mortgages

Ultimately, the Supreme Court of Victoria ordered that the Registrar of Titles remove the mortgages from the register.

In the unusual circumstances of the case, the lawyers for the plaintiff conducted extensive inquiries in their search for someone to discharge each mortgage. 

Ierodiaconou As J noted at paragraph 23 of her judgment:

"Given their inquiries had taken a Dickensian turn, the plaintiff initiated this proceeding on 30 June 2023." 

The plaintiff's application was for orders under section 103 of the Transfer of Land Act, which provides: 

(1)              In any proceeding in a court relating to any land or any instrument or dealing in respect thereof if the court directs the Registrar to make any amendments to the Register or otherwise to do any act or make any recordings necessary to give effect to any judgment decree or order of the court the Registrar shall obey such direction.

The Court concluded that amendment in this case was necessary to correct an error on the Register, namely, the undischarged mortgages. The Court accepted the plaintiff’s evidence and was satisfied that the mortgages were paid in full. The discharges were – for reasons unknown – not registered. 

The Court also considered whether section 84(2) of the Transfer of Land Act applied to the case and concluded that it is arguable that the section applied, and as a result, the Court could direct the Registrar to take action under that section. 

The Court was satisfied that the mortgage loans were paid in full. It may be inferred that any action for recovery would be statute-barred per s 20 of the Limitation of Actions Act 1958 (Vic) given the following circumstances: the mortgages were registered in 1988 and 1989 respectively, there were no loan repayments made after mid-1993 and no demands for such were made.

Regarding s 84(2)(b): the evidence showed that despite the extensive inquiries by the plaintiff’s solicitors, mortgage discharges could not be obtained because the mortgagees are body corporates and either their authorised agents cannot be located, or their agent’s signature cannot be obtained within a reasonable time.

Here, the Court found that the owners did everything necessary to achieve the discharges, and due to an unknown error, the discharges were not registered. 

The only other matter for comment should really go without saying: lawyers should encourage their clients to obtain and register a discharge of any mortgages over real estate titles that are repaid. Clearly this happened here, and yet the plaintiff was left without recourse other than a Supreme Court proceeding.

I understand that there may be strategic or commercial reasons for keeping the appearance of a mortgage on the title to real estate, and for allowing the mortgagee to retain the title to real estate, but in reality, disasters like this can be avoided. 

Apart from checking that the discharge was in fact registered it is difficult to see what else the plaintiff could have done. 

WG Stark 

Owen Dixon Chambers

Wednesday 8 November 2023

Are there any more recent cases about a mortgagee's duty of good faith in selling real estate?

With interest rates continuing to rise in late 2023, it seems that we are likely to see more mortgagees taking steps to realise mortgaged property. 

On 2 June 2021, I posted about a Queensland decision (HSBC Bank Australia Ltd v Wang & Ors [2021] QSC 58) rejecting criticism of a mortgagee's conduct of a sale during the pandemic (see: 

On 17 January 2023, I posted about a Victorian Supreme Court decision (230V Harvest Home Road Pty Ltd v Joseph Salvo & Ors [2021] VSC 558) that found that the mortgagees there had not breached their duty of good faith in selling during the pandemic (see: 

On 18 January 2023, I posted about a Victorian Supreme Court decision (Manda Capital Holdings Pty Ltd v PEC Portfolio Springvale Pty Ltd [2022] VSC 381) that found that the mortgagees there had not breached their duties under section 420A of the Corporations Act in their conduct of the sale of a security property during the pandemic (see: 

More recently, there is a decision by the Court of Appeal in New South Wales (Hung v Aquamore Credit Equity Pty Ltd [2022] NSWCA 272). 

In that case, Justice of Appeal Macfarlan gave the principal judgment. President Ward and Mitchelmore JA agreed, making the decision unanimous. 


Aquamore (the mortgagee) loaned $8.925m to First on First (the borrower). 

As security, the mortgagee obtained a mortgage from the borrower over a property in Blacktown, Sydney, and guarantees from its directors. Following the mortgagee's service of a purported notice of default (that was ultimately found to be invalid), the mortgagee took possession of the property with a view to exercising its power of sale as mortgagee. The property was ultimately sold for $10 million, no step having been taken by the mortgagor or the guarantors to restrain the sale.

Subsequently, the mortgagee sued for a substantial shortfall against the guarantors, and the borrower and guarantors cross claimed against the mortgagee, alleging a breach of the mortgagee's duty relating to the mortgagee sale. 

The trial judge (Meagher JA) found that: 

a. The mortgagee was not authorised to exercise its power of sale.

b. Despite finding a., the borrower had not proven that it suffered any damage due to the mortgagee's unauthorised exercise of the power of sale, as distinct from the mortgagee's alleged breaches of duty in conducting the sale.

C. The borrower had not proved that the mortgagee did not take all reasonable care in selling the property. 

The failure to prove a loss came about due to disputed expert evidence (the mortgagee's expert valued the property at $9,825,000; the borrower's expert at $15,000,000).

The NSW Court of Appeal dismissed an appeal that was based upon a submission that the trial judge had not provided adequate reasons for preferring the mortgagee's expert opinion evidence over the borrowers. The appeal also challenged the finding that the mortgagee did not breach its equitable and statutory obligations in the course of exercising its power of sale as mortgagee of the property.

In fact, the Court of Appeal found that the trial judge considered in detail whether the mortgagee had breached its general law or statutory obligations in exercising the power of sale. He referred to the general law obligation of a mortgagee exercising a power of sale to act in good faith and to the duty of care imposed by s 420A of the Corporations Act 2001 (Cth) (which was applicable to the mortgagee as it was a controller” within the meaning of that term as defined in s 9 of the Corporations Act).

At paragraph 72 of his judgment, Meagher JA concluded. 

Thus the principal question to be addressed is whether the mortgagee has taken all reasonable care in advertising and selling the property. What must be done to comply with that general obligation will ultimately depend on the circumstances of the particular case (Boz One Pty Ltd v McLellan [2015] VSCA 68 at [371]; (2015) 105 ACSR 325). A breach of the requirement to take all reasonable care is not established merely because a mortgagee fails to realise the property for its market value (Boz at [168]). The focus remains upon whether the process utilised to effect the sale was undertaken with reasonable care (Investec Bank [(Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617; [2009] VSCA 97] at [46]).

Ultiamtely, the Trial Judge reached the following conclusions on this topic (at paragraph 107):

Before selling the property, [the mortgagee] sought and obtained advice from [an experienced professional real estate agent] as to the manner in which the property might be sold and the price likely to be achieved assuming the marketing campaign [the agent] proposed. That advice was sought in the context of [the agent]) having undertaken an earlier sales campaign. In the light of [the agent’s] somewhat pessimistic description of the state of the market, the mortgagee is certainly not shown to have acted unreasonably in deciding to sell the property to [the proposed buyer] for $10 million.

108   The exchanges between [the mortgagee's director and the borrower's director and guarantor] in mid-December 2017 concerning the latter’s consent to a sale at that value do not suggest that sale was regarded by [the guarantor] as outside the market range at that time. Nor do the results of [the agent's] earlier marketing endeavours suggest otherwise. In the face of [the agent’s] advice as to the state of the market, [the mortgagee's] decision to sell for $10m, rather than proceed with a marketing campaign which the agent did not think likely to produce a higher price, was justifiable and reasonable. 

109    The valuation evidence confirms the reasonableness of that decision, in the sense that [the mortgagee's expert valuer] opinion, which I accept, assessed a market value which was less than the amount for which the property was sold.

The Court of Appeal emphasised that success in establishing an error by the trial judge in accepting one valuer's evidence over another would not of itself have led to the appeal being allowed. The Court then considered the judge's evaluation of that expert evidence and concluded there was no error in the analysis. 

The Court noted that the relevant legal principles are:

        ... a breach of the requirements to take all reasonable care [or to act in good faith] is not established merely because a mortgagee fails to realise the property for its market value. ..His Honour then referred to the statement of Palmer J (Mason and Ipp JA agreeing) in Stockl v Rigura Pty Ltd [2004] NSWCA 73 at [37] that [t]he test of good faith focuses primarily upon whether the mortgagee has seriously failed to take reasonable steps in all of the circumstances to obtain a proper price, and not upon what valuers may say the property should have sold for. An additional difficulty for the appellants in the present case is that, although the valuers expressed views as to the value of the property at the date of the mortgageefirst contract to sell (that is, 5 March 2018), both relied to a significant extent on sales, said to be comparable, that occurred after that date. 

The Court of Appeal noted that not only were post valuation date sales of doubtful or at least limited utility in establishing a breach by the mortgagee of a duty of good faith or the statutory duty to take reasonable care, but the appellants’ case in this regard also suffered from the problem that there was an absence of instructions to either valuer to consider the mortgagee's conduct in attempting to sell the property and the various communications it had with possible purchasers in the 12 months prior to the January 2019 sale (see Stockl v Rigura Pty Ltd [2004] NSWCA 73 at [31]–[34]; ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209 at 222; [2014] NSWCA 402 at [65]). Nor were those matters the subject of evidence from any other experts.

There have been very few successful challenges by a borrower or a guarantor to a sale by a mortgagee as being in breach of the mortgagee's duty. This is yet another example of the types of hurdles that need to be overcome to achieve success.  

WG Stark 
Owen Dixon Chambers

Friday 17 March 2023

How does a party to a contract of sale of real estate in Victoria prove that they are ready, willing and able to perform the contract, in order to obtain an order for specific performance?

On 15 March 2023, in Knight 34 Langdon Rd P/L and anor v Bell and others [2023] VSCA 54, the Court of Appeal of the Supreme Court of Victoria (Emerton P, WalkerJA and J Forrest AJA) considered an application by an unsuccessful defendant for leave to adduce further evidence. 

The case concerned a dispute about a Contract for the Sale of a unit 'off the plan' in Toorak. The purchase price was $3,528,000 and a deposit of $350,000 had been paid. The purchasers had obtained an order from the Trial Judge that the vendor specifically perform the contract by settling the sale.

The further evidence was said to go to whether the purchasers were actually in a position to settle, the argument being that they were not, as they did not have the loan funds available on the day that they had applied for specific performance. 

The Court of Appeal rejected the application to rely on further evidence and dismissed the application for leave to appeal. 

For our purposes, the Court of Appeal made the following observations (at paragraphs 69 to 70): 

... we accept the Bells’ submission that it is not necessary, in order for a party to be properly characterised as ‘ready, willing and able’ to perform a contract of sale by payment of the purchase price, to have in hand — or in their bank account — the full amount of the purchase price at the time they claim to be ready, willing and able. As Menzies J observed in Bishop v Taylor:

The requirement of readiness and willingness does not demand that a purchaser should always have the purchase price in his pocket; all that is necessary is readiness and willingness to perform the contract according to its terms ((1968) 118 CLR 518, 525; [1968] HCA 68).

70                  That is, it is only necessary for a person to have the full amount of the purchase price immediately available as at the date on which the obligation to pay falls due (see Bisognin v Hera Projects Pty Ltd [2018] VSCA 93, [171]–[173] (Tate JA, Kyrou JA agreeing at [216], Coghlan JA agreeing at [217])). Thus, even if we had accepted that, on 19 July 2022, the Bells did not have immediate access to funds sufficient to pay the full purchase price for the Bell apartment, we would not have concluded that they had misled the Court by submitting that they were ready, willing and able to perform the contract of sale. In that regard, we accept the Bells’ submission that ‘[f]ar from demonstrating that they were not able to have the funds ready for settlement when the time for performance came, the so-called “fresh evidence” demonstrates exactly the opposite’

The Court of Appeal has therefore confirmed that to obtain an order for specific performance of a contract of sale of real estate in Victoria, all that a party to the contract needs to do is demonstrate that they will meet their obligations at the date that they fall due. In this case, the Trial Judge and the Court of Appeal found that the purchasers had met that requirement. 

WG Stark

Hayden Starke Chambers

Tuesday 17 January 2023

Are there any recent Victorian cases about a mortgagee's duty of good faith in selling in a pandemic?

Further to my post (see: about a decision of the Supreme Court of Queensland about a mortgagee's duty of good faith in selling in a pandemic, the Supreme Court of Victoria has now had to deal with the same issue. 

Matthews As J in 230V Harvest Home Road Pty Ltd v Joseph Salvo & Ors [2021] VSC 558 heard an application for summary judgment and concluded that the plaintiff had no real prospects of success on its statement of claim. As a result, summary judgment was granted in favour of the defendants/mortgagees. 

The claim related to the enforcement by the mortgagees of a $1.7m loan that they made to the Plaintiff, secured by a first registered mortgage over the property located in Harvest Home Road, Wollert (‘Property’). The Property was approximately 3,900 square metres of vacant land that was suitable for residential development.  After purchasing the Property, the Plaintiff obtained a planning permit for the construction of 18 townhouses on the Property.

The loan and accrued interest were due to be paid by 21 December 2019.  The Plaintiff failed to do so.  The mortgagees served a notice pursuant to s 76 of the Transfer of Land Act 1958 (Vic) (‘TLA’) on the Plaintiff or about 15 January 2020. 

After the notice was served, the Plaintiff advised the mortgagees that it had sold the Property for $2.5m plus GST. Unfortunately, this sale did not complete. 

On 6 June 2020, the mortgagees exercised their power of sale and sold the Property for $1.9m plus GST, with settlement due on 7 August 2020.  Settlement occurred after the Plaintiff’s application for an interim injunction to prevent settlement from occurring was dismissed.

In the claim, the Plaintiff alleged that the mortgagees did not:

(a)                Act in good faith and have regard to the interests of the Plaintiff by selling the Property for $1.9m which was substantially below the value of the Property;

(b)               Take reasonable steps to obtain the best price for the Property which was valued up to $2.4m; and

(c)                Have regard to the interests of other encumbrancers including a subsequent mortgagee and caveators.

At paragraph 43, Her Honour noted: 

"The key questions in this proceeding concern the Mortgagee Sale and whether the [mortgagees] breached their duties as mortgagees [of good faith in conducting the sale of the Property], causing loss and damage to the Plaintiff."  

The evidence before the Court included the following:

In March 2020, the mortgagees obtained a valuation of the Property in the range of $1.8m to $2m from the real estate engaged to sell the Property. The agent asserted that the sale price of $1.9m plus GST was market value, perhaps even higher than market value in the then current climate, and was the best offer made to purchase the Property.

The auction (scheduled for 4 April 2020) was cancelled due to the restrictions imposed by the Victorian government due to the COVID-19 pandemic, and the mortgagees instructed the agent to instead sell the Property by private treaty. 

The mortgagee sale was an arm’s‑length contract, the mortgagees and the purchaser were not previously known to each other nor had any previous association, and were introduced by the real estate agent. 

In addition to the offer which was accepted by the mortgagees that led to the contract, the following offers were made and rejected:

(a)                $1.8m, subject to certain conditions in favour of the prospective purchaser, with settlement in October 2020;

(b)               $1.81m including GST, subject to strict conditions in favour of the prospective purchaser; and

(c)                $1.9m, subject to the prospective purchaser obtaining finance, with settlement not before 15 October 2020.

The amount owing by the Plaintiff to the mortgagees was $1,878,500 plus the costs of enforcing the Loan Agreement and the Mortgage. There was also an outstanding costs order in the mortgagees' favour arising from the earlier failed injunction application by the plaintiff. The mortgagees demanded $115,329.49 from the Plaintiff and from a guarantor, which was alleged to be the shortfall following the settlement of the Mortgagee Sale, which was not paid at the date of the hearing.

The plaintiff asserted that February Sale fell through as the purchaser’s bank would not lend at a high enough leverage-to-value ratio as was necessary for the purchaser to settle the purchase of the Property. 

The plaintiff intended to try and get a further extension from the mortgagees for this purchaser, who was seeking to obtain private alternative finance, or find a new buyer at the same price or to refinance the Property. 

Appraisals obtained by the plaintiff valued the Property between $2.1m and $2.4m.

The mortgagees argued that they had, in the circumstances of the case and the current COVID-19 epidemic, obtained the best price consistent with their entitlement to realise its security. 

There was no allegation that the purchaser has acted otherwise than bona fide and in his own best interests.  

The Plaintiff submitted that by selling the Property for $1.9m, which is below the appraisals made by three real estate agents around that time, the mortgagees sold the Property at an undervalue.  This was said to be an undervalue of between $300,000 and $500,000 based on those appraisals, or $600,000 when compared with the February Sale. 

The Plaintiff submitted that there is no evidence that the mortgagees or their real estate agent obtained an expert independent valuation prior to the sale, which failure was said to be contrary to standard practice in mortgagee sales and for the sale of undeveloped land.  It also said that providing a price range in the absence of an auction created an artificial ceiling on the price of the land. 

The Plaintiff asserted that the absence of an independent valuation and the evidence of the Property being sold at substantially undervalue pointed to a breach of the mortgagees’ duties in exercising their power of sale.  

Her Honour rejected the Plaintiff’s submission that the onus was on the mortgagees to show that they had satisfied their duties under the TLA and that the Plaintiff has nothing more than a fanciful chance of success.

At paragraph 91 of the judgment, Matthews As J concluded that the onus is not on the mortgagees to disprove the Plaintiff’s case by positively proving their own case.  The onus is on the mortgagees to show that the Plaintiff’s case has no real prospect of success, which the Plaintiff can refute by showing cause to the contrary. 

At paragraph 93, Her Honour proceeded:              

"Hence, rather than the [mortgagees] having the onus of showing that they have satisfied their duties as mortgagees, the question is whether there is sufficient evidence before the Court that the allegation that the [mortgagees] have breached their duties as mortgagees has a real prospect of success. 

The evidence relied upon by the mortgagees established that a conventional marketing campaign was undertaken.  There was nothing unconventional about the marketing material or the marketing channels; rather, the usual methods of selling land were employed.  This included advertising on commercial and development focused websites.

Having embarked upon a conventional marketing campaign in early March 2020, the mortgagees were then confronted with "exceptionally unconventional circumstances".  By mid to late March 2020, the state of Victoria was in lockdown due to the COVID-19 pandemic.  It was hardly surprising that in those circumstances, the auction of the Property which had been scheduled for 4 April 2020 was cancelled.  It was also hardly surprising that the mortgagees instructed the real estate agent to proceed to attempt to sell the Property by private treaty." 

At paragraph 100, Matthews As J noted:

"I do not see how it can be said that these actions constitute a breach of the mortgagee’s duties.  The auction could not physically be held, and a mortgagee is not obliged to wait until market conditions improve before conducting a mortgagee sale. A mortgagee has an entitlement to realise its security, provided that it abides by its duties in doing so. The duty to take reasonable steps to obtain the best price is a duty to take appropriate steps in the circumstances which are consistent with its right to enforce its security interest."

At paragraph 102 and following, Her Honour stated:           

"That really leaves the question of whether the Property was sold by the [mortgagees] at an undervalue.  While I accept that there is no evidence to explain how [the real estate agent] came to a range of $1.8m to $2m when advising the [mortgagees], the only evidence that this is an undervalue is that contained in the [the plaintiff's director's] Affidavit.  The fact that the Plaintiff had entered into the February Sale at $2.5m plus GST is not indicative of $1.9m plus GST being below market value, as the purchaser under that contract was unable to complete [the sale] due to an inability to obtain finance at that price.  I do not see how a failed contract can be said to be indicative of market value.  There is no evidence at all to support [the plaintiff's director’s] own view of value, being $2.475m to $2.7m, as he simply does not give any evidence to show how he came to that range.

The selling real estate agent's appraisal was followed by a marketing campaign and by offers made which were rejected.  The Plaintiff says that the marketing campaign put a range of $1.9m to $2.09m on the Property.  First, there [was] no evidence before [the Court] as to that other than [the plaintiff's director’s] statement: there is no document exhibited that shows this was the range stated in the marketing material.  Even if [the plaintiff's director’s] evidence in this regard is accepted, and I have no reason not to accept it given that the mortgagees could have contradicted it if they had felt the need to, there is no evidence before me that putting this range on the marketing material constitutes bad faith or a failure to obtain the best possible price.  Second, [the plaintiff's director’s] states that once the mortgagees advertised it at this price, “no one was willing to buy the property at what it was worth because it was now being advertised for $600,000 less”.  I do not accept this.  There is no evidence to support the finding that this was $600,000 below market value, and in any event this is opinion evidence which is inadmissible as [the plaintiff's director’s] is not an expert.  There is no evidence to state that putting the range that the real estate did put on the Property constitutes a failure to obtain the best price.  Having given the range of $1.8m to $2m to the mortgagees, it was entirely consistent for the real estate agent to have stated that range in the marketing material. 

Importantly, the evidence is that there was a significant amount of interest in the Property, but that interest manifested in only four offers (the three described above and the one which was accepted), all roughly within the price range given to the mortgagees.  Of the rejected offers, two were at the bottom end of the real estate agent's valuation and all three were on terms less favourable than the offer which was ultimately accepted.  Further, it is not as if the Property was sold to the first offeror or that it was on the market for a brief period of time.  The evidence is that the Property was on the market for about 3 months before the mortgagees accepted the best offer they had received in that time.

The evidence was that after the Mortgagee Sale, there remained a shortfall in the amount owing to the mortgagees of at least $115,329.49.  This supports the position that the mortgagees accepted the best available offer to them at the time.

At paragraph 107, Matthews As J did not accept that the Plaintiff has demonstrated that its claims that the mortgagees failed to abide by their duties as mortgagees when exercising their power of sale have a real prospect of success.

In the Injunction Application, the Court had already held that the Plaintiff had not established it had a prima facie case.  The Plaintiff’s evidence being no better than it was then, if a prima facie case had not been established at the time of the Injunction Application, her Honour found it difficult to see how it could then be said that the Plaintiff’s case has a real prospect of success.


In the circumstances of this case, it is clear that a borrower will have great difficulty in establishing that a lender has not acted in good faith simply by selling a security property during the COVID-19 pandemic. 

A borrower will need to establish a lack of good faith in the sale, something which is not made out simply by proving that the sale was at an under value (although that was not in fact proven in this case). 

WG Stark 

Hayden Starke Chambers

Are there any recent cases about a mortgagee's duty under section 420A of the Corporations Act when exercising their power of sale during the pandemic?

Readers will recall that I posted about a Queensland decision that dealt with a mortgagee exercising its power of sale during the pandemic (see here: 

Yesterday, I posted about the Supreme Court of Victoria dealing with a similar scenario (see:

In Manda Capital Holdings Pty Ltd v PEC Portfolio Springvale Pty Ltd [2022] VSC 381, M Osborne J dealt with a dispute about whether the mortgagee in that case had exercised its power of sale in accordance with section 420A of Corporations Act 2011 (Cth).  

The lender advanced $6.39 million pursuant to a loan agreement.  The borrower mortgaged land at 210 Springvale Road, Springvale and 1690 Centre Road, Springvale (‘the Property’) as security for the Loan.  The second defendant provided a personal guarantee and indemnity in support of the Loan and further charged his interest in a property located at 6 Raymond Road, Seaford as security for the loan.  After the borrower fell into default under the Loan Agreement, the lender exercised its rights as mortgagee to enter into possession of the Property.  The lender subsequently sold the Property for $7 million pursuant to a contract of sale dated 22 December 2020.  The sale settled on 23 March 2021.  The principal and interest owed on the Loan exceeded the proceeds of sale from the Property.

The lender commenced proceedings against the borrower seeking the repayment of outstanding debt after the lender (as mortgagee in possession) sold the security property just subsequent to Melbourne’s second pandemic-induced lockdown in 2020 and the proceeds did not satisfy the mortgagee's debt. 

The borrower admitted default under the loan agreement and accepted the outstanding debt. However it counterclaimed against lender, contending that sale of the property breached the duties imposed by section 420A. The counterclaim alleged that if the lender had complied with section 420A of the Corporations Act, it would have achieved a sale price of $7.8 million (the market value outlined the borrower's expert evidence) leading to the secured debt being satisfied in full. 

The Court considered whether the best price had been obtained in exercising power of sale in circumstances where the price achieved was less than the outstanding liability to mortgagee. The court also considered the effect of COVID-19 lockdowns on property market.

Justice M Osborne noted that the parties agreed on the relevant legal principles to be applied, summarised by the Court of Appeal in Boz One Pty Ltd v McLellan [2015] VSCA 68 (Whelan, Santamaria and Kyrou JJA):

As the authorities illustrate, what must be done to comply with this general obligation will depend on the circumstances of each case, including the nature of the assets being sold and the circumstances of the chargor. In deciding whether a controller’s failure to take a particular step constitutes a breach of s 420A(1)(a), that step should not be considered in isolation. Rather, the court should consider the controller’s conduct as a whole in the context in which the controller was required to make decisions about which steps to take and which steps not to take. The controller’s conduct must be looked at holistically by reference to the dynamic circumstances that the controller faced at the relevant time.

Here, the ‘dynamic circumstances that the lender faced at the relevant time' were the COVID-19 pandemic and associated lockdowns. Therefore (as always) the crucial issue was the steps taken by the lender to sell the property.

The essence of the borrower’s case was that the mortgagee contravened s 420A of the Act by failing to take all reasonable steps to sell the Property for market value.  In particular, the borrower alleged that:

(a) the sales campaign was too short;

(b) the proposed advertising strategy was inapt in that it gave undue prominence to the fact of the sale being a mortgagee sale; and

(c) the mortgagee should have extended the campaign into 2021 in light of the quality of the offers that it had received rather than entering into the Sale Contract.

M Osborne J noted at paragraph 13 that:

"Whilst it is clear that s 420A of the Act imposes a more rigorous statutory duty upon a mortgagee or other receiver in relation to its power of sale than that provided by the general law duty of good faith (Boz One Pty Ltd v McLellan [2015] VSCA 268 at [157]), the more rigorous duty imposed by s 420A does not detract from the common law principle that a mortgagee may sell at the time of its choosing and does not have to wait until a time when a better price might be obtained (Investec Bank (Australia) Ltd v Glodale Pty Ltd [2009] VSCA 97; (2009) 24 VR 617, 627 [48] (Neave and Redlich JJA and Forrest AJA)."

Justice M Osborne made the following relevant findings:

The four-week expression of interest sales campaign was entirely adequate, if not best practice, in the circumstances.

The agents employed were experienced real estate agents, with expertise in development sites in inner suburban Melbourne.

The sales campaign attracted considerable interest. The evidence was that prospective buyers did not withdraw because they did not have sufficient time to undertake an assessment of the property (due to COVID-19 restraints). Rather, they withdrew because they were told that the vendor was seeking a price of $7 million or more, where the buyers’ interest was generally at a price of up to $6 million.

The sales campaign obtained the $7 million sale in a difficult and unpredictable market, which was within the range of the agent’s estimate and exceeded the market value as assessed in the valuation obtained from an independent expert prior to entering into the sale contract.

There was no breach of section 420A of the Act by not extending the sales campaign – the expert evidence preferred by the Court was that readvertising in 2021 would suggest to the market that the late 2020 sales campaign failed, removing the competitive tension from the sales process. In addition, it would result in significant risk, noting the additional interest accruing under the loan (about $110,000 to $130,000 per month). 

The emphasis in the advertising campaign on the fact of the mortgagee sale was entirely consistent with usual practice and had obvious commercial advantage – The evidence (of the lender's experts) that it is common for properties to be advertised as mortgagee sales, indicating a motivated vendor and is not simply testing the market was preferred. One of the experts considered that this was particularly appropriate for the property during the COVID-19 lockdown and opined that without a mortgagee sale tag, it may have been perceived by many in the market that the vendor had an elevated view of the property’s worth.

Justice M Osborne considered the expert valuation provided by both parties, and although he accepted the lender's experts' evidence, in fact one of the borrower's experts was not very different from the ultimate sale price (having given a range of $7,260,000 to $8,300,000). Despite that range, the borrowers asserted that the valuation showed that the security property was worth $7.6m. The Honourable Justice dismissed that assertion as an oversimplification. He also noted at paragraph 78:

"Valuation is often described as an art, not a science, and it is well understood that two valuers acting competently could come to different conclusions as to the value of a particular property on a given day.  Absent any challenge to each valuer’s choice of comparable sales which did not occur in the present case, I am not in a position to prefer the evidence of one over the other.  Rather, I conclude that the difference between their two valuations is simply a product of reasonable judgment by appropriately qualified persons." 


This decision is a further example of the difficulties faced by a dissatisfied borrower in trying to pursue a claim against a mortgagee alleging failure to comply with its legislative duties. The Court emphasised that the mortgagee’s conduct as a whole will be considered with reference to the ‘dynamic circumstances’ faced when determining if the duty under section 420A has been complied with. 

Obtaining contemporaneous valuations, using reputable agents and carefully considering independent advice from those agents will carry considerable weight in the face of borrower dissatisfaction without much more.

WG Stark

Hayden Starke Chambers

Monday 16 January 2023

Can an Owners Corporation pass a rule that prevents a particular use of a lot in Victoria?

It is relatively common for Owners Corporations to seek to restrict the use to which a lot in a building subject to a subdivision can be put. 
Both the Supreme Court of Victoria and the Victorian Civil and Administrative Tribunal have found that an owners corporation rule seeking to prohibit a particular type of use of a lot is an invalid rule which is beyond the owners corporation’s rule making power provided for by the Owners Corporation Act 2006 (Vic) (Act).

For example, in Lawandi v Owners Corporation 21842D (Owners Corporations) [2015] VCAT 1810 (20 October 2015), the owners corporation sought to prevent the Applicant from using the relevant premises for residential purposes in a building which was primarily used for commercial purposes. 

The owners corporation introduced a new rule by Special Resolution which provided:
A lot owner or occupier must not use the lot, or permit it to be used, for residential or other accommodation, whether short term, long term or otherwise.

In considering the rule, the Tribunal closely considered the wording of section 138 of the Act and Schedule 1 of the Act. 

VCAT Vice President, County Court Judge Davis, found that the matters which an owners corporation may make rules about are confined to the subject matter in Schedule 1 of the Act. 

Clause 5 of Schedule 1 of the Act (relating to lots) was found to enable an owners corporation to make rules regulating the external appearance of lots or activities being carried out on a lot so far as they impact on common convenience or common areas, but did not extend to prohibiting a particular use of a lot.

Vice President Judge Davis found:
[T]he power under the Act in an OC to make rules “for and with respect to” a “change of use of a lot” cannot be construed to allow an OC to make a rule prohibiting the change of use of a lot.  Rather, the power is to be construed as a power to make rules for and in respect of any change of use of a lot that are necessary for the carrying out of its functions under the Act.

Rules limiting types of uses within buildings affected by owners corporations are common in inner city developments. 

However, it seems that attempts to restrict the use of a lot in are likely to be ineffective (for example the Republic Tower at 299 Queen Street, Melbourne (the subject of Morrish v Republic Tower Body Corporate [2004] VSC 56) and the Watergate Building in the Docklands (the subject of Owners Corporation PS501391P v Balcombe (Owners Corporations)[2015] VCAT 956)). 

The cases have important ramifications for owners corporations and members of owners corporations. 

Careful consideration needs to be given about the potential invalidity of any owners corporation rule which seeks to prohibit a lot from being used for a particular purpose, such as a residential use or a commercial use, and a member’s obligation to comply with a rule of this nature.

WG Stark
Hayden Starke Chambers

Thursday 26 May 2022

Are there any recent cases about Section 9AC of the Sale of Land Act and material changes to plans of subdivision before registration?

The property market for the sale of apartments in Victoria, Australia has become more challenging recently

Lockdowns and other restrictions resulting from COVID-19 such as density limits and mask wearing combined with absent foreign buyers, as well as general concern about the viability of some projects, caused banks to impose limits on off-the-plan lending. Further, stamp duty increases have also helped to create downward pressure on values. Finally, we now have upward pressure on interest rates adding to the uncertainty in the apartment market. 

In August 2021, Associate Justice Matthews was called upon in the Supreme Court of Victoria to decide an application in relation to Section 9AC of the Sale of Land Act 1962 (see Burger & Ors v Longboat Holdings Group 2 Pty Ltd [2021] VSC 469).

Readers will be aware of the decisions in Besser and Lockwood (see my post of 3 May 2013 - here where purchasers of property off the plan were held to be entitled to rescind after material amendments were made to the plans. 

Facts in Burger Case

Between when contracts were signed and the plan of subdivision was lodged for registration, the developer made several changes to the Plan. These included:

  • decreasing the area of the apartment (predominantly the master bedroom by 4.39%).
  • reducing the size of the light court resulting in a decrease of natural light into the master bedroom.
  • reducing the size of the common property by vesting part of it in the local council as a council reserve.
  • decreasing the area of common property 1 by creating common property 2. Common property 2 was converted into a roof terrace, which the purchaser as a member of common property 1, could not access. Prior to the change, all owners were able to access the roof terrace (however, prior to the changes to the Plan, that terrace was inaccessible to everyone).
  • changing the size and location of the car spaces, including reducing the size of one car space by 11% and relocating the other from the top of a car stacker to the bottom.

The developer notified purchasers of the changes (as it was required to do). However, it had not notified the purchasers of several interim alterations. 

In response the purchasers of two lots purported to terminate their contracts in accordance with section 9AC of the SLA. 

The developer refused to accept each termination and refused to return the deposits on the basis that the changes to the Plan did not materially affect the purchasers’ lots. Developers have traditionally relied upon a less than 5% change in apartment area is being the benchmark to determine that the lot has not been materially affected. 

Her Honour disagreed with the developer's position and upheld the termination of each of the contracts by the purchasers and declared that the respective purchasers were each entitled to have their deposits refunded.

Court's conclusions

In reaching her decision, Matthews As J considered whether each of the changes made to the Plan materially affected the purchasers’ lots. 

In her deliberations, the Associate Justice rejected the developer's arguments that there was only a "modest change" to the size of the master bedroom and the total reduction in the size of the lots of 4.39% was less than a 5% reduction in size. The developer argued that a 5% variation had previously been held as "generally regarded as tolerable". In that regard, the developer relied on the decision of County Court Judge Kennedy (as Kennedy JA then was) in Birch v Robek [2014] VCC 68. In that case, the developer had a similar clause in which purchasers acknowledged that a 5% reduction in size did not materially affect the plan. However Judge Kennedy concluded in that case that the purchaser was entitled to rescind the contract and have the deposit paid returned (the change in area in that case was 12%). 

It goes without saying that County Court decisions are not binding on the Supreme Court of Victoria. However, Judge Kennedy has since been promoted and is now a Justice of Appeal in the Court of Appeal, at least implying that her decisions should be given more weight. 

The developer also relied upon the decision of Teague J in Buckley v DRK [1993] ANZ ConvR 423, where Justice Teague was disposed to see 5% for a suburban allotment at least in a general sense as being if not the most appropriate balance point, then at least a better one than 2% or 10%. 

Readers will note that the wording used by Justice Teague is not exact, and certainly left open room for argument in later cases about whether the arbitrary nature of 5% was sufficient to dispose of a claim that the plan had not been materially changed. 

Matthews As J concluded:

  • Decrease in area - a change in an area of less than 5% can be material, depending upon the location and nature of the change and its effect. 
  • In this case the Court commented that a reduction in size of almost 4m2 (which effectively reduced the size of the master bedroom by a quarter), ‘to a master bedroom that could hardly be described as palatial prior to the change, is clearly material’ (paragraph 79). 
  • Additionally, the Court agreed with the purchaser’s argument that the change was exacerbated by the creation of the alcove which created unusable space, making it very difficult for typical bedroom furniture to be manoeuvred into the room. The changes also impacted the ‘attractiveness of the room’.
  • Despite providing no expert opinion of the light flow, and the vendor disputing that the size of the light court between the plans had changed, the Court was satisfied the change had materially affected the lots. The Court acknowledged while the change in the light court in isolation may not have been material, in combination with the changes to the master bedroom, the flow of light in to the bedroom was sufficiently impacted.
  • The presence of a special condition where the purchasers agreed that a decrease of less than 5% was not material, standard in many off-the-plan contracts, did not protect the developer in these circumstances. 
  • Light court change - this change was not significant on its own. However, when it was combined with the changes to the master bedroom size, it did materially affect the lots.
  • Creation of council reserve - once the council reserve was created, the purchasers no longer had exclusive rights over the area. This change on its own materially affected the lots. 
  • Change in common property - although the size of the newly created common property 2 was relatively small in the context of the development, the loss of potential use of the terrace was not insignificant and as a result materially affected the purchasers’ lots. 
  • Car space changes - these changes did not affect the type of car that could use the car spaces. Her Honour concluded therefore that these changes did not materially affect the purchasers’ lots.

Matters to consider 

The decision in Burger confirms that no matter what provisions are included in a contract of sale (including the now common acknowledgement that a change in area of less than 5% is not material) it is not possible to contract out of section 9AC.

In reality, the practical impact of any change will always need to be assessed to determine if a change is material.

In those circumstances, developers should include in their contracts of sale off plan, plans of subdivision that are finalised as much as possible and endeavour to keep changes to a minimum. 

They should also engage with purchasers affected by material changes to manage the impact of those changes. 

Whilst many changes are obligatory in order for the proposed plan of subdivision to be accepted by council, it is always recommended that developers obtain legal advice on the specific changes before they are made to the Plan to manage any risk that a purchaser may rescind.

Since material changes to a plan of subdivision can entitle a purchaser to rescind their off-the-plan contract lawfully, any such rescission can impact a developer's pre-sales and financing arrangements, resulting in reductions to total pre-sales amounts, as well as potential breaches of conditions in development facility agreements.

Developers need to be acutely aware of their financier's conditions in relation to purchasers' rights to rescind contracts and obtain legal advice when entering into financing arrangements which are conditional upon a development's pre-sales.

Developers should also ensure compliance with the strict timeframes set out in Section 9AC, and notify purchasers of changes and potential changes early in an attempt to manage the impact of those changes. 

Clearly, communication with purchasers is key. 


While the case turns on its own facts, this decision still sounds a warning to developers in increasingly difficult times. 

The decision confirms that the attempts by many developers to impose an arbitrary figure of 5% variation on purchasers as being not material will not always be successful.  

WG Stark

Hayden Starke Chambers