A recent decision of the Victorian Supreme Court, in a case involving the sale of a property held by a mortgagee in possession, is a reminder that mortgagees must take care to sell a property for the best obtainable price.
The case, Manda Capital Holdings Pty Ltd v PEC Portfolio Holdings Pty Ltd, involved a review of the application of Section 420A of the Corporations Act, which says that a mortgagee must take reasonable care to sell a property for not less than market value or the best obtainable price, given the circumstances.
The duty is not defined by prescriptive steps, rather a general obligation to take all reasonable care.
In August 2019, Manda Capital Holdings loaned A$6.39 million to PEC Portfolio Springvale, which was secured by a property in the Melbourne suburb of Springvale. PEC defaulted and Manda exercised its right to enter into possession of the property.
The property was sold for $7 million in December 2020. The amount owning on the loan exceeded the sale proceeds and, after first sending a letter of demand, Manda commenced proceedings to recover the balance of $974,000.
PEC and its guarantor brought a counterclaim, arguing that Manda did not take reasonable care to get the best price for the property.
With regard to Section 420A, the court said the crucial issue at trial was the action taken by Manda to sell the property. This included looking at the accuracy of the valuation, the qualifications and experience of the agent, the extent of marketing campaigns and the value of any advice sought about market conditions.
PEC argued that the four-week sales campaign was too short and that an extended campaign was needed because Melbourne was in COVID lockdown and this impacted the ability of potential buyers to engage with the sales process.
It also argued that the advertising campaign gave undue prominence to the fact that the sale was a mortgagee sale. It said this suggested the property needed to be sold quickly, “without due regard for the best obtainable price”.
The court dismissed the counterclaim, finding that the agents Manda engaged were “highly experienced” in dealing with type of property being sold and that the campaign attracted significant interest.
It found that the $7 million sale price exceeded a 2020 market value assessment and was within range of the agent’s estimate.
The court said there was no guarantee that if the campaign ran longer a better price would have been realised.
On the question of the use of the term “mortgagee sale” in the campaign, the court accepted Manda’s argument that this was standard practice and it indicated to interested parties that they would not be wasting their time with an unrealistic vendor who may be just testing the market.
The court said: “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”.