It is not everyday that iconic Australian film characters such as Darryl Kerrigan make their way into judgments from the Supreme Court. Even less likely is to find such characters quoted alongside Shylock from the Merchant of Venice. However, Justice Vickery of the Victorian Supreme Court had occasion to refer to both in the very recent decision of Nolan v MBF Investments Pty Ltd  VSC 244 (Nolan). The issue in the proceedings was conveniently summarised by his Honour in the following passage:
‘The issue raises the question as whether the interest of the mortgagor in his family home was merely an emotional interest unprotected by s.77(1) [of the Transfer of Land Act 1958 (Vic)]. Such an ‘interest’ may be typified by the popular Australian film “The Castle” (1997) in which the central character Darryl Kerrigan says in a key passage in the screenplay:
They don’t get it. They’re judging the place by what it looks like, and if it doesn’t have a pool, or a classy front, or a big garden. And because of that it’s not worth saving. But it’s not a house, it’s a home. It’s got memories, great memories! It’s a place for the family to turn to, come back to.’
Section 77(1) of Transfer of Land Act 1958 (Vic) (Victorian TLA) provides relevantly that:
(1) If within 1 month after the service of [a notice or demand under s.76] or such other period as is fixed in such mortgage or charge the mortgagor… [does] not comply with the notice or demand the mortgagee… may, in good faith and having regard to the interest of the mortgagor... sell [the mortgaged land]... (Emphasis added)
The mortgagee’s ‘good faith’ duty
The inclusion, in Section 77(1) of the Victorian TLA, of the emphasised words above is unique to Victoria and Queensland in the relevant torrens land legislation. In Western Australia, the equivalent provision of the Transfer of Land Act 1893 (section 108) does not expressly condition the mortgagee’s right to sell mortgaged property (where a default notice has been properly issued) by reference to notions of good faith or the interest of the mortgagor.
However, there still remains, throughout Australia, a common law requirement that a mortgagee acts in good faith when exercising a power of sale: Barns v Queensland National Bank Limited (1906) 3 CLR 925; Forsyth v Blundell (1973) 129 CLR 477.
Prior to the Nolan decision, the duty to act in good faith had not been extended past an obligation:
Extensions of the ‘good faith’ duty
The facts that led to a mortgagee sale in Nolan were complex. For the purposes of appreciating the argument concerning the duty of good faith, it is worth noting the following key facts:
Mr Nolan brought an application seeking compensation against the mortgagee for breaching section 77(1) claiming that the mortgagee failed to act in good faith and failed to have regard to the interests of Mr Nolan in effecting the sale in the manner set out above.
Vickery J’s judgment is extensive. His Honour goes so far as to consider the construction of section 77(1) and the right to protection from arbitrary interference with a person’s home in the light of International Law including, the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights and the Charter of Human Rights and Responsibilities Act 2006 (Vic).
It was also necessary for His Honour to determine the nature of Mr Nolan’s interest in the property. This required a finding as to the extent of Mr Nolan’s ‘bundle of rights’ in the property which, accordingly to His Honour, included:
Ultimately, His Honour found that the mortgagee’s actions in continuing with a sale of the family home in circumstances where Lot 2 sold for such a significant amount and the sale of Lot 3 would have been sufficient to pay out the debt owing was:
‘undertaken deliberately and with full knowledge of the relevant facts, including the impact its decision would have on Mr Nolan and his family. In exercising its power of sale in the way it did, [the mortgagor] carried into effect the indirect object of destroying Mr Nolan’s legal interest in the land by depriving him of full ownership of the property by the exercise of his right of redemption. [The mortgagor’s] decision also had the effect of evicting Mr Nolan and his family from occupation of the land and dwelling house situated on the land.
[The mortgagor] completely disregarded Mr Nolan’s interest in the property, namely his right to redemption which, if exercised as it would have been on the sale of Lots 2 and 3, would have resulted in him retaining Lot 1 as an unencumbered estate. Further, the use and enjoyment of the dwelling house situated on Lot 1 for home occupation, which had been so assiduously brought to the attention of [the mortgagor] over the months preceding the auction sale, was lost.’
Whilst the Nolan decision involved the proper construction of section 77(1) of the Victorian TLA, its implications are far reaching. In particular it has significant application to the common law duty imposed on mortgagees to act in good faith especially when dealing with a sale of property that includes a family home. It is important to bear in mind, when considering a mortgagee sale, matters other than simply the price that is to be obtained. Lenders should ensure that:
Agents acting for mortgagees in possession along with receivers are also required to act in good faith in exercising a power of sale. This is because section 420A(1) of the Corporations Act, which provides that a controller must exercise reasonable care with respect to the sale price of property, does not replace the common law duty of good faith: Florgale Uniforms Pty Ltd v NAB Ltd (2004) 22 ACLC 1.