A purchaser of property thought it was his lucky day when a two-storey Braybrook home valued at $630,000 was knocked down to him at auction following a successful bid of $1,000.00 subject to a mortgage of $457,345.50.

However, the owner (“Zhou”) succeeded in having the sale set aside on the basis the purchase price was “illusory, unfair and unreasonable in that it bore no relation to the worth of the property”.

What facts gave rise to this bizarre situation?

Zhou owed a civil debt of about $100,000 to a creditor (“Wu”), who had obtained a judgment order to recover the debt. In reliance of that order, and upon Wu’s application, the Supreme Court issued a Warrant of Seizure and Sale, which led to the Sheriff’s sale of the property.

At the first auction, the Sheriff had set a reserve price of $171,615.76, representing Zhou’s remaining equity in the property. The purchaser would have also needed to pay out the bank loan. The first auction was a failure in that no bids were received and the property was passed in.

On application by the Sheriff, the Supreme Court allowed the Sheriff to sell the property a second time, but this time without a reserve price.

The Sheriff then held a second auction without a reserve. The property was sold for $1,000.00 and a Transfer of Land document signed by the Sheriff was given to the Purchaser.

Legal proceedings

Zhou instigated legal proceedings against the Sheriff (on grounds that the Sheriff breached his duty to the owner of land when exercising a power of sale) and against   the Purchaser to stop the settlement on the basis of unconsionability.

Zhou was unsuccessful against the Purchaser as the Court found that even though the price paid by the Purchaser for the Property may have been unreasonably low, it was not unconscientious for the Purchaser to insist on his rights to acquire the property. The nature of the sale (being one sold by a Sheriff exercising his power of seizure and sale) created a ‘legitimate expectation’ that the sale was lawful.

However, Zhou was successful against the Sheriff. The Court held that the Sheriff is bound to apply the principles of common law in the conduct of a valid Sheriff’s sale. One such principle is that if it is apparent to the Sheriff that the highest bid received is so far below the true value of the property offered for sale, the Sheriff should not accept the bid and pass in the property. The Sheriff should have done so in this case since the price offered by the Purchaser was dramatically below the market value of the property. In fact, given that the purchase price did not even cover the Sheriff’s cost in conducting the second auction, it was held that that the Sheriff did not act reasonably in accepting the bid of $1,000.00. Accordingly, the transaction was set aside.

The finding proves that Courts will set aside transactions that are unjust and inequitable in all the circumstances and members of the public should not necessarily accept unfair treatment even if it appears there is no way to enforce personal rights.

This article is intended to provide general information only and is not a substitute for legal advice. To obtain legal advice tailored to your situation please contact Rudstein Kron Lawyers on (03) 9519 9888.