Six rules for sheriff's property seizure auctions determined by Victorian Supreme Court

The Victorian sheriff conducted himself honestly and conscientiously in carrying out the $1,000 auction of a seized Braybrook house, but found himself in a very difficult position under the Sheriff Act, Justice Peter Vickery of the Supreme Court ruled today.

It was because the precise nature of the duties of the sheriff had not been authoritatively defined following the abolition of the writ of fi fa.

But Vickery ruled the sale price was so unfair that the sheriff did not act reasonably in accepting it.

“Whatever may be the inclination of the court to support a public officer in the unprecedented circumstances of this case, the sale as a matter of law cannot be allowed to stand,” it was ruled.

“Because the sale was not one which was properly concluded under Division 5 of the Sheriff Act for the reasons which have been explained, s 25(1) of the Sheriff Act cannot apply and [buyer Ronald] Kousal does not gain good title to the property under it.” 

He said the auction had not been conducted in accordance with the common law or the Sheriff Act.

“As to the breach of the common law duty, at the time of the second auction the value of the equity in the property was approximately $165,000.

“This was known to the sheriff’s officer conducting the sale, who announced the amounts owing on the property to the bidders prior to commencing the auction.

“The sheriff’s officer also had in his possession the kerb-side valuation of the Valuer General placing the market value of the property at $630,000.

“There was some $465,000 owing on the property.

“Nevertheless, it was knocked down to the highest bidder on the day, Mr Kousal, for $1,000.

“This price bears no relationship to the evident market value of the property or the [owner Zhiping] Zhou’s equity in the sum of approximately $165,000 which was put up for sale.

“In my opinion, and after taking into account all of the relevant factors to which I have referred, this price was so unfair that the sheriff did not act reasonably in accepting it.

“The transaction cannot remain in place at common law.”

“Although the administrative arrangements as to the employment of the sheriff changed following the introduction of the Sheriff Act in 2010, his status as an officer of the Supreme Court for the purpose of enforcing its warrants of seizure and sale and other such warrants issued out of the court did not change.

“For these purposes the sheriff remains an officer of the court.”

Vickery outlined the principles of common law to be applied to a sheriff’s sale as:

(a) The sheriff is bound to act reasonably in the interests of both the judgment creditor and the judgement debtor in order to obtain a fair price;

(b) A fair price is not necessarily the market value, for it is well recognised that compulsory sales under legal process rarely bring the full value of the property sold.

In making a determination as to the adequacy of the highest bid, the sheriff is entitled to take into account that the sale, being a compulsory process, is usually one at which a full and fair market value for the property will not be expected and some allowance must be made for low prices being obtained at such sales;

(c) In determining the fair price in all the circumstances, matters from the prospective buyer’s perspective must be weighed. Such factors may include: the fact that buyers must be prepared to complete their purchases on the spot; the fact that buyers, particularly in the case of real estate, will not have usually have had the opportunity to inspect the property sold (at least internally); the fact that the title to the property may be encumbered or it may be physically occupied, giving rise to risks for the purchaser in acquiring clear title or rights of occupation without undue expense or delay; and other such risks which may be attendant for the purchaser on the purchase;

(d) Another factor to be weighed in the balance will be the amount, if any, obtained for the judgment creditor after the expenses of the sale have been

deducted;

(e) If it is apparent to the sheriff that in fact or in all probability the highest bid received is so far below the true value of the property offered for sale that he would be acting unreasonably if he was to accept it, the sheriff should not accept the bid and pass in the property;

(f) if the sheriff breaches his common law duty and sells property at a price which, in all the circumstances is unfair, the following consequences may follow: (i) the transaction may be set aside.54 On setting the transaction aside, no damages would arise in the usual case for which the sheriff could be liable; or (ii) where the price obtained on the highest bid is so low that it could be said that there was no sale at all, or that it was not a real sale or that it was in fact illusory,56 there would be no sale within s 24 of the Sheriff Act, and therefore no sale within Division 5 with the result that the immunity of the sheriff from a suit in damages conferred by s 25 would be removed. There would not in truth be a “sale of property under this Division” for the purposes of s 25(2). In these circumstances, if the transaction is not set aside and loss and damage is in fact sustained, the sheriff could be exposed to an award of damages at common law.

The office in Victoria can be traced back to between 1835 and 1851, when deputy sheriffs were situated in what was to become the colony of Victoria in the Port Phillip district.

The appointment of deputy sheriffs for the district was made by the Crown and confirmed by the governor of New South Wales.

The Victorian Sheriff's Office was created following separation of the Port Phillip District from the colony of New South Wales in 1851.

The first sheriff appointed in Victoria was Claude Farie, who was appointed by Queen Victoria in January 1852.

He served until 1870 and held his office under the Crown.

On 1 January 2010 the Sheriff Act 2009 came into force and commenced operation.

Justice Vickery noted prior decisions where the Sheriff could be held liable in respect of sales conducted at an undervalue including a case determined in England in 1814 during the Napoleonic Wars - Keightley v Birch & Anor where Lord Ellenborough observed: "If a chattel worth £1,000 is put up to sale, and only £5 is bid for it, the sheriff ought not to part with it for that sum; and he may fairly say that it remains in his hands for want of a buyer. He ought to wait for a venditioni exponas, the meaning of which is “sell for the best price you can obtain.”

There was also a Victorian gold rush case decided in 1871, Smith v Colles, where Barry ACJ took a similar approach in relation to property consisting of mining plant sold by the Sheriff for £10 when its market value was £240 based onwithin three weeks it was resold by the purchaser for £240.