Supreme Court holds that the ‘Interests’ of Mortgagors include their Right to Protection from Arbitrary Interference with the Home
Nolan v MBF Investments Pty Ltd [2009] VSC 244 (18 June 2009) The Supreme Court of Victoria recently confirmed that fundamental human rights, both in international law and the Victorian Charter, are relevant interests that must be considered when a mortgagee sells a property to satisfy a debt. This is especially relevant where a debt is secured over a family home.
Facts
A mortgagor, Nolan, defaulted on a loan from MBF secured by a mortgage. The mortgage was over three adjoining parcels of land. The Nolan family home of 10 years was on lot 1. Lots 2 and 3 held gardens and a tennis court.
Under the Transfer of Land Act 1958 (‘TLA’), the mortgagee had the right to sell the mortgaged land ‘in good faith and having regard to the interests of the mortgagor, grantor or other persons’.
Nolan argued that sales of lots 2 and 3 would have been enough to satisfy the debt, and he urged MBF not to sell lot 1 (with the family home). However, in 2001, MBF sold all three parcels of land, including the family home. The prices achieved at auction for lots 2 and 3 were enough to cover the debt.
Nolan argued that by unnecessarily selling the family home, MBF had not acted in good faith and with regard to Nolan’s interests.
The key question was whether, in making the decision to sell all lots, MBF should have taken into account Nolan’s desire to retain the family home.
Decision
Justice Vickery of the Supreme Court of Victoria found that Nolan’s desire to retain the family home was a relevant interest under the TLA to which the bank should have had regard.
Justice Vickery interpreted the word ‘interest’ in the TLA expansively, meaning that according to the ‘principle of legality’ it included fundamental human rights, including the right to protection from arbitrary interference with a person’s home. That right is reflected in art 17 of the ICCPR and s 13 of the Victorian Charter. His Honour said of the right:
The right to protection of a person’s home from arbitrary interference is reflected in all of the major international human rights instruments to which I have referred and the Victorian Charter. It is unequivocally a fundamental human right. …
In the case at hand, applying the principle of legality necessarily involves construing the general word ‘interests’ as it appears in s 77(1) TLA in a manner which does not curtail the fundamental human right of protection of a person’s home from arbitrary interference.
To approach the matter otherwise, would result in an unintended curtailment of the right. … if the mortgagor was to have no relevant ‘interest’ in his home within the meaning of s 77(1) TLA, the way would be opened for the mortgagor to act in an arbitrary manner in making its choice. Such a construction of the section would render the fundamental human right ineffective in this circumstance.
MBF had failed to take into account Nolan’s interest in making its decision to sell the family home. MBF should have taken reasonable care to protect Nolan’s interest, but failed to do so.
MBF recklessly dealt with the property in a way which sacrificed the interests of the mortgagor. The decision of MBF [to sell] … was not made in good faith, having regard to the relevant ‘interest’ of the mortgagor pursuant to s 77(1) TLA. The conduct was also manifestly unreasonable. … It amounted to an arbitrary interference of the most serious kind with Mr Nolan’s right to continue in occupation of his home.
Accordingly, Vickery J held that MBF had acted in breach of the TLA. The question of damages was deferred to a later hearing.
Relevance to the Victorian Charter
This case is significant in that Vickery J was prepared to interpret the word ‘interest’ broadly to encompass human rights despite the fact that the TLA did not expressly refer to human rights.
The sale of land occurred in 2001, which is before the enactment of the Victorian Charter. However, Vickery J did not need to rely on s 32 of the Victorian Charter in order to import human rights principles into the TLA. Rather, the principle of legality required that they be taken into account. For all sales of land that occur after the commencement of the Victorian Charter, s 32 (which provides that all Victorian legislation be interpreted in accord with human rights) would reinforce Vickery J’s decision. Furthermore, the fact that s 32 was not essential to the decision in this case may mean that the decision can also be used as persuasive authority in non-Charter jurisdictions.
This case serves as a reminder that human rights principles may be relevant even in relation to commercial agreements between parties, such as loan contracts, even in the absence of one of those parties being a public authority.
The judgment is available at http://www.austlii.edu.au/au/cases/vic/VSC/2009/244.html.
Helen Conrad is a lawyer with mdp McDonald Partners