Australia: Mortgagee fails to take reasonable care to obtain market value

Deficient advertising is not saved by the information memorandum

In a recent case involving a rural property in Queensland, the mortgagee failed to comply with its duty to take reasonable steps to obtain market value because the mortgagee's advertising did not adequately refer to the water rights relating to the property and their tradability.

The mortgagee's information memorandum contained documents referring to the water entitlements; however this disclosure in the information memorandum was not enough to save the mortgagee.

The decision in Australia and New Zealand Banking Group Limited v Pola [2013] NSWSC 1801 highlights the importance of ensuring that the key attributes of the property (including any rights being sold) are featured in the advertising.

The decision is also a warning that mortgagees or receivers will not be able to simply rely upon information disclosed in an information memorandum or in an electronic data room.

The duty under section 85

Section 85(1) of the Property Law Act 1974 (Qld) provides:

It is the duty of a mortgagee, including as attorney for the mortgagor, or a receiver..., in the exercise of a power of sale take reasonable care to ensure that the property is sold at the market value.

A sale below the estimated market value does not of itself mean that the mortgagee failed to comply with its duty to take reasonable care to ensure the property was sold at market value. Rather, the mortgagor needs to show the steps it says the mortgagee should have taken to ensure the property was sold for market value.

Once the mortgagor proves that the mortgagee breached section 85, it is not necessary for the mortgagor to prove a causal link between the breach and the loss.

As long as the mortgagor establishes that the mortgagee failed to take a step that was reasonably necessary 'to ensure' market price was achieved, it does not need to prove that, if that step had been taken, market price would have been achieved. The mortgagor is not required to prove that, if the mortgagee had not breached its duties, a buyer would have offered to purchase the property for any particular price.

When a court finds the mortgagee has breached its duty under section 85, there are two relevant enquiries.

  • What was the market value of the property at the time of the sale?
  • Was the sale price less than the market value?

At this point of the analysis, a mortgagee can be vulnerable to differences in expert evidence regarding the market value of the property.

Applying earlier authorities, the Court in Pola made the following findings:

  • Where a property has assets or rights attached to it (such as water rights) that are potentially valuable but not readily transferrable, in order to discharge its duty under section 85, the mortgagee must:
    • consider, and if necessary, make enquiries and obtain advice on how the property or the benefit of the rights or assets might be passed onto a purchaser; and
    • properly ascertain the market value of the property with and without those rights.
  • The mortgagee's advertising must:
    • be by appropriate means and at appropriate times so as to maximise the interest of potential purchasers;
    • be accurate and without material omissions; and
    • not improperly emphasise the sale as a 'mortgagee sale' so as to be likely to depress the level of offers.

Pola: the arguments

The mortgagors argued that the mortgagee had failed to comply with its duty by not selling the water rights separately to the land.

There was considerable evidence at trial regarding the enquiries the mortgagee had made concerning the nature of the different water rights, whether they could be sold separately and their value if sold separately. On the facts, the mortgagor's argument was unsuccessful.

The mortgagor's other criticism was that the mortgagee's advertisements did not refer to the water rights and their tradability.

The advertising referred to the property as being irrigated and having 'centuries of alluvial flows'. There was a picture of a crop under irrigation, but the advertising did not refer at all to the water allocation, water licences and their tradability.

The mortgagee argued that a reader considering the purchase of a very large and expensive farming property on which there is irrigation, in all probability would assume the property enjoyed water entitlements. It argued that the knowledge of the water aspects of the property was addressed in a very broad brushed approach in the advertising.

The mortgagee's evidence also emphasised what they perceived to be the danger of including too much information in any advertising. In essence the mortgagee argued that, as a general position, the more information you put in an advertisement, the less response you get to it.

The mortgagee suggested that the purpose of advertising is to generate enquiry so the mortgagee can find out what aspect of the property people want to think about. The mortgagee argued that the purpose of advertising was to draw attention and enquiry and not to provide a complete account of information.

Deficient advertising and information memorandums

The Court accepted the mortgagee's submissions that a reader considering the purchase of a very large and expensive farming property on which there is irrigation would probably assume the property enjoyed water entitlements.

However, the Court said that a prospective purchaser who is considering a number of possibilities and weighing up whether to purchase the property may well have been tempted to investigate further, had details of the water entitlements featured in the advertisements. Conversely, such a prospective purchaser may well have been deterred or deflected from further considering the property in the absence of those details.

The Court was not distracted by the philosophical arguments regarding advertising or the role of a real estate agent. The paramount consideration was the mortgagee's compliance with its duties.

The Court held as follows:

  • The water entitlements were a key feature of the property that should have been included in the advertising.
  • Inadequate or defective advertising is not necessarily cured by the fact that the mortgagee's entire marketing process included additional information available from the agent that correctly disclosed the position. A potential buyer may be dissuaded from making further enquiries by the defective advertising.
  • There was no requirement for the mortgagor to prove that the absence of a reference to the water entitlements in the advertising made a difference to any particular purchaser. All that was required to be established was that the inclusion of such details was a step that ought reasonably to have been taken by the mortgagee to ensure market value was achieved.
  • Emphasising the property's water entitlements in the advertising was a step, or an act, that ought reasonably to have been done to ensure the property was sold at market value.

As the mortgagee did not take this step, the Court held that the mortgagee had breached its duty under section 85.

On the basis of the defective advertising, the Court awarded the mortgagors damages of $900,000 representing the difference between the price achieved at the mortgagee's auction ($6.1 million) and the market value of the property ($7 million).

Implications for mortgagees and receivers exercising power of sale

The decision in Pola is equally applicable to receivers selling property. Mortgagees and receivers alike must:

  • conduct appropriate searches and enquiries to ascertain the key assets and features of the property (which may include rights attached to the property, such as licences or development approvals) before advertising the property for sale;
  • consider whether the rights attached to the property should be sold separately or with the property;
  • feature the key aspects of the property being sold in the advertising – merely including the key features in the information memorandum or electronic data room will not suffice; and
  • carefully consider the content of the advertising – the devil is in the detail.

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.