The Supreme Court of Victoria (Vickery J) has recently delivered judgment in Zhou v. Kousal & Ors [2012] VSC 187.  The judgment provides useful guidance in relation to the common law duties imposed on the Sheriff when selling assets to execute on a judgment.

The short facts of the case are that a plaintiff had not paid upon a judgment in the sum of approximately $100,000.  The judgment debtor sought to have real property owned by the plaintiff sold by the Sheriff to execute upon the judgment.

The property had a valuation of approximately $630,000 and the plaintiff had nett equity of approximately $165,000.  The Sheriff sold the property at a public auction, without a reserve price to the defendant for $1,000.  The plaintiff commenced proceedings to have the sale set aside.

Vickery J set aside the purported sale on the basis that the Sheriff had breached his common law duties in relation to obtaining a fair price for the property, and found (among other things) that the sale price of $1,000 was so low that the purported sale was illusory to the extent that there was no sale.

The judgment contains an interesting and thorough discussion of the history of the office of Sheriff and the development of the common law duties of the Sheriff when selling assets in aid of execution on judgments.

At par[124] Vickery J held that “[t]he principles of common law to be applied to a Sherrif’s sale are:

(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.  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 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.” (footnotes omitted)