A recent case in the New South Wales Supreme Court has highlighted the potential value of water allocations, particularly when those water rights are sought by government.

When the ANZ Bank repossessed two rural properties owned by Mr and Mrs Pola in New South Wales, the couple hit back over the manner in which the sale of another rural property in Southern Queensland had been handled. In short, the Polas claimed they had been ripped off when valuable water rights, coveted by the Commonwealth Government, were not taken into account. The court agreed.

The case of Australia and New Zealand Banking Group Ltd v Pola highlights the need for a mortgagee to seek advice from experts in appropriate circumstances and to advertise a property in a manner that maximises the interest of potential purchasers and ultimately, the sale price and financial return to a distressed landowner.

ANZ was found to have breached its duty under s 85 of the Properly Law Act 1974 (Qld) and was required to pay $900,000 in damages to Mr and Mrs Pola. The amount represented the difference between the price achieved at auction by the bank ($6.1 million) and the market value of the property as per an expert report commissioned at the time ($7 million).

Once bitten

In December 2009, ANZ took possession of a property in Southern Queensland owned by Mr and Mrs Pola.

In March 2010, the Queensland State Government extended its Resource Operating Plan to an area which included the Polas property. This resulted in the creation of two water entitlements associated with the property. Soon after, the Commonwealth Government expressed interest in purchasing such water rights as part of its ‘Restoring the Balance in the Murray-Darling Basin’ water purchase program.

ANZ offered the property for sale by auction on 17 August 2010. The property was passed in at auction and subsequently sold on 13 September following negotiations with the highest bidder.

Stung once, Mr Pola wasn’t going to go quietly when ANZ later brought a claim seeking possession of two rural properties in New South Wales along with judgment in the order of $2.1 million. They launched a cross-claim on the basis that ANZ had contravened its statutory duty to take reasonable care to ensure that the Queensland property was sold at market value.

There was no complaint about the length or breadth of the advertising campaign conducted by the agents on behalf of the bank. However, the advertisements did not refer to the water entitlements and their tradability, or to the other less significant water licences.

It was established that the bank ought to have included such details in its advertisements to ensure the achievement of market value. In failing to do so, the bank breached its duty under s 85 of the Properly Law Act 1974 (Qld).

Once a breach of s 85 is established, it is not necessary to show a causal link between the particular breach and loss.

The deficiency in the advertising process was sufficient to make the bank liable to pay the difference between the price ultimately obtained and the purported market value of the property.

This decision from the New South Wales Supreme Court highlights the impact of water allocations on a mortgagee’s duty to take all reasonable steps to obtain market value for a rural property. Ultimately, the court found that the mortgagee breached its duties by not drawing sufficient attention to the water allocations when advertising the property for sale.

It is also clear that a mortgagee needs to obtain expert advice in certain circumstances, and give due consideration to the manner in which a property ought to be sold.

Times are tough in the agricultural sector and mortgagee repossessions are sadly not uncommon. However, as Mr and Mrs Pola have shown, no landowner, no matter how distressed, should realise any less than the true value of property sold in this manner. And qualities such as water allocations can potentially add enormous value to a property. Good, reliable legal advice is to ensure the best possible outcome is achieved even during the most difficult of circumstances.