In Kravchenko v The Rock Building Society[2009] VSCA 292 the Supreme Court of Victoria Court of Appeal decided that the mortgagee breached its statutory duty to the mortgagor in selling a residential property owned by the mortgagor to an employee of its solicitors, even though another solicitor in the firm worked on the sale.

The Building Society had advertised the sale by auction and had obtained valuations but as there was little interest it accepted an offer by the solicitor before the auction was held.

Even though the price obtained was within the range of values within which the property would be likely to sell, the mortgagee failed to discharge its duty to the mortgagor.

His insider status was not negated because another solicitor in the firm worked on the sale. It afforded peculiar advantages and presented the potential for conflict of interest…. the purchaser knew, in effect, the reserve and the mortgagee knew what the purchaser was prepared to pay. In such circumstances, although the appellant discontinued his claim against the purchaser and sought only damages from the mortgagee, the identity of the purchaser was relevant to both the onus of proof and the sufficiency of the steps taken to protect the mortgagor’s interests and obtain the best price.

The Building Society was ordered to pay $60,000 damages to the mortgagor.