Bridgecorp Finance v Judith Comer [2005] NSWSC 225

This was an application for summary judgement brought by the lender as second registered mortgagee. Neither the cause of action nor the facts which supported it were fully set out in the judgement. It appears that it was an action for sale of the mortgaged property by the second registered mortgagee which was opposed by the borrowers.

Justice Einstein restricted his reasons to the prospects of success of the defence, namely, that the second registered mortgagee had a duty of good faith in relation to the exercise of the power of sale which extended to not doing anything that would undermine the discharge of the first mortgage.

Justice Einstein applied the principles relevant to summary judgement as set out in General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130, namely, whether there was a real question to be tried or wether the defence was so obviously untenable that it could not possibly succeed, or manifestly groundless.

Justice Einstein found that there was no evidence of the position of the first registered mortgagee in relation the sale. Without such evidence it could not be determined what effect the second mortgagee’s conduct would have on the first mortgagee.

Justice Einstein dealt with the duty of good faith owed by a mortgagee to the mortgagor, as follows:

The content of the relevant duty of a mortgagee has been said to be an obligation to act in good faith: cf Fisher and Lightwood, Law of Mortgage, Australian Edition; and cases there cited. In Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 Young CJ in Eq at 652 held that a mortgagee owes an equitable duty to act conscionably towards the mortgagor and persons under the mortgagor.

Further:

In Mailman v Challenge Bank Limited (1991) 5 BPR 11721, the New South Wales Court of Appeal rejected the submission that a creditor must act to enforce a security in the case of a request by a guarantor since even in that situation, the guarantor clearly has the option of paying off the debt and enforcing the security himself.

Sheller JA in Mailman  [following Lord Templeman’s judgment in China and South Sea Bank Limited v Tan Soon Gin [1990] 1 AC 536, made the point that if the surety is worried that the mortgage securities may decline in value, the surety may request the creditor to sell and if the creditor remains idle the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them: cf O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 per McTiernan J.

Clearly as Mailman holds, a mortgagee may sell when it considers it appropriate. Clearly also the mortgagee is not bound to postpone the sale in the hope of obtaining a better price later but is required to allow sufficient time to permit matters such as proper advertising so that the best price reasonably obtainable may be obtained. The mortgagee is entitled to look to its own interests but in this country the good faith test has been, as I have already observed, generally applied.

There was no real question to be tried as to the second mortgagee’s breach of the duty of good faith, given that it was not required to postpone the sale in the hope of obtaining a better price and is entitled to look to its own interests.

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