15 April 2015


Mortgaged land was compulsorily aquired by the state (resumed) for the North West Rail Link. 

At the time of the resumption negotiations began  the property had just been sold by a lender, exercising power of sale, however the sale was not completed. 

The resumption price exceeded the  contract price and the lender and purchaser renegotiated. It is unclear whether either party could have forced settlement prior to the resumption or whether the resumption frustrated the contract. This is relevant as to whether the lender could have pressed for as better price (which would be required by s420A of the Corporations Act).

There was at least some suggestion that the lender breached its duties on the basis of the evidence of its directing mind. The Court commented:

That may be of some significance, in that the lenders attitude appears to have been that his only concern was to obtain a price that would ensure repayment, to the two mortgagee companies of which he was a director, of the amounts secured. That attitude appears to ignore the interest of  the mortgagor (as well as its unpaid creditors).

These proceedings were between the purchaser and the borrower to determine which was entitled to the balance of the compensation after the lender was paid out. 

The Court of Appeal ruled that the case turned on whether the lender had properly exercised power of sale. 

If so then the borrowers interest was replaced by that of the purchaser and the purchaser was entitled to the compensation. 

If not (and there was a breach by the lender of its duty under s 420A of the Corporations Act in exercising its power of sale), then the borrower's interest would prevail.  

The trial judge had held that there could be no breach of duty under s420A by the lender because at the relevant time, the mortgagor had been deregistered did not exist and, therefore, there was no mortgagor to whom a relevant duty could be owed. The Court of Appeal held that reasoning erroneous, since, the mortgagor's rights vested in ASIC upon deregistration.

The Court of Appeal decided that the recipient of the compensation would have to be determined by reference to the lender breached its duty. However there was a problem, the lender had not been joined to the action. If the question was sent back to a lower court to decide and the judge decided there was a breach by the lender, then the lender would likely be sued by the borrower in separate proceedings and there was a danger of conflicting judgments. 

The Court of Appeal accordingly ordered that the matter be sent back to the trial judge to determine whether the lender breached its duty but only if the borrower first undertook to the Court not to institute proceedings against the lender. 

Click here to read the full judgement.

Kate resize

Kate Cooper joined Bransgroves Lawyers in 2006 and has been a partner since 2009. Kate specialises in Supreme Court litigation in the fields of mortgage enforcement, professional negligence and originator/funder disputes. She has an extensive transactional practice including, origination deeds, aggregation deeds, commercial and construction lending and mortgage securitisation.

Read more about Kate Cooper