This case provides a useful discussion on the law of repudiation (in the context of a loan facility) and emphasises that even where there is repudiation, such repudiation must be accepted and the relevant loss must have been caused by the repudiation to be recoverable. This case also provides some comfort to receivers that provided that an appropriate marketing strategy is employed, advertising a sale as a mortgagee sale will not constitute a breach of the obligation under section 420A of the Corporations Act 2001 (Cth) to sell for not less than market value.
The Commonwealth Bank of Australia (CBA) granted a loan facility to a number of companies associated with Mr Shannon, to fund the development of residential townhouses (Loan Facility). CBA sought to enforce guarantees given by the companies in respect of the Loan Facilities.
Shannon asserted that CBA repudiated the Loan Facility by failing to pay the GST component of the drawdown amount and by stating through one of its employees that it “wanted out” of the Loan Facility. Sackar J found that:
- repudiation is not to be lightly found or inferred – the test is whether the conduct of CBA was such as to convey to a reasonable person a renunciation of the contract as a whole or of a fundamental obligation under it;
- there was nothing in the factual material which resembled repudiatory conduct on the part of CBA – the Court rejected evidence that a CBA employee said that CBA “wanted out”, finding that at most, the employee explained that CBA’s preferred option was for Shannon to refinance or sell the development;
- even if CBA repudiated the Loan Facility, there was no clear acceptance of the repudiation - the fact that work on the development stopped was not unequivocally referable to an acceptance of the alleged repudiation; and
- even if CBA repudiated the Loan Facility and such repudiation was accepted, the financial demise of Shannon’s companies was not caused by the repudiation - the shortfall in funds necessary to complete the development was $1.3 million and CBA failed to pay only $22,580.
Sackar J rejected Shannon’s arguments that CBA, through its receivers, breached section 420A of the Corporations Act 2001 (Cth) by failing to take all reasonable care to sell the property for not less than its market value (in particular by advertising the property as a “mortgagee sale”) for the following reasons:
- although the standard of care required by section 420A is more stringent than the general law obligation to act in good faith, CBA obtained an independent valuation and its advertising was widespread and appropriate; and
- advertising the property as a “mortgagee sale” was by no means an inappropriate or unacceptable approach for CBA to take as a strategy to maximise the sale price.
See the case.