In another case considering a mortgagee's equitable and statutory duties, the Court of Appeal recently considered a vendor mortgagee's duties on mortgagee sale, including the treatment of a forfeited deposit under a previous failed mortgagee sale in the decision of Coumat Ltd v Whitford Properties Ltd.
The subject property was originally owned by Whitford Properties Limited (now in receivership and liquidation) (WPL) and originally subject to a mortgage in favour of ANZ as mortgagee. WPL was incorporated by Mr Bruce and Mr Allen and the subject property was purchased with the intention of subdividing it for residential purposes. WPL fell into arrears with its mortgage repayments. The Bank, as mortgagee, attempted a mortgagee sale, but that sale didn't complete when the purchaser, Mr Allen, failed to settle. The deposit for the failed tender, funded by a Mr Hayhow, was forfeited to the Bank, which applied the deposit monies to WPL's indebtedness. A guarantor of the obligations of WPL to the bank, Mr Bruce, later acquired the mortgage by operation of section 102 of the Property Law Act 2007. Mr Bruce then carried out a mortgagee sale of the property to Coumat Limited (Coumat) as purchaser. Coumat was Mr Hayhow's company. Coumat didn't pay the whole purchase price for the property to Mr Bruce in cash, but rather Mr Hayhow's payment of the forfeit deposit to Mr Allen, and his forgiveness of a personal debt owing to him by Mr Bruce were treated as contributing to the purchase price. When WPL went into liquidation, the liquidator pursued a claim against Mr Bruce for breaching his duty to account to WPL for the proceeds of sale, and against Mr Hayhow and Coumat for dishonest assistance in breach of trust.
The Court held that section 185 Property Law Act required the Bank to account to WPL (as in fact it did) for the forfeited deposit, irrespective of who funded that deposit because section 185 is directed at proceeds "arising from the sale by a mortgagee of mortgage property". It did not matter that the sale didn't proceed to settlement. The Bank, in accepting the deposit in the name of Mr Allen as purchaser (and not on trust for Mr Hawhow) was under no obligation to return the deposit to either Mr Hayhow or Mr Allen when the purchase did not proceed. Mr Hayhow was then mistaken that he should be able to recover the deposit, not from Mr Allen, to whom he had loaned the money, but from WPL as a credit to the fair market value of the property then purchased by his company, Coumat. It followed that Mr Bruce had breached his mortgagee duty to account for the surplus proceeds from the mortgagee sale, insofar as he accepted a credit of funds owing from third parties as the deposit for the purchase of the property, which credit he did not make available to WPL.
See the full judgment here.