Aquamore Credit Equity Pty Ltd (Aquamore) sued First on First Development Pty Ltd and its two guarantor directors Edgar Hung and Trevor Chappell for what Aquamore claimed was owing after the sale of a property that secured a loan facility of $8,925,000 advanced in 2016. The Property was at Blacktown and was sold by Aquamore for $10 million.
In the NSW Court of Appeal, (Hung v Aquamore Credit Equity [2022] NSWCA 272) for the debtor and the guarantors it was argued that Aquamore breached its duty in not selling the mortgaged property for the best price reasonably available. It was argued that the trial judge failed to give sufficient reasons for preferring the lesser valuation of the expert of Aquamore over the valuation evidence put forward in their case and that had the judge done this he would have found that Aquamore had breached its duty.
Before a mortgagee can exercise the power of sale under a mortgage in the case of a default in the payment of money a valid notice pursuant to section 57(2)(b) of the Real Property Act 1900 (NSW) must be served on the mortgagor. The trial judge found that the notice relied on by Aquamore was not valid and therefore the sale was not authorised. His Honour further held that the debtor had not proven that it had suffered any damage because of the unauthorised sale. This aspect of the judge’s findings was not appealed.
In relation to the claim of breach of duty on the sale the debtor and the guarantors relied on the general law that provides that a mortgagee must act with good faith when exercising the power of sale and section 420A of the Corporations Act 2001 (‘section 420A’). Section 420A provides as follows:
(1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a) if, when it is sold, it has a market value – not less than that market value; or
(b) otherwise – the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
Macfanlan JA referred to long standing authority that when considering a breach of the duty imposed by section 420A it is the process of sale that must be examined. A breach of duty is not established merely because the sale failed to sell for market value. It is the process to effect the sale that must be examined.
In the Aquamore case, there was no complaint about the process of the sale, the complaint in the Court of Appeal was that the trial judge was in error in preferring the valuation evidence of Aquamore over the valuation evidence of the debtor. Notwithstanding this the Court of Appeal examined the valuation evidence and held that it was open to the trial judge to find as he did.
The appeal by the borrower and guarantors was dismissed with costs.
