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Ruling clarifies mortgagee’s power of sale

Mr. Rigby along with Ms. Knowles recently participated in a significant case examining the duties of a mortgagee when exercising its power of sale over mortgaged property for one of Nassau’s leading financial institutions, First Caribbean International Bank.

The Bank applied for Summary Judgment against a mortgagor for monies outstanding representing principal and interest pursuant to a loan facility. The loan was secured by a mortgage over vacant land situate in the Adelaide Subdivision of New Providence. The Bank chose to exercise its power of sale while pursuing the action, and sold the mortgage property. The mortgagor alleged in affidavit evidence that the Bank was negligent in exercising its power of sale and in breach of its duties to the Defendant as mortgagor. The Borrower also raised allegations of fraud and collision on the part of the Bank. The Plaintiff, during the course of the proceedings, also entered into a sale for $200,000.00, albeit at the time of the closing of the Bank’s sale.

The Honourable Chief Justice, Sir Michael Barnett presided over the trial. In his ruling delivered on the 24th May, 2012 the Judge cited with approval the principles of law in the English Court of Appeal decision in Michael v Miler [2004] EWCA Civ 676, that a mortgagee is under a general duty to take reasonable care to obtain the best price reasonably obtained at the time. The Chief Justice also referred to the Australian Court of Appeal’s ruling in Upton v Tasmanian Perpetual Trustees Ltd (2007), describing the duty to act in good faith:

“It is apparent from the passage cited from Kennedy v De Trafford [1897] AC 180 above that the equitable duty is expressed to have regard to the “interests of the mortgagor’, as an incident of good faith. The mortgagee was not to willfully or recklessly deal with the property ‘in such a manner that the interests of the mortgagor are sacrificed. Brennen J observed in CAGA v Nixon 152 CLR at 525 that, stated in that way, the duty acknowledges the mortgagee’s interests as the primary interest which the power of sale is conferred to protect. It does not require the mortgagee to act in protection of the interests of the mortgagor, unless the mortgagee’s failure to do so would be fraudulent or would amount to a willful or reckless sacrificing of those interests.”

The Chief Justice, on the evidence, held the view that the Plaintiff acted in good faith when it entered into the sale with the third party for the mortgaged property and the price obtained was consistent with the information in its’ possession as to the market value of the property. Additionally, he accepted the Plaintiff’s evidence that the Bank through letters communicated to Defendant, his default and its intention to resort to legal or other remedies without further contact should the account not be brought current.

Sir Michael stated in the Ruling that “in evaluation the propriety of the conduct of a mortgagee in exercising its power of sale and its duty of care to a mortgagor, the court must in my judgment take into account the behavior of the mortgagor as well’.

This case clarifies the law relative to the mortgagee’s exercise of the power of sale and elaborates on the duty of the mortgagor.

Download: Power of Sale


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