Ronald John Bofinger & Anor v Kingsway Group Limited
Formerly Willis & Bowring Mortgage Investments Limited &
This recent unanimous decision of the High Court of Australia
highlights the need for mortgagees to carefully consider the terms
contained in their guarantees, as certain provisions can displace
priority arrangements between mortgagees in any enforcement action,
through rights of subrogation.
Mr Bofinger was the director of B&B Holdings Pty Ltd
(B&B), which was a real estate development
company operating in New South Wales. B&B obtained three
separate loans from three different financiers and provided
security to each financier in the form of a first, second and third
ranking mortgage over property owned by B&B (B&B
Property). A guarantee was also provided to each financier
by Mr and Mrs Bofinger which was supported by a mortgage over
property which Mr and Mrs Bofinger owned together (Bofinger
B&B defaulted on the repayment of its loans. To reduce the
debt owed to the first mortgagee, the Bofinger Property was sold
with the consent of the second and third mortgagees. The first
mortgagee then took enforcement action against some of the B&B
Property to recover the remainder of the outstanding debt in
The surplus amounts from the sale of part of the B&B
Property were then given to the second mortgagee, to be applied in
reduction of amounts owed by B&B to the second mortgagee.
Mr and Mrs Bofinger, as guarantors, brought proceedings to the
New South Wales Supreme Court claiming that the first mortgagee
should have provided the surplus money from the sale of part of the
B&B Property to them so they could recoup what they had paid
off the debt owed by B&B to the first mortgagee through the
sale of the Bofinger Property.
The claim put to the court was that the first mortgagee had
acted in breach of a constructive trust arising in equity in favour
of Mr and Mrs Bofinger as guarantors and that as a result of this
failure to account to them as beneficiaries, the first mortgagee
had acted in breach of trust.
The New South Wales Supreme Court dismissed this claim as did
the Court of Appeal.
Mr and Mrs Bofinger then appealed to the High Court of
The High Court of Australia found in favour of Mr and Mrs
Bofinger noting the surplus money should have be given to them
because they were entitled to be subrogated to the rights of the
first mortgagee, in priority to the second mortgagee.
As a result of this decision, a mortgagee may have to account to
a guarantor for amounts exceeding the full amount of the debt where
the guarantor has made a contribution in reduction of amounts owing
to the mortgagee.
Mr and Mrs Bofinger were still liable to the second mortgagee
and the third mortgagee however, their obligations to the second
and third mortgagee were now unsecured as both the second and third
mortgagee had released their mortgages over the Bofinger Property
to effect the sale of these properties in reduction of debt owed by
B&B to the first mortgagee.
It would be difficult for the second or third mortgagee to
complain in these circumstances, as each took their subsequent
interest with notice.
As a result of this decision, mortgagees need to consider:
the rights of any guarantors in any enforcement or recovery
action, particularly where a guarantor has contributed to the
repayment of a mortgagee's debt
whether the terms of a guarantee are broad enough to exclude or
limit subrogation through mechanisms such as a 'no
whether mortgagees need to draw up further agreements in any
work out arrangement or enforcement action in order to better
protect their position and exclude or limit rights of subrogation
to avoid the risk of displacing priority arrangements
carefully, the disbursement of surplus proceeds - obtain
consent or ensure there are no competing interests.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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