Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd

Artistic Builders Pty Ltd, the first mortgagee, brought a claim against Elliot & Tuthill (Mortgages) Pty Ltd, the second mortgagee, alleging breaches of statutory and common law duties in the sale of mortgaged property. The dispute was heard by the Federal Court of Australia. The case revolved around the duty owed by a mortgagee when exercising a power of sale, particularly whether this duty extends to subsequent mortgagees and how it is affected by the mortgagee's self-interested actions.

The primary legal issues were whether the first mortgagee owed a duty of care to the second mortgagee in the exercise of the power of sale and if this duty was breached by actions taken by the first mortgagee. Additionally, the case explored the implications of the first mortgagee seeking a personal advantage and the juristic foundation of the duty to act in good faith. The court also needed to determine the appropriate remedies for breaches of both common law and statutory duties under the Corporations Act 2001 (Cth).

The court found that the first mortgagee owed a duty to the second mortgagee, rooted in the equitable principle of acting in good faith when exercising the power of sale. The first mortgagee's deliberate actions to deter a serious potential purchaser from attending the auction amounted to a breach of this duty. The court further held that the statutory duty under section 420A of the Corporations Act 2001 (Cth) extended to the second mortgagee, who could seek remedies for the breach. Regarding remedies, the court ruled that an inquiry into damages was appropriate and that the second mortgagee could elect to seek either damages or an account of profits as a remedy under section 423 of the Corporations Act 2001 (Cth).

The court ordered a separate inquiry to determine the quantum of damages or profits, and it allowed the second mortgagee to choose between these remedies. The court also considered the appropriate form of order, deciding that an inquiry and account were suitable given the nature of the breaches found.