Korda and Ors v Australian Executor Trustees (SA) Limited

The High Court of Australia considered an appeal by the Korda family (the appellants) against a decision of the Full Court of the Supreme Court of South Australia, which had affirmed a judgment in favour of Australian Executor Trustees (SA) Limited (the respondent). The dispute concerned the respondent's entitlement to recover moneys advanced by it to a company, Korda Industries Pty Ltd, which had been guaranteed by the appellants. The core of the dispute lay in whether the respondent had acted in breach of its duty as a mortgagee in possession of certain shares in Korda Industries Pty Ltd, which were also held as security for the loan.

The High Court was required to determine whether the respondent, in its capacity as mortgagee of the shares, owed a duty to the mortgagors (the appellants) to exercise its powers under the mortgage in good faith and for a proper purpose. Specifically, the Court had to consider whether the respondent's actions in appointing a receiver to Korda Industries Pty Ltd and subsequently selling the shares constituted a breach of any such duty, and if so, whether that breach discharged the appellants from their obligations under the personal guarantees.

The Court held that a mortgagee of shares, in exercising its powers of sale, owes a duty to the mortgagor to act in good faith and not to exercise its powers for a purpose other than that for which they were conferred. This duty is distinct from, and in addition to, any duty to take reasonable care to obtain a proper price. In this instance, the Court found that the respondent had not acted in bad faith or for an improper purpose in its dealings with the shares. The evidence did not support the appellants' contention that the respondent's actions were motivated by a desire to injure them or to gain some collateral advantage. Consequently, the respondent had not breached its duty as a mortgagee of the shares, and the appellants remained liable under their guarantees.

The appeal was dismissed.