Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq)

Latec Investments Ltd (Latec) and Hotel Terrigal Pty Ltd (in liquidation) were parties to litigation concerning the validity of a mortgage and subsequent sale of a hotel property. The dispute ultimately reached the High Court of Australia.

The High Court was required to determine whether the mortgage granted by Hotel Terrigal to Latec was valid, and if so, whether the subsequent sale of the mortgaged property by Latec to a related company, Arrow Creek Pty Ltd, was conducted in good faith and for proper value. The central question was whether the sale was a sham or a fraudulent transaction, rendering it voidable by the mortgagor.

The Court held that the mortgage was validly created. However, it found that the sale of the property by Latec to Arrow Creek was fraudulent and voidable. The reasoning was that Latec, as mortgagee, owed a duty to the mortgagor to exercise its power of sale in good faith and for a proper price. In this instance, the sale was conducted at a gross undervalue to a company controlled by Latec, indicating a lack of good faith and an intention to defeat the interests of the mortgagor. The principles of equity regarding the exercise of a power of sale by a mortgagee were central to this determination.

Consequently, the High Court ordered that the sale of the hotel property was voidable at the instance of Hotel Terrigal Pty Ltd (in liquidation).