Smorgon v Australia and New Zealand Banking Group Ltd

Smorgon and others (the appellants) brought proceedings against Australia and New Zealand Banking Group Ltd (the respondent) concerning the respondent's conduct in relation to certain shares. The dispute arose from the respondent's actions as a mortgagee in possession of shares in a company, which the appellants alleged constituted a breach of duty. The matter was heard by Stephen J of the High Court of Australia.

The central legal issue before the court was whether the respondent, as a mortgagee in possession of shares, owed a duty of care to the mortgagor (the appellants) to exercise its powers of sale in a proper and reasonable manner. Specifically, the court had to determine the nature and extent of the duties owed by a mortgagee in possession of shares, particularly in relation to the timing and circumstances of any sale.

Stephen J reasoned that a mortgagee in possession of shares, while entitled to realise its security, is not at liberty to do so in a manner that is arbitrary or capricious. The court applied the principle that a mortgagee must act in good faith and with reasonable care in exercising its power of sale. This duty extends to taking reasonable steps to obtain a proper price for the mortgaged property, even if the mortgagee is not a trustee for the mortgagor. The court considered that the respondent's conduct in relation to the shares would be judged against this standard of reasonable care and good faith.