FSR Update - High Court Case Potentially Adverse To Financiers

In a unanimous decision on 13 October 2009, the High Court of Australia (regarding Ronald John Bofinger & Anor v Kingsway Group Limited, formerly Willis & Bowring Mortgage Investments Limited & Ors) allowed guarantors, who had provided guarantees to the first, second and third mortgagees involved in a property development project, the right to claim equitable compensation from the first mortgagee. This was as a result of the first mortgagee failing to account to the guarantors for the amounts they had paid to the first mortgagee in reduction of the borrower's facility, by transferring amounts recovered in excess of the first mortgagee's debt (and securities held from the borrower) to the second mortgagee rather than the guarantors. The outcome of the case was to place the guarantors in a secured position, ahead of the second and third mortgagees.