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ARTICLE · 12 NOVEMBER 2009

Mortgagees Need To Beware Of Guarantors

Norton Rose Fulbright Australia
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The recent High Court decision in "Bofinger v Kingsway Group Limited" [2009] HCA 44 allowed the guarantors to claim equitable compensation from the first mortgagee and in so doing placed them ahead of the second and third mortgagees.

AustraliaFinance and Banking
Andrew Bretherton
Andrew Bretherton
Charlene Yuen
Charlene Yuen
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The recent High Court decision in Bofinger v Kingsway Group Limited [2009] HCA 44 allowed the guarantors to claim equitable compensation from the first mortgagee and in so doing placed them ahead of the second and third mortgagees.

The Facts

B & B Holdings Pty Ltd ("Borrower") carried on business as a real estate developer. The Borrower obtained finance from three lenders, all of whom took mortgages over the same real properties owned by the Borrower. A first ranking mortgage was granted to Kingsway Group Pty Ltd ("Kingsway"), a second ranking mortgage to Reckley Pty Ltd ("Reckley") and a third ranking mortgage to John Skehan ("Skehan").

Each of the three loans was guaranteed by Mr and Mrs Bofinger (the "Bofingers"), both were directors of the Borrower. Each guarantee was in turn secured by first, second and third mortgages over the family home and an investment unit owned by the Bofingers. The court made no reference to any priority or inter-creditor

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