When a mortgagee exercises its power to sell a mortgaged property, it must take reasonable care to obtain the best price reasonably obtainable at the time of sale. This duty is set out in section 176 of the Property Law Act 2007. But when does the duty apply, and what does it require of the lender in practice?
Sinclair v Metro Finance Ltd
The High Court’s recent decision of Sinclair v Metro Finance Ltd is a useful reminder of the scope of that duty and when it arises.
The case concerned a property owned by Port Whangarei Energy Limited, which was in receivership. The property was due to be sold at auction by Metro Finance on 9 October 2026.
Mr Sinclair, who had guaranteed the company’s mortgage obligations, applied to the Court for an interim injunction to stop the mortgagee sale by Metro Finance. With assessments of the property ranging from $1.5 million (forced-sale value) to $5.67 million (indicative selling price), Mr Sinclair was concerned that a sale price at the lower end could increase his personal liability under the guarantees.
The Decision
The Court declined to stop the sale. While section 176(1)(c) imposed a duty in favour of covenantors such as Mr Sinclair, the Court clarified, citing earlier authorities, that the duty was not one to preserve equity in the property, or even to recover what the property was worth. Rather, it was part of the overall duty to act in good faith, extending to those interested in ‘the equity of redemption’ (being the owner’s interest in the mortgaged property, including the right to repay the debt and hold the property free of the mortgage).
Further, the words “as at the time of sale” in the section were critical. The Court said those words meant that the duty did not extend to either the decision to sell or the sale’s timing. The mortgagee is entitled to decide those in its own interest. Metro Finance had reserved its decision to sell only on receipt of an offer clearing all secured debt. Thus, the Court found Mr Sinclair’s concerns were premature because no actual decision to sell had yet been made. As he was unsuccessful, Mr Sinclair was, in principle, liable to Metro Finance for costs.
As for the differing value assessments, the Court considered they were simply opinions of value, to be tested “in the real world of sale” and that discrepancies in assessments were only part of the commercial context against which compliance with the duty would be examined.
Scope and Relevance
The case serves as a useful reminder that the statutory duty to obtain the best price applies once the decision to sell is made. Challenging a mortgagee sale before then is likely to be premature.
Contact our experienced Disputes and Litigation specialists for advice on receiverships, liquidations and business disputes.
