Bevham Investments Pty Ltd v Belgot Pty Ltd

High Court of Australia|1978-12-15|Before: Brennan JJ, Wilson JJ

High Court of Australia Gibbs C.J. Mason, Murphy, Wilson and Brennan JJ. Bevham Investments Pty Ltd v Belgot Pty Ltd [1982] HCA 45

Aug. 20 Gibbs C.J., Mason, Murphy and Wilson JJ.

Does s. 57(2)(a) of the Real Property Act 1900 N.S.W., as amended, ("the Act"), in the case of default by the mortgagor under a covenant to pay rates and taxes as they fall due, insist on the non-compliance with a notice which satisfies the prescriptions contained in s. 57(3) as a condition precedent to the exercise by the mortgagee of its power of sale? That is the issue in this appeal.

By a registered mortgage dated 15 December 1978 the respondent mortgaged its property at Coffs Harbour to the appellant to secure the repayment of principal and interest. The principal under the mortgage was $400,000, repayable by an instalment of $100,000 on 18 December 1980 and by a further payment of $300,000 on or before 18 December 1982. Interest of 12 per cent per annum was payable by equal half yearly payments on 18 June and 18 December commencing 18 June 1979.

Clauses 4, 5 and 7 of the mortgage, to the extent to which they are material, provide:

Fourthly - That the mortgagor will during the continuance of this security pay all rates, taxes, charges, outgoings, and assessments (including any land or property tax) that may now or at any time be or become payable or become chargeable or be assessed or become due upon or in respect of the said mortgaged land or any part thereof, under or in pursuance of the provisions of any Act or Ordinance of the Commonwealth of Australia or the State of New South Wales, or any regulations thereunder now in force or that may come into operation during the continuance of this security, and will at all times indemnify and keep indemnified the mortgagee from the payment of such rates, charges, outgoings, and assessments, and every or any part thereof, and from all claims and demands in respect thereof

Fifthly - That in case the mortgagor shall at any time fail to pay such rates, taxes, charges, outgoings, and assessments as aforesaid or any part thereof it shall be lawful for but not obligatory upon the mortgagee to pay such rates, taxes, charges, outgoings, and assessments or part thereof as the case may be and all moneys or payments so expended or made shall be repayable by the mortgagor upon demand and be deemed principal moneys covered by this security and shall carry interest until such repayment at the rate of Twelve dollars ($12.00) per centum per annum.

Seventhly - That upon default being made in payment at the respective times and in the manner hereinbefore mentioned of the principal sum or any part thereof, or of the interest thereon or any part thereof, or upon default being made in the observance or performance of any of the covenants herein contained or implied by the Real Property Act, 1900, or the Conveyancing Act, 1919, the mortgagee shall (notwithstanding any omission, neglect or waiver of the right to exercise all or any of such powers on any former occasion) be at liberty to exercise all or any of the powers of a mortgagee under the said Acts immediately upon or at any time after default as hereinbefore mentioned, without the necessity of giving the mortgagor any notice whatsoever required by the said Acts or otherwise. And that if at any time default shall be made in the due payment of the interest on any of the days when the same respectively shall become payable or within the time thereafter hereinbefore mentioned, or if the power of sale given to the mortgagee under either of the said Acts shall become exercisable, then the principal sum shall immediately become due and the mortgagor will thereafter pay the same on demand.

It is common ground that the mortgagor made a number of defaults under the mortgage, including the failure to pay principal and interest due on 18 December 1980, the failure to pay any municipal rates levied by the Coffs Harbour Shire Council in respect of the mortgaged land since the execution of the mortgage and the failure to pay any land tax in respect of the mortgaged land for the years 1979 and 1980. However, the appellant did not itself pay the rates and land tax with the result that no obligation to repay under cl. 5 arose on the part of the respondent.

By letter dated 6 January 1981 the appellant's solicitor required payment of the whole principal sum pursuant to cl. 7 of the mortgage within fourteen days after which he claimed that the appellant would exercise its power of sale. No payment was made. No notice under s. 57(2) of the Act was served on the respondent.

The respondent issued a summons claiming an injunction restraining the appellant from exercising its power of sale and a declaration that the appellant was not at liberty to exercise that power.

(2) A registered mortgagee or chargee may, subject to this Act, exercise the powers conferred by section 58 if -

(a) default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest, annuity, rent-charge or other money the payment of which is secured by the mortgage or charge or of any part of that principal, interest, annuity, rent-charge or other money;

(ii) the default does not relate to that payment and notice or lapse of time has not been dispensed with under section 58A,

a written notice that complies with subsection (3) has been served on the mortgagor or charger in the manner authorised by section 170 of the Conveyancing Act, 1919; and

(c) where such a notice is so served, the requirements of the notice are not complied with within the time notified pursuant to subsection (3)(d).

Section 58 confers a statutory power of sale. Section 58A(1) provides that the parties may, by agreement expressed in the mortgage or charge, dispense with any notice or lapse of time prescribed by s. 57, except notice or lapse of time relating to defaults of the kind referred to in the second limb of s. 57(2)(a), i.e., "default in the payment, in accordance with the terms of the mortgage or charge, of any principal, interest, annuity, rent-charge or other money". The sub-section goes on to provide that, where notice or lapse of time is dispensed with, s. 58 "shall operate as if no notice or lapse of time were thereby required".

The effect of s. 57(2)(b) when read with s. 58A is that notice and lapse of time relating to a default in the payment of the prescribed moneys cannot be dispensed with. Consequently, s. 57(2)(b) and s. 58A(1) make ineffective that part of cl. 7 which states that the appellant may exercise its power of sale "without the necessity of giving the mortgagor any notice whatsoever", to the extent to which cl. 7 is intended to apply to defaults of the kind mentioned in the second limb of s. 57(2)(a). Moreover, s. 57(5) provides that a covenant whereby upon a default referred to in s. 57(2)(a) "the whole of the principal or other money of which the payment is secured by a mortgage or charge becomes payable", i.e., cl. 7 in the present case, has no force or effect until the powers conferred by s. 58 become exercisable by reason of that default.

The primary judge, Rath J., held that payments of rates and land tax fall within the second limb of s. 57(2)(a), following a dictum of Hutley J.A. in Morrisey v. Bright [1] . There his Honour said [2] :

It was also submitted that the default in the payment of rates was in the same position, in that it was not a default in the payment of "other money", payment of which is secured by the mortgage. I am unable to agree. Payment of rates is effected by money and, as the mortgage contains a covenant to this effect, this payment is secured by the mortgage. A covenant is itself a security: Redgrave v. Redgrave [3] , and a covenant to pay rates is, in my opinion, a covenant secured by the mortgage, and is an instance of the "other money" referred to in ss. 57(2) and 58A(1): cf. English Scottish and Australian Bank Ltd. v. Phillips [4] . Applying this view, the primary judge held that the appellant's failure to give notice to the respondent pursuant to s. 57(2)(b) was fatal to its intention to exercise its power of sale. An appeal to the Court of Appeal was dismissed [5] . From that decision the appellant now appeals to this Court. 1. [1978] 2 N.S.W.L.R. 1. 2. [1978] 2 N.S.W.L.R., at p. 7. 3. (1951) 82 C.L.R. 521, at p. 530. 4. (1937) 57 C.L.R. 302, at p. 321. 5. [1982] 1 N.S.W.L.R. 120.

In the Court of Appeal the appellant argued that the rates and unpaid land tax were not "other money", as well as arguing that, if they were, payment of them is not "secured by the mortgage". In this Court the main thrust of the appellant's submission is directed to the second of these points.

One of the central features of a mortgage is that it provides security for the performance of an obligation. As Lindley M.R. observed in Santley v. Wilde [6] , when discussing a common law mortgage, "a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given". In the context of a mortgage or charge security is constituted by the specific appropriation of property to the satisfaction of a debt or obligation which becomes a primary charge on the property.

In many situations the word "secure" is apt to include personal security (Redgrave [7] , per Dixon, Williams and Webb J.; see also Batchelor & Co. Pty. Ltd. v. Websdale [8] , per Sugerman J.). However, in a reference to money the payment of which is secured by a mortgage, in the absence of a constraining context, there is much to be said for the view that the word "secured" should generally be understood as "secured over property".

(1951) 82 C.L.R., at p. 530. 2. (1962) 63 S.R. (N.S.W.) 49, at pp. 51-53.

Indeed, this seems to be the sense which the word "securing" bears in the definitions of charge and mortgage in s. 3(1) of the Act, viz.:

"Charge" - Any charge on land created for the purpose of securing the payment of an annuity, rent-charge or sum of money other than a debt.

"Mortgage" - Any charge on land created merely for securing the payment of a debt.

The same idea is expressed in the definition of Mortgage and mortgage-money in s. 7(1) of the Conveyancing Act 1919 N.S.W., as amended.

Section 60 of the Act, which regulates the mortgagee's right to enter into possession on default, proceeds according to the traditional conception of a mortgage and charge. It enables the mortgagee or chargee upon default in payment of any principal, interest, annuity or rent-charge secured by the mortgage or charge - there being no mention of "other money" - to enter into possession by receiving rents and profits or bring proceedings for possession in the same manner as "if the principal sum, interest, annuity, or rent-charge were secured by a conveyance of the legal estate". Section 58(3), which provides for the appropriation of the proceeds of sale after exercise of the power of sale, stipulates that they shall be applied, first, in payment of the expenses of sale, "secondly, in payment of the moneys which may then be due or owing to the mortgagee or chargee; thirdly, in payment of subsequent mortgages or charges" with the surplus to be paid to the mortgagor or charger. Section 61(1) provides for an application for an order for foreclosure when "default has been made in the payment of the interest or principal sum secured by a mortgage for six months", but makes no reference to the other obligations mentioned in the second limb of s. 57(2)(a). And s. 65(2) provides that upon registration of a discharge of mortgage or charge the mortgaged or charged estate or interest shall "cease to be charged with any moneys secured by the mortgage or charge".

All these provisions are consistent with the view that the payment of rates and taxes is not secured by the mortgage until, by virtue of payment by the mortgagee in the event of default, they are added to the principal sum. They conform to the appellant's argument that the words in the second limb of par. (2)(a) look to "mortgage-moneys", or more precisely, to the moneys the subject of the principal obligation to which the security afforded by the mortgage or charge is accessory. The appellant draws a distinction between those obligations which are covered by the security in the sense that the mortgage or charge specifically provides for their satisfaction out of the property which is the subject of the mortgage or charge and those obligations which are merely the subject of a personal covenant and are not secured on the property in the sense described. The mortgagor's obligation to pay rates and land tax illustrates the distinction. It is the subject of a personal covenant and is not secured on the property. Until the appellant pays the rates and land tax, which the respondent has neglected to pay, the moneys in question are not covered by the security. Once the appellant pays them, they are added to the principal moneys secured by the mortgage pursuant to cl. 5. Before that event takes place they are not within the second limb; after that event they are within it. That is how the argument runs.

As an element in the argument, or perhaps as an alternative to it, it is urged that "other money" should be read ejusdem generis with the antecedent words. Such a construction is consistent with an intention to distinguish between obligations the payment of which is secured on the mortgaged property and obligations undertaken by the mortgagor with the object of preserving the value of the security, e.g., covenants to repair, to keep up insurances, to pay rates and taxes.

On this argument, the expression "other money", is designed to overcome the limitations inherent in the preceding words. Thus, "principal" suggests a loan, and "other money" provides for pecuniary liabilities of other kinds, e.g., under a guarantee. Perhaps also it was intended to embrace situations similar to that in Santley where the mortgage of the lease secured not only the repayment of a loan of £2,000 but also the payment of one third of the net profits from underleases. The decision in Santley [9] was criticized by Lord Macnaghten and Lord Davey in Noakes & Co. Ltd. v. Rice [10] on the ground that it involved a clog on the equity of redemption. What is more it may be inconsistent with Fairclough v. Swan Brewery Co. Ltd. [11] . But the arrangement in Santley could have been structured so as to avoid that objection. The case shows that the expression "other money" is apt to denote a sum of money, not being the loan or interest on the loan, which the mortgagor agrees to pay to the mortgagee.

[1899] 2 Ch. 474. 2. [1902] A.C. 24, at pp. 31-32, 33. 3. [1912] A.C. 565.

The alternative view of s. 57(2)(a), and the one which we prefer, is that the draftsman drew a distinction between pecuniary obligations, whose payment is secured by the mortgage (the second limb), and other obligations (the first limb). Notice is required to be given of any default in relation to a pecuniary obligation so that the mortgagor may discharge the obligation in the time allowed, but notice may by agreement be dispensed with in the case of default in the performance of other obligations, which are necessarily of a different character.

There is no compelling reason to read "other money" as applicable only to moneys which are payable to the mortgagee, particularly having regard to the inclusion of "annuity" and "rent-charge" in the same phrase, words which clearly embrace the concept of payments to a third party. Indeed, the general policy underlying the statutory provisions, that of protecting the mortgagor by ensuring that he is given adequate notice so as to enable him to remedy a default, suggests that the generality of the language should not be confined. To draw a distinction between pecuniary defaults, of which notice must be given, and non-pecuniary defaults, notice of which may be dispensed with, makes good practical sense and affords greater protection to the mortgagor, thus conforming to the general object of the statutory provisions.

Mr. Hely, for the respondent, gives emphasis to the fact that we are concerned, not with "other money secured by the mortgage", but with "other money the payment of which is secured by the mortgage". The payment of rates and land tax is "secured by the mortgage" because (1) there is a personal covenant by the mortgagor in the mortgage to pay them, which gives the mortgagee a personal remedy which he otherwise lacked; (2) breach of the covenant may result in the whole of the principal and interest becoming payable; and (3) the mortgage enables the mortgagee by paying the rates and land tax to make them effectively principal moneys which are then "secured" in the strict sense of that term on the property.

In our opinion, Mr. Hely's argument should be accepted. It is correct to describe the obligation to pay rates and taxes as "other money the payment of which is secured by the mortgage". In Mathieson v. Mercantile Finance and Agency Co. Ltd. [12] Higinbotham C.J. expressed the opinion that the word "secured" in s. 84 of the Transfer of Land Statute 1866 Vict. dealing with mortgages referred both to the security created by the covenant to pay principal and interest and also to the security in respect to the land itself, which came into existence under the statute only when the deed was registered. a'Beckett and Hodges JJ. concurred in the result. The decision supports the conclusion reached by the Court of Appeal in the present case, although, as we have shown, there are factors additional to the personal covenant which sustain the Court of Appeal's conclusion.

This construction of s. 57(2)(a) gives to the expression "secured by" a meaning which differs from the content of "securing" in the statutory definitions of "Charge" and "Mortgage". However, it does not result in a disconformity. In one case it is a matter of interpreting an expression in the light of a statutory policy designed to protect a mortgagor by ensuring that he receives notice of default; in the other it is a matter of giving effect to a definition which reflects the traditional conception of a mortgage or charge. The existence of a difference between the two produces no untoward consequences.

It must also be remembered that the purpose for which a mortgage or charge is created supplies the context for the word "securing" in the definition of those terms. It may be difficult, if the same context were imported into s. 57(2)(a), to conceive of circumstances when the purpose of creating a mortgage would be to secure the payment of "other money" to a third party. On the other hand, there is no difficulty in conceiving of circumstances when a collateral obligation to pay "other money" to a third party is secured by a mortgage created for the primary purpose of securing the payment of a debt. It is to cover this situation, perhaps among others, that s. 57(2)(a) speaks of "other money the payment of which is secured by the mortgage or charge".

We do not find it necessary to discuss the significance of the reference in the definition of "Mortgage" to "merely for securing the payment of a debt" and to the corresponding exclusion in the definition of "Charge" of "a debt" from a "sum of money". Nor is there any need to discuss Mahoney J.A.'s view that s. 58(3) is not a comprehensive statement of the legitimate modes of appropriation of the proceeds of sale obtained after exercise of the statutory power of sale, though we are inclined to think that, even after exercise of the power of sale, the mortgagee is entitled to pay unpaid rates and taxes and then apply the proceeds of sale "in payment of the moneys which may then be due or owing" to him, in accordance with s. 58(3). The moneys then owing will include the amount which the mortgagee paid for unpaid rates and taxes. Indeed, in a practical sense, the process of sale would require the payment of rates and taxes which would then constitute a statutory charge on the land in question.

The respondent, the registered proprietor under the Real Property Act 1900 N.S.W. ("the Act") of an estate in fee simple of a parcel of land at Grafton Crescent, Coffs Harbour, mortgaged it to the appellant to secure the repayment of a loan of $400,000 and the payment of interest on moneys lent at the rate of 12 per cent per annum. The mortgage was registered. The principal sum was repayable as to $100,000 on 18 December 1980, and as to $300,000 on or prior to 18 December 1982. Default was made in repaying the $100,000 due on 18 December 1980.

The mortgagor defaulted also in the due payment of rates and land tax which it had covenanted to pay by cl. Fourthly of the memorandum of mortgage. By that clause, the respondent covenanted, inter alia, to -

pay all rates, taxes, charges, outgoings, and assessments (including any land or property tax) that may now or at any time be or become payable or become chargeable or be assessed or become due upon or in respect of the said mortgaged land or any part thereof, under or in pursuance of the provisions of any Act of the State of New South Wales, or any regulations thereunder now in force or that may come into operation during the continuance of this security, and will at all times indemnify and keep indemnified the mortgagee from the payment of such rates, charges, outgoings, and assessments, and every or any part thereof, and from all claims and demands in respect thereof In breach of this covenant, the mortgagor failed, prior to 14 April 1981, to pay any amount in respect of municipal rates assessed in respect of the subject land which fell due for payment in the months of May 1979, May 1980 and May 1981 or any amount in respect of land tax assessed for the years 1979 and 1980. However, on 14 April 1981, it paid all outstanding rates and taxes. If that payment had not been made, the rates and land tax might have been paid by the mortgagee and the payments so made might have been deemed to be principal pursuant to cl. Fifthly - That in case the mortgagor shall at any time fail to pay such rates, taxes, charges, outgoings, and assessments as aforesaid or any part thereof it shall be lawful for but not obligatory upon the mortgagee to pay such rates, taxes, charges, outgoings, and assessments or part thereof as the case may be and all moneys or payments so expended or made shall be repayable by the mortgagor upon demand and be deemed principal moneys covered by this security and shall carry interest until such repayment at the rate of Twelve dollars ($12.00) per centum per annum.

On 6 January 1981 the mortgagee gave notice requiring repayment of the whole principal sum forthwith, in reliance upon cl. Seventhly -

That upon default being made in payment at the respective times and in the manner hereinbefore mentioned of the principal sum or any part thereof, or of the interest thereon or any part thereof, or upon default being made in the observance or performance of any of the covenants herein contained or implied by the Real Property Act, 1900, or the Conveyancing Act, 1919, the mortgagee shall (notwithstanding any omission, neglect or waiver of the right to exercise all or any of such powers on any former occasion) be at liberty to exercise all or any of the powers of a mortgagee under the said Acts immediately upon or at any time after default as hereinbefore mentioned, without the necessity of giving the mortgagor any notice whatsoever required by the said Acts or otherwise. And that if at any time default shall be made in the due payment of the interest on any of the days when the same respectively shall become payable or within the time thereafter hereinbefore mentioned, or if the power of sale given to the mortgagee under either of the said Acts shall become exercisable, then the principal sum shall immediately become due and the mortgagor will thereafter pay the same on demand. The default condition of this clause was satisfied by the mortgagor's failure to repay the $100,000 principal due on 18 December 1980, by its failure to pay rates and by its failure to pay land tax. The mortgagee was thus at liberty to exercise such power of sale as the Act conferred in the circumstances. A power of sale is conferred upon a mortgagee by s. 58 of the Act where a mortgagee is authorized by s. 57(2) to exercise the powers conferred by s. 58. To forestall the purported exercise of the mortgagee's power of sale and its exercise of the other powers referred to in cl. Seventhly (and in particular the mortgagee's right to demand accelerated repayment of the whole of the principal), the mortgagor commenced the present proceedings on 24 March 1981. It argued that in the absence of a notice of default complying with sub-s. (3) of s. 57, the mortgagee was not presently entitled to exercise the power of sale conferred by s. 58. The argument succeeded. A declaration was made by Rath J. that the mortgagee was not presently entitled to exercise the power of sale conferred by s. 58 and an injunction was granted to restrain it from exercising that power. An appeal was dismissed by the Court of Appeal, and this appeal is brought from that judgment.

Authority is given to a registered mortgagee or chargee to sell mortgaged property under s. 58 in the circumstances set out in s. 57(2). That sub-section is quoted in the reasons published by the other members of the Court.

Although no written notice complying with sub-s. (3) and satisfying par. (b) of s. 57(2) had been given, the mortgagee submitted that par. (b) had been satisfied nevertheless, because the default in paying rates and land tax did not relate to a payment which is secured by a mortgage or charge and notice of default had been dispensed with in conformity with s. 58A. Section 58A(1) provides:

Any notice or lapse of time prescribed by section 57 (not being notice or lapse of time relating to default in the payment, in accordance with the terms of the mortgage or charge, of any principal, interest, annuity, rent-charge or other money) may, by agreement expressed in the mortgage or charge, be dispensed with, and in such case section 58 shall operate as if no notice or lapse of time were thereby required. Clause Seventhly expressed an agreement dispensing with "the necessity of giving the mortgagor any notice whatsoever" and the question is whether the exception set out in s. 58A nevertheless operates to require a notice of default to be given where the default consists in a failure to pay rates or land tax. The mortgagor submits that a default in the payment of rates and land tax is a default in the payment of "other money" as that phrase is used in s. 58A, that is to say, "other money the payment of which is secured by the mortgage or charge" (s. 57(2)(a)). If that submission be right, the absence of a notice denies the existence of the mortgagee's power of sale. And if the power of sale did not become exercisable the provision in cl. Seventhly for the accelerated payment of principal did not come into operation. Indeed, if that provision had been expressed to come into operation before the power of sale had become exercisable, s. 57(5) would have deprived it of force and effect.

To construe the critical phrase "secured by the mortgage or charge" it is desirable to begin with the relevant statutory definitions. By s. 3(1) of the Act, "Mortgage" is defined to mean -

Any charge on land created merely for securing the payment of a debt. And "Charge" is defined to mean - Any charge on land created for the purpose of securing the payment of an annuity, rent-charge or sum of money other than a debt.

In either case, the payment of the particular pecuniary liability is secured by a charge upon the land. But the payment of rates or land tax is not secured in this way by the mortgage. Rates are due and payable to a local authority (Local Government Act 1919 N.S.W., s. 143); land tax is due and payable to the Crown (Land Tax Management Act 1956 N.S.W., ss. 39(1), 42(1)). Neither the rights of a local authority nor the rights of the Crown are enhanced by a mortgage containing covenants such as those contained in cll. Fourthly and Fifthly. The payment of rates is secured by a charge upon land, but that charge is created by s. 152 of the Local Government Act; the payment of land tax is secured in like manner by s. 47 of the Land Tax Management Act. Both charges took priority over the charge created by the mortgage. Thus the payment of rates and the payment of land tax are secured by a charge upon land created not by the mortgage but by the respective statutes.

The payment of a debt owed to a third party is not secured by a charge upon land under the Act given to a mortgagee. The exercise by a mortgagee of his powers or rights over or in respect of mortgaged land does not make good a mortgagor's failure to pay a debt owed to a third party. If a mortgagee of land under the Act were to sell the land in exercise of the power of sale conferred by s. 58, sub-s. (3) of s. 58 would not authorize the application of the purchase money arising from the sale to a third party creditor in order to discharge that debt, notwithstanding that the mortgagor had covenanted to pay it. Of course, the mortgagee in the present case was entitled, if it chose, to pay the rates and land tax due and unpaid by the mortgagor and, in that event, to add the amount paid to the principal sum and thus to have the payment of that amount secured. But what is thus secured is not the payment of the rates or land tax but repayment of the amount which the mortgagee expended in paying the rates due to the local authority or the land tax due to the Crown.

Though the mortgagee was not the creditor to whom rates and land tax were payable, it was the obligee entitled to the discharge of the mortgagor's obligation to pay those amounts. Does it matter then that the mortgage does not provide for payment of rates or land tax to be enforced against the mortgaged land? It may be argued that the personal covenant to discharge the obligation is sufficient to constitute the security required by s. 57(2), for a personal covenant has been held to be a security: see Redgrave v. Redgrave [13] ; Independent Television Authority and Associated Rediffusion Ltd. v. Inland Revenue Commissioners [14] .

(1951) 82 C.L.R. 521, at p. 530. 2. [1961] A.C. 427, at pp. 439, 442.

However a comparison of the kinds of payments specified in s. 57(2)(a) and the kinds of payments specified in the definitions of Mortgage and Charge in s. 3(1) makes clear, in my opinion, that the payments specified in s. 57(2)(a) are to be secured in the manner stated in the definitions, that is to say, by a charge on land. The phrase "secured by the mortgage or charge" in s. 57(2)(a) does not comprehend a security by way of personal covenant contained in a mortgage or charge, but means secured by a charge on land being a charge created by the mortgage or charge. So construed, the payment of rates and land tax is not "secured by the mortgage or charge".

The contrary view was adopted by Rath J. at first instance and by the Court of Appeal following a dictum of Hutley J.A. in Morrisey v. Bright [15] :

Payment of rates is effected by money and, as the mortgage contains a covenant to this effect, this payment is secured by the mortgage. A covenant is itself a security: Redgrave v. Redgrave [13] , and a covenant to pay rates is, in my opinion, a covenant secured by the mortgage, and is an instance of the "other money" referred to in ss. 57(2) and 58A(1): cf. English Scottish and Australian Bank Ltd. v. Phillips [16] . Rejecting the argument that a mortgagor's personal covenant may constitute the security required by s. 57(2), I am unable to agree with his Honour's construction. 1. [1978] 2 N.S.W.L.R. 1, at p. 7. 2. (1951) 82 C.L.R. 521, at p. 530. 3. (1937) 57 C.L.R. 302, at p. 321.

It follows that, in my opinion, default in payment of rates or land tax is not a default in a payment secured by a mortgage or charge for the purposes of s. 57(2), and a notice relating to such a default is not a notice "relating to default in the payment of other money" for the purposes of s. 58A. Accordingly, as s. 58A permitted dispensation with such a notice by agreement expressed in the mortgage or charge, cl. Seventhly was effective to dispense with notice in the present case. Section 58 operated "as if no notice were thereby required" (s. 58A(1)) and the power of sale became exercisable though no notice had been given.

At the time when the proceedings were commenced, the mortgagee was empowered to sell and, in the events which had happened, to demand accelerated repayment of the principal. The appeal should be allowed, and the summons dismissed.

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