Huizhong Investment Group Pty Ltd v Westpac Banking Corporation Ltd and Ors

Supreme Court of NSW|2017-12-06|Before: Lindsay J

INTRODUCTION

In proceedings commenced by summons but proceeding on pleadings, with the plaintiff actively opposed by only the second and fourth defendants, questions have been stated, pursuant to rule 28.2 of the Uniform Civil Procedure Rules 2005 NSW, for separate determination.
The general issue underlying those questions is whether a second mortgagee of land registered under the Real Property Act 1900 NSW can, by invoking principles of subrogation, enforce a claim against parties who provided collateral securities in support of the mortgagor's obligations to the first (but not the second) mortgagee, by: 1. payment out of the first mortgage (registered dealing AG 523550) and taking a transfer of that mortgage (by registered dealing AJ492453) pursuant to sections 94-95 of the Conveyancing Act 1919 NSW and sections 51-52 of the Real Property Act 1900; 2. exercise of a power of sale to effect a sale of the unencumbered fee simple of the mortgaged property (the land known as 1-13 Parramatta Road, Annandale, in the State of NSW, being the land contained in Auto Consol 4909-78) under the second mortgage (registered dealing AG544792) via a transfer to the purchaser registered as dealing AK572743; 3. registration of dealings (AK572740 and AK572741 respectively) effecting a discharge of the first and second mortgages upon completion of the sale; 4. application of the proceeds of sale towards a reduction of debt secured by the second mortgage, and none at all towards payment of the first mortgage debt; and 5. calling on grantees of the first mortgagee's collateral securities to pay a demand for payment of the first mortgage debt made by the second mortgagee as transferee of the first mortgage.
If the sale proceeds were applied towards payment of the mortgage debts in their order of priority, the debt owed under the first mortgage would have been paid in full, effectively releasing the collateral securities from any exposure to a claim to meet that debt. However, the total debt secured by the two mortgages (or even that secured by the second mortgage on its own) could not be satisfied from the sale proceeds.

SEPARATE QUESTIONS FOR DETERMINATION

By an order made on 27 June 2017 and amended on 6 December 2017, and again on 19 September 2018, the Court ordered that the following questions be decided as separate questions in advance of any other questions for decision in the proceedings: 1. Did the plaintiff pay the first defendant the sum of $2,421,417.43 on or about 15 May 2015? 2. If the answer to question 1 is "yes", did the plaintiff in doing so pay out the amount owing under the Business Finance Agreement between the first and third defendants dated 23 August 2011 as amended from time to time ("Westpac Finance Agreement")? 3. If the answer to question 2 is "yes", was and is the plaintiff subrogated to the rights and interest of the first defendant in respect of all securities given to the first defendant by the second and third defendants as security for the Westpac Finance Agreement, including the following: 1. the Limited Guarantee and Indemnity granted by the second defendant in favour of the first defendant dated 1 November 2012? 2. the registered mortgage AH351465 over the property situated at 119-125 Parramatta Road, Camperdown, with folio reference 1/1158383, given by the second defendant in favour of the first defendant? 3. the General Security Agreement executed by the second defendant in favour of the first defendant ("GSA")? 4. the Fixed and Floating Charge granted by the third defendant in favour of the first defendant dated 6 September 2011? 1. If the plaintiff was subrogated in respect of some or all of the rights and interests against the second defendant described in question 3, did the plaintiff lose those rights against the second defendant by discharging or failing to preserve the benefit for the second defendant of the first mortgage? 2. The plaintiff (by dealing AJ492453) having taken a transfer of the first defendant's mortgage (dealing number AG523550) pursuant to sections 94-95 of the Conveyancing Act 1919 NSW, did sections 51 and 52 of the Real Property Act apply? 3. How, if at all, do sections 51 and 52 of the Real Property Act and the principle in Ghana Commercial Bank v Chandiram [1960] AC 732 at 745 (and related subrogation cases) interact?
Proceedings on these separate questions have been conducted on the basis that the Court's determination is to speak at the time of judgment. The ultimate question is not simply whether the plaintiff was subrogated to rights of the first defendant as at 15 May 2015, when it paid out the first mortgage. The ultimate question is whether the plaintiff is subrogated to those rights having regard to its discharge of the first mortgage and its purported appropriation of the proceeds of sale of the mortgaged property in reduction of second mortgage debt in the meantime. The parties have joined issue on whether the plaintiff is, in equity, entitled to claim rights of subrogation notwithstanding its discharge of the first mortgage and its appropriation of sale proceeds exclusively towards payment of second mortgage debt.
The primary relief claimed by the plaintiff in its further amended statement of claim filed 24 September 2018, dependent upon a favourable determination of the separate questions, is a declaration that the plaintiff "was and is subrogated to the rights and interests of the first defendant in respect of all securities given to the first defendant by the second and third defendants as security for the Westpac Finance Agreement".
Although the further amended statement of claim does not expressly so confine the plaintiff's case, implicitly the plaintiff seeks to recover from the second and third defendants (under collateral securities given in support of the first mortgage) the sum of $2,421,417.43 secured by the first mortgage at the time the first mortgagee was paid out by the plaintiff, together with an ongoing accrual of interest.
There is no basis, on the proper construction of the security documents, or in justice and good conscience, for attributing to the plaintiff an entitlement to recover, under securities collateral to the first mortgage, debt secured by the second mortgage. The first defendant's collateral securities were given in support of the first mortgage alone. They were not given in support of the second mortgage. Any entitlement the plaintiff might have to be subrogated to rights of the first defendant under the first mortgage is limited to enforcement of debt secured by the first mortgage, not including second mortgage debt.
When the plaintiff, on 22 January 2016, served on the third defendant a notice expressed to be pursuant to section 57(2)(b) of the Real Property Act in aid of enforcement of the first mortgage, the amount it required the third defendant to pay had risen to $2,499,512.85.
The plaintiff contends that the principal sum, and interest, secured by the first mortgage continues to be due under the first mortgage because, when (in mid 2016) it sold the mortgaged property, by exercise of a power of sale under the second mortgage, it apportioned the whole of the proceeds of sale to reduction of the third defendant's indebtedness under the second mortgage, without any reduction of the debt then due under the first mortgage.
By: 1. its claim to be subrogated to rights of the first mortgagee to enforce securities collateral to the first mortgage; 2. its sale of the unencumbered fee simple of the mortgaged property upon exercise of a power of sale under the second mortgage; 3. its claim of an entitlement to apply proceeds of sale exclusively in reduction of the third defendant's indebtedness under the second mortgage; and 4. its claim, via subrogation, to enforce rights of the first mortgagee under securities collateral to the first mortgage, notwithstanding its discharge of the first mortgage upon completion of its sale, the plaintiff seeks to recover (principally against the second defendant, but also, nominally, against the third defendant) the sum of $2,421,417.43 it paid to the first mortgagee in order to obtain a transfer of the first mortgage, together with interest accrued since that time under the first mortgage.
Whether it is entitled to do that is exposed for consideration by the separate questions stated for the Court's determination.
There is no dispute between the parties that, by virtue of the combined operation of sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act, upon sale of the mortgaged property the plaintiff was entitled to recover from the mortgagor (the third defendant) or to enforce against the mortgaged property, under the first mortgage, the amount of the debt secured by the first mortgage. The focus for attention is upon whether, having appropriated sale proceeds exclusively in reduction of debt under the second mortgage, the plaintiff is entitled to recover the first mortgage debt (with accrued interest) under securities collateral to the first mortgage.
The critically contested questions are those numbered 3, 4 and 6. The other questions, which are able to be answered uncontroversially, provide context for a determination of those questions.
Uncontroversially: 1. Question 1 must be answered "Yes". 2. Question 2 can best be answered as "As a matter of arithmetic, yes". 3. Question 5 must be answered "Yes".
The reference in the second of the separate questions to the "Westpac Finance Agreement" is a reference to the first defendant's loan agreement with the third defendant that led to the first mortgage (dated 6 September 2011 and registered as dealing number AG523550) granted by the third defendant in favour of the first defendant.
Between 31 August 2012 and 5 June 2014 or thereabouts the Westpac Finance Agreement was the subject of the five variations, one consequence of which was that the second defendant on or about 1 November 2012 provided the collateral securities referred to in Question 3(a)-(c) of the separate questions.
The plaintiff's second mortgage (also dated 6 September 2011, registered as dealing number AG544792) was accompanied by a deed (entitled "Subordination and Priority Deed") between the plaintiff, the first defendant and the third defendant in which the plaintiff acknowledged the priority of the first defendant's mortgage and (by clauses 5-6) agreed that its mortgage was unenforceable while ever any money remained owing to the first defendant under the first mortgage.
The existence of this deed (prudently required by the first defendant in agreeing to the grant of a second mortgage to the plaintiff) explains a commercial motivation of the plaintiff in paying out the first mortgage, and taking a transfer of the first mortgage: so that it could enforce its second mortgage, aided by control of any sale of the mortgaged property.
At the time of making the principal order for the determination of separate questions on 27 June 2017, the Court also made a formal notation to the effect that the plaintiff, the second defendant and the fourth defendant agreed, inter alia, that, if the separate questions are answered adversely to the plaintiff, the proceedings generally should be dismissed as against the second and fourth defendants.
Following a call by the Court for further submissions relating, inter alia, to the operation of sections 51 and 52 of the Real Property Act, the parties recast their pleadings and invited the Court to add questions 5 and 6 to the questions originally stated for determination.
The current pleadings comprise the plaintiff's further amended statement of claim filed 24 September 2018; the second defendant's further amended defence filed 25 September 2018; the fourth defendant's amended defence filed 27 September 2018; the plaintiff's reply filed 19 September 2018; and the second defendant's rejoinder filed 27 September 2018.
The first defendant filed a submitting appearance. The third defendant has filed no defence, and it has taken no active step in the proceedings beyond appearances at early directions hearings.

THE SUBROGATION PRINCIPLE AT PLAY

The principles of subrogation, applicable in a range of established cases, are not helpfully described simply as if a "right" to "subrogation" is available in the same sense as a "cause of action" recognised at common law: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [6].
In ATCO Controls Pty Ltd (In Liq) v Stewart [2013] VSCA 132; 31 ACLC 13-065 at [234]-[235] the Victorian Court of Appeal highlighted the equitable nature of principles of subrogation with the following observations (omitting footnoted citations to authority): "[234] Subrogation is an empirical doctrine, calling for the application of 'the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts'. It is a remedy which a court of equity will grant in order to prevent there being an unconscionable situation. It is an 'equitable remedy' which will not be granted as a right, but only where the circumstances make it appropriate to do so. The doctrine functions in a general way to avoid injustice. As Lord Salmon said in Orakpo v Manson Investments [1978] AC 95 at 110: 'The test as to whether the courts will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is, I think, impossible to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demand that it should be'. [235] The doctrine of subrogation is thus guided by the principle that equity ought to intervene to adjust the interests of the parties to avoid unconscionable results. As Gleeson CJ (as he then was) and Priestly JA (with Mahoney JA agreeing) said in Registrar General v Gill [1994] NSWCA 26: 'The equitable principles relating to subrogation aim to adjust the interests of three parties, such as a creditor, a debtor and an insurer or surety, in such a way as to avoid the unconscionable result of double recovery by the creditor or an inequitable discharge of the liability of the debtor'".
The (equitable) principle of subrogation invoked by the plaintiff is conveniently described, in a broader context, in the judgment of Santow JA (with which Hodgson JA agreed) in Highland v Exception Holdings Pty Ltd (In Liq) [2006] NSWCA 318; 60 ACSR 223; 24 ACLC 1576: "[90] Subrogation is a remedy that involves the substitution of one party for another with respect to rights against third parties. It is the "process by which one party is substituted for another so that he may enforce that other's rights against a third party for his own benefit" (Charles Mitchell, "The Law of Subrogation", 1994 at 3). [91] Subrogation may be of a contractual character (as where an insurance contract makes specific provision for subrogation between the insured and insurer) or, as here, of an equitable nature. As a creature of equity subrogation does not depend on contract (see for example Australasian Conference Assn Ltd v Mainline Constructions Pty Ltd (1978) 141 CLR 335 at 348). Nonetheless parties may contract on terms which exclude or modify what would otherwise be their equitable right of subrogation; see for example O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 at 213. If a party takes substitute security to that discharged, there is ordinarily no occasion for subrogation to operate. [92] Equitable subrogation may arise with respect to mortgage and security arrangements. It has been said that "[I]t is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit": Ghana Commercial Bank v Chandiram[1960] AC 732 at 745; Cochrane v Cochrane (1985) 3 NSWLR 403 at 405 (emphasis added). In Burston Finance Ltd v Speirway Ltd (in liq) [1974] 1 WLR 1648 Walton J described the typical case of subrogation in the following general terms (at 1652): "What is the basis of the doctrine of subrogation? It is simply that, where A's money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B's rights as a secured creditor…It finds one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he has advanced, and, for one reason or another, he does not receive the promised security." [93] The earlier emphasised words, while not repeated by Walton J in this necessarily general statement become relevant in the present case".
In the present proceedings, as in Highland v Exception Holdings Pty Ltd (In Liq), there is a focus on whether the intention of the third party who paid out a security is determinative of its claim to subrogation. In these proceedings, as in that case, there is also a focus on: (a) whether, in taking a transfer of the first mortgage, the plaintiff received all that it had bargained for; and (b) whether, in those circumstances, there is any occasion for the intervention of the Court by way of subrogation.
The Privy Council's statement of the equitable principle of subrogation relied upon by the plaintiff is expressed emphatically in the form of a rule, justified by reference to Butler v Rice [1910] 2 Ch 277: "It is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit: see Butler v Rice [1910] 2 Ch 277, 282, 283".
In Butler v Rice [1910] 2 Ch 277 at 282 Warrington J spoke in terms of a "well-known equitable doctrine that if a stranger pays off a mortgage on an estate he presumably does not intend to discharge that mortgage, but to keep it alive for his own benefit".
In elaboration of that "doctrine", his Honour dealt with two subsidiary questions, the only one of which is presently relevant was whether it was material that the owner of secured property (the mortgagor) had not requested the person who paid off a mortgage to make the payment. His answer to that question was as follows: "… this is not a case in which a person seeks to create a charge in his own favour. Here there was an existing charge, and the only question is whether it has been paid off or kept alive. On such a question as that it appears to me that the concurrence of the mortgagor is immaterial. Her position is not affected. The only alteration in her position is that instead of owing the money to A she will in future owe it to B".
Australian law does not follow recent English cases in locating the jurisprudential foundations for principles of subrogation in the law of restitution: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [6] and [85]-[98]. Nor is an actual or presumed intention on the part of the payer seen as conclusive: Challenger Managed Investments Ltd v Direct Money Corporation Pty Ltd [2003] NSWSC 1072 at [48]-[50]; Re Dalma No. 1 Pty Ltd (ACN 111 772 260) (In Liq) [2013] NSWSC 1335 at [32].
Australian Law finds a firmer foundation in prevention of: (a) conduct which is "unconscionable"(Cochrane v Cochrane (1985) 3 NSWLR 403 at 405B-E) or "unconscientious" (Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [8]); or (b) an "inequitable" outcome (Registrar General v Gill [1994] NSWCA 261; ATCO Controls Pty Ltd (In Liq) v Stewart [2013] VSCA 132; 31 ACLC 13-065 at [234]).
A payment out of a mortgage by a surety is treated differently from a payment out of a mortgage by a stranger. A surety who has paid the debt owed by the principal debtor to the secured creditor has a right (not in competition with the creditor) to the benefit of the remedies of the creditor: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [7]-[8]. A stranger who has paid the debt owed by a debtor to the secured creditor is entitled to a rebuttable presumption that the payer intends the creditor's securities to be kept alive for the payer's own benefit: Denis SK Ong, Ong on Subrogation (Federation Press, Sydney, 2014), page 162.
I accept as accurate the following observations of Windeyer J in Saffron Sun Pty Ltd v Perma-Fit Finance Pty Ltd (In Liq) (2005) 65 NSWLR 603 at [21]: "[21] Rights acquired by subrogation. The usual statement is that a person paying off a creditor in a case where subrogation comes into play, steps into the shoes of the creditor and becomes entitled to enforce all rights which the original creditor had prior to payment of that creditor's debt. Such rights are not limited to rights against the debtor; for instance the person subrogated to the right of the original creditor could take action against a guarantor to the original creditor of the obligations of that debtor…."
In Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489 at [69] Bryson AJ described "subrogation as a [well-established] principle which prevents a party from obtaining advantage at the expense of another which in the circumstances of the case is unconscionable, and in particular which keeps alive a security that has been paid out in favour of a lender who paid it out anticipating that like security would be forthcoming for himself".
His Honour's formulation of the equitable principle of subrogation reflects the exposition of the principle by Kearney J in Cochrane v Cochrane (1985) 3 NSWLR 403 at 405A-E (with emphasis added): "I have been referred in argument to the authorities bearing on subrogation, particularly in the case of payment out of securities. They are to be found in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 2nd ed (1984), pars 912 et seq at 256 et seq. These cases deal, of course, with the position of a third party paying off a mortgage. The principle emerging from the Privy Council decision in Ghana Commercial Bank v Chandiram [1960] AC 732 is that in such a case the third party is shall be [sic] kept alive for his benefit. This involves, of course, that in order to determine whether the presumption applies in any given case the circumstances of the case have to be looked at. I accept that in accordance with this principle, it must be shown that the circumstances are such as to displace such a presumption in the case of a third person. This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. As a corollary to this basis for the principle, there is no occasion for equity to intervene by way of subrogation where there is available to the third party a remedy at law or in equity sufficient to avoid an unconscionable result".
This approach was approved by the Court of Appeal in Highland v Exception Holdings Pty Ltd (In Liquidation) [2006] NSWCA 318; 60 ACSR 223; 24 ACLC 1576 at [102]-103] and [111]-[113].
In that case, the Court of Appeal also upheld the proposition that a third party lender who pays out a security may be held not entitled to subrogation if it has already obtained all the security bargained for: [2006] NSWCA 318 at [33], [89] and [111]-[113].

THE FACTUAL MATRIX

On or about 23 August 2011 the first defendant (as lender) and the third defendant (as borrower) entered into a loan facility (the Westpac Finance Agreement) for the purpose of development by the third defendant of the property known as 1-13 Parramatta Road, Annandale in the State of NSW ("1-13 Parramatta Road").
Pursuant to the Westpac Finance Agreement, security given to the first defendant (in support of the loan facility) on or about 6 September 2011 included the following: 1. the first registered mortgage over 1-13 Parramatta Road (AG523550) granted by the third defendant in favour of the first defendant. 2. a registered fixed and floating charge granted by the third defendant in favour of the first defendant. 3. a limited guarantee, a fixed and floating charge and a registered mortgage over a property known as 119-125 Parramatta Road, Camperdown, in the State of NSW granted by Schultz Properties Pty Ltd in favour of the first defendant.
On or about 6 September 2011 the third defendant also entered into a loan agreement with the plaintiff whereby the plaintiff advanced to the third defendant, for the purpose of the third defendant's development of 1-13 Parramatta Road, a sum (additional to that for which the Westpac Finance Agreement provided) secured by the second mortgage over 1-13 Parramatta Road (AG544792).
On or about 6 September 2011 the first defendant (as first mortgagee), the plaintiff (as second mortgagee) and the third defendant (as borrower and mortgagor under both mortgages) entered into a "Subordination and Priority Deed", the terms of which included: 1. consent on the part of the first defendant to the second mortgage (clause 1.1). 2. an agreement between the plaintiff and the first defendant that the first mortgage, and the fixed and floating charge granted by the third defendant in favour of the first defendant, had priority over the second mortgage (clause 2.1). 3. an agreement that the plaintiff could not enforce the second mortgage until the first defendant had been paid all moneys owed to it under the Westpac Finance Agreement (clauses 5.2 and 6).
On or about 25 October 2012, the Westpac Finance Agreement was varied, as a consequence of which the securities granted by the Schultz Properties Pty Ltd in favour of the first defendant in support of the third defendant's borrowings were released and, in substitution therefor, the second defendant (on or about 1 November 2012) granted to the first defendant: 1. a limited guarantee. 2. a mortgage (registered as dealing AH351465) over 119-125 Parramatta Road, Camperdown. 3. a registered general security agreement.
In default of its obligations to the plaintiff under the loan agreement between them, the third defendant on 6 November 2012 failed to repay the sum lent to it by the plaintiff.
On 10 March 2015, the plaintiff's solicitors wrote to the solicitors for the first defendant a letter, the substance of which comprised the following (with editorial adaptation): "As you are aware, we act for [the plaintiff] and write to you in your capacity as solicitors for [the first defendant]. [The plaintiff] holds a second ranking mortgage over the Security Property [that is, 1-13 Parramatta Road] registered number AG544792 which ranks immediately behind the mortgage granted in favour of [the first defendant] over the Security Property [1-13 Parramatta Road] registered number AG523550. [The plaintiff] hereby exercises its rights under Sections 94 and 95 of the Conveyancing Act to require [the first defendant] to transfer its mortgage to [the plaintiff] immediately. For this purpose, the term 'mortgage' has the meaning ascribed to it under the Conveyancing Act. Please let us know when [the first defendant] will be in a position to transfer its mortgage to [the plaintiff] and the amount required to be paid to [the first defendant] in exchange for the transfer. Pease also let us know a time and place where we may inspect the documents relating to [the first defendant's] mortgage".
Section 7 of the Conveyancing Act 1919 (to which this letter referred) defines "mortgage" as including "a charge on any property for securing money's worth…" .
On 26 March 2015 the third defendant commenced proceedings in this Court against the plaintiff and the first defendant seeking: (a) an order for the transfer of the first defendant's first mortgage to its nominee; and (b) an injunction restraining a transfer of that mortgage to the plaintiff.
Ball J dismissed those proceedings on 16 April 2015, determining that there was nothing to prevent the plaintiff from requiring the first defendant to transfer the first defendant's first mortgage to it, and that the right of the plaintiff to require the first defendant to transfer the mortgage took priority over any right which the third defendant had: [2015] NSWSC 419 at [25]-[26].
On 12 May 2015 the solicitors for the first defendant wrote the solicitors for the plaintiff a letter (not in evidence) to which the solicitors for the plaintiff responded on the same date, by two letters.
With editorial adaptation, the first of the plaintiff's solicitors' letters was, in substance, in the following terms: "… [The plaintiff] is able to, and will, attend completion of the requisitioned transfer of [the first defendant's] mortgage.… [and the plaintiff] will tender payment of the outstanding mortgage debt [claimed by the first defendant]. However, as previously indicated to you, [the plaintiff] is not prepared to grant an indemnity in favour of [the first defendant] as is currently contained in clause 5 of the proposed Deed of Assignment of Debt and Securities [required by the first defendant]. [The plaintiff] is not obliged to grant such an indemnity and it is not open to [the first defendant] to make the requisitioned transfer conditional on [the plaintiff] providing such an indemnity. [The first defendant] has a statutory obligation to transfer its mortgage to [the plaintiff] upon tender of the outstanding mortgage debt. [The plaintiff] remains willing to execute the proposed Deed of Assignment of Debt and Securities if clause 5 is deleted. If agreement cannot be reached on the terms of the proposed Deed of Assignment of Debt and Securities, the appropriate course is for [the first defendant] to comply with the requisition by transferring its registered mortgage over the property known as 1-13 Parramatta Road, Annandale ('Annandale Mortgage') by memorandum in accordance with section 91 of the Conveyancing Act 1919 (NSW), being relevantly in the form of Form 01TL (Transfer of Lease, Mortgage or Charge). Please confirm that, if [the first defendant] is not prepared to delete clause 5 of the proposed Deed, it will hand over a duly executed Form 01TL and the Certificate of Title for the Annandale land at completion. In the event agreement as to the proposed Deed of Assignment of Debt and Securities is not reached and [the first defendant] complies with [the plaintiff's] requisition by transferring the Annandale Mortgage in accordance with section 91 of the Conveyancing Act, as you know our client will be entitled upon payment of the mortgage debt to a transfer of the collateral securities held by [the first defendant] securing the mortgage debt. These collateral securities are listed in items B1 and B3-B6 of schedule 1 to the proposed Deed of Assignment of Debt and Securities. We invite [the first defendant] to hand over at completion such instruments as are necessary to transfer those securities to [the plaintiff] so as to avoid the need for [the plaintiff] to make a call for their transfer following payment of the mortgage debt. For the avoidance of doubt, we note that [the plaintiff] by paying off [the first defendant's] mortgage debt does not thereby intend to discharge the collateral securities held by [the first defendant] but intends to maintain those collateral securities for its own benefit. At the very least, [the plaintiff] expects and understands that it will be subrogated to [the first defendant's] rights under those collateral securities prior to, or in the event of any obstacle to, a transfer to it of the collateral securities". In their follow up letter of the same date, the solicitors for the plaintiff wrote to the solicitors for the first defendant in the following terms: "Further to our letter of this afternoon, we note that the references in that letter to section 91 of the Conveyancing Act were in error. The land in question being subject to the Real Property Act 1900 (NSW), the relevant statutory transfer provision is section 46 of the Real Property Act as amplified by sections 51 and 52 of that Act. The relevant document to give effect to the transfer of mortgage remains Form 01TL as referred to in our earlier letter".
Section 46(1) of the Real Property Act, the provision to which the solicitors for the plaintiff referred, is in the following terms (with emphasis added): "46 Transfers (1) Where land under the provisions of this Act [an expression defined by section 7(1) of the Act in terms broad enough to include a mortgage] is intended to be transferred, or any easement or profit à prendre affecting land under the provisions of this Act is intended to be created, the proprietor [an expression defined by section 7(1) in terms broad enough to include a mortgage] shall execute a transfer in the approved form".
Section 46(1) is predicated upon the existence of section 56(1) of the Real Property Act, which is in the following terms: "56 Lands under this Act: how mortgaged or encumbered (1) Whenever any land or estate or interest in land under the provisions of this Act is intended to be charged with, or made security for, the payment of a debt, the proprietor shall execute a mortgage in the approved form".
Sections 46, 51, 52 and 56 must be read with sections 36(9), 41(1), 42(1), 43(1), 43A(1)-(2) and 60 of the Real Property Act. Those provisions lie at the heart of the Torrens system of "title by registration" (Breskvar v Wall (1971) 126 CLR 376 at 385-386) and indefeasibility of title. So far as is material, they are in the following terms: "36 Lodgment and registration of documents (9) Dealings registered with respect to, or affecting the same estate or interest shall, notwithstanding any notice (whether express, implied or constructive), be entitled in priority the one over the other according to the order of registration thereof and not according to the dates of the dealings. 41 Dealings not effectual until recorded in Register (1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature. 42 Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded [subject to exceptions not presently material]. 43 Purchaser from registered proprietor not to be affected by notice (1) Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud. 43A Protection as to notice of person contracting or dealing in respect of land under this Act before registration (1) For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate. (2) No person contracting or dealing in respect of an estate or interest in land under the provisions of this Act shall be affected by notice of any instrument, fact, or thing merely by omission to search in a register not kept under this Act…."
By a letter dated 13 May 2015, the solicitors for the first defendant responded to the plaintiff's solicitors' letters of 12 May 2015 in the following terms (with editorial adaptation): "We refer to your letters of yesterday afternoon. [The first defendant] is unwilling to enter into the proposed Deed of Assignment of Debt & Securities (Deed) without the indemnity contained in clause 5. Accordingly, unless [the plaintiff] is willing to proceed with the deed in its present form, [the first defendant] will provide to you the following documents upon payment of the debt secured by registered mortgage No. AG523550 (Mortgage) at the settlement agreed for 3.00 tomorrow afternoon: 1. A transfer of the Mortgage in the form of the enclosed draft; 2. The original of the Mortgage; and 3. The certificate of title for [the mortgaged property, 1-13 Parramatta Road]. It is [the first defendant's] intention to hold the balance of the securities identified in Schedule 1 to the proposed Deed against the possibility of incurring further expenses which may be secured by the terms of those documents. However, it reserves the right to deal with those securities as it sees fit, including providing a discharge of them if called upon to do so. [The first defendant] does not agree that [the plaintiff] is entitled to an assignment of 'collateral securities' is upon payment of the debt secured by the Mortgage; nor that the authorities to which you have referred us support that proposition. [The plaintiff] is not in the position of a guarantor who is entitled to be subrogated to the position of a creditor holding securities upon full payment of the principal debt. Unless we hear from you to the contrary, we will prepare for settlement tomorrow on the basis that the proposed Deed will not be entered into by the parties and that [the first defendant] will provide to you the documents listed above upon receipt of a bank cheque drawn in the sum of $2,417,967.65".
The plaintiff "paid out" the first mortgage on 15 May 2015 (not 14 May 2015), taking a registrable transfer of the first mortgage (which became dealing number AJ492453) but no documentation effecting a transfer of rights referable to the collateral securities held by the first defendant as first mortgagee. The plaintiff (by its solicitors) and the first defendant (itself) exchanged correspondence on that date which, in terms, confirmed the sum of $2,421,417.43 as the amount owed, and paid, to the first defendant.
The Transfer of the first mortgage to the plaintiff (dealing number AJ492453) was registered on 18 May 2015.
By exchanges of correspondence between their respective solicitors in early September 2015, the plaintiff asserted (and the first defendant denied) an entitlement to be subrogated to the first defendant's rights under collateral securities.
By a letter dated 9 September 2015, the plaintiff's solicitors wrote to the solicitors for the first defendant in the following terms (with editorial adaptation): "As you are aware, on 15 May 2015 [the first defendant] assigned mortgage registered number AG23550 to [the plaintiff]. You will recall that in our letter to you of 12 May 2015 we asserted that upon payment of the mortgage debt to [the first defendant, the plaintiff] would also become entitled to a transfer of the collateral securities, as defined in that letter. In the event [the first defendant] did not transfer the collateral securities to [the plaintiff] upon payment of the mortgage debt. [The plaintiff] remains of the view that it is entitled to the benefit of the collateral securities. In the event that [the first defendant] is maintaining the collateral securities for its own benefit [the plaintiff] maintains that that [sic] it will be subrogated to [the first defendant's] rights under the collateral security. [The plaintiff] further maintains that in the event that [the first defendant] intends to discharge the collateral securities [the plaintiff] will be entitled to have those collateral securities assigned to it. In any event, [the plaintiff] requests that [the first defendant] give to [the plaintiff] at least five business days' advance notice before it discharges any of the collateral securities".
By a letter dated 10 September 2015, the solicitors for the first defendant advised the solicitors for the plaintiff that, unless otherwise persuaded by the plaintiff or restrained by court order, the first defendant proposed to accede to a request by the third defendant that collateral securities held by the first defendant be discharged, and released, according to their nature.
By a letter dated 11 September 2015, the solicitors for the plaintiff, by reference to authorities which included Ghana Commercial Bank v Chandiram [1960] AC 735 at 745 as the principal authority, endeavoured to persuade the solicitors for the first defendant of the correctness of the plaintiff's claim to the collateral securities.
In the event, the plaintiff commenced these proceedings by a summons filed on 16 September 2015, in response to which the first defendant in due course entered a submitting appearance.
On 22 January 2016 the plaintiff served on the third defendant two written notices, expressed to be pursuant to section 57 (2)(b) of the Real Property Act, in aid of a power of sale of the mortgaged property under section 58 of the Act.
The first was expressed to be a notice to the third defendant as mortgagor under the first mortgage (AG523550). It required the third defendant to pay $2,499,512.85, the sum secured by that mortgage.
The second was expressed to be a notice given to the third defendant as mortgagor under the second mortgage (AG544792). It required the third defendant to pay $14,266,706.34, the sum secured by that mortgage.
The third defendant's continuing default under both mortgages, led to the property (an estate in fee simple) being sold by auction on 29 June 2016 for $7.9 million.
Clause 38.1 of the contract for sale bearing that date was in the following terms, with editorial adaptation: "38.1 Power of Sale The vendor [named as the plaintiff 'as mortgagee exercising power of sale under registered mortgage AG544792] is entering into this contract to sell the property as mortgagee exercising the power of sale pursuant to the terms and powers contained in the mortgage registered number AG544792 between [the third defendant] as mortgagor and the vendor as mortgagee".
So far as is material, clause 16.3 of the contract provided that "… on completion the vendor [that is, the plaintiff] must cause the legal title to the property (being an estate in fee simple) to pass to the purchaser free of any mortgage or other interest, subject to any necessary registration".
The contract was completed on 1 July 2016. The memorandum of transfer in favour of the purchaser (in due course registered as dealing AK572743) recorded that the registered proprietor of the property was the third defendant and that the transferor in favour of the purchaser of the property was the plaintiff as mortgagee in mortgage AG544792.
The Transfer formally recited the following: "The transferor [the plaintiff] being the mortgagee in mortgage AG544792 dated 06 September 2011 from the registered proprietor of [the land transferred] [the third defendant], acknowledges receipt of the consideration of $7,900,000 and in exercise of the power of sale under that mortgage transfers an estate in fee simple in the … land to the transferee [the purchaser]".
The plaintiff applied the proceeds of sale of the property in partial reduction of the second mortgage debt, with nothing applied towards reduction of the first mortgage debt, and with no surplus. Had the proceeds of sale been applied to payment of debt secured by the first mortgage that debt would have been paid in full.
On 27 July 2016 there were registered, in turn, the Discharge of the first mortgage (dealing number AK572740); the Discharge of the second mortgage (AK572741); and the Transfer to the purchaser from the plaintiff (AK572743).
Each Discharge of Mortgage recited, in terms and without qualification, that the mortgagee (named as the plaintiff) discharged the mortgage to which the Discharge related so far as the mortgage affected the mortgaged property.
The effect of registration of a discharge of mortgage is governed by section 65 of the Real Property Act, which is in the following terms: "65 Discharge of mortgages, charges and covenant charges (1) Whenever a mortgage, charge or covenant charge registered under this Act is intended to be discharged wholly or partially the mortgagee, chargee or covenant chargee shall execute a discharge in the approved form. (2) Upon registration of a discharge of mortgage, charge or covenant charge the mortgaged or charged estate or interest shall, to the extent specified in the discharge, cease to be charged with any moneys secured by the mortgage, charge or covenant charge".
In the absence of any qualifying words in the form of a Discharge of Mortgage then, on registration, a mortgagor is discharged from all covenants in the mortgage, as well as the property itself being discharged: Groongal Pastoral Company Ltd (In Liq)v Falkiner (1924) 35 CLR 157 at 164-165. That is what happened here.

PARAMETERS OF DISPUTE

A correct determination of the separate questions stated for decision focusses attention on two particular events.
The first in time was the payment out of the first mortgage by the plaintiff on 15 May 2015, and the associated transfer of that mortgage to the plaintiff registered on 18 May 2015.
The second in time was the plaintiff's sale of the unencumbered fee simple in the mortgaged property by the contract of sale entered on 29 June 2016 and completed on 1 July 2016. A transfer of the property in favour of the purchaser was registered on 27 July 2016.
In relation to the first event, importance attaches to the following facts: 1. The plaintiff paid out the first mortgage, and took a transfer of the mortgage, in exercise of rights available to it under sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act, and not otherwise. 2. The plaintiff having declined to grant to the first defendant an indemnity required by the first defendant as the price of its execution of an instrument assigning to the plaintiff the benefit of collateral securities held by the first defendant in support of the debt owed to it under the first mortgage, the mortgage was transferred: (i) without any assignment of collateral securities by the first defendant in favour of the plaintiff, express or implied; and (ii) with the plaintiff on notice that the first defendant disputed its claim to be subrogated, by operation of law, to its rights under the collateral securities.
In relation to the second event, importance attaches to the following facts: 1. In exercise of its power of sale of the mortgaged property pursuant to the second mortgage, the plaintiff sold the unencumbered fee simple of the mortgaged property. 2. that sale was effected under, and subject to, section 58 of the Real Property Act. 3. in order to complete the sale the plaintiff was required, as a condition of the sale, to effect a discharge of both the first mortgage and the second mortgage. 4. upon completion of the sale, the plaintiff received proceeds of sale in excess of the amount of debt secured by the first mortgage and, in return, discharged the first mortgage. 5. whether entitled to do so or not, the plaintiff appropriated the proceeds of sale exclusively in reduction of debt secured by the second mortgage.
The particular significance of these facts is confirmed by noticing the following features of the factual matrix of the proceedings: 1. There was never any contractual relationship between the plaintiff and the second defendant. The second defendant gave to the first defendant securities collateral to the first mortgage. It gave no securities in support of the second mortgage. 2. The security given by the third defendant to the first defendant as collateral to the first mortgage (a company charge) was not given in support of the second mortgage. 3. No party requested the plaintiff to pay out the indebtedness of the third defendant to the first defendant under the first mortgage. 4. The plaintiff's acquisition of rights under, or by reference to, the first mortgage was governed not by any agreement with any party but by its exercise of a right under sections 94-95 of the Conveyancing Act (read with sections 51-52 of the Real Property Act) available to it as second mortgagee. 5. The plaintiff paid out the first mortgage, on its own initiative, pursuant to a right available to it under sections 94-95 of the Conveyancing Act which it asserted against both the first defendant and the third defendant as a right to which they were obliged to submit. 6. In asserting its right under sections 94-95 of the Conveyancing Act against the first defendant, the plaintiff contended that the first defendant was not entitled to impose any conditions upon an assignment to it by the first defendant of collateral securities held by the first defendant from the second and third defendants. Accordingly, on both sides of the transaction by which the first mortgage was transferred from the first defendant to the plaintiff the parties treated the transaction as one governed by their respective statutory rights and obligations - referable to sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act . 7. Neither the second defendant nor the third defendant consented, in fact, to: 1. the transfer of the first mortgage to the plaintiff. 2. discharge of the first mortgage by the plaintiff. 3. application by the plaintiff of proceeds of sale of the subject property in reduction only of the second mortgage debt. 4. the benefit of the instruments referred to in the separate question numbered 3 being enjoyed by the plaintiff. 1. The first defendant never agreed, on any terms, that it would assign to the plaintiff, upon or as a consequence of payment out of the first mortgage, the collateral securities identified in the separate question numbered 3. On the contrary, at the time it paid out the first mortgage, and took a transfer of the mortgage, the plaintiff was expressly on notice from the first defendant that the first defendant did not agree that payment out of the mortgage would entitle the plaintiff to the benefit of collateral securities. 2. The first defendant at no stage purported to assign, discharge, or release the collateral securities. 3. The first defendant was prepared to execute in favour of the plaintiff an instrument effecting an assignment of the collateral securities in favour of the plaintiff if, and only if, the plaintiff agreed to provide to it an indemnity against future losses that might be suffered by it consequent upon the assignment. The plaintiff declined to provide any such indemnity. It chose instead to exercise its rights under sections 94-95 of the Conveyancing Act without any express or implied assignment of collateral securities.
Notwithstanding the absence of any acceptance of its claim of entitlement on the part of the first, second and/or third defendants, the plaintiff claims to be entitled, according to principles of subrogation (essentially, by operation of law), to enjoy such (if any) rights as the first defendant has against the second and third defendants under those securities.

Introduction

Questions about the operation of the subrogation principle enunciated by the Privy Council in Ghana Commercial Bank v Chandiram [1960] AC 732 at 745 must be addressed in the factual setting (including the legislative framework) in which the plaintiff (as a "third party" to the first mortgage between the third defendant as mortgagor and the first defendant as mortgagee) "paid off" the mortgage.
It is not enough, in the setting of these proceedings, that the plaintiff "intended that the mortgage be kept alive" for its own benefit, as it hoped. At its highest, the Privy Council's statement of principle contemplates a rebuttable presumption (as to intention) at play in a field of operation governed by equitable principles. All the circumstances of the particular case must be consulted in accordance with those principles. The plaintiff's intention is a material, but not a determinative, consideration.

The Legislative Framework

Questions about whether the plaintiff was, and is, subrogated to rights of the first defendant under securities collateral to the first mortgage are mediated, if not governed, by statutory provisions (particularly, sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act) applicable to transfer of the first mortgage by the first defendant to the plaintiff and by other statutory provisions (particularly, sections 57-58 and 59-60 of the Real Property Act) applicable to an exercise of a mortgagee's power of sale under a Torrens title mortgage.
Sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act have been extracted earlier in this judgment. Sections 57-58 and 59-60 of the Real Property Act (with emphasis added) are in the following terms: "57 Procedure on default (1) A mortgage, charge or covenant charge under this Act has effect as a security but does not operate as a transfer of the land mortgaged or charged. (2) A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if: (a) in the case of a mortgage or charge, 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, (a1) in the case of a covenant charge, default has been made in: (i) the payment, in accordance with the terms of the judgment to which the covenant charge relates, of the principal, interest or other money the payment of which is secured by the covenant charge, or (ii) the payment, in accordance with the terms of that judgment, of any part of that principal, interest or other money, (b) where: (i) the default relates to that payment, or (ii) in the case of a mortgage, 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, charger or covenant charger in the manner authorised by section 170 of the Conveyancing Act 1919 , (b1) where a notice is required to be served under paragraph (b), a copy of that notice has been served (in the manner authorised by section 170 of the Conveyancing Act 1919 ) on: (i) each mortgagee, chargee or covenant chargee (if any) of the land mortgaged or charged under a registered mortgage, charge or covenant charge which has less priority than that of the person intending to exercise the power of sale, and (ii) each caveator (if any) who claims as an unregistered mortgagee or chargee to be entitled to an estate or interest in the land mortgaged or charged, and (iii) each person (if any) who has lodged a priority notice and claims as an unregistered mortgagee or chargee to be entitled to an estate or interest in the land mortgaged or charged, 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). (3) A notice referred to in subsection (2) complies with this subsection if: (a) it specifies that it is a notice pursuant to section 57 (2) (b) of the Real Property Act 1900, (b) it requires the mortgagor, charger or covenant charger on whom it is served: (i) to observe, except in relation to any time expressed in the covenant, agreement or condition for its observance, the covenant, agreement or condition in respect of the observance of which the mortgagor, charger or covenant charger made default, or (ii) as the case may be, to pay the principal, interest, annuity, rent-charge or other money in respect of the payment of which the mortgagor, charger or covenant charger made default, (c) if the costs and expenses of preparing and serving the notice are to be demanded, it requires payment of a reasonable amount for those costs and expenses and specifies the amount, and (d) it notifies the mortgagor, charger or covenant charger that, unless the requirements of the notice are complied with within one month after service of the notice (or, where some other period exceeding one month is limited by the mortgage, charge or judgment for remedying the default referred to in the notice, within that other period after service of the notice), it is proposed to exercise a power of sale in respect of the land mortgaged or charged. (4) Where a notice is served under subsection (2) (b) and the requirements of the notice are complied with within the time applicable to the notice under subsection (3) (d), the default to which the notice relates shall be deemed not to have occurred. (5) Without prejudice to any other manner in which it may be deprived of force or effect, a covenant, agreement or condition whereby upon a default referred to in subsection (2) (a): (a) the whole of the principal or other money of which the payment is secured by a mortgage or charge becomes payable, or (b) a part of that principal or other money (not being a part to which that default relates) becomes payable, has no force or effect until the powers conferred by section 58 become exercisable by reason of that default. 58 Power to sell (1) Where a mortgagee, chargee or covenant chargee is authorised by section 57 (2) to exercise the powers conferred by this section, the mortgagee, chargee or covenant chargee may sell the land mortgaged or charged, or any part thereof, and all the estate and interest therein of the mortgagor, charger or covenant charger, and either altogether or in lots by public auction or by private contract, or both such modes of sale, and subject to such conditions as the mortgagee, chargee or covenant chargee may think fit, and to buy in and resell the same without being liable for any loss occasioned thereby, and to make and execute all such instruments as shall be necessary for effecting the sale thereof, all which sales, contracts, matters, and things hereby authorised shall be as valid and effectual as if the mortgagor, charger or covenant charger had made, done, or executed the same, and the receipt or receipts in writing of the mortgagee, chargee or covenant chargee shall be a sufficient discharge to the purchaser of such land, estate, or interest, or of any portion thereof, for so much of the purchaser's purchase money as may be thereby expressed to be received. (2) No such purchaser shall be answerable for the loss, misapplication, or non-application, or be obliged to see to the application of the purchase money by the purchaser paid, nor shall the purchaser be concerned to inquire as to the fact of any default or notice having been made or served as referred to in section 57 (2). (3) The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee, chargee or covenant chargee; thirdly, in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority; and the surplus (if any) shall be paid to the mortgagor, charger or covenant charger, as the case may be… 59 Registration of transfer by mortgagee, chargee or covenant chargee The Registrar-General shall, for the purpose of a sale authorised by section 58, register a transfer executed by a mortgagee, chargee or covenant chargee in the approved form and, upon that registration, the estate or interest of the mortgagor, charger or covenant charger in the land comprised in the transfer shall pass to and be vested in the transferee, freed and discharged from all liability on account of the mortgage, charge or covenant charge, or of any mortgage, charge or covenant charge registered subsequent thereto. 60 In case of default, entry and possession, ejectment The mortgagee, chargee or covenant chargee upon default in payment of the principal sum or any part thereof, or of any interest, annuity, or rent-charge secured by any mortgage, charge or covenant charge may: (a) enter into possession of the mortgaged or charged land by receiving the rents and profits therefor, or (c) bring proceedings in the Supreme Court or the District Court for possession of the said land, either before or after entering into the receipt of the rents and profits thereof, and either before or after any sale of such land effected under the power of sale given or implied in the mortgage, charge or covenant charge, in the same manner in which the mortgagee, chargee or covenant chargee might have made such entry or brought such proceedings if the principal sum, interest, annuity, or rent-charge were secured to the mortgagee, chargee or covenant chargee by a conveyance of the legal estate in the land so mortgaged or charged".

The Nature of a Torrens Title Mortgage

A mortgage under the Real Property Act is a creature of statute, and a distinct interest that survives a common ownership of it and other interests in the land the subject to the statutory charge for which it provides: English and Scottish Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321-325; Shell Co of Australia Ltd v Zanelli [1973] 1 NSWLR 216 at 220E.
Accordingly, the first and second mortgages the subject of consideration in these proceedings remained separate and distinct despite the fact that, on 18 May 2015, when the first defendant's transfer of the first mortgage in favour of the plaintiff was registered, they came under common ownership.

The nature of a Torrens Title Second Mortgage

By virtue of section 36(9) of the Real Property Act, a registered first mortgage has priority over a registered second mortgage in the exercise of their respective statutory powers of enforcement (including the power under section 60 to enter into possession and the power of sale under section 58): Zanzoul v Westpac Banking Corp (1995) 6 BPR [97549]; Reliance Finance Corporation Pty Ltd v Orwin (1964) 82 WN (PT 1) (NSW) 11 at 14-15; King Investment Solutions Pty Ltd [2005] NSWSC 1076; 13 BPR [98296] at [125].
As explained in ELG Tyler, PW Young, and CE Croft (eds), Fisher and Lightwood's Law of Mortgage (3rd Australian ed, 2014) at paragraph [10.10], entitled "Sales by second mortgagee": "A second mortgagee may sell or otherwise dispose of his interest as with any piece of property. The second mortgagee does not usually have to obtain the concurrence of the first mortgagee (not, at least, if he sells subject of the mortgage): Manser v Dix (1857) 8 De GM & G 703; 44 ER 561; Universal Show Cards & Display Manufacturing Ltd v Brunt (1984) 128 Sol Jo 581. If the second mortgagee sells it must be subject to the first mortgage unless the first mortgage agrees to join in the conveyance and receive part of the purchase moneys sufficient to discharge the first mortgage…. Alternatively, the second mortgagee could take a transfer of the first mortgage."
In the context in which they appear, these observations are to be read as applicable to land registered under the Real Property Act.
Baalman's The Torrens System in New South Wales (Law Book Co, Sydney, 2nd ed, 1974) makes the following observations (at pages 274-275): "… A second mortgagee has the same powers as first mortgagee and he can exercise them in the same circumstances, but, as between himself and the first mortgagee, such powers can only be exercised having regard to the interests of the first mortgagee. In Croft v Kennaugh [1945] VLR 40 it was held that the right to bring an action of ejectment given to a mortgagee under the Victorian Transfer of Land Act is not confined to a first mortgagee. The principle of Otter v Vaux (1856) 6 De GM & G 638; 69 ER 943 that a mortgagor cannot evade his obligations to puisne mortgagees by purchasing the land on a sale by the first mortgagee, has been held to apply to land under [the Real Property Act]: Edwards v McDowell (1933) 50 WN (NSW) 244; R v The Registrar of Titles; ex parte Watson [1952] VLR 470".
Edwards v McDowell and R v Registrar of Titles; ex parte Watson were approved by the Court of Appeal in Sussman v AGC Advances Ltd (1995) 37 NSWLR 37. The principle that a mortgagor cannot evade his obligations to puisne mortgagees by purchasing the land on a sale by the first mortgagee is equitable in character.

Transfer of the First Mortgage to the Plaintiff

The plaintiff's exercise of its right under sections 94-95 of the Conveyancing Act to compel the first defendant to transfer the first mortgage to it did not, of itself, entitle the plaintiff to require the first defendant to transfer to it anything other than the mortgage. Section 94 entitles a mortgagor to require a mortgagee to transfer a mortgage to a third person, in lieu of a discharge of the mortgage, upon payment out of the mortgage; it does not extend to an entitlement in the mortgagor to call upon the mortgagee to transfer guarantees or other collateral securities: Challenge Bank Ltd v Hodgekiss (1995) 7 BPR [97,561]; [1996] ANZ Conv R 364; (1995) NSW Conv R 55-756; BC 9505293. The right of a subsequent mortgagee under section 95 can rise no higher than the right of the mortgagor under section 94.
Sections 51 and 52 of the Real Property Act permit the transferee of a mortgage, upon registration of the transfer, to have the benefit of the mortgage security and a right to enforce the debt secured by the mortgage; but they do not, of themselves, effect a transfer of a guarantee or any other collateral security: Measures v McFadyen (1910) 11 CLR 723 at 731, 733 and 737-738; Consolidated Trust Company Ltd v Naylor (1936) 55 CLR 423 at 432 and 434-435; Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81 at [49]-[51] and [55]-[57]. Rights of subrogation are not of a kind falling within the scope of the Real Property Act: Consolidated Trust Company Ltd v Naylor (1936) 55 CLR 423 at 434-435.
Sections 51-52 of the Real Property Act are not inconsistent with a right of subrogation arising upon payment out of a mortgage by a third party, and a subsequent registration of a transfer of the mortgage in favour of the third party; but they are not, of themselves, an independent source of an entitlement to subrogation residing in the third party.

No Right of Subrogation to Collateral Securities acquired upon Statutory Pay Out of First Mortgage

In circumstances in which: (a) the plaintiff and the first defendant effected a transfer of the first mortgage pursuant to their correlative right and obligation under sections 94-95 of the Conveyancing Act, without more; and (b) the plaintiff refused to pay the price required by the first defendant for an assignment to it of collateral securities held by the first defendant (namely, a grant of an indemnity against future loss), there is no basis for a finding that, by operation of law, the plaintiff should be treated as if an equitable assignee of the first defendant's collateral securities.
What is the equity which the plaintiff seeks to enforce? In paying out the first mortgage pursuant to sections 94-95 of the Conveyancing Act and registering a transfer of the mortgage that engaged sections 51-52 of the Real Property Act, it obtained (in the first mortgage) all the security bargained for: Highland v Exception Holdings Pty Ltd (In Liq) [2006] NSWCA 318; 60 ACSR 223; 24 ACLC 1576 at [33], [89] and [111] -[113]. There is no occasion for equity to intervene by way of subrogation because there was available to the plaintiff a remedy at law (namely, enforcement of the first mortgage as registered transferee) sufficient to avoid an unconscionable result: Cochrane v Cochrane (1985) 3 NSWLR 403 at 405E. By taking a transfer of the first mortgage the plaintiff acquired power to enforce its second mortgage and to control a sale of the mortgaged property unconstrained by the first defendant.
Although payment out of a mortgage by a third party might, in principle, entitle the payer to the benefit of collateral securities held by the outgoing mortgagee (Saffron Sun Pty Ltd v Perm-Fit Finance Pty Ltd (In Liq) (2005) 65 NSWLR 603 at [21]), the question whether the payer is entitled to the benefit of collateral securities depends upon whether, in the particular circumstances, it would be unconscionable to deny the payer a right of subrogation to those securities.
In this case, there is no unconscionability involved in the plaintiff being confined to the statutory entitlement it exercised, and what it bargained for: an entitlement to enforce the first mortgage against the third defendant and the mortgaged property.
The plaintiff cannot circumvent this line of reasoning (as it seeks to do in its reply filed 19 September 2018) by pointing to covenants by the second and third defendants, in collateral securities, giving promises to "[the first defendant],its successors and assigns".
The plaintiff took no assignment of anything but the first mortgage from the first defendant. It had no connection with the first defendant or the first defendant's corporate identity to justify characterisation of it as a "successor" of the first defendant. The fact that, upon registration of the transfer of the first mortgage to it, it became a successor-in-title to the first defendant as proprietor of the mortgage did not, of itself, carry with it an entitlement to subrogation to rights of the first defendant under the first defendant's collateral securities. The plaintiff acquired no entitlement to stand in the shoes of the first defendant. It cannot pull itself up by its bootstraps.

Any Right of Subrogation to Collateral Securities Lost on Discharge of First Mortgage

Upon an assumption (contrary to my finding) that, in May 2015, the plaintiff became subrogated to rights of the first defendant under collateral securities held by the first defendant: 1. it lost any right of recovery under those securities when, in mid-2016, it sold the mortgaged property for a sum, and realised an amount, in excess of the debt secured by the first mortgage, and discharged the mortgage; and 2. in the discretion of the Court, upon an exercise of equitable jurisdiction the plaintiff should be denied relief on its claim to be subrogated to the rights of the first defendant under securities collateral to the first mortgage, that mortgage having been discharged by the plaintiff on sale of the mortgaged property for a price in excess of the first mortgage debt.
Although the plaintiff sold the property in exercise of a power of sale under the second mortgage, it sold the unencumbered fee simple in the mortgaged property. It did not sell that property subject to the first mortgage. It sold the freehold unencumbered by any mortgage.
As a Torrens title mortgagee, it did not own the freehold: English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321. Its power to sell the freehold was governed, and constrained, by sections 57-58 of the Real Property Act.
Upon an assumption that the plaintiff was subrogated to the first defendant's rights under securities collateral to the first mortgage when, and by reason of the fact that, it paid out the mortgage, equitable principles were in operation at several levels when the plaintiff completed its sale of the fee simple of the mortgaged property in exercise of its power of sale as second mortgagee.
First, and foremost, any entitlement to subrogation enjoyed by the plaintiff was, and remains, equitable in character in the absence of a formal assignment by the first defendant to the plaintiff of rights under collateral securities.
In Highland v Exception Holdings Pty Ltd (In Liq) [2006] NSWCA 318; 60 ACSR 223; 24 ACLC 156 at [92], Santow JA was content to adopt the description of subrogated rights (in Burston Finance Ltd v Speirway Ltd (In Liq) [1974] 1 WLR 1648 at 1652) as the equivalent of those of an equitable assignee of rights of a secured creditor.
The plaintiff's joinder of the first defendant in these proceedings (the principal object of which is to enforce collateral securities provided by the second and third defendants to the first defendant) is consistent with treatment of any rights the plaintiff has, by reason of subrogation, as equivalent to those of an equitable assignee from the first defendant: Long Lys Co Pty Ltd v Silkdale (1991) BPR [97374], citing Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 29-30.
Secondly, in its application of proceeds of sale of the mortgaged property under the second mortgage, the plaintiff was bound in equity to give effect to the priority to repayment of the first mortgage debt.
In Residential Housing Corporation v Esber (2011) 80 NSWLR 69 at 72 Campbell JA (with whom Macfarlan JA agreed) made the following observations (by way of obiter) about the operation of section 58(3) of the Real Property Act in the context of a sale of mortgaged property by a second mortgagee (with emphasis added): "It is necessary for equitable principles to be called into play in deciding priorities between NSW registered mortgages because section 58(3) does not deal with all the possible situations in which proceeds of sale might come to be distributed amongst a mortgagor and mortgagee. If it is a second registered mortgagee who sells, section 58(3) says nothing about the first registered mortgagee being paid out (because it is not a 'subsequent mortgage'). Clearly the first mortgagee would have priority even over the second mortgagee (absent an agreement altering the priority arising from registration) but it is equitable principles, not section 58(3) that requires it to be paid to give effect to that priority".
Apart from the fact that the plaintiff appropriated proceeds of sale exclusively in reduction of debt owing under the second mortgage (so that, ostensibly, there was no reduction in debt due under the first mortgage) there is nothing in the evidence evidencing an agreement altering the priorities arising from registration of the first and second mortgages. There was no registered memorandum under section 56A of the Real Property Act postponing the first mortgage in favour of the second so as to reverse their order of priority. Absent such a registered memorandum, the plaintiff could not agree with itself to reverse the order of priority of the mortgages.
Collateral securities given to the first defendant in support of the first mortgage could not, in justice and good conscience, be enforced in support of that mortgage postponed to the second mortgage without the consent of the second and third defendants as grantors of the securities. Nor can the plaintiff, in justice and good conscience, achieve a similar outcome by a claim of subrogation to rights of the first defendant under the first mortgage coupled with enforcement of the second mortgage debt in advance of a claim against securities collateral to the first mortgage. The first defendant's collateral securities were given in support of the first mortgage, not the second.
A second mortgagee cannot complain where a surety utilises by subrogation the security held by the first mortgage; the second mortgagee took its interest with notice of the first mortgage and associated security interests: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [9]. By its appropriation of proceeds of sale received upon exercise of a power of sale under the second mortgage the plaintiff sought to deny the second defendant (in particular) any entitlement it may have had, as an incident of a security collateral to the first mortgage and in priority to the second mortgage, to be subrogated to the rights of the first defendant under the first mortgage on payment of the first mortgage debt.
In Residential Housing Corporation v Esber the Court of Appeal analysed the consequences of a sale by a second mortgagee, vis a vis the priorities due to a first mortgage, by reference to equitable principles rather than by reference to the terms of section 58(3). It did not analyse a second mortgagee sale by reference to other provisions of the Real Property Act (such as section 36(9)) bearing upon the priority of a first mortgagee. More particularly, though, it did not say that the first limb of section 58(3) has no role to play in the distribution of proceeds of a sale by a second mortgagee.
Section 58(3) of the Real Property Act interacts with equitable principles, not by permitting the section to operate in its entirety before equity intervenes, but with equity intervening in the operation of the section to prevent the statute being used in an inequitable way: Residential Housing Corporation v Esber (2011) 80 NSWLR 69 at [166].
In my opinion, the priority claim of debt secured by a first mortgage, upon a sale of the mortgaged property by a second mortgagee, can be accommodated within the first limb of section 58(3). A second mortgagee cannot compel a first mortgagee to submit to a sale of the unencumbered fee simple otherwise than (as discussed in King Investments Solutions Pty Ltd v Hussain [2005] NSWSC 1076; 13 BPR [98296] at [86]-[99]) by a judicial sale. Ordinarily, if a second mortgagee exercises a power of sale, a sale of the unencumbered fee simple comes at the price of paying out the first mortgage from the proceeds of sale.
Having sold the unencumbered fee simple pursuant to a power of sale governed by section 58 of the Real Property Act, the plaintiff was bound to apply the proceeds of sale in accordance with section 58(3) of the Act. As characterised by Basten JA (with whom Tobias and McColl JJA agreed) in Provident Capital Ltd v Printy [2008] NSWCA 131; 13 BPR [98301] at [30], section 58(3) provides for a "statutory allocation" of proceeds of sale following a sale governed by sections 57-58 of the Real Property Act.
The plaintiff could not complete its sale of the mortgaged property without a discharge of the first mortgage, which secured the debt which the plaintiff now seeks to enforce under securities collateral to that mortgage. Payment of that debt was, in terms of section 58(3), an "expense occasioned by" the sale.
Thirdly, in its application of the proceeds of its sale of the fee simple of the mortgaged property under the second mortgage, the plaintiff was bound to act in a way which was consistent with equitable notions of justice and fair dealing as between competing interests: Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 at 299B, 300B, and 305C-E; Sussman v AGC Advances Ltd (1995) 37 NSWLR 37 at 43G, 44G, 46E-F and 51C-D. It would be inequitable if the plaintiff were to be permitted to subvert the order of priority of mortgages which governs the distinct interests of the first and second mortgages (with attendant consequences for sureties of the mortgagor under only the first mortgage) by exercising a power of sale of the unencumbered fee simple of the mortgaged property under the second mortgage, with a receipt of sale proceeds in excess of the sum secured by the first mortgage, without allowing to the mortgagor (and sureties of the first mortgage) the benefit of a discharge of the first mortgage.
In effecting a sale of the fee simple in the mortgaged property as a mortgagee pursuant to a power of sale under the mortgage, the plaintiff was dealing with property which was owned, not by it, but by another (the third defendant). By virtue of the first and second mortgages, it enjoyed a statutory charge over the gross proceeds of sale, but not ownership of the fee simple. It was bound, in equity and by virtue of section 58(3) of the Real Property Act, to apply those proceeds in accordance with the scheme for which section 58(3) provided.
Whether this obligation is properly characterised as the obligation of a trustee (Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 289G) or, more broadly, as the obligation of a fiduciary (Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [50]), it was an incident of empowerment of the plaintiff to deal with the property of another.
There is no challenge made by the defendants in these proceedings to the validity of the sale of the mortgaged property by the plaintiff. Nor is complaint made about the price at which the property was sold. The defendants' complaint is that the plaintiff acted unjustly, and against conscience, in selling the property in exercise of a power of sale under the second mortgage; discharging the first mortgage ostensibly without recompense; and applying the whole of the proceeds of sale exclusively in reduction of the second mortgage debt. In that context, and for that purpose, they refer to Forsyth v Blundell (1973) 129 CLR 477 at 493-494, 496-497, 500 and 506 as authority for the proposition that the plaintiff, as a mortgagee exercising a power of sale, was under an obligation to exercise its powers in good faith (that is, not recklessly sacrificing the interests of the mortgagor). In my opinion, the point is well made.
A mortgagee exercising a power of sale is free to consult its own interests, but is bound to do so, conscientiously, within a legal framework that includes safeguards (such as section 58(3) of the Real Property Act and equitable principles) for the protection of competing interests. In Fiduciary Obligations (Law Book Co, 1977; Federation Press, 2016), at [17], Professor Paul Finn wrote the following: "The security taken by a mortgagee is his safeguard for the debt owing to him. The powers he has by virtue of the mortgage to realise his debt out of the mortgaged property are given to him for his own benefit .… [The] Court will not impose a fiduciary character on the mortgagee in exercising those powers, although it will exact from him certain standards of conduct for the protection of the mortgagor whose interests are so directly affected by their exercise. [See Farrar v Farras Ltd (1888) 40 Ch D 395; Cuckmere Brick Co v Mutual Finance [1971] Ch 949; Henry Roach (Petroleum) v Credit House (Vic) [1976] VLR 309]".
Fourthly, upon a mortgagee sale being completed, a selling mortgagee is bound to furnish to the owner of the property sold (in this case, the fee simple) and to each other person who may be entitled to receive proceeds of the sale an account, if demanded, of the mortgagee's claims under the mortgage in respect of principal, interest and costs: Cf, Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 295C. A fiduciary's obligation to account extends to the provision of information, not merely the payment of money (Residential Housing Corporation v Esber (2011) 80 NSWLR 69 at [167]), although the nature and extent of the obligation to account in this sense is governed by considerations of utility and reasonableness in the particular case.
Recognition of a selling mortgagee's obligation to provide information about its dealing with sale proceeds, by way of accounting for its dealing with the gross proceeds of sale of a mortgaged property, assumes significance in a case such as the present because: (a) the first call on gross proceeds of sale is payment of the expenses occasioned by the sale (Real Property Act, section 58(3); Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 290B); (b) in a sale by a second mortgagee, expenditure required to effect a discharge of the first mortgage is, or may be, an expense occasioned by the sale; and (c) if the selling mortgagee is to be held accountable for the conduct of a proper sale, decisions made about when, how, and in favour of whom sale proceeds are applied need to be transparent.
Although considerations of utility and reasonableness may set practical limits to a selling mortgagee's obligation to account in the sense of providing information, the absence of a net surplus on the sale of mortgaged property provides no absolute bar to the imposition on a mortgagee of an obligation to disclose the fact and nature of decision-making processes affecting the disposition of gross proceeds of sale.
Any obligation of a mortgagee to account following a mortgagee sale arises (under section 58(3) of the Real Property Act, if not in equity), upon the mortgagee's receipt of proceeds of sale: Tyler, Young and Croft, Fisher and Lightwood's Law of Mortgage (3rd Australian ed, 2014), paragraph [20.44].
An obligation to account uncontroversially attaches to a selling mortgagee's receipt of funds surplus to the amount secured by the mortgagee's security: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [35], [50] and [144].
The judgment of Macready AsJ in C2C Developments Pty Ltd v Commonwealth Bank of Australia [2012] NSWSC 1162; 16 BPR [98586] goes further. It denies any obligation in a selling mortgagee to account (even in the sense of requiring a mortgagee to provide information about a sale and associated costs and expenses) unless there is a surplus: [27]-[28]. His Honour left a mortgagor to its own devices in trying to ascertain the details of a sale, recommending a search of public records and available bank statements, and, if need be, the commencement of proceedings for preliminary discovery under the Uniform Civil Procedure Rules 2005 NSW, rule 5.3.
In principle, if accounting obligations attach to, and at the time of, a mortgagee's receipt of sale proceeds, this line of reasoning cannot, without qualification, be correct. Nor is it axiomatically just, in the practical administration of a secured loan, to subordinate a mortgagor or other interested parties to the position of a complete stranger to a mortgagee sale, obliged to engage in adversarial litigation to obtain basic information about a sale.
Care needs to be taken to address different meanings attributed to the word "account" and its derivatives. Campbell JA was alive to this in Residential Housing Corporation v Esber (2011) 80 NSWLR 69 at [167] when, discussing the disposition of surplus proceeds of a mortgagee sale, he distinguished between: (a) a fiduciary obligation "to account for the disposition" of surplus proceeds "in the sense of informing" a party "what had become of the surplus proceeds; and (b) a fiduciary duty "to account to" the party "in the sense of paying" an amount to which a party was entitled.
Confusion arises from a failure to distinguish between "an order for the taking of an account" (necessarily a formal and, often, a highly bureaucratic judicial remedy) and the provision of information in a more informal way by an accounting party.
One of the authorities cited by Macready AsJ is a judgment of Master McLaughlin in Tsatsoulis v Trigamist Holdings Pty Ltd [2000] NSWSC 900.
There Master McLaughlin dealt with an application for an order for the taking of an account under the equivalent of Part 46 of the Uniform Civil Procedure Rules 2005 (Supreme Court Rules 1970 NSW, Part 48). He held that a mortgagee's informal provision of a limited form of spreadsheet entitled "schedule of mortgage interest calculations" did not constitute "an accounting of the nature" sought by the executors of a deceased mortgagor sufficient to discharge the mortgagee from any obligation to provide a further, formal accounting. In his discretion, in the absence of evidence of a surplus or the likelihood of a surplus and concerned about the utility of a formal accounting process, he declined to make an order for the taking of an account.
In the course of his judgment, at paragraphs [44]-[47], he made the following observations about the principles to be applied: "[44] The mere existence of the relationship of mortgagor and mortgagee does not of itself give to the mortgagor an entitlement to an order for an account. That entitlement arises in cases of foreclosure and redemption in Court (not relevant to the present proceedings) and also in the case where the mortgagor is seeking to recover surplus proceeds of a sale carried out by the mortgagee under the mortgagee's power of sale. (See Sykes and Walker, The Law of Securities, 5 ed. (1993), 142; Fisher and Lightwood's Law of Mortgage, Australian Edition (1995), Chapter 39.) [45] In that latter case the basis upon which the mortgagor is entitled to an accounting is that, once the mortgagee has from the proceeds of sale repaid to himself the amount outstanding under the mortgage, he holds any surplus upon trust for the mortgagor (see Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 295 per Hutley JA, where His Honour quoted with approval Charles v Jones (1887) 35 ChD 544 at 549-550 per Kay J). [46] It is not appropriate to order the taking of an account unless it be established that there is, or is likely to be, a surplus after the satisfaction of the mortgage debt (see Batthyany v Walford (1887) 36 ChD 269 at 276 per Cotton LJ, with whom Bowen and Fry LLJ agreed). [47] It should be emphasised that an order for the taking of an account is discretionary (Part 48 Rule 1 of the Supreme Court Rules)".
His Honour's reference to Batthyany v Walford (1887) 36 Ch D, 269 at 276-277 is instructive because, although not a mortgage case, it demonstrates greater flexibility in judicial procedures relating to the provision of information by way of an accounting than is sometimes conveyed by a bald assertion that, if there is no "surplus", a mortgagee exercising a power of sale has "no obligation to account".
An assessment of what is useful and reasonable in response to a request for accounting information might well focus in large measure on costs involved in the provision of information. A refusal, if not an inability, on the part of a party who requests accounting information might be sufficient of itself to justify refusal of an order for an account, if not a refusal to provide information informally. However, if a mortgagee's sale is to be reasonably open to review a practical means for an interested party to obtain basic information about the sale needs to be available.
The plaintiff's obligation to account for its receipt and disposition of the gross proceeds of its sale of the mortgaged property, in company with a requirement that it particularise its claim against the second and third defendants under securities given by them collateral to the first mortgage, operated to expose to critical review the steps taken by the plaintiff in its appropriation of sale proceeds, thereby aiding the Court to hold it to a standard of conduct upon which the practical operation of the Torrens title system of land registration depends.
By selling the mortgaged property in the exercise of a power of sale under the second mortgage, by discharging be first mortgage and by appropriating the whole proceeds of sale in reduction of second mortgage debt before it looked to recover money from the second and third defendants on securities collateral to the first mortgage, the plaintiff acted against justice and good conscience by depriving the second and third defendants of the benefit of a discharge of the first mortgage and any prospect of enforcing rights of subrogation they would have under the first mortgage if they paid the debt which the plaintiff now claims an entitlement to enforce.
Operating within the constraints of sections 57-58 of the Real Property Act, in circumstances in which the first mortgage secured a priority debt which was separate and distinct from any debt secured by the second mortgage, it was not open to the plaintiff to appropriate the sale proceeds to an account of its choice. Cf, Tyler, Young and Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, 2014), paragraph [32.53]. Exercising a statutory power of sale, the plaintiff was constrained to deal with the proceeds of sale in a manner consistent with section 58(3).
Fifthly, to allow the plaintiff to recover the debt secured by the first mortgage from parties who gave to the first defendant securities collateral to that mortgage (after the plaintiff has sold the unencumbered fee simple of the mortgaged property for a sum in excess of the debt secured by the first mortgage and applied the sale proceeds exclusively in reduction of debt secured by the second mortgage) would, in substance, be to allow the plaintiff to recover the amount of the first mortgage debt twice. The equitable doctrine against double satisfaction (Registrar General v Gill (1994) NSWCA 26; Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at [55]-[62]; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [99]) operates to prevent this as unjust enrichment, against justice and conscience.
The plaintiff sought to draw support from principles governing the marshalling of securities: PW Young, C Croft and ML Smith, On Equity (Law Book Co, Sydney, 2009), paragraph [12.910] et seq; JD Heydon, MJ Leeming, and PG Turner (eds), Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, Australia, 2015) , chapter 11.
Upon an assumption (contested by the defendants) that those principles might otherwise have scope for operation to the facts of this case, they can be put to one side because: 1. First, clause 5.3 of the "Subordination and Priority Deed" between the first defendant (as first mortgagee) , the plaintiff (as second mortgagee) and the third defendant (as borrower) expressly provided that "[neither] the doctrine of marshalling of assets or any other similar, related or comparable doctrine, principle or rule of law or equity shall apply or be involved as between [the first defendant] and [the plaintiff] in respect of assets (if any) charged by one of the [parties'] Securities and not the other". 2. Secondly, the plaintiff was released from the strictures of that deed only upon its payment out of the first mortgage in exercise of the statutory right available to it under the Conveyancing Act, sections 94-95. 3. Thirdly, at no time before the plaintiff's completion of the sale of the mortgaged property pursuant to its second mortgage did it assert an entitlement to a marshalling remedy. The plaintiff took its stand on an exercise of statutory rights, accompanied by a claim of an entitlement (here denied) to apply proceeds of its sale of the mortgaged property exclusively in reduction of second mortgage debt.
When the plaintiff received proceeds of sale in excess of the debt secured by the first mortgage and, in return, discharged the first mortgage, the securities collateral to the first mortgage were released, by the action of the plaintiff, from any liability to pay or bear the first mortgage debt. Any entitlement the plaintiff had to be subrogated to rights under the collateral securities was lost and, along with it, any equity upon which the plaintiff could claim relief.

CONCLUSION

What is described in paragraph 19 of these reasons as the central question for determination must be answered in the negative. By its payment out of the first mortgage, taking a transfer of that mortgage pursuant to sections 94-95 of the Conveyancing Act and sections 51-52 of the Real Property Act, without more, the plaintiff did not become entitled to enjoy the benefit of collateral securities held by the first mortgagee. Nor was its sale of the unencumbered fee simple of the mortgaged property pursuant to a power of sale under section 58 of the Real Property Act referable to the second mortgage, and its application of the sale proceeds to reduction of the second mortgage debt, consistent with retention of subrogated rights of the first mortgagee to enforce securities collateral to the first mortgage.
The questions stated for separate determination (by an order made on 27 June 2017, amended on 6 December 2017 and 19 September 2018) are answered as follows: 1. Question 1: Yes. 2. Question 2: As a matter of arithmetic, yes. 3. Question 3: No. The plaintiff is not subrogated to rights of the first defendant under any of the securities given by the second and third defendants to the first defendant collateral to registered mortgage AG523550. 4. Question 4: Not applicable. 5. Question 5: Yes. 6. Question 6: Upon an exercise of the plaintiff's rights under sections 94-95 of the Conveyancing Act 1919 NSW to pay out registered mortgage AG523550 and, by registered dealing AJ492453, to become registered proprietor of that mortgage, sections 51-52 of the Real Property Act 1900 NSW operated to transfer to the plaintiff the mortgage security and the rights, powers and privileges relating to the debt secured by the mortgage, not including an entitlement to the benefit of securities collateral to the mortgage. Upon an application of the equitable the principle enunciated in Ghana Commercial Bank v DT Chandiram [1960] AC 732 at 745 the plaintiff was not subrogated to rights of the first defendant under securities collateral to the mortgage. In paying out mortgage AG523550 and taking a transfer of it pursuant to statutory rights, without more, the plaintiff acquired all the security it bargained for (namely, transfer of the mortgage with an entitlement to enforce the debt secured by the mortgage) without any occasion for equity to intervene (to permit it to recover money under securities collateral to the mortgage) to avoid an unconscionable result.
It follows from the agreement between the parties that, the separate questions having been thus answered, the proceedings must be dismissed as against the second and fourth defendants, if not generally.
The parties will be allowed an opportunity to confirm the form of dispositive orders to be made and to make submissions about costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 May 2019

732 Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Groongal Pastoral Company Ltd (In Liq)v Falkiner (1924) 35 CLR 157 Henry Roach (Petroleum) v Credit House (Vic) [1976] VLR 309]". Highland v Exception Holdings Pty Ltd (In Liq) [2006] NSWCA 318; 60 ACSR 223; 24 ACLC 1576 King Investment Solutions Pty Ltd [2005] NSWSC 1076; 13 BPR [98296] King Investments Solutions Pty Ltd v Hussain [2005] NSWSC 1076; 13 BPR [98296] Ley v Scarf (1981) 146 CLR 56 Manser v Dix (1857) 8 De GM & G 703; 44 ER 561

Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 Measures v McFadyen (1910) 11 CLR 723731, 733 and 737-738 Orakpo v Manson Investments [1978] AC 95 Otter v Vaux (1856) 6 DEGM&G 638; 69 ER 943 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Queens land Premier Mines Pty Ltd v French (2007) 235 CLR 81 R v the Registrar of Titles; ex party Watson [1952] VLR 470 Re Dalma No. 1 Pty Ltd (ACN 111 772 260) (In Liq) [2013] NSWSC 1335 Registrar General v Gill (1994) NSWCA 26 Reliance Finance Corporation Pty Ltd v Orwin (1964) 82 WN (PT 1) (NSW) 11 Residential Housing Corporation v Esber (2011) 80 NSWLR 69 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 Saffron Sun Pty Ltd v Perma-Fit Finance Pty Ltd (In Liq) (2005) 65 NSWLR 603 Shell Co of Australia Ltd v Zanelli [1973] 1 NSWLR 216 Sussman v AGC Advances Ltd (1995) 37 NSWLR 37 Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489 Tsatsoulis v Trigamist Holdings Pty Ltd [2000] NSWSC 900 Universal Show Cards & Display Manufacturing Ltd v Brunt (1984) 128 Sol Jo 581. Zanzoul v Westpac Banking Corp (1995) 6 BPR [97549] Texts Cited: Denis SK Ong, Ong on Subrogation (Federation Press, Sydney, 2014) ELG Tyler, PW Young, and CE Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, Lexis Nexis Butterworths, Australia, 2014), para [36.17) Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 2nd ed (1984) Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, Australia, 2015 Baalman's The Torrens System in New South Wales (Law Book Co, Sydney, 2nd ed, 1974 JD Heydon, MJ Leeming, and PG Turner (eds) Category: Principal judgment Parties: Plaintiff: Huizhong Investment Group Pty Ltd ACN 134 003 375 First Defendant: Westpac Banking Corporation Ltd ABN 33007 457 141 Second Defendant: Magasi Pty Ltd ACN 155 251 380 (in its own right and as Trustee for the Schultz Family Trust) Third Defendant: Geltonia Pty Ltd ACN 127 917 980 (in its own right and as Trustee for the Annandale Unit Trust) Fourth Defendant: John Lyons Rigelsford t/as Rigelsford Jensen & Co. ABN 49 251 201 225 Representation: Counsel: Plaintiff: PD Reynolds Second Defendant: S Chapple Fourth Defendant: J Emmett

(1910) 11 CLR 723731

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