Prospects of the Proposed Appeal
29Mr Roberts intends to challenge the finding of no security solely on the ground that as at the date of the Roberts payment cl 21 of the agreement conferred upon him an equitable mortgage of the company's land, despite the absence of any request.
30In para 31 of the first judgment, I held that because no request under cl 21 of the agreement for any security had been made by Mr Roberts at any time, there was no obligation on the company to give any and Mr Roberts' debt remained unsecured at all times.
31It is well settled that where money has been advanced under a specifically enforceable agreement to grant a mortgage, an equitable mortgage is created; see Pico Holdings Inc v Wave Vistas (2005) ALJR 825 at 837; Peter Butt, Land Law 6 th Ed at [18.13]. Mr Roberts will contend that he had such an agreement.
32The central question is whether on the proper construction of the agreement the parties intended that the security concerned would be immediately conferred even without a request. If they did not, then there will be no specifically enforceable agreement until the request is made.
33The holding in para 31 of the first judgment could equally have been expressed in terms that on the proper construction of cl 21 of the agreement, the parties did not, without a request, intend that the company would with immediate effect confer any security on Mr Roberts. Consequently, without a request for a mortgage over the company's land, there was no specifically enforceable agreement by the company to grant it to him.
34Clause 21 of the agreement gives Mr Roberts the option of requesting one or more forms of security, both specified and unspecified, and at any time, that is, at different times. This is inimical to the conclusion that the parties intended that any particular security would be immediately operable.
35By the same token, giving cl 21 of the agreement the effect contended for by Mr Roberts would have the consequence that each of the named securities was intended to be immediately conferred. This would render the request otiose.
36No doubt each case must be considered on the specific terms of the agreement between the parties. There are, however, instances in the authorities where consideration has been given to whether an equitable mortgage arises immediately where the agreement concerned provides for a mortgage to be given on demand or request.
37In Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190, 246 (CA), Sir Robin Cooke presiding over the New Zealand Court of Appeal (with whom Casey J and Bisson J agreed) considered a provision in Banking Terms that "The Customer will, immediately on request, provide the Bank with such alternative or additional security for the obligations of the Customer as the Bank may require". His Honour concluded that no obligation to provide the additional security would arise until there had been a request and requirement by the bank pursuant to the terms of the clause, and until then the customer was free to deal with any of his or her properties without obligation in respect of them to the bank and no charge by way of security, legal or equitable, nor any other interest in them was created in favour of the bank.
38Even clearer is Kilmartin v Monk (2005) 5 NZ ConvC 194,122 where Rodney Hansen J considered a Deed which provided that "The borrower shall upon written request by the lender, execute a second mortgage over 64 Routley Drive, Glen Eden (CT80B/435) to secure the debt advanced by the lender". At para 10, his Honour held as follows:
An equitable mortgage of land confers on the mortgagee an equitable interest that will support a caveat. An equitable mortgage may be created by an agreement to mortgage but a security agreement in which the debtor merely agrees to grant a mortgage if requested to do so by the creditor will not by itself create an equitable mortgage. In order for an equitable mortgage to come into existence, an effective request to grant a mortgage over the property must be made by the creditor: Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA)
39To the same effect is Penny Nominees Pty Ltd v Fountain (unreported) NSWSC, 2 May 1989, in which Young J (later CJ in Eq and then JA) said at p 3:
If a person promises to give a mortgage and the promisee has given valuable consideration for such promise, then an equitable mortgage exists from that moment in time and if necessary the court will decree specific performance of that agreement; see eg Lamont v Osborn [1902] 28 VLR 434 and Re Dixon (1922) 39 WN (NSW) 89. If, however, the agreement is subject to a condition then it would not seem to me that any specifically enforceable obligation to give a mortgage arises until the condition is satisfied. Accordingly, if one has an agreement with X, if so required by Y, by notice in writing from Y, shall execute a mortgage, no specifically enforceable interest arises until Y makes that demand. This view is supported by the decision of Ward J in Investment and Merchant Finance Corp Ltd v Kirkwood Estates Ltd (1975) 5 ALR 191, 195. On this basis the second defendant would only have an interest in the land as from the date of demand; namely, 17 July 1986. Accordingly, as at the date of the caveat the second defendant would not have an estate or interest in the land, so that the claim made in the caveat does not have substance and were it not for the matter I will mention in a moment, the court will have to obey the statutory command in s74K(2) to dismiss the present application.
The reservation that I have is that the matter has come on fairly quickly and there has been little time to conduct an exhaustive search through the authorities to see whether the principle which I have relied on and which is supported by the decision of Ward J is not effected by other authorities. Accordingly, it seems to me that I would be justified, under the subsection, in extending the caveat until 12 May and giving liberty to any party to relist the matter on 12 May for further argument should that party, at its or his own risk as to costs, consider that further authority has come to light. (emphasis added)
40According to the learned authors of Fisher & Lightwood's Law of Mortgage, 2 nd ed (2005), (of which Young JA is one) at p 346:
It is not an infrequent occurrence for banks to include a clause in a loan agreement that the borrower will execute a mortgage 'if so requested'. This will ordinarily be sufficient to create an equitable mortgage : Re Beetham; Ex parte Broderick (1886) 18 QBD 380 and 766; Rooker v Hoofstetter (1896) 26 SCR 41 (Can); Re Collins (1982) 140 DLR (3d) 755. However the mortgage will only come into being on the request for it being made: Penny Nominees Pty Ltd v Fountain (SC (NSW), Young J, 2 May 1989, unreported) and Canadian Imperial Bank of Commerce v Rehnby (1992) 22 RPC (2d) 93. (emphasis added)
41Canadian Imperial Bank v Rehnby, which the learned authors cite (the correct citation being (1992) R.P.R (2d) 93), is to the same effect. It concerned a letter of undertaking whereby customers of the bank undertook and agreed, "on demand of the bank" to execute and deliver a legal mortgage over clearly identified property. Hunter J held that the letter of undertaking without more did not constitute or create an equitable charge. His Honour held that once the bank does make its demand, an equitable mortgage is created, along with an entitlement to a legal mortgage.
42It is put that his Honour later retreated from the statement of principle he had made in Penny Nominees v Fountain Pty Ltd in Penny Nominees Pty Ltd v Fountain (No 2) (unreported) NSWSC, 12 February 1990 in which, at p 2, his Honour said:
I reviewed some of the authorities in an interlocutory judgment in this case on 2 May 1989. As I there remarked, one only gets an equitable interest in property at the time when a specifically enforceable obligation to give a mortgage over the particular property occurs. If one has a case of promising to mortgage a property when required and that property is in existence and specifically defined, then it may very well be that there is an equitable interest in the property as from the date of the promise to grant a mortgage . (emphasis added)
43A number of things may be observed with respect to the passage relied on. Firstly, it was not to the effect that an equitable interest would arise, it did no more than leave open the possibility. Secondly, his Honour did not go on to identify the principle which would give rise to an immediately enforceable agreement without a request. Thirdly, his Honour did not identify the authorities which led to his reconsideration. Finally, and perhaps most importantly, the decision is not footnoted in Fisher & Lightwood either as qualifying the statement at p 346 referred to above or at all.
44Counsel for Mr Roberts referred to the following passage in Halsbury's Laws of England (1980) 4 th Ed p 204 at [437]:
In equity a mortgage is created by a contract evidenced in writing for valuable consideration to execute, when required, a legal mortgage, or by a contract so evidenced and for valuable consideration that certain property is to stand as a security for a certain sum.
45He also referred to Dighton v Withers (1862) 31 Beav 423, which is footnoted in the passage, a decision of Lord Romilly MR who held that an instrument promising to execute a legal mortgage whenever required by the promisee was an equitable mortgage. However, the case does not disclose whether the point presently under consideration was raised or considered.
46Mr Roberts intends to support his contention by reference to s 9 of the Act which defines "charge" to mean "a charge created in any way and includes a mortgage and an agreement to give or execute a mortgage, whether on demand or otherwise ". (emphasis added)
47The proposition is that if an instrument falls within the definition of charge in s 9 of the Act, it follows that it confers security within the meaning of s 588FA of the Act. I have significant doubts as to the correctness of this proposition.
48Chapter 2K of the Act provides a code for the registration of registrable charges as defined. The definition of charge primarily affects the operation of Ch 2K of the Act and does not impact the question, which arises here, namely whether cl 21 of the agreement has the effect that the debt owed to Mr Roberts was not an unsecured debt for the purposes of s 588FA of the Act. Chapter 2K extends to agreements and arrangements beyond those which would be considered securities at common law or in equity.
49Although I would respectfully suggest that the authorities collected in this judgment provide solid support for the conclusion to which I came, the principal point which Mr Roberts proposes to promote has not been the subject of appellate authority in this jurisdiction. I do not think that it can fairly be said that the point is devoid of substance.
50Although I have significant doubts as to the correctness of Mr Roberts' ancillary position with respect to s 9 of the Act, it likewise cannot fairly be said that it is devoid of substance.
51A subsidiary question which is bound to arise in the appeal is whether the agreement is certain enough to be the subject of an order for specific performance.
52In Penny Nominees Pty Ltd v Fountain (No 2) Young J said the following at p 3:
However, in the instant case the form of the agreement is one which does not specify the property, does not specify the form of the mortgage, does not specify the amount of the mortgage, does not specify the amount of the indebtedness and it seems to me that the number of possible variables are so great that, until the obligation was crystallised by a requirement, equity would be in no position to grant any order for specific performance to compel the mortgagor to grant a mortgage. Thus no equitable interest came into existence on the part of the second defendant until the requirement was made on 17 July 1986 and, accordingly, there was no equity which took prior in time to the equity of the plaintiff.
53Whilst cl 21 identifies the property, it does not specify the form of the mortgage, the amount of the mortgage or the amount of the indebtedness. On the reasoning in Penny Nominees Pty Ltd v Fountain (No 2), there would not be sufficient certainty in cl 21 to create an equitable interest.
54This question too may be considered appropriate for appellate consideration.
55I mention that the submissions on behalf of the liquidator include one that the security described in cl 21 had disappeared because the Land (as defined) had been sold before the Roberts' payment. The strata plan for the Land was registered on 24 December 2002 when folio identifier 395/36813 was cancelled and replaced by folio identifiers 1 to 5/SP69068, each representing one townhouse. Townhouses 2 to 5 had been sold and settlement had occurred by the end of February 2003. Townhouse 1 was settled on 13 March 2003. Mr Roberts contends that he was paid out of the proceeds of the last sale. It is not necessary to consider the liquidator's prospects of success in this argument and I have left it out of account.
56In these circumstances, I consider that Mr Roberts has identified arguable grounds for appeal. In addition, there is at least one issue of substance which might be the subject of a notice of contention.