The plaintiffs commenced these proceedings by summons filed in court by leave of the Duty Judge given on 20 February 2015.
The primary relief sought by the plaintiffs is a declaration that there is a binding and enforceable agreement between the plaintiffs and the defendant for the granting of a mortgage to the plaintiffs by the defendant over the defendant's interests in two properties. The plaintiffs also seek an order that the defendant specifically perform the agreement by executing mortgages in the form attached and marked A to the summons, or such other form as the Court deems fit.
Annexure A is a draft mortgage in the common form appropriate for registration under the Real Property Act 1900 (NSW). The defendant is described as mortgagor, and the first plaintiff as mortgagee. I assume that the first plaintiff alone has been included as mortgagee because the second plaintiff, her daughter, is a minor, and commenced these proceedings by her next friend, the first plaintiff.
The draft mortgage identifies the terms of the mortgage as being included in two documents. The first is annexure A to the draft mortgage, and the second is registered memorandum No Q860000.
Annexure A includes the following terms:
1. The principal sum secured by this Mortgage is $370,000 ("the Principal Sum") and is repayable in accordance with the terms of this Mortgage.
2. The principal sum is repayable on the 30 June 2015.
3. The Mortgagor will pay to the Mortgagee on repayment of the Principal Sum interest on the Principal Sum commencing 3 months after 21 November 2014 at the post-judgement rate described by section 101 of the Civil Procedure Act.
4. Any sale of the secured properties by the Mortgagor must be at arm's length transaction/s and must not occur for less than market value as determined by an independent valuer.
5. The Mortgagor must insure all buildings and insurable improvements on the mortgaged land for their full insurable value against damage by fire, explosion, storm, tempest and other insurable risks and if requested by the Mortgagee produce to them evidence of such insurance and of renewal of such insurance.
6. This Mortgage incorporates the covenants and conditions set out in memorandum Q860000 filed in the Land Titles Office.
The plaintiffs provided to the Court a copy of Memorandum Q860000 during the proceedings. It contains 13 terms. It will not be convenient to set out those terms at length. They include covenants requiring the mortgagor to insure the property, to keep the property in good repair, to permit the mortgagee to effect insurance and repairs upon default by the mortgagor, and to pay to the mortgagee such costs if they are incurred. Clause 6 grants to the mortgagee on default by the mortgagor the right to exercise all of the powers of the mortgagee under the Real Property Act 1900 (NSW) or the Conveyancing Act 1919 (NSW). There are provisions that regulate the exercise of the mortgagee's powers. The mortgagee is given a right to retain possession of the certificate of title.
The plaintiffs' application has been made as a result of the following circumstances. The plaintiffs commenced proceedings in the District Court against the defendant seeking damages in tort for personal injury. In November 2014, on the eve of the hearing, the claims before the District Court were settled by an agreement which required the defendant to pay damages to the plaintiffs and to grant a security over the two properties.
The settlement was made by correspondence between solicitors for the parties. On 3 November 2014, the plaintiffs' solicitor made an offer to the defendant's solicitor, which was materially as follows:
We confirm that we hold instructions to resolve all three claims for the amount of $370,000 inclusive of costs. There will need to be an apportionment of the figure between the three claims and the settlement is obviously subject to approval of the Court in relation to the claims involving B Lampion and the Compensation to Relatives Act claim. Otherwise, we note the following conditions would also apply: -
1. Payment of judgment sums would be made as follows: -
i From the proceeds of sale of [road name omitted], our client would receive 50% of the net proceeds, the net sale proceeds being proceeds received less legal costs on sale, agent's commission and your legal costs of the proceedings.
ii. Our client would also receive 50% of the net sale proceeds of the property at [address omitted], the net sale proceeds being the sale proceeds received less the agent's commission and legal expenses on sale. We do note those net sale proceeds could involve your legal costs of the proceedings if the [road name omitted] property sold prior to the [road name omitted] property. Obviously the payment to our client of sale proceeds of both the sales is capped at $370,000.
2. The [road name omitted] property would need to be put up for sale as soon as practicable.
3. To secure the judgment, our client would be provided with an unregistered mortgage secured by a caveat over both properties.
4. Our client is prepared to provide for 3 months interest moratorium to afford an opportunity for the properties to sell. Thereafter interest would be payable on the balance outstanding at the post-judgment rate prescribed by section 101 of the Civil Procedure Act.
5. If either property had not been sold and the judgment sum remained outstanding after the expiration of 6 months, the properties would need to be sold by auction.
6. Sales to be at arm's length and not less than market value.
7. Agreement to be reflected in settlement deed with Mrs Lampion to be a party.
If the matter is to resolve we would need to have settlement documentation in place for Wednesday in order that the hearing time allocated can be utilised in the Court giving consideration to an approval of the settlement.
The defendant's solicitor's letter of 4 November 2014 was in the following terms:
We refer to your telephone discussion with the writer this afternoon and confirm that our client accepts the proposal set out in your letter of 3 November 2014.
In light of the above, tomorrow's hearing will not proceed, on the basis that the matter has settled. In the event that more time is required to finalise consent orders, the proposed deed of settlement and your affidavit, we suggest that the matter be held in the list or a short adjournment obtained until such time that those issues can be addressed.
Please confirm your agreement with the above as a matter of urgency.
It appears that the defendant subsequently denied that he had entered into a binding settlement of the plaintiffs' claim, and by motion in the District Court on 21 December 2014, the plaintiffs sought freezing orders against the defendant, and a declaration that the case had settled. The District Court made interim freezing orders.
On 10 February 2014, Gibson DCJ delivered her reasons for judgment on the plaintiffs' application. One of the orders sought by the plaintiffs was in the following terms:
That the Defendant execute mortgages with respect to the properties, [title references omitted] in the form contained in Annexure JHGF3 to the affidavit of JHG Finney sworn and filed herein.
Her Honour made the orders claimed by the plaintiffs to establish that the defendant was bound by the settlement effected by the correspondence between the solicitors, but she declined to make the order sought requiring the defendant to execute the mortgage. Rather, her Honour noted that the plaintiffs would bring an application in the Supreme Court for that relief. The present proceedings are the proceedings foreshadowed in her Honour's note.
Before the plaintiffs commenced the present proceedings, their solicitor demanded, by letter written to the defendant's solicitor, that the defendant execute a mortgage in the terms contained in annexure A to their summons. On 19 February 2015, the defendant's solicitor replied in the following terms:
We are instructed that our client is not agreeable to executing the mortgages. That said, her Honour Gibson DCJ found that there was a binding agreement as between our clients, such agreement including the provision of mortgages secured by caveats, so it is unarguable that your clients have an equitable interest in the properties.
We note that any mortgage obtained by your clients is unable to be registered.
Given the above, the application you are envisaging does not appear to advance your clients' position, and in our view is bringing about costs that may not be necessary.
The issue that requires determination in these proceedings is the meaning and effect of the paragraph in the plaintiffs' solicitor's 3 November 2014 letter that provides: "To secure the judgment, our client would be provided with an unregistered mortgage secured by caveat over both properties".
That issue requires the Court to consider two questions. The first concerns the meaning of the words to which the parties agreed. The second concerns whether the Court can, and should, order the defendant to execute a mortgage that contains a significant number of detailed terms that were not included, either expressly or by reference, in the 3 November 2014 letter.
The plaintiffs have not asked the Court to order the defendant to execute a legal mortgage in the sense in which that term was used in old system conveyancing, before the introduction of the Torrens System. Old system mortgages took effect as a conveyance of the legal title to the property subject to an equity of redemption. A legal mortgage of that nature could be distinguished from various types of equitable mortgage, which did not involve conveyance of the legal title. However, what the plaintiffs hope to achieve is the modern equivalent of an old system legal mortgage, being the registration against the title to the two properties of a mortgage executed in registrable form. The plaintiffs would then achieve whatever priority over other interests in the properties that might follow from the registration of the mortgage, as well as indefeasibility of title in their mortgage. Further, they would achieve the result that the terms of the mortgage would be spelt out, and would include, very importantly, the right on default to exercise the statutory powers of sale. In King Investment Solutions v Hussein [2005] NSWSC 1076; (2005) 64 NSWLR 441 at [52] to [54] Campbell J (as his Honour then was) distinguished between the nature of the interest of a registered mortgagee of Real Property Act land, and that of an unregistered mortgagee over such land, in the following terms:
Nature of the Interest of a Registered Mortgagee of RPA Land
[52] In contrast to the position under the old system, s 57 Real Property Act 1900 provides that a mortgage under that Act "has effect as security but does not operate as a transfer of the land mortgaged". The registered proprietor remains as registered proprietor, even when a mortgage is registered against his or her title.
[53] However, statute confers upon a registered mortgagee a variety of powers which can be used to enforce the mortgage, including a power upon default to sell the land without taking any court proceedings. The interest of a registered mortgagee of Torrens Title land is sometimes referred to as a "statutory charge", to recognise that it is an interest somewhat analogous to a charge, which has many important attributes which derive from statute.
Nature of the Interest of an Unregistered Mortgagee of RPA Land
[54] The Real Property Act 1900 itself confers no status upon an unregistered mortgage. Rather, the attributes of such a mortgage derive from the contract between the mortgagor and mortgagee, and the general law. Relevant provisions of the contract can include whether there is a right to possession of the mortgaged land, whether there is a power of sale out of court upon default, whether there is a covenant to execute a registrable mortgage, and whether there is a covenant to procure the registration of a registrable mortgage. The rights under the general law could be affected by whether the unregistered mortgagee had custody of the certificate of title, and whether there were any prior mortgages. Rights under the general law may also depend upon the extent to which it is possible to obtain specific performance of particular covenants in the mortgage. Provided only that the intention to make the land security for a debt is clear, an unregistered mortgage will confer at least the rights which the general law confers upon a chargee. Whether there are any more extensive rights will depend upon the circumstances of the particular mortgage. In the present case, the intention of the mortgagors to make the land act as security for the debt is clear.
In substance, the plaintiffs argue that par 3 of the letter of 3 November 2014 entitles them to require the defendant to execute a mortgage in registrable form.
The settlement agreement between the plaintiffs and the defendant does not oblige the defendant to execute in favour of the plaintiffs any mortgage in registrable form, and in particular does not oblige him to execute such a mortgage containing the terms in annexure A to the summons, or any other particular terms.
The first reason for this conclusion depends upon the proper construction of the settlement agreement. The agreement expressly provided that the mortgage would be "unregistered". It necessarily follows that the mortgage to which the plaintiffs would be entitled would be of the nature of what is now commonly called an equitable mortgage. The plaintiffs' demand that the defendant execute a mortgage in registrable form is implicitly, but plainly, inconsistent with the agreement that the plaintiffs would receive an unregistered mortgage. That conclusion is reinforced by the wording of the settlement agreement that provides that the unregistered mortgage would be "secured by caveat over both properties". The procedure of protecting the plaintiffs' interest in the properties by the lodgement of caveats is inconsistent with the plaintiffs having a registered mortgage over the properties (and also would be entirely unnecessary if the mortgage was registered).
In the present case it is clear that, not only did the parties not agree in the settlement agreement that the mortgage would contain the terms in annexure A to the summons, or any other particular terms, they did not agree to any mechanism whereby either of them, or any third party, could determine terms to be included in the mortgage.
This case is not like Axelsen v O'Brien (1949) 80 CLR 219, where the agreement provided that the mortgage was to contain such terms as shall be required by the solicitor for the vendors "not inconsistent with the above terms". Nor was there a term, such as was the case in GE Commercial Corporation (Australia) Pty Ltd v Future Network (Albury) Pty Ltd [2013] NSWSC 1228, where the defendant had agreed to "grant to GE a legal mortgage in registrable form (containing such terms and conditions as GE may require)…" In both of these cases, the parties agreed to a mechanism for the determination of the terms of the mortgage, in the first case the solicitor for the vendors, and in the second, the mortgagee.
The plaintiffs sought to justify their claim by pointing to various reasons why the execution of the mortgage that they seek would be convenient to them, and would improve their position, because apparently there are competing claims to the defendant's properties. They submitted that the terms in annexure A to the summons were reasonable. However, as has recently been said by Macfarlan JA (Bathurst CJ and Meagher JA agreeing) in Malago Pty Ltd v A W Ellis Engineering Pty Ltd [2012] NSWCA 227 at [49]:
In circumstances such as the present, whilst the Court may make an order for specific performance requiring the parties to execute a contemplated formal agreement, it cannot require the inclusion in that document of terms simply on the basis that, whilst not agreed, they are reasonable and consistent with the parties' informal agreement. It is otherwise with terms that, whilst not agreed, are of a mechanical nature and are designed to implement the informal agreement (see for example Singh (Sudagar) v Nazeer [1979] Ch 474; [1978] 3 All E R 817 at 480 - 2 per Sir Robert Megarry V-C).
For these reasons the plaintiffs' claim in these proceedings must fail.
I make the following orders:
1. Order that the plaintiffs' summons is dismissed.
2. Order the plaintiffs to pay the defendant's costs.
3. Order that the exhibits and any documents produced on subpoena may be returned forthwith in accordance with the rules.
[2]
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: 08 July 2015