Are the loans secured?
13The bank seeks a declaration that the shares in Jefferson are subject to a mortgage to the bank and that mortgage secures the peak performance facility and the home loan. The bank seeks an order for the delivery up of possession of 7/43 at the relevant address in Double Bay and judgment for the outstanding amounts under the peak performance facility and the home loan.
147/43 at the relevant address in Double Bay, while occupied by Mr Clowes and Ms Moore because of their holding of the shares, was not their property. Flat 7 at the relevant address in Double Bay was part of the building owned by Jefferson. Mr Clowes and Ms Moore could not grant a first registered mortgage over that property.
15The mortgage and charge over the shares did not overtly apply to the peak performance facility or the home loan. Reliance was placed on cl 6(a) which gave the bank full power to enter and take possession after default by Mr Clowes and Ms Moore in payment of the principal sum "or other money secured". But while the mortgage and charge could have been extended to other loans, the short answer is that it was not.
16The bank up-stamped the mortgage and charge over the shares to $725,000, the total of the peak performance facility and the home loan.
17But the problem was that the bank used security documents inappropriate to security by way of mortgage and charge of shares in a company title property.
18Counsel put the bank's case for security on three bases. First, that the mortgage and charge of shares applied to the peak performance facility and the home loan. Secondly, that the description of the property the subject of the security under those facilities should be read as referring to 9,000 shares in Jefferson. Thirdly, that an equitable mortgage arose by reason of the deposit of the share certificate with the bank.
19It was submitted that the execution by Mr Clowes and Ms Moore of the continued reliance and extension of security document evinced an intention on the part of the bank and Mr Clowes and Ms Moore that the security for the reducible mortgage loan should apply to the peak performance facility and that security included the mortgage and charge over the shares.
20I reject that submission. The continued reliance and extension of security document limited the security to be extended to the peak performance facility to a first registered mortgage over 7/43 at the relevant address in Double Bay. That was a security that Mr Clowes and Ms Moore were incapable of giving and did not give.
21The mortgage and charge over the shares was not an "all moneys" security. It applied to a principal sum to be advanced by the bank upon the execution of the mortgage and charge in an amount that the bank had already agreed to lend and advance and the receipt of which was acknowledged by Mr Clowes and Ms Moore.
22That description of the principal sum in the mortgage and charge over the shares was clearly limited to the reducible mortgage loan and did not extend to the future advances under the peak performance facility and the home loan.
23That the bank up-stamped the mortgage and charge over the shares does not establish a common intention that would justify rectification of the mortgage and charge over the shares to constitute it as an "all moneys" mortgage.
24As to the second basis, the description of the security in the documentation for each of the three loans as a first registered mortgage over 7/43 at the relevant address in Double Bay is not apt to apply to the 9,000 shares in Jefferson. It is an apt description of a Torrens title mortgage over land. I reject the submission that the description should be treated as if it applied to the shares in Jefferson.
25As the third basis, cl 2 of the mortgage and charge over the shares required the bank to return the share certificate to Mr Clowes and Ms Moore when the reducible mortgage loan was paid out.
26Counsel submitted that the obligation to return the share certificate was subject to any agreement of the parties to the contrary and the court should find that the parties had agreed between themselves that there was no obligation to redeliver the share certificate.
27But the words "as agreed between the parties" in cl 2 of the mortgage and charge over the shares do not apply to the obligation to redeliver the share certificate. They apply to the amount of principal and interest payable on discharge. Furthermore, there was no evidence of any agreement between the parties to vary any obligations under the mortgage and charge over the shares.
28The bank had not received from Mr Clowes and Ms Moore an executed transfer of the shares as required under the mortgage and charge over the shares and, no doubt, decided unilaterally to retain the share certificate.
29Counsel relied upon UTC Ltd (in liq) v NZI Securities Australia Ltd (1991) 4 WAR 349 where Malcolm CJ at 351 and Ipp J at 354, with whom Nicholson J agreed, said that there was a long established general rule that a deposit of title deeds to secure a debt was presumed to operate as an equitable mortgage over the property in the title deeds. (See also Harrold v Plenty [1901] 2 Ch 314; General Credit & Discount Company v Glegg (1883) 22 Ch D 549; Stubbs v Slater [1910] 1 Ch 632; Adelaide Building Co Pty Ltd (in liq) v ABC Investments Pty Ltd (1990) 8 ACLC 445).
30But the retention of the share certificate in this case after the discharge of the mortgage and charge over the shares distinguishes this case from the above authorities. There was no voluntary deposit of the share certificate after the reducible mortgage loan was paid out. There was an unjustified retention of the certificate contrary to the obligation of the bank to return it.
31Furthermore, it was not the deposit of the share certificate that gave rise to the bank's security. Its security arose from the mortgage and charge over the shares.
32I reject the submission that an equitable mortgage of the shares arose following the discharge of the reducible mortgage loan.
33In my opinion the peak performance facility and the home loan were unsecured and the bank is not entitled to relief on the basis that it is secured.
34There is ample evidence of default on the part of Mr Clowes and Ms Moore which would justify judgment entered against them for the principal amount of the peak performance loan and the home loan together with interest at the rates specified in the documentation to which Mr Clowes and Ms Moore agreed.
35However, Ms Moore was declared bankrupt on 2 February 2012 and her property vested in the trustees of her bankrupt estate. Judgment should not be entered against her.
36I have received an interest calculation to 13 February 2012. As at that date the outstanding balance of the peak performance loan was $29,879.17 and the home loan stood at $939,383.24. I enter judgment in the amount of $969,262.41 against Mr Clowes and order him to pay the bank's costs. The summons is otherwise dismissed. The exhibits are to be returned.