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[2003] VSC 495
plaintiff. The purchasers’ claims succeeded on priority, but the supplied text does not state the formal final orders.
The bank's original mortgage was tied to a loan for refurbishing apartments, not automatically to later lending for unrelated company debts. The bank and its lawyers knew that some apartments had been sold before the bank made the later advances. The court found that the bank did not establish that the purchasers had given up their contractual interests, and that it had failed to check with them or otherwise verify the alleged abandonment. The rule in Hopkinson v Rolt meant that the bank could not obtain priority for its later advances over those known earlier interests. The purchasers were also not treated as knowing the mortgage restrictions just because the mortgage was registered.
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2,956 words · generated 30/09/2026
This judgment concerns three consolidated proceedings about priority to apartments in a Melbourne development at 123–139 LaTrobe Street. Redlich J heard the cases together because they raised common questions of fact and law. OCBC was the first mortgagee, Richfield Investments Pty Ltd was the developer and mortgagor, and MKIC and Aljade were purchasers under contracts of sale. Jadewealth had been nominated to complete the Aljade purchase. The supplied text records the purchasers' claims for priority and specific performance, and OCBC's possession and mortgagee-sale claims. It does not include a separate formal orders section.
No linked legislation citations have been extracted yet.
In September 1997, OCBC agreed to provide Richfield with a construction facility of up to $6,863,000 for refurbishing 37 residential apartments. Richfield granted a registered first mortgage and a fixed and floating charge as security. The facility agreement said the advance was to assist with refurbishment, and contemplated repayment from apartment sale proceeds (paras 4–5, 22, 41).
Richfield later entered into contracts to sell apartments to Aljade and MKIC. The Aljade contract covered apartments 19, 22, 62 and 63, with Jadewealth nominated as purchaser. The MKIC agreement covered six apartments. The purchases were structured as satisfaction of debts, rather than ordinary cash payments at settlement (paras 6–10). The purchasers lodged caveats.
OCBC's solicitors received sale-related documents and prepared partial discharges. The bank executed those discharges in September 1999 in anticipation of settlement, which the parties' solicitors had agreed would await sufficient proceeds from other sales to repay the bank (paras 11–13, 108–117). The original facility was repaid on 29 September 1999 (paras 59, 63).
In October 1999, OCBC offered Richfield a new facility. The proceeds were directed substantially to paying the debts of Century Estates and the Adorna Group, rather than to the apartment refurbishment project. The facility was accepted on 25 October and drawn down in November (paras 15–17, 52–58). OCBC intended to rely on the existing registered mortgage as security.
A central factual dispute was whether Richfield's managing director had told a bank officer, Ms Koh, on 28 September that the sale contracts were not proceeding. OCBC argued that the bank had relied on that information and no longer had notice of the purchasers' interests. The purchasers disputed the conversation and pointed to the bank's files, correspondence, the bank solicitors' knowledge, and the lack of follow-up inquiries. Redlich J was not satisfied that the alleged conversation occurred as claimed. He also found that even if it had occurred, it did not establish that the purchasers had abandoned their rights (paras 119–138, 155–160).
The judgment resolves two connected questions: what the 1997 mortgage secured, and whether OCBC could obtain priority for the later advances over the purchasers' interests.
On the first issue, Redlich J did not treat the words “all monies” in isolation. He read the mortgage, the memorandum of common provisions and the facility agreement together. The documents were executed contemporaneously and formed one transaction; the facility agreement expressly prevailed over inconsistent collateral-security provisions (paras 25, 42, 47). The commercial purpose of the original facility was apartment refurbishment, with repayment from the net sale proceeds. By contrast, the later facility refinanced debts of separate companies. The judge concluded that the 1997 documents did not, without a further agreement, secure an advance of this fundamentally different character (paras 41, 49–50).
There was, however, a further agreement. The October 1999 offer and acceptance showed that OCBC and Richfield intended the existing registered mortgage to be used as principal security for the later facility. The parties' intention to use that mortgage did not settle the priority dispute. It established the intended security arrangement between bank and mortgagor, while leaving open whether the bank could assert priority against the purchasers (paras 52–58).
The priority issue was governed by the rule in Hopkinson v Rolt. As Redlich J explained, a mortgagee cannot make a voluntary further advance with notice that the mortgagor has already dealt with the relevant property, and then claim that the new advance ranks ahead of the known interest. The rule applies to purchasers as well as competing mortgagees and can operate in relation to Torrens title land (paras 67–78). It does not invalidate the whole registered mortgage. It limits the amount for which the mortgage has priority to the amount secured when the mortgagee received notice (para 73).
The bank argued that the rule required an intention to oust the purchasers' interests. Redlich J rejected that requirement. His review of the authorities led him to conclude that the rule rests on equitable notice and fair dealing, not deliberate wrongdoing. A mortgagee can lose priority even if it acted in the honest but mistaken belief that its security remained first in priority. Personal dishonesty, moral turpitude, or an intention to defeat another person's rights was unnecessary (paras 83–95).
The bank had received notice of the sale contracts before the later advances. The judge considered the bank's solicitors' knowledge alongside the knowledge of OCBC officers. The solicitors knew that the contracts were outstanding and, on 19 October 1999, advised the bank that they were held and yet to be settled. Ms Koh did not tell the solicitors that the contracts would not proceed, nor did she respond to their communications. Because the solicitors and officers were involved in different aspects of the same transaction, their relevant knowledge was attributable to the bank (paras 145–148, 159–160).
The judge also found that OCBC had not discharged its evidential burden to show that its notice had ceased before the November advances. The evidence about the alleged September conversation was unreliable, and the bank made no contemporaneous communication to its solicitors or other officers confirming that the purchasers' interests had ended (paras 149–155). More importantly, even if Richfield had said that the contracts were not proceeding, that statement described the vendor's position. It did not show that the purchasers intended to abandon their contracts or that their interests had been extinguished (paras 158–161).
The bank had not sought confirmation from the purchasers or their solicitors, requested documentary proof, or obtained advice from its own solicitors. Redlich J held that a mortgagee already on notice cannot leave the task of clearing the prior interest to the mortgagor alone. If reasonable inquiry would have confirmed that the interest remained, the mortgagee could remain fixed with notice. The principle applied even if the bank's knowledge at the time of the advance were characterised as constructive rather than actual notice (paras 162–175, 177–184).
Finally, the judge rejected OCBC's argument that the purchasers' interests should be denied protection because the sales breached mortgage covenants. He found no evidence that Victorian purchasers ordinarily searched registered mortgage terms before contracting. The facility agreement also prevailed over inconsistent, broader restrictions in the memorandum of common provisions, and was not registered. The evidence did not establish that the purchasers knew OCBC had withheld consent. Nor did the bank establish the alleged breaches on the facts. In any event, the purchasers had not induced the bank to believe their interests had ceased (paras 191–210).
This judgment did not purport to replace the existing rule in Hopkinson v Rolt. Rather, Redlich J applied it to a dispute involving a registered first mortgage, purchasers' equitable interests, a later facility, and contested notice. His explanation of the rule drew on decisions including Hopkinson v Rolt, Sibbles v Highfern Pty Ltd, Mercantile Credits Ltd v ANZ Banking Group Ltd and Sussman v AGC Advances Ltd (paras 67–78).
As described in the judgment, the rule already prevented a mortgagee from tacking voluntary further advances ahead of an intervening interest of which it had notice. It applied even where the later interest-holder knew about the first mortgage, and was not confined to competing mortgages. Redlich J treated it as an equitable doctrine that could operate under the Torrens system without denying the registered mortgagee's title. The effect was on priority for later advances, not on the existence of the original security (paras 71–78).
The decision's particular contribution in this dispute was its treatment of what happens after a mortgagee has notice. OCBC argued that only actual notice sufficed, and that an alleged assurance from the mortgagor removed its notice. Redlich J concluded that the bank could not safely rely on an unverified assertion where it had been put on inquiry. Failure to make reasonable inquiries could leave the bank fixed with notice of the interests those inquiries would have revealed (paras 166–184). The judgment recognised that courts had expressed differing views about whether actual notice was essential, but found it unnecessary to resolve the classification question on the primary facts. It held that the bank's knowledge, actual or constructive, was sufficient to affect its conscience (paras 176–184).
The judgment also addressed the relation between registration and equitable priority. It distinguished the general effect of Torrens registration from the equitable rule limiting priority for later advances. The registered mortgage remained legally significant, but its registered status did not automatically give the bank priority for advances made with notice of a purchaser's earlier equitable interest (paras 74–76).
On all-monies drafting, the judge applied a contextual, transaction-specific method. The decision did not establish that all broad mortgage clauses are limited to an original facility. It held that this particular mortgage, read with its contemporaneous facility agreement and priority provisions, did not automatically cover a new advance for a fundamentally different purpose. The parties could nevertheless agree later to use the mortgage for new lending, subject to competing priorities (paras 36, 41–58).
The supplied judgment contains no account of subsequent appellate decisions or later treatment. Its discussion of the law after this decision must therefore be limited to Redlich J's reasoning and the authorities he considered, rather than claims about later courts.
At paragraph 36, Redlich J says that an all-monies clause must be read in its language, context and commercial purpose. In plain English: broad wording is not interpreted in a vacuum. The surrounding deal documents and what the facility was designed to do matter.
At paragraph 49, the judge concludes that the original documents did not contemplate security for later money advanced for a different purpose. In plain English: the standard mortgage wording did not override the specific refurbishment purpose recorded in the facility agreement.
At paragraph 73, the judgment explains that Hopkinson v Rolt limits the amount enjoying priority to what was secured when notice of the later interest was received. In plain English: the existing mortgage is not necessarily erased, but later lending cannot automatically jump ahead of a known purchaser's interest.
At paragraph 93, Redlich J states that personal fraud need not be proved to obtain equitable relief under the rule. In plain English: the purchasers did not have to prove the bank intended to harm them. The relevant question was whether the bank made voluntary advances with notice of their interests.
At paragraph 155, the judge finds that the bank failed to prove it no longer had notice when it advanced the new funds. In plain English: once the purchasers established the bank's notice, the bank's evidence did not persuade the court that the notice had been effectively removed.
At paragraph 174, the judgment says that a party put on inquiry but making no inquiry remains fixed with notice of what reasonable inquiry would have confirmed. In plain English: a lender cannot necessarily clear a known priority problem by accepting the mortgagor's unsupported account.
At paragraph 202, the judge concludes that the purchasers could not be treated as having constructive knowledge of the relevant facility-agreement covenant, and that there was no evidence they knew the bank had not consented. In plain English: registration of the mortgage did not, on these facts, make the purchasers responsible for undisclosed or unregistered contractual restrictions.
The most direct fit is a lender holding a mortgage that secures a current debt and potentially future advances, where the mortgagor has already granted a purchaser or another interest-holder an equitable interest in the property. The relevant sequence is important: notice of the intervening interest must precede the voluntary further advance for the priority rule to apply (paras 67–78).
A further advance for which the lender is not contractually bound is particularly relevant. The judgment distinguishes voluntary further advances from situations where the mortgagee is bound to make advances and the mortgagor is bound to accept them. It also discusses building-mortgage advances that facilitate construction and increase the value of the security, where the rule may not operate in the same way (para 77).
The case is also relevant where a lender learns of a sale contract, later receives a statement from the mortgagor that the transaction is no longer proceeding, but does not verify the position with the purchaser or their solicitor. The judgment treats the lack of verification as important where documents and surrounding conduct provide reasons for inquiry (paras 162–175).
A further feature is the way notice is gathered across a lending organisation. Where officers and solicitors perform different roles in one transaction, the case illustrates why records, communications and knowledge held in each part of the transaction may matter when assessing the lender's notice (paras 145–160).
The case is less directly applicable where the mortgagee is obliged to make the later advances, where the later advance is of the same character as the original facility, or where the lender has properly verified that the intervening interest was extinguished. The judgment discusses these distinctions, but the supplied text does not resolve every possible variation in those facts (paras 35, 77, 183–184).
The supplied source is Redlich J's 19 December 2003 judgment. It contains no later judgments or subsequent treatment of OCBC v MKIC and Aljade. It would therefore be unsupported to state whether later courts followed, distinguished, limited or disapproved this decision.
Within the judgment itself, Redlich J considered a substantial body of earlier authority. He treated Hopkinson v Rolt as the foundation of the rule against tacking voluntary advances made with notice. He relied on Sibbles v Highfern Pty Ltd in explaining how the rule operates where a mortgage continues but a charge for a further advance only operates once that advance is made (paras 62–63, 77–78). He also relied on Mercantile Credits Ltd v ANZ Banking Group Ltd for the proposition that the rule limits priority without defeating the security itself (para 73).
The judgment did not accept the argument, drawn from Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd, that priority depended on conduct intended to oust the intervening interest. Redlich J considered the authorities inconsistent with making deliberate intent a necessary element (paras 79–95). He used Jared v Clements and Barry v Heider to support the requirement for verification where an existing equitable interest is known or an assurance about its discharge is given (paras 167–169).
The treatment of Nia v Phuong was also qualified. Redlich J discussed its reasoning about constructive notice of registered mortgage terms but found that the evidence in this case did not establish that Victorian purchasers ordinarily searched the register for those terms before making a purchase contract (paras 192–197). These are the authorities' roles in Redlich J's reasoning, not evidence of how later courts treated the 2003 judgment.
The formal final orders are not included in the supplied text. Although the judgment explains why the bank's priority arguments failed and records the purchasers' requests for specific performance and discharges, the exact orders made cannot be confirmed from the material provided.
The judgment also did not need to decide whether OCBC held a bare legal interest, an extinguished charge, or another interest during the interval between repayment of the original facility and the new agreement in October 1999. Redlich J considered the mortgage had not been discharged and that the bank retained at least a bare legal interest, but noted that the charge for the new facility operated when the first further advance was made (paras 63–66). He expressly left aside the possible constructive-trust question because it had not been argued (para 64).
A further issue was whether constructive notice alone would always trigger Hopkinson v Rolt. Redlich J discussed differing authority on actual and constructive notice, including the High Court's statement in Sibbles that actual or constructive notice could prevent tacking. On his primary analysis, the bank had actual notice. He said that, even on the alternative account of the September conversation, the bank's unverified knowledge was sufficient whether characterised as actual or constructive (paras 176–184). The judgment therefore did not need to formulate a complete general rule for every notice scenario.
The judgment's treatment of registered mortgage terms depended on evidence about conveyancing practice in Victoria. Redlich J found that the purchasers were not shown to have constructive notice because the evidence did not establish that purchasers ordinarily searched the register for mortgage terms before contracting (paras 195–197). Different evidence about customary practice, or facts showing that a purchaser actually knew a covenant and the lender's lack of consent, could raise a different question.
The precise reach of “justice and fair dealing” in this setting also remains dependent on facts. The court rejected OCBC's argument because it found that the purchasers had not misled the bank, while the bank had notice and failed to make inquiries (paras 187–210). The judgment does not set out a complete catalogue of circumstances in which a purchaser's own conduct could affect equitable priority.
This is a source-grounded explanation of the supplied judgment, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.
[2003] VSC 495
CATCHWORDS Construction of "all monies" clause in first mortgage - mortgage executed contemporaneously with facility agreement for designated purpose - terms of facility agreement prevail. Tacking further advances onto registered first mortgage - Rule in Hopkinson v Rolt - Mortgagee having actual notice of purchasers' interests in contracts of sale - Knowledge by mortgagee's officers and solicitors - Intention to oust rights of purchasers unnecessary - Whether constructive notice sufficient. Failure of mortgagee to make reasonable inquiries as to whether purchasers' equitable interests extinguished - Rule in Jared v Clements. Justice and fair dealing between parties - Whether mortgagor in breach of negative obligations in mortgage - Whether purchasers had constructive notice of terms of mortgage by virtue of registration. - purchasers' conduct not contributing to mortgagee's belief.
OVERSEA-CHINESE BANKING CORPORATION LIMITED ARBN 073 598 035
OVERSEA-CHINESE BANKING CORPORATION LIMITED (A.R.B.N. 073 598 035)
ALJADE DEVELOPMENT AND CONSTRUCTION SDN BHD (Company No. 208479-W)
OVERSEA-CHINESE BANKING CORPORATION LTD (ARBN 073 598 035)
1 A bank advanced funds to a developer to refurbish residential apartments. The advance was secured by a registered first mortgage over the apartments. During the course of refurbishment and before the advance was repaid, the mortgagor entered into contracts of sale of a number of the apartments with two purchasers. The bank was given notice of the sale of these apartments. The mortgagor's sale of the apartments was said by the bank to be in breach of negative covenants in the mortgage of which the purchasers had constructive notice. Subsequently, the mortgagor fully repaid the advance to the bank. Later, the bank advanced further sums of money to the mortgagor, for purposes unrelated to the refurbishment of the apartments. The bank sought to secure the further advance by the registered first mortgage over the apartments that had been sold to the purchasers. The bank alleged that at the time of the further advance, it had been told by the mortgagor that the contracts of sale with the purchasers were not proceeding. The purchasers disputed that the bank had been so advised and claimed that the bank continued to have notice of their prior equitable interests.
2 The question arises as to whether the registered "all monies" mortgage secured the further advances made by the bank. If it did, it is necessary to consider whether the bank's further advance should be given priority over the equitable interests acquired by the purchasers of which the bank had notice prior to making the further advance. If the mortgagor advised the bank that the contracts were not proceeding, and this was an issue very much in dispute, was the bank entitled to rely upon the information provided by the mortgagor or should it have made inquiries of the purchasers? If the mortgagor in selling the apartments was in breach of the terms of the mortgage, were the purchasers to be treated as constructively aware of such breaches so as to preclude them from enforcing their interests?
3 The bank purported to exercise its powers as mortgagee under the first mortgage and took possession of the apartments. It commenced proceedings against the purchasers for removal of caveats which the purchasers had placed over the apartments. The purchasers commenced proceedings against the bank seeking a declaration that their equitable interests in the apartments acquired by virtue of their contracts of sale, took priority over the mortgage and sought specific performance of their contracts of sale. The mortgagor, though a party to these proceedings, did not participate in them and no one was called to give evidence on its behalf. As the same issues of fact and law arise in each of the proceedings they have, by consent, been heard together.
4 Richfield Investments Pty Ltd (the mortgagor) is and was at all material times the registered proprietor of land at 123-139 LaTrobe Street, Melbourne, Victoria (the property). By agreement dated 22 September 1997, the mortgagor entered into a construction facility agreement with Oversea-Chinese Banking Corporation Limited (OCBC - the bank) to refurbish residential apartments at the property (the facility agreement). On the same date, the mortgagor granted the bank a fixed and floating charge over all its property, assets and rights and executed a mortgage over the whole of the property in favour of the bank as security for the payment of the monies advanced under the facility agreement. The mortgage was registered on or about 14 October 1997.
5 The mortgagor drew down $6,863,000 pursuant to the facility agreement for the expressly designated purpose of development and sale of the apartments on the property.
6 On or about 12 August 1998, the mortgagor entered into a contra-debt agreement with its holding company, MKDV Sdn Bhd (MKDV), Profil Kemas Sdn Bhd (PKSB) and Aljade Development and Construction Bhd (Aljade). MKDV was part of the Adorna Group of companies in Malaysia owned or controlled by one, Dato Fong, who also owned and controlled the mortgagor. The contra-debt agreement obliged the mortgagor to execute a contract of sale of certain apartments to Aljade and obliged PKSB, which was indebted to Aljade, to pay the mortgagor the purchase price for those apartments. By the contra-debt agreement, Aljade agreed not to take any legal proceedings against PKSB or the other parties to the contra-debt agreement.
7 On or about 3 September 1998 the mortgagor, as vendor and Aljade as purchaser, entered into a contract of sale for apartments 19, 22, 62 and 63 at 123 LaTrobe Street (the Aljade apartments). On 7 October 1998, Aljade nominated Jadewealth Pty Ltd to complete the contract of sale.
8 Pursuant to Special Condition 9 of the contract of sale, the Aljade apartments were to be transferred to Aljade in partial satisfaction of a substantial debt arising out of construction works that Aljade had undertaken for MKDV.
9 On 24 December 1998, a plan of sub-division in respect of the property was registered. On 21 January 1999 Jadewealth by its solicitor, J. P. Sesto and Co, lodged a caveat over the Aljade apartments.
10 By a deed of satisfaction dated 27 January 1999 between the mortgagor, MKDV and Malaysian Kuwaiti Investment Co Sdn Bhd (MKIC) the mortgagor agreed to sell six apartments on the property to MKIC. MKIC agreed and declared that settlement of the apartments would constitute full satisfaction of a debt due to MKIC by MKDV. By contract of sale of the same date, the mortgagor as vendor agreed to sell and MKIC agreed to purchase the six apartments (the MKIC apartments). It was an express term of the contract of sale that the purchase price was paid by way of debt satisfaction. On or about 4 February 1999, MKIC lodged a caveat over the MKIC apartments.
11 The mortgagor's solicitors, Russell Kennedy, on 25 March 1999 requested the bank's solicitors, Mills Oakley, to prepare discharges of mortgage and partial discharge of the charge over the Aljade and MKIC apartments. On 26 March 1999, the bank's solicitors forwarded forms of discharge of mortgage and partial discharge of charge to the bank.
12 On 13 July 1999, J. P. Sesto & Co. by facsimile transmission informed the bank's solicitors, Mills Oakley, that Jadewealth was the nominated purchaser of the Aljade apartments. On 14 July 1999, there was a telephone conversation between Ms Sue Oppler, an employee of the bank's solicitors and Ms Wai Hwoon Low, the mortgagor's solicitor, concerning the facsimile transmission from Jadewealth's solicitors who were inquiring about pay out figures. Ms Oppler and Ms Low agreed that as the contract of sale was for nil consideration, completion of the contract would have to wait until the bank had received sufficient funds from the sale of other apartments so that it could release the titles and discharge the mortgage on the Aljade apartments. It appears that the bank's and mortgagor's solicitors adopted the same approach to the MKIC contract.
13 On 17 August 1999 the bank received, by facsimile transmission from the mortgagor, a copy of the cover page, execution page, particulars of sale and relevant special conditions of the contracts of sale for the Aljade and MKIC apartments. On 27 August 1999 the bank's solicitors received a letter dated 19 August from the mortgagor's solicitors enclosing particulars of sale and signed pages of the Aljade and MKIC contracts of sale. The bank received from its solicitors on 9 September 1999 further forms of discharge of mortgage and partial discharge of charge in respect of the MKIC and Aljade apartments undercover of a letter stating that the mortgagor's solicitors had advised that they expected settlements to be effected in late September 1999. On a date between 9 September and 28 September 1999, Ms Ramona Enconniere, a senior officer of the bank, signed the partial discharges of mortgage in relation to the Aljade and MKIC apartments and the partial discharges of the charge.
14 On 28 September 1999, being the day prior to the repayment by the mortgagor of the balance of the amount advanced pursuant to the initial facility agreement, Ms Perla Koh, the officer of the bank managing the mortgagor's file, alleges that Mr Dato Fong, the managing director of the mortgagor, spoke with her about the MKIC and Aljade contracts of sale which had just come to her attention. She testified that she had only that day learned of the facsimile transmission of 17 August 1999. Ms Koh gave evidence that Mr Fong informed her that the MKIC and Aljade contracts were not proceeding and that she made a handwritten notation to that effect. She said she made no further inquiries. I shall deal with the evidence concerning the bank's notice in greater detail later in my reasons.
15 On 18 October 1999, the bank offered a further advance for approximately $1.4M to the mortgagor, intending that such further advance would be secured by the existing registered first mortgage.
16 On the following day, the bank received a facsimile transmission from its solicitors notifying the bank that they were holding contracts of sale in respect of the Aljade and MKIC apartments. On 25 October 1999, the mortgagor accepted the bank's offer of a further advance.
17 The further advance was drawn down in four payments. The first draw down was $117,500.00 on 4 November 1999 to pay various liabilities of the mortgagor. The second draw down was $495,000.00 on 22 November 1999 to discharge debts owing to the bank by Century Estates Pty Ltd (a company owned and controlled by Dato Fong). The third draw down was $600,000.00 on 23 November 1999 to reduce the debts owing to the OCBC Bank (Malyasia) BHD by MKDV Sdn Bhd (the Adorna Group of companies). The fourth draw down was $185,000.00 to the mortgagor's account to cover interest in advance for the further facility.
18 The mortgagor has not repaid any of the further advances to the bank and has refused to effect the settlements of the Aljade or MKIC apartments.
19 In March 2002, the bank exercised its powers as mortgagee under the mortgage and took possession of the Aljade and MKIC apartments. It has remained in possession of the apartments since that time and asserts that it is entitled to and will sell those apartments as mortgagee pursuant to the mortgage. Each of the purchasers contend that they have an equitable interest in the apartments, the subject of their contracts of sale, which take priority over any interest the bank has in the property. They seek orders compelling the bank to deliver up discharges of the mortgage and the charge over their apartments.
21 The initial question for determination is whether on the proper construction of the documents (Facility Agreement, Instrument of Mortgage and Memorandum of Common Provisions), the mortgage at the time of its execution was intended to secure further advances that might be made pursuant to a subsequent agreement. The first mortgage executed in 1997 to secure the Facility Agreement was in form a standard "all monies" mortgage.
The relevant provisions of the Facility Agreement Mortgage and Memorandum of Common Provisions (the documents)
22 The Facility Agreement in clause 2.2 provided that the advance was to be used by the customer "to assist with the refurbishment of 37 residential apartments on the property". No provision was made in the Facility Agreement for a re-advance of monies.
23 The Facility Agreement defined "Collateral Security" to mean:
"Security interest ... held or given, whether before or after this document is executed, as security for or otherwise in connection with Money Owing."
24 The Facility Agreement defined "money owing" to mean:
"On any day, the aggregate of all money of whatever nature owing or remaining unpaid by the Customer to the Bank on that day under this document, whether the liability is actual or contingent, as determined by the Bank." (emphasis mine)
25 The first mortgage described as the "Collateral Security" secured the "money owing" under the Facility Agreement. The mortgage was stamped as "Collateral Security". Though the use of the word "collateral" does not involve any notion of primacy of one document over another,[4] the Facility Agreement provided that in the event that there was any conflict between the terms of the Facility Agreement and the collateral securities, the Facility Agreement would prevail over those contained within the collateral security. In turn, the first mortgage expressly provided that its terms were to prevail over the Memorandum of Common Provisions (MCP) to the extent of any inconsistency.
"This mortgage is given in consideration of the Mortgagee granting or agreeing to grant certain advances, accommodation credit or other facilities to or at the request of the Mortgagor and for the purpose of securing to the Mortgagee the payment of all money liabilities and interest referred to in the Memorandum mentioned below as the Secured Money intended to be secured by this Mortgage."
"The mortgage is a continuing security. It remains in effect until the Mortgage gives a final discharge to the Mortgagor. The Mortgagor is only entitled to a final discharge if:
(b) The Mortgagee is satisfied that there are no amounts which will subsequently fall within the description of the Secured Money.
In satisfying itself under paragraph (b), the Mortgagee may consider any matters it thinks relevant, including (without limitation) the possibility that a payment to reduce the Secured Money might be repayable, void or voidable under a law relating to insolvency or protecting creditors."
28 By virtue of the provisions of the Facility Agreement and Instrument of Mortgage the advance granted by the bank became the "Secured Money" secured by the mortgage. "Secured Money" was defined in clause 1.1 of the MCP as:
"All monies owing or remaining unpaid by the mortgagor to the mortgagee at or after the date of this mortgage on any account and in any way whatever and whether:
(b) Owing or remaining unpaid by the mortgagor alone or together with another person; or
(c) Owing or remaining unpaid by the mortgagor as principal debtor, surety, partner, trustee, beneficiary or otherwise; or
(i) is or could become owing in connection with a liability which is actual or contingent, ascertained or unascertained, fixed or fluctuating or of any other character;
(ii) is or is for principal, interest, Guarantee obligations, purchase obligations, fees or damages or otherwise;
(iii) is in dollars, another currency or a combination of currencies; or
(iv) is owing by the Mortgagor acting or purporting to act as trustee."
"The mortgagor must pay the secured money (free from any deduction, set off or counterclaim)
(a) in debt at the times and in the ways specified in the Relevant Agreement; and
(b) otherwise on demand to or as directed by the mortgage."
30 By clause 3.1 of the MCP, the mortgagor undertook to pay the secured monies "on the terms and in the way specified in the relevant agreement". "Relevant Agreement" was also defined in clause 1.1 of the MCP and means:
"(a) This Mortgage and a Collateral Security; and (b) An agreement between:
(iii) the Mortgagee and any combination of the Mortgagor and one or more Debtors; and
(c) A document (including a letter, declaration and certificate):
(i) that relates to the Secured Money or another Relevant Agreement (other than a letter from the Mortgagor or a Debtor); or
(ii) containing terms on which the Secured Money remains outstanding; or
(iii) that the Mortgagor and the Mortgagee agree is a Relevant Agreement."
31 Mortgages containing similar "all monies" terms to the present mortgage and MCP have been construed as covering subsequent advances.[5] Hill J in Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd[6] refused to read down the extreme width of an "all monies" clause so it would not apply beyond the initial banking transaction which it secured. To so construe the clause would have been to treat paragraphs of the mortgage and memorandum as being redundant. Murphy's case was cited with approval in Ronan & Ors v Australia & New Zealand Banking Group Ltd.[7] Similarly in Re Piccolo,[8] Kenny and Heerey JJ found the terms of the mortgage wide enough to support a subsequent bank facility. Heerey J regarded the language of the guarantee contained within the mortgage as not confined to any particular form of bank facility or to the first one which had been put in place. Kenny J found that the subsequent agreements and financial accommodations to the company were intended by the parties to be secured by the guarantee and mortgage. McDonald J in Aspenview's case[9] reached the same conclusion in relation to a mortgage containing similar terms. Each of these cases turned upon the language used, its context and the commercial purpose of the parties.
32 Such terms are frequently intended to provide a mortgagee with protection in respect to all monies which the mortgagee pays or becomes liable to pay for or on account of the mortgagor. As this case illustrates, the competition which arises is between the very broad language used in such a clause and the inclination to confine such provisions to the financial assistance and purpose that was within the parties' contemplation at the time of their agreement.
33 Such "all monies" or "dragnet clauses" as they are sometimes described were considered by Young J in Estoril Investments Pty Ltd v Westpac Banking Corporation.[10] His Honour formulated general rules of construction for the purpose of determining the intention of the parties. Those relevant to the present case are:
(1) The mortgage will only secure advances made or debts incurred in the future if the past debts are identified.
(2) Only debts of the same type or character as the original debt are secured by the mortgage.
(3) A dragnet clause will often cover future debts only if documents evidencing those debts specifically refer back to the clause.
(4) Once the original debt has been fully discharged, the mortgage is extinguished and cannot secure further loans.
(5) If the mortgagor transfers the land to a third party, any debts which the original mortgagor incurs thereafter are not secured by the mortgage.
34 Santow J in Re, Modular Design Group Pty Ltd[11] regarded the guidelines as demonstrating the proper interpretive approach which should be followed but the guidelines have more recently been viewed as having limited utility.[12] Hill J in Murphy's case considered the guidelines to have received no real support in the reasons of the Court of Appeal in Smith's case,[13] so that the "all monies" clause should not be read down even where the guideline covered the situation.[14]
35 Where the further debt was found to be for a commercial purpose of the same nature or kind as that originally secured by the terms of the mortgage there has been a disposition by the Courts to give effect to the literal meaning of the words of an "all monies" clause.[15]
36 Whilst the guidelines enunciated by Young J will be of some assistance in the interpretive task, the "all monies" clause must be construed in the light of the actual language used and having regard to the context in which this mortgage came to be executed and its commercial purpose. [16]
37 The purchasers submit that I should adopt the approach to the question of construction that led Brooking J in Re, Clark's Refrigerated Transport[17] to confine the scope of a mortgage containing similar terms. The question which his Honour considered was whether a mortgagor under an all monies mortgage can have intended to secure, not only present and future obligations to the mortgagee, but also any debt or liability of the mortgagor to a third party which may be assigned by such party to the mortgagee. The proper construction of the contemporaneous documents led his Honour to conclude that it was not the intention of the parties that the mortgagor's liability could be enlarged in this fashion. Brooking J found that the term "on any account whatever" contained within the mortgage, limited the mortgagor's debts and liabilities to those which arose from some transaction between the mortgagor and mortgagee. In the present case, though the mortgagor by the further facility agreement had agreed to the use of the property, primarily to secure a further advance to repay indebtedness by third parties to the bank or its Malaysian branch, the mortgagor's liability still arose directly out of a transaction between the mortgagor and mortgagee.
38 In its submissions, Aljade was critical of the bank's motivation at the time that it contemplated making a further advance to the mortgagor in 1999. Aljade argued that the further advances were an attempt to foist the obligations of third parties onto the mortgagor. It said the mortgagor had received no "corporate benefit" from the advances.
39 It is trite to observe that a borrower may use its property as security for any legal commercial activity it chooses which may include being a guarantor of the debts of another or an assignee of a debt. There is no reason to conclude that the mortgagor was other than a willing independent participant in the negotiations in which it sought to obtain further advances from the bank for its commercial activities. Evidence of subsequent conduct has in limited and well defined circumstances been admitted to clarify the meaning of the terms of the contract.[18] No circumstance exists in this case permitting reference to such conduct for the purpose of the construction of the parties' agreement in 1997.
40 Even if the criticisms by Aljade of the bank's purposes during 1999 were correct, and I do not regard it as necessary to make any findings in that regard, such matters can throw no light upon the commercial purpose of the initial transaction or the intention of the parties at that time.
The parties commercial purpose - Construction of the documents
41 The Facility Agreement and viva voce evidence establishes that the purpose of the initial advance was to assist the mortgagor with the refurbishment of residential apartments at 123 LaTrobe Street, Melbourne. The financial facility of up to $6,863,000.00 was to be repaid from the net sale proceeds of the apartments. Any balance of the outstanding loan was to be repaid by the expiration of the Facility Agreement on 31 August 1999. The consideration for the mortgage was the granting of the advance for the purpose of the construction of the units on the property. It secured the payment of all money owing for that purpose.
42 The Facility Agreement, Mortgage of Land and Fixed and Floating Charge were all brought into existence on 22 September 1997. These documents should properly be regarded as reflecting a single transaction and so be treated as a single document for the purposes of construction.[19]
43 In reliance upon the terms of the mortgage and the MCP, Mr Lally QC who appeared with Mr M. Clarke submitted on the bank's behalf that the new facility agreement falls within the meaning of "Relevant Agreement", that the further advance falls within the definition of "Secured Money" in clause (b), (c) and (d)(i) of the mortgage and that the new facility agreement is an agreement within clause b(i) and (ii) and (c) of the meaning of "Relevant Agreement" in the mortgage. The bank submits that the definition of "secured money" in the MCP is sufficiently wide to cover an advance to the mortgagor to pay the debts of Century Estates Pty Ltd and the Adorna Group of Companies. The bank submits that a narrower construction would render parts of the memorandum of common provisions and the terms of the mortgage redundant.
44 The purchasers submit that the definition of "Secured Money" in the MCP is inconsistent with the meaning of "monies owing" in the original facility agreement. The purchasers contend that the meaning of "secured money" should be construed so that it is co-extensive with the monies owing under the original facility agreement.
45 The critical question is whether upon the proper construction of the documents the security to be provided was for "money owing" under the facility agreement and such other "secured monies" as may become owing pursuant to any further relevant agreement or whether the security was confined to money owing under the initial facility agreement.
46 In Cuzeno RVM Pty Ltd v Overton Investments Pty Ltd Palmer J regarded it as axiomatic that an all monies clause of the type contained in the MCP:
"....must be construed by reference to the context of the transaction in which the clause appears and by reference to the commercial purpose of the transaction which the clause is intended to serve........" [20]
Kenny J in Piccolo's case thought that in many cases an all monies clause would not be construed to secure a debt of a fundamentally different character from that contemplated by the contracting parties. [21] This is a case in which the intent of the contracting parties is at odds with the objectives of the draughtsman of these standard form mortgages containing general provisions.[22]
47 The terms of the mortgage and MCP are to be interpreted having regard to the facility agreement executed contemporaneously with them and in accordance with the cannon of construction that an agreement in standard form containing general provisions will give way to inconsistent written provisions made by the parties in respect to that particular transaction.[23] Reflecting such an approach the provisions of the facility agreement are expressed to prevail over the provisions of the mortgage document which in turn prevails over the provisions of the MCP.
48 In accordance with the general rule that extrinsic evidence is not admissible for the construction of a written document[24], I have not taken into account the evidence of those officers of the bank who were cross-examined without objection, to the effect that the original facility agreement was a single purpose facility for refurbishment and that at the time of the execution of these documents the bank had no intention to extend any other facility to the mortgagor.
49 As at September 1997 when the documents were executed, the only "Relevant Agreement" was the original facility agreement. The documents read together disclose that it was not the parties intention at the time of the execution of the original facility agreement and collateral securities that funds might be secured by the existing first mortgage which were of a different character and for entirely different purposes to the refurbishment of the apartments. Upon the proper construction of the documents the mortgage was confined to monies owing for purposes related to the initial facility agreement.
50 Without a further agreement between the mortgagor and bank, the mortgage, though still registered, could not provide security for an advance of a fundamentally different character.
51 The further facility agreement involved the mortgagor on its own account hypothecating its interest in the remaining apartments at LaTrobe Street largely to secure the debts of two separate corporate entities, Century Estates Pty Ltd and the Adorna Group of Companies. This was an entirely different commercial purpose to that for which the original documents were executed.
52 The agreement to make the further advances was constituted by the letter of offer of the bank dated 18 October 1999 and the letter of acceptance of that offer by the mortgagor dated 25 October 1999. The letter of offer, when accepted, was intended to replace the previous Facility Agreement.
53 The purpose of the new facility agreement was identified in the bank's letter of offer dated 18 October 1999. It read:
"Purpose. The facility is to be utilised as follows: - $495,000.00 to fully repay the Bill, Acceptance and Discount Facility owing by Century Estates Pty Ltd. This Facility will be cancelled after repayment. - $185,000.00 to service the interest payments and fees on the Facility. - $820,000.00 to partially repay the debt owing by Adorna Group of Companies to OCBC Bank (Malaysia) Berhad."
The debts of Century Estates Pty Ltd and the Adorna Group were, by the new agreement, effectively transferred to the mortgagor.
54 The purchasers submit that the agreement that the bank would provide a new facility to the mortgagor required that a new mortgage and new charge be prepared executed and registered. The bank's letter of offer dated 18 October 1999 of a further facility to the mortgagor provided:
"Existing Securities (1) First Registered Mortgage over all the remaining apartments, storages and car park bays at 123 LaTrobe Street, Melbourne given by the customer. (2) Guarantee and Indemnity given by Dato John Wa Tan Fong. (3) First Registered Fixed and Floating Charge over the assets and undertaking of the customer."
The letter of offer also described new securities that were to be executed being a Subordination Agreement from related companies and an Authority to Set Off and Appropriate over deposit accounts.
55 The mortgagor's letter of acceptance prepared by the bank required the bank to commence preparation of "the security documents in accordance with the letter of offer". This was plainly a reference to the new securities. The letters of offer and acceptance constituted a new facility agreement. Whether the new facility agreement constituted a variation or termination of the old agreement as MKIC contends[25], the existing first mortgage was to be maintained to operate as security for the further advances to be made under the new agreement.
56 The only viva voce evidence on this subject came from Ms Koh. She said that the mortgagor was not required by the bank to execute a further security as there had been no discharge of the first mortgage. She believed that the security was still in place. The only new documents which needed to be executed were the authority to set up the new facility and a subordination agreement. The bank's solicitor had not been asked to prepare any new documentation for execution in relation to the new facility as the securities already existed.
57 The mortgagor did not seek a discharge of the existing first mortgage and accepted that the existing mortgage should be used to secure the further advance. Aljade, in its written submissions acknowledged the mortgagor agreed to extend the mortgage to cover the new advance but said it did so under threat from the bank that the first facility would expire and the securities would be called up.
58 By the new agreement the mortgagor and bank intended that the registered first mortgage be utilised as the principal security for the new advances. That is to say, the parties by their new agreement determined to extend the operation of the existing mortgage to provide security for further advances unrelated to the purpose of the original facility agreement.
What was the status of the first mortgage and charge following repayment in full of the advance made under the original facility agreement?
59 The purchasers deny that the bank had any existing legal interest in the land after the monies owing under the original facility agreement being the "secured money" under the mortgage had been repaid in full on 29 September 1999.
60 The purchasers made the following submission. As there was no money owing to the bank which could be secured by the mortgage or charge, the mortgagor was entitled to have the securities discharged. They submit that the further advances made by the bank to the mortgagor in November 1999 were pursuant to the new facility agreement which replaced the original facility agreement which had come to an end either as a consequence of the express words of the new facility agreement or by implication. If the first mortgage was a continuing one as the bank has claimed, it only became enlivened, the purchasers submit, once the bank and the mortgagor entered into the further facility agreement on 25 October 1999 and that such an agreement being later in time than the purchasers' contracts of sale, the purchasers' equitable interests have priority.
61 The purchasers rely upon National Bank of Australasia Ltd v Mason[26] and Perry v Rolfe[27] in support of the contention that, although their equitable interests stood second to the interest of the bank prior to 28 September 1999, once the original facility agreement was repaid in full, the mortgage and charge "secured nothing" and the purchasers' equitable interests became first in time. Neither case to which the purchasers referred establishes the proposition upon which the purchasers rely.
62 In Sibbles v Highfern Pty Ltd[28] the High Court was concerned with a mortgage granted to secure an overdraft account of fluctuating amount. The contractual arrangement between bank and customer continued though at different times no money was owing by the customer to the bank. In the principal judgment reference is made to the decision of the House of Lords in London & County Banking Company (Limited) v Ratcliffe[29] in which the Lord Chancellor observed that until advances were actually made by a bank to a mortgagor "there was not and there could not be, any existing charge for them".[30] Mason CJ, Dawson, Toohey and Gaudron JJ regarded the Lord Chancellor as meaning:
"that a charge in relation to a further advance cannot operate on the property charged until the advance is made."[31]
The majority judgment was to the effect that the underlying contractual arrangement continued to subsist. Though the mortgage continued, the charge did not operate upon the property until the account with the bank was overdrawn.
63 Whether the mortgage was a continuing one or had been revived by agreement between the parties, the bank did not have a charge which operated between 29 September 1999, and the 25 October 1999. The charge commenced to operate from 4 November 1999 when the first advance pursuant to the new facility was made. It was the advances pursuant to further facility agreement which provided the foundation for the bank's claim that the mortgagor was in default under the mortgage.
64 As the mortgage was not, in my view, a continuing one, it is likely that the bank was a constructive trustee for the mortgagor during the period between 29 September 1999 and 25 October 1999, but as this has not been the subject of submissions I do not stay to consider it.[32]
65 The purchasers' submission that the bank no longer had a legal interest is misconceived. The first mortgage had not been extinguished by the fact that the advance had been paid off. There was no discharge of the mortgage. The bank's mortgage continued to be registered on the title and the bank at least retained a bare legal interest in the land, the mortgage in due course securing the further advances as a consequence of the new agreement between the bank and mortgagor.
66 I shall later consider the bank's position if, as the purchasers' submit, the bank ceased to hold a legal interest upon repayment of the initial advance.
67 The question then arises as to whether the bank's security for the further advances was to be postponed to the equitable interest of the purchasers, upon the application of the rule in Hopkinson & Anor v Rolt.[33]
68 The House of Lords in Hopkinson v Rolt held that a first mortgagee whose mortgage is taken to cover what is then due and also future advances cannot claim the benefit of such future advances in priority over a second mortgagee of whose mortgage it had notice at the time of its execution and before it made these new advances. The case overruled Gordon v Graham,[34] Lord Cowper having there reasoned that it was the folly of the second mortgagee with notice of the first mortgage, to take such a security.
69 The rule in Hopkinson v Rolt was explained by Lord Blackburn in Bradford Banking Co Ltd v Henry Briggs Son & Co Ltd:
"The first mortgagee is entitled to act on the supposition that the pledgor who was owner of the whole property when he executed the first mortgage continued so, and that there has been no such second mortgage or pledge until he has notice of something to shew him that there has been such a second mortgage, but as soon as he is aware that the property on which he is entitled to rely has ceased so far to belong to the debtor, he cannot make a new advance in priority to that of which he has notice. As Lord Campbell says,
'The hardship upon the bankers from this view of the subject at once vanishes, when we consider that the security of the first mortgage is not impaired without notice of a second'.
It seems to me to depend entirely on what I cannot but think a principle of justice, that a mortgagee who is entitled, but not bound, to give credit on the security of a property belonging to the debtor, cannot give that credit after he has notice that the property has so far been parted with by the debtor." [35]
70 The rule ensures that a first mortgagee cannot encroach upon the mortgagor's remnant estate so as to enlarge the scope of its first mortgage to cover fresh advances when the first mortgagee knows the property to no longer be the mortgagors to charge.[36] The principle underlying the rule was explained by Lord Lindley M.R. in West v Williams:
"That an owner of property dealing honestly with it, cannot confer on another a greater interest in that property than he himself has. The rule rests on no technicality of English law; it is based on the plainest good sense."[37]
72 The source of the rule is to be found in equitable principles based on notice affecting the conscience, so that the person with notice takes subject to it. The rule does not depend upon the doctrine of estates.[41] It is the equities derived from the contractual relationship which make it unconscionable for the mortgagor to further charge the property to secure a subsequent advance made by the mortgagee. Notice that the prior interest exists makes it inequitable for the mortgagee to rely upon its subsequently acquired interest which the mortgagor was not entitled to create. The rule was described by Holland J in Matzner v Clyde Securities Ltd as based upon "justice and fair dealing as between the mortgagor and mortgagees." [42]
73 Considerations of fairness and justice applicable to priorities between successive mortgagees were again identified as the foundation for the rule in Mercantile Credits Ltd v Australia and New Zealand Banking Group Ltd.[43] The rule does not affect the mortgagee's title to the charge upon the land which extends at any given time only to the amount owing at that time. As King CJ stated:
"The rule in Hopkinson v Rolt does not operate to defeat that security or any part of it. It merely fixes the amount for which the security has priority over subsequent securities at the date upon which the mortgagee has notice of those subsequent securities."[44]
74 So far as Torrens title land is concerned principles as to notice, constructive notice and inquiry which may affect the title to general law land have little or no scope for operation because one who becomes the registered proprietor under Torrens title "takes free from all unregistered interests whether he has notice of them or not."[45]
75 The rule with which I am concerned does not affect indefeasibility of title. Such equitable doctrines as the rule in Hopkinson v Rolt remain enforceable against those who have acquired a registered interest under the Torrens system.[46] In Mercantile Credits Ltd v ANZ Banking Group Limited King CJ observed that:
"....the principal of indefeasibility of title cannot operate to exclude a rule of law, derived from equity, which limits priority over a subsequent registered mortgage to the amount for which the security exists at the time of notice of the subsequent mortgage."[47]
76 The rule in Hopkinson v Rolt has been applied on numerous occasions to the Torrens system of title by registration.[48] The New South Wales Court of Appeal in Sussman & Anor v AGC Advances Ltd[49] was concerned with the principle in Otter v Lord Vaux[50] which, like the rule in Hopkinson v Rolt, is based on equitable notions of fair dealing and justice as between a mortgagor and second mortgagee. President Kirby, with whom Powell JA agreed, said:
"...the system of title under which the property is held should not be regarded as a point of differentiation if the system of title by registration can accommodate the rule. Long standing authority in this State and in Victoria have held that it can."[51]
77 The rule operates only when the first mortgagee has made a further advance.[52] It has no application where the first mortgagee is bound to make and the mortgagor bound to accept advances made after the date of the second mortgage. [53] When the further advances are made under a building mortgage so that each advance facilitates the construction of the building and increases rather than diminishes the value of the security, the rules do not operate. Matzner v Clyde Securities Ltd was such a case where advances made were necessary to enable the buildings to be completed. The mortgagee's obligation to make advances under the terms of the mortgage were not discharged by notice of the subsequent mortgages.
78 Even if the holder of the subsequent interest acquires that interest with notice of the first mortgage, the rule operates.[54]
Must there be an intention to oust the intervening interest?
79 Based largely upon the judgment of Kearney J in Central Mortgage Registry of Australia Ltd v Donemore's Pty Ltd[55], the bank claims that it will only lose its priority if its conduct was accompanied by an intention to oust the intervening interest. Kearney J described the rule in Hopkinson v Rolt as founded on it being an equitable fraud for the first mortgagee to claim priority in respect of further advances which were made with notice of an intervening equity.
80 His Honour quoted a passage from the judgment of the Canadian Court of Appeal in Pierce v Canada Permanent Loan and Savings Co in which it was said:
"In the absence of notice (i.e. notice which gives him real and actual knowledge, and so affects his conscience), the mortgagee is entitled to assume and act on the assumption that the state of the title has not changed." [56]
81 The decision of Kearney J in Donemore rested heavily upon the Irish case of O'Byrne's Estate,[57] in which a first mortgagee made bona fide advances under an all monies mortgage unaware that the mortgagor had further mortgaged the property, the subsequent mortgage then becoming registered. The first mortgage being registered, the charge over further advances had priority in the absence of actual notice by the first mortgagee of the second mortgage. The registration of the second mortgage did not prevent the first mortgage from operating as security for such further advances made to the mortgagor.
82 Kearney J in Donemore set out the following passage from the judgment of the Lord Chancellor in O'Byrne:
"It was on the ground of notice, and of notice alone, that the priority of the first mortgage was interfered with; and as the ground on which the courts of Equity interfere, where notice is proved, with what otherwise would be the rights of the party, is, that it is necessary to do so in order to prevent fraud, it follows that the ground on which the first mortgagee was postponed was that it was considered that his making, voluntarily and without any legal obligation on his part to do so, a further advance when he knew of the second mortgage, and so knowingly and deliberately ousting, or endeavouring to oust, the right acquired by the second mortgagee, would be, if it were allowed to prevail, a fraudulent act, and as such could not be allowed to stand." (emphasis mine).[58]
83 In this passage from O'Byrne's case, the Lord Chancellor expressed his view as to the basis upon which the first mortgagee's interest had been postponed in Hopkinson v Rolt. In my respectful opinion their Lordships judgments in Hopkinson v Rolt do not rest on the ground that the first mortgage was postponed because the mortgagee had the knowledge and intent described by the Lord Chancellor.
84 In Hopkinson v Rolt, Lord Chelmsford, speaking of the facts in the decision of Gordon v Graham[59], which their Lordships overruled, referred to the knowledge by the assignee of the mortgage of the subsequent equitable charge in the following terms:
"But it was a very different question whether if, with knowledge of this deed and of the priorities established by it (which must be assumed), he chose to make further advances, he ought to be allowed to rank for these before Montgomery."[60] (emphasis mine)
In the following passage, Lord Chelmsford challenged the doctrine upon which Gordon v Graham was based:
"The reason upon which the doctrine proceeds is 'that it was the folly of the second mortgagee with notice to take such security'. Now, what is this but to say that a mortgagee, by taking a security for advances which may never be made, may effectually preclude a mortgagor from afterwards raising money in any other quarter? And, as the first mortgagee is not bound to make the stipulated farther advances, and with notice of a subsequent mortgage, he can always protect himself by inquiries as to the state of the accounts with the second mortgagee, if he chooses to run the risk of advancing his money with the knowledge, or the means of knowledge, of his position, what reason can there be for allowing him any priority? What injustice is done to him by postponing him to the second mortgagee under such circumstances? But, on the other hand, if it is to be held that he is always to be secure of his priority, a perpetual curb is imposed on the mortgagor's right to encumber his equity of redemption."[61] (emphasis mine)
85 There was no fraud involved in the case of Hopkinson v Rolt, as it is understood at common law, the first mortgagee believing, upon a mistaken view of the law, that it retained its priority for further advances which it made notwithstanding its knowledge of the creation of a further encumbrance by the mortgagor. The loss of the first mortgagee's priority arose because of the knowledge of the first mortgagee that the owner of the property had further dealt with that property prior to the making of the further advance, the justice not resting upon any notion of a wrongful intent. A first mortgagee who makes further advances with full notice of the security of the second mortgagee is left in full possession of their option to make or to refuse further advances as they deem prudent. As the Lord Chancellor observed in Hopkinson v Rolt:
"The hardship upon bankers from this view of the subject at once vanishes when we consider that the security of the first mortgage is not impaired without notice of a second, and that when this notice comes, the bankers have only to consider (as they do as often as they discount a bill of exchange), what is the credit of their customer, and whether the proposed transaction is likely to lead to profit or to loss."[62]
86 In considering the justice of the rule neither the judgments of the Lord Chancellor or Lord Chelmsford or the dissenting judgment of Lord Cranworth raise considerations of intent or fraud.
87 The rule in Hopkinson v Rolt has been held to apply as against the title of a purchaser of the mortgagor's land so that the mortgagee could not further charge the land by any subsequent advances which the mortgagee might make to the mortgagor/vendor.[63] In London & County Banking Co v Ratcliffe, their Lordships concluded that the bank had no charge on the land as against the purchaser for the fresh advances made by the bank with knowledge of the mortgagor's contract of sale. Their Lordships further held that a purchaser of land with notice that the bank holds the land as security for the general balance on the vendor's present and future account is not bound to inquire whether the bank has, after notice of the purchase, made fresh advances. The burden lies on the bank advancing on the security of the unpaid vendor's land, to give notice to the purchaser that it has so done or intends so to do.[64]
88 In Union Bank of Scotland v National Bank of Scotland,[65] the House of Lords reaffirmed the application of the rule preventing tacking where the mortgagor, to the knowledge of the mortgagee, has disposed of her interest in the land to another. Their Lordships considered the question to be whether the borrower:
".....having bargained away and made an assignation of her reversionary right to the knowledge of the National Bank could then obtain further advances upon the security of an interest which she had for valuable consideration already assigned to a third person. My Lords, it seems to me that such a proceeding is contrary to good faith, and the decision of Your Lordships' House in Hopkinson v Rolt establishes the principle and establishes it upon the broadest grounds of natural justice ... Doubtless each of the two parties may be said to have proceeded upon a bona fide belief in their respective rights and to have acted in pursuance of them, but how it can be suggested that Mrs McArthur could in good faith affect the charge with further sums borrowed that which she had already purported to assign I am at a loss to understand, and it is to be observed that the National Bank made the advances for which they now claim priority with the knowledge that Mrs McArthur had done so."[66] (emphasis mine)
89 The rule in Hopkinson v Rolt was applied in Bradford Banking Co Ltd v Henry Briggs Son & Co Ltd where following notice to a company that the shareholder had deposited his share certificates with a bank as security for the balance due and to become due on his current account, a company could not in respect of monies which became due from the shareholder to the company claim priority over advances made by the bank made after such notice. [67]
90 In Deeley v Lloyd's Bank Ltd,[68] the House of Lords referred with approval to its earlier decisions in which the rule had been applied. Their Lordships found that a bank, as first mortgagor, having had notice of a second mortgage could not prima facie as against the second mortgage, insist that the payments made after the date of that notice be applied so far as needed to discharge the debts anterior to that date, the second mortgagee in fact having gained priority. Referring to the bank's intention following the receipt of notice of the second mortgage Lord Atkinson was to state:
"It is said it never could be supposed that Wilkinson intended to postpone the bank's mortgage to Deeley's, thereby lessening the security of the bank. But the acquisition of priority for the latter security rests on the receipt of the notice by the bank. Wilkinson had forgotten all about the notice. He never thought of the acquisition of priority by Deeley's mortgage and it seems to me impossible for any human being to intend to bring about, or to retard, a result which was never present in his mind at all."[69] (emphasis mine).
91 The High Court in Sibbles v Highfern Pty Ltd referred without criticism to the rule in Hopkinson v Rolt and to the subsequent line of authority in which the rule was applied. In none of these cases did the first mortgagee intend to oust the rights acquired by a subsequent interest holder though the first mortgagee's conduct was calculated to do so.[70]
92 It is contrary to good faith on the part of a first mortgagee to do anything which would facilitate the enlargement of the scope of the first mortgage to the detriment of a second mortgage or to a purchaser under a contract of sale where the first mortgagee has notice of such equitable interest.[71] There was no suggestion in any of their Lordship's judgments in Deeley's case that the first mortgagee had conducted itself with the intention of depriving the subsequent interest holder of their rights. In each of the authorities to which I have referred the first mortgagee was found to have acted in ignorance or under a mistaken belief as to the law or the facts.
93 The mortgagee's conduct in such cases has sometimes been described as a species of fraud against which equity will provide relief. Both Kearney J in Donemore's case[72] and Anderson J in R & I Bank of Western Australia v Cash Resources Australia Pty Ltd[73] expressed the opinion that the knowledge of the mortgagee must be sufficient to sustain a charge of equitable fraud. Lord Lindley in Assets Co Ltd v Mere Roihi; Assets Co Ltd v Wiremu Pere[74] described equitable fraud as a misleading expression which denoted conduct having consequences in equity similar to those which flow from fraud. Equitable or constructive fraud need not carry with it an element of dishonesty though there are clearly species of equitable fraud which contain it.[75] It ranges from conduct involving moral turpitude to conduct which merely affects the conscience.[76] Fraud involving personal dishonesty is essential under s.42 of the Transfer of Land Act.[77] It was described by Batt JA in Russo v Bendigo Bank Ltd[78] as being "an intention to affect adversely the rights of another person or at least recklessness as regards the affection of such rights."[79] Such fraud need not be established to obtain equitable relief under the rule in Hopkinson v Rolt.
94 The knowledge of a first mortgagee necessary to attract the rule was described by Anderson J in R & I Bank v Cash Resources in the following terms:.
"The first mortgagee is entitled to act on the basis that his security continues in full effect until he has notice of something to the contrary. Knowing that a second mortgagee has acquired an interest in the property, it would be, in the language of equity, against conscience to allow the first mortgagee to make a further advance calculated to affect the rights of the second mortgagee." [80] It is not suggested by any of the parties that the facts in the present case are analogous to those in R & I Bank, but his Honour's reasons are nonetheless apposite. His Honour was not ascribing a particular intention to the first mortgagor when stating that it would be against conscience to make a further advance "calculated to affect the rights of the second mortgagee". This is to focus upon the likely consequences of such conduct upon the known interests of another.
95 To require a deliberate ousting of rights would significantly limit the scope of the rule which in most cases has been applied where the mortgagee, with notice of the subsequent interest holder, made the further advance in the bona fide belief that the existing charge entitled it to priority. No personal dishonesty, moral turpitude or an intent to oust the other's rights was involved. The bank's submission in the present case erroneously equates notice under the rule with fraud involving a wilful disregard and violation of the rights of another.[81]
96 The purchasers carried the legal burden of establishing that the bank had notice of their equitable interests. The party alleging notice sufficient to affect the conscience must prove it.[82] The purchasers discharged their legal onus of proof by establishing that the bank had actual notice through its officers and imputed notice through its solicitors of the purchasers' equitable interests. The bank alleged that it ceased to have such notice upon its officer, Ms Koh, being informed by the mortgagor that the contracts were not proceeding. The bank carried an evidential burden of establishing that it no longer had notice,[83] and in its submissions, properly conceded that it bore such an evidential burden of proof. Much of the trial was taken up with evidence directed to this issue and I now to turn to consider whether the bank has discharged its onus of proof.
The bank's knowledge of the purchasers' equitable interests
97 The bank submits that the following findings should be made on the evidence.
(1) The mortgagor informed that the bank on 28 September 1999, through its officer Ms Koh, that the purchasers contracts were not proceeding.
(2) Ms Koh believed Dato Fong, the managing director of the mortgagor, when he said that the contracts were not proceeding.
(3) The bank had no reason to distrust Dato Fong when he told Ms Koh that the contracts were not proceeding.
(4) The knowledge of other bank officers or the bank's solicitors as to the purchasers' interests were superseded by the knowledge acquired by Ms Koh on 28 September 1999.
(5) The bank and Ms Koh continued to believe after 28 September 1999 and at the time each further advance was made in November 1999 that the purchasers' contracts were not proceeding.
(6) The bank would not have made the further advance to the mortgagor in November 1999 had it believed that the purchasers' contracts were proceeding.
(7) The bank did not deliberately or knowingly oust or endeavour to oust the equitable interest of the purchasers.
(8) Ms Koh was not guilty of wilful blindness or recklessness.
98 Ms Enconniere, a senior officer in the bank and Ms Koh's superior, acknowledged that there was not a good banker-customer relationship between the OCBC Bank, Malaysia Berhard and the Adorna Group of Companies in Malaysia of whom Dato Fong was the managing director. OCBC Malaysia wished to terminate its relationship with the Dato Fong group of companies. OCBC Melbourne was requested to participate in a global strategy to exit the relationship with the Adorna Group of Companies.
99 It was anticipated that the advance under the facility agreement would be fully repaid by the mortgagor by 31 August 1999 leaving the mortgagor with eight unencumbered apartments worth approximately $2,000,000. The bank's strategy was to utilise the remaining unencumbered apartments upon full repayment of the initial advance, so as to strengthen the bank's security in connection with large debts of companies in Australia and overseas associated with the mortgagor.
100 The bank had not been forthright with Mr Fong in telling him for how long they were prepared to extend the first facility. Whilst approval had been given from head office for a six month extension from 31 March 1999, Mr Fong was told that it was for a three month period to keep pressure on Mr Fong.
Ms Koh's involvement with the mortgagor's files
101 Ms Koh testified that she was asked by Ms Enconniere to help out in August 1999 with the mortgagor's file and that it was toward the end of 1999 that she took over the day to day management of that account and became the account manager responsible for the mortgagor.
102 According to Ms Enconniere and Mr Phua, the former account manager for the mortgagor, Mr Phua had no responsibility for the mortgagor's file from mid 1999 when Ms Koh took over. However, on 18 October 1999 Mr Phua signed a letter by the bank to the mortgagor offering the further facility. He could not recall why he was involved at that time. On the following day, Mills Oakley sent him a facsimile confirming what apartments at LaTrobe Street had been sold. Mr Phua could not explain why the facsimile had been sent to him.
103 By late July Ms Koh had to familiarise herself with the mortgagor's file as it was being proposed by the bank that the securities of the mortgagor and associated companies, Century Estates and Aubella, should be cross collateralised and a deed of debt subordination executed by the three companies. By late July or early August 1999, Ms Koh was aware that an offer by the bank as to the terms on which the facility agreement would be extended had not been accepted by the mortgagor. She had discussions with Dato Fong and Vincent Fong during August and she prepared a credit review of the mortgagor and related companies in mid September.
Contingent liability for debts of Century Estates
104 The purchasers submitted that Ms Koh misled the Court when answering interrogatories as to whether the mortgagor was contingently liable for the debts of Century Estates Pty Ltd. I do not accept that Ms Koh in her answers to interrogatories intended to mislead the Court. She did not appreciate at the time she swore her answer that the obligations of the mortgagor ceased once Century Estates security dropped below $495,000.
105 The purchasers submitted that Ms Koh misled her superiors in Singapore regarding the status of the mortgagor's account. The deed of debt subordination which had been requested by the Singapore office of the bank had not been obtained by Ms Koh. Her correspondence to the Singapore office suggested otherwise. The bank in its submissions in reply conceded that the information contained in her report to Singapore may not have been "entirely correct", but submitted that I should accept her testimony that she did not deliberately mislead her superiors. I am not persuaded that her conduct was deliberate.
106 It was also submitted by the purchasers that the Singapore office had been misinformed by Ms Koh as to the state of up-to-date financial accounts of the mortgagor in the 16 September 1999 credit review prepared by Ms Koh.
107 The bank submits that any errors of advice by Ms Koh to the Singapore office did not provide Ms Koh with a motive to misrepresent her understanding of whether the Aljade and MKIC apartments were available as security. It was plainly a matter of great importance to the bank that these apartments remain available as security for the Century Estate and Adorna debts. These errors in advice may have influenced Ms Koh's conduct, but I am unable to make a positive finding to that effect.
Partial discharges of mortgages prepared by the bank's solicitors
108 It was the responsibility of the solicitors for the bank to determine whether the terms and conditions of each contract of sale complied with the terms and conditions which the mortgage stipulated must be present in each contract. When a unit was sold, the contracts of sale were forwarded to the bank's solicitors, who would verify the terms of the contract of sale and would advise the bank as to the amount of proceeds that the bank would receive. The solicitors would prepare discharges of mortgage for the bank to execute. In March 1999, the bank received a letter from its solicitors enclosing partial discharges of mortgage for the Aljade and MKIC apartments and advising the bank that they expected settlement to be effected in late September. The bank did not send back these partial discharges for the Aljade and MKIC contracts. Ms Koh surmised in evidence that there must have been some communication from the bank's solicitors advising that these partial discharges were not presently required for settlement. This is consistent with the agreement reached by the bank and mortgagor's solicitors that the settlement should wait until sufficient other apartments had been sold to fully pay off the advance.
109 On 17 August 1999, the solicitors for the mortgagor sent copies of particulars of sale of the contracts for the Aljade and MKIC apartments to the bank's solicitors. The enclosures have never been located. Under cross-examination the solicitor for the bank conceded that the enclosures would have been received, but could offer no satisfactory explanation for why the enclosures could not be found. On 9 September 1999 his firm wrote to Mr Phua at the bank enclosing partial discharges of mortgage for the Aljade and MKIC apartments. I infer that the partial discharges were prepared upon the basis of the particulars of sale which the bank's solicitors had received. There was no other documentation discovered from the bank's solicitor's file containing information which would have enabled the discharges for those apartments to be prepared.
110 None of the bank's officers claimed to be aware of the arrangement made by their solicitors with the mortgagor's solicitors on 14 July 1999, to which I have earlier referred, that the settlement of the MKIC and Aljade apartments, would have to wait until the bank had received sufficient funds from other sales to enable it to release the titles to the Aljade and MKIC apartments.
Bank's receipt of 17 August 1999 facsimile and enclosures
111 It was normal for any correspondence concerning the mortgagor to be given to the manager of the mortgagor's file. I have earlier referred to the receipt by the bank of the facsimile containing copies of pages of the contracts of sale for the Aljade and MKIC apartments. Ms Koh claimed that she was not given this facsimile. The facsimile was discovered by the bank, but the first page of the facsimile, which would identify to whom it was addressed at the bank, was missing. Mr Phua and Ms Enconniere denied that they received it.
112 The bank had a small office. A female member of staff had responsibility for opening the mail and distributing it. The practice was for such documents to be given to the file manager.
113 Ms Koh testified that the facsimile relating to the Aljade and MKIC apartments appeared to have been wrongly filed with the documents relating to Unit 28. There was only one file kept by the bank for the mortgagor's property. All of the correspondence from the bank's solicitors and any communications with the mortgagor would be placed on that file. By 28 September 1999, the sale of Unit 28 had been settled and a partial discharge of mortgage for it had been signed. Ms Koh had still not, she said, sighted the facsimile. She gave evidence it was only on 28 September 1999 when she went to the file that she found the facsimile for the Aljade and MKIC apartments.
114 The purchasers submit that Ms Koh's account should not be accepted. They also argue that Ms Koh misled the Court when explaining what attempts she made to locate the first page of the facsimile. In her answers to interrogatories on behalf of the bank, she deposed that after making proper inquiries of the bank's servants and agents she was unable to recall what had become of the first page of the fax. The purchasers correctly submit that this evidence was inconsistent with the evidence of Ms Lo who worked in the office and Mr Phua who deposed that neither, before or after the commencement of this litigation had anyone made inquiries of them about the facsimile.
115 The enclosures to the facsimile comprising particulars of sale of the purchaser's contracts were not, according to the bank's solicitor who was responsible for the bank's file, seen or considered by him, and they were not, Ms Koh claims, seen or considered by her until the day prior to the repayment in full of the initial advance. The bank points out that Ms Koh conceded that she read the facsimile on 28 September 1999 which was well before any further draw down occurred. The bank submits that Ms Koh had no motive to mislead the Court as to when she first read the particulars of sale of the purchasers' contracts or to mislead the Court as to the attempts she made to locate the cover page of the facsimile. Further, the bank contended that the evidence did not establish that there was any firm practice in relation to filing of documents.
116 As the bank received the discharges for execution on 9 September 1999 and executed them shortly thereafter, the question arises as to why Ms Koh would wait until the day prior to repayment of the advance to make inquiries of the mortgagor if she thought inquiry was needed.
117 Ms Koh recalled having sighted requests for discharges of mortgage over the Aljade and MKIC apartments at the time that Ramona Enconniere signed the discharges in September. Ms Enconniere said that she was shown the letter of 9 September 1999 and partial discharges and was requested by Ms Koh to execute them. The bank signed those discharges in anticipation that there would be a settlement of the Aljade and MKIC apartments. Because the debt to the bank was about to be paid out, Ms Enconniere was not concerned with whether the contracts of sale were in accordance with the approved form of contract when she signed the discharges of mortgage for the Aljade and MKIC apartments in September 1999.
118 Ms Koh claimed that as the time approached for the full repayment of the first advance she went back to the file to examine the requests for discharge of mortgage in relation to the Aljade and MKIC apartments. Her explanation for doing so was to ensure that enough apartments remained to provide the bank with sufficient security for the new facility that it was negotiating with the mortgagor.
The alleged conversation with Dato Fong on 28 September 1999
119 Mr Lucarelli Q.C., who appeared with Mr Salpic for MKIC has submitted that the conversation of the 28 September 1999 was a recent invention by Ms Koh. It was first raised on 28 October 2002 in answer to interrogatories. It had not been referred to in Ms Koh's affidavit sworn 10 May 2002 in support of the bank's application to have the caveats lodged by the purchasers removed. The purchasers submit that prior to this time the bank had simply denied that it had consented to the purchasers' contracts with the mortgagor. It is said, on the bank's behalf, that it would have been inappropriate for Ms Koh to refer to this conversation in her affidavit in support of the bank's application to have the purchaser's caveats removed as it was not part of the formal proofs required on an application for removal of a caveat. I agree that the drawing of an inference from the failure to refer to this conversation in the affidavit would not be justified.
120 In further support of the contention that it was "recent invention", the purchasers point to the fact that the conversation had not been pleaded in the bank's original defence filed on 9 July 2002, nor had it been referred to in any correspondence passing between the purchasers and the bank's solicitors prior to the commencement of any proceedings.
121 Ms Koh was unable to recall whether Mr Fong had been in Australia or Malaysia when she called him. The bank, despite requests by the purchasers for discovery, had provided no telephone records to confirm that such a phone call had been made on 28 September 1999. Ms Koh did recall that she was in her office and that she initiated the call to Dato Fong. The bank relies upon this evidence as being indicative of a truthful person attempting to recall events to the best of her ability.
122 In evidence-in-chief Ms Koh said that she believed Mr Fong because the contracts had been signed earlier in the year and it was very common for overseas purchasers not to proceed with such contracts. She referred to her previous experience of purchasers buying off a plan who chose another unit or did not proceed with that particular development. In support of this explanation the bank discovered only one contract where a purchaser did not proceed. That contract was conditional on finance being obtained.
123 Ms Koh denied in cross-examination that she had fabricated a reason for believing the purchasers were not proceeding with their contracts. She also stated that because of the bank's past dealings with Mr Fong there was no reason for her to doubt his statement.
124 In cross-examination Ms Koh said that she pointed out to Dato Fong that the contracts had come to the bank's attention. She told him they were contrary to the understanding they had reached that the security for the further facility included the Aljade and MKIC apartments and that repayment of the further advance would come from the net proceeds of sale of those apartments. She told Mr Fong that these contracts were contrary to the arrangement with the bank and she asked whether the contracts were going to proceed. Mr Fong replied that the contracts were "not going to proceed". When counsel for Aljade reminded her of her initial explanation that it was not uncommon for purchasers not to proceed, Ms Koh suggested that she may have misunderstood the questions the previous day in which she had proffered this explanation. Though these explanations may not, as the bank submits, be inconsistent, the manner in which Ms Koh offered them raised doubts about her account.
125 Ms Koh gave slightly differing evidence at various stages of her evidence as to precisely what Dato Fong had said - "the contracts are not proceeding", "are not proceeding any more", "are not going to proceed", "are not about to proceed" and "I am not proceeding".
126 Ms Koh's file note, which was discovered, was further evidence, the purchasers submit, of the conversation being "recent invention". It was not, the purchasers argue, in accordance with her usual practice which was to make detailed file notes which were often countersigned or initialled by her superiors when concerning important banking matters. On other occasions she had forwarded letters to the mortgagor setting out the important aspects of their discussions. Though Ms Koh referred to a practice of writing file notes or making notations she said that she did not do so if nothing substantial was discussed. The information she alleges Mr Fong provided would have been a matter of some significance to Ms Koh, yet she made no appropriate record of the mortgagor's information, nor did she confirm the mortgagor's advice in writing or tell anyone else.
127 Ms Koh initially said she would have mentioned her conversation with Mr Fong to her superior, Ms Enconniere. When pressed she was unsure as to when she would have mentioned it to her. She subsequently said she told Ms Enconniere in late October or early November 1999, at the time of the first draw down, that the purchasers' settlements were not going to proceed. She finally stated that she thought she would have mentioned it to Ms Enconniere but very much later than December 1999. She said she did not need to tell Ramona Enconniere about the conversation with Mr Fong because she was then the Account Manager.
128 Ms Enconniere contradicted Ms Koh. Initially she said that during 1999 she was not aware of the alleged conversation between Ms Koh and Dato Fong on 28 September 1999. She subsequently testified that Ms Koh "would" have mentioned it, but she "wouldn't know when, on what basis or how" she came to mention it. Ms Enconniere finally conceded she had no memory of Ms Koh mentioning any conversation with Dato Fong in 1999. Given the importance of the security to the bank it is a conversation which I would have expected her to recall if it occurred.
129 Ms Koh did not tell Mr Phua about it nor did she tell anybody in head office in Sydney or in Singapore. She said that he was no longer looking after the account at this time. She claimed she did not think there was any need to tell anyone as she did not at that stage know the importance of what the mortgagor had done.
130 After speaking with Mr Fong on 28 September 1999, Ms Koh did not make contact with MKIC, Aljade or their solicitors. She did not tell the bank's solicitors that the MKIC or Aljade contracts would not be proceeding. According to Ms Koh she simply accepted Mr Fong's word. The bank points to the fact that the contracts of sale were not sent to the bank until 17 August 1999 as supporting Ms Koh's belief that the contracts were not proceeding.
131 By 28 September 1999, Mr Fong had on several occasions been late in accepting the bank's offer of an extension of the facility agreement. He had resiled from the agreement that he had made with the bank to provide a deed of cross- collateralisation by the mortgagor and associated companies. The Aljade and MKIC apartments were part of that cross-collateralisation. Despite the bank's request, he had not provided the bank with up-to-date financial information concerning his companies. By this time the bank and its overseas branches were on exit strategy in relation to the mortgagor and its associated companies in Australia and Malaysia. Ms Koh agreed that these facts should have made her suspicious about what Mr Fong was telling her but she did not consider the matters in that light at the time.
132 Ms Koh was aware, having perused the facsimile of 17 August 1999, that eighty per cent of the security that the bank had been anticipating for the further facility were affected by the AlJade and MKIC contracts. Ms Koh had a number of conversations with Mr Fong in August and September about securing the new facility using the Aljade and MKIC apartments. Mr Fong had said nothing to her about the contracts of sale with the purchasers during any of these conversations. She was also aware that the bank's solicitors had forwarded discharges of mortgage in relation to those contracts on 9 September 1999 when the bank's solicitors had advised the bank that the contracts would be proceeding to settlement at the end of September 1999.
133 MKIC submits that I should draw an inference under the rule in Jones v Dunkel[84] concerning the failure of the bank to call Dato Fong to corroborate Ms Koh's testimony. The bank argues that the purchasers should have called him and that he cannot be regarded as being in the bank's camp.[85] Dato Fong was the director of the mortgagor who was a party to the proceedings. Both the bank and the purchasers were taking steps against the mortgagor to its detriment. He had defrauded all the parties. No evidence was adduced which permits me to conclude that one party rather than another could be expected to have called Mr Fong to testify. This is not an appropriate case in which to apply the rule.
134 On 19 October 1999 Ms Koh received a facsimile from the bank's solicitors confirming that they held contracts for the Aljade and MKIC apartments which were yet to be settled. Ms Koh made no further inquiry of Fong as to why the bank's solicitors were confirming that these contracts were outstanding and had to be settled.
135 In cross-examination, Ms Koh for the first time said that, in response to the facsimile and well before the first draw down, she told Ms Oppler, who was the law clerk at the bank's solicitors office, and is now deceased, that those contracts were not going to proceed. This contradicted earlier cross-examination that she did not tell the bank's solicitors of her conversation with Dato Fong.
136 In answering interrogatories on behalf of the bank, Ms Koh, in answer to a specific inquiry, had made no reference to this communication with Ms Oppler. Ms Koh said that the interrogatory was not properly explained to her. No file note had been discovered from the bank's solicitor's file showing any record of her conversation with Ms Oppler. The bank made an admission pursuant to a notice to admit to the effect that during the period 28 September 1999 and 4 November 1999 inclusive, Ms Koh did not inform the bank's solicitors that Dato Fong had informed her that the contracts of sale were not proceeding. Ms Koh had given the instructions upon which that admission was based.
137 In further cross-examination Ms Koh agreed that she had had a discussion with Ms Oppler about the inventory of the apartments at LaTrobe Street in February 2000 well after the conversation in which she told Ms Oppler what Dato Fong had said. A little later in her testimony Ms Koh said that she had got confused in her earlier evidence and that the conversation she had had with Ms Oppler about the contracts not proceeding was at the time of making the inventory of the apartments in February 2000, well after the draw downs.
138 The bank submits that Ms Koh did not give wilfully false evidence but was mistaken in her evidence that the conversation with Ms Oppler occurred prior to November 1999. I am unable to say whether Ms Koh's inconsistent evidence on this issue was as a result of confusion or was a deliberate falsehood but it was one of a number of matters that affected her reliability and credibility.
Notice of purchasers' caveats in February 2001
139 In early 2001 following a further written communication from the purchasers' solicitors advising that the apartments had been sold, the bank discovered the caveats which had been placed on the properties. Ms Koh was aware that once a purchaser entered into a contract of sale with the bank's customer, they had a caveatable interest. She understood that they were purchasers' caveats. She met with Mr Fong, and unlike her meeting in September 1999, she made a detailed diary note of her conversation with him. She was sceptical about Mr Fong's explanation to her that the contracts had not proceeded and the purchasers had no right to place caveats on the title.
140 In cross-examination Ms Koh explained her view of the contracts with the purchasers in these terms:
"Well what we have proposed to Singapore is the situation at that time, that we knew we had the first mortgage over those units and that's the very basis of this restructure, while we are granting the facility and when I spoke to the principal and he said 'it's not proceeding' and also for the very nature of the contract of sale is very, very different, which is not the agreed format of the original facility, so I got the impression when he said, 'it's not proceeding any more' that I believed his words because the facility was not - there was no default in the facility. His commitments are met and there was no reason why I should doubt him. ... because I have already verified, Your Honour, with him that it's not proceeding and because we also we had an existing mortgage on those units at that stage, I didn't think there was any matter to refer to Singapore."[86]
141 Ms Koh explained the importance of the first mortgage in this way:
"We had clear title on those and we are ranking ahead in terms of priority. Question: Over what? Answer: A first mortgage over those units. Question: Yes but who would you be ranking ahead over? I'm asking you now about your thinking at the time, not what you might now understand to be the position. Did you think about the question of ranking ahead of anything else at the time? Answer: Yes, Your Honour, because at that time too there was still an existing debt. Question: Can you explain to me what you meant by the phrase 'ranking ahead' ranking ahead of what? Answer: We have first priority, we have first bite of the apple ahead of every one and if I could add also, Your Honour, I was under the impression too that those contracts are not - because they were entered ahead when the construction was still on, they were pre-sold and they cannot do that, that forgiveness, to enter into a contract where it's a debt forgiveness as opposed a real contract of sale."[87]
142 Ms Koh regarded the first mortgage as the prime security which the bank was holding and Dato Fong's statement, she said, merely reinforced the safety of the bank's position. She did not seek legal advice about whether the bank's mortgage gave the bank priority because in her view there was an existing debt at the time of the contracts of sale.
143 Ms Koh was aware that the debt satisfaction and contra-debt agreements referred to in the MKIC and Aljade contracts of sale was in excess of $2,000,000.00 and that by virtue of the agreements the mortgagor was now liable for those debts. When questioned about her belief as to what was going to happen to the liability for the debts referred to in the contracts of sale Ms Koh gave the following evidence:
"Question: When you asked him are the contracts proceeding, did you ask him about the debt 'where's the debt going to go, Dato'? Answer: I didn't any more - when he told me it's no longer proceeding, it didn't concern us any more. Question: Did you ask Dato how it was that the contracts for Aljade and MKIC were not proceeding? Answer: He said 'I'm not proceeding with those contracts' so when he said he's no longer proceeding, as I said, I didn't think there was any need to probe any more because it doesn't affect the bank."[88]
144 In November 1999 the bank had received a further valuation in relation to the remaining apartments at LaTrobe Street. The valuation noted that there had been no search of the titles to ascertain whether there were any encumbrances or caveats registered on title. Ms Koh explained that there was no need for an up-to-date title search as she believed that the registered first mortgage would rank in priority over any other encumbrance. Ms Koh was then asked these questions:
"Question: Did you order any title searches as a result of what the valuer said" Answer: At that stage we didn't because we were relying on our existing security. Question: Just before you go on Mrs Koh, did you understand that once a contract of sale for land has been entered into, that a purchaser has a caveatable interest? Answer: Because it was - Your Honour, because it was a construction facility, we - I thought that doesn't apply with developments. Question: But were you aware of the general principle that a purchaser can lodge a caveat once they have a signed contract? Answer: Yes they can, if they have an equitable interest."[89]
Knowledge of the bank's officers and its solicitors
145 The purchasers rely upon the aggregated knowledge of the bank's officers and its solicitor for the purpose of determining its level of knowledge of the purchasers' equitable interests.[90]
146 The bank does not dispute that the knowledge gained by its solicitors, could be imputed to the bank - Sargent v A S L Developments Ltd; Turnbull v A S L Developments Ltd[91] and Russo v Bendigo Bank Limited.[92] The knowledge acquired by Ms Enconniere and Mr Phua was part of the bank's knowledge.
147 It is not suggested by the bank that any of those persons were not so closely and relevantly connected with this transaction that their knowledge should not be treated as part of the state of mind of the bank. The approach adopted by the bank to this issue involved the implicit concession that each of these persons had responsibility and opportunity to communicate information to each other relating to the purchasers' contracts of sale.
148 In substance the bank contends that the knowledge of its solicitors and bank officers other than Ms Koh is of no practical significance because it was Ms Koh who acquired further information from Mr Fong, in his capacity as the managing director of the mortgagor, that the Aljade and MKIC contracts were not proceeding. The bank submission is that the bank and its solicitor's knowledge of the purchasers' equitable interest was incomplete. Their knowledge, the bank submits cannot supplant "the greater and later" knowledge of the bank acquired through their officer, Ms Koh. Hence the central question of fact in this trial was whether Ms Koh received "greater and later" knowledge that the earlier created equitable interests of the purchasers no longer existed. I shall return to the question whether the knowledge possessed by its solicitors who were aware at all material times of the purchasers' intention,[93] could be supplanted by information received by Ms Koh.
Conclusion as to the bank's knowledge via Ms Koh and other bank officers
149 The bank's case depended upon the testimony of Ms Koh. Ms Koh recognised that the fate of the bank's case rested almost entirely upon her testimony, her fellow bank officers having distanced themselves from any knowledge of or responsibility for the mortgagor's dealings with the purchasers. Ms Koh's testimony, though punctuated with interruptions, spanned four days of the trial. There were periods when she was noticeably tired as a consequence of the length of time she was required to give evidence. Although she spoke fluent English there were times when I considered that she had not clearly understood the question that she was being asked. Her answers on numerous occasions required clarification. They were often based upon re-construction rather than recollection. This is a factor which I regard as reflecting upon her reliability rather than her credit.
150 The bank contended that it would be highly improbable that Ms Koh would have proceeded to have the bank lend the mortgagor money under the new facility if she thought that the mortgagor was intending to proceed with the contracts with no funds changing hands at settlement. The bank submitted that the subsequent conduct of Ms Koh and the bank tends to confirm that Ms Koh did make the inquiry of Dato Fong which she claimed and that the bank thereafter proceeded on the basis that the apartments could be used as security for the further facility.
151 The evidence of the witnesses called by the bank was unsatisfactory. Each of the bank's principal witnesses, Ms Koh, Ms Enconniere and Mr Phua rejected responsibility for the mortgagor's file at times when critical information was received by the bank. All denied sighting the facsimile of 17 August 1999 when it was sent to the bank. The absence of the covering page, which would presumably identify to which officer of the bank the facsimile was addressed, has not been satisfactorily explained.
152 I regard it as significant that there was no contemporaneous oral or written communication by Ms Koh relaying Dato Fong's alleged information to the other bank officers or to the bank's solicitors. The only confirmation of Ms Koh's claim was her brief file note which she alleged was made at the time. Ms Koh's failure to communicate this information to anyone or to make inquiry is explicable either on the basis that the conversation did not occur or because Ms Koh did not think it mattered whether the purchasers wished to proceed, so long as Mr Fong intended to offer the apartments as security for the further facility. She did not regard the purchasers as having acquired a superior right which could override the bank's mortgage.
153 The bank and its solicitors showed no concern over the contracts of sale entered into by the mortgagor with the purchasers, despite the fact that the contracts were not in the prescribed form and were said by the bank to have been entered into in breach of terms of the mortgage and facility agreement and were to be settled in late September.
154 Having regard to the conduct of the mortgagor in its relationship with the bank over the preceding 12 months, any claim by the mortgagor that the contracts of sale were not proceeding would have been viewed with scepticism. This is particularly so having regard to the fact that the contracts of sale did not involve any cash consideration rendering it likely that the purchasers would want to proceed.
155 The bank has failed to discharge its evidentiary onus of demonstrating that at the time of the further advance in November 1999 it no longer had notice of the purchasers' equitable interests. The nature and substance of Ms Koh's testimony, some of which I have referred to, prevents me from reaching a positive state of satisfaction that she spoke with the mortgagor as alleged. I am unpersuaded that Ms Koh thought it necessary to make an inquiry of the mortgagor on 28 September 1999 or that Dato Fong, on behalf of the mortgagor, spoke with Ms Koh on 28 September 1999 as alleged.
156 The evidence establishes that it was the bank's view, through Ms Koh, that as the contracts of sale had been entered into with the purchasers during the currency of the initial facility agreement and while part of the advance was still outstanding, the registered mortgage secured the bank's position. Ms Koh approached the granting of the new facility on the basis that the purchasers' contracts had no legal consequences for the bank. She took the view that there was nothing to prevent the mortgagor continuing to offer the Aljade and MKIC apartments to the bank as security for the advances to be made under the new facility. This conclusion was based upon her belief that the registered first mortgage gave the bank a continuing charge over the Aljade and MKIC apartments, that it was a construction facility and building mortgage, the mortgagor was not permitted to sell those apartments without the bank's consent, that the bank had not consented, that the contracts were not in accordance with the form of contract required under the mortgage and the purchasers could not protect their position with caveats.
157 The purchasers suggest a degree of 'Nelsonian' blindness by Ms Koh. The bank denies that Ms Koh's conduct could be properly described as wilful blindness or recklessness. These concepts were considered at some length by the Court of Appeal in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd.[94] I do not find that there was any want of probity on Ms Koh's part in the sense of any design or calculated ignorance. Her failure to make inquiries was not borne of a conscious desire to avoid receiving information the content of which she knew or suspected. Ms Koh's opinion was that it mattered not whether the purchasers maintained that they had an interest. She believed they had no rights.
158 I am not satisfied that Ms Koh believed at any material time that the purchasers' equitable interest had been abandoned. Even if Mr Fong had spoken with Ms Koh as alleged, his statement did not constitute advice or information from the mortgagor that the purchasers' interests in the contracts of sale had been abandoned or extinguished. It revealed nothing about whether the purchasers intended to proceed with the contracts of sale. It was no more than a statement by the mortgagor of its intention with respect to the contracts. Nothing was said by Mr Fong which negated the bank's knowledge. It remained fixed with actual notice of the purchasers' interest.
159 Even if Ms Koh had received information from Dato Fong as alleged, I am unable to accept the bank's submission that such information constitutes "greater and later" knowledge by the bank. The bank's solicitors were aware of the purchasers' intentions and continued to act on the basis that the purchasers wished to settle their contracts. Hence the solicitor's facsimile to the bank of 19 October 1999. They knew that the purchasers wished to proceed.
160 Ms Koh chose not to respond to the solicitor's communications in September or October 1999 nor did she tell the bank's solicitors that the bank was proposing to grant further advances to be secured by the MKIC and Aljade apartments. The bank's knowledge is to be determined by reference to the knowledge possessed, not only by Ms Koh, but by its solicitors as they were responsible for different aspects of the same transaction.[95]
161 The bank has failed to establish that it was subsequently informed that the purchasers' interests had been relinquished or otherwise lost. The bank through its officers and solicitors had notice that the mortgagor had sold its interest in the Aljade and MKIC apartments upon which the bank was proposing to charge the subsequent advances. As the further advances had not been made at the time the bank had such notice, its security for the further advances will not have priority over the purchasers' equitable interests unless justice and fair dealing between the parties calls for such an order to be made. I shall return to this question.
162 If I were in error in my findings as to what Ms Koh was told, the purchasers submit that the bank was not,in any event, entitled to rely solely upon the mortgagor's assertion to Ms Koh. They submit that the bank would still be fixed with notice if Mr Fong had told Ms Koh that the purchasers' interests had been extinguished and her knowledge supplanted the knowledge of the bank's solicitors.
163 The bank admits it neither requested the mortgagor to obtain independent documentary evidence verifying the assertion that the contracts were not proceeding nor did it seek confirmation from the purchasers or their known solicitors. It did not seek information or advice from its solicitors. The bank submits that no legal consequence flows from what, with the benefit of hindsight, it concedes to be carelessness by Ms Koh in failing to undertake such further inquiries.[96]
164 Ms Koh admitted in evidence that she was aware of the caveat procedure yet the bank conducted no title searches before making the further advance. This appears to be a consequence of Ms Koh's opinion, which she held at that time, that the purchasers could not have a caveatable interest as the bank's security was a building mortgage. The valuer's report commissioned by the bank prior to the bank entering into the further facility agreement, noted that no title search had been conducted to ascertain whether or not there were adverse encumbrances registered on title.
165 It was not in dispute that the bank made no inquiries and sought no verification of the assertion allegedly made by the mortgagor to Ms Koh that the contracts were not proceeding.
166 The purchasers rely upon the proposition, that once a mortgagee has notice of a prior competing interest, it can only take its interest free from the interest of which it has notice if it has been properly accounted for[97] and that when a legal mortgage is taken with notice of a subsisting equitable charge, its title is subject to it. If it is told that the charge has been cleared off, this must be verified or the mortgage is taken at the mortgagee's own risk.[98]
167 Counsel for both purchasers rely upon Jared v Clements,[99] a case concerned with notice by the holder of a subsequent legal interest of the existence of a prior equitable interest in general law land. As the purchasers, who acquired a subsequent legal interest, had notice of the existence of the equitable mortgage prior to payment of the purchase money, the equitable mortgagee's security was upheld. On appeal the decision at first instance was affirmed on the basis that the purchaser, having actual notice of the existence of the equitable charge chose to complete without ascertaining for himself whether the charge had been paid off. As the purchaser chose to leave it to the vendor to get in the equitable interest and the vendor having not done so, the purchaser had to suffer for it.[100] It was not a case of constructive notice where reasonable diligence would have established a fact not discovered. The existence of the equitable interest was known.
168 In Barry v Heider, the holder of an equitable mortgage had notice of a prior equitable mortgage. Sir Samuel Griffith observed:
"The case is, therefore, as if a person proposing to advance money on equitable mortgage were told by the solicitor for the proposed borrower, purporting also to act as solicitor for the prior equitable mortgagee, that the prior equitable mortgage had been satisfied. Can he safely act on such an assurance without further inquiry? After full consideration I have come to the conclusion that he cannot. In one sense it is not unreasonable in such a case, in the absence of any ground for suspecting fraud, to accept the assurance of the solicitor, but it would be more reasonable for the lender to ask for confirmation of the assurance of the prior equitable mortgagee himself or an independent agent."[101]
169 A mortgagee who omits to make the inquiries which it is usual to make for such a transaction will have constructive notice of such prior encumbrance.[102] The solicitor for the bank gave evidence that was the usual practice. He would have required documentary evidence from the purchasers confirming that their rights no longer subsisted. A prudent mortgagee with notice of an equitable interest would not rely on the mortgagor but would seek proof from the holder of that interest that it had been extinguished.
170 The bank submits that it was under no duty to make such inquiries. It contends Ms Koh was entitled to act upon the information provided by the mortgagor, and that a banker cannot be expected to disbelieve a customer on such an issue. The bank calls in aid the proposition that a banker customer relationship must be based on trust. It relies upon Barclays Bank Ltd v Quincecare Ltd[103] but I am not here concerned with the execution of a customer's order. I am satisfied in any event that there existed reasonable grounds to be suspicious of the mortgagor. The purchasers' contracts of sale of which the bank and its solicitors had ample and prolonged notice and the history of the mortgagor's conduct should have put the bank on inquiry.
171 The bank claims that as it had a prior registered legal interest the subsequent equitable interest of the purchasers cannot prevail.[104] Counsel for the bank sought to distinguish Jared v Clements as it was concerned with a prior equitable interest and a subsequent legal interest or arguably competing equitable interests. Here, the holder of the subsequent equitable interest seeks priority over a prior legal interest and relies upon the rule in Hopkinson v Rolt. Mr Lally suggested that the bank's position as the holder of a prior legal estate by virtue of its registered first mortgage with effective "dominion" over the title deeds before it made the advance, must be distinguished from a lender seeking to acquire a legal interest and who would be expected to make all possible investigations.
172 The bank's submission must be rejected. The rule in Hopkinson v Rolt is concerned with the consequences of conduct which confine the amount of a first mortgagee's security to that which existed at the time of notice of the purchasers' interests. The equitable principle underlying the rule, resting as it does upon notice and broad considerations of justice and fair dealing, and not upon any doctrine of estates should not be subverted by legal distinctions which do not alter the substance of the dealings between the parties.[105] At the time the rule in Hopkinson v Rolt was first formulated it was recognised that a first mortgagee with notice of a subsequently created interest, could always protect itself by inquiries as to the state of the subsequent interest. This was adverted to by Lord Chelmsford L.C. in the passage from Hopkinson v Rolt to which I have earlier referred. A first mortgagee with notice who has the means of ascertaining the state of a subsequently created interest but who fails to avail themselves of such means, must bear the risk associated with the making of a further advance which it is not bound to make. The bank left the obligation of extinguishing or getting in the purchasers' equitable interests to the mortgagor.
173 Conduct which falls short of subjective dishonesty but involves a failure to make the inquiries which a hypothetical, reasonable and honest person would make in the light of known facts is sufficient to affect the conscience and result in equitable intervention. A stranger will be liable for breach of trust in such circumstances.[106] Such conduct is a form of constructive or equitable fraud which stands outside subjective dishonesty.[107]
174 A mortgagee will not have acted with sufficient diligence by asking only the mortgagor against whose possible fraud inquiries were intended to be a safeguard.[108] Ms Koh, believing the purchasers to have no rights made no inquiries even after the receipt of documentation in October, which suggested that the purchasers had not abandoned their interests. The bank having been put on inquiry as to the existence of the purchasers' rights and making no inquiry remained fixed with notice of that which would have been confirmed had reasonable inquiry been made.
175 The deception practised by the mortgagor on the bank did not entitle it to act as though it had never had notice of the purchasers' equitable interests. That is to say, where there is a failure by reasonable inquiry to obtain verification of the discharge of the earlier equitable interests the actual knowledge of the bank will not have been negated.
What notice will be sufficient where there is a failure to inquire
176 It was the bank's case, that upon a finding that Mr Fong had informed the bank that the contracts were not proceeding, the bank could no longer have actual notice. The bank submits only actual notice will suffice for the rule to operate.
177 The importance of notice to equitable doctrines was emphasised by the House of Lords in Barclays Bank plc v O'Bryan[109] where it was observed:
"In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it."[110]
178 The rule in Hopkinson v Rolt was said by the High Court in Sibbles case to be enlivened even where the mortgagee had only constructive notice. In the joint judgment, Mason CJ, Dawson, Toohey and Gaudron JJ said:
"That is to say, the prior mortgagee could not tack if at the time of the further advances he had notice, actual or constructive, of the subsequent mortgage."[111]
This passage of the High Court's judgment was as Anderson J stated in R & I Bank obiter dicta. The bank submits that it was also per incuriam.
179 Lord Chelmsford L.C. in Hopkinson v Rolt thought a mortgagee must be assumed to know the priorities established by the encumbrance of which it has notice. It must be so or ignorance of the rule would avoid its consequences. This is but to attribute knowledge to one who knows the relevant facts but fails to appreciate their legal or factual significance[112] described by Gibbs CJ as 'moral obtuseness' in Consul Development Pty Ltd v DPC Estates Pty Ltd.[113]
180 In Nia v Phuong, Young J did not confine the rule to circumstances of actual notice. His Honour said:
".....another way of analysing the same situation is to say that except in extraordinary circumstances, it is only inequitable for a first mortgagee to lose priority for further advances if at the time when he took his first mortgage he had notice, actual or constructive, of the existence of a second mortgagee; see Falconbridge on Mortgages 4th Ed p 161..."[114]
181 In both O'Byrne's Estate[115] and Pierce v Canada Permanent Loan and Savings Company[116] to which I have referred, the rule was said to depend on actual notice. Kearney J in Donemore's case reached the same view. In R & I Bank, Anderson J stated that the first mortgagee is entitled to act on the basis that his security continues in full effect until he has notice of something to the contrary, the notice required being such as would affect the conscience. His Honour observed that the general rule is that only actual notice will be sufficient to do that. In Beach Quest Pty Ltd v Interstate Mortgage and Investments Pty Ltd White J held actual notice to be essential. [117] In reaching this conclusion White J followed Donemore's case.
182 In R & I Bank, Anderson J, suggested that where a mortgage has, by deliberate conduct, prevented the receipt of actual notice of the later encumbrance, knowledge should be imputed.[118] Where there is wilful blindness or a reckless failure to inquire, a person will not be able to assert lack of actual knowledge.
183 If Ms Koh had been told that the contracts were not proceeding I would find it unnecessary to categorise the nature of the notice of the bank as actual or constructive at the time of the further advance. It is against the conscience for a first mortgagee, who has been given actual notice, to rely upon an unverified claim by the mortgagor that such an interest has ceased to exist. Such knowledge, as thereafter existed, whether it be characterised as actual or constructive, being such as to affect the conscience, was sufficient to attract the operation of the rule.
184 I would reach the same conclusion even if the mortgagor had expressly advised Ms Koh that the purchasers' interest had been extinguished or abandoned. The bank having had actual notice had the means to make further inquiry and chose not to do so.
If the bank acquired only a subsequent equitable interest
185 I need only briefly deal with the legal consequences if, contrary to my conclusion, the registered mortgage did not secure advances beyond the initial facility agreement and the bank no longer had a legal or equitable interest after the full repayment of the first advance on 28 September. The bank would have acquired an equitable interest in the land under its agreement of October 1999 with the mortgagor. The purchasers' equitable interest created before the bank's later equitable interest would be entitled to priority if the merits were equal.[119] Furthermore, the bank's equitable interest was acquired with notice, both actual and imputed, of the purchasers' interests arising from their contracts of sale.
186 In Moffett v Dillon[120] the significance of notice of a pre-existing equitable interest by a subsequent holder of an equitable interest was examined. A vendor's equitable charge over land for the purpose of securing monies due and payable pursuant to a contract of sale took priority over a bank's second mortgage taken with actual notice of the vendor's charge. The bank did not establish a priority on the ground that its mortgage had been registered or was in a registrable form. The vendor's charge took priority both because it was the first in time and because of the bank's notice of the charge. Brooking JA, with whom Buchanan JA, agreed said:
"The first question is that of priority. It is conceded that at the time the bank took its mortgage it had full actual knowledge, not casually acquired, of the creation and continued existence of the charge. At least in the circumstances of the present case, this is fatal to the contention that the later equitable interest should prevail over the earlier. I know of no decision in which a later equity has been held to prevail where its holder acquired it with the knowledge of the creation and continued existence of the earlier equity. I defer consideration of whether circumstances are conceivable in which that result could be arrived at. One might ask rhetorically how it can be equitable to postpone the prior interest to one which was acquired by a person who knew that an interest already existed and chose to proceed with the transaction and acquire a competing interest which he would then contend defeated the pre-existing interest. Knowing that someone was already the holder of an equitable interest, he has chosen to acquire a rival one from a person who in the eye of equity is not entitled to create that interest: Phillips v Phillips [1861] EngR 1044; (1861) 4 De G.F.& J. 208; 45 ER 1164. He then comes before a Court of equity claiming that the very conflict he has chosen to create should be resolved in his favour. What do the cases, and what does principle, suggest the response of the court should be? The authorities use language suggesting that a later equitable interest can never prevail over an earlier one with a holder of the later interest had at the time of its acquisition notice of the earlier interest. (I exclude the case where although there was notice of the coming into existence of the earlier interest the holder of the later interest had by the time of its acquisition a belief that the earlier interest no longer existed). The rule is correctly stated in terms of 'notice' of the earlier interest. The present case of one of admitted actual and full knowledge. This is either to be regarded as actual notice or, according to the analysis of Pomeroy, , 5th Ed. (1941), paras. 591 et seq, to be treated as having the same consequences as notice."
The purchasers interests would have priority being first in time and because the bank had actual and constructive notice.
Justice and fair dealing between bank, mortgagor and purchasers
187 It remains to deal with the bank's submission that even if it had notice the rule should not operate. Because the basis of the rule is "justice and fair dealing as between the bank and the mortgagor and as between the mortgagor and purchasers"[122] the bank contends that equity should not intervene because the mortgagor acted in breach of terms of the mortgage in selling the apartments. The bank contends the purchasers had constructive notice of such breach.
188 Both the original facility agreement and MCP contained negative covenants. The original facility agreement provides in cl.11.2:
"Negative obligations The customer must not, without the bank's consent: (a) materially change the nature of its business from the way it is at the date of this document; or (b) allow anything to be done to lessen the bank's rights, powers or remedies under a Relevant Agreement; or ... (e) permit a Security Interest (other than a Permitted Security Interest) to affect any of the property or assets of the Customer; or (f) acquire or dispose of an asset or incur a liability, except in the ordinary course of the Customer's ordinary business and on 'arms length' terms."
"Negative obligations The Mortgagor must not, without the consent of the Mortgagee: (a) deal with or dispose of, or grant an option to dispose of, or agree to deal with or dispose of the Mortgaged Property; or (b) permit a Security Interest (other than a Permitted Security Interest) to affect the Mortgaged Property; or ... (d) materially change the scope, nature or name of any business conducted on the Mortgaged Property as it is carried on at the date of this Mortgage; or ... (h) do or allow anything to be done which may prejudice the Mortgagee's security or rights under a Relevant Agreement."
To the extent of any inconsistency between clause 2 of the MCP and clause 11.2 of the facility agreement the latter must prevail.
190 The bank submits that by entering into the contracts with the purchasers the mortgagor breached these terms of the mortgage and the facility agreement, in that the contracts were not at "arms length"; the contracts were not in the ordinary course of the mortgagor's business; no proceeds were to be paid to the bank; the mortgagor lessened the bank's security interest; the mortgagor changed the nature of its business conducted on the property; the mortgagor permitted a security interest to affect the mortgaged property by pledging the mortgaged property and the mortgagor prejudiced the bank's security.
Do the purchasers have constructive notice of the terms of the mortgage?
191 The bank's argument in my view fails at the threshold as it cannot be said that the purchasers have constructive knowledge of the negative covenants contained in the mortgage.
192 The mortgage was registered and the MCP was maintained at the Office of Land Titles by the Registrar. The bank argues that the purchasers are deemed to have notice of the terms of the mortgage and clause 4.2 of the MCP. In Nia v Phuong[123] Young J in granting interlocutory relief concluded that there was a strong probability that at the trial the second mortgagee, who was seeking to have his mortgage registered, would be held to have had constructive notice of the clause in the registered first mortgage restricting further encumbrances without consent of the first mortgage. His Honour thought:
" ... there may be an equity to prevent the lodging party uttering the document when he or she has the knowledge that the document is knowingly in breach of contract." [124]
193 In reaching this conclusion Young J relied upon the proposition that notice should be deemed where the person would have received notice if they had made the investigations usually undertaken in similar transactions. His Honour proceeded on the basis that a person when proposing to enter into a mortgage transaction involving land, will normally search the register.[125] In relation to general law land it is expressly provided by statute that a purchaser may be affected by notice of such matters as "would have come to his knowledge if such inquiries and inspections had been made as ought reasonably to have been made."[126] The principle upon which his Honour acted is similarly expressed in Meagher et al,[127] and Fisher.[128] Young J was of the opinion that such a principle also applied to the sale of land under the Torrens system.
194 Under this general rule the bank submitted that the purchasers were deemed to have notice of all of the contents of the mortgage as if they had searched the title and inspected the MCP and are to be treated as though they knew their contracts of sale were entered into by the mortgagor in breach of the negative stipulation.
195 The registration of the mortgage and lodgment of the MCP with the Registrar would provide the foundation for constructive notice if a search was usually made in similar transactions. Mr Wikrama SC, who appeared with Mr Barber on behalf of Aljade, submitted that in this State purchasers of land do not as a matter of practice search the register or contact a mortgagee to obtain its consent before entering into a contract of sale to purchase land from a mortgagor.
196 The solicitor for Aljade testified that it was not usual to do a search to obtain details of the terms of the mortgage. He stated that in ninety-eight per cent of conveyancing transactions there is a mortgage over the title but the purchaser does nothing in relation to the mortgage. It is left to the vendor to obtain clear title and obtain a discharge of mortgage at settlement. The solicitor for MKIC gave similar evidence. He also said that it was not normal conveyancing practice for the mortgagee's consent to be obtained before a purchaser enters into a contract of sale.
197 It has not been established by evidence that it is the practice in this State to undertake a search in relation to a registered mortgage before entering into a contract of sale. The evidence was to the contrary effect. The purchasers are not to be treated as having constructive notice of the terms of the mortgage.
198 Wai Hwoon Low, the solicitor for the mortgagor was called. She could not say whether the fact that the contracts were not in accordance with the proforma contract necessarily involved the mortgagor in some impropriety. She said that it was commercially in order and common practice for developers to give away apartments to people to whom they owed money. She said that if at the time those apartments were to be transferred the debt has been paid off or the bank was satisfied there was sufficient equity left in whatever properties were then secured, the transfers proceed and if necessary the banks provide a discharge of mortgage. The solicitor for MKIC gave evidence to similar effect.
199 Neither the bank's solicitors or its officer had raised any objection to the sale of the apartments before 28 September 1999. The bank, in cross-examination of the witnesses called on behalf of the purchasers, whilst establishing that no step was taken to ascertain whether the bank had consented, did not suggest to such witnesses that the purchasers were aware that the mortgagor did not have the bank's consent to sell the MKIC or Aljade apartments. Even if the purchases were fixed with knowledge of the negative stipulation in the first mortgage, there was no evidence that the bank at any material time advised the mortgagor or purchasers that it had not consented to the sales or that the purchasers knew or had any reason to believe that the mortgagor was acting without the bank's consent. This alone is fatal to the bank's contention.
Negative Obligation in Facility Agreement prevails
200 The bank in its written submissions said knowledge of clause 4 of the MCP was to be imputed to the purchasers. There is a further reason why this argument is unsustainable. The negative stipulation in the MCP cannot apply to affect the purchasers' conscience. It is much wider than the restriction in the facility agreement. Under the negative obligation in the original facility agreement, the mortgagor would be entitled to dispose of the MKIC or Aljade apartments without the bank's consent if it was in the ordinary course of the mortgagor's business and on arms length terms. Clause 4.2(a) of the MCP and clause 11.2(f) of the original facility agreement are plainly inconsistent. By virtue of clause 22.11 of the original facility agreement, its terms prevail. It is clause 11.2(f) which therefore contains the relevant negative obligations of the mortgagor. They are not obligations of which the purchasers could have constructive notice as the original facility agreement was neither registered nor maintained by the Registrar at the Titles Office.
201 The bank cannot visit upon the purchasers a series of obligations broader than the negative stipulations in the original facility agreement. The purchasers cannot be treated as having a knowledge of the terms in the facility agreement.
202 The purchasers cannot have constructive knowledge of clause 11.2(f) nor can the bank rely upon clause 4.2 of the MCP for the reasons I have expressed. Furthermore, there is no evidence that the purchasers were aware that the bank had not given its consent. The bank's argument that the purchasers' conduct disentitles them to equitable relief must, on these grounds alone fail.
203 I do not in any event consider that the bank has established the mortgagor was in breach of the material negative obligations. First, it says that the contracts of sale were not at "arms length" and that the mortgagor acted as a "benevolent uncle" in offering the titles to the apartments to the purchasers to meet the debts owed by MKDV to MKIC and PKSB (a subsidiary of MKDV) to Aljade. The bank accepted that these debts were owed but contends that as the purchasers did not have to part with any money consequent upon entering into the contracts of sale the mortgagor was in breach of the negative obligations. Each of the contracts of sale was entered into in fulfilment by the mortgagor of its obligations to the purchasers under their respective debt satisfaction agreements. Any suggestion that the debt satisfaction agreements which comprised the consideration for each contract was anything other than a real consideration for the sale of the apartments to the purchasers was expressly disavowed by the bank. There was no evidence adduced during the trial that each party to these agreements did not act independently in forming the bargain nor was it suggested that one party had the capacity to exert personal influence or control over the other.[129] I am not satisfied that the contracts were not "on arms length terms".
204 Second, the bank submits that the contracts of sale could not be said to be in the ordinary course of business of the mortgagor and is contrary to clause 11.2(f). Third, the bank submits that the effect of the mortgagor's entry into these contracts of sale materially changed the scope and nature of "the business conducted on the mortgaged property" by the mortgagor contrary to clause 4.2(d) of the MCP. There was no evidence that would enable me to conclude that such contracts of sale were not in the ordinary course of the mortgagor's business and were contrary to clause 11.2(f). If clause 4.2(d) were the relevant clause of which the purchasers were deemed to have knowledge, it is concerned with "business conducted on the mortgaged property." There was no evidence adduced at the trial that the mortgagor conducted any business "on" the mortgaged property. These were factual questions which were not explored at trial. The evidence, so far as it goes, only permits me to conclude that the mortgagor's business included the development and sale of apartments at 123 LaTrobe Street, Melbourne. I cannot make any finding that there was a material change to the scope and nature of business conducted "on" the property.
205 Fourthly, the bank submits that the mortgagor pledged the Aljade and MKIC apartments in breach of clause 4.2(b) of the MCP to meet the debts of other companies to MKIC and Aljade. Under clause 4.2(b), the mortgagor must not, without the consent of the mortgagee, permit a Security Interest to affect the Mortgaged Property. In clause 1.1 of the mortgage, Security Interest is defined as "a mortgage pledge or other arrangement given as security." In my view a contract of sale is not a security interest within the meaning of clause 1.1. Neither contract of sale created any security interest over the apartments.
206 Fifthly, the bank relied upon clause 11.2(b) of the original facility agreement in contending that the mortgagor had lessened the bank's security interest without its consent. This was not a term of which the purchasers could have constructive notice.
207 Sixthly, the bank relies upon the negative stipulation in clause 4.2(a) of the MCP that the mortgagor was not permitted to deal with or agree to deal with the mortgaged property without the consent of the mortgagee. That clause must, as I have said, give way to the less restrictive negative obligation set out in clause 11.2(f) of the facility agreement of which the purchasers could not have constructive notice.
208 The purchasers' solicitors had reached agreement with the mortgagor's solicitors to defer settlement until the bank was prepared to release their apartments as security. The purchasers were entitled to assume that there would be sufficient equity in the property after repayment of the advance to be able to settle contracts of sale in which no money would be paid to the mortgagee. When the advance was fully repaid 10 apartments including the seven which are the subject of the present proceedings remained.
209 If the execution of the contracts of sale constituted a breach of the bank's mortgage, the bank had its remedies against the mortgagor under the covenants of the mortgage. The bank, upon being notified of the existence of the contracts and their terms, could have exercised its right to call up the mortgage. There was no evidence that the bank or its solicitors at any material time drew attention to the fact that the bank had not consented to these sales. Those covenants gave the bank a contractual right to sue for damages for breach or to enforce the mortgage. The bank, having notice of the contracts of sale, and any breach of covenant by the mortgagor, chose to take no action against the mortgagor or to make inquiries of the mortgagor, purchasers or their solicitors before making the further advance. Such clauses do not make the mortgagor's equity of redemption unassignable.[130] In these circumstances justice and fair dealing does not require that the purchasers should be denied equitable relief.
210 The bank's submission must fail on another discrete ground. Even if the mortgagor was in breach of a negative obligation and the purchasers acquired their interests with constructive knowledge of such a breach, I would not regard such conduct as disentitling the purchasers to equitable relief under the rule in Hopkinson v Rolt. The circumstances in which the purchasers acquired their equitable interests did not induce or cause the bank to make the further advance. Notice of the purchasers' interests had been freely given by the purchasers. The purchasers did not mislead the bank into the belief that the relevant apartments were unencumbered. The purchasers were responsible for no act or omission which conduced a belief in the bank that their interest was no longer in existence, nor did their conduct encourage any assumptions upon which the bank acted when seeking to further charge the property.[131] Unlike the failure by the bank to inquire as to or confirm the dissolution of the purchasers' equitable interests, I can see nothing in the purchasers' conduct which is contrary to "justice and fair dealing" and which would disentitle them to equitable relief under the rule.
[1] Section 81(1) Transfer of Land Act 1958 provides that the registered mortgagee has the same rights in law and equity as it would have had if the legal estate had been vested in it. See City Mutual Life Assurance Society Ltd v Lance Creek Meat Works [1976] VicRp 1; [1976] VR 1.
[2] I.A.C. Finance Pty Ltd v Courtenay [1963] HCA 64; (1963) 110 CLR 550 at 572 per Kitto J; _Swanston Mortgage Pty Ltd v Trepan Investment Pty Ltd & Ano_r [1994] VicRp 47; [1994] 1 VR 672 per Brooking J; Bradbrook, Adrian J. et al, (1977) _Australian Real Property Law (_2nd Ed.), Lawbook Co., Sydney, at [14.87]; F & F Holdings Pty Ltd v Ridge Lane Pty Ltd & Anor [1998] VSCA 72 at [1-2]; Fisher, William Richard (2002), Fisher and Lightwood's Law of mortgage (11th Ed.), Butterworths, London, at [25.15] and [28.4].
[3] Registration did not confer an estate in the land. See section 18(1) Property Law Act 1958 and sections 3(1) and 74(2) Transfer of Land Act 1958; See also Partridge v McIntosh [1933] HCA 38; (1933) 49 CLR 453 and English Scottish and Australian Bank v Phillips [1937] HCA 6; (1937) 57 CLR 302.
[4] See Stardawn Investments Pty Ltd v Comptroller of Stamps (Vic) (1983) 84 ATC 4097 at 4100 per Tadgell J; David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc case) [1992] HCA 48; (1992) 175 CLR 353.
[5] Murphy; Re Bankrupt Estate of: Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46 per Hill J at 55_;_ Clark's Refrigerated Transport Pty Ltd (in liq); Re [1982] VicRp 100; [1982] VR 989; Ronan v Australian and New Zealand Banking Group Ltd [2000] VSCA 77; (2000) 2 VR 531; Smith v Australia and New Zealand Banking Group (1996) NSW ConvR 55-774; Torre v Jonamill [2002] NSWSC 152; Sibbles & Anor v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214; Panebianco v Bendigo Bank [1999] VSC 50; McVeigh, in the matter of Piccolo v National Australia Bank Ltd [2000] FCA 187; Commonwealth Bank of Australia v Aspenview Productions Pty Ltd [2001] VSC 444.
[10] (1993) 6 BPR 13,146 at 13,151.
[11] (1994) 35 NSWLR 96 at 101-102.
[12] Smith v Australian and New Zealand Banking Group Ltd, supra Footnote 5; Murphy; Re Bankrupt Estate of: Donnelly v Commonwealth Bank of Australia, supra Footnote 5 at 54 per Hill J; McVeigh v The National Australia Bank Ltd, supra Footnote 5 per Kenny J.
[14] Smith v Australian and New Zealand Banking Group Ltd, supra Footnote 5 at 54.
[15] Commonwealth Bank of Australia v Aspenview Productions Pty Ltd, supra Footnote 5 at 95 per McDonald J; McVeigh v The National Australia Bank Ltd, supra Footnote 5 at 84.
[16] FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343 at 350 per Brooking J; Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 at 11,820 per Gleeson CJ; Estoril Investments Pty Ltd v Westpac Banking Corporation, supra Footnote 10; Smith v Australia and New Zealand Banking Group Ltd, supra Footnote 5; Jageev Pty Ltd v State Bank of New South Wales (No. 2) Unreported, Supreme Court of NSW (Sperling J 26 March 1996); McVeigh in the matter of Piccolo v National Australia Bank Ltd, supra Footnote 5 per Kenny J; Cuzeno RVM Pty Ltd v Overton Investments Pty Ltd. [2002] NSWSC 88; (2002) 10 BPR 19,425.
[17] Clark's Refrigerated Transport, supra Footnote 5 at 995-996.
[18] DTR Nominees Pty Ltd v Mona Homes [1978] HCA 12; (1978) 138 CLR 423; Thornley v Tilley [1925] HCA 13; (1925) 36 CLR 1; Farmer v Honan [1919] HCA 13; (1919) 26 CLR 183; Sinclair Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310; White v Australian & New Zealand Theatres [1943] HCA 6; (1943) 67 CLR 266; Schenker & Co (Aust) Pty Ltd v Malpas Equipment [1990] VicRp 74; [1990] VR 834; FAI Insurance Co. Ltd v Savoy Pty Ltd,, supra Footnote 16 at 347.
[19] See Smith v Chadwick (1882) 20 Ch D 27; Clark's Refrigerated Transport Pty Ltd, supra Footnote 5 at 996 per Brooking J; Chitty, Joseph (1994) Chitty on Contracts (27th Ed.) Sweet & Maxwell, London, at paragraph 12-057; Halsbury's Laws of Australia, Butterworths, Sydney_,_ Vol 10, at paragraph 140-535.
[22] Collier, B (1998) `All Debts Clauses in Commercial Contracts of Guarantee; Principles of Construction as Limitations on the Ambit of Clauses of this Nature', 24 MULR 7.
[23] Gesellschaft Burgerlichen Rechts v Stockholms Rederiaktiebolag Svea (The Brabant) [1967] 1 QB 588.
[24] Codelfa Construction Pty Ltd v State Railway Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 348; FAI Insurance Ltd v Savoy Pty Ltd, supra Footnote 16 at 350 per Brooking JA.
[25] Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93; Federal Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520; Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1986) 4 BPR 9226.
[30] Supra Footnote 5 Sibbles v Highfern Pty Ltd at 222.
[31] Supra Footnote 5 Sibbles v Highfern Pty Ltd at 223.
[32] See Fisher, supra Footnote 2 at [32.48].
[34] 2 Eq. Cas. Abr. 598; 7 Vin Abr 52.
[35] (1886) 12 App Cas 29 at 36.
[36] West v Williams [1899] 1 Ch 132 at 146 per Chitty LJ; Deeley v Lloyds Bank Ltd [1912] AC 756 at 781 per Lord Shaw.
[37] Supra Footnote 36 at 143. See also Moffett v Dillon [1999] VSCA 32; [1999] 2 VR 480 per Brooking JA at 485-6 as to the analogous approach to competing equitable interests.
[38] Duncan, W and Wallace, A Property Law Act 1974 at paragraph 7.920; Francis, E and Thomas, K.J. (1986) Mortgages and securities (3rd Ed.), Butterworths, Sydney, at 395.
[39] London & County Banking v Ratcliffe, supra Footnote 29.
[40] Wilson v Holland [1915] VicLawRp 8; [1915] VLR 46.
[41] Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 at 300 and 305.
[43] (1988) 48 SASR 407 at 409.
[45] Meagher, R.P. et al (1992) Equity Doctrines and Remedies (3rd Ed.), Butterworths, Sydney, at paragraph 859; Frazer v Walker [1967] 1 AC 569 at 582; Agra Bank Ltd v Barry (1874) LR7HL 135; Macquarie Bank v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133.
[46] Phillips v Martin (1890) 11 LR (NSW) L 153; Barry v Heider & Anor [1914] HCA 79; (1914) 19 CLR 197 at 213 per Isaacs J; Matzner v Clyde Securities Ltd, supra Footnote 41; Sussman & Anor v AGC Advances Ltd & Anor [1995] 37 NSWLR 37.
[48] Matzner v Clyde Securities Ltd, supra Footnote 41 at 305; Central Mortgage Registry of Australia Limited v Donemore Pty Ltd [1984] 2 NSWLR 128 at 130; Mercantile Credits Ltd v ANZ Banking Group Ltd, supra Footnote 43 at 410-411_; Bank of New Zealand v Development Finance Corporation of New Zealand_ [1987] NZCA 146; [1988] 1 NZLR 495 at 500. The rule was also assumed to apply to Torrens system title in _Queensland Trustees Ltd v Registrar of Title_s (1893) 5 QLJ 46; Wilson v Holland, supra Footnote 40; Philos Pty Ltd v National Bank of Australasia Ltd (1976) 5 BPR 11,810; Network Finance Limited v Deposit & Investment Company Limited [1972] QWN 19.
[52] Matzner v Clyde Securities Ltd, supra Footnote 41; Philos Pty Ltd v National Bank, supra Footnote 48; Commonwealth Bank of Australia v Grubic, Unreported SASC 27 November 1992 per Perry J; Weaver, George Alfred, (1990-), The law relating to banker and customer, Law Book Co., Sydney, at paragraph 19.510.
[53] Matzner v Clyde Securities Ltd, supra Footntoe 41 at 304 per Holland J; Wilson v Holland, supra Footnote 40; Dehy Fodders (Aust) Pty Ltd. Re (1973) 4 SASR 538; Sibbles v Highfern Pty Ltd, supra Footnote 5 at 221.
[54] Hopkinson v Rolt, supra Footnote 33 at 838; Sibbles v Highfern Pty Ltd, supra Footnote 5 at 221.
[56] (1894) 25 OR 671 at 676 per Boyd C.
[58] Supra Footnote 57 at 375-376 per Naish C.
[64] Supra Footnote 29 at 739 per Lord Blackburn.
[70] Supra Footnote 5 at 221-223 per Mason CJ and Dawson Toohey and Gaudron JJ.
[71] Deeley v Lloyd's Bank Ltd , supra Footnote 36 at 781-872 per Lord Shaw.
[73] (1993) 11 WAR 536 at 547.
[75] See Russo v Bendigo Bank Ltd [1999] VSCA 108; [1999] 3 VR 376 at paragraphs 26 to 30 per Ormiston JA.
[76] Bahr v Nicolay (No. 2) [1988] HCA 16; (1988) 164 CLR 604 at 614 per Mason CJ and Dawson J; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265 at 273 per Kitto J.
[77] Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188.
[81] Waimiha Sawmilling Co Ltd (in liq) v Waione Tin Co Ltd [1923] NZLR 1137 at 1173 per Salmond J; Bendigo Bank, supra Footnote 75 at paragraph 33 per Ormiston JA.
[82] Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 at 192; Russo v Bendigo Bank Ltd, supra Footnote 75 at 386 per Ormiston JA; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd, supra Footnote 77 at 194 per Hayne JA; Macquarie Bank v Sixty-Fourth Throne Pty Ltd, supra Footnote 45.
[83] _Halsbury's Laws of England, s_upra Footnote 19, at paragraph 422; Abrath v North Eastern Railway Co (1883) 11 QBD 79.
[85] Claremont Petroleum NL v Cummings [1992] FCA 446; (1992) 110 ALR 239 at 259.
[90] Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; Chisum Services Pty Ltd, Re (1982) 7 ACLR 641; Brambles Holdings Ltd v Carey (1976) 15 SASR 270; Meridian Global Funds Management Asia Ltd v Securities Commission [1995] UKPC 5; [1995] 2 AC 500; _Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd, s_upra Footnote 45.
[91] [1974] HCA 40; (1974) 131 CLR 634 at 658-9.
[93] Krakowski v Eurolynx Properties Ltd, supra Footnote 90 at 583.
[94] Supra Footnote 45. Macquarie Bank was applied in LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291.
[95] Krakowski v Eurolynx Properties Ltd, supra Footnote 90 at 583.
[96] Meagher et al, supra Footnote 45 at [8-220].
[97] Barry v Heider, supra Footnote 46; Jared v Clements [1903] 1 Ch 428 at 433 per Romer LJ and at 433-4 per Cozens-Hardy LJ.
[98] Jared v Clements, supra Footnote 97; Fisher Law of Mortgage, supra Footnote 2 at paragraph 24.35; Robinson, S (1992) The Property Law Act (Victoria), Law Book Co, Sydney; Megarry, R.E_. et al_ (2000) The l_aw of real property_, Maxwell & Sweet, London, at paragraph 5-023; Voumard, L (1995) The Sale of Land/Voumard (5th Ed.) LBC Information Services, Sydney at 13-160; Meagher et al, supra Footnote 45, at paragraph 8-285; Snell, Edmund (2000) Principles of Equity (30th Ed.), Sweet & Maxwell, London, at paragraphs 4-18.
[100] Supra Footnote 97 at 431 per Collins M.R and at 433 per Romer LJ.
[102] Fisher, Law of Mortgages, supra Footnote 2 at paragraph 24.9 and 24.15.
[103] [1992] 4 All ER 363 at 377.
[104] Meagher et al, supra Footnote 45 at paragraph 8-220.
[105] Sussman & Anor v AGC Advances Ltd, supra Footnote 46.
[106] Montagu's Settlement Trusts, Re [1987] 2 WLR 1192; L H Kay Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291.
[107] Assets Co Ltd v Mere Roihi, supra Footnote 74; Bahr v Nicolay, supra Footnote 76 at 614.
[108] Rodrick, Sharon (2001) `Resolving priority disputes between competing equitable interests in Torrens system land', 9 APLJ 172 at 191.
[113] [1975] HCA 8; (1975) 132 CLR 373 at 378.
[114] (1993) NSW ConvR 55.671 at 59.835.
[115] Supra Footnote 57 at 379 per Fitzgibbon LJ.
[116] Supra Footnote 56 at 676 per Boyd C.
[117] [2001] QSC 512 at paragraph 42.
[119] Abigail v Lapin [1934] UKPCHCA 1; (1934) 51 CLR 58; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq), supra Footnote 76; Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; (1983) 154 CLR 326.
[121] Supra Footnote 120 Moffett v Dillon at 485-486.
[122] Matzner v Clyde Securities Ltd, supra Footnote 41 at 300 per Holland J; Commonwealth Bank of Australia v Gruvic, supra Footnote 52; Mercantile Credits Ltd v ANZ Banking Group Ltd, supra Footnote 43 at 409; R & I Bank v Cash Resources, supra Footnote 73 at 547.
[126] Section 199(1) Property Law Act 1958.
[127] Supra Footnote 45 at paragraph 8-2700.
[128] Supra Footnote 2 at paragraph 24.9.
[129] Granby Pty Ltd v Federal Commissioner of Taxation (1995) 129 ALR 503.
[130] Fisher, supra Footnote 2 at paragraph 10.3.
[131] Lapin v Abigail ([1930] HCA 6; 1930-31) 44 CLR 166 at 183-184; Moffett v Dillon, supra Footnote 37 at 486.
Oversea Chinese Banking Corporation (OCBC)
Malaysian Kuwaiti Investment Co Sdn Bhd
(1963) 110 CLR 550
(1933) 49 CLR 453
(1937) 57 CLR 302
(1992) 175 CLR 353
(1996) 140 ALR 46
(2000) 2 VR 531
(1987) 164 CLR 214
(1994) 35 NSWLR 96
(1978) 138 CLR 423
(1925) 36 CLR 1
(1919) 26 CLR 183
(1929) 43 CLR 310
(1943) 67 CLR 266
(1982) 149 CLR 337
(1957) 98 CLR 93
(2000) 201 CLR 520
(1975) 133 CLR 191
(1988) 48 SASR 407
(1914) 19 CLR 197
(1973) 4 SASR 538
(1993) 11 WAR 536
(1988) 164 CLR 604
(1965) 113 CLR 265
(1959) 101 CLR 298
(1992) 110 ALR 239
(1995) 183 CLR 563
(1976) 15 SASR 270
(1974) 131 CLR 634
(2002) 26 WAR 517
(1975) 132 CLR 373
(1934) 51 CLR 58
(1983) 154 CLR 326
(1995) 129 ALR 503
The purchasers’ claims succeeded on priority, but the supplied text does not state the formal final orders.