Does Section 58(3) Apply to an Unregistered Mortgage?
53It is another question whether "mortgage" is used in its full defined sense in section 58(3). For the reasons that follow, it would be inconsistent with the context and subject matter for it to bear its full defined sense in section 58(3). Rather, section 58(3) is concerned only with registered mortgages.
54Section 41(1) RPA has the effect that a dealing not only does not pass any estate or interest in Torrens system land until registered, but also that the dealing does not render the land liable as security for the payment of money until it is registered. It might happen that a transaction, such as a contract, that is evidenced by the dealing gives rise to a security in the eyes of equity, but that happens outside the scope of the RPA itself, and does not affect the construction of RPA .
55Section 36(9) RPA makes clear that it is the dates of registration of dealings, not the dates of creation, that determine their respective orders of priority. Section 56A provides a means by which the holders of registered mortgages can alter their priority inter se , by registration of a particular type of memorandum in the approved form.
56When there is an unregistered mortgage, the registered proprietor of the land holds his estate or interest in the land free from that mortgage, pursuant to section 42(1) RPA , except in the case of fraud. It is uncontroversial that the registered proprietor is also subject to any personal equities ( Frazer v Walker [1967] 1 AC 569 at 585; Barry v Heider (1914) 19 CLR 197 at 213; Breskvar v Wall (1971) 126 CLR 376 at 385) but what matters for the present task of statutory construction is that these personal equities arise outside the statute, not within its structure.
57Section 56(1) RPA requires Torrens title land to be mortgaged using a mortgage in the approved form.
58Section 57(2) sets out various preconditions for the exercise of the powers under section 58. As the opening words of section 58(1) make clear, the power of sale can be exercised only when the preconditions laid down in section 57(2) have been met. The chapeau of section 57(2) makes clear that the only type of person eligible to fulfil those preconditions is "a registered mortgagee, chargee or covenant chargee" . Thus, the only mortgagee who can exercise the power of sale under section 58 is a registered mortgagee. Powell J expressly so decided in Midland Montagu Australia Ltd v Cuthbertson (1989) 17 NSWLR 309 at 313.
59Section 58(3) only comes into operation once the power of sale under section 58(1) has been exercised. The opening phrase of section 58(3), "the purchase money to arise from the sale of any such land, estate or interest" , refers back to the type of land, estate or interest that is capable of being sold under section 58(1), which is only Torrens system land.
60In the order of application of proceeds laid down by section 58(3), the second application of money, after the expenses, is "in payment of the moneys which may then be due of owing to the mortgagee, chargee or covenant chargee" . The "mortgagee, chargee or covenant chargee" there referred to is the mortgagee, chargee or covenant chargee who has exercised the power of sale - ie, necessarily someone with a registered mortgage, charge or covenant charge.
61Next in line is "in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority" .
62There was some mention in argument of the possibility that, when those subsequent interests are to be paid "in the order of their priority" that is a reference to the priority that they are accorded by the RPA itself. The argument is that whether their order of priority arises solely under section 36(9) from the order of their registration, or is also affected by the registration of a memorandum under section 56A, that order of priority exists only amongst registered mortgages.
63Provisions somewhat analogous to section 58(3) RPA , namely section 135 Real Property Act 1886 (SA) and section 88(1) Property Law Act 1974 (Qld), have been held to be intended "not to establish priorities but to provide the machinery for giving effect to the priorities otherwise legally established" : Mercantile Credit Ltd v Australia and New Zealand Banking Group Ltd (1988) 48 SASR 407 at 410 per King CJ; Australia and New Zealand Banking Group Ltd v Evans [1992] 2 Qd R 230 at 233 per de Jersey CJ; Emerson v Custom Credit Corporation Ltd (1991) Q Conv R [54-414]; Rockett v Moneycorp Securities Pty Ltd [2008] QFC 258 at [15]-[16]. In Mercantile Credit v ANZ King CJ said, at 410, that such a provision was not:
"... apt to create a priority which would not otherwise exist. Its broad effect is to provide that the moneys are to be applied in payment of the mortgages according to the priorities established by law, the balance being paid to the mortgagor."
64Thus, Mercantile Credit v ANZ held (as Holland J had previously held in Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293) that where a first registered mortgage contains an all moneys clause, a second mortgage is later registered, and the first mortgagee then makes further advances, the equitable rule in Hopkinson v Rolt (1861) 9 HL Cas 514; 11 ER 829 could operate to limit the priority of the first mortgage to the amount that the first mortgagee had advanced at the time of acquiring notice of the second mortgage. (Notice of the second mortgage does not always have that effect - there can be reasons, as were found to exist in Matzner , that outweigh in equity's eyes the significance of the first mortgagee having notice of the second mortgage.) As de Jersey CJ put it in Australia and New Zealand Banking Group Limited v Evans [1992] 2 Qd R 230 at 233, the order of priority referred to in section 88(1) of the Queensland legislation is not "the priority prima facie established by the order of registration, but the true priority, however lawfully it is achieved".
65In my view the Queensland decisions that I have cited in [63] are not determinative of the point presently in issue.
66Like section 58(3) RPA , section 88(1) Property Law Act 1974-1975 (Qld) required the surplus moneys received by a mortgagee to be held in trust and applied by him in accordance with the section. Section 88(1) ended:
"(c) Thirdly, in payment of any subsequent mortgages or encumbrances:
and the residue (if any) of the money so received shall be paid to the person entitled to receive or entitled to give receipts for the proceeds of sale of the mortgaged property."
67However, section 88 appeared in Part 7 of the Act, which commenced by saying:
77(1) This Part-
(a) applies to unregistered land and to any mortgage of such land; and
(b) applies to land and any mortgage of land which is subject to the provisions of-
(i) the Real Property Acts; or
(ii) the Land Act; or
(iii) the Miners' Homestead Leases Act; or
(iv) the Mining Act; or
(v) the State Housing Act; or
(vi) any other Act, and any repealed Act which continue to apply to such land or mortgage made before that Act was repealed; and
(c) subject to any other Act, apply to any other mortgage whether of land or any other property.
(2) In this Part-
"instrument of mortgage" includes-
(a) a bill of mortgage and a bill of encumbrance within the meaning of the Real Property Acts; and
(b) a memorandum of mortgage under the Land Act, the Miners' Homestead Leases Act, or the Mining Act;
"mortgagee" includes an encumbrancee under a registered bill of encumbrance;
"mortgagor" includes an encumbrancer under a registered bill of encumbrance;
"principal money" includes any annuity, rent charge or principal money secured or charged by a bill of encumbrance registered under the Real Property Acts.
68It is significant that section 88 Property Law Act 1974 (Qd) is a provision that, by reason of section 77, is expressly made applicable to land under both a Torrens title and a non-Torrens title, and to registered and unregistered mortgages. That is not the case with section 58(3) RPA.
69For mortgages over land that is not Torrens land, and for priorities between unregistered mortgages, priorities must be decided through the general law, not by inspecting a Torrens register. The meaning of section 88(1)(c) must be ascertained in a way that takes account of this wide scope of application of section 88(1)(c) - the provision cannot have a different meaning when applied in one factual situation to when it is applied in a different factual situation. However, there is no similar necessity for section 58(3) RPA to accommodate, as a matter of its construction, priorities ascertained other than by the Torrens register.
70If section 58(3) were to be construed in the way section 88(1) has been construed in Queensland, the relevant order of priorities would include the priority between a registered and an unregistered mortgage, and an unregistered mortgage would then be part of the "subsequent mortgages, charges or covenant charges" . However, so construing it would produce a significant anomaly. It would make the scope of the phrase "subsequent mortgages, charges or covenant charges" extend beyond the registered interests in land to which all six of the previous references in section 58 to "mortgages, charges and covenant charges" (or cognates of that expression) refer, when there is no indication in either the text or the context that a different meaning is intended. It has long been a principle of construction that a word or phrase is assumed to be used consistently in legislation, and (unless the word or phrase appears in contexts that show that different meanings are intended) it should be given the same meaning in the various places at which it appears: Pearce & Geddes, Statutory Interpretation in Australia, 6 th ed, para [4.6] and cases there cited. That principle has special force when the same word or phrase is used several times in the one section.
71The way in which the situation of the unregistered mortgagee is accommodated is not through the construction of section 58(3), but by equitable principle operating to modify the operation of section 58(3) to prevent it being used to produce inequitable results.
72It is necessary for equitable principles to be called into play in deciding priorities between NSW registered mortgages because section 58(3) does not deal with all the possible situations in which proceeds of sale might come to be distributed amongst a mortgagor and mortgagees. If it is a second registered mortgagee who sells, section 58(3) says nothing about the first registered mortgagee being paid out (because it is not a "subsequent mortgage" ). Clearly the first mortgagee would have priority even over the second mortgagee (absent an agreement altering the priority arising from registration) but it is equitable principles, not section 58(3) that requires it to be paid to give effect to that priority.
73Further, it is possible, by agreement between the mortgagor, all registered mortgagees, and a lender whose security interest is unregistered, for the unregistered interest-holder to be given whatever priority the parties might choose. If the chosen priority was subsequent to that of the selling mortgagee, and (contrary to my view) the Queensland construction of its section 88(1) were to apply to section 58(3) RPA , that unregistered mortgage would be one of the "subsequent mortgages, charges or covenant charges" within section 58(3). Section 58(3) would then require payment to it, in its appropriate order of priority. However, if the parties by agreement gave the unregistered interest a first priority, section 58(3) would not address that situation at all, because the unregistered interest was not a "subsequent" mortgage. In that situation the unregistered mortgagee would ultimately be accorded first priority, by equity enforcing the priority agreement as giving rise to a personal equity that bound the registered mortgagees. If equitable principle is needed to accommodate the unregistered mortgage in one of these situations, it is a more harmonious construction to also bring it into play in the other.
74Another reason why equitable principle is needed to supplement the words of section 58(3) arises from the fact that the "surplus" referred to in section 58(3) is the surplus after payment of the previous three items listed in section 58(3). In other words, the amount that section 58(3) requires to be paid to the mortgagor, charger or covenant charger is an amount ascertained without deduction of any amount that a mortgagor or charger might have agreed, in an unregistered document, the land in question would be security for.
75When the words of section 58(3) must be supplemented by equity, the preferable construction of them, in accordance with the usual principle of statutory construction, accords the same meaning to different instances of a phrase being used in the one section.
76As the decision in Mercantile Credit v ANZ is a decision of the South Australian Full Court, and I can see no relevant difference between section 135 of the South Australian legislation and section 58(3) RPA , particular attention must be paid to precisely what it decided. While King CJ expressed the view about what section 135 did not do (namely, create a priority which would not otherwise exist), and about the "broad effect" and the "purpose" of section 135, he did not, as I read his judgment, decide that section 135 had a meaning different to that which seems to me to be the correct meaning of section 58(3). The other judge who wrote his own judgment, Mohr J, said expressly (412):
"Although there are, as pointed out in argument, some ambiguities and uncertainties in the language of section I find it unnecessary to resolve that in the instant case. Here the facts are clear and the answer to the special case will not depend on any interpretation of S135. "
77The remaining judge, Millhouse J, (who was the third and last of the judges to give judgment) said only "I agree" , without saying with which aspects of which judgment or judgments he agreed, beyond (obviously) the result. In the circumstances I see nothing in the decision in Mercantile Credit v ANZ that stands in the way of the construction of section 58(3) RPA that seems to me to be correct.
78It remains to consider Re S & D International Pty Ltd (in liquidation) (Receiver and Manager Appointed) , the decision that deflected Hammerschlag J from his own preferred course ([31] above). There, Robson J considered a situation where there were two properties, each subject to a registered first mortgage. Other claims over the properties arose from an unregistered mortgage, an unregistered charge, a trustee's lien, and a liquidator's lien for fees and expenses. One of the properties had been sold by the first mortgagee, the other remained unsold but in the hands of a receiver appointed by the first mortgagee. The manner of disposition of the proceeds of a mortgagee sale was laid down by section 77(3) Transfer of Land Act 1958 (Vic).
79Relevant provisions of the Transfer of Land Act 1958 (Vic) include:
74(1) The registered proprietor of any land -
(a) may mortgage it by instrument of mortgage in an appropriate approved form;
(b) may charge it with the payment of an annuity by instrument of charge in an appropriate approved form.
(2) Any such mortgage or charge shall when registered have effect as a security and be an interest in land, but shall not operate as a transfer of the land thereby mortgaged or charged.
...
76(1) If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).
...
77(1) If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land ...
(3) The purchase money received arising from the sale shall be applied-
(a) firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b) secondly in payment of the moneys which are due or owing on the mortgage or charge;
(c) thirdly in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d) fourthly in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein ...
80After an extensive review of the authorities, Robson J at 159 concluded that, "the reference to subsequent mortgages and charges in s 77(3)(c) of the TLA includes unregistered mortgages and charges." The authorities cited for that conclusion were: Ex parte Australian Co-operative Development Society Limited (in liq) [1978] Qd R 395; Avco Financial Services Limited v Commonwealth Bank of Australia ; and Fraser v Australian Securities & Investments Commission, in the matter of Lanepoint [2007] FCAFC 85.
81I agree with Hammerschlag J that these authorities do not support the conclusion that Robson J drew from them. In Ex parte Australian Co-operative Development Society Limited Hoare J considered a situation where a registered first mortgagee had exercised a power of sale. The applicant held an unregistered second mortgage.
82Hoare J said, at 396:
"The original scheme of the Real Property Acts equated a bill of encumbrance with a bill of mortgage. It is difficult to see why provisions of the Property Law Act should apply to an unregistered bill of mortgage but only to a registered bill of encumbrance. While one can readily see the creation and enlargement of doubts by the provisions of s. 77(2) of the Property Law Act , nevertheless, I find it difficult to see why the provisions of s. 88(1)(c), at any rate as they apply to a bill of mortgage should be restricted to a registered bill of mortgage. At the same time it would, on the face of it, be absurd if the bill of encumbrance is, by the operation of s. 77(2), to be placed, as it were, in a different category and with separate provisions applying to a bill of encumbrance. It is not necessary for me to determine this aspect of the matter on this application but it may be that the operation of s. 77(2) is sufficiently restricted by the words, 'unless the contrary intention appears.' However, I say no more of the bill of encumbrance but it does seem to me that, having regard to the existing law which is so well established, I can see no good reason why s. 88(1)(c) as far as its application to a mortgage is concerned, should be restricted to a registered mortgage and I so hold."
83As shown earlier ([66]-[69]), on its correct construction section 88(1) Property Law Act (Qld) applies to both registered and unregistered mortgages. However that is a result of a peculiarity of the drafting of the Queensland legislation that is not reflected in either section 58(3) RPA or section 77(3) Transfer of Land Act (Vic). Section 77(1) Transfer of Land Act operates by reference to " such mortgage or charge ", which refers back to section 74, which relates only to registered mortgages.
84Avco Financial Services Limited v Commonwealth Bank of Australia arose after a registered mortgagee who had exercised a power of sale paid a surplus into court. A lender who had an unregistered equitable charge over the land applied to Young J (as his Honour then was) under section 98 Trustee Act 1925 for the payment out to it of the money in court. By the time of the hearing the only other potential claimants to that money were the mortgagors. They had left Australia and were probably living permanently in the Philippines. The applicant had obtained a default judgment against them, for more than the amount of the sum in court. Young J said, at 682, that Ex parte Australian Co-operative Development Society was:
"... one of the particular wording of the Queensland Act, but nonetheless it goes some way to persuade one that the words in the New South Wales statutes should be liberally construed. Especially is this so when one can see in s 58, a distinction made between a mortgage charge or covenant charge on the one hand and a registered mortgage charge or covenant charge on the other. Section 56 B again appears to recognise an unregistered mortgage as a mortgagee under the Act."
85After holding that the equitable charge of the applicant was not a "charge, within the meaning of the definition of that term in section 3 RPA " his Honour said, at 682-3:
"Accordingly, although I lean to the view that one should read the word 'mortgage' in s 58(3) as including an equitable mortgage, because I do not consider that the equitable charge in this case is a charge within the meaning of the Real Property Act , the statutory trust in that former subsection does not avail the plaintiff."
86His Honour referred to Hope v Hope [1977] 1 NZLR 582, in which Wilson J had upheld the claim of an unregistered subsequent mortgagee to part of the surplus. He quoted Wilson J's statement (at 583) that the section:
"... does not vest the surplus from a mortgagee's sale in the mortgagor free from all equities but subject to them. In equity the equitable charge on the land is converted, on the sale of the land, to a charge on the proceeds."
(The relevant New Zealand section, section 104(1) Land Transfer Act 1952 (NZ) differed from section 58(3) RPA only in that the third payment to be made is "of subsequent registered mortgages or incumbrances (if any) in the order of their priority" .)
87His Honour concluded, at 683:
"Accordingly, the Court will, outside s 58(3) find that there is virtually a sub-trust whereby the equitable charge created by the mortgagor which enures against the fund produced by the mortgagee sale is enforced in personam against the mortgagor.
It follows that the plaintiff has a better title in equity to the fund than the mortgagor ..."
88Thus, the inclination (not final view) that his Honour expressed about section 58(3) extending to unregistered mortgages was not part of the ratio of the case.
89Fraser v ASIC arose when the director of two associated companies in receivership requested the receivers to advance money from company funds for the purpose of conducting various pieces of litigation that the director wished to bring relating to the affairs of the companies. The receivers refused the request. Each company had given to the bank that had appointed the receivers both Real Property mortgages and a debenture over its undertaking and assets to secure their respective borrowings ([43], [49]). One of the companies, Lanepoint Enterprises Pty Ltd had also given a second fixed and floating charge over its assets to Perpetual Nominees Limited. A first instance judge, hearing an application by the director that was treated as an appeal under section 1321 Corporations Act 2001 (Cth) against a refusal of the receivers to advance funding for the litigation in question, had authorised a particular advance to be made. That order was reversed on appeal.
90Section 105 Transfer of Land Act 1893 (WA) provided:
"(1) The proprietor of land under the operation of this Act may -
(a) mortgage the land; or
(b) charge the land with the payment of an annuity.
(2) A mortgage or charge shall be in an approved form."
91Section 106(1) provides:
"Subject to Division 2 of Part 6 of the Land Administration Act 1997 in the case of conditional tenure land, a mortgage and a charge under this Act shall when registered as hereinbefore provided have effect as a security but shall not operate as a transfer of the land thereby mortgaged or charged; and in case default be made in payment of the principal sum interest or annuity secured or any part thereof respectively or in the performance or observance of any covenant expressed in any mortgage or charge or hereby declared to be implied in any mortgage and such default be continued for one month or for such other period of time as may therein for that purpose be expressly fixed the mortgagee or annuitant or his transferees may serve on the mortgagor or grantor or his transferees notice in writing to pay the money owing on such mortgage or charge or to perform and observe the aforesaid covenants (as the case may be)."
92Section 109(1) provides, so far as relevant:
"The purchase money arising from the sale of the mortgaged or charged land shall be applied as follows: -
If the sale be by the mortgagee or his transferees -
First in payment of the expenses of and incidental to such sale and consequent on such behalf; secondly in payment of the moneys which may be due or owing on the mortgage; thirdly in payment of subsequent mortgages and of any money which may be due or owing in respect of any subsequent charge in the order of their respective priorities; and the surplus (if any) shall be paid to the mortgagor. Provided always that if the sale be made by a mortgagee or his transferees and there is a subsequent charge the purchase moneys after there shall have been made thereout all proper prior payments shall be deposited by him or them in the manner and names and for purposes corresponding with those after mentioned.
93The debenture that Lanepoint had given to the first mortgagee stated that funds obtained from the sale of the charged property should be applied in the same way as was provided for in section 109:
94Finkelstein J held that, concerning the surplus that the receivers would eventually hold there would be two claimants, one of them a guarantor that had made a payment under its guarantee and would be subrogated to the first mortgagee's securities, and Perpetual. As Perpetual's only security interest over the land arose from its fixed and floating charge, in the ordinary course of things that interest would be purely an equitable security. His Honour said at [53]:
"Perpetual is a claimant because of the common law rule that once a receiver has paid the amount due to his principal he must account for the surplus to second and subsequent mortgagees before any funds are paid to the mortgagor: Re Thomson's Mortgage Trusts [1920] 1 Ch 508; Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222 , 228. It could also rely on s 109 of the Transfer of Land Act ."
95His Honour held that a payment to the director out of that surplus was a payment that the receivers would not be permitted to make even if they were of the opinion that it was desirable to make the payment. His Honour said, at [54]:
"The receivers would not be permitted to make the payment because it would be inconsistent with both s 109 of the Transfer of Land Act and the mortgage instrument. Thus the first effect of the order was to require the receivers to make a payment which was both in breach of statute and in breach of the mortgage."
That reasoning contemplates that Perpetual could fall into the order of application of funds laid down by section 109.
96Ryan and Gilmour JJ gave a different reason why the order of the primary judge was incorrect. Their Honours said, at [38]:
"We are prepared to assume, without deciding, that receivers may have a discretion, once they are satisfied that they will have a surplus of funds after their secured creditor has been paid in full and after all the costs and expenses of the receivership have been met, to make a payment in advance of their retirement to the mortgagor company. That discretion is apparently qualified by the duty owed to second or subsequent mortgagees or other encumbrancers of the company's assets which has been identified by Finkelstein J in his separate reasons at [53] below; see Re Thomson's Mortgage Trusts [1920] 1 Ch 508 and the other authority there cited. However, even if there were no second mortgagee or subsequent secured creditor of whom the receivers had notice, they would not be entitled to pay funds under their control to the mortgagor company on the condition that it apply those funds in a certain way or for some specified purpose. Such a condition could potentially cut down the rights of secured creditors of whom the receivers had no notice or of any unsecured creditors and might, if it matters, constitute a preference."
97Their Honours' statement "that discretion is apparently qualified ..." is less than adoption of [53] of the judgment of Finkelstein J. Further, the reason that their Honours give for the payment by the receivers being beyond power is one that applies "even if there were no second mortgagee or subsequent secured creditor of whom the receivers had notice" . In those circumstances, [53] of the judgment of Finkelstein J is not part of the ratio decidendi of the case.
98Finally, in my view, section 109 Transfer of Land Act applies only to registered mortgages. The Division in which it occurs relates, as section 105 makes clear, only to registered land. The type of " charge " that the Division (and thus section 109) is concerned with is identified by a 105(1)(b) as a charging of the land with payment of an annuity. It is that type of charge that is referred to by the provision in section 109 for the " thirdly " payment to be made to " any subsequent charge ". Similar considerations of consistency in language use to those that apply under section 58(3) RPA make preferable the construction that section 109 does not extend to the payment out of subsequent unregistered equitable interests in the land. While some of the other provisions in the Division are subject to an exception concerning land under the Land Administration Act 1977 , section 109(2) says that section 109 does not apply to the application of proceeds of sale by a mortgagee in accordance with section 77 Land Administration Act . Thus I respectfully disagree with the view that an unregistered mortgage could fall within the order of application of funds laid down by section 109.
99In these circumstances I would not follow the aspect of Re S & D International that held that section 77(3) Transfer of Land Act authorised the payment to subsequent unregistered mortgages and charges. I uphold the Notice of Contention. On its true construction, section 58(3) RPA does not authorise the payment out of subsequent unregistered mortgages.