Westpac Banking Corporation v Adelaide Bank Limited

LEGISLATION CITED : Trade Practices Act 1974 (Cth)

Hopkinson v Rolt (1861) 9 HL Cas 514; 11 ER 829 Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 Ghana Commercial Bank v Chandiram [1960] AC 732 Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] AC 221 Chetwynd v Allen [1899] 1 Ch 353 Butler v Rice [1910] 2 Ch 277 Sibbles & Anor v Highfern Pty Ltd (1987) 164 CLR 214 Chase Corporation (Aust) Pty Ltd v North Sydney Brick & Tile Co. Ltd (1994) 35 NSWLR 1 Wilson v Holland (1915) 21 ALR 35 In the matter of Dehy Fodders (Australia) Pty Limited; Winter v Bank of Adelaide (1973) 4 SASR 538 West v Williams [1899] 1 Ch 132 Commonwealth Bank of Australia v Grubic (27 August 1993, unreported on this point; BC9300359) Deeley v Lloyds Bank Limited [1912] AC 756 Mercantile Credits Limited v Australia New Zealand Banking Group (1988) 48 SASR 407 Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd [1984] 2 NSWLR 128 CASES CITED : Re O'Byrne's Estate (1885) 15 LR(IR) 373 Pierce v Canada Permanent Loan & Savings Co (1894) 25 OR 671 Bradford Banking Co Ltd v Henry Briggs & Son Co Ltd (1886) 12 AC 29 R&I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536 Nia v Phuong (1993) 6 BPR 13,141; (1993) NSW Conv R 55-671 Oversea-Chinese Banking Corporation v Malaysian Kuwaiti Investment Co SDN BHD [2003] VSC 495 Vane v Vane (1873) 8 Ch App 383 In re Montagu's Settlement Trusts [1987] Ch 264 at 283 El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 K & S Corporation Ltd v Sportingbet Australia Pty Ltd (2003) 86 SASR 312 Motor Auctions Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 8 BPR 15,565 St Kilda Road Pty Ltd v Parker Simmonds Securities Ltd [2002] V Conv R 54-652 Butt, Mortgagor Entitled to Have Second Mortgage Registered (2002) 76 ALJ 478

Westpac Banking Corporation PARTIES : v Adelaide Bank Limited

Plaintiff: J Kirk COUNSEL : Defendant: C D Freeman

Plaintiff: Corrs Chambers Westgarth SOLICITORS : Defendant: Galilee & Associates

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50073/04 Westpac Banking Corporation v Adelaide Bank Limited JUDGMENT 1 HIS HONOUR: The plaintiff, Westpac, claims a declaration that its mortgage over property at 23 Fourth Avenue, Toukley in New South Wales has priority over the defendant's, the Bank of Adelaide's, mortgage to the extent of $233,195 and interest. It seeks an order that the defendant do all things necessary to enable the plaintiff to register its mortgage over the property as a first mortgage. Alternatively, it claims a declaration that it is subrogated to the defendant's rights under the defendant's mortgage over the subject property. An Overview 2 On 10 April, 2002, the defendant advanced $235,000 to its customers, Mr and Mrs Bryant, on first mortgage security. The Bryants could redraw the loan up to their credit limit from time to time. The loan was managed by its agent, Domain Financial Management Services Pty Limited ("Domain"). In June 2003, the plaintiff, through its agent EDS (Business Process Administration) Pty Limited, ("EDS"), refinanced the loan. It took an unregistered mortgage from the Bryants and paid $233,195 to the credit of the Bryants' account with the defendant. It did so without first obtaining a discharge of the plaintiff's mortgage, or the certificate of title. This was described as "unattended refinance". 3 EDS sent to Domain a letter saying that the Bryants' loan had been cleared. They also sent an authority signed by the Bryants asking that the customers' account with the defendant be closed and that a discharge of mortgage and the certificate of title be provided to the plaintiff. 4 EDS had previously been told by Domain that its form of authority was insufficient, and that Domain would send its own form to the customers to close an account. The letter and accompanying authority sent by EDS to Domain did not expressly state that the Bryants had already signed a mortgage in favour of the plaintiff. 5 Domain did not ask the defendant to put a hold on the account. The letter from EDS was dealt with by a junior clerk. She followed Domain's own standard procedures pursuant to which it would wait for the customer to return its own form of discharge authority, and not ask the defendant to put a hold on the account until it gave the customer a formal pay-out figure. The Bryants did not return the discharge authority to Domain until November, 2003. Instead, they drew down on the account, which had an available credit limit of over $230,000. The account with the defendant went back into debit. Eventually, the debit reached $132,415. This debt, and interest on it, is secured by the defendant's registered mortgage. The plaintiff claims priority for its advance of $233,195 and interest. The Facts in More Detail 6 The defendant's mortgage secures the "payment of the 'amount owing'". The "amount owing" means "… at anytime … all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or an agreement covered by this mortgage". The underlined words are defined terms. "You" meant the mortgagors. "Us" meant the defendant. The loan contract between the defendant and the Bryants is an agreement covered by the mortgage. The mortgage secured not only the initial advance of $235,000, but all amounts subsequently drawn down by the Bryants. It was a condition of the mortgage that the mortgagors would not create another security in connection with the property without the defendant's consent. 7 Immediately prior to 30 June 2003, the Bryants owed the defendant not more than $233,195. (The defendant alleged that the amount then owing was $232,581.72.) 8 The Bryants' mortgage was arranged and managed by Domain, which operates as a mortgage manager for the defendant. All of the Bryants' dealings with the defendant were through Domain. 9 On 10 June 2003, the Bryants entered into a loan agreement with the plaintiff to refinance their existing loan with the defendant. The loan from the plaintiff was also arranged through a mortgage manager, in this case EDS. The plaintiff agreed to lend $235,000 to the Bryants. It described the proposed facility as an "Easy Switch Offer". According to the loan documentation provided to the Bryants, such offers were available to personal borrowers refinancing home or investment loans held with certain lenders, but were not available for a line of credit, or a business loan, or a loan with an overdraft facility. A feature of an "Easy Switch Payment" was that the loan balance to the existing lender was paid out before EDS or the plaintiff received any documentation discharging that lender's security. 10 It was a condition of the plaintiff's loan to the Bryants that their current mortgage to the defendant would be discharged when the loan was repaid in full. Another condition of the loan was that the Bryants would not access funds from, or re-negotiate their current loan with, the defendant. 11 On 10 June 2003, Mr & Mrs Bryant signed a mortgage in favour of the plaintiff. The mortgage was not expressed to be subject to any prior encumbrance. 12 On 24 June 2003, Ms Lexie Veness of Domain provided to Mrs Bryant an indicative payout figure for the loan. The amount quoted was $232,581.72 together with solicitors/legal costs of approximately $270 and an administration discharge fee payable to Domain of $200. The figure quoted was stated to be accurate as at that date only and was subject to change. 13 On 27 June 2003, the plaintiff transferred $233,195 to Domain by electronic transfer. This payment brought the Bryants' account with the defendant into credit in the amount $3,287.81. As at 9 July 2003, the Bryants had a credit limit with the defendant of $230,014. 14 On 30 June 2003, a Mr Bourke, signing as "manager for and on behalf of Westpac Banking Corporation" but also I infer as an employee of EDS, wrote to Domain, as follows: " Dear Sir/Madam REQUEST FOR DISCHARGE OF MORTGAGE

Mortgage number: 8528386 Security property: 23 Fourth Avenue, Toukley NSW 2263 Loan account number: 0035745330 RX01 (070760272) Borrower names: Anthony Eric Bryant and Cathryn Gay Bryant We're writing to let you know that we've recently cleared the above loan on behalf of the borrowers above. In line with the customer's request, please: · ensure the appropriate discharge/document preparation fee has been deducted from the loan account; · ensure that the loan account has been closed; · credit any surplus funds to the customer by way of Bank Cheque or savings account. As we've already paid out the loan in full there's no need to attend a settlement. Please send us the following documents within 10 working days, using the reply paid envelope provided. We also include a copy of the borrower's authority for you to do so. · relevant Certificate of Title · discharge of all relevant securities · original or copy of mortgage showing total loan security stamp duty paid to date (please note, this isn't required in Victoria) " 15 There was enclosed with the letter a notice signed by Mr & Mrs Bryant called an "Irrevocable Authority". It stated as follows: " Please provide Westpac Banking Corporation with the discharge of mortgage over the above property, as set out below: s send the discharge of mortgage and title directly to Westpac Banking Corporation at GPO Box 2755, Adelaide 5001 within 10 business days of receiving this request (or do as otherwise requested by Westpac Banking Corporation); s ensure that the above loan account has been closed, and that all accrued interest and relevant fees and charges (including the discharge/document handling fee) have been charged. Any surplus funds should be sent by cheque directly to us; s provide Westpac Banking Corporation with any information they may ask for in relation to the above loan and related securities, including a payout figure. In addition, we confirm that: s We will pay all accrued interest, fees and charges including break costs and discharge/document handling fees to close the above loan account; s This authority given to Westpac Banking Corporation is irrevocable, and Westpac Banking Corporation is authorised to deal directly with you on all matters to do with the above loan; s We do not wish to be contacted further with regard to this matter. Please direct any queries to Westpac Banking Corporation." 16 However, EDS was on notice that Domain would not accept the form of Irrevocable Authority as sufficient for its purposes. There had been earlier dealings between EDS and Domain in relation to other transactions involving a refinancing without an attended settlement. On 15 January 2003, Ms Rachella of EDS made a file note that Domain had sent their own discharge authority for customers to sign. On 10 February 2003, Mr Coleman of EDS made a file note recording that Domain were waiting for the return of the discharge authority which had been sent to the customer. Someone called Scott of Domain had advised that "our Irrevocable Authority is not sufficient and the customer must complete their discharge form". EDS was thus on notice that Domain would not act upon EDS's Irrevocable Authority. 17 One reason for Domain insisting upon the use of its own discharge authority was to give it the opportunity to talk to the customer to seek to dissuade the customer from switching lenders. Another reason was to ensure accurate instructions were obtained as to whether associated facilities, such as credit card facilities, were also to be closed. Another reason was that by dealing directly with the customer, Domain could verify the authenticity of the customer's signature on the discharge form. 18 The plaintiff's letter to Domain dated 30 June 2003 and the attached Irrevocable Authority, did not state that the Bryants had already executed a mortgage in favour of the plaintiffs. 19 There was some evidence that the letter of 30 June 2003 was sent to Domain by facsimile on that day. Domain had no record of having received the facsimile on that day. However, it was received a couple of days later as it was read by Ms Veness of Domain on or about 2 or 3 July 2003. The letter was received through the mail on 2 July 2003. Nothing turns on the question of whether Domain received the letter by facsimile on 30 June or through the mail on 2 July. 20 On 3 July 2003, Ms Veness wrote to Mr & Mrs Bryant advising that Domain had received correspondence from Westpac confirming that the mortgage to Adelaide Bank Limited would be discharged. She enclosed a copy of Domain's discharge authority and asked that it be signed and returned to the office. The letter also stated: " Please note that you need to be aware that there is a hold placed on your account at the time formal payout figure/s are given prior to settlement. " 21 No hold was placed on the account to prevent the Bryants from redrawing up to the available credit limit. The form of discharge authority which was sent to the Bryants by Domain on 3 July 2003 was addressed to Adelaide Bank Limited. It requested a discharge of the mortgage and loan and noted that the secured Visa card accounts would be paid out at settlement, in conjunction with the payout and discharge of the related home loan and mortgage. The notice accompanying the form stated that it would be necessary for the customers to arrange their banking requirements through an alternate account because, as soon as the formal payout figure was given prior to settlement date, any deposits or withdrawals and cheques presented to the account might be dishonoured. The form stated that direct debit requests would be cancelled immediately upon receipt of the customer's notice to discharge and that the customer should stop using its credit cards once it had signed and returned the discharge authority form. 22 The form was not returned. On 12 July 2003, the Bryants made an ATM cash withdrawal of $300. On 18 July 2003, they made five payments to the tax office from the account totalling $32,534.25. On 18 July they drew a cheque for $70,000. They continued to make withdrawals until 2 February 2004. By 8 March 2004, their account with the defendant was in debit in the sum of $132,415.04. 23 The plaintiff's letter of 30 June 2003 was dealt with by Ms Veness of Domain. In the course of cross-examination she was led to accept that she understood the letter and its attachment were important documents, and she would have read them at the time. However, I do not think that she gave any attention to the implications of the document, if indeed she was capable of understanding what those implications might be. She held a junior position with Domain and was mostly concerned to ensure that Domain's own rules and procedures were carried out. She did that. It was her evidence that when she read the document she understood that Westpac would be taking a mortgage over the Bryants' property at 23 Fourth Avenue, Toukley. She knew that Westpac had advanced sufficient money to place the clients' account in credit. She testified that she understood that a mortgage would not be given to Westpac until a settlement occurred and a discharge of mortgage was handed over. I accept that evidence. She accepted that she "would have understood" that it was possible that Westpac had obtained a signed mortgage from the Bryants before they made the advance. However, there is nothing in any of the contemporaneous documents to suggest that she gave that question any attention. Ms Veness was a young person performing a clerical role. I do not think that she gave any consideration to whether Westpac had already taken an unregistered mortgage, or to what the position of the plaintiff and the defendant would be if the Bryants were to make further drawings on the account. 24 One of the directors of Domain, Ms Golden, readily agreed that if she had read the correspondence from Westpac of 30 June 2003 she would have understood that Westpac had taken a mortgage over the Bryants' property. However, she was not involved in the subject transaction at that stage. 25 On 14 July, 2003, Mr Cook of EDS telephoned Domain and made a file not "2nd follow up CT - Domain". The first so-called "follow up" was on 30 June, 2003. Mr Cook re-faxed to Domain the letter of 30 June, 2003. On 31 July, 2003, Ms McDonald, a loan officer of EDS, again followed up the obtaining of the certificate of title and a discharge of mortgage. She was told that Domain would provide the discharge of mortgage and certificate of title when the customers returned a discharge authority which had been mailed to them on 3 July, 2003. On 5 August 2003, there was a further follow-up call. At some stage the Bryants told Mr Veness of Domain that they had not received the discharge authority form. On 15 October 2003, she forwarded another discharge form to the Bryants. 26 On 30 October 2003, Mrs Bryant telephoned Ms Veness at Domain and was given a quote as to what funds the Bryants would need to close their account. On 31 October, Ms Veness spoke to Mr Mark Coleman of EDS. She told him that the Bryants had not signed and returned the discharge authority, and that as a result their account had remained operational and they had drawn it back to a debit balance of about $130,000. Mr Coleman notified the plaintiff's insurer. On 3 November 2003, Domain received a letter from First American Title Insurance Company of Australia Pty Limited. First Title said: " We have been advised by our client (Westpac Banking Corporation) that you are unable to release the Certificate of Title as you have allowed the borrowers to redraw approximately $135,000 on their loan with you. The first redraw was allowed on 18 July 2003. As your actions in allowing this redraw is in breach of the authority provided to you by the borrowers, and the existing debt owed to you by the borrowers was created after our client advised you that it had cleared any debt that existed as at 30 June 2003, our client seeks to have its mortgage registered as first priority over the security property. " 27 This correspondence was considered by Ms Golden of Domain, amongst others. There is no doubt that it was considered at the highest levels of decision-making in Domain. According to Ms Veness' file note, on or about 3 November 2003, Ms Golden spoke to Mr Bryant who said that they did not realise that the funds received from Westpac were to close their account with the Bank of Adelaide. Ms Veness' file note records that: " Debbie then spoke to Mark Coleman and said we would be happy for Westpac to take second registered mortgage, he was fine with that and said we would have to speak to First Title to organise the details. " 28 That telephone call was made on 11 November, 2003. 29 On 4 November 2003, the Bryants withdrew $900 from the account. Payments of $1,000 were credited to the account on 14 November and 11 December 2003. Between 12 December 2003 and 2 February 2004, the Bryants made further drawings totalling $5,181. There were no further drawings from the account after 2 February 2004, but interest, debits tax and fees were debited to the account. The reason that further drawings were permitted from the account after 3 November 2003 was not explored in the evidence. 30 On 4 November 2003, Domain received a signed discharge authority from Mr and Mrs Bryant. On receipt of that document, Domain instructed a firm of solicitors to act on their behalf, and on behalf of the defendant, in discharging the mortgage. However, the mortgage was not discharged, presumably because the Bryants could not raise the funds to clear the account. Use of Unattended Refinance 31 A good deal of evidence was given about current practices adopted by the parties or their agents, involving what were called unattended refinances. 32 The defendant submitted that the plaintiff's, or EDS's, use of unattended refinance of the Bryants' line of credit facility was contrary to industry practice and in breach of its own guidelines. It submitted that Domain acted in accordance with its established procedures which in relevant respects were known to the plaintiff. 33 The plaintiff's Easy Switch refinance scheme reduced the time taken to complete refinancing from approximately six weeks to about two weeks. This was an advantage in attracting borrowers. Under the scheme, the mortgage managers did not arrange an attended settlement with the outgoing lender when refinancing the customer's loan. This carried obvious risks. The issue in this case is whether the plaintiff can overcome the risks by sending the correspondence, to which I have referred to, to the defendant's agent. 34 The guidelines for the use of the Easy Switch payment scheme stated that line of credit loans, or loans with an overdraft facility, were not eligible for the scheme. The contract between the plaintiff and the Bryants provided that Easy Switch payments were only available to personal borrowers financing home or investment loans which were not a line of credit, or a business loan, or a loan with an overdraft facility. The plaintiff said that the Bryants' loan was none of these. It disputed that the Bryants' account with the defendant was properly characterised as a line of credit facility. It said that a line of credit product was one where there was an overdraft facility up to a pre-defined credit limit which did not reduce, where the borrower only needed to pay interest on the loan and not to make repayments of principal, and where the loan was not for a fixed term. It is unnecessary for me to consider whether the Bryants' facility was a "line of credit" facility in the sense in which that term is used in the documents which regulated EDS's arrangements with Westpac and its mortgage insurer. On any view, the Bryants' facility provided them with a line of credit, upon which they could draw up to a defined, but reducing, credit limit. It is clear that the same risks attended the refinancing of the Bryants' facility with the defendant without simultaneously obtaining a discharge of mortgage, as would attend such a refinancing of overdraft accounts, or line of credit accounts as the plaintiff characterised them. 35 Mr Newman, a team leader employed by EDS, gave evidence that EDS had been involved in approximately 4,000 unattended refinance transactions per year since September 2002 and about 100 unattended refinances since September 2002 involving the defendant. The evidence did not show what proportion of such transactions involved the discharge of secured loans under facilities on which the borrower could redraw. There were about thirty transactions involving the defendant, where EDS on behalf of Westpac provided refinance for line of credit accounts of the same kind as the Bryants' accounts, adopting the same procedures as were adopted with the Bryants. However, as the defendant submitted, in each case the procedure followed by Domain was the same, as in relation to the Bryants' refinance. That is to say, the customer's account was not immediately closed upon receipt of the "Irrevocable Authority" by Domain from the customer. An indicative payout figure was given to the customer and the customer completed Domain's standard form of discharge authority before a formal payout figure was given, the account was closed, and the certificate of title and discharge of mortgage provided to the plaintiff. It seems that in each of the other cases, the customers did not breach their contract with Westpac by redrawing the line of credit. 36 It is of greater significance that EDS knew that Domain would not accept its form of irrevocable authority as a sufficient mandate to close the customer's account. The Plaintiff's Claims 37 The plaintiff put its case in two ways, having abandoned a claim for breach of s 52 of the Trade Practices Act. First, it relied upon the rule in Hopkinson v Rolt (1861) 9 HL Cas 514; 11 ER 829, described in Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 at 298 as: " … a mortgagee to whom the property is mortgaged for advances already made cannot, after receiving notice of a second mortgage, have priority over the second mortgagee for further advances upon the first mortgage, even if the first mortgage, to the knowledge of the second mortgagee, is expressed to be a security for further advances that may be made. " 38 Alternatively, it submitted that it had paid off the defendant's mortgage and it was to be presumed that it intended the mortgage be kept alive for its own benefit, notwithstanding that it intended to take its own mortgage in replacement of the original mortgage. (Ghana Commercial Bank v Chandiram [1960] AC 732 at 745). 39 As the plaintiff did not intend to make an advance on second mortgage, but intended to discharge the defendant's first mortgage and take its own security as first mortgagee, it is convenient to deal with the second submission first. Subrogation 40 The plaintiff relied upon the principle that where a third party pays off a mortgage it is presumed, unless the contrary appears, to intend that the mortgage be kept alive for his own benefit. This is so even if the third party intends to take its own mortgage in replacement of the original mortgage. (Ghana Commercial Bank v Chandiram [1960] AC 732 at 745). 41 In this case, however, the defendant's mortgage was not in any relevant sense "paid off". It is true that the Bryants' account with the defendant was brought into credit. However, the defendant's mortgage secured moneys which might become owing in the future. By the document called an "Irrevocable Authority" the Bryants requested the defendant to "ensure that the above loan account has been closed, and that all accrued interest and relevant fees and charges (including the discharge/document handling fee) have been charged". Although the authority was irrevocable as between the Bryants and the plaintiff, as between the Bryants and the defendant, there was no reason the Bryants could not revoke the request, albeit that they would thereby be in breach of their contract with the plaintiff. 42 The contract between the defendant and the Bryants did not require the defendant to close the account immediately upon receipt of the "Irrevocable Authority". Clause 14 of the loan agreement between the Bryants and the defendant provided: " 14.1 We may unilaterally or at your request: (a) close an account; (b) suspend access to an account; …. (d) end this contract, (in addition to exercising our rights under 2.6 and 2.7) 14.2 A cheque form issued in respect of an account may not be used in respect of the account after the account is closed or after this contract has ended and must be immediately returned as soon as we advise you the account is closed or this contract has ended or when you request that the account be closed or you request that the contract end. … 14.4 Where an account is closed under 14.1(a) or this contract is ended under 14.1(d), then you must pay the total amount owing in respect of the account or contract respectively, or if an account has a deposit balance, we will pay the deposit balance to you or as you direct. 14.5 This contract continues after a card or access to an account is suspended or cancelled or an account is closed or this contract is ended under 14.1, until: (a) the total amount owing in respect of the account or contract as the case requires is paid; and (b) any amount subsequently debited to an account are paid … 14.6 We will give you reasonable notice that this contract has been ended by us pursuant to 14.1 if an account has a deposit balance. " 43 The Bryants' mortgage to the defendant provided that: " 2.4 You may require us to release the property from this mortgage when there is no amount owing . However even if the amount owing is repaid, the property remains mortgaged to us until we actually release it from this mortgage. " 44 In paragraph 6, I have set out the definition of "amount owing". It includes an amount which the mortgagor may owe the defendant in the future. Clause 3.39 of the mortgage provided that only the mortgagee could prepare a document of discharge of the mortgage. 45 Although the defendant could have closed the account forthwith upon receipt of the Irrevocable Authority, it was not obliged to do so immediately. This is clear from the words in clause 14.1 that: " we may … at your request …. close an account, [or] end this contract. " (Emphasis added.)

Any further drawing on the account by the Bryants would be an implied revocation of the request to close the account. 46 Nor could the defendant be compelled to honour the request in the Irrevocable Authority that the customer not be contacted further with regard to the matter, and that any enquiry should be directed to the plaintiff. In any event, the mortgage was to remain on foot until it was "actually released" by the defendant. There is no question that the further drawings on the account are secured by the defendant's mortgage. 47 It is conceptually not possible for the plaintiff to be subrogated to the rights of the defendant under the defendant's mortgage in competition with the defendant itself. Who would determine to which debt a repayment by the mortgagor would be applied? Who would determine whether the mortgagee's power of sale should be exercised, or to which debt the proceeds of sale of the mortgaged property would be applied? 48 Chetwynd v Allen [1899] 1 Ch 353 demonstrates that a person claiming to be subrogated to the rights of the first mortgagee, but who has not fully discharged the mortgagor's liability to the first mortgagee, takes subject to the first mortgagee's rights. There, the lender M advanced £1,200 to pay off an existing mortgage held by T over a property owned by the plaintiff. M made the advance on the basis of certain misleading representations and non-disclosures by the plaintiff's husband. M was told that he would receive a transfer of T's mortgage. £1,000 of the advance was applied in reduction of T's mortgage. T's mortgage was secured over two properties. Romer J held that the charge on both properties to the extent of £1,000 was kept alive in equity in favour of M, so far as that could be done without prejudicing T or the plaintiff, with whom M did not deal. T was not prejudiced as the balance of his mortgage debt had priority over M's charge. The plaintiff was not prejudiced so long as no extra costs were thrown on the mortgaged properties by reason of the original mortgage debt being divided between T and M. 49 A similar issue arose in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] AC 221 where a lender intended that its advance would have priority over debts owed to other companies in the debtor's group. The advance was applied to reduce, but not discharge, a first mortgage. The question was of priority between the lender and another company in the group, (not the first mortgagee), which had a secured debt. The lender claimed it was subrogated to the rights of the first mortgagee. The other secured creditor said that subrogation was impossible as the first mortgage was not fully discharged. Lord Hoffmann, with whom Lord Griffiths and Lord Clyde agreed, and Lord Hutton, considered that there was no conceptual problem about the lender being subrogated to the rights of the first mortgagee, whose mortgage had been since discharged. However, this was because the lender was not seeking priority against the first mortgagee. (At 235-236, 243-245). 50 While I accept that the plaintiff is to be taken to have intended to keep the mortgage in the defendant's favour alive for its own benefit save insofar as it was replaced by the mortgage to the plaintiff (Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; Butler v Rice [1910] 2 Ch 277), the plaintiff cannot take priority over the defendant by subrogation to the defendant's rights. If the plaintiff is to have priority, it must be on the basis that subsequent advances made by the defendant after notice of the plaintiff's mortgage cannot be tacked to the defendant's security. 51 Although the Bryants' account was put into credit for a time, the subsequent advances made by the defendant when the Bryants made further drawings on their account, were secured by the defendant's first registered mortgage. There was not a fresh charge on the making of the further advances. (Sibbles v Highfern Pty Ltd (1987) 164 CLR 214.) The Rule in Hopkinson v Rolt 52 The defendant submitted on a number of grounds that the rule in Hopkinson v Rolt was inapplicable, or that its requirements were not satisfied. First, it submitted that the rule did not apply where the first mortgagee was obliged to make further advances. It contended that it was obliged to permit the further advances after receipt of the plaintiff's letter of 30 June 2003. Secondly, it submitted that the rule only applies in relation to advances which exceed what was initially secured by the first mortgage, so that the additional advances do not adversely affect the value of the second mortgagee's security. Thirdly, it submitted that the rule was inapplicable because at least part of the drawings made by the Bryants after 30 June 2003 were made to effect improvements and thereby enhance the value of the security. Fourthly, it submitted that if the rule applies, the first mortgagee is only precluded from tacking subsequent advances if it would be equitable fraud for it to assert priority over the second mortgagee. That requires that it have actual notice of an advance under the second mortgage. It submitted that it did not have such actual notice. It did not have notice which affected its conscience such that it would be equitable fraud for it to assert its priority over the plaintiff. Fifthly, it submitted that the rule is founded on notions of what is fair and just as between mortgagees. It submitted that it was not fair and just that the plaintiff obtain priority by EDS giving notice of an advance to a clerk in Domain's offices, when EDS was on notice that the customer's account with the defendant would not be closed until Domain's own procedures for closing the account were completed. A fortiori, it was not fair and just that the plaintiff obtain priority where EDS acted in breach of the plaintiff's own guidelines and when it knew, or ought to have known, of the risk that the advance could effectively be unsecured. I will deal with each of these submissions in turn. 53 As to the first submission, I accept that the rule in Hopkinson v Rolt does not apply if the first mortgagee has no choice about making a further advance. (Chase Corporation (Aust) Pty Ltd v North Sydney Brick & Tile Co. Ltd (1994) 35 NSWLR 1 at 16-17; Wilson v Holland (1915) 21 ALR 35 at 36-37; In the matter of Dehy Fodders (Australia) Pty Limited; Winter v Bank of Adelaide (1973) 4 SASR 538 at 550-551). However, there was no obligation on the part of the defendant to permit further drawings on the account after the receipt of the plaintiff's letter of 30 June 2003 and the accompanying Irrevocable Authority. Although the loan contract permitted the Bryants to borrow up to the credit limit, the defendant could close the account at any time, or suspend access to it, or bring the loan contract to an end. Further, as explained in West v Williams [1899] 1 Ch 132 at 143-4, 146, a first mortgagee who has covenanted to make further advances on first mortgage security is released from that covenant where the mortgagor obtains a further advance on second mortgage, as the mortgagor is no longer able to proffer the security promised for the further advance. 54 In support of the second submission, the defendant relied principally upon the decision of the Full Court of the Supreme Court of South Australia in Commonwealth Bank of Australia v Grubic (27 August 1993, unreported on this point; BC9300359). There the Commonwealth Bank provided its customer with a commercial bill facility secured by first mortgage. The facility was for the sum of $645,000. The customer drew a bill of exchange for that sum which was accepted by the bank. The bank discounted the bill and paid the proceeds to the customer. On subsequent intervals of approximately three months, further bills were accepted and discounted by the bank. Debelle J, with whom Cox and Duggan JJ agreed, held that there was in substance one advance of $645,000 and that each rollover did not constitute a fresh advance. His Honour said (at BC9300359 at 65): "The rule in Hopkinson v Rolt was grounded on principles of justice and fair dealing as between the mortgagor and mortgagees and as between the competing mortgagees: The rule was designed to achieve two objects. The first was to leave the mortgagor in a position to raise further monies on his property, which he could be prevented from doing if the first mortgagee was free to diminish the security of the second mortgagee by making further advances. The second, … was to prevent the first mortgagee with notice of the second from diminishing the value of the security for the second mortgage by making advances of money in addition to that initially secured by the first mortgage. As between competing mortgagees, the purpose was to ensure that the first mortgagee did not by additional advances adversely affect the value of the second mortgagee's security. ….." (Citation of authorities omitted). 55 Later his Honour said (at BC9300359 at 68): "… In each of these decisions, the first mortgagee had made a loan to the mortgagor in addition to the original advance which had the effect of increasing the total amount borrowed by the mortgagor. In each case the court was concerned to ensure that, if any amount was lent by the first mortgagee with notice of the second mortgage which thereby increased the total sum lent to the mortgagor, the first mortgagee should not thereby be advantaged to the detriment of the second mortgagee." 56 The defendant submitted that the value of the plaintiff's mortgage has not diminished. When it was executed on 10 June 2003, it ranked behind the defendant's mortgage which secured up to approximately $233,000. It still secures no more than that amount. Considered as a second ranking security, the value of the plaintiff's mortgage has not been diminished. 57 However, the rule in Hopkinson v Rolt applies to moneys advanced by a bank under a current or overdraft account. Where a bank receives notice of an advance on second mortgage, it will lose priority in respect of subsequent advances even though moneys are paid to the credit of the account and are appropriated against the current indebtedness. (Deeley v Lloyds Bank Limited [1912] AC 756. As Lord Shaw said (at 783): " After notice to the bank of a second mortgage by the customer, the debit is struck at the date of notice, and in the ordinary case, that is to say, where an account is merely continued without alteration, or where no specific appropriation of fresh payments is made, such payments are credited to the earliest items on the debit side of the account, and continue so to be credited until the balance secured under the first mortgage is extinguished." 58 As was said in Mercantile Credits Limited v ANZ Banking Group (1988) 48 SASR 407 at 410: " 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 ." 59 If the defendant had sufficient notice of the plaintiff's mortgage, it obtained that notice when the account was in credit. The defendant would lose priority in respect of the subsequent drawings on the account. The drawings are analogous to drawings on an overdraft account. They are not analogous to the rolling over of bills of exchange considered in Commonwealth Bank of Australia v Grubic. For these reasons I do not accept the second submission. 60 In relation to the third submission, the evidence does not establish that the drawings made by the Bryants were spent on improvements or renovations to the property which increased, or may have increased, its value. The evidence on this subject was sparse. The Bryants themselves were not called by either party. Mrs Bryant told Ms Veness on 30 October 2003 that they had withdrawn $70,000 of funds to renovate their house. However, the evidence does not establish that any of the moneys which were withdrawn were applied for that purpose. The cheque for $70,000 drawn on 18 July 2003 was made payable to East Coast Concreting. This appears to have been the Bryants' own business. None of the other drawings had any apparent relationship to the making of improvements to the property. It is therefore unnecessary to consider whether the rule in Hopkinson v Rolt would cease to apply, merely if it were shown that the subsequent advance was applied towards the improvement of the secured property. Such a finding would go beyond what was decided in Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 at 303. 61 The fourth and fifth submissions raise the critical issues. In Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd [1984] 2 NSWLR 128, Kearney J analysed the authorities up to that time which considered the underlying basis for the rule in Hopkinson v Rolt. His Honour concluded that the underlying basis for the rule was that it would be inequitable, that is, it would constitute equitable fraud on the part of a first mortgagee, for it to claim priority in respect of further advances made with notice of an intervening equity. After referring to the Irish case of Re O'Byrne's Estate (1885) 15 LR(IR) 373, and the Canadian decision of Pierce v Canada Permanent Loan & Savings Co (1894) 25 OR 671, his Honour concluded that as the rule was based on the doctrine of equitable fraud, actual notice of the second mortgage was required. 62 In Sibbles & Anor v Highfern Pty Ltd (1987) 164 CLR 214 at 221, Mason CJ, Dawson, Toohey and Gaudron JJ described the rule in Hopkinson v Rolt as being that the prior mortgagee could not tack, if at the time of the further advances he had notice, actual or constructive, of the subsequent mortgage. (My emphasis). 63 This statement was obiter. Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd, and the cases which it applied, were not referred to. 64 It was submitted for the plaintiff that obiter or not, I ought to follow what was said in Sibbles v Highfern Pty Ltd that constructive notice of the subsequent mortgage was sufficient to preclude the prior mortgagee from tacking the further advance. 65 In Hopkinson v Rolt itself Lord Chelmsford, who adhered to his judgment in the Court below, said (at 9 HLC 553, 11 E.R. 845) that: " If he (the first mortgagee) 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? " (My emphasis). 66 However, Hopkinson v Rolt was not a case of constructive notice. Lord Campbell LC said that the first mortgagee was not prejudiced by being reduced to the rank of puisne encumbrancer, where, knowing his true position, he chooses voluntarily to make further advances to the mortgagor. As his Lordship stated the rule in terms of the first mortgagee knowing of the existence of the second mortgage, actual notice would be required. 67 In Bradford Banking Co Ltd v Henry Briggs & Son Co Ltd (1886) 12 App Cas 29, Lord Blackburn said (at 36): " 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 show 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. " (Emphasis added). 68 Evidently his Lordship contemplated that the notice should be such as to make the first mortgagee aware that the debtor has given further security over the mortgaged property. 69 In West v Williams, Lord Lindley MR described the basis of the rule (at 143) as being that: " When a man mortgages his property he is still free to deal with his equity of redemption in it, or, in other words, with the property itself subject to the mortgage. If he creates a second mortgage he cannot afterwards honestly suppress it, and create another mortgage subject only to the first. Nor can anyone who knows of the second mortgage obtain from the mortgagor a greater right to overwrite it than the mortgagor himself has. " (My emphasis). 70 This passage was cited with approval by Lord Shaw in Deeley v Lloyds Bank Ltd [1912] AC at 782. Again, the reference to the first mortgagee being postponed where he has knowledge of the rights created by the mortgagor in the second mortgagee, indicates that the first mortgagee must have actual notice of the second mortgage. However, Deeley v Lloyds Bank Ltd shows that it is not necessary that the first mortgage have knowledge, in the sense of actual awareness, of the second mortgage at the time of the subsequent advance. There the bank manager had received actual notice of the second mortgage but, according to the findings, had forgotten about it when he allowed further drawings on the overdraft account. 71 In R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536 Anderson J noted that the statement in Sibbles v Highfern Pty Ltd at 221 that a prior mortgagee cannot tack, if at the time of the further advances he has notice, actual or constructive, of the subsequent mortgage, was not strictly necessary for the decision and that no authority was cited for the dicta that constructive notice would be sufficient to attract the equities in this kind of case. His Honour said that as the rule is bottomed on it being equitable fraud for the first mortgagee to insist on his priority for the subsequent advance, the notice of the second mortgagee's interest which is sufficient to attract the rule must be such as would affect the first mortgagee's conscience. His Honour said (at 547) that as a general rule only actual notice would be sufficient to do that and actual knowledge must generally be proved. His Honour instanced as an exception to the requirement for actual knowledge, a case where a first mortgagee deliberately set out to prevent receipt of actual notice of the later encumbrance. 72 In Nia v Phuong (1993) 6 BPR 13,141; (1993) NSW Conv R 55-671, Young J (as his Honour then was) said (at 13,144): " However, 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 at 161. Thus if, at the time when a mortgagee loaned his or her money he or she was aware that the mortgagor was borrowing on second mortgage to make up the balance of the purchase price, such awareness would constitute notice which would prevent a first mortgagee from obtaining priority for subsequent advances ." 73 It is unnecessary to consider whether constructive notice of a second mortgage at the time of the first mortgage, as distinct from at the time of the subsequent advance, would be sufficient to attract the operation of the rule. I do not consider that his Honour should be taken as disagreeing with anything decided by Kearney J in Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd. 74 I was referred to Oversea-Chinese Banking Corporation v Malaysian Kuwaiti Investment Co SDN BHD [2003] VSC 495 on the question of notice sufficient to attract the operation of the rule. There the first mortgagee had actual notice that the mortgagor had sold part of the land being developed, but contended that it did not have actual notice of the purchaser's equitable interest in the land at the time it made the subsequent advance because it had been told by the mortgagor that the contracts were not proceeding. It failed on the facts. Redlich J concluded that if the first mortgagee had been told that the contracts of sale were not proceeding, it would be unnecessary to categorise the nature of the notice which the bank continued to hold about the purchaser's interests. Having had actual notice, it would be against conscience for the first mortgagee to rely upon an unverified claim by the mortgagor that such an interest had ceased to exist, and that that would be sufficient to attract the operation of the rule. (At [183]). 75 Although the authorities do not all speak with one voice, their effect is that before equity will regard it as fraudulent for a first mortgagee to insist on its priority for subsequent advances, it is necessary that it have had actual notice of an intervening equitable interest. It is apparent from Deeley v Lloyds Bank Limited [1912] AC (at 768), that it is not necessary to show that at the time of the subsequent advance, the first mortgagee has knowledge, in the sense of an actual awareness, of the second mortgagee's interest. Although it is sufficient for the second mortgagee to show notice, and not knowledge, it must show that actual notice of its having made an advance on second mortgage was given to the person or persons who represent the mind of the first mortgagee. Thus, in R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd, the first mortgagee received a certificate of currency from the insurer of the mortgaged property which noted the existence of a second mortgage. The document was dealt with at a clerical level and not by employees who were concerned with the making of loans, or the taking of securities. Anderson J held (at 546) that: " I do not consider it would be a proper application of the doctrine of constructive notice to impute knowledge to the defendant of the fact that the plaintiff was mortgagee of the subject property by reason of the receipt in the defendant's insurance records of the insurance certificate."

His Honour found that the receipt of the document did not give the defendant actual notice of the second mortgage and that it " did not actually produce any awareness on the part of the defendant of the existence of the plaintiff's mortgage ." 76 In the present case the defendant appointed Domain as its agent to manage the loan account of the Bryants with the defendant. The defendant's evidence was that the task of managing the loan account was "essentially the full supervision of the account". That included all tasks associated with closing the account, (other than physically putting a hold on the account, which was done by the defendant itself on the press of a computer key), and arranging for the discharge of the security. The notice which Domain had, whether actual or constructive, should be imputed to the defendant. (Vane v Vane (1873) 8 Ch App 383 at 399-400; In re Montagu's Settlement Trusts [1987] Ch 264 at 283). 77 However it does not follow that the notice which Ms Veness had should be attributed to Domain. She was responsible for processing discharges of mortgages. She did not have responsibility for deciding whether or not the Bryants should be allowed to make further drawings from the account after receipt of the plaintiff's letter of 30 June 2003. Hers was a purely clerical function. Only the defendant could place a hold on an account, although doubtless it would have done so upon receipt of appropriate notice from Domain that that should be done. I do not consider that she represented the directing mind or will of Domain. Whatever actual notice she had of the plaintiff's interest, should not be attributed to Domain and thereby imputed to the defendant. She did not have the responsibility for managing or controlling Domain's actions in relation to the act or omission in question (El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 at 695-696, 705-706). The act or omission in question in this case is the failure to take steps to prevent the Bryants from further drawing on their account. That was not a matter within Ms Veness's responsibility. Even if she should have inferred from the terms of Westpac's letter that Westpac had already taken a mortgage from the Bryants to secure their advance, it was no part of her job to consider the implications of that fact. 78 I have previously found that Ms Veness did not understand that the plaintiff had already taken a mortgage to secure its advance. She did not have actual notice that Westpac had lent on second mortgage security. That fact was not expressly communicated by the correspondence of 30 June 2003 and the accompanying Irrevocable Authority. Whilst another officer of Domain might have inferred that that was the fact, as Ms Golden did, I do not think that Domain had actual notice of it from the correspondence which it received. Indeed, had an appropriate officer of Domain turned his or her mind to the question, he or she might properly have assumed that the Bryants would have complied with their contractual obligation not to grant further securities without the defendant's consent, and that another bank would not take a security from the Bryants without the defendant's consent, as it should know of that covenant. In any case, a company is not to be taken as having knowledge of every matter contained in its records. (K & S Corporation Ltd v Sportingbet Australia Pty Ltd (2003) 86 SASR 312 at 338, [102]). 79 Accordingly, I do not consider that as at 3 July, 2003, Domain or the defendant had notice that the Bryants had already given a mortgage to Westpac to secure Westpac's advance. It follows that the rule in Hopkinson v Rolt does not preclude the defendant from tacking the subsequent advances to its mortgage, until responsible officers of Domain had actual notice of the plaintiff's unregistered mortgage. 80 However, on 3 November 2003, Domain did receive actual notice that the Westpac advance had been made on mortgage security. On that day, it received the letter from First American Title Insurance Company referred to in para 26 above . Whilst it is likely to have taken at least a day or two for that letter to be considered by persons holding responsible positions in Domain, it is clear that soon after 3 or 4 November, 2003, Domain had actual notice that Westpac had taken, or purportedly taken, security by way of unregistered mortgage to secure its advance. Notwithstanding this notice, the defendant permitted the Bryants to make further drawings on the account up to 2 February, 2004. 81 Subject to the defendant's last submission, it would not be entitled to tack further advances, or interest on them, to its registered mortgage in priority to the plaintiff, after its agent had actual notice that the plaintiff had made its advance on mortgage security. 82 I turn to the defendant's fifth submission, that the rule in Hopkinson v Rolt is based upon justice and fair dealing between the mortgagor and the mortgagees, and that even if it had notice of the plaintiff's mortgage, it was not just and fair in the circumstances that its subsequent advances be deferred to the plaintiff's mortgage. It is only necessary to consider this submission in respect of drawings made from 12 December, 2003. The plaintiff has not shown that when the Bryants drew on the account on 4 November, 2003, the defendant, through appropriate responsible officers of Domain, had notice of the terms of American First Title Company's letter. However it did have such notice by the next drawing on 12 December, 2003. 83 The defendant submitted that the plaintiff, through EDS, knew that Domain would not act on their Irrevocable Authority, but required a separate discharge authority to be forwarded to the customers. In paying out the loan without obtaining a discharge of mortgage from the defendant the plaintiff was acting in breach of its own guidelines and contrary to industry practice. 84 However, the procedures to be followed by banks, or their agents, in managing mortgages, should be adapted to meet the legal framework which determines priority between mortgagees. The defendant or Domain cannot alter the principles which determine priorities between mortgagees, merely by saying that they will continue to permit a customer to draw on a current account until their own discharge form and other procedures have been completed. 85 Subject to one qualification to which I refer below, once sufficient notice had been given to an appropriately responsible officer of the defendant or its agent, that the plaintiff had taken a mortgage to secure its advance, fairness and justice dictates that the defendant not have priority in respect of further advances. The defendant could not displace what the law regards as fair and just in those circumstances by insisting upon its own administrative procedures and giving notice to the plaintiff that it would be doing so. 86 There may be one qualification to this, although it was not a point which was argued. Hopkinson v Rolt is based on the mortgagor's being free to deal with his equity of redemption. Being so free, it is inequitable for the mortgagor to diminish the security of the second mortgagee by taking a further advance on first mortgage, and the first mortgagee is in the same position if he has notice. (West v Williams at 143; Deeley v Lloyd's Bank Ltd at 782). In this case, the Bryants had contracted not to grant a second mortgage without the defendant's consent. This would not deprive the Bryants of the power to create a second mortgage, albeit in breach of contract. But prima facie, if the plaintiff had actual or constructive notice of the covenant against further encumbrances, the defendant would be entitled to refuse to produce the certificate of title to permit registration of the second mortgage. (Nia v Phuong (1993) 6 BPR 13,141; Motor Auctions Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 8 BPR 15,565 at 15,573; cp St Kilda Road Pty Ltd v Parker Simmonds Securities Ltd [2002] V Conv R 54-652; Butt, Mortgagor Entitled to Have Second Mortgage Registered (2002) 76 ALJ 478). Although the plaintiff would have an equitable interest in the land even if it could not register its mortgage, it would be strange if it could obtain priority over the first mortgagee if the first mortgagee was entitled to enforce against it, the covenant restraining the mortgagor from granting any further security. (Compare Oversea-Chinese Banking Corporation v Malaysian Kuwaiti Investment Co SDN BHD [2003] VSC 495 at [187]-[199], [210]). 87 In Bradford Banking Co Ltd v Henry Briggs & Son Co Ltd (1885) 31 Ch D 19, a company was entitled under its Articles of Association to a "first and permanent lien and charge" for debts payable by a shareholder to it. In the Court of Appeal, it was held by the majority (Brett MR and Lindley LJ at 24-25, 26) that such a contract, of which the second mortgagee should be assumed to have notice, precluded the second mortgagee from acquiring priority on the principles of Hopkinson v Rolt. In the House of Lords it was held that the Articles did not admit of that construction, Lord Blackburn saying (1886) 12 App Cas 29 at 37): " I do not see that the words 'first and permanent lien' differ from 'lien' , or at least that they make it in any way unconscientious or unjust in the owner of the property pledged, to obtain a further advance from a second pledgee who knows of the first pledge, though that second pledgee, for his own sake, must take care to give notice of his security to the first pledgee. "

Their Lordships did not deny that an appropriately worded security, of which a second mortgagee had actual or constructive notice, could displace the rule. 88 I do not decide the question whether the covenant in the defendant's mortgage against the Bryants' giving further security without consent, would preclude an unregistered mortgagee, with actual or constructive notice of the terms of that mortgage, from claiming priority against further advances by the defendant who did not consent to the second mortgage. This question was not argued. But it should not be assumed that the plaintiff would have obtained priority if EDS's letter of 30 June, 2003 had stated that the Bryants had given a mortgage to the plaintiff and had been received and dealt with by more senior employees of Domain. 89 However, the defendant, through its agent Domain, gave consent sometime after 3 November 2003, to the registration of the plaintiff's mortgage as a second mortgage. It cannot complain that its security for the advances made after it had actual notice of the plaintiff's mortgage, and had given consent to it, should be postponed to the plaintiff's security. 90 The consequence is that the plaintiff is entitled to priority only in respect of the advances made by the defendant, through allowing the Bryants to draw on the account, from 12 December, 2003. 91 The plaintiff has substantially failed and should pay the costs of the proceedings. I make the following declarations and orders:

1. Declare that to the extent it secures the sum of $233,195 and interest thereon, the plaintiff's mortgage over the property in Folio Identifier 554/26427 known as Fourth Avenue, Toukley, New South Wales, has priority over the defendant's mortgage to the extent that the defendant's mortgage secures advances or drawings made on or after 12 December, 2003, and interest thereon, but is otherwise subject to the defendant's mortgage.

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