New South Wales Supreme Court CITATION : Commonwealth Bank of Australia v Christine Maree Delacy [2010] NSWSC 1449 HEARING DATE(S) : 3 December 2010 JUDGMENT OF : Hammerschlag J EX TEMPORE JUDGMENT DATE : 3 December 2010 DECISION : The plaintiff secured by equitable mortgage in priority to the equitable mortgage of the second defendant CATCHWORDS : REAL PROPERTY – EQUITY – EQUITABLE MORTGAGE – the owner (since deceased) in fee simple of two strata title properties, one a residential unit and one a car parking space mortgaged both properties to a lender by way of a registered mortgage over both titles – she subsequently refinanced the loan by way of a loan from the plaintiff bank which discharged the earlier mortgage by paying out the earlier mortgagee on her behalf – the bank obtained possession of the titles to both properties but obtained a mortgage in registrable form only over the residential unit and not over the car parking space – later the second defendant leant the owner monies and obtained an equitable mortgage securing repayment – HELD – the plaintiff had an equitable mortgage over the parking space, either by way of subrogation or by way of deposit of title deeds which took priority over the second defendant's equitable mortgage CATEGORY : Principal judgment CASES CITED : Cochrane v Cochrane (1985) 3 NSWLR 403 Ghana Commercial Bank v Chandiram [1960] AC 732 TEXTS CITED : Peter Butt, Land Law, 5th ed (2006) Thomson Lawbook Co Commonwealth Bank of Australia - Plaintiff PARTIES : Christine Maree Delacy (Deceased) - First Defendant John Alexander Crawford - Second Defendant FILE NUMBER(S) : SC 2009/298750 COUNSEL : P.J. Dowdy [Plaintiff] R.W. Tregenza [Second Defendant] SOLICITORS : Henry Davis York [Plaintiff] Ziman and Ziman [Second Defendant] - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HAMMERSCHLAG J 3 DECEMBER 2010 2009/298750 COMMONWEALTH BANK OF AUSTRALIA -V- CHRISTINE MAREE DELACY EX TEMPORE JUDGMENT 1 HIS HONOUR: Christine Maree Delacy (to whom I shall refer as "the Deceased") passed away on 1 January 2010. 2 The Deceased was the owner in fee simple of the land comprised in Certificate of Title folio identifier 47/SP72040, which is a residential unit, being unit 701, 437-441 Bourke Street, Surry Hills, New South Wales, ("the unit"), and the land comprised in Certificate of Title folio identifier 211/SP72457, which is a parking space at 443 Bourke Street, Surry Hills, ("the parking space"). 3 From 17 December 2004 and as at 25 June 2007, immediately before the events to which I shall refer below, the Deceased was indebted to Trust Company Fiduciary Services Ltd ("Fiduciary"), previously called Permanent Trustee Company Ltd, in an amount of $2,258,899.72 secured by registered mortgage over the unit and the parking space, number AB209674C, dated 17 December 2004. The Deceased borrowed moneys from Fiduciary ostensibly to enable her to purchase the unit and the parking space from Zone Developments Pty Ltd. 4 On 25 June 2007 the Deceased refinanced the loan from Fiduciary with funds borrowed from the plaintiff bank ("the Bank"). This refinancing took place pursuant to a loan facility entered into between the Bank and the Deceased on about 5 June 2007. 5 On 18 June 2007 in anticipation of settlement, the Deceased executed a mortgage (in registrable form) in favour of the Bank over the unit, but no mortgage was executed in favour of the Bank over the parking space. 6 At settlement the Bank advanced to the Deceased by way of payment to Fiduciary an amount of $2,258,899.72. It obtained from Fiduciary the Certificates of Title for both the unit and the parking space, an original discharge of the Fiduciary mortgage, a copy of the Fiduciary mortgage and ancillary documents. 7 The Bank's mortgage over the unit was duly registered on 25 June 2007 under number AD248281C. The Fiduciary mortgage registered over the parking space remained. 8 On 23 December 2009, the Deceased borrowed $155,000 from the second defendant under a Deed of Loan and Guarantee and executed in his favour a mortgage in registrable form over both the unit and the parking space. 9 The second defendant lodged a caveat in respect of his interest over the parking space on 15 January 2010. 10 By its further amended summons, the Bank claims the following relief: 1. A declaration that from June 2007 there existed between the plaintiff and the first defendant an agreement and common intention for the first defendant to grant the plaintiff a first mortgage in registrable form over the land comprised in certificate of title folio identifier 211/SP72457 being a carparking space situated and known as 443 Bourke Street, Surry Hills in the State of New South Wales to secure repayment to the plaintiff by the first defendant of the principal sum of $2,264,585.87 plus interest as agreed. 2. A declaration that the said agreement should be specifically performed and carried into effect. 3. An order that the defendant specifically perform and carry into effect the agreement by executing a first mortgage in registrable form over the land comprised in the said Certificate of Title. 4. An order that, if the defendant does not comply with any order made or execute the said first mortgage, a Registrar of the Court be empowered to execute all such instruments and do all such things as may be necessary to grant the plaintiff a mortgage as referred to in the preceding paragraphs. 5. Judgment for possession of the land comprised in the said Certificate of Title. 6. An order that the plaintiff have leave to issue a write of possession forthwith in respect of said car parking space. 7. Further and/or alternatively, a declaration that in the events and circumstances which have happened the plaintiff is subrogated to and entitled to the benefit of Mortgage AB209674C over the said car parking space. 8. A declaration that the plaintiff is entitled to exercise the contractual power of sale provided for by the said Mortgage AB209674C. 9. An order for judicial sale of the car parking space under the inherent power of the Court. 10. A decree for foreclosure. 11. A declaration that the plaintiff is entitled to an equitable charge over the car parking space by way of deposit of title deeds. 12. An order that all necessary and proper accounts and inquiries be held and taken and all necessary and proper orders and declarations made as the nature of the case requires. 12A. Interest and costs. 11 By his first cross-claim cross-summons, the second defendant claimed, principally, a declaration that he holds an equitable mortgage over the parking space securing his loan to the Deceased, and an order for judicial sale of the parking space. 12 Two other persons (Mreza International Consulting Group Pty Ltd and Zaighman Abbas Malik) have lodged caveats on the title of the unit. They were joined both as defendants to the Bank's claim and as cross-defendants to the second defendant's cross-claim, but have made it clear that they intend to take no active part in the proceedings. 13 Probate has not been applied for (nor granted) in respect of the estate of the Deceased. On 19 March 2010, Einstein J ordered pursuant to Uniform Civil Procedure Rules Pt 7 r 7.10 that the proceedings continue in the absence of a representative of the Deceased. 14 When the hearing of these proceedings commenced on 25 November 2010, the only contestants were the Bank and the second defendant, the Bank claiming that it has an equitable mortgage over the parking space, either by way of subrogation on the basis that it paid the Deceased's debt to Fiduciary and is subrogated to Fiduciary's rights under its mortgage, or by way of the deposit with it of the security of title to the parking space. The second defendant disputed this on the basis that there was no intention on the part of the Deceased to give, and no intention on the part of the Bank to take, the parking space as security. The Bank did not dispute that the second defendant had an equitable mortgage, but put that his position was be defeated by its prior equitable interest. 15 During the course of the hearing the second defendant withdrew his defence and cross-claim, after a commercial settlement was reached between him and the Bank. 16 It is well established that where a mortgage is paid off by a third party (in this case, the Bank), unless the contrary appears, the third party is presumed to intend that the mortgage will be kept alive for his benefit. As Kearney J said in Cochrane v Cochrane (1985) 3 NSWLR 403 at 405, (following the decision of the Privy Council in Ghana Commercial Bank v Chandiram [1960] AC 732): This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. 17 The present case equates to the second illustration given by his Honour. 18 The documents in evidence persuade me that the Bank paid out Fiduciary on behalf of the Deceased on the basis that it would be provided with the security that Fiduciary had. In the words of the Privy Council in Ghana Commercial Bank at 745 I "find it impossible to accept the view" that the Bank intended the Fiduciary mortgage over the parking space to be extinguished in the event of it not obtaining equivalent security over the parking space. 19 Further, and in any event, I am persuaded that delivery of the Certificate of Title for the parking space to the Bank was in the context of the provision of security to it and is prima facie evidence of an agreement by the Deceased to grant a mortgage over the parking space giving rise to an equitable mortgage; see Peter Butt, Land Law, 5th ed (2006) Thomson Lawbook Co at [1815] and the authorities cited there. 20 The commercial settlement reached between the Bank and the second defendant is encapsulated in Short Minutes of Order with various notations which I shall initial, date today's date and place with the papers. I make orders in accordance with that document and I note the matters therein contained. 21 The Bank is entitled to the declaratory and ancillary relief it seeks. I make orders in accordance with the Short Minutes of Order which I have initialled dated today's date and placed with the papers. 22 I should not let the occasion pass without remarking that the commercial settlement reached between the Bank and the second defendant represents upright commercial conduct on the part of the Bank. Whilst it has been found to be entitled to the relief it seeks, it failed (although undoubtedly by mistake) to obtain a mortgage in registrable form over the parking space. One consequence of this was that when the second defendant came to lend money to the Deceased on the strength of security including the parking space, it was not apparent that the Bank held security over that property. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.