Across Australia Finance v Kalls [2008] NSWSC 783

In this case there was a priorities dispute, the situation before the loans went into default was as follows:

Rose Bay

  • 1st Mortgage – All monies to NAB
  • 2nd Mortgage – Hill
  • 3rd Mortgage – Across Australia Finance
      

Pyrmont

  • 1st Mortgage – All monies to NAB
  • 2nd Mortgage – Across Australia Finance

 
Rose Bay was sold and 100% applied to the NAB debt leaving Hill with nothing. He sought to marshall (essentially substitute his loan for the amount NAB received from Rose Bay into the empty shell of the NAB loan over Pyrmont). Thus he was seeking priority over Across Australia Finance on Pyrmont.

The Court essentially determined that the purpose of the doctrine of marshalling was to ensure that the second mortgagees ability to recover was not dependant upon the caprice of the first mortgagee in choosing what order to sell the properties in. Accordingly the court ordered that based upon the ratio between the sale proceeds of both properties available to the NAB (had they been sold simultaneously) the surplus proceeds from Pyrmont were split between the two second mortgagees (according to which property they held their second mortgage). For the purposes of the exercise the 3rd mortgage was disregarded.

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