Aged Care Services v Macedonian Aged Care [2012] NSWSC 531

This was a priority dispute. The sequence of event was:

  1. ANZ took a registered first mortgage;
  2. A creditor took a charge and lodged a caveat;
  3. A developer paid out the ANZ mortgage and a discharge was registered.
  4. The developer claimed he was subrogated (substituted) to the priority of the ANZ mortgage because he paid it out.

The court decided that the first step was to determine whether the creditor/caveator was owed any money. There was a written acknowledgement of the debt as follows:

In the event that monies owed are not fully repaid by 30 September, 2008 the consultant will be entitled, with the full support of the Board of Directors to immediately secure caveats, whilst mortgage documents are prepared and registered in its favour securing real estate and supported by a fixed and floating charge over all of the assets of the owner.

The judge noted the acknowledgement was on letterhead, and that it constituted an admission:

Taking into account the formality of the acknowledgement and the fact that it is substantially corroborated by underlying invoices, I conclude on balance there was an underlying debt as acknowledged in that document.

The judge next decided whether there were was consideration for the promise to give security:

The promise to clear the debt, being no more than a promise to do what it was, in any event, bound to do, might not amount to consideration. But the promise to provide security is, in my view, good consideration for the promise to forbear, and the promise to forbear is good consideration for the promise to give security.

The judge noted the promise had crystallised and accordingly the creditor/caveator held an equitable interest in the land.

The judge next considered the issue of subrogation. He concluded the issue turned on the fact that the ANZ mortgage had been discharged by the developer:

The developer caused the discharge of mortgage to be registered. The effect of registration is to destroy the charge created by the mortgage. See State Bank of New South Wales v Berowra Waters Holdings Pty Ltd (1986) 4 NSWLR 398. Destruction of the charge means, of course, that there is nothing to which ACS, as payer, could be subrogated.

If the developer intended to be secured by taking over the rights of ANZ as mortgagee, that could have been accomplished by taking a transfer of the mortgage. Registration of such a transfer would have given the developer what he now says he bargained for. But he did not do that. Instead, he took a course entirely inconsistent with that supposed bargain.

Accordingly the creditor/caveator prevailed.

Click here to read the full judgment

Scroll to Top