Barlin Investments v Westpac [2012] NSWSC 699

Westpac went to lodge their mortgage only to find that a caveat lodged after they settled blocked registration. The caveat protected a mortgage created before the Westpac mortgage was advanced.

The court considered the rules applying to priority competition between equitable interests:

To determine priority between competing equitable interests, where the merits are equal, the earlier in time prevails over the later. However, that principle should not be applied mechanically and that the real task of the court “is to determine where the merits are equal”.

One circumstance in which the later in time interest will be held to be more meritorious than the earlier is where the earlier interest holder is guilty of an act or omission which had or might have had the effect of inducing the later interest holder to act to his or her prejudice.

In the case of Torrens Title land, one omission which has been held to be of particular relevance is the failure to lodge a caveat. Where that failure has led a subsequent interest holder to assume that there are no interests in the land besides those recorded on the Register, the prior interest may be postponed by the failure of the interest holder to lodge a caveat promptly to protect his or her interest.

Similarly, a person may be guilty of postponing conduct if the person withdraws a caveat in circumstances where the withdrawal has led a subsequent interest holder to believe that the person no longer seeks to protect his or her interest or no longer has an interest to protect.

In this case, Westpac took a first mortgage on the faith of the register and in circumstances did not have any reason to believe that the property was subject to a unregistered mortgage.

The caveator had lodged a caveat but had subsequently withdrawn it, with the result that anyone conducting a search of the register would have been left with the clear impression that, whatever interest it had, that interest did not exist at the time that Westpac made its advance.

The court also considered it highly relevant that Westpac was simply replacing another first mortgagee with the result that the caveator was not in any worse position as a result of Westpac’s mortgage.

For these reasons Westpac interest was considered more meritorious and had priority.

Yet another party–subsequent to the Westpac advance–took an interest in the property but this time the caveat was on the title prior to settlement, they therefore had constructive notice of the caveator’s interest. The court considered whether they could be assisted by Section 43A(1) of the RPA . The court noted that this section:

Confers upon a purchaser who has received a registrable instrument and paid the purchase money the same protection against notice as that achieved by a purchaser who acquires the legal estate at common law. Consequently, the interest of a purchaser who receives a registrable instrument without notice of a prior unregistered interest takes priority over the earlier interest.

The court found that Westpac’s earlier success meant that the new purchaser’s and their financier were protected because they took title from them. In any event, on registration Westpac’s interest the caveator’s would be extinguished under ss 42 and 43 of the RPA.

Although it was necessary for the above conclusion the court also found that Westpac would have been protected by subrogation (standing in the shoes of) the registered mortgagee it paid out up to the amount it paid to discharge that mortgage.

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