Circuit Finance Australia v Panella [2011] NSWSC 311

A purchaser bought property but his solicitor failed to notice a caveat on title. The purchaser was unable to register the transfer and the court was called upon to determine what price the purchaser had to pay for its solicitor’s negligence.

As all but $2,000 of the sales proceeds were used to discharge the mortgage, the purchaser argued that the finance company’s equitable interest should be limited to $2000 because:

  1. the finance company would otherwise be unjustly enriched; and
  2. the purchaser is subrogated to the position of the mortgagee paid out on completion, and therefore has an equitable interest for the same amount of the discharged mortgage which ranks in priority to the finance company’s interest.

Unjust enrichment
The law is that the first in time prevails unless there is some disentitling conduct and the court did not view the windfall to the finance company as unfair or such as to give rise to an estoppel. Unfairness in the context of a priority dispute requires conduct which is both blameworthy and causative. Mere unfairness in the outcome is irrelevant unless there is also disentitling conduct by the holder of the first interest which caused the holder of the later interest to act on a false premise. It is not sufficient to point to the eventual outcome and contend that it is unfair.
The court found no disentitling conduct on the part of the finance company and no reason why the charge should be limited to $2000 despite the fact that it could have been removed if the finance company had been paid this upon completion.

The court dismissed this claim as incorrect, noting that the purchaser is not entitled to step into the shoes of the mortgagee. The purchaser merely paid the purchase price to the vendor in accordance with the vendor’s directions and this does not give to the purchaser a right of subrogation so that the mortgage is kept alive for the purchaser’s own benefit. The purpose of subrogation is to prevent the unjust enrichment of the principal debtor but has no application here because the principal debtor is the vendor and he has not been unjustly enriched. There is no subrogation where a purchaser pays the purchase price to the vendor in accordance with his directions, and such money is applied by the vendor to pay off his mortgage.

The nature of the purchaser’s equitable claim
The court also found that the purchaser did not have any equitable interest in the land because it did not have any available right of specific performance. Thus this was not a priority dispute between competing equitable interests in land.

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