This is a cautionary tale for judges who decide they are going to force parties into mortgage transactions and write the terms of the mortgage themselves. As this judge belatedly realized, it is not the business of the Court to rearrange the legal relations of parties. Rather it is the job of the Court to determine the legal position is in relation to the facts as they find them.
The borrower asked the Court to compel the withdrawal of a caveat warning of an equitable mortgage. The borrower wanted the caveat withdrawn so that her daughter could purchase her interest and discharge the mortgage. The borrower’s daughter gave an undertaking that the caveat could be lodged against the properties again once she had purchased them.
The Judge stated that the balance of convenience would not favour making the orders sought, simply because the caveators’ interest would be inadequately protected – however His Honour suggested arrangements that could be put in place so that the caveators were not disadvantaged and the balance of convenience could fall in favour of the borrower, including:
- an enforceable guarantee by the borrower’s daughter in favour of the caveators in respect of the debts owed by the borrower;
- a mortgage in favour of each caveator over each of the properties securing the mortgage guarantee;
- an enforceable undertaking by the borrower’s daughter consenting to lodgment of caveats after she becomes the registered proprietor;
- acknowledgement by caveators that they wouldn’t enforce the guarantee personally against the borrower’s daughter for any amount exceeding her equity in the four properties;
- an acknowledgment by the caveators that the new arrangements will not affect the existing priorities of equitable interests.
The Judge also suggested the borrower’s daughter be added as a party to the proceedings
The Judge then gave the parties time to discuss the matter.
By the time the Judge delivered a second judgment three days later, he had changed his position. By then, the borrower’s daughter had been added as a party and the borrower had provided a proposal for the mortgage that could be given by the daughter. The caveators argued the mortgage was defective in form and unenforceable, not providing for a sum certain or for a fixed period. The Judge agreed the proposed mortgage would not be enforceable.
Further, he considered that, from the evidence he had heard from the borrower’s daughter, she had not had the opportunity to fully consider how the debts would be repaid, she underestimated the amount owing to them and had real difficulty in understanding the full nature of the undertakings she was entering into. The Judge ultimately determined that the undertaking was not understood by her, was not capable of being fulfilled and would ultimately not be enforceable.
The Judge found that the proposal which was formulated (which bore resemblance to that which the Judge had in fact suggested) was disadvantageous to the caveators to the extent that there was no good reason to subject them to it and the balance of convenience did not therefore favour the borrower.