The lender and borrower entered into mortgage which was never registered. Then a settlement was reached whereby the lender executed a deed of release. Subsequently the lender incurred significant costs complying with a subpoena by ASIC. To secure these costs the lender placed a caveat over the old security which the borrower sought to lapse. The court had to decide:
- whether the mortgage allowed the placing of the caveat and if so;
- whether the deed of release prevented it.
In answer to the first question the court held that the mortgage provided that the security was effectively continuing and included the ASIC related costs through the definition of the “amount owing” which included “all amounts that are payable, are owing but not currently payable, are contingently owing, or remain unpaid”.
In answer to the second question the court rejected the argument that the deed of release prevented the lodging of the caveat as it contained the following exclusion:
GE Capital reserves all of its rights against the parties to this Deed under the Transaction Documents in respect of all claims made or action taken or potential claims by any third party against GE Capital arising from or relating to any misrepresentation, fraud, or misfeasance by the other parties to this deed.
The inference being that the parties who ASIC was investigating had potentially been involved in a misrepresentation, fraud, or misfeasance. However this seems weak reasoning as there was no suggestion that ASIC had made any claim, rather it was simply investigating the companies.
Accordingly the caveat was extended.