High Court’s decision highlights danger in transferring mortgages

The High Court, has recently held that a registered transfer of a mortgage under Torrens System legislation does not operate to transfer anything more than the rights expressly set out in the mortgage. Where the mortgage relies on an extraneous deed of loan the obligations under that extraneous document are not transferred.

 

15 November 2007

In Queensland Premier Mines Pty Ltd v French [2007] HCA 53the High Court was asked to determine whether a transfer of a mortgage under s 62 of the Land Title Act 1994 (Qld) transferred the obligations under the separate deed of loan which was secured by the mortgage. Judgement was given by Kiefel J with whom Gleeson CJ, Gummow, Hayne, Heydon and Crennan agreed1.

The Court noted that s62 was materially identical to s 52(1) of the Real Property Act 1900 (NSW), s 46 of the Transfer of Land Act 1958 (Vic), s 151 of the Real Property Act 1886 (SA), s 83 of the Transfer of Land Act 1893 (WA), s 60 of the Land Titles Act 1980 (Tas), s 62 of the Land Title Act (NT), s 78 of the Land Titles Act 1925 (ACT) the ratio can therefore be taken as applying to all Australian Torrens legislation.
The mortgage relied for its efficacy on a clause under which the mortgagor covenanted to “pay each amount included in the Secured Moneys to the Mortgagee”. The “Secured Moneys” were defined as all moneys owing or which will become payable on any account. This is a classic all monies mortgage which essentially incorporates by reference a separate facility agreement not forming part of the register.
The Kiefel J held (at ¶55) that the purpose of the section was to effect the transfer of the rights in rem, that is those rights that expressly, and on the face of the register, bind the land. The wording of s 62 was not concerned with transferring other agreements between the mortgagor and original mortgagee. Kiefle J noting (at ¶56):

The words of the section are plain. Neither the historical reason for the provision nor its purpose, of effectuating a transfer of both the security interest and the right to moneys arising from the mortgage transaction, supports a construction which extends the section to obligations arising otherwise than under the terms of the mortgage. It is no part of the purpose and function of a statute such as the Land Title Act to rewrite the bargain between transferor and transferee.

Her Honour further observed (at ¶57) that in most instances:

… when a mortgage is transferred, the debt arising from a separate loan agreement will be transferred with it … that is a consequence of the agreement, express or implied, between the parties, not of the operation of s 62.

This case further highlights the vulnerabilities of so called all monies mortgages. There has recently been a string of decisions commencing with Perpetual Trustees Victoria Limited v Tsai [2004] NSWSC 745, including Printy v Provident Capital Limited [2007] NSWSC 287, Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 and Sabah Yazgi v Permanent Custodians Limited [2007] NSWCA 240 which have drawn clear attention to the vulnerability mortgages which rely for their efficacy on the integrity of extraneous documents (usually a deed of loan). Lenders have been slow to update their documents and the majority of mortgages used in NSW are still all monies mortgages.

The effect of these cases and the decision of the High Court in Queensland Premier Mines Pty Ltd v French [2007] HCA 53 is to demonstrate that a all monies mortgage is an empty shell, ineffective to bind the land if something should interfere with the efficacy of the separate deed of loan (for example fraud or failure to transfer it).

In conclusion although the separate deed of loan will often be impliedly transferred this is not always the case and practitioners transferring mortgages should adopt the prudent course of ensuring the obligations contained in the separate deed of loan are expressly transferred. Thought should also be given to avoiding the use of all monies mortgages wherever practical to ensure clients benefit from the indefeasibility provisions of the Real Property Act.

1 Kirby J gave a separate judgement in which he substantially agreed with Kiefel J

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