Meldov v Bank of Queensland [2015] NSWSC 378

The Bank of Queensland advanced $760k more than it intended to advance to the borrower by mistake. Within 2 months the borrower drew down on the additional money. Later the bank exercised power of sale and applied the proceeds to the amounts owing to the bank (including the mistaken advance).

The second mortgagee sued the bank for part of the proceeds on the grounds the mistaken advance was not secured by the bank’s mortgage.

The question for the court was whether the mistaken advance was secured under the “all moneys” clause of the Bank’s first mortgage.

The banks mortgage contained the following provisions’which together made up its “all monies” clause.

“For the purpose of securing to the Bank payment of the total amount owing, you mortgage the property to us”.

The “total amount owing” was defined as meaning:

“at any time, all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or any agreement covered by this mortgage.

This definition applies:

(a) irrespective of the capacity in which we became entitled to the amount concerned;
(b) irrespective of the capacity in which you became liable in respect of the amount concerned;
(c) whether you are liable as principal debtor, as surety or otherwise”.

“Including” was defined as “not limiting the meaning of words to that example or examples of a similar kind”.

“any agreement covered by this mortgage” was defined as:

“an agreement or other arrangement (including a deed) under which one or more of you incurs or owes obligations to us or under which we have rights against you, including any such agreement or arrangement which all of you acknowledge in writing to be an ‘agreement covered by this mortgage’. It includes any agreement or security assigned to us”.

 The second mortgagee argued that:

  1. there was no express provision in the mortgage to the effect that the mortgage secured an obligation to make restitution of an amount mistakenly paid.
  2. that the all moneys clause in the Memorandum should be read as only covering obligations of “the same character as the Bank’s agreed advance” and a debt owing by reason of a restitutionary claim in consequence of a mistaken payment is not a debt “of the same type or character” as that arising from an agreed advance of funds. 

The second mortgagee relied on a case called Estoril which contained “guidelines” for the interpretation “all moneys” clauses (or “dragnet clauses” as the judge in that case called them). These are:

  1. The mortgage will only secure advances made or debts incurred in the future if the past debts are identified.
  2. Only debts of the same type or character as the original debt are secured by the mortgage.
  3. A dragnet clause will often cover future debts only if documents evidencing those debts specifically refer back to the clause.
  4. If the future debt is separately secured it may be assumed that parties did not intend that it also be secured by the dragnet mortgage.
  5. The clause is inapplicable to debts which were originally owed by the mortgagor to third parties and which were assigned to or purchased by the mortgagee.
  6. If there are several joint mortgagors only future debts on which all of the mortgagors are obligated or at least of which all were aware will be covered by the dragnet clause.
  7. Once the original debt has been fully discharged, the mortgage is extinguished and cannot secure future loans.
  8. If the mortgagor transfers the land to a third party, any debts which the original mortgagor incurs thereafter are not secured by the mortgage.
  9. If the real estate is transferred by the mortgagor advances subsequently made to the transferee are not secured by the mortgage even if the transferee expressly assumed the mortgage.”

The judge found that “Estoril guidelines have a role to play, in the construction of all moneys clause, but their role cannot be determinative consistent with established authority”. 

This was in recognition of the fact that all the authorities including Estoril itself acknowledged that a mortgage drafted sufficiently clearly to indicate to the contrary of the Estoril guidelines would override those guidelines. 

The second mortgagee was able to point to a case called Moussa where fraudulently taken money was held not to be covered by an all monies clause. 

The judge found this to be a different set of circumstances not applicable:

  1. first, the fact the debt in Moussa resulted from fraud and hence there was no element of consent by the mortgagor in incurring the obligation;
  2. second, the differences in drafting of the mortgages. The definition of including being as “not limiting the meaning of words to that example or examples of a similar kind”.

Click here to read the full judgement.

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