This case involved the application of the rule in Hopkinson v Rolt. The rule prevents a first mortgagee (in this case St George) from obtaining priority for advances it makes after it becomes aware of the existence of a second mortgagee.
The second mortgagee wrote to the first and alerted it to the existence of its mortgage. The first subsequently rolled over an existing bill facility. The second mortgagee argued this caused the order of priorities were reversed.
The judge rejected this noting:
The rule in Hopkinson v Rolt is designed to prevent the first mortgagee with notice of the existence of the second mortgage from diminishing the value of the security for the second mortgage by making advances of money in addition to that initially secured by the first mortgage.
The further advance must be voluntary, in the sense that the mortgagee is not bound under the secured facility to make the advance. If the bank agreed to provide an ongoing overdraft facility. Unless terminated, the bank would be obliged to honour cheques drawn, and thus make further advances. In that sense, the advances would be involuntary.
In the present case, when St George continued to roll over bills after the bill facility came to an end the secured debt was never reduced. Equity is concerned with the substance of a transaction, its effect on the mortgagor and the conscience of the mortgagee. The drawing, accepting and rolling of bills recorded a continuation of a liability, that remained unsatisfied.
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