St George Bank – A Division of Westpac Banking Corporation, In the matter of [2011] NSWSC 730

St George was mortgagee of two properties owned by the mortgagor. Only one loan was repaid but St George mistakenly gave a discharge on both mortgages. St George then provided a loan facility to the mortgagor which the mortgagor used to pay off the second loan in relation to Mosman property. A condition of the loan was that the mortgagor was required to produce evidence that the loan in relation to the Mosman Property had been repaid and a mortgage over the Mosman property secured the loan facility. The loan had not been repaid but the mortgage had mistakenly been discharged. The mortgagor used the drawdown on the loan facility to pay off the second loan in relation to Mosman property and then obtained a mortgage to secure a further loan from Westpac. St George discovered their mistake and lodged a caveat on the title of the Mosman property. Westpac then exercised its right as mortgagee and sold the Mosman Property. Westpac paid the surplus monies after exercising its power of sale over mortgaged property into court and St George sought an order that those funds be paid out to it pursuant to the default judgment given in its favour for the facility debt. Consent orders were filed but the court nevertheless continued to determine the application on its merits since the interests of other potential claimants could be affected.

Payment out of court

To support a payment out of Court, the applicant must show:

  1. an entitlement to the funds;
  2. no competing claimants which would prevent payment out;
  3. where there are other claimants, the applicants have notified those claimants.
  4. a calculation of the amount to be paid out.

Entitlement to surplus funds

  1. Section 58(3) of the Real Property Act 1900 provides for the following priority payments in relation to the application of the sale proceeds:
  2. the expenses of the sale;
  3. the first mortgage monies due;
  4. the subsequent mortgage monies due;
  5. to the mortgagor.

The St George mortgage was no longer registered so it was a third priority payment. However the fourth priority payment to the mortgagor can be modified by the intervention of equity. The court found that it would be unconscionable for the mortgagor to assert unencumbered title when she knew or had reason to know that St George had given her the discharge by mistake and advanced further monies under the mistaken belief that it had already obtained a mortgage. The court also noted that the only competing claimant to St George was a second caveator who did not press his claim and does not oppose the pay out. Therefore the courted order that the surplus and interest be paid to St George as equitable mortgagee.

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