City Mutual Life Assurance Society Ltd v Smith

The case of *City Mutual Life Assurance Society Ltd v Smith* concerned an appeal to the High Court of Australia from the Supreme Court of New South Wales. The dispute arose from an action commenced by the City Mutual Life Assurance Society Ltd (the Society) against Sir James Joynton Smith (the respondent) to recover moneys claimed to be due under an agreement. The core of the disagreement lay in whether the respondent's covenant to repay a loan was rendered void by the provisions of the Moratorium Act 1930-1931 (N.S.W.), as amended.

The legal issues before the High Court were whether a sub-mortgage of a registered mortgage over land, which itself was secured by a transfer of that mortgage back to the original mortgagee as security for a new loan, constituted a "mortgage of real property" within the meaning of section 25(8) of the Moratorium Act 1930-1931 (N.S.W.), as amended. Specifically, the court had to determine if the respondent's personal covenant to repay the loan made by the Society was void under that section, and consequently, whether the Society was prevented from recovering the moneys advanced.

The High Court, by a majority decision of Starke and Evatt JJ. (Dixon J. dissenting), affirmed the decision of the Supreme Court. Starke J. reasoned that the definition of "mortgage" in section 2 and the provisions of section 25(8) of the Moratorium Act did not expand the meaning of "any mortgage of real property" in section 25 to include the definition of "land" from the Interpretation Act 1897 (N.S.W.). Evatt J. concluded that the purpose of section 25(8) was to ensure that any right of recourse against land in case of default would disqualify a mortgagee from pursuing the personal covenant, and that a sub-mortgage where land formed part of the security fell within this provision. The majority held that the transaction was indeed a "mortgage of real property" as defined by the Moratorium Act, and therefore the respondent's personal covenant was void.

The appeal was dismissed, and the decision of the Supreme Court of New South Wales was affirmed. The Society was not entitled to recover the sums claimed from the respondent.