English Scottish and Australian Bank Ltd v Phillips

The English Scottish and Australian Bank Ltd. (the appellant) appealed to the High Court of Australia from a decision of the Supreme Court of South Australia. The appeal concerned an action brought by the bank against George Phillips (the respondent) to recover mortgage moneys under a personal covenant contained in a mortgage. Phillips had originally mortgaged land under the Real Property Act 1886 (S.A.) to Robert Jones. Subsequently, Phillips transferred the land, subject to the mortgage, and the land passed through several subsequent transferees. The mortgagee, Robert Jones, called up the mortgage moneys, and when the registered proprietor of the land failed to pay, Phillips paid the mortgage moneys to Jones and took a transfer of the mortgage, becoming the registered proprietor of the mortgage. Phillips later transferred the mortgage to Randell Rowlands Jones, who then transferred it to the appellant bank.

The central legal issue before the High Court was whether Phillips remained personally liable to the bank on his original mortgage covenant, despite having paid the mortgage moneys to the original mortgagee and subsequently becoming the registered proprietor of the mortgage himself. This involved determining the effect of a mortgagor taking a transfer of their own mortgage under the Torrens system, and whether this extinguished the personal covenant or merely suspended it, and if suspended, whether it could be revived upon subsequent transfer of the mortgage.

A majority of the High Court (Dixon, Evatt, and McTiernan JJ.) held that Phillips remained liable on his personal covenant. Their reasoning was that under the Real Property Act system, a mortgage is a transferable interest in land. While the vesting of the mortgage in the mortgagor might have temporarily suspended the personal covenant, it did not extinguish it. The Court found it inconsistent with the statutory framework to treat the vesting of the mortgage in the mortgagor as destroying the covenant, particularly against subsequent transferees of the mortgage. The majority distinguished this situation from a simple discharge of the mortgage, emphasizing that Phillips had taken a transfer, thereby preserving the security. The dissenting judges (Latham C.J. and Starke J.) held that while the mortgage itself did not merge with the fee simple, the personal covenant was extinguished when Phillips became the registered proprietor of the mortgage, and therefore the bank could not recover on that covenant.

The High Court, by a majority, allowed the appeal, overturning the decision of the Supreme Court of South Australia. The Court ordered that Phillips was liable to the English Scottish and Australian Bank Ltd. on his personal covenant.