First Mortgage Capital Pty Ltd v Westpac Banking Corporation Ltd

The matter before the court was between First Mortgage Capital Pty Ltd and Westpac Banking Corporation Ltd, involving a dispute over the terms of a mortgage and associated interest rates. First Mortgage Capital had advanced funds to the mortgagors and held second ranking mortgages over several properties. The mortgage agreement included clauses stipulating different interest rates in the event of default, one of which was a clause that allowed the mortgagee to pay out other mortgages, with any money paid out becoming part of the “Secured Money.” Following a default, First Mortgage Capital paid out first ranking mortgages over three properties for a total of $487,000 and sought to do the same for two more properties. The central issue was whether certain clauses in the mortgage agreement provided a collateral advantage, which would impede the equity of redemption, and whether the exercise of these clauses was unfair and unconscionable.

The court examined whether the plaintiff’s ability to pay out other mortgages and charge a significantly higher interest rate constituted a collateral advantage and an impediment to redemption. It was held that the power to pay out first ranking mortgages and charge interest at 60% p.a. could be regarded as a collateral advantage and an impediment to redemption. The court further considered whether the exercise of these clauses was unfair and unconscionable, particularly in relation to the 60% p.a. interest rate. It was concluded that relying on the clause to charge such a high rate upon paying out first mortgagees was unfair and unconscionable, amounting to an unconscientious exercise of a contractual right. Therefore, while the plaintiff could rely on the clause to redeem or acquire the first mortgages, it was restricted to charging interest at the rate provided for in the first mortgage.

The final orders of the court were that First Mortgage Capital was entitled to rely on the relevant clause to pay out the first ranking mortgages but was limited to charging interest at the rate specified in the first mortgage agreements. This decision underscores the importance of the principle that collateral advantages and unconscionability in mortgage agreements can significantly impact the rights and obligations of the parties involved.