Heperu Pty Limited & Ors v Perpetual Trustees Australia Ltd

Heperu Pty Limited and others (the appellants) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the interpretation of a mortgage and its effect on certain rights of the mortgagor. The dispute centred on whether the mortgagor, Perpetual Trustees Australia Ltd (the respondent), had acted in breach of its obligations under the mortgage by entering into a lease agreement with a third party, thereby triggering a default clause that allowed the mortgagee to enter into possession.

The High Court was required to determine whether the respondent, as mortgagee, was entitled to enter into possession of the mortgaged property. This involved considering whether the mortgagor's act of granting a lease over the property constituted a breach of the mortgage covenants, specifically the covenant against parting with possession without the mortgagee's consent. The court also had to assess the proper construction of the mortgage deed and the scope of the mortgagee's rights upon default.

The High Court held that the respondent was not entitled to enter into possession. Their Honours Gummow and Heydon JJ reasoned that the mortgage deed did not contain an express covenant prohibiting the mortgagor from granting a lease without the mortgagee's consent. Furthermore, they found that the covenant against "parting with possession" did not extend to the granting of a lease, as a leasehold interest is distinct from possession itself. The court applied the principle that mortgagees' rights are generally confined to those expressly granted or necessarily implied by the terms of the mortgage. The appeal was allowed.