Heperu Pty Limited & Ors v Perpetual Trustees Australia Ltd

The High Court of Australia considered an appeal concerning the interpretation of a mortgage and guarantees. The appellants, Heperu Pty Limited and others, were borrowers and guarantors under a mortgage granted to Perpetual Trustees Australia Ltd. The dispute arose from the interpretation of clause 10 of the mortgage, which dealt with the application of payments made by the mortgagor. The mortgagor had made payments that were insufficient to discharge the full amount owing under the mortgage, and the parties disagreed on how these payments should be allocated between different secured debts.

The central legal issue before the High Court was whether clause 10 of the mortgage dictated a specific order of application for payments made by the mortgagor, or if the general law principles of appropriation applied. Specifically, the court had to determine if the clause effectively overrode the common law rule that a debtor may appropriate payments to any part of their debt, and if not, whether the mortgagor had in fact appropriated the payments in a particular way. The court also considered the implications of the mortgage's wording on the rights of the guarantor.

The High Court held that clause 10 of the mortgage did not prescribe a mandatory order of appropriation for payments. The court reasoned that the language of the clause was not sufficiently clear or unequivocal to displace the common law right of appropriation. In the absence of a clear contractual provision to the contrary, the general principles of appropriation applied. The court found that the mortgagor had not made a sufficient appropriation of the payments to any particular debt, and therefore, the payments should be applied in accordance with the rules of equity, which generally favour the debtor's right to appropriate payments. The court also considered the effect of the guarantees, noting that the guarantors' liability was co-extensive with the principal debtor's obligations, subject to the terms of the guarantees themselves.

The High Court allowed the appeal, setting aside the orders of the lower court and remitting the matter to the Supreme Court of New South Wales for determination of the amounts owing in accordance with the court's judgment on the appropriation of payments.