McClelland v Trustees Executors and Agency Company Limited

The High Court of Australia heard an appeal from the Supreme Court of Victoria concerning a mortgage of land situated in New South Wales. The appellant, the executrix of the mortgagor, argued that the personal covenants within the mortgage instrument were rendered void by New South Wales legislation. The respondent, the mortgagee, contended that Victorian law governed the transaction and therefore the personal covenants remained enforceable. The mortgage itself was executed in Victoria by a Victorian resident to a Victorian company, with payments of interest also made in Victoria. However, the mortgaged land was in New South Wales, and the mortgage instrument was in the form prescribed by New South Wales legislation and registered in that state.

The central legal issue before the High Court was to determine the proper law governing the personal covenants within the mortgage instrument. Specifically, the court had to decide whether the New South Wales Moratorium Act 1930-1931, which purported to extinguish personal covenants in mortgages of New South Wales land, applied to the transaction, or if the transaction was governed by Victorian law, which contained no such provision. This determination was crucial for ascertaining whether the mortgagee could enforce the personal obligation to repay the principal and interest.

The High Court, in allowing the appeal, reasoned that the law governing the transaction was that of New South Wales. Despite the mortgage being executed in Victoria by parties resident there, the court found that the transaction had a more substantial connection with New South Wales. This was primarily due to the fact that the mortgage was of land situated in New South Wales, was in the form prescribed by New South Wales legislation, and incorporated provisions of New South Wales statutes. The court held that the personal covenants were an integral part of the mortgage security, which itself was governed by the lex situs. Therefore, the New South Wales Moratorium Act, which invalidated such personal covenants for mortgages of land in that state, applied and extinguished the mortgagor's personal liability.

Consequently, the High Court ordered that the appeal be allowed and judgment be entered for the defendant executrix. This outcome meant that the mortgagee could not enforce the personal covenants for repayment of the mortgage moneys due to the operation of the New South Wales Moratorium Act.