Moffett v Dillon
[1999] VSCA 32
•30 March 1999
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted No. 3939 of 1987
RUSSELL LINDSAY MOFFETT
Appellant
v
THELMA DOREEN DILLON, WESTPAC
BANKING CORPORATION AND REGISTRAROF TITLES
Respondents
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JUDGES: BROOKING, ORMISTON and BUCHANAN, JJ.A. WHERE HELD: MELBOURNE DATE OF HEARING: 8 February 1999 DATE OF JUDGMENT: 30 March 1999 MEDIA NEUTRAL CITATION: [1999] VSCA 32
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EQUITY - Priority - Equitable interests - Priority between prior equitable charge and subsequent unregistered mortgage - Maxim where equities equal first in time prevails - Whether prior equity postponed - Registrability of mortgage not relevant.
EQUITY - Priority - Notice - Whether notice to holder of subsequent equity fatal to
claim for priority.
EQUITABLE CHARGE - Securing "all moneys due and payable" by purchaser pursuant
to contract of sale of other land - Dishonoured promissory note taken as conditional
payment of deposit - Deposit secured by charge - Damages for breach of contract of saleand costs also secured.
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APPEARANCES: Counsel Solicitors For the Appellant Mr J. Santamaria, Q.C. and Russell Kennedy Mr P. Marzella For the 1st Respondent Mr P. Kistler Patrick W. Dwyer For the 2nd Respondent Mr R. Berglund Dunhill Madden Butler
BROOKING, J.A.:
In 1985 Russell Moffett - the correct spelling of the surname is uncertain - was the registered proprietor of a house in Broadford. By contract of sale dated 24 September 1985 he sold it to Thelma Dillon for $175,000. If one ignores a mysterious "fee of $1,000" mentioned in the particulars of sale, concerning which there is no evidence and which has at all times escaped attention, the price of $175,000 was payable by a deposit of $15,000, to be paid on the date of the contract, with the residue to be paid on 24 September 1988. Vacant possession was to be given on acceptance of title and payment of the sum of $15,000. Interest was to be paid on the residue at 15% per annum with quarterly rests by weekly instalments of $500 commencing one week after the giving of possession. The general conditions made the conditions in Table A of the Transfer of Land Act 1958 applicable to the contract.
Dillon gave Moffett a promissory note dated 24 September 1985 whereby she promised to pay him or to his order at a specified branch of a bank $15,187.50 one month after the date of the note. As a matter of arithmetic, $187.50 represents interest on $15,000 at 15% per annum for one month. How the promissory note came to be given is dealt with very briefly in the evidence. We have only statements in affidavits by Moffett that on or about 24 September 1985 Dillon gave him the note "in or in lieu of payment of the deposit of $15,000 due under the contract".
Dillon evidently took possession of the land on or about 24 September 1985. The promissory note was dishonoured when it was presented for payment. The transaction, whereby possession of land and dwelling was given without payment to the vendor of a penny-piece, is typical of the exuberance attending sales of land in the mid-1980s before the bubble burst.
On or about 8 November 1985 Moffett's solicitors served on Dillon a notice of rescission under condition 6 of Table A. The defaults specified were failure to pay the deposit of $15,000, $6,000 in interest (12 weekly payments of $500), $304.06 as "default interest" payable in respect of the deposit and - inappropriately - $95 as the legal costs occasioned by the default. About four days after the giving of notice of rescission both Dillon and Moffett executed as a deed an instrument dated 12 November 1985 and headed "CHARGE OVER REAL PROPERTY". It ran:
"I THELMA DILLON Gentlewoman of 55 Steele Street, Essendon being the registered proprietor of the property described in Certificate of Title Volume 6445 Folio 945 known as 55 Steele Street, Essendon ('the Mortgaged Property') at the request of RUSSELL LINDSAY MOFFET of 225 Beaconsfield Parade, Middle Park and for the purpose of securing all moneys due and payable by me to the said Russell Lindsay Moffet pursuant to a Contract of Sale dated 24th September, 1985 relating to property described in Certificate of Title Volume 4883 Folio 654 HEREBY MORTGAGE AND CHARGE in favour of the said Russell Lindsay Moffet all my title, interest and estate in the Mortgaged Property."
Moffett had instructed his solicitors to obtain security at the time when he instructed them to give notice of rescission. Presumably the giving of the charge was the result of the service of the notice of rescission. There is, however, no evidence concerning the negotiations which, one imagines, preceded the charge.
On or about 17 November 1985 Moffett's solicitors lodged a caveat at the Titles Office by which he claimed "an interest as mortgagee" under "an instrument of charge from Thelma Doreen Dillon dated 12th November 1985".
It is this charge, taken over Dillon's home at 55 Steele Street, Essendon, which gives rise to the present litigation concerning the competition between the charge and a mortgage over the charged land subsequently taken by the Westpac Bank, which I shall in general call "the bank".
The bank is the holder of a second mortgage, in registrable form, given by Dillon over 55 Steele Street, Essendon. A registered first mortgage is held by what was originally the RESI Permanent Building Society, became the Bank of Melbourne and is now part of the Westpac Bank. The second mortgage bears date 27 February 1986. It is in the usual wide terms of a bank mortgage and does not reveal whether any advances were made by the bank to the mortgagor at the time of the giving of the mortgage. Nor does the evidence disclose this. Indeed the bank has not put forward any evidence concerning the state of accounts between the mortgagor and itself or any of the circumstances in which it took the mortgage. For all the evidence reveals - and this is of course speculation - the mortgage may have been taken by the bank simply in order to protect its position with regard to advances already made.
The mortgage, as I have said, bears date 27 February 1986. Notwithstanding this, the bank wrote to Moffett's solicitors on 4 March 1986, and again on 4 April 1986, in these terms:
"Re Certificate of Title Volume 6445 Folio 945
Caveat number L989454C
Caveator Russell Lindsay Moffet Registered Proprietor Thelma Doreen Dillon We hereby give notice that we intend to take a Mortgage over the above Certificate of Title to secure advances made to Thelma Doreen Dillon.
We note that title is subject to Caveat number L989454C and would be pleased if you would give your consent to register our Mortgage or provide us with withdrawal of caveat.
We await your earliest advices."
For what it is worth, it may be noted that these letters refer to the intention to take a mortgage to secure advances "made" to Dillon. Moffett's solicitors did not consent to the registration of the mortgage or withdraw the caveat. One would not ordinarily expect a bank, or for that matter any prudent would-be mortgagee, to take a mortgage without first making a search at the Titles Office. When this consideration is added to the circumstance that the letters of 4 March and 4 April 1986 both give notice of intention to take a mortgage a serious question arises as to whether the bank had actual and full knowledge of the existence of the charge before the mortgage was executed; a doubt also arises as to the actual date of execution of the mortgage, having regard to the fact that on two occasions after the date which it bears the bank wrote of its intention to take a mortgage. These questions were not gone into below, where it was not suggested on behalf of Moffett that the holder of the subsequent equity - the bank - could not successfully claim priority having regard to the fact that it had knowledge of the prior equity at the time when it acquired its own. (In these reasons I shall in general refer indifferently to equities and equitable interests, ignoring the distinction between "mere equities" and equitable interests which has been drawn in relation to priorities and has been criticised by some. It has at all times been accepted that each of the equities in the present case is an equitable interest.) Near the outset of the hearing of the appeal the Court drew attention to the date borne by the mortgage and to the terms of the letters of 4 March and 4 April, whereupon counsel for the bank at once conceded that the bank had at the time when it acquired its equity actual and full knowledge of the creation and continued existence of the charge in favour of Moffett. This concession makes further discussion of the facts in this regard unnecessary.
I return to the history of events.
Nothing was paid by Dillon to Moffett in consequence of the notice of rescission and on 12 December 1985 Moffett's solicitors wrote to her stating that the contract had been rescinded and that their client had repossessed the property and was entitled to recover from her an amount equal to one-tenth of the price ($17,500) by way of forfeiture together with damages for breach of contract comprising interest on the sum of $17,500 and legal costs.
On 21 March 1986 Moffett sued Dillon in the County Court on the promissory note and on 1 August 1986 he obtained judgment in that action for $15,508.50. On 13 November 1986 the plaintiff registered that judgment in the Supreme Court, thereby obtaining judgment against Dillon for $15,508.50 together with $602.38 interest and $200 costs, giving a total of $16,310.88. On or about 17 November 1986 a writ of fi fa was issued to enforce the judgment entered in the Supreme Court and an unsuccessful auction of Dillon's home at 55 Steele Street, Essendon - the property charged and mortgaged - pursuant to the writ of fi fa was held on 9 April 1987.
In December 1986 Moffett resold the land at Broadford for $130,000, thereby suffering on the resale a loss of $45,000 (excluding the expenses of the resale).
On 4 June 1987 the bank lodged its mortgage at the Titles Office for registration. An order to register was endorsed on the mortgage by the solicitors for the first mortgagee. By letter dated 16 June 1987 the bank's solicitors informed Moffett's solicitors that the bank "has now registered" its mortgage and that it intended to proceed for recovery of possession. In fact at this stage the mortgage, lodged for registration on 4 June, had yet to be registered. On 28 September 1987 the bank filed a writ naming Dillon as defendant and claiming possession of the mortgaged land. Much later, on 19 November 1992, it obtained judgment for possession in default of appearance. On 6 March 1992 the bank had obtained judgment in default of appearance against Dillon for $36,537.22 in an action brought by it.
On 17 September 1987, the Registrar of Titles had informed Moffett's solicitors that the bank had lodged its mortgage for registration. On 14 October 1987 the writ in the present action was filed. The plaintiff was Moffett and the three defendants were Dillon, the bank and the Registrar of Titles. The Registrar has played no part in the proceedings. By his statement of claim in the present action the plaintiff claims injunctions to prevent the registration of the bank's mortgage. As against Dillon he claims that the contract of sale has been rescinded and that he is entitled to recover damages for the loss on resale of the Broadford land. In October 1987 he obtained an interim and then an interlocutory injunction to prevent the registration of the bank's mortgage, but by mischance it was nevertheless registered.
On 4 July 1989 Moffett obtained judgment in default of appearance against Dillon for damages to be assessed. On 30 March 1990 the Senior Master assessed the damages in the sum of $54,217.45.
After learning of the registration of the bank's mortgage, Moffett filed a summons in the present action directed to all three defendants, seeking to have the register amended in order to negative the registration of the bank's mortgage which had been effected notwithstanding the injunction prohibiting it. On the hearing of this application the only two parties represented were the applicant (Moffett) and the bank, Dillon having already suffered judgment in default of appearance and the Registrar having intimated at an earlier stage that he did not intend to participate in the proceedings. The bank told the judge that it did not wish to take advantage of the fact that its mortgage had been registered by mischance and that it was content to have the question of priority as between the mortgage and the charge determined on the assumption that the mortgage had not been registered. His Honour then, with the concurrence of both Moffett and the bank, proceeded to determine two questions. The first was that of priority; on this question the plaintiff succeeded. The second was that of what moneys were secured by the charge. Here Moffett succeeded only in relation to the sum of $6,309.06, being the amount said to be due for interest in the notice of rescission. I defer further discussion of the claims dealt with by his Honour in considering what amounts were secured by the charge.
We have before us both an appeal by Moffett and a cross-appeal by the bank. (I shall continue to refer to the parties by that name and that description.) By his notice of appeal Moffett complains that the judge should have determined that the charge secured a much greater sum than the $6,309.06 in respect of which alone he succeeded in obtaining a declaration from the judge. The bank has cross-appealed on the ground that the judge should have upheld its claim to priority, so that as against it the charge would secure nothing. Dillon (who was named as a respondent to both the appeal and the cross-appeal) made an unexpected appearance through counsel in order formally to submit that the judge was right in determining that the charge secured only the sum of $6,309.06. Her counsel advanced no argument, being content to adopt the argument put on this point by counsel for the bank. I do not think it was clear to us at the time we heard this brief submission that the party concerned was one who had not appeared in answer to the writ and against whom judgment in default of appearance had been entered. But if there has been some irregularity here in the hearing of counsel, no harm has been done by it.
We simply do not know why disputes which arose so long ago have taken so long to be brought before the Court for determination. There is no reason to suppose that the delay is the responsibility of the Court. But since no party has suggested that the delays should in any way affect the outcome of these proceedings, I do not concern myself with how they have come about.
I have no idea of the value of the house in Steele Street, Essendon which has given rise to this litigation. I have no idea of the amount secured by the first mortgage. I have no idea what costs have been incurred one way or another over the years, but they must be very great. At an early stage of the hearing counsel seemed to view with equanimity the prospect that, once the appeal and cross-appeal had been determined, the litigation would continue on its way. From what was thereupon said in the course of argument I am sure I can speak for all members of the Court when I say that most strenuous and common-sense efforts should be made to ensure that no further legal costs are incurred in litigation once these appeals have been disposed of.
I turn now to the merits. The first question is that of priority. It is conceded that at the time the bank took its mortgage it had full actual knowledge, not casually acquired, of the creation and continued existence of the charge. At least in the circumstances of the present case, this is fatal to the contention that the later equitable interest should prevail over the earlier. I know of no decision in which a later equity has been held to prevail where its holder acquired it with knowledge of the creation and continued existence of the earlier equity. I defer consideration of whether circumstances are conceivable in which that result could be arrived at. One might ask rhetorically how it can be equitable to postpone the prior interest to one which was acquired by a person who knew that an interest already existed and chose to proceed with the transaction and acquire a competing interest which he would then contend defeated the pre-existing interest. Knowing that someone was already the holder of an equitable interest, he has chosen to acquire a rival one from a person who in the eye of equity is not entitled to create that interest: Phillips v. Phillips (1861) 4 De G.F.&J. 208; 45 E.R. 1164. He then comes before a court of equity claiming that the very conflict he has chosen to create should be resolved in his favour. What do the cases, and what does principle, suggest the response of the court should be?
The authorities use language suggesting that a later equitable interest can never prevail over an earlier one where the holder of the later interest had at the time of its acquisition notice of the earlier interest. (I exclude the case where although there was notice of the coming into existence of the earlier interest the holder of the later interest had by the time of its acquisition a belief that the earlier interest no longer existed.) The rule is correctly stated in terms of "notice" of the earlier interest. The present case is one of admitted actual and full knowledge. This is either to be regarded as actual notice or, according to the analysis of Pomeroy, Equity Jurisprudence, paras.591 et seq, to be treated as having the same consequences as notice.
In General Finance Agency & Guarantee Co. of Australia Ltd. (In Liquidation) v. Perpetual Executors & Trustees Association of Australia Ltd. (1902) 27 V.L.R. 739 Robinson sold land to Grant. Three months later he borrowed money from a finance company on the security of the land he had already sold, creating an equitable mortgage in favour of the finance company. The company brought an action for a declaration that its equitable mortgage ranked in priority to the equitable interest of Grant as purchaser. Holroyd, J. thought there was no reason for postponing the prior equity of the purchaser but went on to hold that in any event the fact that, as he found, the company had notice of the sale to Grant at the time it took its security was itself sufficient to defeat the company's claim to priority.
An unqualified statement is to be found in the judgment of Knox, C.J. in Lapin v. Abigail (1930) 44 C.L.R. 166 at 182:
"If the holder of the subsequent equity acquired it with notice of the prior equity, his claim for priority necessarily fails; but the fact that he took without notice or that it is not proved that he had notice of the prior equity amounts to no more than a fact to be considered in connection with the other circumstances on the question whether the conduct of the holder of the prior equity is such as to entitle the holder of the subsequent equity to priority over him." (My emphasis.)
A little later - at 183-4 - the Chief Justice said that "the possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence."
In the same case Dixon, J. said, at 204:
"In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner. ... The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his original priority. This, in effect, generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity."
In the same case the Judicial Committee, in the course of discussing the circumstances in which a prior equity would be postponed to a subsequent one, observed ((1934) 51 C.L.R. 58 at 70):
"It is unnecessary here to add that when these questions need to be considered, it is always understood that the purchaser or mortgagee has not either express or constructive notice of the prior charge."
Like the statement of Knox, C.J., this observation is unqualified.
In Courtenay v. Austin (1961) 78 W.N.(N.S.W.) 1082 Austin, the registered proprietor of land, sold it to the Courtenays and Butler, and the resulting transfer and mortgage back were lodged for registration. Before registration they were uplifted by Austin's solicitors, without the consent of the purchasers or their solicitors. The very next day Austin sold the land again, this time to Denton Subdivisions Pty. Ltd., at a much higher price. At the time of its purchase the company had, so Hardie, J. found, notice of the interest of the Courtenays and Butler as owners of the land. The fact that the holder of the subsequent equity had notice of the prior one was fatal to its claim to priority. At 1097 his Honour said:
"In deciding questions as to the priority of equities, the conduct of both parties needs to be considered. If the holder of the subsequent equity has notice, actual or constructive, of the earlier equity, his claim to priority is defeated at its threshold. He himself and not the holder of the prior equity is, apart from the defrauding party, responsible for his being defrauded by the holder of the legal or statutory estate. In the present case notice of the equitable estate of the plaintiffs which I have already held is to be imputed to the Denton Company prior to completion of its purchase defeats at the outset its claim that on equitable principles the prior estate of the plaintiffs as purchasers should be postponed."
An appeal to the High Court was unsuccessful: IAC (Finance) Pty. Ltd. v. Courtenay (1963) 110 C.L.R. 550. At 590 Taylor, J., after dealing with the submission that the prior equity should be postponed and the propositions of law advanced, added:
"But these observations have no application where, as here, the later equitable interest is acquired with full knowledge of the existence of the earlier interest."
I would take his Honour's reference to "full knowledge" to reflect the facts of the case and not as suggesting that actual knowledge as opposed to "notice" was necessary. Both Hardie, J. and Taylor, J. appear to have laid down a rule without exceptions. In the same case Kitto, J. observed, at 575-6, that the prior equity was not to be postponed unless the act or omission proved against its holder had conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence. At 576-8 Kitto, J. went on to summarise the findings of the trial judge bearing on the question whether the holder of the subsequent equity had notice of the prior interest and whether there was anything to induce a belief that the prior interest had ceased to exist.
The requirement that the holder of the subsequent equity should not have notice of the prior one at the time of acquisition of his own interest is also expressed in the reference to innocent acquisition by Kitto, J. in Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liquidation) (1965) 113 C.L.R. 265 at 276:
"In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given rise to the interests be established, is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity."
This passage is cited by Gibbs, C.J. (in whose judgment Wilson, J. concurred) in Heid v. Reliance Finance Corporation Pty. Ltd. (1983) 154 C.L.R. 326 at 333, by Hope, J.A. (speaking for the Court of Appeal) in the same case, reported in (1982) 1 N.S.W.L.R. 466 at 480, and by Marks, J. (speaking for the Full Court) in King v. A.G.C. (Advances) Ltd. (1983) 1 V.R. 682 at 687. It is cited in Meagher Gummow & Lehane, Equity Doctrines and Remedies, 3rd ed., p.226, as a prelude to the discussion of priorities. Plainly Kitto, J.'s reference to innocent acquisition meant that the purchaser must be "innocent as to notice", to use the phrase of Megarry & Wade, Law of Real Property, 5th ed., p.143. His Honour did not have in mind the principle, discussed by him at 278 and derived from Phillips v. Phillips (1861) 4 De G.F.&J. 208; 45 E.R. 1164, that the conveyance of the later equitable interest is innocent in the sense that it passes only what the conveyor is justly entitled to.
In Taddeo v. Catalano (1975) 11 S.A.S.R. 492 the claim of the holder of the subsequent equity to priority was held by Jacobs, J. to fail by reason of his having had notice of the prior equity. This decision was referred to by Olsson, J., speaking in effect for the Full Court, in Wu v. Glaros (1991) 55 S.A.S.R. 408, where the same result was reached. At 415 Olsson, J. said:
"... if the holder of the subsequent equity acquired it with notice of the prior equity, his claim for priority necessarily fails in any event, unless it can be shown that the possessor of the prior equity has been guilty of some act or omission which has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was no longer in existence."
This seems to lay down a rule which will not admit of any further qualification.
In addition there is the decision of Windeyer, J. in Finlay v. R. & I. Bank of Western Australia Ltd. [1993] N.S.W. Conv. R. 55-686, where it was accepted at 59,925 that the equitable interest later in time must in any event be postponed to the earlier one if taken with notice of it.
Finally comes Platzer v. Commonwealth Bank of Australia (1997) 1 Qd.R. 266. The two members of the Court of Appeal who dealt with the matter, Davies, J.A. at 273-4 and McPherson, J.A. at 287-9, held that notice to the bank of the earlier equity was fatal to its claim that its own equity was to be preferred. I shall return a little later to what was said by Davies, J.A.
Reference may also be made to the views expressed by Professor Butt in Land Law, 3rd ed., para.1936, where the holder of a later equitable interest who acquired it with notice of the earlier is described as "the author of his or her own predicament". Similarly, according to Halsbury's Laws of Australia, Title 185 Equity, paras.185-255:
"If the holder of a later equity has actual or constructive notice of an earlier claim, his or her claim to priority fails because he or she and not the holder of the prior equity is responsible for being defrauded."
In The Laws of Australia, Subtitle 28.2, General Land Law (the work of Professor
Butt), it is said, in para.48:"A later equitable interest cannot prevail over an earlier interest if the holder of the later had notice of the earlier at the time the later was acquired. There is an exception where the holder of the earlier interest has been guilty of some omission which induced a belief on the part of the later holder, at the time of acquiring the later interest, that the earlier interest no longer existed." (Footnotes omitted.)
The best known doctrine of equity regarding the effect of notice on priorities concerns the bona fide purchaser for value of the legal estate. It is often said that the doctrine of notice does not apply as between purchasers of equitable interests. See, for example, Garrow's Law of Real Property, 5th ed., p.172; Helmore, The Law of Real Property in New South Wales, 2nd ed., p.507; Leake on Property in Land, 2nd ed., p.354; Ashburner's Principles of Equity, 2nd ed., pp.55-56; Underhill & Hayton, Law Relating to Trusts and Trustees, 15th ed., p.931. But this means only that the rule that a bona fide purchaser for value without notice of a prior equity takes free from it is confined to purchasers of the legal estate and does not extend to purchasers of an equity. As Professor Butt points out (Land Law, 3rd ed., para.1936), the absence of a "purchaser for value without notice" doctrine for competing equitable interests does not mean that the fact of notice cannot be fatal where the competition is not between prior equity and subsequent legal estate but between two equities. The decisions and judicial dicta referred to above recognise the deeply rooted rule or principle that a person taking with notice of an equity takes subject to it, since his conscience is affected by the equity of which he had notice: Pilcher v. Rawlins (1872) L.R. 7 Ch.App. 259; Midland Bank Trust Co. Ltd. v. Green [1981] A.C. 513 at 528 per Lord Wilberforce. The rule applies whether the estate or interest taken by the purchaser is legal or equitable and whether the equity held by a third person in relation to the same subject matter does or does not amount to an equitable interest according to the distinction that has been drawn between "mere equities" and equitable interests. The rule is illustrated, as regards the taking of an equitable interest with notice of a pre-existing one, by the early case of Willoughby v. Willoughby (1787) 1 T.R. 763; 99 E.R. 1366. There Lord Hardwicke, L.C. said that it was against conscience that an equitable mortgagee who had taken with notice of a prior equitable interest should assert that his mortgage was entitled to priority. Lord Eldon determined without hesitation that a purchaser with notice of a vendor's lien was affected by it: Mackreth v. Symmons (1808) 15 Ves. Jun. 329 at 341; 33 E.R. 778. The decision is cited in Dart, Vendors and Purchasers, 6th ed., p.825. The rule operates to prevent the overreaching of what has been described as a "mere equity": such an equity will prevail against a subsequent purchaser of an equitable interest who had notice of the equity: Phillips v. Phillips (1861) 4 De G.F.&J. 208 at 217; 45 E.R. 1164; Cave v. Cave (1880) 15 Ch.D. 639 at 646-7; Westminster Bank Ltd. v. Lee [1956] Ch. 7 at 18-20; National Provincial Bank Ltd. v. Ainsworth [1965] A.C. 1175 at 1237-8 per Lord Upjohn (compare what Lord Wilberforce said at 1254); Megarry & Wade, Law of Real Property, 5th ed., pp.146-7; Megarry (1955) 71 L.Q.R. 480 at 481- 2; Lewin on Trusts, 16th ed., p.598; Pomeroy's Equity Jurisprudence, 5th ed., para.688 ("with notice of any existing equitable estate, interest, claim, or right, in or to the same subject-matter, held by a third person"; at the end of the paragraph the example is given of an equity to have a mistake in an instrument corrected).
The following observations of Lord Browne-Wilkinson, speaking in effect for the House of Lords in Barclays Bank Plc v. O'Brien [1994] 1 A.C. 180 at 195, are noteworthy for their breadth:
"The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice)."
What was there said is unaffected by later decisions dealing with Yerkey v. Jones (1939) 63 C.L.R. 649, including in particular Garcia v. National Australia Bank Ltd. (1998) 72 A.L.J.R. 1243, except in relation to the use made of constructive notice in O'Brien's case outside the field of competing interests in property.
According to Story's Equity Jurisprudence, 8th U.S. ed., para.395:
"Another class of constructive frauds consists of those where a person purchases with full notice of the legal or equitable title of other persons to the same property. In such cases he will not be permitted to protect himself against such claims; but his own title will be postponed, and made subservient to theirs. It would be gross injustice to allow him to defeat the just rights of others by his own iniquitous bargain. He becomes, by such conduct, particeps criminis with the fraudulent grantor; and the rule of equity, as well as of law, is, Dolus et fraus nemini patrocinari debent. And in all such cases of purchases with notice, courts of equity will hold the purchaser a trustee for the benefit of the persons whose rights he has thus sought to defraud or defeat." (Footnotes omitted.)
The significance of notice is extensively discussed in Pomeroy's Equity Jurisprudence. The following passages are from paras.591 and 688, much authority being cited in the footnotes to the latter paragraph:
"When a person is acquiring rights with respect to any subject-matter, the fact whether he is so acting with or without notice of the interests or claims of others in or upon the same subject-matter is regarded throughout the whole range of equity jurisprudence as a most material circumstance in determining the extent and even the existence of the rights which he actually requires. In conformity with this view, the general rule has been most clearly established, that a purchaser with notice of the right of another is in equity liable to the same extent and in the same manner as the person from whom he made the purchase. The same rule may be thus expressed in somewhat different language; a person who acquires a legal title or an equitable title or interest in a given subject-matter, even for a valuable consideration, but with notice that the subject-matter is already affected by an equity or equitable claim in favour of another, takes it subject to that equity or equitable claim. On the other hand, a person who has acquired a title, and paid a valuable consideration, without any notice of an equity actually existing in favour of another, may by that means obtain a perfect title, and hold the property freed from the prior outstanding equity."
"The third, and in its practical effects by far the most important, rule is that a party taking with notice of an equity takes subject to that equity. The full meaning of this most just rule is that the purchaser of an estate or interest, legal or equitable, even for a valuable consideration, with notice of any existing equitable estate, interest, claim, or right, in or to the same subject-matter, held by a third person, is liable in equity to the same extent and in the same manner as the person from whom he made the purchase; his conscience is equally bound with that of his vendor, and he acquires only what his vendor can honestly transfer.
The applications of this rule are as numerous as are the various kinds of equitable interests. The following are some of the most important: A purchaser with notice of a trust, either express or implied, becomes himself a trustee for the beneficiary with respect to the property, and is bound in the same manner as the original trustee from whom he purchased. A purchaser or mortgagee with notice of the equitable lien of a vendor for unpaid purchase price takes the land subject to that lien. A purchaser or mortgagee of the legal estate, with notice of an equitable lien created by a deposit of title deeds, or by a prior defective mortgage, or by any other means from which an equitable lien can arise, is bound by the lien. A purchaser with notice of a prior contract to sell or to lease takes subject to such contract, and is bound in the same manner as his vendor to carry it into execution. These examples are of ordinary occurrence." (Footnotes omitted.)
Paragraph 1253 is also worthy of specific mention.
The rule that a person taking with notice of an equity takes subject to it is distinct from the rule that where the equities are equal the first in time prevails. As already mentioned, it extends to the protection of equities which (according to the distinction that has been drawn) do not amount to equitable interests. As regards competition between prior and subsequent equity where the prior equity is not of this character and the holder of the subsequent equity had no notice of it, reference should be made to Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (in liquidation) (1965) 113 C.L.R. 265; Shiloh Spinners Ltd. v. Harding [1973] A.C. 691 at 721 per Lord Wilberforce; Swanston Mortgage Pty. Ltd. v. Trepan Investments Pty. Ltd. [1994] 1 V.R. 672; Meagher Gummow & Lehane, Equity Doctrines & Remedies, 3rd ed., paras.427- 435 and 813; Parkinson (ed.), Principles of Equity, pp.78-86.
In the present case there are two reasons for treating the charge as unaffected by the bank's mortgage. The first is the rule that a person taking with notice of an equity takes subject to it. The second is the rule that where the equities are equal the first in time prevails. As regards the second rule, no good reason has been advanced for postponing the prior equity. The only ground put forward to us by the bank was that its mortgage is a registrable instrument whereas the charge (as is conceded) is not. Reliance was placed on what Kindersley, V.-C. said in Rice v. Rice (1853) 2 Drew. 73 at 78-79; 61 E.R. 646 about the relevance of "the nature and condition" of the respective interests or their respective natures and qualities. Registrability, and its absence, are the only features relied on in this case and in my view this point of distinction is not relevant for the purpose of determining whether the prior interest has lost its priority. Sir Richard Kindersley himself invoked "the same broad principles of right and justice which a Court of Equity applies universally in deciding upon contested rights", and it has much more recently been said that general questions of fairness and justice must be considered: Heid v. Reliance Finance Corporation Pty. Ltd. (1983) 154 C.L.R. 326 at 341 per Mason and Deane, JJ. On this approach it is these broad principles of right and justice which guide the court in determining whether the merits are equal (Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (in liquidation) (1965) 113 C.L.R. 265 at 276 per Kitto, J.; Heid's Case at 339 per Mason and Deane, JJ.), the best equity being that which on the whole is the most meritorious (Lapin v. Abigail (1930) 44 C.L.R. 166 at 185-6 per Isaacs, J.).
The better equity does not mean, where two equitable securities are in competition, the better, in the sense of more efficacious, security.
To my mind there is no reason for preferring an equity created by a registrable instrument to one created by an instrument that is not registrable or one that is not created by any instrument, registrable or not. Counsel for the bank was unable to refer us to any decision or dictum in support of his contention. Acts done, or omitted to be done, by or on behalf of a party in relation to the register kept by the Registrar of Titles will often bear on whether a prior equity is to be postponed, but the mere fact that one equity is created by a registrable instrument and the other is not has no bearing on that question.
I now return to the rule that a person taking with notice of an equity takes subject to it. Earlier I deferred consideration of whether circumstances are conceivable in which an equity acquired with notice of a prior equity could nevertheless be held to prevail over it. I made reference to Platzer v. Commonwealth Bank of Australia [1997] 1 Qd.R. 266 at 273, where Davies, J.A. said this (omitting footnotes):
"Generally, indeed almost universally, where the holder of an equity acquired it with notice of a prior equity, its claim to priority must fail. There are none the less exceptions to this of which the most obvious are an agreement to postpone or waiver of priority. There may also be other conduct on the part of the holder of the prior equity which may estop her from asserting her priority."
I have said that there are two rules or principles at work in cases like the present, the rule that a person taking with notice of an equity takes subject to it and the rule where the equities are equal the first in time prevails. As regards the second rule, I have referred to the wide view taken by Mason and Deane, JJ. in Heid v. Reliance Finance Corporation Pty. Ltd. (1983) 154 C.L.R. 326 at 341 that broad principles of right and justice will guide the court in determining whether the equities are equal. As what I have already written should make plain, I do not regard the question whether a person who acquired an equity did so with notice of a prior equity as no more than a consideration to which regard is to be had in determining whether one of the equities is better than the other. I regard the rule about notice as a distinct and fundamental one and I do not consider that Mason and Deane, JJ. intended to question its existence or to subsume this particular matter of notice under a broad question so as to make it no more than a consideration bearing upon which was the better equity.
I have drawn attention to a number of statements which suggest that there are no exceptions to the rule that a person who acquires an equity with notice of a prior one takes subject to it. But I see no reason to doubt that, as Davies, J.A. suggested in Platzer's case, in what would be an unusual case, priority would be accorded to a subsequent equity which was acquired with notice of the prior one. But where this occurred, it would be the result, not of having regard to general considerations of right and justice, but of some doctrine or principle (such as estoppel) recognised by courts of equity and attracted by the facts of the particular case. It is recognised in the passages cited above from Wu v. Glaros (1991) 55 S.A.S.R. 408 at 415 and The Laws of Australia, Subtitle 28.2, General Land Law, para.48 that the rule that notice of the prior equity means that the later equity cannot prevail is subject to an exception where the holder of the earlier equity has induced a belief on the part of the later holder that the earlier equity no longer existed.
Kettlewell v. Watson (1884) 26 Ch.D. 501 is of interest in this regard. There the competition was, in the case of Roberts, between two equities, the prior equity of the plaintiff vendors (a vendor's lien) and the subsequent equity of Roberts as purchaser of an equitable interest from the original purchasers. Fry, J. found against the defendants who stood in the shoes of Roberts, considering that there was no reason for not preferring the plaintiffs' prior equity. He rejected the argument that the vendor's lien had been extinguished. On appeal, the Roberts interests argued (26 Ch.D. at 504-5) that the vendors had lost their lien, since it was the intention of the plaintiffs and the original purchasers that the land should be sold in lots to sub- purchasers. They also argued that the vendors had led them to suppose that the original purchasers had a perfect right to deal with the land and that in these circumstances their own subsequent equity should prevail. The plaintiffs contended that their lien had not been waived, that there was no reason for preferring the subsequent equity of Roberts and that Roberts had had notice of their lien. The Court of Appeal was prepared to assume, without expressing any opinion on the point, that Roberts had bought with constructive notice of the creation of the vendor's lien. It decided that even on that assumption the defendants should have succeeded, since the plaintiffs had led them to believe that the original purchasers had power to deal with the land as absolute owners free from any lien.
That was a special case. It falls within the exception recognised in Wu v. Glaros. An alternative approach would be to say that the plaintiffs' representation by conduct concerned, not whether the lien still existed, but whether they intended to enforce it. On either approach the case, on its assumption about constructive notice, is viewed as based on what I have called "some doctrine or principle (such as estoppel) recognised by courts of equity and attracted by the facts of the particular case". The doctrine or principle could be readily viewed as estoppel. On the other hand, it might be regarded as "waiver" or "abandonment" of a vendor's lien. Compare the argument for the defendants in Kettlewell v. Watson and see, for example, Smith v. Evans (1860) 28 Beav. 59; 54 E.R. 288; White & Tudor's Leading Cases in Equity, 6th ed., vol. 1, pp.379 et seq.; Thompson v. Palmer (1933) 49 C.L.R. 507; Wossidlo v. Catt (1934) 52 C.L.R. 301; Capital Finance Co. Ltd. v. Stokes (1969) 1 Ch. 261. It is even arguable that on the facts in Kettlewell v. Watson the lien had never come into existence, although I doubt whether this is an acceptable analysis.
I now return to the decision presently under appeal. The judge was right in this case to hold that the charge had not lost its priority over the subsequent mortgage. This being so, it is necessary to consider the second question, or set of questions, determined by him, namely, what amounts were secured by the charge. His Honour was of the view that it did not secure:
•
the amount of the judgment ultimately entered in proceedings arising out of the dishonour of the promissory note ($16,310.88);
• the amount of $54,217 assessed by the Senior Master for
damages;• the amount of $10,587.88, being the taxed costs payable pursuant
to the order of the Senior Master.
The only amount determined by his Honour to be secured by the charge was $6,309.06, being what was said to be due for interest in the notice of rescission.
It will be recalled that the charge secures "all moneys due and payable by me to the said Russell Lindsay Moffet pursuant to" the contract of sale. His Honour upheld the argument that the amount for which judgment was ultimately entered in respect of the promissory note did not fall within these words. At the hearing below the parties overlooked the fact that the promissory note had been given, not for the amount of the deposit ($15,000), but for that amount together with a further sum evidently representing one month's interest. As a result no argument was directed below to the possible significance of that fact and it is not mentioned in the reasons for decision. The argument put on behalf of Dillon, and accepted by his Honour, was that there was for present purposes no money due and payable pursuant to the contract since the obligation to pay the deposit had been discharged by the giving of the promissory note. His Honour upheld the submission that the promissory note had been taken not in conditional payment of the deposit but in absolute satisfaction of the obligation to pay the deposit. The judge was also of the view that the bringing of the action on the deposit reinforced the view that the promissory note had been taken in complete satisfaction. The bank submitted that his Honour's decision was correct in this regard.
The law on the subject is not in dispute. It is stated in Byles on Bills of Exchange, 26th ed., p.436:
"Whether a bill is taken in complete satisfaction, or merely as conditional payment, is a question depending on the facts of each case, the onus lying on the party alleging that the bill operated as a complete satisfaction of the original debt, the presumption of fact being the other way; since, as already stated, if a bill or note is taken on account of a debt and nothing is said at the time, the legal effect of the transaction is that the original debt remains, but the remedy for it is suspended till maturity of the instrument in the hands of the creditor."
In addition to the authorities cited in that work reference may be made to Tilley v. Official Receiver (1960) 103 C.L.R. 529; National Australia Bank Ltd. v. K.D.S. Construction Services Pty. Ltd. (1987) 163 C.L.R. 668 at 676; Bolt & Nut Co. (Tipton) Ltd. v. Rowlands Nicholls & Co. Ltd. [1964] 2 Q.B. 10. Once the negotiable instrument is dishonoured, the debt in conditional satisfaction of which it was given revives and a cause of action also arises on the negotiable instrument.
In my opinion the evidence does not establish that the parties intended that the promissory note should be taken in absolute satisfaction as opposed to conditional payment and accordingly the presumption of fact required by the law is that the remedy for the original debt was suspended until the dishonour of the promissory note and thereupon revived. There is no evidence whatever concerning any oral or written negotiations that may have preceded the giving and taking of the promissory note; all we have is the statement in Moffett's affidavits that Dillon gave him the note "in or in lieu of payment of the deposit". Those words are the construction placed by the deponent on what occurred. They do not even profess to be the deponent's interpretation of a conversation. They may be; on the other hand, they may be only his interpretation of the consequences of the bare fact of the making of the contract followed by the bare fact that the deposit is not paid in cash and the note is given and taken. Moreover the words "in or in lieu of payment" are of uncertain import. Even if they could - and they certainly cannot - be treated as an accurate statement of words which were spoken between the parties they would not warrant, or give any support to, the conclusion that the parties intended the note to be taken in absolute satisfaction. It has been said that an intention to take a negotiable instrument in absolute payment must be strictly shown and will not be deduced from ambiguous expressions like "in payment": Saffron v. Société Minière Cafrika (1958) 100 C.L.R. 231 at 244. Compare Cruickshank & Co. Ltd. v. Ewington (1905) 24 N.Z.L.R. 957. Counsel for the bank did not, as I understood his submission to us, contend that the fact that the note was taken for a somewhat larger sum than the deposit either warranted or gave any support to the absolute acceptance view of the parties' intentions. In any event, I do not think it does. As regards the discrepancy between the amount of the deposit and the amount of the note, it is also worth mentioning that the general rule - that a bill is taken as conditional payment only - applies even where the creditor, at the debtor's request, takes a bill from a third person: Byles, p.439. The circumstance that the note was not payable until one month had passed was not relied on by counsel for the bank, and this is understandable, since the negotiable instrument will often not be payable for some time and the cases do not treat that mere giving of time as showing or helping to show that the bill or note was taken in absolute payment.
I would respectfully differ from the judge and hold that the general rule is not displaced in this case and that the note was taken as conditional payment only. But what was the effect of the bringing of an action, and the recovery of judgment, on the note? In my opinion this did not have the effect of disabling Moffett from suing to recover the deposit. The authorities show that, where a negotiable instrument has been taken as conditional payment only, the bringing of an action and the recovery of judgment on the instrument do not, unless the judgment is satisfied, extinguish the cause of action by the operation of the doctrine of merger. This was laid down by the Court of King's Bench in Drake v. Mitchell (1803) 3 East 251, 102 E.R. 594 and by the Court of Appeal in Wegg Prosser v. Evans [1894] 1 Q.B. 108. There is an intervening decision of the Court of King's Bench to the same effect in Tarleton v. Allhusen (1834) 2 A & E. 32; 111 E.R. 13. The principle laid down is that the cause of action for the original debt will not merge in a judgment obtained on a negotiable instrument which was taken in conditional payment only unless the judgment has been satisfied. It does not depend - as the bank argued before us - upon the adventitious circumstance that in some of the cases the judgment recovered was against one only of a number of joint debtors on a bill given by him alone. See further Seddon v. Tutop (1796) 6 T.R. 607, 101 E.R. 729; Roycroft v. Uglum [1922] 1 W.W.R. 78; Douglas Properties Ltd. v. Olde World Antiques etc. Ltd. (1980) 28 A.R. 108. In the last-mentioned decision - of the Alberta Court of Queen's Bench - there was a single debtor liable for rent. The case is not one of the giving of a negotiable instrument as conditional payment of a pre-existing debt. It accepts, in reliance upon Drake v. Mitchell and Wegg Prosser v. Evans, that where a plaintiff possesses two rights of action the pursuit of one to judgment does not extinguish the other unless the judgment is satisfied. Two further decisions of the Alberta Court of Queen's Bench support the view that in the present case the obtaining of the judgment did not extinguish the obligation to pay the deposit: Rafael v. Allison [1988] 1 W.W.R. 570 and First City Capital Ltd. v. Ampex Canada Inc. (1989) 75 C.B.R. 109.
In my opinion the obligation to pay the deposit was extinguished neither by the taking of the promissory note nor by the obtaining of judgment on it. It has not been argued that the obligation was extinguished by the rescission of the contract, and I therefore say nothing about the authorities dealing with this question. The bank's contention was that, the obligation to pay the deposit having been extinguished in one or other of the two suggested ways, there was, as regards the amount of the deposit, no money due and payable pursuant to the contract of sale within the meaning of the charge. The direct question with which we are concerned on this branch of the case is one of construction of the charge; it is only indirectly that we are concerned with principles of law concerning satisfaction and merger. But to reject the argument that the obligation to pay the deposit disappeared by reason either of satisfaction or of merger is to reject the only bases on which it was contended that the deposit does not fall within the charge. It must be borne in mind, however, that the charge secures moneys due and payable pursuant to the contract of sale and that, as I would say, the promissory note, while given in consequence of the making of the contract of sale, was not given pursuant to it, no matter how broad a view of the ambit of the charge may reasonably be taken as a matter of construction. In my opinion, what is secured by the charge, leaving aside interest, is the sum of $15,000 payable under the contract as the deposit. The amount secured is not the amount of the promissory note, which was for $15,187.50, nor is it the amount of the promissory note together with further interest and costs which gave rise to the judgment for $16,310.88 entered in the Supreme Court.
Clause 4 of Table A deals with interest:
"If either party defaults in payment of any money under this contract then interest at a rate of two per cent higher than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 in lieu of any rate named in the contract and computed upon the money overdue during the period of default shall be paid on demand made by the offended party without prejudice to any other rights of the offended party."
Counsel for the bank did not, when this provision was drawn to his attention, advance any reason why it could not be invoked by the vendor in this case in respect of the unpaid deposit if, contrary to his contention, the obligation to pay the deposit was held neither to have been discharged by payment nor to have merged in the judgment. Nor did he contend that it would be inappropriate for this Court, if it was against him on the questions of satisfaction and merger, to make a declaration extending to interest on the amount of the deposit for a much larger sum than that which had been suggested before the judge. It is to be noted that Moffett claims in his notice of appeal that the declaration which this Court should make should relate to a sum of money much in excess of the three amounts of about $16,310, $54,217 and $10,587.
I come now to the second of these three amounts, the sum of $54,217 assessed by the Senior Master for damages. The argument for the bank, accepted by the judge, was and is that this amount is due and payable, not pursuant to the contract of sale, but pursuant to a judgment for damages. By clause 6(3) of Table A:
"Where the contract is so rescinded and the notice is given by -
(a) the purchaser, he shall be repaid any money together with any interest and costs payable under this contract and these shall be a charge on the land until payment;
(b) the vendor, then an amount equal to one tenth of the price ('the security') shall be forfeited to the vendor as his absolute property and he may recover possession of the land and at his option may within one year of the date of rescission either -
(i)
retain the land and sue for damages for breach of contract; or
(ii)
resell the land in such manner as he sees fit and recover any deficiency in the price on the re-sale and any resulting expenses by way of liquidated damages.
In addition to the security the vendor may retain any part of the price paid to him pending the determination of damages and may apply that money in satisfaction or part satisfaction of those damages."
The effect of this provision was considered by Tadgell, J. in Victorian Economic Development Corporation v. Clovervale Pty. Ltd. [1992] 1 V.R. 596. The option given by it to the vendor is by the terms of the clause to be exercised within one year of the date of rescission. Tadgell, J. was evidently of opinion that the clause required a vendor suing for damages pursuant to it to bring the action within a year of the date of rescission. It is at least clear that if the land is to be resold pursuant to the condition the resale must take place within that one year period. In the present case the contract was rescinded on or about 23 November 1985 by the operation of the notice of rescission. The resale did not take place until 21 December 1986, outside the period of one year allowed by clause 6. This fact seems not to have been relied upon before the judge, but before us counsel for the bank submitted that the fact that the one year period had expired before the resale meant that damages were to be assessed for breach of contract independently of clause 6(3), as the decision of Tadgell, J. accepts is the right of a vendor who has allowed the period of one year to elapse without taking the necessary action. This, counsel submitted to us, meant that it could not be said that, in causing damages to be assessed by the Senior Master, Moffett was enforcing his rights pursuant to the contract in that he was enforcing the right given to him by clause 6(3)(b)(ii) to resell and recover the deficiency on resale and resulting expenses by way of liquidated damages.
When this argument was put the Court responded by asking whether it was possible for the bank to challenge the judgment assessing the damages, which had been assessed on the footing that what the plaintiff was required to show was the deficiency in the price on resale and the resulting expenses. The Court enquired whether it was suggested that the primary judge should have determined that a judgment entered in the very action which was before him was erroneous, especially where the party challenging the judgment had an interest created by the party against whom the judgment had been entered and so in a sense claimed through that party. Counsel replied that he was not challenging the judgment but only submitting that it could not be regarded as a judgment obtained for moneys due and payable pursuant to the contract of sale within the meaning of the charge.
The statement of claim alleged, so far as is presently relevant, the making of a contract of sale and the incorporation into it of Table A. It went on to paraphrase clause 6(3) of Table A without referring to the one year time limit. It alleged default under the contract of sale and the giving of notice of rescission pursuant to clause 6. It further alleged that the defaults were not remedied and that the contract had become rescinded and the plaintiff had become entitled to resell and recover any deficiency in the price and any resulting expenses by way of liquidated damages from the defendant Dillon. The statement of claim did not allege the date or even the fact of resale. When judgment was entered in default of appearance for damages to be assessed, the plaintiff became entitled to have damages assessed on the basis that the allegations contained in the statement of claim were correct.
The material before the Senior Master shows that damages were assessed, as one would expect having regard to the statement of claim, on the footing that the matter was governed by clause 6(3)(b)(ii) of Table A.
The material before the Senior Master on the assessment of damages showed the date on which the resale had taken place. Whether it was correct, having regard to the terms of the statement of claim and the evidence before him, to assess damages pursuant to clause 6(3)(b)(ii) is, I think, a question we need not consider.
My present impression is that on the assessment of damages the plaintiff did not prove that the amount for which he resold the property was its value at the time of the rescission as opposed to the time of the resale. Compare Victorian Economic Development Corporation v. Clovervale Pty. Ltd. at 604-5. I do not pursue this question, however, for counsel for the bank presented his argument on the basis that he did not challenge the Senior Master's assessment if it was to be treated as an assessment of damages made independently of clause 6(3).
In the end I think it unnecessary to determine whether it is open to the bank to contend that Dillon was not liable in damages to Moffett pursuant to clause 6(3)(b)(ii) by reason of the expiration of one year before the resale notwithstanding that Moffett has a judgment against Dillon obtained on that footing. For even if the judgment obtained against Dillon is to be viewed, as I think counsel for the bank invited us to view it, as an assessment of damages made independently of clause 6(3), I am of opinion that the sum payable pursuant to the judgment is a sum due and payable pursuant to the contract of sale within the meaning of the charge. As to this, the submission for Moffett is in part that the obligation to pay damages is an obligation to pay money pursuant to the contract of sale because of the distinction between primary and secondary contractual obligations drawn by Lord Diplock in Lep Air Services Ltd. v. Rolloswin Investments Ltd. [1973] A.C. 331 at 350 in a passage adopted by Brennan, J. in Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd. (1985) 157 C.L.R. 17 at 48. We heard some short argument on the distinction drawn by Lord Diplock. I have considered the decision of the High Court in Sunbird Plaza Pty. Ltd. v. Maloney (1988) 166 C.L.R. 245 and a number of other decisions which are discussed in O'Donovan & Phillips, The Modern Contract of Guarantee, 3rd ed., pp.328 et seq.
The way in which the bank's case was put with regard to the promissory note made it appropriate to consider the scope of the charge by concerning ourselves with principles of the law of satisfaction and merger. But when one comes to consider this second item - the damages as assessed - it becomes particularly important to bear in mind that the ultimate question for determination is one of the scope of the charge as a matter of construction of that instrument. We are not directly concerned with the jurisprudential question of the nature of an obligation to pay damages for breach of contract. Nor are we directly concerned with the jurisprudential nature of an obligation under a judgment and the jurisprudential question of the effect of a judgment on the cause of action on which it is founded. Our task is to construe an instrument creating a charge and executed by the chargor and chargee. Although it was prepared by a lawyer (the evidence was that it was prepared by Moffett's then solicitors), it is a short instrument and one prepared to cope with a commercial problem that had arisen. It is a short conveyancing instrument with a commercial purpose. I think we should construe it in the same spirit as one would construe a commercial agreement. I refer generally to the discussion of the construction of such agreements in Lewison, The Interpretation of Contract, 2nd ed., paras.1.06, 1.07 and 6.13. I would take a broad view of what may be said to be due and payable pursuant to the contract of sale.
I would say, adapting the words used by O'Donovan & Phillips at p.331 in relation to guarantees, that the central object of this charge is to protect the vendor against the contingency of the purchaser's breach of the contract of sale and that notwithstanding somewhat technical distinctions in drafting the Court should strive for an interpretation of the charge that embraces a liability for damages as well as for the recovery of a liquidated sum. It is scarcely a commercially satisfactory outcome if, the insolvency or recalcitrance of the purchaser having caused the vendor to establish in judicial proceedings the breach of the contract of sale, the result is to deprive him of the benefit of a security taken to guard against insolvency and recalcitrance. I would uphold the claim that the sum of $54,217 is secured by the charge.
I should add that, while the question is one of the construction of the charge, the view that the obtaining of the judgment does not take the obligation which founds the judgment outside the scope of the charge is supported by decisions of the Court of Queen's Bench of Alberta: Rafael v. Allison (1988) 1 W.W.R. 570; First City Capital Ltd. v. Ampex Canada Inc. (1989) 75 C.B.R. 109. See too O'Donovan & Phillips, pp.521-2.
There remains the amount of $10,587.88 payable for taxed costs. The judge thought that this amount did not fall within the charge and I would have agreed with this conclusion had it not been for a provision of the contract of sale to which he was not referred. This is general condition 6, whereby:
"6. A party breaching this contract shall pay upon demand -
(a)
all reasonable expenses incurred by the other party as a result of the breach; and
(b) interest pursuant to the terms of this contract - and until payment the residue shall be varied by the addition or
subtraction of those amounts (as the case may be)."
Before us, the bank did not contend that the concluding words of this condition showed by implication that it was only to operate where the residue of the purchase price became payable and so did not operate where the contract was rescinded. In any event, I would reject this argument, taking the view that the concluding words are intended to have effect only in cases in which the residue does become payable. Although the bank continued to resist the claim, I did not understand it to advance any argument against the view that clause 6 of the general conditions brought the sum of $10,587.88 within the charge, and in my opinion it does.
I would allow the appeal, with an order for costs, including reserved costs, in favour of Moffett against both the bank and Dillon, and vary the order below by substituting for the words in paragraph 1 thereof "the sum of $6,309.06" the following words:
"(a) the sum of $15,000 together with interest thereon at a rate two per cent higher than the rate from time to time fixed under section 2 of the Penalty Interest Rates Act 1983 and computed from 24 September 1985 until payment of the said sum of $15,000; (b) the sum of $54,217; and (c) the sum of $10,587.88."
Moffett's counsel asked us, if the appeal was allowed, to cause the first undertaking given by the bank below to be varied by substituting for the amount mentioned in the undertaking the amounts held by this Court to be secured by the charge. The bank's counsel did not demur to this suggestion, but it will be necessary for us to confirm that the undertaking may be taken to have been given in the varied terms.
The cross-appeal should be dismissed, with costs payable by the bank to
Moffett.
ORMISTON, J.A.:
I have had the benefit of reading the judgment of Brooking, J.A. in draft form and, subject to what appears below, I agree both in the reasoning and in the conclusions which he has reached.
The primary issue on this appeal concerned the priority as between the two equitable interests created by the first respondent Dillon, namely the equitable charge granted to the appellant and the later mortgage granted to the respondent bank, which for the purpose of the proceedings all parties agreed should be treated as unregistered and therefore equitable.
In my opinion the learned judge was correct in concluding that the appellant's charge had priority over the bank's equitable mortgage inasmuch as it was the security and interest first created. It was not contended in argument before this Court, though it had been earlier argued and was in the appellant's original written submission, that the charge was a document capable of being registered under the Transfer of Land Act 1958. However, the bank's argument that it had priority, because its equitable mortgage was capable of registration and the appellant's charge was not, seems on analysis to be unsustainable. The bank contended that the question could be answered by ascertaining which was the better instrument, security or "bundle of rights". But this approach is misconceived. The issue is not which document is easier to enforce or which creates the better or more effective security, but which party has the better equity. In other words, which of the parties should be entitled first to enforce their securities or other interests, which in the ordinary course of events will be the security or interest first created unless there be some act or default which, having regard to "broad principles of right and justice" would make it inequitable as between the parties that the holder of the first interest should retain its initial priority? See Heid v. Reliance Finance Corp. Pty. Ltd. (1983) 154 C.L.R. 326 at 336 and esp. 339-342 and cf. Lapin v. Abigail (1931) 44 C.L.R. 166 at 204; AVCO Financial Services Ltd. v. White [1977] V.R. 561 at 567; Cash Resources (Australia) Pty. Ltd. v. B.T. Securities Ltd. [1990] V.R. 576 at 586; and Jacobs v. Platt Nominees Pty. Ltd. [1990] V.R. 146 at 149-152 and 159-160 (F.C.). Expressions such as "the merits" and "the better equity" unfortunately connote, even though they have not been intended to express, some enquiry as to which security is objectively the more effective and it also connotes, which perhaps is more objectionable, that in some way ordinarily one can ascertain the "better" equity as a matter of determining comparative strength or enforceability, an enquiry which, apart from asking which is first in point of time, is one to be avoided. Merits, in equity, are those matters which impinge, broadly speaking, on the conscience of those who seek its aid or are otherwise subject to its jurisdiction. So priority is to be resolved against the holder of the prior equity only if the other party can establish the first holder's want of "merits" or comparative lack of "merit". That is essentially a negative enquiry into behaviour on the part of the holders of each of the equitable interests as to whether they can be shown to have been obtained or enforced in a manner which is so unconscionable or otherwise inequitable so as to deprive the holder of the earlier interest of the priority to which it is otherwise entitled, whether that behaviour be evidenced by fraud, unfairness, negligence, the wrongful creation of particular assumptions by representations or the like or in a number of other ways which reflect on the behaviour of the holders of each of the interests: see Heid at 340-342. Many of these matters are set out in Chapter 8 of Meagher, Gummow and Lehane, Equity Doctrines & Remedies, 3rd ed., paras.803-860, but see especially the ten categories of exception from the general rule referred to in paras.807-818.
The question which party could, or could more easily, obtain registration of or enforce its security must thus be seen as irrelevant. The contest before registration of any interest under the Transfer of Land Act is between two (or more) holders of equitable (or possibly legal) interests (whether registrable or not) and indefeasibility can only become relevant after registration. Indefeasibility must be seen as a principal reason for allowing the lodging of caveats, a form of statutory injunction which enables the true merits in law and equity to be determined before the consequences of registration intervene: cf. Abigail v. Lapin 51 C.L.R. 58 at 64-65 (P.C.). The parties' merits are resolved so that registration can proceed only if the lodging party has acquired legal or equitable priority of interest. Here the chargee was first in time. The bank was well aware of his claim before it obtained or sought to register its equitable mortgage, and, unless he had acted so as to lose or abandon his priority, he should be preferred, even to the extent of perpetually restraining the registration of the equitable mortgage without the consent of the appellant. The bank has shown no basis for this Court to hold that its rights should be afforded priority, so as to defeat the rights of the appellant under his charge, albeit that the appellant's interest is not in fact capable of registration. No authority was cited to us whereby a party was held incapable of obtaining equitable relief in circumstances where that party had no registrable interest but in equity had priority over the holder of a registrable interest. Until registration the right to registration is therefore irrelevant, at least as a general rule. It would be unfortunate if the principles of indefeasibility could in equity indirectly affect the parties' rights before any indefeasible right had arisen by registration. The warnings given by the caveat procedure are designed to avoid injustices of that kind.
As to the other basis upon which Brooking, J.A. would dismiss the cross- appeal and give priority to the appellant's charge, I have greater difficulty and, for the present, I feel obliged, regrettably, to withhold my concurrence with it. Fortunately, each analysis produces the same result, but the only submissions contained in the parties' outlines and the only detailed argument addressed by counsel for the cross-respondent (Moffett) was one which depended upon his interest's simple priority in time. It was by chance that the Court discovered that the bank took with clear knowledge of the earlier interest, although that may have been able to be inferred from the existing material before the Court. In answer to a question from the Court counsel for the Bank acknowledged that fact and conceded he knew of no case in which the holder of the later interest took priority where it had knowledge of the earlier interest. I do not recall any detailed argument on this other basis for none had yet been put on behalf of Mr Moffett, although I am reminded that counsel in response adopted the argument, though without exposition.
What Brooking, J.A. has to say about notice or knowledge is, with respect, attractive both in its logic and its simplicity but, as he acknowledges, there must be some qualifications other than cases where the holder of the later interest may have been led to believing that the interest is no longer enforceable. As suggested by Davies, J.A. in Platzer v. Commonwealth Bank of Australia [1997] 1 Qd.R. 266 at 273 the rule must also be subject to the effects of an agreement to postpone the earlier interest, such as is commonly found in deeds of priority, by explicit waiver of priority or, I would suggest, by reason of any estoppel arising from the creation in the later holder of a belief that the earlier interest would be postponed or would not be insisted upon in whole or in part: cf. also as to prioritisation agreements Cheah Theam Swee v. Equiticorp Finance Group Ltd. [1992] 1 A.C. 472 (P.C.) and Gough: Company Charges, 2nd ed., Ch. 42, pp.1095-1103. This in turn suggests that the apparently simple requirements of the first proposition, namely that the holder of the later interest is postponed if that holder has notice of the earlier interest, may not be so easily established as they have been in the present case. This would be the more difficult if the principle were to be treated as dependent upon notice in the sense that that has been understood in courts of equity for many centuries, that is notice capable of consisting of actual, imputed or constructive notice and subject to the restrictions contained in provisions such as s.199 of the Property Law Act 1958. Unfortunately what constitutes notice 'is a point of some nicety', as Storey modestly described the matter in his Commentaries on Equity Jurisprudence at para.399 of the third English edition.
For myself it might seem simpler, were it not arguably contrary to principle, to resolve contests between equitable interests which might otherwise appear to be equal in the eyes of equity by declaring that the interest created earlier in time should take priority, unless the holder of the later equitable interest could establish that that amounted to a "better" interest. It appears accepted that, if the later holder is to be preferred, the onus rests on that claimant to demonstrate why: see General
Finance Agency & Guarantee Co. of Australia Ltd. v. Perpetual Executors & Trustees
Association of Australia Ltd. (1902) 27 V.L.R. 739 at 742-743, referred to with apparent approval by Mason and Deane, JJ. in Heid at 341 and cited in Meagher, Gummow and Lehane (3rd ed.) para.803. In that case Holroyd, J. preferred to follow the reasoning of Lord Cairns, L.C. in Shropshire Union Railways Co. v. The Queen [1875] L.R. 7 H.L. 496 at 507 where he said that, before a person could be deprived of the priority which priority in time gave, it must be proved that that person had done something or been guilty of some omission which would render it equitable that he or she should be deprived of that priority. Holroyd, J. contrasted that with the opinion of Vice Chancellor Kindersley in Rice v. Rice (1853) 2 Drewry 73; 61 E.R. 646 where he said that the maxim that the first in time is stronger in law is the last rule to be applied in determining which equity should prevail. As Holroyd, J. said (at 743) "The two definitions may come to the same thing", but it may be of importance on whom should lie the burden of proof.
At least until Heid's Case there seemed consistent authority supporting an approach giving the interest first in time priority over other interests unless and until any such other interest could be shown in equity to be the better interest. A passage frequently cited is that of Dixon, J. in Lapin v. Abigail (1930) 44 C.L.R. 166 at 204, where he said, inter alia, "The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority". (Emphasis added.) Those words were cited with approval by Barwick, C.J. (with whom McTiernan and Owen, JJ. agreed) in J. & H. Just (Holdings) Plc v. Bank of N.S.W. (1972) 125 C.L.R. 546 at 554-555, by Gillard, J. in AVCO v. White at 567 (with some adaptation); by Murphy, J. in Heid at 347 (though there are passages in that judgment with which I should prefer not to express agreement); and in King v. A.G.C. (Advances) Ltd. [1983] 1 V.R. 682 by Young, C.J. at 683 and by Marks, J. (with whom Murray, J. agreed) at p.687.
Moreover, Dixon, J.'s approach as to onus seems also to have been derived directly from Lord Cairns's speech in the Shropshire Union Railways Case at 507: see Lapin v. Abigail at 504. As his Honour had said earlier of Abigail's subsequent interest (at 203, 204):
"Prima facie his equitable interest is to be postponed to the prior equitable interest of the appellants ... The question, therefore, is whether for any reason appearing in evidence, the appellants lost their priority. In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner."
Further the same approach can be seen in the judgments of the other members of the Court, although they differed as to their conclusion. Gavan Duffy and Starke, JJ. (who dissented but who were upheld by the Privy Council) followed the same passage from the Shropshire Union Railways Case to which I have already referred: at 196. See also per Knox, C.J. at 183-184 and Isaacs, J. at 184-185.
It is therefore not surprising that in the Privy Council the proper approach to the issue of onus was expressed in almost identical terms. Lord Wright speaking for their Lordships said (at 68):
"The opinion of the Vice-Chancellor [in Rice v. Rice [1853] 2 Drew. 73; 61 E.R. 646] no doubt has not been approved insofar as he says that priority in time is only to be taken as a test where the equities are otherwise equal: it is now clearly established that prima facie priority in time will decide the matter unless as laid down by Lord Cairns, L.C. in Shropshire Union Railways and Canal Co. v. The Queen, that which is relied on to take away the pre-existing equitable title can be shown to be something tangible and distinct having grave and strong effect to accomplish the purpose."
Subsequently, at least until Heid's Case, the approach of affording priority to the equitable interest first created in the absence of proof of any better later equity seems largely to have been accepted. Even if one may read what Kitto, J. said in Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (in liquidation) (1965) 113 C.L.R. 265 at 276 as requiring a broader approach and requiring satisfaction that the later interest holder has not taken with notice of the earlier, he had previously referred to "the priority which order in time prima facie gives" an earlier taker of an equitable interest: see I.A.C. (Finance) Pty. Ltd. v. Courtenay (1963) 110 C.L.R. 550 at 575. Thereafter a series of three cases in the High Court appeared to countenance the preference to be given the prior interest unless the later holder established a better equity: see the judgment of Barwick, C.J. in Just v. Bank of New South Wales, in the passage cited above; Breskvar v. Wall (1971) 126 C.L.R. 376 at 388 per Barwick, C.J. (with whom Owen and Windeyer, JJ. agreed), at 399 per Menzies, J.; and, arguably, Forsyth v. Blundell (1973) 129 C.L.R. 477 at 498 per Walsh, J. (with whom Mason, J. agreed on this point).
There remains then the question whether Heid's Case should be taken as imposing some new or different rule so far as the establishment of priority is concerned. On one view no change to the existing law was either foreshadowed or expressed, inasmuch as Gibbs, C.J. (with whom Wilson, J. concurred) cited the passage of Kitto, J. in Latec Investments already referred to and then asked whether the appellant, whose interest was "first in time", had acted so as to lose his priority. Murphy, J. was content to cite the passage from the judgment of Dixon, J. in Lapin v. Abigail, also referred to above, but in the course of a judgment which would otherwise provide no assistance. It is the judgment of Mason and Deane, JJ. which has been taken to express a new approach in Australia to the question of priorities and was so accepted in cases such as Jacobs v. Platt and Platzer v. Commonwealth Bank. Although the judgment commenced in conventional terms by stating (at 339):
"Where the merits are equal, the general principle applicable to competing equitable interests is summed up in the maxim qui prior est tempore potior est jure - priority in time of creation gives the better equity. But where the merits are unequal and favour the later interest, as for instance where the owner of the later equitable interest is led by conduct on the part of the owner of the early interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, priority will be accorded to the later interest ...".
However, after pointing out difficulties in the way of adopting a general formula as to the manner in which a prior interest might lose its priority, they said (at 341) that it was "preferable to avoid the contortions and convolutions associated" with the earlier formulations and "to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances". Thus they then said:
"It will always be necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and justice, the earlier interest should be postponed to the later interest."
I would prefer to conclude that the Court had said nothing which should be taken to have varied the apparent rules as to onus of proof in circumstances where competing priorities are raised, inasmuch as the majority did not seek to do so. Nor am I inclined to believe that Mason and Deane, JJ. intended to do so, although their statement of principle at 341 is sufficiently wide to lead to a conclusion that none of the prima facie rules previously adopted should be treated otherwise than as mere guides to the determination of which interest in fairness and justice should be preferred. Their Honours referred (at 339) to the issue of notice and thereafter to a number of cases dependent upon notice but said nothing as to who must show the better equity. For the present I would prefer to assume that the burden rests on the holder of the later equitable interest to show that that interest should be preferred over the interest created first in time.
It follows that I do not find it necessary to express any view as to the order in which the Court should take into account, on the one hand, the date upon which an equitable interest was first created and, on the other, evidence of alleged knowledge or notice, actual, constructive or imputed. What Brooking, J.A. says as to notice and its importance in the law of equity is, if I might say so, most persuasive and there seems, on what I have read, to be much force in the contention that notice is critical to the ascertainment of priorities, even in relation to equitable interests. However, I am not entirely confident that Mason and Deane, JJ. in Heid's Case would have given knowledge or notice any greater significance than any of the other matters which may be taken into account to determine whether an interest is postponed "in fairness and in justice". In the absence of detailed argument on that subject I would prefer to reserve my opinion on that. I must emphasise, nevertheless, that it still seems to me that one ought to take the interest first created and then enquire whether any event has occurred which would result in that interest being postponed to a later interest. If that still be the correct approach, as I believe it to be, then the existence of notice or knowledge of the kind here admitted is strictly speaking irrelevant, for that is not a factor which would permit a court exercising its equitable jurisdiction to conclude that the later interest should be preferred. It would only become relevant if there were some other factor which might point to the later equitable interest as being the "better equity", were it not for the existence of relevant notice or knowledge which would deny that characterisation of the later interest and would deny its being preferred, subject again to what has been said in Heid's Case.
It seems to me the present issue can be resolved in the same way whichever approach one takes. I have preferred to conclude, as was held below and as the appellant has argued, that Moffett as holder of the equitable interest first in time should be preferred unless and until the bank established that it had the better equity in the sense of a better equitable interest, and that is what the bank failed to do.
There are, however, real questions of principle at issue as to whether the doctrine of notice is relevant to priority between two equitable interests. It may be seen that upon the test I have preferred there was no question of the appellant establishing the existence of notice in the bank. What the bank would have had to do is to show that it took its interest for value without notice or had the better equity for some other reason, or that is what I believe is the essence of the present difference of opinion.
The better view, although I would not wish to resolve it in present circumstances, seems to be that the principle favouring the bona fide purchaser without notice has been one not ordinarily applied (except in circumstances which have been criticised) as between competing equitable interests: see, e.g., Butt; Land Law in Australia, para.1936; The Principles of Equity (ed. Parkinson) (1996) p.75; Sykes, Law of Securities (5th ed.) p.405; Meagher, Gummow and Lehane (3rd ed.), Equity, para.849; Sir Frederick Jordan: Chapters on Equity in New South Wales, pp.66-67 and Pomeroy's Equity Jurisprudence (5th ed.) vol. 2, p.945. The reason for this broad proposition may be traced, at least in part, to the observations of Lord Westbury in Phillips v. Phillips [1861] 4 De G.F.&J. 208 at 215-216; 45 E.R. 1164 at 1166:
"I take it to be a clear proposition that every conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person entitled merely in equity passes only that which he is justly entitled to and no more. If, therefore, a person seised of an equitable estate (the legal estate being outstanding), makes an assurance by way of mortgage or grants an annuity, and afterwards conveys the whole estate to a purchaser, he can grant to the purchaser that which he has, viz., the estate subject to the mortgage or annuity, and no more. The subsequent grantee takes only that which is left in the grantor. Hence grantees and encumbrancers claiming an equity take and are ranked according to the dates of their securities; and the maxim applies, 'qui prior est tempore potior est jure'. The first grantee is potior - that is, potentior. He has a better and superior - because a prior - equity. The first grantee has a right to be paid first, and it is quite immaterial whether the subsequent encumbrancers at the time when they took their securities and paid their money had notice of the encumbrance or not."
This passage has been cited on numerous occasions subsequently and I refer only in addition to the enthusiastic adoption and detailed citation of the judgment by Pomeroy in his work in both vol. 2, p.163 and vol. 3, pp.14-17 where he referred to Lord Westbury's "remarkable grasp of principles and wonderful power of generalisation." The earlier history of the rule, consistent with Lord Westbury's conclusions, may be seen at pp.160-164 of the celebrated essay by D.E.C. Yale in his Introduction to Vol. II of Lord Nottingham's Chancery Cases (Selden Society vol. 79).
Nevertheless, as Pomeroy also points out in vol. 3, pp.10-13, there are statements by judges both in England and the United States which would appear to expand the doctrine to give the purchaser without notice rights where the later interest acquired is only an equitable interest. The same doubts are reflected in the judgments from members of the High Court in Latec Investments v. Hotel Terrigal. Although the differences are only hinted at in the judgment of Kitto, J., they are directly described by Taylor, J. as "a considerable conflict of opinion between Lord Westbury and Lord St. Leonards" at pp.285-286 and by Menzies, J., who observed that "eminent Lord Chancellors have expressed diametrically opposite conclusions upon the same question": at pp.289-291.
The difficulties are abundant and I am not prepared to resolve them on this appeal. I would add only that I am not persuaded that when Kitto, J. referred to an equitable interest having been "innocently acquired" in his statement of principle at p.276, he meant to exclude an interest acquired by a subsequent holder of an equitable interest who took with only constructive or imputed notice of an earlier interest. Perhaps the solution lies in Lord Westbury's analysis which would allow of the second interest holder to take an interest but only subject to the earlier equity. If that be so, that later holder of an equitable interest would have to show why he or she should be preferred over the earlier equitable interest holder. This might involve some nice balancing of competing equities of the kind contemplated by the High Court in Heid's Case but, as a generalisation only, such an enquiry may be cut short by it being demonstrated that the later holder knew of the earlier interest when he or she took. So, subject to the possible existence of rights under a prioritisation or subordination deed or other contract (cf. Cheah) or by reason of a common assumption created by the holder of the prior interest at the time the later holder acquired his or her interest (or the like), there would be little reason for further examination as to which party held the "better equity", the later holder facing an effectively insuperable hurdle at that stage. However, without resolving all these difficulties, I would prefer to reiterate that Mr Moffett's interest was created first in time and nothing had been demonstrated in this case to show that the bank's later interest should be preferred in equity.
I would otherwise agree with the reasoning and conclusions of Brooking, J.A. as to the resolution of this appeal, in particular as to the amount secured by the appellant's charge. In other circumstances the words 'pursuant to' may be given a narrower construction. Indeed as a proper use of the English language they more frequently demonstrate the narrower meaning suggested in argument, but this charge has to be looked at in the circumstances of its creation and the meaning properly to be given to it in the light of its language and those circumstances. It would be totally unrealistic and unsatisfactory to say that the additional security granted was intended to cover only specific failures to carry out particular monetary obligations in the contract of sale but not the consequences of any such failures. Indeed, apart from the deposit and the interest component of the payments owing, the vendor could not claim the moneys owing except upon tender of a transfer of the land. The collateral security here given was intended to secure the vendor against non-performance of the contract of sale and its terms and that must, in my opinion, include damages payable for non-performance, as are here claimed.
I would dismiss the cross-appeal and allow the appellant's appeal in the manner proposed by Brooking, J.A.
BUCHANAN, J.A.:
I have had the advantage of reading the draft judgments prepared by Brooking and Ormiston, JJ.A. I agree with the conclusions reached by Brooking, J.A. and with his reasons.
Subject to the qualifications which Brooking, J.A. and Ormiston, J.A. have expressed, in my view the rule that a later equitable interest cannot prevail if its holder acquired it with notice of an earlier equitable interest, is logical, convenient and well grounded in authority.
The same result can be reached without having regard to the fact that the Bank had notice of Dillon's charge, by employing the principle that the interest first in time prevails, and disposing of the only argument advanced to displace that priority, namely that the Bank's mortgage, unlike Dillon's charge, was in a registrable form, as not bearing on the question of which party had the better equity. However, the shortest route to the resolution of the competition between the interests is found in the application of the rule as to notice.
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