National Australia Bank Ltd v Clowes

The appeal in *National Australia Bank Ltd v Clowes* concerned a dispute between the National Australia Bank Ltd (the Bank) and Mr Clowes and other respondents regarding an equitable mortgage over shares. The central issue was whether the Bank held a valid equitable mortgage over certain shares to secure borrowings by Mr Clowes and associated entities. The Bank contended that an equitable mortgage had been created, while Mr Clowes argued to the contrary, leading to the matter being heard by McColl, Macfarlan, and Leeming JJA in the Court of Appeal of New South Wales.

The court was required to determine whether the Bank had established an equitable mortgage over the shares. Specifically, the court had to consider the effect of an agreement to create a mortgage by the deposit of share certificates, the failure to obtain a signed transfer, and whether a subsequent contractual extension to secure later borrowing had validly created or maintained such a mortgage. The court also had to interpret the parties' contractual intentions, particularly in light of a mistaken reference to a mortgage of land instead of shares.

The Court of Appeal found that the Bank had indeed established an equitable mortgage over the shares. The court reasoned that an agreement to create a mortgage, coupled with the deposit of share certificates, was sufficient to create an equitable mortgage, even without a formal signed transfer. The court interpreted the contract as clearly intending to create a mortgage over the shares, notwithstanding a mistaken reference to land. The court held that the mere retention of share certificates by the bank, without a clear agreement, would not suffice to create a mortgage, but in this instance, the terms of the parties' agreement governed the rights. Consequently, the appeal was allowed, and the orders of the court below were set aside, save for the judgment against Mr Clowes for a specific sum and his liability for the Bank's costs. The court declared that the shares were subject to a mortgage securing monies owing by the respondents, that the Bank was entitled to sell the shares, and made orders for possession of a property and the execution of share transfers.