Sibbles v Highfern Pty Ltd

[1987] HCA 66

HIGH COURT OF AUSTRALIA

Mason C.J., Brennan, Dawson, Toohey and Gaudron JJ.

SIBBLES AND ANOTHER v. HIGHFERN PROPRIETARY LIMITED

(1987) 164 CLR 214

23 December 1987

Vendor and Purchaser

Vendor and Purchaser (Q.)—Sale of land—Instalment contract Prohibition of mortgage by vendor without purchaser's consent—Mortgage defined to include charge—Prior charge by vendor to secure fluctuating balance of bank account—Whether new charge whenever debit balance increased—Instalment contract not to be determinable or determined by reason of purchaser's default in payment of instalment or sum due and payable under contract until thirty days from service of notice Default in payment indicating purchaser's repudiation—Determination Reason—Property Law Act 1974 (Q.), ss. 71(2), 72(1), 73.

Decisions

MASON C.J., DAWSON, TOOHEY AND GAUDRON JJ. By a contract dated 25 November 1981, the appellants ("the Sibbles"), who are husband and wife, agreed to purchase from the respondent company ("Highfern") for $152,000 a strata title unit in a building in Surfers Paradise known as "Centrepoint". The Sibbles paid a deposit of $15,200 and took possession of the unit shortly after the contract was executed. Under the contract the balance of the purchase price was not payable until 25 March 1983, but the Sibbles were in the meantime entitled to occupy the unit. Interest was payable on the outstanding balance at the rate of $1,653.00 per month and the Sibbles could elect, and did elect, to make the monthly payments on an instalment basis as defined in s.71 of the Property Law Act 1974 (Q.). Sub-section (2)(b) of that section defines an instalment contract as "an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange therefor". The contract was, therefore, an instalment contract within the meaning of that Act: Wacal Developments Pty. Ltd. v. Realty Developments Pty. Ltd. (1978) 140 CLR 503.

2. The Sibbles made the monthly payments for some months, but in October 1982 they informed Highfern that they "could no longer afford to make the payments due under the contract". In a letter dated 2 October 1982, Mrs Sibbles requested Highfern to "consider taking the unit back with no further action against us". After receiving a further letter from Mrs Sibbles, Highfern, in a letter dated 10 December 1982, responded by offering to cancel the contract upon condition that the Sibbles left their present furniture and furnishings in the unit and paid the company the sum of $30,000.

3. No further payments of interest were made by the Sibbles after the payment of the September instalment on 1 October 1982 and on about 13 December 1982 Highfern had the locks on the unit changed, thereby excluding the Sibbles from possession. By a letter dated 18 January 1983, Mrs Sibbles refused the offer made by Highfern saying "unfortunately we do not have $30,000, nor have we any way to raise it".

4. Thereafter there were various communications between the parties which we need not examine in detail having regard to the limited basis upon which special leave to appeal in this matter was granted. On 6 May 1983 Highfern commenced an action against the Sibbles claiming specific performance of the contract and further, or in the alternative, damages for breach of contract. On 10 May 1983 the Sibbles commenced an action against Highfern which, in an amended form, claimed various declarations that the contract was void or not binding upon them and the return of the amount of $37,411.74 paid by them to Highfern pursuant to the contract. After the close of pleadings in Highfern's action, the solicitors acting for Highfern wrote a letter dated 5 November 1984 to the Sibbles' solicitors pointing out that the date for settlement, 25 March 1983, had passed without any payment having been made by the Sibbles and inquiring whether "your client now intends to fulfil their obligations and complete settlement of the said contract, or whether your clients still persist in their refusal to do so." On 20 November 1984 Highfern's solicitors wrote another letter to the Sibbles' solicitors saying:

"We refer to our letter of the 5th November, 1984 ... and note your clients' continuing refusal to complete this contract. In reliance thereon, our client hereby elects to rescind the contract pursuant to Clause 11 thereof.

We advise that our client will now apply to the Master for leave to amend its Writ of Summons and Statement of Claim ... to claim damages for breach of contract, and such consequential orders as may be appropriate."

Clause 11 of the contract provides, so far as is relevant:

"If the Purchaser shall neglect or fail to pay his deposit or the balance or any instalment of purchase money or part thereof or any interest or shall fail to comply with any agreement on his part herein contained then ... the Vendor shall be at liberty in addition to any other rights and remedies conferred upon him at law or in equity:

(i) to sue the Purchaser for damages for breach of Contract; or

(ii) to sue the Purchaser for specific performance of this Contract and/or damages; or

(iii) to rescind this Contract and

(a) forfeit the deposit; and/or

(b) sue the Purchaser for damages for breach of Contract ..."

The statement of claim in Highfern's action was subsequently amended to plead rescission of the contract by the letter dated 20 November 1984 and to delete the claim for specific performance, leaving only a claim for damages.

5. Both actions were heard together and Highfern in its action was awarded $69,680.20 by way of damages for breach of contract and interest against the Sibbles. The Sibbles, in addition to commencing their own action, had counterclaimed in Highfern's action and they were awarded $3,900 on their counterclaim, that being an amount by way of damages for wrongful deprivation of possession during a period of approximately four months up to the date for completion, and a further amount to be assessed by way of damages for the conversion of their chattels which remained in the unit when Highfern changed the locks. The Sibbles' action against Highfern was dismissed. The Sibbles appealed unsuccessfully to the Full Court of the Supreme Court of Queensland against this result.

6. Both before the learned trial judge and in the Full Court the Sibbles argued, amongst other things, that in purporting to rescind the contract Highfern was in breach of s.72 of the Property Law Act. Section 72(1) provides that an instalment contract shall not be determinable or determined by reason of default on the part of the purchaser in payment of any instalment or sum of money (other than a deposit or any part thereof) due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in a specified form. The Sibbles also argued that Highfern was in breach of s.73 of the Property Law Act, thereby rendering the contract voidable by them. They asserted that they exercised their right to avoid the contract on a number of alternative dates. Special leave to appeal was granted to the Sibbles but was limited to those points arising under ss.72 and 73 of the Property Law Act.

7. Section 73 of the Property Law Act, so far as is relevant, provides as follows:

"(1) A vendor under an instalment contract shall not without the consent of the purchaser sell or mortgage the land the subject of the contract.

(2) Where land is mortgaged in contravention of this section -

(a) the instalment contract shall be voidable by the purchaser at any time before completion of the contract;

(b) the vendor shall be guilty of an offence against this Act and liable to a penalty not exceeding five hundred dollars."

The Centrepoint building was erected upon land originally contained in Certificate of Title Vol.5895 Fol.154, being the land described as Lot 1 on Registered Plan No. 166108. Highfern was the registered proprietor of that land. Funds for the erection of the building were provided by the Australia and New Zealand Banking Group Limited and as part of its security the bank took a mortgage over the land. The mortgage, No. G140696, was registered on 2 September 1980. It was an "all moneys" bank mortgage in standard form and secured the repayment of all moneys lent or to be lent by the bank to Highfern or an associated company. Clause 10 of the Bill of Mortgage provided:

"That until finally discharged this Mortgage shall be and remain a continuing security for the due payment of all the principal interest and other moneys hereby secured and for the time being remaining unpaid irrespective of any sums which may from time to time be paid to the credit of any account of the Mortgagor ... with the Bank and that notwithstanding the account of the Mortgagor ... may at any time appear to be in credit and notwithstanding any settlement of account or any other matter or thing whatsoever AND the Bank shall be at liberty ... to apply in or towards satisfaction of any of the moneys hereby secured all or any moneys which may from time to time be paid in or may be standing to the credit of any current account of the Mortgagor ... with the Bank ..."

Certificate of Title Vol.5895 Fol.154 was cancelled on 17 August 1981 upon the registration of Building Units Plan 4327 for the Centrepoint building but that cancellation was subject to Mortgage No. G140696. A Certificate of Title - Vol.6162 Fol.124 - issued in respect of the unit in question on 24 August 1981 and endorsed upon it as an encumbrance was Mortgage No. G140696. On 5 January 1982 the bank executed a discharge of that mortgage to the extent that it related to the title to the unit in question. That partial discharge has not been registered, although nothing turns on that.

8. Between 25 November 1981, which was the date of the contract, and 5 January 1982, which was the date when the bank executed the partial discharge of mortgage, the balance of Highfern's account with the bank varied from being in credit to being overdrawn. From 25 November 1981 to 9 December 1981 it was in credit. On 10 December 1981 it was overdrawn to the extent of $119,194.77. On 11 December 1981 it was in credit again, but on a number of subsequent occasions before 5 January 1982 it showed a debit balance. There was some evidence that Highfern's overdraft limit with the bank was $100,000 and, if that was so, its actual overdraft clearly exceeded the limit on 10 December 1981. There was, however, no limit to the advances covered by the mortgage.

9. The argument which was made on behalf of the Sibbles was that on each occasion during the period from 25 November 1981 to 5 January 1982 upon which a debit balance in the account was created or increased, the vendor mortgaged the unit in question without the consent of the Sibbles, thus infringing s.73 of the Property Law Act. It is clear that the Sibbles were neither asked to give, nor gave, consent to the transactions on these occasions. In making this submission, counsel placed reliance upon the definition of "mortgage" for the purposes of Div.4 of Pt.VI of the Property Law Act in which s.73 appears. By that definition, which is in s.71(2)(c), "'mortgage' includes any encumbrance or charge other than a charge attaching by the operation of any statutory enactment". The mortgage in question, which was registered under the Real Property Act 1861 (Q.), undoubtedly operated by way of charge but the basis of the submission was that the operation of the mortgage upon advances made after Highfern's account with the bank was in credit amounted to fresh charges upon the unit under the mortgage. It is not entirely clear to us whether the submission was that each separate advance amounted to a fresh charge or, indeed, whether a reduction in the amount of the indebtedness had that result. But our difficulty in this regard is, perhaps, no more than a reflection of our difficulty with the submission as a whole.

10. The argument was based upon a conclusion which it was said could be drawn from expressions used in some of the cases dealing with the old rule in Hopkinson v. Rolt (1861) 9 HLC 514 (11 ER 829). See also Bradford Banking Company v. Briggs (1886) 12 App Cas 29; Union Bank of Scotland v. National Bank of Scotland (1886) 12 App.Cas. 53. That rule concerned the tacking of future advances to a debt covered by an existing mortgage (not being a mortgage obliging the mortgagee to make future advances, but cf. West v. Williams (1899) 1 Ch 132; Matzner v. Clyde Securities Ltd. (1975) 2 NSWLR 293). It denied to a mortgagee to whom property was mortgaged to secure advances already made priority for further advances over a subsequent mortgage made with notice before the further advances were given, even if the first mortgage, to the knowledge of the subsequent mortgagee, was expressed to be security for further advances. That is to say, the prior mortgagee could not tack if at the time of the further advances he had notice, actual or constructive, of the subsequent mortgage. Tacking was abolished in England by s.94 of The Law of Property Act 1925 (U.K.) but exceptions were preserved in relation to future advances. The equivalent section in Queensland is s.82 of the Property Law Act which gives to a prior mortgagee a right to make further advances to rank in priority to subsequent mortgages if an arrangement has been made to that effect with the subsequent mortgagees or if he had no notice of such subsequent mortgages at the time when the further advance was made by him or if his mortgage imposes on him an obligation to make such further advances.

11. The restriction upon the tacking of future advances has a particular effect upon a bank mortgage given to cover an overdraft in a current bank account when it is combined with the rule in Clayton's Case (1816) 1 Mer. 572 (35 ER 781). That rule presumes that payments made in reduction of a debt are intended to be applied consecutively in discharge of the items making up the debt. Where notice of a second mortgage is given, subsequent payments into the account are applied to reduce the overdraft existing at the time of the notice and, in effect, for the benefit of the subsequent mortgagee: Deeley v. Lloyds Bank, Limited (1912) AC 756. The subsequent mortgagee takes subject to the overdraft only at that time, that is to say, not subject to future advances, and the reduction of the overdraft correspondingly improves his security. If the overdraft is paid off, then any subsequent indebtedness will be by way of future advances and the bank mortgage will be postponed entirely in relation to the subsequent mortgage, although the bank mortgage does not cease to be effective between the bank and its customer, the mortgagor: London and County Banking Company v. Ratcliffe (1881) 6 App Cas 722, at p 737. It is for the purpose of excluding the rule in Clayton's Case that bank mortgages to secure overdraft facilities contain a clause, as does the mortgage in this case in cl.10, declaring the security to be a continuing one and giving the bank a discretion in the application of payments into the account in satisfaction of the customer's indebtedness.

12. All of this has relevance in this case only in providing the context for the expressions in the decisions upon which reliance is placed. In London and County Banking Company v. Ratcliffe at p 729 Lord Selborne L.C. said of future advances covered by mortgage to a bank, that until the advances were actually made, "there was not, and there could not be, any existing charge for them". But that statement was, of course, made with reference to a subsequent equity (in that case of a purchaser rather than a mortgagee) and not with reference to the position between the bank and its customer. Clearly what Lord Selborne meant by "existing charge" was "operative charge" because there is no suggestion that the contractual arrangement between the bank and its customer which constituted the charge did not come into existence until advances were made. This is made clear by Lord Blackburn in the same case at p.737 when he says that "as between the banker and his customer, the lien is operative whenever the relation of debtor and creditor exists". That is the language used by Dixon J. in Robertson v. Grigg (1932) 47 CLR 257 to refer to an equitable charge upon a fund given to secure future advances. He said, at p 271:

"No doubt the assignment or charge was by way of security and would operate in respect of each separate advance only from the date when it was in fact made."

It is clear that Dixon J. did not regard the existence of a charge to secure future advances as being dependent upon the advances actually being made although, of course, the operation of such a charge in relation to a particular amount of money can only begin when that amount is advanced.

13. It is, we think, unnecessary to go specifically to the other cases dealing with the priority of mortgages in relation to future advances upon which counsel for the appellants relied: Brace v. Duchess of Marlborough (1728) 2 PWms 491, at pp 495-496 (24 ER 829, at p 831); Shepherd v. Titley (1742) 2 Atk 348, at p 351 (26 ER 612, at p 613); West v. Williams, at p 146. The expressions to which he pointed in those cases are all explicable upon the same basis as are those used in London and County Banking Company v. Ratcliffe. For example, in West v. Williams Chitty L.J., having referred to Hopkinson v. Rolt and to subsequent cases in which the rule laid down in that case was applied, said at p 146:

"The principle on which these decisions are founded appears to me to be, that a mortgagee cannot obtain a charge on property which is no longer the mortgagor's to charge, and which the mortgagee knows at the time when he makes his further advance is no longer the property of the mortgagor. No charge arises for a further advance until it is actually made."

It is clear that in that passage his Lordship was saying no more than that a charge in relation to a further advance cannot operate on the property charged until the advance is made. In that sense no charge arises before that time. But his Lordship was not questioning the underlying contract creating the charge which of necessity must continue to exist for the charge to operate in relation to a future advance when it is made.

14. The security upon which the bank relied in this case was Mortgage No. G140696. It was a mortgage by way of charge. It was in existence at the time Highfern sold the unit to the Sibbles. The charge could not operate until Highfern's account with the bank was overdrawn but it then operated upon the property charged in relation to each advance. There was not a fresh mortgage or charge on each such occasion but the application of an existing contractual arrangement by way of mortgage or charge in relation to a specific advance. Highfern did not, therefore, mortgage the land sold without the Sibbles' consent and did not infringe s.73 of the Property Law Act. Any other conclusion would lead to curious results as was pointed out in the course of argument. For example, the debiting of Highfern's account by the bank with bank charges could put the account in debit and so result in an infringement of the section by Highfern, without any action on its part, which would render it liable to a penalty. Such results make it unlikely that it was intended that the operation of the section should be as was suggested by counsel for the appellants, but the real reason why it does not operate in that way is, as we have endeavoured to explain, more fundamental.

15. Section 73 of the Property Law Act has been considered by the Full Court of the Supreme Court of Queensland (Lucas S.P.J., Kelly and Connolly JJ.) in Landers v. Schmidt (1983) 1 Qd R 188 and by the Privy Council in Coast Securities No.9 Pty. Ltd. v. Bondoukou Pty. Ltd. (1986) 61 ALJR 285; 69 ALR 385. In each of those cases a mortgage over land the subject of an instalment contract was in existence at the time the contract was made but was subsequently varied without the consent of the purchaser by increasing the principal sum secured. The variation was held in each case to constitute a fresh mortgage and an infringement of s.73. Those cases are clearly different from the present one because of the variation of the existing mortgages, but the language used in each of them supports the view which we have expressed of the meaning of the term "mortgage" or "charge" in the context of s.73. In Landers v. Schmidt Connolly J., with whom Lucas S.P.J. agreed, referred to the wide meaning currently given to both terms. He concluded that a charge upon land is a burden upon the land and that the variation of the existing mortgage to increase the sum secured was to create an additional burden and therefore an additional charge. As he said at p.195:

"What the appellants did on August 26, 1976

was to make the land available for $6,000 for which theretofore it was not available. It follows in my view that whether they mortgaged it in the strict sense they certainly charged it."

In Coast Securities No.9 Pty. Ltd. v. Bondoukou Pty. Ltd. the Privy Council said at p 288; ALR at p 390:

"It is true that the bill of mortgage secured all sums becoming due to the lender but it is, in their Lordships' view, quite unarguable that the advance, pursuant to the deed of variation, of a further $18,300,000 to cover the cost of a new building did not constitute a further charge on the land and thus a mortgage as defined in s.71(2)(c) of the Act. Prior to the deed of variation the land was not charged with this sum. Afterwards it was."

16. The submission based upon the failure of Highfern to give notice under s.72 of the Property Law Act may be dealt with more shortly. It was conceded in this Court on behalf of the Sibbles that, apart from their reliance upon s.73 of the Act, they had no justification for their refusal to complete the contract. By its letter dated 20 November 1984, Highfern purported to rescind, that is to say, terminate, the contract pursuant to cl.11 thereof which conferred a right upon the vendor to rescind for failure on the part of the purchaser to pay moneys due under the contract or for failure to comply with "any agreement on his part" contained in the contract. As we have said earlier, following the letter of 20 November 1984, Highfern's pleadings in its action were amended. The following paragraph was inserted in the statement of claim: "9A. By letter from its solicitors to the Defendants' solicitors dated the 20th day of November, 1984 the Plaintiff rescinded the said contract and notified the Defendants of its intention to sue for damages for the breach thereof." Further and better particulars were sought of the breach of contract which was alleged by Highfern to give it a right to rescind and the further particulars specified "the failure by the Defendants to pay all instalments of interest since the 25th day of September, 1982 and the failure of the Defendants to pay the balance of purchase moneys due under the said contract to the Plaintiff on the date of completion of the said contract."

17. The argument advanced on behalf of the Sibbles was that the purported rescission by Highfern was pursuant to cl.11 of the contract, which conferred upon Highfern a right to rescind for failure on the part of the Sibbles to pay moneys due under the contract. The further particulars of Highfern's statement of claim, so the argument continued, established that the breach of contract relied upon by Highfern for the purposes of rescission was the Sibbles' failure to pay moneys due under the contract. And before a contract can be determined for the non-payment of moneys due under it, so it was said, a notice under s.72 must be given.

18. That argument, in our view, adopts too narrow an approach. The first thing to be noticed is that the power of termination given by cl.11 of the contract may be exercised not only for default in the payment of sums due, but also for failure to comply with any agreement contained in the contract. Then it is to be observed that the letter dated 20 November 1984 specified as the basis for rescission the continuing failure of the Sibbles to complete the contract. The allegation of rescission contained in the amended pleadings was made by reference to the letter dated 20 November 1984. That letter in turn referred to an earlier letter dated 5 November 1984 alleging a failure on the part of the Sibbles to fulfil their obligations and a refusal to complete settlement of the contract. Putting to one side the further particulars, it is clear enough that what Highfern was relying upon as the basis for its rescission of the contract was not the failure to pay any instalment or sum of money due under the contract, but the Sibbles' repudiation of, or refusal to be bound by, the contract. Default in the payment of moneys constituted evidence of this, but it was not the only evidence by any means of the Sibbles' rejection of any further obligations on their part.

19. The further particulars of the statement of claim which were requested on behalf of the Sibbles were the "precise breach of contract alleged ... to give a right of rescission" and, whilst in supplying the particulars sought it may have been prudent for Highfern to have alleged repudiation by a general refusal to be bound by the contract as well as specific breaches of the terms of the contract, the form of the request explains, in our view, why the particulars given were confined as they were. The request asked for particulars of the precise breach alleged, whereas the relevant allegation in the statement of claim went beyond breach of a particular term or terms of the contract to assert a general refusal to be bound. At all events, it is clear that at the trial of the action the case put by Highfern was not restricted in the way in which it is now suggested that it should have been. The learned trial judge found that the Sibbles had repudiated the contract by demonstrating their intention no longer to be bound by it. In so finding, he relied upon the Sibbles' insistence that they had put an end to the contract and upon the proposition that "a continued long failure to complete will amount to a refusal to be bound by the contract": Ogle v. Comboyuro Investments Pty. Ltd. (1976) 136 CLR 444, at p 458. The finding was amply justitied by the evidence.

20. It was pursuant to cl.11 of the contract that Highfern purported to exercise its right of rescission. In the circumstances it would appear to have been unnecessary for it to have confined itself to its remedy under the contract (cf. Holland v. Wiltshire (1954) 90 CLR 409), but the clause is sufficiently general in its wording to cover rejection of the contract as a whole as well as specific breaches. Perhaps if the repudiatory conduct alleged had been no more than default in the payment of moneys due under the contract, then there may have been some foundation for the contention that non-compliance with a properly served notice under s.72(1) of the Property Law Act was required before Highfern was entitled to rescind. But the repudiation found by the trial judge went beyond default in the making of payments. He found that the "continuing failure of the Sibbles to complete the contract, and their persistence in wrongfully contending that they had rescinded the contract in answer to the vendor's claim for specific performance, 'amounted to an intimation of their intention to have no more to do with the purchase'". Of course there was considerable evidence, at least in relation to the period prior to 5 November 1984, that Highfern had elected to require continued performance of the contract notwithstanding the repudiatory intention fo the Sibbles. However this did not eliminate Highfern's right ultimately to terminate for repudiation. The Sibbles' repudiation continued to operate in the absence of retraction by them. In these circumstances it cannot be said that the termination of the contract by Highfern was by reason of default on the part of the purchaser in payment of any instalment or sum of money due and payable under the contract, so that a notice under s.72(1) was required. It was upon the refusal of the Sibbles to be bound by the contract that Highfern based its rescission and in establishing that refusal it relied upon, and was entitled to rely upon, all of the circumstances from which the necessary inference could be drawn. But it was upon the renunciation of the contract as a whole and not the breach of a specific provision or provisions that Highfern elected to treat the contract as at an end.

21. We would dismiss the appeal.

BRENNAN J. Section 73(1) of the Property Law Act 1974-1978 (Q.) provides that a "vendor under an instalment contract shall not without the consent of the purchaser ... mortgage the land the subject of the contract", and s.73(2)(a) confers on the purchaser a right to avoid the contract "(w)here land is mortgaged in contravention of this section". A vendor who mortgages land in contravention of the section is guilty of an offence: s.73(2)(b). The question in this case is whether s.73(1), when it commands a vendor not to "mortgage the land", forbids the giving of a bill of mortgage or whether it forbids the creation of a charge pursuant to such an instrument. (As the land in this case was under the real Property Act 1861-1981 (Q.), the bill of mortgage had effect only as a security for the money intended to be thereby secured and the land was merely charged with the payment of that money: Real Property Act, ss.3, 60). The distinction between the giving of a bill of mortgage and the creation of a charge pursuant to it is critical in this case. The relevant bill of mortgage was given to the Australia and New Zealand Banking Group Limited ("the bank") by the vendor (the respondent) before the purchasers (the appellants) entered into the instalment contract for the purchase of a strata title unit on 25 November 1981, a release of the strata title unit from the bill of mortgage was executed on 5 January 1982 and between those dates the vendor went from credit into overdraft and the amount of the overdraft was secured under the bill of mortgage.

2. The bill of mortgage contained in a covenant for the payment on demand of the "the amount or balance which shall for the time being be owing or unpaid" and it stood as "a continuing security for the due payment of all the principal interest and other moneys hereby secured and for the time being remaining unpaid" to the bank. By the general law, if not by the express terms of the bill of mortgage, no charge was creatd pursuant to the bill of mortgage until there was a debt to be secured. Thus in Robertson v. Grigg (1932) 47 CLR 257, at p 271, Dixon J. said that the equitable charge in that case "would operate in respect of each separate advance only from the date when it was in fact made". That was a case where the charge was alleged to create a preference void against the chargor's trustee in bankruptcy under s.95 of the Bankruptcy Act 1924 (Cth). The claim of voidable preference failed because the debt and the charge came into existence contemporaneously. As Dixon J. pointed out:

"A charge was created in favour of the respondent in respect of each such advance as it was made, but the creation of the charge cannot be a preference within sec.95 because it did not operate to prefer him in respect of any then existing debt."

In London and County Banking Company v. Ratcliffe (1881) 6 App Cas 722, the question arose whether the title of a purchaser of property who knew that his vendor, prior to contract, had deposited the title deeds to the property with his banker to secure all sums then or thereafter to become due on the general balance of his account with the bank was affected by the charge when, before completion of the contract, the vendor had paid off the debt owing when the contract was made but the bank had thereafter made further advances without the purchaser's knowledge. Lord Selborne L.C. said (at p.729):

"Until these advances were actually made there was not, and there could not be, any existing charge for them; and even if such a charge arose as between Batten (the vendor) and the Bank, when they were in fact made, this was not a charge of which notice by anticipation can be imputed to the Respondent". (Emphasis added.)

3. A charge cannot exist unless the debt or liability to be secured is in existence: there may be an agreement that property be charged with the payment of a future debt, but there is no charge until the debt exists. The giving of a bill of mortgage over land is sometimes said to be the mortgaging of the land even though the debt or liability to be secured has not come into existence, but the giving of an instrument which can have effect "only as a security for the sum of money ... intended to be thereby secured" (s.60, Real Property Act) is not effective to create a charge until there is a sum of money intended to be thereby secured: until that time, there is nothing charged on the land. The bill of mortgage was given by the appellants to secure the payment of any "amount or balance ... owing or unpaid". When the bill of mortgage was given nothing was "owing or unpaid". There was no burden on the land at that time. There was no charge on the land until the vendor's account went into overdraft.

4. But this conclusion may not determine whether the vendor has mortgaged the land in contravention of s.73(1). That question depends on the meaning of "mortgage" in s.73. By s.71(2)(c) "mortgage" is defined - as a noun, not a verb - to include "any encumbrance or charge other than a charge attaching by the operation of any statutory enactment". The term "mortgage" is thus defined as the security itself not the instrument pursuant to which the security is created. If the definition in s.71(2)(c) is translated into s.73, the verb "mortgage" in the latter section must mean (in the case of a mortgage over land under the Real Property Act) "create a charge" not "give a bill of mortgage".

5. Counsel for the respondent raise a contrary contention: they point to the offence created by s.73(2)(b) as indicating that "mortgage" in s.73(1) means giving a bill of mortgage or other instrument of charge. As criminal liability under s.73(2)(b) can attach to the vendor only in respect of something he does, not in respect of something done by another or for an event which occurs independently of the vendor, counsel submit that the accruing of a debt intended to be secured by a mortgage already given cannot constitute the prohibited act of mortgaging. It is submitted that a vendor cannot be guilty of a criminal offence if, for example, a debtor whose obligations he has guaranteed fails to meet them and the vendor's contingent liability under the guarantee is secured by a bill of mortgage already given; nor could the vendor be guilty of a criminal offence if the amount secured by mortgage is increased by the addition of interest on the principal sum. I would agree that some act on the part of the vendor is essential to the commission of an offence under s.73(2)(b), but it does not follow that the requisite act is the giving of an instrument. Any act on the part of a vendor which results in the additional burdening of the land satisfies that requirement. If it were otherwise, the protection which s.73(2)(a) purports to confer on purchasers under an instalment contract would be largely illusory, for an all moneys mortgage which imposes no burden on the land when the contract is made might subsequently burden the land with the repayment of a sum which would strip the purchaser's interest of any value irrespective of the amount he had paid towards - or even in satisfaction of - the purchase price. The risk which s.73 seeks to avoid is the risk that a purchaser's interest in the land will be postponed to the interest of a mortgagee, and that is a risk which is not avoided if the vendor is at liberty to give a bill of mortgage prior to making the instalment contract and subsequently borrowing money on the security of the mortgage. A construction which is so destructive of the manifest object of s.73 should not be adopted in the absence of a compelling text. Far from compelling that construction, there is nothing in s.73(2)(b) which warrants a refusal to apply the definition of the noun "mortgage" in s.71(2)(c) to the verb "mortgage" wherever it appears in s.73. It follows that the vendor's drawing upon its overdraft facility so as to burden the land with the payment of $119,194.77 charged or mortgaged the land in contravention of s.73.

6. This construction is consistent with the judgment of the Privy Council in Coast Securities No. 9 Pty. Ltd. v. Bondoukou Pty. Ltd. (1986) 61 ALJR 285; (1986) 69 ALR 385. There the vendor had given an all moneys mortgage to secure an advance to develop a site by, inter alia, erecting a building to be known as "Princess Palm". $9,250,000 had been advanced. After making an instalment contract in respect of a unit in that building, the vendor requested from the mortgagee a further advance of $18,300,000 to construct a second building to be known as "Royal Palm". A deed of variation, containing a convenant to apply the advance to the construction of the Royal Palm building was executed. The further advance was made. The deed contained cl.10 in these terms:

" These presents are collateral to the said Bill of Mortgage and the moneys hereby secured include the moneys expressed in and intended to be secured by the said Bill of Mortgage and it is hereby agreed and declared by the Mortgagor and the Guarantors that the second said sum is included in the definition of the principal sum as more particularly set out in the said Bill of Mortgage." (At p.286; p.387.)

Their Lordships rejected an argument that there had been no contravention of s.73, saying (at p.288; p.390):

" Turning then to the argument that there was no infringement of the prohibition in s.73 because the deed of variation did not constitute a 'mortgage' occurring after the date of the contract but was merely a consensual variation of the pre-existing bill of mortgage, their Lordships find themselves wholly unpersuaded that this propostition is tenable quite apart from authority. It is true that the bill of mortgage secured all sums becoming due to the lender but it is, in their Lordships' view, quite unarguable that the advance, pursuant to the deed of variation, of a further $18,300,000 to cover the cost of a new building did not constitute a further charge on the land and thus a mortgage as defined in s.71(2)(c) of the Act. Prior to the deed of variation the land was not charged with this sum. Afterwards it was. This hardly requires to be supported by authority but if any is required it is to be found in the decision of the Full Court of the Supreme Court of Queensland in Landers v. Schmidt which is, in all material respects, indistinguishable from the instant case."

This passage is ambiguous in respect of the issue raised by the present case: their Lordships refer to "the advance, pursuant to the deed of variation, of a further $18,300,000" as constituting "a further charge on the land", but then proceed to compare the charges on the land prior to and after the deed of variation. Of course, in that case, as in Landers v. Schmidt (1983) Qd R 188, the making of the further advance and the giving of the further instrument of charge were contemporaneous, and it was immaterial whether the creation of the forbidden further charge was the result of the making of the further advance or of the giving of the further instrument or of both. Although the construction which I would attribute to s.73 is consistent with these cases, I do not think that either of them supports or denies the opposing contentions as to the construction of s.73.

7. The appellants refused to complete the contract on grounds other than s.73, but the question whether that refusal was justified does not depend on the reason put forward by the appellants; it depends on whether the appellants were entitled, by reason of the contravention of s.73, to refuse to complete: Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 CLR 359, at pp 371, 378. Counsel for the respondent submitted that the right to avoid an instalment contract for contravention of s.73 was temporally limited to the period during which the land "is mortgaged" - the words of s.73(2) - and cannot be exercised after the land has been exonerated from the charge. But the words "is mortgaged" appear in the introductory words of s.73(2) which state the condition on the occurrence of which the right of avoidance conferred by par.(a) arises, and that right of avoidance is expressed to be available "at any time before completion". The introductory words of s.73(2) also govern par.(b), that is, they prescribe when the vendor "shall be guilty" of the offence thereby created. It would be absurd to think that the vendor is guilty of an offence under par.(b) only for so long as the land is mortgaged. The words "is mortgaged" prescribe an element of the offence, and that element is established by any mortgaging of the land, for whatever time the land may be charged. It follows that, in my opinion, the appellants validly avoided the contract.

8. The consequence is that the appellants were entitled in equity to recover the purchase money they had paid under the contract subject to an adjustment in respect of the possession they had enjoyed unless that adjustment is balanced by the interest paid on the purchase price: McDonald v. Dennys Lascelles Ltd. (1933) 48 CLR 457, at pp 477-478; Real Estate Securities Ltd. v. Kew Golf Links Estate Pty. Ltd. (1935) VLR 114, at pp 120, 123; Hodder v. Watters (1946) VLR 222, at pp 231-232. In Landers v. Schmidt, the purchasers' claim to recover the amounts they had paid towards the purchase price was rejected on the ground that, as they had been given possession before conveyance, they could not show a total failure of consideration. This led the Court to hold that the purchaser could not recover what he had paid on a common money count. For a reason which does not appear, the Court did not consider the relief to which a purchaser is entitled in equity when a contract for the sale of land goes off before conveyance: see p 198. If Landers v. Schmidt were correct in refusing a purchaser any relief by way of return of the purchase price once the purchaser has been in possession, the protection which s.73 confers on a purchaser would often be illusory: the consequence of exercising the right of avoidance which s.73 confers in order to protect the purchaser's interest would be the loss of both the interest and the payments made towards the purchase price. In respect of the purchaser's right to return of the purchase price, Landers v. Schmidt cannot be supported. In my opinion, the appellants were entitled to equitable relief in respect of what they had paid under the contract.

9. I would allow the appeal, set aside the judgment of the Full Court, allow the appeal to that Court, declare that the appellants had validly avoided the contract and remit the matter to the Supreme Court to ascertain the amount to which the appellants are entitled in consequence of the avoidance of the contract.

Orders

Appeal dismissed with costs.