St Kilda Road Pty Ltd v Parker Simmonds Securities Limited

[2001] VSC 412

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
PRACTICE COURT

No. 7801 of 2001

ST. KILDA ROAD PTY. LTD.	Plaintiff
v.
PARKER SIMMONDS SECURITIES LIMITED	Defendant

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JUDGE:	HARPER, J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	22 OCTOBER 2001
DATE OF JUDGMENT:	23 OCTOBER 2001
CASE MAY BE CITED AS:	ST. KILDA ROAD PTY. LTD. v. PARKER SIMMONDS SECURITIES LIMITED
MEDIUM NEUTRAL CITATION:	[2001] VSC 412

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CATCHWORDS:      Mortgages – Application for registration of second mortgages – Application for production of certificates of title – Term in contract with first mortgagee restricting right to further encumber the security – Whether first mortgagee entitled to rely on breach by the mortgagor as a reason for refusing to produce certificates of title – Transfer of Land Act 1958, s.86 – In re Armitage; ex parte Andrews (1891) 27 VLR 77 and Anthony v. Speed [1917] SALR 111 considered – Nia v. Phuong (1993) Butterworths Conveyancing Service 13,141 distinguished.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms. C. Sparke	M.V. Stapleton
For the Defendant	Mr. P.N. Wikrama	Vann Fisher & Associates

HIS HONOUR:

1. The plaintiff is the registered proprietor of the land described in Certificates of Title Volume 9725 Folio 426 and Volume 3425 Folio 979.  On 18 September 2000 the plaintiff mortgaged that land to the defendant.  Two instruments of mortgage were involved.  Each was registered at the Titles Office on 1 November 2000.  Each also incorporated (with irrelevant exceptions) the provisions contained in a Memorandum of Common Provisions retained by the Registrar of Titles and numbered AA342. By clause 1(2)(e)(iii) of those provisions, the moneys secured by each mortgage were immediately due and payable at the option of the defendant if the plaintiff, without the prior written consent of the defendant, executed any further security over the land.

1. The defendant itself obtained further security for the financial accommodation it agreed to provide for the plaintiff.  This, however, came with the requisite consent. On the same day as the plaintiff granted the two mortgages, it also granted two Deeds of Charge in favour of the defendant.  These were registered with the Australian Securities and Investments Commission on 20 September 2000.  By clause 3(3) of each deed, the plaintiff undertook (among other things) not without the prior written consent of the defendant to create any encumbrance subsequent to the charge.

1. In apparent breach of the terms of the charges, and perhaps also of the mortgages, the plaintiff has further encumbered the land. On 1 September 2001 it granted a mortgage to Vicki Kallis; and on the same day granted a separate mortgage to Witnall Pty Ltd. It seeks to have those mortgages registered on the respective certificates of title. Witnall Pty Ltd joins in that endeavour. By summons issued on 2 October 2001, the plaintiff seeks an order pursuant to s.86 of the Transfer of Land Act 1958 requiring the defendant to produce those certificates to the Registrar. Section 86 is in the following form:

"When any instrument subsequent to a first mortgage is made by the registered proprietor of any land and such proprietor or the person entitled to the benefit of the subsequent instrument desires registration of the subsequent instrument the first mortgagee if he holds the certificate of title concerned shall, upon being requested so to do by the proprietor or person entitled as aforesaid but at the cost of the person making such request, produce such certificate of title to the Registrar."

1. All the preconditions for the operation of this section are established on the evidence before me. An instrument subsequent to the first mortgage has been made by the registered proprietor of the land; such proprietor and one of the persons entitled to the benefit of the subsequent instrument (Witnall Pty Ltd) desire the registration of that instrument; the defendant as first mortgagee holds the certificates of title in relation to the land; and a request has been made by the plaintiff as proprietor to produce the certificates to the Registrar. It follows that, unless the section is subject to an implied exception operating when the proprietor has entered into a subsequent mortgage in breach of a contractual obligation owed by it to the first mortgagee, s.86 applies in the circumstances of this case.

1. The courts cannot by implication alter the plain words of an Act of Parliament. The words of s.86 are, it seems to me, plain. It might nevertheless be said that they confer a right on the plaintiff and do not expressly preclude it from bargaining that right away. Being private ‑ as opposed to public ‑ rights, moreover, they may be excluded by contract.

1. It seems to me that there is a difficulty with this argument. In my opinion, s.86 does not so much confer a right on a registered proprietor, as impose an obligation on a first mortgagee. If so, then it is not within the power of the first mortgagee to exclude by contract or otherwise that which Parliament has included. Only Parliament can, by appropriate words, insert exceptions into that which is otherwise the imposition of an obligation.

1. This, I think, is the answer to the contention that the courts will not assist a litigant to breach a contract or allow a litigant to profit from such a breach after its commission.  If Parliament by unequivocal words requires someone to do something once certain conditions are met, that person cannot avoid that obligation by demonstrating that it only arose on breach by someone else of a contract between the person in breach and the person under the obligation.  This is so, it seems to me, at least where, as here, the party not in breach will, even if the obligation is enforced, retain all its remedies:  the defendant in this case can still sue for damages and is not deprived of those advantages which are given to it by priority of registration.  One may in this context observe, although the matter is of peripheral relevance, that no evidence was put before me to indicate what advantage, if any, the defendant sought to secure by its restriction on the plaintiff's right to borrow further on the security of the properties once the defendant's  priority was established.

1. Those restrictions were by no means absolute.  By the Memorandum of Common Provisions, the defendant was given an option to call in all outstanding moneys should the plaintiff, without the written consent of the defendant, give any further security over the land; and by the terms of the charges the plaintiff promised that it would not, without the written consent of the defendant, create any subsequent encumbrance.  If such consent could not unreasonably be withheld, then it may well be (although the evidence on the point is far from conclusive) that the defendant could have been compelled to consent to each of the transactions about which it now complains.

1. Authorities concerned with the operation of s.86 of the Transfer of Land Act are few. While not directly on point, they cast no doubt on what seems to me to be the proper construction of that section. The plaintiff relied first on the early Victorian case of In re Armitage; ex parte Andrews (1891) 27 VLR 77. In that case Andrews called on his mortgagees to produce the relevant title documents for endorsement of a transfer from Andrews to his transferee. The mortgage deed provided that those documents should "at all times during the continuance of this mortgage remain in the custody of the mortgagees". A'Beckett J nevertheless directed their production. He held that s.134 of the Transfer of Land Act 1890, the predecessor to s.86, was not intended to deprive a mortgagor of the power of alienation. The contractual entitlement of the mortgagee to the custody of the title documents must therefore give way to the statutory power to require their production.

1. The South Australian case of Anthony v. Speed [1917] SALR 111 produced a like result. In May 1901, John Speed sold a crown lease to Charles and Thomas Mudge, who were then partners. The transfer was subject to a mortgage which was granted to Speed by the transferees to secure the balance of the purchase price. The mortgage contained a covenant by which Speed was entitled to retain the lease until the mortgage was discharged.

1. Speed died intestate in 1914.  The mortgage was then transmitted to the administrators of his estate.  In the following year, 1915, the Mudge partnership was dissolved.  Pursuant to the Deed of Dissolution, Charles executed a transfer to Thomas of his interest in the lease.  The administrators, however, refused to produce the lease to the Land Titles Office on the grounds that the value of their security would be seriously diminished by the transfer.

1. The Full Court of the Supreme Court of South Australia (Murray CJ and Gordon and Buchanan JJ) unanimously upheld an appeal from Gordon J who thus joined in overruling himself.  It was held by the court that the value of the security would not be diminished by the transfer, and "if the rights of the holder of the document cannot be prejudiced by the registration of another dealing he has no reasonable ground  ...  for objecting to produce it":  per Murray CJ at 119.  The Chief Justice added, at 120:

"The covenant, in my opinion, does not avail the respondents, for although the Act recognises that the mortgagee may properly have obtained the right to hold the document of title to the mortgaged property  ...  it does not allow him, merely on the ground of possession, to refuse to produce it to the Registrar‑General for the registration of subsequent dealings by the mortgagor."

1. My attention was drawn to only one authority which could be said to tend the other way.  In Nia v. Phuong, which is reported only in (1993) Butterworths Conveyancing Service 13,141, Young J of the Supreme Court of New South Wales had before him a registered first mortgage which provided that the mortgagor could not further encumber the property without the consent of the first mortgagee.  The mortgagor granted a second mortgage without consent.  The second mortgagee, who had not read the restrictive covenant, sought to register the second mortgage.  Young J refused the application.  He did so on the basis that, at trial, the second mortgagee would be likely to be found to have had constructive notice of the negative stipulation. The second mortgagee should therefore be restrained from registering the second mortgage pending further orders.

1. It appears from the judgment that the New South Wales equivalent of s.86 of the Victorian Transfer of Land Act was not considered by His Honour. It also appears that, in the absence of actual or constructive notice, the right of the second mortgagee to registration would not be affected by the negative stipulation.

1. There is no evidence before me that either of the two subsequent mortgagees in this case were aware of the relevant clauses in either the Memorandum of Common Provision or the Deeds of Charge. In these circumstances, it seems to me that both the proper construction of s.86 and the position of the subsequent mortgagees indicates that the relief sought by the plaintiff, or like relief, should be granted. I propose, subject to anything counsel might put to me, to order that the defendant produce to the Registrar of Titles the duplicate Certificates of Title Volume 9725 Folio 426 and Volume 3425 Folio 979.

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