Westpac Banking Corporation v Etex Australia Pty Ltd

[2025] NSWSC 91

Supreme Court

New South Wales

Medium Neutral Citation:

Westpac Banking Corporation v Etex Australia Pty Ltd [2025] NSWSC 91

Hearing dates:

20 February 2025

Date of orders:

20 February 2025

Decision date:

20 February 2025

Jurisdiction:

Equity - Real Property List

Before:

Pike J

Decision:

(1)   DECLARES that the plaintiff (Westpac) is subrogated to the rights afforded by the mortgage held by Perpetual Trustee Company Limited, registered as dealing 9954581 (PTCL Mortgage), on the title of the property of the land comprising of X Peppercorn Avenue, Fairfield NSW (XXX/1025302) (Property).

(2)   ORDERS that the sixth defendant (the Registrar General) do all acts and things necessary to transfer the PTCL Mortgage to Westpac.

(3)   DECLARES that the PTCL Mortgage secures the repayment to Westpac of the following amounts:

(a)   the sum of $176,935.92;

(b)   interest on the sum stated in declaration 3(a) above, from 19 February 2025 onwards, at the interest rate provided in the loan agreement between Westpac and Zhi Li and Olga Otean executed on 20 February 2018 (Westpac Loan);

(c)   charges and expenses incurred by Westpac in connection with the Westpac Loan, including Westpac’s costs of these proceedings on an indemnity basis; and

(d)   all other amounts which Zhi Li and Olga Otean become liable to pay Westpac pursuant to the terms of the Westpac Loan and/or the PTCL Mortgage.

Catchwords:

EQUITY – subrogation – lender advances money on basis that it would receive registered mortgage over property – due to irregularities in transaction lender unable to have its mortgage registered – lender claims entitlement to be subrogated to existing mortgage – appropriate case for subrogation orders to be made – no question of principle

Legislation Cited:

Nil

Cases Cited:

Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCCA 393

Australia and New Zealand Banking Group Ltd v Whitehall [2020] NSWSC 489

Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291

Highland v Exception Holdings Pty Ltd (in liq) and Another [2006] NSWCA 318

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Westpac Banking Corporation (plaintiff)
Etex Australia Pty Ltd (first defendant)
Shift Finance Australia Pty Ltd (formerly Business Loans Pty. Ltd.) (second defendant)
James Hardie Australia Pty Ltd (third defendant)
Danny Vrkic, Trustee for bankrupt estate of Zhi Li (fourth defendant)
Olga Otean (fifth defendant)

Representation:

Counsel:
J Foley (plaintiff)

Solicitors:
Dentons (plaintiff)

File Number(s):

2024/00371143

Publication restriction:

Nil

JUDGMENT - ex tempore (revised from transcript)

1. By Summons filed 8 October 2024, the Plaintiff (Westpac) seeks declarations and orders with respect to a claim in subrogation in relation to a property located at X Peppercorn Avenue Fairfield New South Wales (Property).

2. The essence of the relief sought by Westpac is that it seeks to be subrogated to the rights afforded by a mortgage held by an earlier mortgagee, Perpetual Trustee Company Limited, in circumstances where Westpac paid out the Perpetual Mortgage and took its own mortgage, but was unable to register its mortgage on title.

3. In support of the relief sought in the Summons, Westpac relies upon the following evidence:

1. affidavit of Yvonne Chan of 3 October 2024;

2. affidavit of service of Talysha Sabatino of 27 October 2024;

3. the affidavit of service of Connor Morton of 6 November 2024; and

4. an updating affidavit of debt of Yvonne Chan of 19 February 2025.

4. In addition, Westpac relies upon certain documents which I have marked as exhibit A on the hearing.

5. All other interested parties have been served with the Summons and supporting affidavit. No interested party has indicated any opposition to the relief sought by Westpac in its Summons. The proceedings were called outside court this morning and there was no appearance by any other party.

6. For the reasons that follow, I am satisfied that the Court should grant the relief sought by Westpac. What follows is based heavily on the written submissions provided by Mr Foley of counsel in support of the relief sought.

Relevant facts

7. The registered proprietors of the Property are Zhi Li (Mr Li) and Olga Otean (Ms Otean).

8. On 2 February 2010, Perpetual Trustee Company Limited (PTCL) registered a first mortgage on the title to the Property, being mortgage numbered 9954581 (PTCL Mortgage), which secured amounts owed to PTCL by Mr Li and Ms Otean.

9. On 15 February 2018, Westpac entered into a loan agreement with Mr Li and Ms Otean (Westpac loan). Under the terms of the Westpac loan:

1. the predominant purpose of the Westpac loan was to refinance the PTCL loan;

2. the Westpac loan was to be secured by a mortgage over the Property.

10. At the time the Westpac loan was entered into, there was one caveat over the Property, being the caveat lodged by Etex Australia Pty Ltd, being caveat number AM397447 (Etex Caveat).

11. Following the execution of the Westpac loan, Westpac obtained:

1. a signed mortgage in favour of Westpac (Westpac Mortgage); and

2. a signed letter of consent from Etex regarding the registration of the Westpac Mortgage.

12. On 19 June 2018, Westpac advanced $217,942.37 to PTCL in exchange for an executed discharge of the PTCL Mortgage (PTCL Discharge) and the Certificate of Title to the Property.

13. On attempting to register the PTCL Discharge and the Westpac Mortgage, Westpac discovered that a further caveat had been lodged on title to the Property by a company formerly known as Shift Finance, being caveat numbered AN323979. This caveat prevented the PTCL Discharge and Westpac Mortgage from being registered. Westpac subsequently lodged a caveat over the Property on 9 August 2018.

14. The next day, 10 August 2018, a further caveat lodged on title by James Hardie Australia Pty Ltd.

15. On 2 June 2020, Mr Li was made bankrupt and Danny Vrkic was appointed as Mr Li's trustee in bankruptcy (Trustee). As Westpac's claim in subrogation arose prior to Mr Li becoming a bankrupt, and noting Mr Li's interest in the Property vested in the Trustee upon Mr Li's bankruptcy, the Trustee is obviously an interested party and has been named as a defendant to these proceedings.

16. The evidence discloses that prior to commencing these proceedings, Westpac wrote to Shift and James Hardie on multiple occasions seeking to resolve the issue of priority by agreement (by entering into an appropriate deed). No response to these communications were received from Shift or James Hardie.

17. These proceedings were commenced by Westpac on 8 October 2024. As to that above, following commencement of the proceedings Westpac served the Summons and supporting affidavit on each of the defendants, including Shift and James Hardie.

18. On 8 November 2024, Mr Vrkic as Trustee for Mr Li provided signed consent orders consenting to the relief sought by Westpac in the proceedings. No other defendant has taken any part in the proceedings or indicated any opposition or objection to the relief sought by Westpac.

Determination

19. The relevant principles relied upon by Westpac on the application were helpfully discussed and analysed by Darke J in Australia and New Zealand Banking Group Ltd v Whitehall [2020] NSWSC 489.

20. Darke J's judgment stands for the following propositions:

1. a well-recognised area in which the doctrine of subrogation operates is where a creditor pays out a prior security (at [42]);

2. it is not open to doubt that where a third party pays off a mortgage that third party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for the third parties own benefit (at [43]). There is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be effected so as to cause the mortgage to be kept alive (at [44])

3. where A's money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B's rights as a secured creditor.

21. In circumstances where a lender bargains for a first registered mortgage but receives only an equitable charge or mortgage (which is to say an unregistered charge or mortgage), the lender will not have obtained the security it bargained for and the doctrine of subrogation will apply; (see Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291, as cited in Highland v Exception Holdings Pty Ltd (in liq) and Another [2006] NSWCA 318 at [107]-[108]).

22. Insofar as issues of priority may arise, it is clear that a claimant that is entitled to be subrogated is to have the benefit of the same priority as the prior security; see Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393 at [90].

23. All of the above illustrates the settled legal principle that a lender will be entitled to be subrogated to the rights of a prior secured creditor (that is, be treated as having been assigned the rights of a prior creditor) where:

1. the lender has paid out the prior creditor, with the expectation that the lender would have obtained security; and

2. the lender has, for some reason, not received the security bargained for.

24. The facts of the present case are a paradigm example of the circumstances in which the doctrine of subrogation applies.

25. In the present case:

1. Westpac advanced funds to PTCL on the expectation that it would receive a first registered mortgage over the Property;

2. Westpac did not obtain the security it bargained for, as it was not able to register the Westpac mortgage; and by that

3. It would be unconscionable to deny Westpac's right to subrogate to the position of the PTCL Mortgage to secure the amount advanced by Westpac to PTCL, plus interest on those amounts.

26. In respect of interest, Westpac recognises that under the doctrine of subrogation it is not entitled to be placed in any better position than it would have been had it obtained the bargain for security. Accordingly, Westpac only seeks interest on the amount it paid to PTCL in accordance with the terms of the Westpac loan agreement, being the rate that would have applied had Westpac obtained its bargain for security, and taking into account amounts related to Westpac since the advance.

27. For these reasons, I am satisfied that it is appropriate for the Court to make the orders sought by Westpac.

28. Accordingly, the orders of the Court are:

1. DECLARES that the plaintiff (Westpac) is subrogated to the rights afforded by the mortgage held by Perpetual Trustee Company Limited, registered as dealing 9954581 (PTCL Mortgage), on the title of the property of the land comprising of X Peppercorn Avenue, Fairfield NSW (XXX/1025302) (Property).

2. ORDERS that the sixth defendant (the Registrar General) do all acts and things necessary to transfer the PTCL Mortgage to Westpac.

3. DECLARES that the PTCL Mortgage secures the repayment to Westpac of the following amounts:

1. the sum of $176,935.92;

2. interest on the sum stated in declaration 3(a) above, from 19 February 2025 onwards, at the interest rate provided in the loan agreement between Westpac and Zhi Li and Olga Otean executed on 20 February 2018 (Westpac Loan);

3. charges and expenses incurred by Westpac in connection with the Westpac Loan, including Westpac’s costs of these proceedings on an indemnity basis; and

4. all other amounts which Zhi Li and Olga Otean become liable to pay Westpac pursuant to the terms of the Westpac Loan and/or the PTCL Mortgage.

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Decision last updated: 21 February 2025