Yang Bai v Watson Elite Pty Ltd - [2022] NSWSC 318

Supreme Court

New South Wales

Medium Neutral Citation: Yang Bai v Watson Elite Pty Ltd [2022] NSWSC 318
Hearing dates: 28 February 2022
Date of orders: 23 March 2022
Decision date: 23 March 2022
Jurisdiction: Equity
Before: Darke J
Decision:
Plaintiff entitled to judgment against second defendant but fails against third defendant. Funds in Court to be paid out to third defendant.

Catchwords:
REAL PROPERTY – securities – rights of a subsequent encumbrancer as against a prior encumbrancer – rights to enforce rights and equities of mortgagor against mortgagee – where plaintiff held an equitable charge over the property – where defendant held a registered mortgage over the property – whether the principle that a subsequent mortgagee can enforce the mortgagor’s rights or equities against a prior mortgagee applies in the case of an equitable charge and a registered mortgage – plaintiff held to have standing to enforce mortgagor’s rights and equities against the defendant
MORTGAGES – equity of redemption – clogs on the equity of redemption – where mortgage contained an option for the mortgagee to purchase the mortgaged property following failure of mortgagor to repay – whether the option to purchase constituted a clog on the mortgagor’s equity of redemption – whether the option to purchase was penal in nature – whether the option to purchase was unfair and unconscionable

Legislation Cited:
Real Property Act 1900 (NSW), s 74O, Div 3, Pt 7

Cases Cited:
Bonanno v Finamore [2021] NSWSC 1558
Chang v Registrar of Titles (1976) 137 CLR 177
G & C Kreglinger v New Patagonia Meat & Cold Storage Company Ltd [1914] AC 25
Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd (2015) 89 NSWLR 237; [2015] NSWCA 100
King Investment Solutions Pty Ltd v Hussain (2005) 13 BPR 25,077; [2005] NSWSC 1076
Lift Capital Partners Pty Ltd (in liq) v Merrill Lynch International (2009) 73 NSWLR 404; [2009] NSWSC 7
Lysaght v Edwards (1876) 2 Ch D 499
Mainland v Upjohn (1889) 41 Ch D 126
Melbourne Banking Corporation v Brougham (1882) 7 App Cas 307
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28
Re Funds in Court; Application of Mango Credit Pty Ltd [2016] NSWSC 199
Re Modular Design Group Pty Ltd (Receiver and Manager Appointed) (in liq) (1994) 35 NSWLR 96
Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320
Sun North Investments Pty Ltd v Dale [2014] 1 Qd R 369; [2013] QSC 44
Van Den Bosch v Australian Provincial Assurance Association Ltd (1968) 88 WN (Pt 1) (NSW) 357
Wallace v Evershed [1899] 1 Ch 891
Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194
Westpac Banking Corporation v Daydream Island Pty Ltd [1985] 2 Qd R 330

Category: Principal judgment
Parties: Yang Bai (Plaintiff)
Watson Elite Pty Ltd (First Defendant)
Liangjie Chen (Second Defendant)
Brick International Pty Ltd (Third Defendant)
Representation:
Counsel:
Mr D…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NSWSC 318
Decision Date: 23 March 2022

CaseChat Overview and Summary

Yang Bai, the plaintiff, brought a claim against Watson Elite Pty Ltd, the defendant, in the Federal Circuit Court, challenging the enforceability of a mortgage held by the defendant over a property previously subject to an equitable charge held by the plaintiff. The dispute centred on the rights of a subsequent encumbrancer against a prior encumbrancer, specifically whether the plaintiff could enforce the rights and equities of the mortgagor against the defendant, who held a registered mortgage over the same property. Additionally, the case examined whether an option contained in the mortgage for the mortgagee to purchase the property in the event of the mortgagor’s failure to repay constituted a clog on the equity of redemption, and if such an option was penal in nature and therefore unfair and unconscionable.

The court had to decide whether the principle that a subsequent encumbrancer can enforce the mortgagor’s rights against a prior encumbrancer applied in this context, where the plaintiff held an equitable charge and the defendant held a registered mortgage. The court also needed to determine if the option for the mortgagee to purchase the property following the mortgagor’s default was a clog on the equity of redemption, and if it was unfair or unconscionable. These issues were crucial in determining the validity of the defendant's mortgage and the extent to which the plaintiff could enforce the rights of the mortgagor.

The court held that the plaintiff did have standing to enforce the mortgagor’s rights and equities against the defendant, despite the defendant’s registered mortgage. The court reasoned that the principle allowing a subsequent encumbrancer to enforce the mortgagor’s rights applied even when one encumbrance is equitable and the other is registered. Furthermore, the court found that the option to purchase contained in the mortgage did not constitute a clog on the equity of redemption, nor was it penal in nature. The court concluded that the option was a legitimate commercial arrangement and did not render the mortgage unfair or unconscionable.

The court’s decision was that the plaintiff, Yang Bai, could enforce the mortgagor’s rights against the defendant, Watson Elite Pty Ltd. The option to purchase in the mortgage was not found to be a clog on the equity of redemption or penal in nature. The court's ruling allowed the plaintiff to proceed with enforcing the rights and equities of the mortgagor against the defendant, subject to the terms of the court's findings on the clogs and the nature of the option to purchase.

Orders