Rights of the mortgagor and mortgagee PDF

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Property Law B - LLB254 Assignment Topic A – I

INTRODUCTION

One of the most important freedoms enacted in the Constitution is under consequence of section 51(xxxi), 'the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws'. 1 This provides the primary protection for all real property owners in Australia. Ann has proposed a fairly simplistic, one size fits all view of the law relating to property on a national scale, whereas while agreeing as a generalisation, I would argue that the synergy of legislation under the Transfer of Land Act 1893 (WA) (TLA) and the Property Law Act 1969 (WA) (PLA) combined with Australian case law provides valuable examples when the rights of the mortgagor and mortgagee have been adequately protected. Considering judicial decisions that found for the mortgagor, the case of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Chief Justice Gibbs stated that ‘The appellant should in my opinion fail only because of its failure to disclose to the respondents matters which it ought to have disclosed, which is that the guarantee was precarious with the state of the bank account of the son at the time he arranged for his parents to place their property in guarantee’. 2 This is demonstrable decision of the High Court of Australia (HCA) where the submission of the appellant and respondent were knocked together and ultimately the truth came out in favour of the mortgagor regarding the conduct of the mortgagee.

II

PUBLIC POLICY

Essentially the concept of the law of property can boil down to matters of social, economic and legal public policy, where the rights of title of true owners are preserved under the appropriate legislation. If the mortgagor has used the ownership of their property as consensual security, then under the PLA they have adequate protection.

It is for the

continued growth of society that the rights of parties, mortgagor and mortgagee are preserved. It is imperative to note that the name on the Certificate of Title 3 is not transferred when a security of mortgage is undertaken. In the Torrens system the mortgage is taken by way of charge, which enables possession of the property by the mortgagor until the debt is repaid. If the mortgagor defaults on the commercial terms of the mortgage, then this will allow the mortgagee certain course of action under the PLA and associated remedies. The mortgage must comply with the National Consumer Credit Protection Act 2009.4 1 Australian Constitution s 51. 2 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at [20]. 3 Transfer of Land Act 1893 (WA) s 58. 4 National Consumer Credit Protection Act 2009 schedule 1 s 42. 1

Property Law B - LLB254 Assignment Topic A –

During the Global Financial Crisis, the WA Parliament introduced 5 the Property Law (Mortgagee's Power of Sale) Amendment Bill 2009, which was tabled before the Parliament in order ‘to protect the financial interests of people in the Western Australian community who find themselves unable to maintain the repayments on their home mortgages’. 6 This Bill was commended to the house to reflect similar positions in New South Wales (NSW) and Queensland (QLD) to prevent ‘firesales’ and to include a statutory duty to sell mortgaged property at market value. This Bill continued in the House for a number of years and in the Legislative Council meeting on Thursday, 3 November 2011, the Bill was not passed. Consequently, the PLA was not amended and s 57 of the PLA remained for the implied powers of mortgagees regarding sale of properties when the mortgagor was in default.

III

RIGHTS OF THE MORTGAGOR

In WA the Torrens systems confers, upon registration, legal rights to the mortgagor. In order to acquire real property, the mortgagor needs to enter into a mortgage to borrow funds from the mortgagee. This creates a legal interest in the land for the mortgagor and an equitable interest in the property by the mortgagee provided that the mortgage is registered. 7 Once the mortgage is registered the mortgagee has a legal right in the real property.

Underlying the legal interest in the real property is the right to redemption of the mortgagor even though the mortgagor may have breached their contractual right. In the article by Joan Squelch she raises a valid point, ‘Inevitably when this happens there is tension between the rights and interests of mortgagors and mortgagees, with mortgagors needing to get the best possible price for their home and mortgagees simply wanting to settle the debt as quickly as possible’.8

It is difficult to legislate for the economic rise and fall of the property market and as such the current state of the synergy between the TLA and PLA in WA adequately ensure that the mortgagor’s right of redemption is protected. 9 This was held in Re Forrest Trust; Trustees, Executors & Agency Co Ltd v Anson [1953] VLR 869 where although the mortgagee was in 5 Introduced by Hon. Dr Sally Talbot, MLC. 20 August 2009. 6 Legislative Council Hansard WA, Thursday, 20 August 2009. 7 Transfer of Land Act 1893 (WA) s 106. 8 Joan Squelch, ‘Mortgagees’ Power of Sale and the Duty to Sell at Market Value’ (2009), The Finance Industry, Vol 11. 9 Property Law Act 1958 s 91. 2

Property Law B - LLB254 Assignment Topic A – possession the right of redemption was upheld by the Victorian Full Court and confirmed that if the full payment of the mortgage was made then the mortgagor has discharged their obligation, freeing the land of the mortgage. 10 In a recent Supreme Court of WA decision of Serventy -v- Commonwealth Bank of Australia [2016] WASCA 86, the appellants were successful in their request for a stay on proceedings 11 on the basis that Murphy JA had to ascertain ‘as to whether an intermediary who arranged the loan from the bank was an agent of the bank who had engaged in misleading or deceptive conduct or unconscionable conduct’. 12 This approach is similar to the courts approach in Amadio and demonstrates adequate recent protection of the mortgagor’s rights in WA.

IV

RIGHTS AND OBLIGATIONS OF THE MORTGAGEE

The rights of the mortgagor and mortgagee was discussed in the article published in the Australian Property Law Journal (APLJ) authored by Jeanette Barbaro and Mark Hilton in 2009 16 APLJ 200, 13 where they discuss that although the mortgagor is in default certain process needs to be followed to ensure that all statutory obligations are met, prior to the mortgagee exercising their power of sale. In Western Australia, for instance, s 57 of the PLA confers a statutory power of sale. As discussed in the previously referred hansard of 2011 regarding the bill that was not passed, the mortgagor can exercise their legal rights however; it has been held in the HCA in Forsyth v. Blundell [1973] HCA 20 at 481,14 that a mortgagee has obligations to ‘act in good faith’. Menzies J referred to previous decisions and concluded ‘Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith’.15

The difficulty that mortgagors have is the economic climate that exists at the time of default and subsequent time of sale. Whilst it is imperative that the mortgagee conduct themselves appropriately and ensure that they attain the ‘good faith’ economic price for the mortgagor, the mortgagee needs to protect their liability. I do not think that the mortgagee’s liability should extend to doing everything that satisfies the mortgagor’s financial position in their 10 Re Forrest Trust; Trustees, Executors & Agency Co Ltd v Anson [1953] VLR 869. 11 Serventy -v- Commonwealth Bank of Australia [2016] WASCA 86. 12 Serventy -v- Commonwealth Bank of Australia [2016] WASCA 86 at [4]. 13 Mark Hilton and Jeanette Barbaro, ‘Managing the Mortgagor and Mortgagee Relationship’ (2009) 16 Australian Law Journal 204. 14 Forsyth v Blundell [1973] HCA 20. 15 Forsyth v Blundell [1973] HCA 20 at [2].

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Property Law B - LLB254 Assignment Topic A – favour. An appropriate legal balance for both parties is required. The courts have had cases before them on this issue and consequently the result in Amadio and Forsyth provide comfort that the WA legislation and National Consumer Protection rights are of sufficient standard to ensure commerce may progress for acquisition of real property by mortgagors, but not at the expense of mortgagee’s that have complied with their legal obligations.

V

CONCLUSION

Ann’s position reflects a considered view of the law of property relating to mortgagor’s in Western Australia. Common law and legislation have evolved to resolve many incarnations of the disputes arising between mortgagors and mortgagees. While the law isn’t perfect, it generally aims to resolve these cases to the betterment of good social, economic and legal public policy. In conclusion, the legislation and decisions of the courts across Australia provide a robust reflection of the rights and obligations in the Torrens system of both parties. The case law has tested this and as such I do not think that legislative intervention to provide further protection to mortgagors should be advanced.

WORDS: 1493 – NOT INCLUDING FOOTNOTES AND BIBLIOGRAPHY.

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Property Law B - LLB254 Assignment Topic A – VII

BIBLIOGRAPHY

A

Articles / Books / Hansard / Reports

Hilton, Mark and Barbaro, Jeanette, ‘Managing the Mortgagor and Mortgagee Relationship’ (2009) 16 Australian Law Journal 204. Squelch, Joan, ‘Mortgagees’ Power of Sale and the Duty to Sell at Market Value’, The Finance Legislative Council Hansard WA, Introduced by Hon. Dr Sally Talbot, MLC. 20 August 2009, Volume 11.

B

Cases

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. Forsyth v Blundell [1973] HCA 20. Re Forrest Trust; Trustess, Executors & Agency Co Ltd v Anson [1953] VLR 869 Serventy -v- Commonwealth Bank of Australia [2016] WASCA 86.

C

Legislation

Australian Constitution. National Consumer Credit Protection Act 2009 (Cth). Property Law Act 1969 (WA). Transfer of Land Act 1893 (WA).

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