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HSBC BANK SEEKS REMOVAL OF CAVEAT LODGED BY RESPONDENT AFTER NON-PAYMENT OF MORTGAGE DEBT

HSBC Bank Australia Ltd v Wang & Ors [2021] QSC 58 (25 March 2021)

This is a property case where the first respondents purchased a property on Hope Island (“the property”) for an amount that was financed by a loan facility provided by the applicant and secured by a first registered mortgage over the property.

The first respondents fell into arrears on the loan and the applicant obtained a default judgment for recovery of possession of the property.  The applicant contracted to sell the property to the second respondents.  Prior to settlement of the contract, the first respondents lodged a caveat claiming an equitable interest in the property on the ground that the applicant had failed to act in good faith in exercising its power of sale as mortgagee.  The applicant now seeks to remove said caveat on the property.

Facts:

The applicant, with the support of the second respondents, seeks the removal of a caveat lodged by the first respondents on a property at Hope Island of which the latter are, as joint tenants, the registered proprietors. The first respondents (husband, wife and daughter) had purchased the property in 2009 for an amount of $9,000,000, partly financed by a loan facility for the amount of $4,500,000 provided by the applicant and secured by a first registered mortgage over the property.

By early 2019, the first respondents had fallen into arrears on the loan. When they did not respond to a default notice by repaying those arrears, the applicant issued an acceleration notice, demanding the entire amount owed.  No payments having been made, it proceeded to obtain default judgment for recovery of possession of the property and took possession pursuant to an enforcement warrant.

After an unsuccessful attempt at auction, the applicant entered a contract to sell the property to the second respondents for $5,510,000.  The contract was due to settle on 18 December 2020, but on 17 December the first respondents lodged a caveat claiming “...an equitable interest in the estate in fee simple, as registered proprietors” on the ground the applicant had “...failed to act in good faith in the exercise of its power of sale by failing to properly market the property for sale, and by selling the property at a significant under value.”

The first respondents relied on the alleged breach of the mortgagee’s duty to act in good faith as giving rise to a right to equitable relief.  The applicant contended that they were barred from seeking such relief because they had not paid the arrears of the mortgage debt into court.

Issue: Should the caveat on the property be removed?

Law:

  • Land Title Act 1994 SS.122(1)- A caveat may be lodged by any of the following — (c) the registered owner of the lot.
  • Land Title Act 1994 S.127- (2) the Supreme Court may make the order whether or not the caveator has been served with the application, and may make the order on terms it considers appropriate.

Analysis:

The first respondents did not pay into court the arrears of the mortgage so as to provide the applicant with the certainty of recovery.  It seems probable that the applicant would, had it to resell now, achieve at least a price which would meet the amount secured, but there must be some risk that it will encounter difficulty finding another buyer within any reasonable time frame. The first respondents’ solicitor has deposed that she has explained the concept of the usual undertaking as to damages to them and that they have agreed to give such an undertaking. However, they are not in Australia and there is no evidence at all as to their means of meeting such an undertaking.  Indeed, it would seem to follow that if they had means available in this country they would have taken steps to negotiate some arrangement with the applicant concerning the arrears of the debt so as to prevent the property’s sale; but nothing of the sort has occurred.

Weighing those considerations, the balance falls in favour of removing the caveat

Conclusion: That the caveat lodged by the first respondents over the property be removed.

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