Re Martins Agencies Limited v Commonwealth Trading Bank of Australia; Noel Joseph May and Jacqueline May; Commonwealth Savings Bank of Australia; Noel Joseph May and Jacqueline May; Commonwealth Trading Bank of Australia; Commonwealth Savings Bank of A [1986] FCA 149 (13 May 1986)

FEDERAL COURT OF AUSTRALIA

Re: MARTINS AGENCIES LIMITED
And: COMMONWEALTH TRADING BANK OF AUSTRALIA; NOEL JOSEPH MAY and JACQUELINE
MAY; COMMONWEALTH SAVINGS BANK OF AUSTRALIA; NOEL JOSEPH MAY and JACQUELINE
MAY; COMMONWEALTH TRADING BANK OF AUSTRALIA; COMMONWEALTH SAVINGS BANK OF
AUSTRALIA; IVENS FRANCOIS BUFFETT
No. SC 1 of 1985
Real Property - Equity - Mortgage

COURT

IN THE SUPREME COURT OF NORFOLK ISLAND
Fox C.J.

CATCHWORDS

Real Property - priorities - Land in Norfolk Island subject to two mortgages registered under Conveyancing Ordinance 1913 - agreement to grant second mortgage to plaintiff on discharge of registered second mortgage - Notification of Interest lodged - third mortgage registered - property sold to purchaser with notice of agreement - purchaser financing transaction by mortgage - constructive notice of mortgagees - whether plaintiff entitled to priority. - Conveyancing Ordinance 1913 (Norfolk Island) - whether equitable interests in land may be created.

Equity - Notice - effect of notice of agreement to grant mortgage - defendants not entitled to ignore claim of plaintiff - Constructive Trust - receipt of moneys on settlement by mortgagee with notice of prior claim - Specific Performance - agreement to grant mortgage "in the form prepared by" solicitors for intending mortgagee - whether concluded agreement - whether sufficiently certain - whether capable of specific performance

Mortgage - Agreement to grant mortgage - whether creating equitable mortgage - availability of specific performance

Conveyancing Ordinance 1913 (Norfolk Island) ss.3, 4, 12

Powers of Attorney Ordinance 1959 (Norfolk Island) s.11

Axelsen v. O'Brien [1949] HCA 18; (1949) 80 CLR 219 ref'd to

Godecke v. Kirwan (1973) 129 CLR 620 ref'd to

Hermann v. Hodges (1873) 16 Eq 18 ref'd to

Ashton v. Corrigan (1871) 13 Eq 76 ref'd to

Whitley v. Challis (1892) 1 Ch 64 cons

Farmer v. Pitt (1902) 1 Ch 954 ref'd to

HEARING

SYDNEY
13:5:1986

ORDER

Plaintiff file and serve short minutes of order to give effect to the reasons for judgment on or before 21 May 1986.

Defendants give notice of any alterations or additions they wish within seven days of short minutes being filed.

Documents may be served directly on counsel who appeared at the hearing.

Stand over for further hearing in Sydney on 29 May 1986.

Direct that hereafter only continuing parties be shown in documents relating to the proceedings.

DECISION

On 27 March 1981 certain land in Norfolk Island was sold and conveyed to Mr. and Mrs. N. Conlan ("the Conlans"). At the time of purchase they gave two mortgages over the land, a first mortgage to the Commonwealth Savings Bank of Australia ("the Savings Bank"), and a second mortgage to Mr. W. Sanders ("Sanders"). Subsequently, on 19 June 1981, the plaintiff, Martins Agencies Limited, signed default judgment in the Supreme Court against Mr. Conlan in the sum of $54,240.92.

2. On 31 August 1981 an agreement was entered into between Martins Agencies Limited and the Conlans. As its effect is at the centre of this case I set it out in full:

"AGREEMENT

THIS AGREEMENT is made the 31st day of August 1981 between
MARTINS AGENCIES LIMITED of Taylors Road, Norfolk Island
(herein called the company) of the one part and NIGEL CONLAN
of Selwyn Pine Road, Norfolk Island (herein called the
debtor) of the second part and SUZANNE ELIZABETH CONLAN of
the same address (herein called Mrs. Conlan) of the third
part AND WHEREAS

A. The company was plaintiff and the debtor was defendant
in action no. 3 of 1981 in the Supreme Court of Norfolk
Island.

B. The plaintiff entered final judgement in the action
against the defendant for $54,240.92 on 19th June, 1981.

C. The parties have discussed a schedule of repayment for
the judgement debt.

NOW THIS AGREEMENT WITNESSES that in consideration of the
forbearance of the company from executing the said judgement
the debtor and Mrs. Conlan agree as follows:

1. They agree to give the company security as follows:

(a) A second mortgage over Portion 27b8, Norfolk Island
in the form prepared by Messrs. McIntyres,
Solicitors. The company agrees that if the debtor
observes the other terms and conditions of this
agreement it will agree to remain postponed to the
position of second mortgagee over that land behind
a first mortgage up to but not exceeding $19,000.00
on terms not more prejudicial to its position as
second mortgagee than the existing first mortgage,
registered no. 7863.

(b) A bill of sale in the form prepared by
Messrs.McIntyres, Solicitors over:

(i) The items listed in the schedule to the bill
of sale dated 1st August, 1980 from the debtor
and Mrs. Conlan to Norfolk Estates Limited,
ranking behind that bill of sale but only
until that bill of sale is discharged; and

(ii) All of the debtor's stock in trade now and
from time to time in the future used in his
business "Central Service Station", being a
first charge on the same.

(c) Upon discharge of the existing second mortgage over
the property Portion 21i2, Norfolk Island, to grant a
second mortgage over that property to the company in the
form prepared by Messrs. McIntyres, Solicitors.

2. The company and the debtor agree that the terms of
repayment to be reflected in these securities and which
the debtor also hereby agrees are:

(a) To reduce the judgement debt by not less than
$1,300.00 in every month to lst February, 1982.

(b) Not including payments in reduction of the
judgement debt made to the date of this agreement,
to pay a total of not less than $10,000.00 on or
before lst November, 1981.

(c) To pay the balance of the judgement debt on or
before lst February, 1982; but if the debtor has
paid a total of $20,000.00 by that date (not
including any amounts paid in reduction of the debt
before the date of this agreement), the company
without prejudice to its rights agrees that if the
debtor so requires on or before lst February, 1982
it will meet with the debtor during February, 1982
to discuss a mutually satisfactory timetable for
the repayment of the balance of the judgement debt.
If all other conditions of this agreement and of
the securities have been met then the balance of
the principal sum will not be due until lst March,
1982, or, if an alternative timetable of payments
is agreed, the debtor's obligations shall be in
accordance with that timetable.

(d) The judgment debt shall carry interest at the rate
from time to time charged at the Bank of N.S.W.,
Norfolk Island on commercial overdrafts of the size
of the balance of the principal sum from time to
time owing, payable from judgement to final
repayment, calculated on monthly rests and paid on
the lst day of each month during that period.

3. Forms of securities to be prepared by Messrs. McIntyres
will contain such terms and conditions as in that firm's
opinion are usual, or desirable for the protection of
the company.

4. If the debtor and Mrs. Conlan sell in good faith Portion
27b8 or the business which the debtor conducts on that
land, or both, the company will agree to the sale and
the debtor and Mrs. Conlan will pay to the company on
settlement all proceeds of the sale remaining after
payment out of the first mortgage and of the direct
costs and expenses of sale.

5. If the first mortgagee of Portion 27b8 or of the
business, or both, exercises any power of sale in the
first mortgage, or the said bill of sale, the debtor and
Mrs. Conlan agree that all monies which they may be
entitled to receive from that sale will be paid to the
company on sale or settlement.

6. Money paid to the company under Clauses 4 or 5 will not
be considered to be monies paid under Clause 2 of this
agreement but will be separate and additional reduction
of the judgement debt. This clause authorises the
company to receive all such sums directly from the
person who should pay them to the debtor.

7. For so long as the debtor and Mrs. Conlan comply with
all of the terms of this agreement and the company will
forbear to execute its final judgement against the
debtor.

8. The parties will file terms of settlement, including a
provision that the terms shall not be disclosed.

DATED the 31st day of August 1981.

MARTINS AGENCIES LIMITED
by its Attorney
JAMES DUNCAN McINTYRE J.D.McINTYRE

NIGEL CONLAN

N.CONLAN

SUZANNE ELIZABETH CONLAN

S. CONLAN

MEMORANDUM

I am the donee of the power of attorney described below pursuant to which I have executed this document. I declare that I have received no notice of revocation of that power of attorney nor of the death of the donor.

Power of attorney dated: 9th July 1981
Registered No. -
Donor: MARTINS AGENCIES LIMITED
Donee: JAMES DUNCAN McINTYRE

SIGNED by the Donee at Norfolk Island on the
31st day of August 19
in the presence of: J.D.McINTYRE

Witness: P. (indecipherable)."

3. Provisions which are particularly relevant are clauses 1(c) and 3.

4. The mortgage to be given was not to secure repayment of a loan, but to secure agreed payments in reduction of the existing judgment debt. Mrs. Conlan was not the judgment debtor, but entered into the agreement substantially by way of indemnity or surety. It is not necessary to examine her precise position.

5. On 27 October, 1981, the solicitors for Martins Agencies lodged with the Registrar of Land Titles a document entitled "Notification of Interest". The Registar kept a register pursuant to the Conveyancing Ordinance 1913 ("the Ordinance"), and the document was enrolled in it, with the consecutive number 8362. The conveyance and mortgages earlier referred to had the numbers 8143, 8144 and 8145 respectively. The notification was as follows:

"Form Approved
ADMINISTRATOR

NO. 8362 - NOTIFICATION OF INTEREST - NORFOLK ISLAND

TAKE NOTICE that MARTINS AGENCIES LIMITED of Taylors Road,
Norfolk Island claims an interest in the land described in
the schedule pursuant to the agreement dated 31st August,
1981 which it entered into with NIGEL CONLAN of Selwyn Pine
Road, Norfolk Island and SUZANNE ELIZABETH CONLAN his wife
whereby for the purpose of securing the same referred to in
that agreement they agreed inter alia that:

`Upon discharge of the existing second mortgage over the
property portion 21i2 Norfolk Island, to grant a second
mortgage over that property to the company' (being
Martins Agencies Limited) `in the form prepared by
Messrs. McIntyres, Solicitors'.

Other relevant provisions of that agreement may be
ascertained upon enquiry to Martins Agencies Limited at their
office in Taylors Road, Norfolk Island

THE SCHEDULE
All that parcel of land on Norfolk Island known as Portion
21i2 (also called Lot 1 of Section 25) containing 2529 square
metres more or less COMMENCING at a point on a north eastern
boundary of Selwyn Pine Road being the southern most corner
of portion 136g (also called Lot 11 of Section 24) and
bounded thence by part of the south eastern boundary of that
portion bearing 46 32' 10" for 61.11 metres to a south
western boundary of portion 21i5 (also called Lot 5 of
Section 25) thence by that boundary bearing 136 52' 10" for
50.29 metres to the north western boundary of portion 21i4
(also called Lot 2 of Section 25) thence by part of that
boundary bearing 226 32' 10" for 34.95 metres to a north
eastern boundary of Selwyn Pine Road thence by part of that
boundary and part of the first mentioned boundary of that
road bearing 280 59' 50" for 28.715 metres and 297 9' 50"
for 28.54 metres respectively to the point of commencement.

Recorded and enrolled at the Registrar's Office, Norfolk Island
this 27 day of October 1981 at 10.30 o'clock in the forenoon
and numbered No. 8362

DEPUTY REGISTRAR

(a plan of the land was then set out)

DATED the 27 day of OCTOBER 1981.

THE COMMON SEAL of
MARTINS AGENCIES LIMITED
was here affixed by
previously authority of the
Board of Directors and in the
presence of: MARTINS AGENCIES LIMITED
COMMON SEAL

W.A.B. Secretary

J.M.B. Director

DEPUTY REGISTRAR
REGISTRAR OF TITLES
NORFOLK ISLAND"

6. The Ordinance does not make any provision for the lodgment, or enrolling, or recording of a document such as this. Sections 3, 4 and 12 of the Ordinance are as follows:

"s.3. No land shall be sold, mortgaged, or leased (except
for a period less than one year), or otherwise dealt
with or disposed of except in accordance with these
enactments.

s.4(1) Whenever it is desired to deal with any land by way
of conveyance upon sale, mortgage, lease or
otherwise, or to make any other disposition of land,
the parties or intending parties to the transaction,
or their duly constituted attorneys, shall attend
before the registrar of lands at his office;
whereupon the said registrar shall fill up, or cause
to be filled up, in duplicate (and in case of a lease
in triplicate) the appropriate form as set out in
Schedule I hereto, making such alterations in and
additions to the same as he may think necessary, and
such forms so filled up shall be executed by all the
parties aforesaid, or their duly constituted
attorneys, and attested by the said registrar, who
shall hand one part to the purchaser, mortgagee,
lessee, or other person, or his attorney, and in case
of a lease another part to the lessor or his
attorney, and shall retain one other part to be kept
of record at the office of the said registrar. No
conveyance as aforesaid made after the lst day of
January, 1898, shall be valid or admitted in evidence
unless so prepared, signed and attested as aforesaid:
Provided that where none of the forms aforesaid are
appropriate to the disposition proposed to be made, a
new form may, with the approval of the Administrator,
be substituted.

(2) A person who, at the time of dealing with land under
this Ordinance on behalf of another person, is the
attorney of that other person by virtue of an
instrument registered, or deemed to be registered,
under the Powers of Attorney Ordinance 1959 shall,
for the purposes of this section with respect to that
dealing with land, whether tht instrument is under
seal or not.

...

s.12 All conveyances, leases, mortgages, or other dealings
with or dispositions of land heretofore or hereafter
made shall be valid and effectual notwithstanding the
same have not been made under seal, but only signed
by the parties thereto or their attorneys instead of
being sealed as well as signed."

The proviso at the end of s.4(1) is not applicable to the Notification of Interest. No evidence was given about the use of the words "Form Approved", and "Administrator" in the document. It appears nevertheless that many documents of a like nature have been filed, at least in recent years. It also appears that a number of dispositive documents, apparently approved as to form by the Administrator, differ considerably from the forms set out in the Schedule to the Ordinance. The mortgages to the defendant banks are examples.

7. On 18 June 1982, a third mortgage to secure a personal loan was given to the Commonwealth Trading Bank ("the Trading Bank") and was lodged (No. 8615).

8. A point was taken about the non-registration of the power of attorney under which Mr. McIntyre signed the agreement for the plaintiff, but in my view it has no substance (see.s11(1) of the Powers of Attorney Ordinance 1959). Among other considerations, the document has since been registered (s.11(2)), albeit after action commenced, and in my view that is sufficient.

9. Mr. and Mrs. May ("the Mays") orally agreed to purchase the property from the Conlans for $50,000 (there was not at any stage a written contract) and obtained a loan of $29,000 from the Commonwealth Savings Bank secured by a mortgage over the property to finance their purchase. On 25 June 1982, a series of transactions took place. A document setting out the various transactions was tendered by the plaintiff, without objection, and is reproduced:

"Settlement 25/6/82

Purchase Price $50,000
Less Deposit Paid 200

Balance payable on settlement $49,800

Funded by

Housing loan by CSB (No.2-347184-02) $29,000
Provided by May from their a/c162-184 20,000

$49,800
On settlement these moneys were paid to:

CSB to discharge Mortgage No.8144 from
Conlans $41,159.08
WW Sanders to discharge Mortgage No.8145
from Conlan 5,000.00
CTB in part satisfaction of Mortgage No.8615
from Conlans (securing Personal Loan No.130-756) 3,640.92
$49,800.00

As at 25/6/82 amount required to repay Personal
Loan (and thereby discharge Mortgage No.8615)
was:- *Gross $ 4,848.00
Less Rebate $ 782.84
Net $ 4,065.16

Received from proceeds of sale $ 3,640.92
Paid in cash by Conlan $ 224.24
Paid from Bob Hickey trust A/C (being deposit
moneys released on settlement) $ 200.00

$ 4,065.16"

10. According to the terms of the agreement with the plaintiff, it was only on the discharge of the second mortgage to Mr. Sanders that the obligation of the Conlans to give a second mortgage took effect. A problem arises because, although that event occurred, no opportunity existed for a formal mortgage, in accordance with the agreement, to be given. The mortgage then to be given would be to secure payment of moneys as provided by the agreement. It is agreed that at all relevant times there had been some amount owing under the agreement.

11. Instruments of discharge of the mortgages granted by the Conlans having been recorded, if effect were now to be given to the mortgage claimed by the plaintiff, it would in my view rank as a first mortgagee, (i.e. entitled to the legal estate), and the size of the judgment debt still outstanding (as to which there is no evidence) might mean that the value of the equity of Mr. and Mrs. May would be diminished, possibly to the point of extinction. It may be that the loan of $29,000 from the Savings Bank would also be adversely affected in this way. Mr. and Mrs. Conlan have left the Territory and their present whereabouts is unknown. They were not made parties to the present litigation; no point has been made on this score.

12. The case for the plaintiff is in substance that the agreement with the Conlans contained an agreement for a mortgage of the subject land, that thus an equitable mortgage was or came to be created, that the Trading Bank had constructive notice of the relevant terms of the agreement when the third mortgage of 18 June 1982 was given, and that all defendants had at least constructive notice of them when the completion of sale took place on 25 June 1982, so that, in the event, the title of the Mays was subject to an equitable mortgage in favour of the plaintiff (entitling it to have a legal estate), and that the Savings Bank (as mortgagee from the Mays) ranked as second mortgagee.

13. It is submitted that the third mortgage, to the Trading Bank, was or became subject to the mortgage to the plaintiff, and the moneys received by it on settlement are held on a constructive trust for the plaintiff.

14. The defendants deny on a number of grounds that an equitable mortgage was created, and that it had the effect claimed.

15. The fact that all the defendants had notice of the agreement has not been in dispute. (See Coote on Mortgages, 9 ed., Vol.2 pp.1317,1318 regarding the contents of the agreement). The Mays were in fact specifically notified by the plaintiff's solicitor of its claim shortly before the sale took place, and then warned that they should not settle without making arrangements with the plaintiff about the Notification of Interest. The terms of the warning were as follows:

Mr.McIntyre:

"Martins Agencies have put a notification of interest on the
title to that house. You will find it when you get your
search. They are entitled to have a second mortgage as soon
as the present second mortgage to Bill Sanders is
discharged."

He (Mr.May) said something like:

`Oh yes, all right, or some acknowledgement like that.'

I said,

The purpose of this call is to advise you not to complete any
purchase from Nigel Conlan until you have made arrangements
with Martins Agencies about the notification of interest".

All must be taken to have been aware that given a short interval of time, a formal document could and probably would have been prepared and filed. It is not disputed that the agreement relied upon (if it was a valid agreement) was supported by valuable consideration.

16. It seems to be accepted, or, if not accepted, it seems clearly to be the case, that fundamentally the system of title in the Territory is the "common law" or "old" system. This situation is, of course, subject to the operation of the Conveyancing Ordinance. That Ordinance does not provide for indefeasibility in the Torrens Title sense, or for priority and, as I have noted, the forms, if inappropriate, are variable at the discretion of the Administrator.

17. There is however a dispute as to the meaning and operation of the Conveyancing Ordinance, as relevant to this case.

18. The Territory has, since 1860, had formal regulation of dealings in land. The first such enactment took place on 12 October 1860, when Sir William Denison, then Governor of New South Wales, proclaimed "Laws for Regulating the Transfer of, and Dealings in Land, in Norfolk Island" pursuant to the power granted to him by an Order in Council of Queen Victoria, of 24 June 1856. Under this Order in Council Norfolk Island was declared a distinct and separate settlement, for which the Governor of New South Wales was given power to make laws. The purpose of the enactment was to provide the newly-arrived settlers from Pitcairn Island with a simple method of determining title to land. The Enclosure to Despatch No.8 from Sir William Denison to the Principal Secretary of State for the Colonies, (12 July 1859, British Parliamentary Papers Vol.24 pp.479-80) reads in part as follows:

"Memorandum addressed to the Inhabitants of Norfolk Island
relative to Registration of Property

As the whole of the island has now been surveyed and divided
into allotments averaging 50 acres or thereabouts, and as one
of these allotments will be handed over to each of the
families now upon the island, it becomes a matter of
necessity that some simple and definite rules should be
established, by which all proceedings with regard to the
establishment of rights to property, to its transference from
hand to hand, to the mode in which it shall descend to the
children of its possessor, shall be regulated."

19. On 15 January 1897, an Order in Council was proclaimed, dealing with the annexation to New South Wales of Norfolk Island. Under the new arrangements, the earlier law was repealed, and largely re-enacted. The law, which took effect on 1 January 1898, differed from the earlier in several respects. It was expressed to apply to land to be "sold mortgaged or leased" whereas the earlier law had referred to "all transactions of whatever nature (except leases...not exceeding twelve months)" affecting land in Norfolk Island. The prohibition on alienation of land to any person not permitted to reside on Norfolk Island which had appeared in the 1860 enactment did not re-appear.

20. The provisions of the present Conveyancing Ordinance, which have been set out in part, take their content from the proclamation of 1897. This law was amended twice, (N.S.W. Government Gazettes, of 6 September 1904 and 30 May 1906), but the amendments are not of present relevance.

21. In 1913, all laws of Norfolk Island were repealed by a proclamation of Sir Gerald Strickland, then Governor of N.S.W., published on 24 December 1913. The Conveyancing Law was re-enacted by that proclamation, and took substantially the same form as the 1897 enactment. Amendments made since then are immaterial for present purposes.

22. It was submitted that the agreement in question was not effective to create any equitable interest or estate in land because it was not recorded, or enrolled, in accordance with the Ordinance. In fact no form in the Schedule was appropriate to it. It was submitted that equitable interests, no matter how arising, could not exist unless the Ordinance had been complied with. Alternatively, it was put that an equitable interest arising under a document could not exist without compliance with the Ordinance.

23. It is a big step to say that equitable interests cannot subsist unless the machinery of the Ordinance has been followed. If that had been intended, very clear language would have been used, but the possibility cannot be imagined. Other legislation is inconsistent with it. See Mortgagors' Relief Ordinance 1934, s.3; Judicature Ordinance 1960 secns.3(b) and 8; Interpretation Ordinance 1979 s.12(2), definition of "estate"; s.2 of the Land (Subdivision) Ordinance 1957, definition of "sub-division". In this regard, I can see no relevant difference between an equitable interest arising under a will or settlement or by way of constructive trust, and one arising under an agreement. What s.4 has in mind is a disposition inter vivos, and probably of legal interests or estates only. It is possible that a disposition by instrument of an equitable estate can come within it (and s.3), but that question does not arise.

24. I should observe that the first mortgage to the Savings Bank uses the operative words "mortgage and release", and "to hold subject to redemption", which accord with those used for a mortgage in Schedule 1 to the Ordinance. Most of the rest of the document is quite different, being very much lengthier than the prescribed form. The second mortgage, to Sanders, which was by deed, recites that by the earlier document the Conlans had "assured" to the said Commonwealth Trading Bank the land "in fee simple by way of mortgage." (The recital is in error in so far as it refers to the Trading Bank). The operative words in the second document were "the mortgagor as beneficial owner hereby conveys...unto the mortgagee...to hold the said premises unto the mortgagee in fee simple subject to the said prior mortgage...if then subsisting...and subject to the proviso for redemption hereafter contained...". This document bears the endorsement, in typing, "Form approved", "Administrator". There is no evidence that any of the documents were approved under s.4(1) of the Ordinance, although the endorsements on the mortgages to both banks carry detail from which it may be inferred that there was approval in those cases. The operative words in the third mortgage were "hereby mortgages and releases...to hold the land and improvements subject to redemption...". There is a reference to prior mortgages at the end of the document under the heading "Encumbrances" where brief particulars of both the first mortgage and the second mortgage (to Sanders) are given.

25. Two questions arise at the outset. One is whether the agreement reflects a consensus between the parties. The other is whether it is, in relevant respects, sufficiently certain and definite.

26. It is not disputed that clause 3 has relation, inter alia, to clause 1(c). Clause 1(c) says that the mortgage is to be "in the form" prepared by Messrs. McIntyres. In the context "form" is obviously intended to include content. At that point there is therefore an agreement to give a mortgage with some terms unstated except that the intended mortgagee's solicitors are to determine what they are to be. Clause 3 emphasises this situation. The terms are not expressed to be what a court determines are usual, but the solicitors for the intended mortgagee are to fix terms which are "usual, or desirable for the protection of the company". The latter part of this provision seems to me to be tantamount to saying that the terms are to be those determined by the intending mortgagee. Perhaps a qualification of reasonableness is to be implied, and what is "usual" may be subject to court determination (see Hermann v. Hodges (1873) 16 Eq 18; Ashton v. Corrigan (1871) 13 Eq 76). It has not been argued that the solicitors are under any duty in determining the content of the clauses, other than one owed to their client, and I do not discern any. On the other hand, principal matters are agreed upon. The property is specifically referred to. The timing and rate of repayment are regulated by clause 2, and the rate of interest is fixed under clause 2(d). There is an initial uncertainty as to what amount will be payable when the mortgage comes into operation, but the substance of the matter is that the security is for performance of clause 2. If it is thought necessary or appropriate, the amount remaining unpaid at the future date can then be determined.

27. Although all the terms of the mortgage are not specifically agreed upon, the method of arriving at them is, and in my view it does not matter that it is left to one party, or its solicitors, to arrive at them. Fundamental matters were agreed, and the consensus was complete. (See Axelsen v. O'Brien [1949] HCA 18; (1949) 80 CLR 219; Godecke v. Kirwan (1973) 129 CLR 620.)

28. The agreement was in nature such that a court of equity would enforce it. The plaintiff may have been able to proceed for equitable relief as soon as there had been default under it, and any necessary demands made. Completion of a document (with additional terms) was anticipated, but nothing more was required of the mortgagors beyond their signature, and if necessary, an officer of the Court could have been appointed to execute it for them.

29. Although strictly unnecessary, I should add some observations on this subject. When it comes to an agreement for a formal mortgage, the Courts have long proceeded on a principle of giving effect to intention, notwithstanding the terms are vague or indefinite (see Fisher and Lightwood's Law of Mortgage 9 ed. pp.11,12). Thus, in a deposit of title deeds giving rise to an implication that a formal document is to be executed, the detailed terms of the mortgage have to be constructed; if not by agreement, by the Court (see Coote on Mortgages 9 ed. (1927) p.88.) Where some terms are mentioned, others often have to be supplied. Whitley v. Challis (1892) 1 Ch 64 turned on another point but none of the three Lord Justices (Lindley, Bowen and Fry L.JJ.) seemed to find any difficulty with the agreement that the second mortgage there provided for "shall be in such form and contain such powers, covenants and provisions as the solicitor or counsel (of the mortgagee) should advise or require" (see also Farmer v. Pitt (1902) 1 Ch 954). In Ashton v. Corrigan (supra) specific performance was decreed of an agreement to execute a mortgage in "the usual form, containing an absolute power of sale and all the usual trusts, powers and covenants, subject to all prior changes". This decision seems to have had the approval of Lord Selborne L.C. who, sitting at first instance, decreed specific performance of an agreement to execute a mortgage "with an immediate power of sale" Hermann v. Hodges (supra). The report does not refer to there being any other agreed terms of the mortgage.

30. The mortgage was not to take effect until the existing second mortgage was discharged. As I read the agreement, it was not to be a mortgage subject to the second (really a third mortgage), but to be in effect a replacement mortgage. There is evidence that the Conlans had at that stage refused to agree to the giving of a third mortgage. Any decree made before the discharge of the existing second mortgage would have had to be conditional in operation, or, at least, a mortgage to be granted under it would have had to be limited to take effect in the future event. On the other hand, some other relief in equity, such as an injunction to restrain action which would negative the effect of the agreement for the second mortgage would have been available. The term "second mortgage" in relation to old system land refers to the conveyance of the equity of redemption expectant upon the first mortgage. What was therefore being agreed was that the equity of redemption then held by Sanders would be conveyed. Although the equity could not be conveyed immediately, there may, from the outset have been an equitable mortgage or an equitable charge in favour of the plaintiff. I do not have to decide this question, but the effect of the arrangement was in my view that the mortgagors were not free to encumber the equitable estate or interest expectant on the second mortgage, i.e. that to Sanders.

31. The parties to the settlement of 25 June 1982 are to be taken to have been aware of the agreement for the mortgage, and its legal incidents. Their attempt to overtake, or nullify, this agreement would not be supported by a court of equity. During settlement the second mortgage (to Sanders) was redeemed. On that occurring (if not before), the plaintiff was entitled to specific performance of the relevant part of the agreement, and at the very latest, it then became an equitable mortgage which as all other mortgages had been discharged, entitled it to the legal estate. This must be taken to have occurred before the purported transfer of the legal estate to the Mays. All that the Conlans could then convey was an equity of redemption. (The form of the Schedule to the Ordinance is relevant here. It states that the transferors "sell and convey...to hold...in as full and ample manner as (the transferor) could have held the same...".) Further, particularly as moneys were not available to pay off all mortgagees, the second mortgage to the plaintiff must be taken as having arisen before the third was discharged, with the consequence that the latter was postponed to the plaintiff. The third mortgage was however redeemed, on payment of most of the debt to it.

32. It was submitted that as the purchase moneys came from the Mays (largely derived from the Savings Bank) there was, on payment, a constructive trust in their favour or, in favour of the Savings Bank, respecting the fee simple. I mistrust the use of the term constructive trust in this context, or at least the incidents sought to be attached to it. The fact was that the mortgages had to be redeemed and until this was done the Conlans could not convey the fee simple, as apparently had been agreed. The legal estate was at the outset in the Savings Bank, as first mortgagee from the Conlans. Upon redemption of the first mortgage, the legal estate was held by that Bank for subsequent incumbrancers, (Coote's Law of Mortgages, 8th ed. Vol.1 p.54). A question then arises whether, notwithstanding the purported redemption of the third mortgage, the moneys received were properly payable to the plaintiff. I see no answer to the submission that they were. By not having notice of what was being done, the plaintiff was deprived of the opportunity of completing documentation, or seeking temporary equitable relief, so as to maintain its right, but those circumstances did not adversely affect its position.

33. The Conlans of course intended that the Trading Bank, as third mortgagee, should receive the moneys paid to it. There are two related bases upon which the moneys should be regarded as properly payable to the plaintiff. One is that in a redemption or foreclosure action this course would be followed. The other is that while the Conlans' intention was to pay the Trading Bank, their more fundamental intention must have been to clear the property of the mortgages, and on a simple basis of priority, or lack of entitlement in the Trading Bank, the moneys had to go to the plaintiff, so far as an amount was then due to it.

34. The defendants have pleaded laches, acquiescence and delay. The substance of their defence is based on the evidence that a director or officer of the plaintiff had told its solicitor in the week 21-25 June 1982 that he had heard a rumour that Mr. Conlan was about to sell his home to Mr. May. The parties of course included the respective wives. It was after this, but before settlement, that the plaintiff's solicitor rang Mr. May to give him the warning already referred to. It is said that in that conversation the plaintiff, through its solicitor, indicated that it had no objection to a sale, as such, but was merely desirous of seeing that, as mortgagee, it receive the surplus after the first and the existing second mortgagees had been paid out. It is submitted that a motive for not seeking to stop the sale was that instead of receiving the net proceeds of sale, it would, as first mortgagee after the sale, retain its security, but as first mortgagee, and could in this way recover the whole of the amount owing to it.

35. This is of course an argument that assumes a result along the lines that I have found, but it is difficult thereby to substantiate the defence pleaded. The plaintiff promptly gave notice to the intending purchasers. If they had acknowledged the plaintiff's interest, as second mortgagee (after Sanders) it would have received a relatively small sum, if it had agreed to a discharge at that time. However, it did not agree, there was no redemption action, and the first two mortgages by arrangement were redeemed. The automatic result was that the plaintiff's interest was advanced, so that it became, in equity, first mortgagee. This would be the result in any case, where, for whatever reason, a mortgagor were to redeem earlier mortgages. What happened in fact was an attempt to exclude the plaintiff. In my opinion, the defence fails.

36. I should give the parties an opportunity to speak to the form of relief. The plaintiff should bring in short minutes on or before 21 May, and the defendants should within seven days of these being filed and served give notice of any desired alterations or additions. Those documents may be served directly on counsel who appeared at the hearing. The matter is stood over for further hearing in Sydney on 29 May.

37. The counter claims in the proceedings have been dismissed by consent. A third party claim was also dismissed by consent. For the future, I direct that the title to the proceedings be altered accordingly, so as to show continuing parties only, in the capacity of plaintiff and defendants.