Collins v Marinovich & Ors

In this significant case, Justice Ryan was asked to consider whether two clauses in a mortgage agreement regarding the termination of the mortgage on the mortgagee’s death were of a testamentary character. By her will, the deceased had attempted to override the effect of those terms of the mortgage and left the “full benefit and burden of the mortgage” to the second defendant. Her Honour ultimately concluded that neither the specific terms nor the mortgage itself were testamentary in character and therefore could not be overridden by the deceased’s will.

Ryan J

14 June 2021

In 2006 and 2007, the deceased lent $1 million to the plaintiff, her niece, secured by a mortgage over the plaintiff’s property. [5]. The repayments provided for in the mortgage did not reduce the plaintiff’s indebtedness to the deceased, but rather by cll 6 and 7 the mortgage provided that the debt would be forgiven upon the deceased’s death. [5]. This mortgage, including these terms, was registered. [5].

Following a dispute about the enforceability of the mortgage, the deceased and the plaintiff met at a Chinese restaurant on 20 July 2012. [100]. There, they entered into an agreement in respect of the mortgage which expressly provided that it would be signed “only as a declaration of a new agreement being negotiated and a new mortgage being drawn up”, and that it was “subject to Phyllis’s solicitor’s approval on her return on the 13^th of August 2012”. [111], [147]. The second defendant alleged that this agreement altered the terms of the original mortgage.

Notwithstanding the terms of the original mortgage, the deceased left “the full benefit and burden” of the mortgage to her friend, the second defendant, in a will dated 23 September 2016. [16]. She died about three weeks after making that will. [17]. Following the deceased’s death, the plaintiff’s solicitors wrote to the executors, asserting that the plaintiff was entitled to a release from the mortgage as the mortgage debt had been forgiven. [18]. The second defendant disagreed and threatened a default notice if the repayments under the mortgage did not continue. [19]. Ultimately, the plaintiff applied to the Supreme Court for a declaration that the debt secured by the mortgage was forgiven upon the deceased’s death and orders that the second defendant execute and deliver a discharge of the mortgage. [21].

There were two questions for consideration by the Court. First, whether or not the clauses of the mortgage which forgave the mortgage upon the deceased’s death were testamentary in character (and so were overridden by the terms of the 23 September 2016 will). [23], [99]. Secondly, whether the mortgage had in any event been amended by an agreement on 20 July 2012. [100].

Testamentary character

In respect of the first question, the second defendant submitted that because cll 6 and 7 depended upon the deceased’s death to take effect, they had testamentary character and could be severed from the rest of the mortgage. [29].

After setting out the parties’ submissions, Ryan J undertook a detailed analysis of the various authorities they had referred to. [38]–[88]. In her Honour’s analysis, the authorities made two key distinctions: first, between documents which were in actual or purported testamentary form, and those which were not; and second, between documents which were divisible and those which were indivisible. [89]. Applying these distinctions, her Honour noted that the authorities established a number of key propositions: [90]:

a) If a document is not in testamentary form:

i) The substance of the main object of the document must be considered;

ii) If its provisions are irrevocable, then it is not of a testamentary character;

iii) If it is intended to take effect immediately upon its execution and does not require the death of the alleged testator for its consummation, then it is not testamentary;

iv) If it delivers immediate benefits to both parties to it, then it is not testamentary; and

v) If it commenced an arrangement immediately, during the alleged testator’s lifetime, and continued that arrangement after the testator’s death, then it is not testamentary,

b) Regardless of whether or not the document is of testamentary form, “if the person executing it intends that it shall not take effect until after his or her death, and it depends on his or her death for its vigour and effect, it is testamentary … and may only operate as a valid will if it complied with relevant statutory requirements”

c) If a document is “clearly divisible” into a part which is intended to take effect during the author’s life and one which is intended to take effect after their death, then the second part may be treated as a will, particularly if it concerns the main object of the document or expressly states it is a will;

d) Similarly, where a testator has executed a deed dealing with their property during life and after death, a provision which is intended to only operate after death may be treated as a testamentary disposition;

e) Where there is a disposition of a manifestly testamentary character in a document executed as a will, it “ought to be admitted to proof as a testamentary act”, regardless of whether the rest of the document is of a testamentary character; and

f) It is possible for a document to disclose the intentions of its author with respect to the destination of their property after death and not be a will. “To be a will, the words used must have been intended to guide those who survived him or her to carry out his or her wishes”.

Applying these principles to the instant case, Ryan J found that neither the mortgage nor more specifically cll 6 and 7 was a testamentary document. [91]. They were not unilaterally revocable, and they commenced immediately upon execution. [93]. They conferred immediate benefits to both parties to the mortgage and the mortgage was not a divisible document with obviously separate parts or purposes. [94]. Similarly, cll 6 and 7 could not take effect unless the mortgage persisted until the deceased’s death and there had been no relevant default. [95]. Accordingly, her Honour concluded that cll 6 and 7 were not testamentary dispositions and were not severable from the mortgage deed and therefore they could not be overridden by the deceased’s will. [98]–[99].

The 20 July 2012 agreement

Justice Ryan found that the 20 July 2012 agreement, while going in some way to the terms of the mortgage, provided for a scheme whereby its terms would first be approved by the parties’ solicitors, then be reduced to a legal document prepared by the deceased’s solicitors and finally be subject to the plaintiff’s review of the legal document. [123]. Importantly, this included approval of the content of the agreement itself. [128]. Accordingly, her Honour found that no binding agreement was reached on 20 July 2012. [129].

M Paterson