11 Oonoonba Road Pty Ltd & Anor v ACP Properties (Townsville) Pty Ltd & Ors

In this significant appeal, the Court was faced with two important questions: is a mortgage which was registered but released without the secured debt being discharged a “subsequent mortgage” entitling the mortgagee to a distribution under s 88(1) Property Law Act 1974; and, given the debt secured exceeded $1.9 million but proceedings were brought within the monetary limit of the District Court, did the mortgagee waive its entitlement to any amount of the debt exceeding the monetary limit. Ultimately, the Court answered both questions in the affirmative.

Sofronoff P and Morrison JA and Flanagan J

20 May 2022

The appellant purchased land with ACPQ as tenants in common in equal shares. [3]. To fund the development of the land, ACPQ lent the appellant $1,647,500, secured by a mortgage over the appellant’s half interest in the land. [3]. Later, the appellant and ACPQ obtained a loan from NAB for another $1.6 million, secured by a mortgage over the whole of the property. [3]. NAB required its mortgage to be a registered first mortgage, so ACPQ released its mortgage. [3]. ACPQ subsequently unlawfully registered its mortgage as a second mortgage. [3]. ACPT obtained an assignment of NAB’s mortgage and loan agreement, with a loan debt of $555,077.20. [3]. Purporting to exercise its power of sale as a mortgagee, ACPQ subsequently sold the property to ACPT with net proceeds of $2,733,297.07. [8]. In a previous judgment in the proceedings (11 Oonoonba Road Pty Ltd v ACP Properties (Townsville) Pty Ltd [2021] QCA 254), the Court of Appeal found that this sale was unlawful insofar as it related to the appellant’s half share of the property. [3]. Nevertheless, the sale to ACPT settled and the entirety of the land was registered in ACPT’s name. [3].

After the sale of land completed, ACPT and ACPQ brought proceedings against the appellant in the District Court, seeking repayment of, respectively, the NAB loan and the ACPQ loan. While they obtained judgment in their favour in the District Court, the appellant successfully appealed, with the Court of Appeal setting aside the District Court’s orders. The Court of Appeal then sought submissions from the parties as to the final form of orders. After receiving the parties’ submissions, Morrison JA, with whom Sofronoff P and Flanagan J agreed, addressed two notable points:

1. whether ACPQ’s mortgage was a “subsequent mortgage” for the purposes of s 88(1)(c) Property Law Act 1974 (“PLA”); and
2. whether, by bringing proceedings in the District Court, the ACPQ had abandoned any part of its claim over the monetary limit.

Section 88(1)(c) PLA

Section 88 PLA relates to the application of proceeds of sale of a property. [4]. The parties agreed that under s 88, the sale proceeds should first be applied to the NAB loan, with any distribution under s 88(1)(c) to be applied against the appellant’s half-share of the remainder, $1,089,100.56. [10]–[11]. Critically, the appellant submitted that, by releasing its mortgage over the property, ACPQ released the mortgage as a charge on the land such that it was not a “subsequent mortgage or encumbrance”. [14]. Justice Morrison disagreed. [15].

In Morrison JA’s view, s 88 “is to be read in a manner consistent with the equitable duty of the first mortgagee to account to puisne mortgagees as a trustee for any surplus.” [16]. Accordingly, the reference in s 88(1)(c) to “any subsequent mortgages” refers to the priority between mortgages, not whether they were executed first in time. [17]. Further, “the mortgage” in s 88(1)(b) refers to the mortgage that is first in priority, whereas “subsequent mortgages” refers to mortgages of lower priority, based upon their “true priority, however lawfully achieved”. [17]–[18]. Justice Morrison therefore considered that s 88(1)(c) was not limited to registered mortgages. [19]–[21]. It followed that ACPQ’s mortgage was a “subsequent mortgage”. [19]–[20].

In any event, Morrison JA considered that the statement in s 88 PLA that the residue of the proceeds “shall be paid to the person entitled to receive… the proceeds of sale” obliges the mortgagee conducting the sale to hold the funds on statutory trust for the person who is entitled to receive it, and to ascertain the identity of that person. [22]. Accordingly, even though ACPQ’s mortgage was released as a charge on the land, its entitlement to enforce the personal covenants under the mortgage entitled ACPQ to have proceeds of sale applied to the debt under s 88(1) PLA. [23]–[24].

Waiver by suing in the District Court

In their pleadings in the District Court, each of ACPT and ACPQ claimed less than the District Court’s monetary limit, $750,000, by way of a debt due and owing against the appellant. [30]–[31]. However, at the time of the sale, the amount owing under the ACPQ loan was $1,923,424.20. [28]. On appeal, the appellant submitted that ACPQ abandoned any part of its claim over the District Court’s monetary limit, $750,000. [30].

After setting out these principles at [36]–[37, Morrison JA observed that any excess over the monetary limit can be abandoned in a claim. [38]. His Honour noted that, here, the parties neither consented to the jurisdiction being exceeded nor expressly abandoned the excess over the monetary limit. [39]. However, his Honour considered that “suing for the monetary limit is, in effect, an abandonment of any excess.” [39]. Given ACPQ expressly limited its claim to an amount within the monetary limit and took no steps to seek a claim beyond the monetary limit, Morrison JA accepted that ACPQ had abandoned any excess above $750,000 on its claim. [41]–[42].

In the event, the Court ordered that ACPQ must account to the appellant for its half-share of the remaining proceeds after discharging the NAB loan, $1,089,100.56, less $750,000, being its debt to ACPQ, plus interest. [43]–[46].

M Paterson