Westpac Banking Corporation v Etex Australia Pty Ltd

1. [1]

   By Summons filed 8 October 2024, the Plaintiff (Westpac) seeks declarations and orders with respect to a claim in subrogation in relation to a property located at X Peppercorn Avenue Fairfield New South Wales (Property).

2. [2]

   The essence of the relief sought by Westpac is that it seeks to be subrogated to the rights afforded by a mortgage held by an earlier mortgagee, Perpetual Trustee Company Limited, in circumstances where Westpac paid out the Perpetual Mortgage and took its own mortgage, but was unable to register its mortgage on title.

3. [3]

   In support of the relief sought in the Summons, Westpac relies upon the following evidence:

4. [4]

   In addition, Westpac relies upon certain documents which I have marked as exhibit A on the hearing.

5. [5]

   All other interested parties have been served with the Summons and supporting affidavit. No interested party has indicated any opposition to the relief sought by Westpac in its Summons. The proceedings were called outside court this morning and there was no appearance by any other party.

6. [6]

   For the reasons that follow, I am satisfied that the Court should grant the relief sought by Westpac. What follows is based heavily on the written submissions provided by Mr Foley of counsel in support of the relief sought.

Relevant facts

1. [7]

   The registered proprietors of the Property are Zhi Li (Mr Li) and Olga Otean (Ms Otean).

2. [8]

   On 2 February 2010, Perpetual Trustee Company Limited (PTCL) registered a first mortgage on the title to the Property, being mortgage numbered 9954581 (PTCL Mortgage), which secured amounts owed to PTCL by Mr Li and Ms Otean.

3. [9]

   On 15 February 2018, Westpac entered into a loan agreement with Mr Li and Ms Otean (Westpac loan). Under the terms of the Westpac loan:

4. [10]

   At the time the Westpac loan was entered into, there was one caveat over the Property, being the caveat lodged by Etex Australia Pty Ltd, being caveat number AM397447 (Etex Caveat).

5. [11]

   Following the execution of the Westpac loan, Westpac obtained:

6. [12]

   On 19 June 2018, Westpac advanced $217,942.37 to PTCL in exchange for an executed discharge of the PTCL Mortgage (PTCL Discharge) and the Certificate of Title to the Property.

7. [13]

   On attempting to register the PTCL Discharge and the Westpac Mortgage, Westpac discovered that a further caveat had been lodged on title to the Property by a company formerly known as Shift Finance, being caveat numbered AN323979. This caveat prevented the PTCL Discharge and Westpac Mortgage from being registered. Westpac subsequently lodged a caveat over the Property on 9 August 2018.

8. [14]

   The next day, 10 August 2018, a further caveat lodged on title by James Hardie Australia Pty Ltd.

9. [15]

   On 2 June 2020, Mr Li was made bankrupt and Danny Vrkic was appointed as Mr Li's trustee in bankruptcy (Trustee). As Westpac's claim in subrogation arose prior to Mr Li becoming a bankrupt, and noting Mr Li's interest in the Property vested in the Trustee upon Mr Li's bankruptcy, the Trustee is obviously an interested party and has been named as a defendant to these proceedings.

10. [16]

    The evidence discloses that prior to commencing these proceedings, Westpac wrote to Shift and James Hardie on multiple occasions seeking to resolve the issue of priority by agreement (by entering into an appropriate deed). No response to these communications were received from Shift or James Hardie.

11. [17]

    These proceedings were commenced by Westpac on 8 October 2024. As to that above, following commencement of the proceedings Westpac served the Summons and supporting affidavit on each of the defendants, including Shift and James Hardie.

12. [18]

    On 8 November 2024, Mr Vrkic as Trustee for Mr Li provided signed consent orders consenting to the relief sought by Westpac in the proceedings. No other defendant has taken any part in the proceedings or indicated any opposition or objection to the relief sought by Westpac.

Determination

1. [19]

   The relevant principles relied upon by Westpac on the application were helpfully discussed and analysed by Darke J in Australia and New Zealand Banking Group Ltd v Whitehall [2020] NSWSC 489.

2. [20]

   Darke J's judgment stands for the following propositions:

3. [21]

   In circumstances where a lender bargains for a first registered mortgage but receives only an equitable charge or mortgage (which is to say an unregistered charge or mortgage), the lender will not have obtained the security it bargained for and the doctrine of subrogation will apply; (see Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291, as cited in Highland v Exception Holdings Pty Ltd (in liq) and Another [2006] NSWCA 318 at [107]-[108]).

4. [22]

   Insofar as issues of priority may arise, it is clear that a claimant that is entitled to be subrogated is to have the benefit of the same priority as the prior security; see Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393 at [90].

5. [23]

   All of the above illustrates the settled legal principle that a lender will be entitled to be subrogated to the rights of a prior secured creditor (that is, be treated as having been assigned the rights of a prior creditor) where:

6. [24]

   The facts of the present case are a paradigm example of the circumstances in which the doctrine of subrogation applies.

7. [25]

   In the present case:

8. [26]

   In respect of interest, Westpac recognises that under the doctrine of subrogation it is not entitled to be placed in any better position than it would have been had it obtained the bargain for security. Accordingly, Westpac only seeks interest on the amount it paid to PTCL in accordance with the terms of the Westpac loan agreement, being the rate that would have applied had Westpac obtained its bargain for security, and taking into account amounts related to Westpac since the advance.

9. [27]

   For these reasons, I am satisfied that it is appropriate for the Court to make the orders sought by Westpac.

10. [28]

    Accordingly, the orders of the Court are:

    1. (1)

       DECLARES that the plaintiff (Westpac) is subrogated to the rights afforded by the mortgage held by Perpetual Trustee Company Limited, registered as dealing 9954581 (PTCL Mortgage), on the title of the property of the land comprising of X Peppercorn Avenue, Fairfield NSW (XXX/1025302) (Property).

    2. (2)

       ORDERS that the sixth defendant (the Registrar General) do all acts and things necessary to transfer the PTCL Mortgage to Westpac.

    3. (3)

       DECLARES that the PTCL Mortgage secures the repayment to Westpac of the following amounts: