Australia: Banking And Finance Update - Back To The Future: High Court Adds To Drive To ´Old Fashioned´ Mortgages

The issue before the Court (in the case of Queensland Premier Mines Pty Limited v French) was whether a transfer of a mortgage under the Torrens Title system also gave effect to a transfer of the debt secured by the mortgage (documented in a separate loan document).

All judges agreed that a transfer of a Torrens Title system mortgage did not give effect to a transfer of the debt secured by that mortgage, unless the debt itself was clearly set out in the mortgage being transferred. In other words, to give effect to a transfer of both the mortgage and the debt secured by the mortgage, both documents require transfer and the transferee cannot rely solely upon the transfer of the mortgage to enable it to recover the amount secured by the mortgage.

Essentially, the Court took the view that unless the mortgage itself set out the terms of the debt secured by the mortgage, the transfer of the mortgage under the Torrens Title system did not have the result of transferring the debt itself.

This case, combined with a number of state based judgements dealing with real property fraud, demonstrates that despite decades of use of 'all moneys' mortgages, which secure all moneys which may be owing to the mortgagee on any account whatsoever (including under separate facility documentation), to minimise the risks to lenders arising from fraud and to ensure that lenders who become lenders by way of the assignment of securities and debt get what they expect, the use of the form of mortgage used decades ago may provide significant risk minimisation benefits.

Indeed, the High Court's decision is particularly relevant in the context of securitisation where pools of mortgages are transferred to securitisation vehicles. Clearly, it is essential that not only should the mortgages be transferred, but also the facility agreements or loan documentation which contain the terms of the loans secured by such mortgages.

If the loan arrangements can be documented within the mortgage itself, the transfer of the mortgage would appear to take with it the debt secured thereunder. This may in fact streamline the documentation process in such securitisation. As a further benefit, the adverse consequence of fraud (such as forgery) will be minimised as recent cases demonstrate that if the terms of the loan secured by the mortgage are contained within the mortgage itself, this will establish the interest held by the mortgagee in the mortgaged property, which will be subject to the benefit of indefeasibility provided for by the Torrens Title system.

It will be interesting to see if the financing community goes back to the future and starts using these types of mortgages. In considering whether to do so, lenders will need to understand that mortgages which are registered under the Torrens Title system are public documents. Accordingly, if there are sensitivities around pricing or other terms applicable to a loan or facility which is secured by the mortgage, there may be commercial reasons why lenders would not wish to include such information in the mortgage itself.

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