Equitable charge or equitable mortgage?

Mortgage vs. charge

Mortgage:
o Mortgagee gains equitable title to the property
o Mortgagor has the right of redemption
Charge:
o Chargee does not obtain equitable title
o Charge merely burdens the property i.e. chargee can enforce sale in court, or appoint a
receiver
Roberts v Investwell (in liq) has a charge at all been created?
FACTS:
Robert advanced money to Investwell under a contract for the purposes of allowing Investwell to
purchase a land for a development project
Clause 21 of the contract stipulated that if Robert requests at any time, Investwell was required to
immediately grant to Robert a mortgage over the land an equitable mortgage or charge over
Investwells assets, and/or other security as Robert may consider necessary
o But Robert did not make any request or settle the form of the security
When the development project was completed and sold, Investwell used the portion of proceeds to
repay Robert Investwell was insolvent at the time of repayment
ISSUE:
Liquidator of Investwell commenced proceedings against Robert claiming that the amount paid to him
is a preference*
o *Preference (or voidable preference): a company transfers assets/pays a debt to a creditor
shortly before going into bankruptcy; that transfer can be set aside on the application of the
liquidator as an unfair preference
Robert argued that the repayment was in respect of a secured debt
o Robert argued that the contract created an equitable mortgage or charge in favour of
himself; or
o It constituted a charge within the meaning of s9 Corporations Act
HELD:
Dismissed both of Roberts claims
Contract did not create an immediate proprietary interest or immediate right of recourse (right to
recover a debt) to identifiable, present or future property because
o Obligation to grant the security was expressed upon request (which was never requested by
Robert)
o Form of security was not settled
Therefore, it did not create an equitable mortgage or charge
S9 Corporations Act: a charge only arises if an agreement confers an immediate right to specified
property
Payment to Roberts was a preference, meaning he was required to repay the amount to the liquidator
Clause 21 would have created an equitable mortgage, but it required Robert to first make a
request which never happened
Poor drafting and non compliance with the terms of the contract before payment was made by
Investwell defeated Robert and enabled the liquidator to recover payment
Bathurst CJ:
[29] For either an equitable mortgage or equitable charge to come into existence, there must be
an intention to create an immediate proprietary interest, or immediate right of recourse to
identifiable, present, or in the case of a charge, future property
Mere agreement to create a charge DOES NOT create an immediate beneficial interest in the intending
charge
Existence of the charge is conditioned on a request, until that has happened, no property has
been identified to which the charge attaches (Philpott v NZ Bank per Sir Robin Cooke)

The procedure
Upon default an equitable chargee is entitled as of right to an order for sale: Sood v Christianos
Equitable mortgagee will always have an implied right of sale (Sood)
But the court has inherent jurisdiction to order a sale of property to enforce an equitable charge: King
Investment Solutions Pty Ltd v Hussain
As Campbell J held in King Investment Solutions Pty Ltd v Hussain [2005] NSWSC 1076; (2005) 64
NSWLR 441, [55]-[65], the Court has jurisdiction to order a sale at the suit of an unregistered
mortgagee of Real Property Act land by way of specific performance of a contractual power of sale
where there is one, but also as the standard remedy of an equitable chargee
How is the sale to be conducted?
In Sood (at [20] [24]) Brereton J discussed the main methods of effecting the judicial sale.
o First, in the ordinary course, a judicial sale is by auction, in order to ensure that the market is
fully tested and the best price obtained, but it is clear that the Court may authorise sale by
private treaty, and may retrospectively authorise a pre-existing sale under an existing
contract
Sale by the Court on the appointment for directions under a decree or order necessitating a sale
by the Court, the Master ordinarily directs that the sale shall be by public auction
Or allow the property to be sold by private contract either before or after the property has been put up
for sale by public auction
o The contract should contain all proper terms, including a provision for the payment of the
purchase money into court.
o An appointment is taken out for the approval of the contract, and notice thereof given to all
parties entitled to attend the proceedings.
o The evidence on an application for the Masters approval must show the price, terms of
payment, and conditions of sale are proper in the particular circumstances; and that the price is
the best that can be reasonably obtained (and not less than the value of the property)
To prove that the price is the best first having submitted the property at public auction
or inviting tenders e.g. advertising the property for sale
If not offered at auction, reason should be stated why
Court will usually fix a reserve to ensure those with priority interest are protected

Who is to conduct the sale?

In Sood (at [22]) Brereton J said: Ordinarily, the Court gives conduct of the sale to the party with
the greatest interest in maximising the sale price. When the security is insufficient, then
conduct will typically be given to the mortgagee, because the mortgagee has an interest in
maximising its recovery
conduct of the sale may be given to the mortgagor where the security is sufficient, because the
mortgagee then has little or no interest in maximising the selling price [King Investment Solutions,
[122]].
However, care needs to be takenbecause, again, many of them involve circumstances in which the
mortgagee has been the applicant for an order for judicial sale against the resistance of one or more
mortgagees. It may on occasion be appropriate to permit the solicitor for one party or the other
to conduct the sale, as a more appropriate course than to permit a party to become involved.
As Slattery J noted at ([94]): The role of the solicitor for the party conducting the sale is a difficult one. It
involves balancing the conflicting interests of the parties to allow the solicitor to act in their common
interests when dealing with the purchaser. It is doubtful that a party to the proceedings will generally be
able to perform such a role satisfactorily. A solicitors professional training and detachment and duties
owed to the Court make a solicitor rather than a party the appropriate performer of this role.
Since there will frequently be a degree of hostility between borrower and lender, it is best for
the court to give detailed directions for the conduct of the sale