In a decision released in September 2011, the High Court ruled that a mortgagee cannot exercise its power of sale under the mortgage if the Family Court has subsequently made an interim occupation order under the Property (Relationships) Act. That ruling had significant consequences for mortgagees, and was appealed to the Court of Appeal.

In a succinct judgment released last month, the Court of Appeal held that the Property (Relationships) Act does not prevent a mortgagee from exercising its powers of sale under the mortgage except in very limited circumstances, and ruled that the High Court should not have imposed conditions on the power of sale.

Facts

DB was the registered proprietor of a house, with a mortgage granted in favour of ASB. DB was in a de facto relationship with SM, but the two subsequently split. SM made a claim for a share of the house under the Property (Relationships) Act. She registered a notice of claim of interest on the title of the property, and obtained an order from the Family Court allowing her to continue to occupy the property.

DB was required to continue paying the mortgage. However, he later defaulted. ASB issued PLA notices and entered into an agreement for sale and purchase with a third party pursuant to its power of sale. ASB then applied under the Land Transfer Act to remove SM's notice of claim so the sale could settle.

High Court

Despite recognising that ASB had a bona fide prior ranking registered mortgage, the High Court did not remove the notice of claim outright. Instead, the notice of claim was removed on the following conditions:

  • SM was allowed to occupy the property until the Family Court order granting her right of occupation was set aside or the Family Court proceedings were resolved; and
  • The proceeds of the sale by ASB were to be paid into Court pending the resolution of the Family Court proceedings.

SM appealed against the order of removal of the notice of claim, and ASB appealed against the conditions.

Court of Appeal

The Court of Appeal observed that under section 46 of the Property (Relationships) Act, priority is to be given to mortgages registered before any order is made under the Property (Relationships) Act. This is also consistent with the Land Transfer Act. Section 46 of the Property (Relationships) Act is subject to sections 43 and 44 of that Act. However, neither of those sections applied here.

Section 43 provides that an order may not be made unless the court is satisfied that a disposition of property is about to be made to defeat the claim or rights of another person under the Property (Relationships) Act. However, this only applies to a disposition by DB. It does not apply to a mortgagee such as ASB.

Section 44 gives the court the power to transfer property to any person to whom it directs if a disposition has been made in order to defeat the claim or rights of any person under the Act. Here, however, the evidence showed that ASB had adopted its usual practice of realising its security in the first instance and then seeking to recover any shortfall from DB under his personal covenant. Further, ASB took no position in relation to the dispute between the parties, and the steps it took were the most prudent steps to take in order to protect its position. There was no evidence that ASB had colluded with DB. Accordingly, the Court found that ASB was not exercising its rights to defeat the claim or rights of SM.

The Court concluded that neither section 43 nor section 44 applied to the sale of the property by ASB, and ordered that the notice of claim be removed from the title without condition.