The Full Federal Court of Australia recently clarified the application of the rule in Hopkinson v Rolt in respect of priorities between first and subsequent mortgages. In Naxatu Pty Limited v Perpetual Trustee Company Limited [2012] FCAFC 163, Naxatu relied on the rule in Hopkinson v Rolt in claiming that its second ranking mortgage should have priority over certain money advanced by the first mortgagee (Perpetual). The rule in Hopkinson v Rolt provides that advances made by a first mortgagee after the first mortgagee has notice of a second mortgagee's mortgage, are deferred in priority to the second mortgagee's debt.

In giving its decision in Naxatu, the Full Court clarified the application of the rule in Hopkinson v Rolt, noting that the rule comes into play when the first mortgagee has notice of the second mortgage, and is not dependant on having notice of a further advance under that second mortgage. The Court noted that each mortgagee, knowing of the other's mortgage, should make enquiries as to the amount owing to the other before making a further advance. The Court also confirmed that the rule in Hopkinson v Rolt must give way to any contrary agreement between the parties.

This decision is a reminder that when a mortgagee has notice of other mortgages held over the same property, it is important to have a clear deed of priority in place, and to make enquiries as to the amount owing to the other mortgagees before making further advances to the mortgagor.

See court decision here.