The recent Court of Appeal decision of Westpac Banking
Corporation v Clark (Unreported, CA 172/06, [5 September
2008]) goes some way to answering a technical but important issue
on indefeasibility with significant ramifications for corporate
lenders in New Zealand.
The case involved a fraudster forging identity documents and
entering into a loan agreement and mortgage with Westpac recording
a debt secured by an 'all obligations' mortgage. The all
obligations mortgage was over a property not owned by the
fraudster, deceiving both Westpac and the solicitor acting for both
The solicitor provided a solicitor's certificate and
undertaking to Westpac that he would register the mortgage
promptly. However, the solicitor only attempted to register the
mortgage nine weeks after the loan was advanced by Westpac, in
breach of his undertaking. The Registrar refused to register the
mortgage as Westpac had by that stage notified the Registrar of the
suspected fraud. Westpac sought summary judgment against the
solicitor for causing it loss by the delay in registering the
The Court accepted that, had the solicitor registered the
mortgage promptly, Westpac would have had an indefeasible title and
thus an enforceable security. However, the main issue under
consideration was what exactly the mortgage security, if
registered, would have secured. It was argued by the solicitor
that, even if he had registered the mortgage it would have secured
nothing, as the true registered proprietor of the property owed
nothing to Westpac - the loan agreement was entered into with the
fraudster and would not have the benefit of indefeasibility.
For the purposes of this argument, it was relevant that the
mortgage under consideration was an all obligations mortgage. The
Court noted that the loan agreement entered into with the fraudster
was not expressly referred to in the mortgage, although it was one
of a class of documents coming within the definition of 'Loan
Agreement' in the mortgage. Also, the mortgage did not in any
place expressly incorporate all of the terms of the relevant loan
agreement. More importantly, however, the Court noted that the Loan
Agreement was defined as an agreement relating to 'money lent
to you'. In this context, 'you' meant the registered
proprietor of the land, not the fraudster. It did not refer to
'money lent to you or anyone purporting to be you'.
For these reasons, the Court held that the terms of the forged
loan agreement were not incorporated into the mortgage and
therefore would not have been payable under the mortgage, had the
mortgage been registered promptly. The Court noted that all
obligations mortgages, as currently drafted in New Zealand, are
unlikely to incorporate the terms of separate loan agreements.
The Court suggested that it may be possible to change the
existing standard wording in all obligations mortgages so that it
is clear that they incorporate at least the terms of the particular
loan agreements signed at the same time as the mortgage, which
would have assisted in this case. Lenders should look to amend the
terms of their all obligations mortgages to specifically
incorporate the terms of all agreements intended to be secured by
Leave to the Supreme Court has been granted with the Appeal due
to be heard in March 2009.
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