A joint venture partner lent $200,000 secured by a mortgage. The mortgage was never executed or registered and when the borrower went into liquidation, the liquidators tried to claim that the joint venture partner had lost his security either as a result of voting in favour of the deed of company arrangement or because he did not respond to the lapsing notice to preserve his caveat. The liquidators also argued that after taking account of their costs, there was no surplus remaining in any event.
The court held that the joint venture’s partner security as equitable mortgagee remained in tact. He did not lose the benefit of it. Both the Deed of Company Arrangement and the transfer to the purchaser of the land expressly preserved his rights as a secured creditor by their terms, so section 444D of the Corporations Act and the lapsing notice under section 90 of the Transfer of Land Act did not affect his equitable mortgage.
Indeed the court noted that the Registrar’s lapsing notice was of no force and effect because the transfer expressly preserved his rights and upon sale of the land, his interest as equitable mortgagee attached to the sale proceeds as an equitable charge. The court further held that his conduct in not responding to the notice and delaying for 7 months before claiming the surplus did not amount to a waiver of his interest.
The court held that his interest converted into an equitable charge upon the sale and noted that the remaining issue was whether the liquidator’s fees were reasonable in order to determine whether there was a surplus.