THE BURDEN OF CONVEYANCING ACT SECTION 93

Subsections 1 & 3 of Section 93 of the New South Wales Conveyancing Act have from time to time caused some anxiety to those who have reflected on their meaning. They recently troubled Needham A-J in Steindleberger v Mistroni.[1]

Section 93(1) provides as follows:

"A mortgagor is entitled to redeem the mortgaged property although the time appointed for redemption has not arrived; but in such case he shall pay to the mortgagee, in addition to any other moneys then owing under the mortgage, interest on the principal sum secured thereby for the unexpended portion of the term of the mortgage: Provided that redemption under this subsection shall not prejudice the right of the mortgagee to any collateral benefit, or to enforce any burden or restriction to the extent to which he would be entitled under the mortgage or otherwise if the mortgage were paid off at the due date."

Subsection 3 states:

"This section applies to mortgages made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary."

The anxiety referred to above, arises, when those who draft mortgages insert a provision in the mortgage to the effect that on early repayment, the mortgagor is only required to pay interest due to the date of that repayment and no more. When such as provision is inserted, however, it would seem prima facie to be contrary to subsection (3). The rationale for its insertion has been that the thrust of subsection (3) is aimed at the early right of redemption bestowed by subsection (1) and is not aimed at the calculation of interest. The basis for this rationale appears to be that:

"Formerly a mortgagor wishing to redeem before the appointed date had no right to insist upon doing so; but mortgage instruments frequently gave the mortgagor an express right to pay off at any time on giving a specified period of notice or paying interest for that period in lieu of notice now [with the advent of Section 93] even in the absence of such a provision, a mortgagor is entitled to redeem at any time . . . . . . . . ."[2]

In other words the subsections were aimed at giving the right to early redemption to the mortgagor and ensuring that such a right could not be excluded. The matter of interest calculation was not the issue the subsections were aimed at and accordingly the right for the mortgagee to have interest for the stated term of the mortgage could be excluded. Particularly this was the case, so the rationale continued, when the intent of the legislature by inserting the subsections was to protect mortgagors, not mortgagees. Finally, the rationale submitted, it would be inequitable (just plain stupid!) if mortgagees could not agree by a condition in a mortgage to take a lesser amount of interest than that to which they would normally be entitled. If a mortgagee contracted to take a lesser amount then it was no business of the legislature. The problem has been however, that authorities for the rationale have been "thin".

The position prior to Section 93 being enacted is described by Owen CJ in O'Reilly v Heydon & Anor:[3]

"So far as the mortgagor's right to redeem is concerned, it is clear law that in an ordinary mortgage the mortgagors cannot redeem before the time fixed in the mortgage. That is one term of the contract in the mortgage and the courts regard the transaction as an investment by the mortgagee, which ought not to be disturbed before the date on which the parties have agreed that the investment is to be at an end."

If the courts in pre-Section 93 days regarded a mortgage transaction as an investment by the mortgagee, then the interest factor in such a transaction would surely loom large. It is hard to accept that those responsible for the drafting of Section 93 were not aware of the attitude of the Courts. It is still more difficult to accept that if they wished to deprive the mortgagee of interest for the stated term of the mortgage (on the advent of the mortgagor's early redemption,) they would have framed Section 93, to appear to mean the opposite!

Support for this view, it is submitted, comes from the report of Sir John Harvey on the Conveyancing Act which Needham A-J referred to in Steindleberger v Mistrone. [4]

"Clause 93 gives the mortgagor the right which he has not at present to pay off the principal of the mortgage debt before its due date provided he pays interest in advance up to the due date.. This would enable the mortgagor who finds a favourable opportunity of selling his property during the currency of his mortgage to accept the offer and to carry out the sale without reference to his mortgagee. The mortgagee, on the other hand, would get all that he bargained for under the mortgage in the way of interest and will get his principal before the due date. It appeared to me proper to provide that there should be no contracting out of this provision."

Needham A-J thought Sir John's remarks "not particularly helpful." One might ask with respect, "to whom?" It is submitted that the "non-contracting-out-of," referred clearly to both the right to redeem prior to the due date and the right for the mortgagee to have interest calculated to the due date, and the due date on any construction cannot be taken to mean the date of early redemption, but rather the stated date for the term of the mortgage.

Helmore gives weight to this view in the continuation of the quotation attributed to him above under footnote 2.

" . . . . . . . but in such a case [early redemption by the mortgagor pursuant to Section 93] he is bound to pay interest for the unexpended portion of the term of the mortgage in addition to any other money owing, including expenses properly incurred" [6]

In Kirby v Associated Securities[7] (referred to by Needham A-J in Steindleberger v Mistroni) Sugerman J said of a mortgagee

" . . . . . . . . . in cases within S93 of the Conveyancing Act he may be required to accept repayment but only on the terms that interest for the whole period of the loan is paid. But the parties may agree, as was done here, upon an early repayment, the borrower being of course in the position he can only repay on such terms as the lender is prepared to accept. The terms here accepted by the lender involved a substantial rebating of its strict rights."

What the mortgagee had done was accept from the mortgagor on the latter's early redemption, a lesser sum for interest than the sum the mortgagee would have received if interest had been calculated to the stated term of the mortgage. The mortgagor on his early redemption had then entered into a fresh mortgage with the mortgage. Acceptance by the mortgagee of a lesser amount of interest on the redemption of that prior mortgage must be seen in the framework of the parties' arrangements. In the words of Mr Justice Sugerman the mortgagee's forbearance had "involved a substantial rebating of its strict rights". The only interpretation to these words, it is submitted, is that the mortgage, was entitled to interest calculated to the stated term of the mortgagee. In other words when it comes to the calculation of interest in the circumstances of Section 93, the section protects mortgagees.

Walsh J it is submitted agreed with the interpretation of Section 93 propounded by Sugerman J. Speaking of the mortgagees he said:[8]

" . . . . they did not compel the respondents [mortgagors] to discharge the existing loan upon payment of the full amount of principal and interest. They accepted the proposals of the respondent under which, by virtue of a new agreement, not by virtue of a statutory right the earlier loan was paid off. This was not done upon the statutory terms as to payment of interest (ie interest was not calculated up to the stated date of the mortgage term) but upon different terms, which were part of that new agreement."

It is submitted that the implication of the words of Walsh J are that if the mortgagee had not agreed to the new terms or agreed to rebate the amount of interest, then interest would have been calculated to the stated date of the mortgage. Further it is clear that the mortgagor was in the hands of the mortgagee. The section when it came to the calculation of interest protected the mortgagee.

In Wanner v Caruana Street C J remarked of Section 93:[9]

"Under that section, a mortgagor has a statutory right at any time during the term of the mortgage to pay off the principal, together with interest for the whole of the originally agreed terms, and then to receive a discharge of mortgage. That section is not directly in issue in the present proceedings. But whilst its precise scope may be left for due determination if and when the point arises, one cannot fail to observe that it apparently proceeds upon the basis that the obligation on a mortgagor to pay presently unaccrued interest was regarded as acceptable by the legislature."

It is plain that Street C J regarded the sections as open to the interpretation that interest was payable for the full term of the mortgage. The section did not apply in Wanner v Caruana, because the mortgagors had not requested redemption. Rather they were in default and on that basis and on the basis of a clause in the mortgage, the mortgagee was seeking interest for the full term. Street C J regarded the relevant clause as bearing "the hallmarks of a stipulation in terrorem" and having regard to the facts of the matter declined to follow the mortgagee's submission. In Stocks & Enterprises Pty Ltd v McBurney & Davis, a mortgagee made demand for payment of principal and interest upon the mortgagor's default. Under the terms of the relevant clause the Court of Appeal held that interest was payable to the date of payment of principal only and not for the unexpired term of the mortgage. Samuels J A who agreed with the Chief Justice, made the following remarks, indicating that when a mortgagor might chose to redeem early, interest is payable for the full mortgage term:

"Section 93(1) commences "A mortgagor is entitled to redeem the mortgaged property although the time appointed for redemption has not arrived"; and then provides that in such case he shall pay to the mortgage, in addition to any other moneys then owing under the mortgagee, interest on the principal sum secured thereby for the unexpired portion of the term. The subsection therefore applies in the case of a mortgagor who seeks a premature redemption. But that was never the case here."

In Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd[10] Helsham J stated the matter at issue:

"The question is whether the mortgagor is entitled to redeem the mortgage by payment of the principal sum and interest to the date of payment, without paying a further sum representing interest on the principal for the unexpired term of the mortgage.

Subject to a contrary provision contained in the mortgage (and there is none here), there is no right in law for a mortgagor to accelerate the repayment of principal and so avoid the payment of interest for the whole term. There is a statutory right under S93 of the Conveyancing Act for it to accelerate the repayment of principal, but a mortgagor seeking to avail himself of that right must pay the interest referable to the unexpired term."

Helsham J had held the mortgagor was in default, but in the absence of demand by the mortgagee, the mortgagor was bound by the provisions of Section 93 relating to early redemption. His Honour's decision was upheld on appeal.

In Steindleberger v Mistroni the plaintiffs/mortgagor secured $70,000 on their property by way of registered RPA mortgage. Inter alia the mortgage dated May 30th 1986, provided for repayment of the principal sum in full by May 29th 2001. The mortgage further provided by condition sixth:

"The mortgagors may repay the mortgage at any time provide that they give one months' notice and provide that they pay all interest accruing to the date of discharge together with a certificate from a qualified accountant in which the accountant certifies the final figure due for the discharge of the mortgage.

The plaintiffs sought an early discharge of their mortgage. A dispute arose with the mortgagee, the latter requiring payment of interest to May 29th 2001. The basis for the mortgagee's challenge was Section 93 of the Conveyancing Act in particular subsection 3. The plaintiffs/mortgagor on the other hand argued that interest was payable to the date of their early discharge only.

The defendant mortgagees argued that Clause sixth of the mortgage did no more than give effect to Section 93. Needham A J rejected that submission. His Honour found that the Clause gave the mortgagors a right to repay at a time specified by them subject to them giving one months notice and paying interest to the date of discharge-which His Honour held to be the day one month after the date notice was given by the mortgagors.

Having made his finding that interest was to be calculated in accordance with the plaintiff's contention viz computing interest to the date of early discharge, His Honour considered whether the parities could rely on Clause 6 in any case in view of subsection (3) of Section 93 of the Conveyancing Act. In other words could His Honour's interpretation of the way interest should be calculated (viz to the actual date of discharge) stand, when subsection (3) clearly stated that the subsection, was effective notwithstanding any provision to the contrary. Subsection 1 seemingly contradicted His Honour's interpretation by providing for the payment of

"interest on the principal sum secured thereby for the unexpired portion of the term of the mortgage."

His Honour first dealt with the fundamental problem as to whether the parties could contract out of the provision in Section 93 requiring interest to be paid on early redemption for the unexpired term of the mortgage. He noted there were<[11]

" . . . . . some indications in certain judgments which support the contention that S 93 is subject to a provision in the agreement between the parities. For example, in Branwood Park Pastoral Company Pty Ltd v Willing & Sons Pty Ltd (1977) 1 BPR 9534 at 9535, Sir Laurence Street, sitting in the Court of Appeal, said:

"There being no contractual right available to the mortgagor to procure an early discharge of its mortgage, the sole source form which that right derives is S93(1)."

While that statement is clearly not a statement necessary to the decision of the case, it does imply that a contractual right would be available to the parties quite apart from S93."

His Honour concluded his findings in respect of Section 93.[12]

"It is, I think, a section passed principally for the benefit of mortgagors, and it would be a strange result if such a section had the effect that an agreement between the mortgagor and the mortgagee under which the mortgagor was entitled to redeem on certain terms was invalidated by virtue of subsection (3)"

His Honour then went on to find that in the instant case there were two dates for redemption: that stipulated in the mortgage documentation of May 29th 2001 and that date that arose whenever the mortgagor gave a months notice of intending to discharge or to seek early redemption. Referring to Section 93(1) the "time appropriate for redemption" was the date that arose one month after notice was given by the mortgagor. His Honour further held that interest was payable by the mortgagor to the actual date of discharge (and not for the unexpired term of the mortgage).

His Honour's decision would seem to put to rest any fears that mortgagors and mortgagees cannot contract out the provisions of Section 93(1)(3) when it comes to an agreement on interest. It should be further noted that following His Honour's decision an application to the Court of Appeal was rejected. It seems that any implication in prior authorities that Section 93 was also for the benefit of mortgagees is to be read down, the words of Sir John Harvey notwithstanding.

The Burden of Conveyancing Act Section 93. 1994, March Australian Property Law Journal