Mortgagee Beware of Equitable Lienees

1 March 2021
Fidelis McGarrigan, Partner, Adelaide

In Condon, in the matter of Rayhill v Australia and New Zealand Banking Group Ltd[1]Justice Stewart resided over an application for summary dismissal brought by ANZ against Condon, a trustee in bankruptcy and equitable lienee, and considered:

    1. Whether an equitable lienee had standing in equity and under section 111A of the Conveyancing Act 1919 (NSW) (Conveyancing Act) to bring a claim against a mortgagee for selling property at less than market value; and
    2. Whether particular conduct of the equitable lienee constituted an election between inconsistent rights.

Ultimately, these issues proved insufficient to warrant the summary dismissal of Condon’s proceeding.


In 2010, ANZ advanced $750,000 to Colleen Anne Lewis (Lewis) which was secured by a first registered mortgage over a Property in Kenthurst, New South Wales (Property).

Lewis, the then registered proprietor of the Property and trustee of a trust (Trust), became bankrupt in May 2012.

Schon Gregory Condon (Condon) was appointed trustee of her bankrupt estate, which included the Property and rights of indemnity against the Property in the sums of $690,000 and $2 million. Upon Lewis’ bankruptcy Lewis’ property vested in Condon as trustee, who held an equitable lien over the sale proceeds of the Property to secure payment of debts owed by the Trust to Lewis.

By reason of Lewis’ default on the loan, ANZ commenced proceedings for possession of the Property in the NSW Supreme Court. ANZ took possession of the Property in 2013 pursuant to Court Order and at the auction sold the Property to the highest bidder at $2,740,000. The second-last bidder, Mr D’Souza, stopped bidding at $2,730,000. Both bids were fairly representative of the Property’s market value.

When the sale to the highest bidder subsequently fell through, ANZ negotiated the sale by private treaty to Mr D’Souza for $2 million ($730,000 less than he had bid at auction).

Prior to settlement and upon request, Condon’s solicitors wrote to ANZ’s solicitors (Letter) providing confirmation that Condon was “at that time unaware” of any basis on which he could make a claim and had no claim against ANZ in respect of matters arising out of or in connection with the sale of the Property.

Regardless of the Letter, Condon subsequently commenced proceedings against ANZ, in equity and under statute, claiming that as mortgagee exercising its power of sale, it owed to him, and breached, the duty:

    1. To take reasonable care to ensure that the Property was sold for not less than market value, pursuant to section 111A(1) of the Conveyancing Act; and
    2. To act in good faith, or act bona fide and honestly, in selling the Property.

ANZ sought summary dismissal of Condon’s proceeding on the following grounds:

    1. Condon lacked standing to bring/assert the claim; and
    2. He previously made an election not to assert the claim and should be held to that election.




His Honour relied on the phraseology employed in:

    1. Ultimate Property group Pty Ltd v Lord,[2] in which it was stated that the mortgagee’s duty is to act conscionably towards the mortgagor “and persons under the mortgagor“; and
    2. Medforth v Blake,[3] in which it was held that the duty is owed to “the mortgagor and anyone else with an interest in the equity of redemption“.

By virtue of the equitable lien, Condon possessed a proprietary interest in the Property. Generally, an equitable lien gives its holder a right to take action in respect of property by seeking an order for judicial sale.  In that way, Condon could properly be regarded as a “person under the mortgage” and a person “with an interest in the equity of redemption“, much like mortgagors, lower-ranking mortgagees and guarantors, such that he can sue for breach of the mortgagee’s equitable duty.

Section 111A of the Conveyancing Act

ANZ submitted that section 111A was intended to replicate section 420A of the Corporations Act 2001 (Cth) in that it did not intend to confer new rights onto third parties. However, section 420A was held to be of no assistance in determining the issue of standing as it speaks only to content or quality of the duty, while section 111A provides a specific remedy to a “person who suffers loss or damage“.

His Honour instead cited an analogous Queensland provision, section 85 of the Property Law Act 1974 (Qld), which provides a remedy in damages to a “person damnified” by a mortgagee’s failure to ensure property is sold at market value. On its interpretation, a “person damnified” has been held capable of extending beyond the mortgagor themselves, to other persons who have an interest in the performance of the statutory duty (e.g. guarantors).

With reference to the construction of this analogous provision, his Honour believed there to be no reason why ‘a person’ under section 111A should be construed any narrower than the categories of persons who have standing to sue a mortgagee for equitable damages (e.g. mortgagors, lower-ranking mortgagees, guarantors).


Election consists of a choice between rights which the person making the election knows they possess, and which are alternative and inconsistent. In essence, it requires that a party be confronted with two mutually exclusive options, of which one they must choose. In this matter, his Honour found there to be no unequivocal conduct of Condon by which he can be said to have made an election. Therefore, election was no basis to summarily dismiss the proceeding.

In its submissions, ANZ sought to rely on the Letter. While his Honour found that the Letter may constitute waiver or estoppel, it did not constitute election; Condon did not know at the time that he had a claim against ANZ so cannot be said to have elected not to pursue it.

It should also be noted that in 2016, Condon entered into a Heads of Agreement and Deed of Settlement/Release (Agreements). The Agreements did not provide that Condon released ANZ of liability nor was ANZ a party to or have any knowledge of the Agreements. As election can normally only take effect when communicated to the party affected, Condon’s conduct in being a party to the Agreements was found not to amount to election.

Key takeaways

This decision confirms that, by virtue of an interest in the equity of redemption, the holder of an equitable lien has standing to bring an action against a mortgagee for breach of its equitable and statutory duties.

With respect to election, it serves as a clear reminder that an individual cannot elect not to pursue an action if they did not know at the time that they had a right of action. Importantly, this decision encourages parties to consider whether alternate doctrines of estoppel and/or waiver are applicable in instances where facts give rise to election


Authored by:

Fidelis McGarrigan, Partner
Hannah Tsavalas, Lawyer


[1] [2020] FCA 1674.

[2] [2004] NSWSC 114; 60 NSWLR 646.

[3] [2000] Ch 86.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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