Will a mortgagee’s failure to register a charge within time impact a guarantor’s obligations?
In the decision of Commonwealth Bank of Australia v Anand  NSWSC 613, the Supreme Court of New South Wales considered whether a mortgagee’s failure to register a charge within time, thereby rendering the charge void, would impact on a guarantor’s liability under a guarantee.
The Commonwealth Bank of Australia (CBA) loaned a company $1.4 million to buy and fit-out two fast-food “Oporto” franchises. CBA held a fixed and floating charge over the company. CBA also accepted a guarantee from the sole director and shareholder of the company (Guarantor), supported by a mortgage over two of the Guarantor’s properties. The company subsequently went into liquidation.
The fixed and floating charge held by CBA was found to be void against the liquidator because it was registered outside of the 45 day period required by the Corporations Act 2001 (Cth). Consequently, CBA was not entitled to receive the proceeds of sales of the two shops’ fit-outs (Proceeds), which instead became assets of the liquidation.
CBA brought proceedings against the Guarantor for possession of the mortgaged properties and the loan monies payable under the guarantee. The Guarantor claimed that his obligations as a guarantor were wholly or partially discharged as a result of CBA’s failure to lodge the charge within time, in accordance with the terms of the loan agreement. In opposition to the Guarantor’s claim, CBA relied upon an exemption clause of the guarantee, which stated:
“Our rights and your liabilities under this guarantee are not affected by any failure to act by us or by anything else that might otherwise affect your liabilities under law relating to guarantees, including the fact that we lose the benefit of or do not obtain any SECURITY, or the fact that we do not register any SECURITY which could be registered”
In the alternative, CBA argued that the Guarantor would at best be entitled to a partial release from his obligations to account for the Proceeds that CBA might have recovered if it held a valid charge.
The Supreme Court of New South Wales concluded that the terms of the exemption clause of the guarantee are unequivocal and a complete answer to the Guarantor’s defence. The court therefore determined that CBA was entitled to recover the full amount of its debt under the mortgage.