Under the Torrens System, priorities between registered interests are principally determined by the order of registration of those interests, with the interest registered first in time taking priority. Generally, a registered interest has priority over an unregistered interest, even if the unregistered interest was created first in time, and even if the first interest was known by the second interest-holder at the time of registration. The holder of an unregistered interest should normally lodge a caveat in order to prevent a loss of priority in this fashion.

A holder of one registered interest can give priority to another by registering an instrument expressly altering those priorities. In Western Australia there is no legislative provision for the registration of an instrument to alter priorities. Such instruments are not registered in Western Australia. More commonly in the case of mortgages, two or more mortgagees will enter into a Priority Deed agreeing contractually the order of payment of money from the sale of one or more securities. Such agreements are binding between the parties even if the priorities therein recorded are different to the priorities registered on title.

In South Australia, the order of priority of registered mortgages or encumbrances can be varied by the parties executing and registering an Application for the Variation of Order of Priority (Form A5).

See the When at least one of the mortgages is registered guidance note.

The rule for determining priorities as between unregistered (and hence equitable) mortgages and other unregistered interests is that the first-created interest prevails unless one interest is considered to have the stronger equity.

The order of the lodgment of caveats does not determine priorities between equitable interests in a similar manner to the order of registration between legal interests. The failure to caveat does not automatically cause loss of priority, however, as only particular circumstances such as unreasonable failure to caveat leading to granting of a later mortgage in ignorance of the earlier interest will cause the earlier mortgage to lose priority. Priority can also be lost through encouraging another lender to believe that if it lends it will receive priority.

Some types of equitable interests are classed as “mere equities” and are accorded lower priority to full equitable interests as a matter of course. Such interests occur in situations in which it is necessary for the court to intervene before the interest is properly constituted, such as when a mortgagor needs the court to set aside a wrongful mortgagee sale in order to recover its equity of redemption. See the Priorities between unregistered mortgages guidance note.

A first mortgage, once it becomes aware that a second mortgage has also been granted, is limited in its ability to make further advances to the mortgagor and claim the repayment of those advances in priority to the monies due under the second mortgage. The ability to claim first priority for such further advances is known as “tacking”.

In Victoria, Queensland and Tasmania, the law pertaining to tacking is set by statute. In those states, tacking of further advances after notice of a second mortgage and without the consent of that second mortgagee is only permitted if the terms of the first mortgage require such advances to be made. In the other Australian jurisdictions, the ability to tack is determined by case law. It is similar to the statutory regime of the other states, but the requirement in the first mortgage to make further advances will be insufficient to permit tacking unless the further advances are for the purpose of improving the security property (as would occur, for example, in the case of a construction loan). See the Further advances and tacking guidance note.

Although a mortgagee holding multiple securities is permitted to realise its securities in such order as it sees fit, if the choice of order negatively impacts a subsequent mortgagee holding fewer securities then equity will intervene to assist that subsequent under the doctrine of marshalling. Marshalling allows a second mortgagee to recover monies from the sale of other properties over which were subject to the first mortgagee held securities, but which are not subject to the second, in order to put the second mortgagee in the same position as if the first mortgagee had realised its securities, with due regard to the second mortgagee’s interests by selling last the properties subject to the second mortgage.

When there are two or more subsequent mortgagees, the marshalling situation is more complicated. In this case, the court will put the subsequent mortgagees in the same position as if the first mortgagee had recovered its secured debt from the sale proceeds of each security property proportionately in accordance with that property’s value. See the Marshalling guidance note.