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Fairclough v Swan Brewery Co Ltd [1912] AC 565

Equity of redemption means that mortgage cannot be made irredeemable

Facts

The appellant bought a hotel from a vendor who held the hotel under a lease which was due to expire in June 1925. The property was mortgaged to the respondent lender. The respondent was a brewery company and the mortgage deed contained a covenant which required the appellant to purchase beer and ale exclusively from the respondent. The respondent refused to allow the appellant to pay off the mortgage early in 1910.

Issue

On Appeal from the Supreme Court of Western Australia, the question for the Privy Council was whether the mortgage deed, which precluded early redemption of the mortgage and precluded the appellant from purchasing beer from any other person during the term of the mortgage, was void as being a clog on the equity of redemption and in terms of being an unreasonable restraint on trade.

Held

The Privy Council observed the firmly established rule that equity will not permit any term in a mortgage to prevent or impede redemption of the mortgage. Counsel on behalf of the respondents had admitted that a mortgage cannot be made irredeemable. In the circumstances, the provision for redemption was nugatory and the mortgage irredeemable. Therefore, the Privy Council restored the judgment of the First Instance judge and held that the appellant was entitled to redeem the mortgage and the provisions in the mortgage deed which prevented the appellant from redeeming were void as being an unreasonable clog on the appellant’s equity of redemption. After the redemption had been refused by the respondent there was no breach of the mortgage deed by the appellant.

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