• In the case of Fairclough v Swan Brewery [1912] AC 565, it was shown that the equity of redemption would mean a mortgage cannot be made to be irredeemable.

Facts of Fairclough v Swan Brewery [1912] AC 565

  • Appellant bought the hotel from a vendor who had held it under a lease due to expire a decade later
  • The hotel was mortgaged to a lender
  • The mortgage included a term whereby its contractual date of redemption was six weeks before the lease expired, in other words it could not be paid off until the last six weeks of the lease

Issues in Fairclough v Swan Brewery [1912] AC 565

  • Was this mortgage deed void due to it restricting the equity of redemption and trade?

Held by the Privy Council

  • Entitled to redeem the mortgage as the restriction preventing redemption until six weeks before the lease expired was found to be void.

Lord MacNaghten

Re-established the rule of equity of redemption, protecting the right of redemption

  • “it is now firmly established by the House of Lords that the old rule still prevails and that equity will not permit any device or contrivance being part of the mortgage transaction or contemporaneous with it to prevent or impede redemption.” [570]

Having looked at the mortgage deed in the present case, Lord MacNaghten clearly saw that the term of the mortgage deed was clearly a means of making the mortgage irredeemable

  • “a mortgage cannot be made irredeemable. That is plainly forbidden. Is there any difference between forbidding redemption and permitting it, if the permission be a mere pretence? Here the provision for redemption is nugatory.” [570]
  • “For all practical purposes this mortgage is irredeemable. It was obviously meant to be irredeemable. It was made irredeemable in and by the mortgage itself.” [570]