Abdullah Hadid v Abeedah Khan (as trustee for the Khan Family Trust)

[2004] NSWCA 362

CITATION:	Abdullah Hadid & Anor v Abeedah Khan (as trustee for the Khan Family Trust) [2004] NSWCA 362
HEARING DATE(S):	29 September 2004
JUDGMENT DATE:	29 September 2004
JUDGMENT OF:	Giles JA at 1; Ipp JA at 25; Tobias JA at 26
DECISION:	(1) Leave to appeal be granted; (2) Direct notice of appeal be filed within seven days; (3) Appeal allowed; (4) Orders made by Cripps AJ on 18 December 2003 be set aside and in lieu thereof order that the application for summary judgment be dismissed; (5) Grant liberty to the claimants to re-plead the fraud exception under s 42(1) in their defence and if so advised by way of cross-claim and note that will be the sole issue on which the mater will go to trial; (6) Order the opponent to pay the claimant's costs of the application for leave to appeal and the appeal and that she have a certificate under the Suitors Fund Act if qualified; (7) Costs of the application before Cripps AJ be costs in the proceedings.
CATCHWORDS:	Real property - forged mortgage - purported mortgagor told mortgagee prior to registration that it was forgery - made mortgagee anxious to register as soon as possible - mortgage registered - whether arguable case for fraud exception in s 42(1) Real Property Act - held arguable case. ND
CASES CITED:	Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Webster v Lampard (1993) 177 CLR 598.
PARTIES :	Abdullah Hadid - First Claimant Sanaa Hadid - Second Claimant Abeedah Khan (as trustee for the Khan Family Trust) - Opponent Abeeda Khan (as trustee for The Khan Family Trust) - Opponent
FILE NUMBER(S):	CA 40119/04
COUNSEL:	A Rogers - Claimants C R C Newlands SC & P T Newton - Opponent
SOLICITORS:	Equity Lawyers, Greenacre - Claimants Heidtman & Co - Opponent

LOWER COURTJURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	41257/03
LOWER COURT JUDICIAL OFFICER :	Cripps AJ

CA 40119/04
SC 41257/03

GILES JA
IPP JA
TOBIAS JA

Wednesday 29 September 2004

ABDALLAH HADID & ANOR

v

ABEEDAH KHAN (as trustee of the Khan Family Trust)

Judgment

1 GILES JA: This is an application for leave to appeal from orders for summary judgment in proceedings for possession of land made by Cripps AJ. It has been heard on full submissions so that, if leave to appeal be granted, the appeal can be determined without a further hearing.

2 The claimants are the registered proprietors of the land known as 662 Punchbowl Road, Punchbowl. The land is subject to the provisions of the Real Property Act. The opponent is the second mortgagee of the land under a mortgage dated 25 November 2002 registered on 31 December 2002. The claimants allege that the mortgage is a forgery, that they did not execute it or receive the mortgage advance, and that it was fraudulently procured by a named third party who received the mortgage advance, less various expenses. The question before Cripps AJ was whether there was an arguable case of fraud within s 42(1) of the Real Property Act 1900, by which the opponent’s registration as proprietor of the mortgage was effective to confer on her an interest as mortgagee “except in case of fraud”.

3 The approach to the question is not in dispute. If there is a real question to be determined, whether of fact or law, summary judgment should not be ordered, and the power to order summary judgment should be exercised with “exceptional caution”. This has been put in a variety of ways in the cases, of which Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91, General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-9 and Webster v Lampard (1993) 177 CLR 598 at 602 are sufficient instances. It has been recognised that argument may be needed in order to demonstrate that a point of law is or is not arguable, but nonetheless most points of law in part turn on facts. That is so in the present case.

4 It was accepted before the judge that there were arguable questions of fact that the mortgage was a forgery, that it was not executed by the claimants, and that the claimants did not receive the mortgage advance. The evidence otherwise went to what happened when the claimants found out about the mortgage.

5 The mortgage transaction was settled on 25 November 2002. The mortgagee lodged a caveat. On 27 November 2002 the first claimant received a letter from the Land and Property Information Office telling him that the opponent had lodged the caveat. He telephoned the opponent’s solicitors, Heidtman & Co, presumably because they were identified in the caveat, and asked why a caveat had been lodged. He was told that he had taken a loan for $130,000 and that if he had any query about the matter, he should contact Response Finance Pty Ltd, the mortgage manager which had arranged the loan.

6 The first claimant then telephoned Response Finance Pty Ltd and spoke to Mr Andrew Littleford. The judge set out the two exchanges of which the first claimant gave evidence. The first was this:

“MR HADID: What right have you got to tell solicitors to place a caveat over my residential home?
MR LITTLEFORD: You got $130,000 loan.
MR HADID: Where is the money?
MR LITTLEFORD: It went to Overseas Travel Services. We have got your ID’s.
MR HADID: Is my ID sufficient to give a loan. I don’t know you and you don’t know me.
MR LITTLEFORD: Go and see your solicitor, John Hancock”

7 The second was this:

“MR LITTLEFORD: I’ve got you and your wife’s photo ID plus both your signatures”
Mr HADID: It’s a fraud. It wasn’t me. Would you like to meet me and my wife?
MR LITTLEFORD: No, no I wouldn’t like to meet you. I haven’t got time”.
MR HADID: Look mate I haven’t signed any paper for a loan, neither has my wife. Whatever papers you have in front of you is a fraud”.

8 Mr Littleford contacted Heidtman & Co. It seems that Mr Theos was the person at that office dealing with the matter. Whatever was said by Mr Littleford seems to have caused Mr Theos to write to the first mortgagee seeking its consent to the registration of the second mortgage with his letter including, “We respectfully request this matter to be treated urgently”. The judge found that Mr Theos was anxious to register the mortgage and agreed that the knowledge he received that the claimants alleged that the transaction was fraudulent increased his anxiety to have it registered as soon as possible.

9 The mortgage was lodged for registration some time in mid December 2002 and in due course was registered on 31 December 2002.

10 The reasoning of Cripps AJ can be seen from the following passages.

11 First, his Honour said -

“19 In my opinion there is no material capable of leading to an inference that the mortgagee (Abeeda Khan), her mortgage manager (Response Finance Pty Ltd) or her solicitors (Heidtman & Co) had knowledge of the fraudulent conduct. Mr Theos, who had the carriage of the matter, has given evidence that he had no knowledge of the fraud. He said that he asked for the consent of the first mortgagee as a matter of urgency because that was standard practice in view of the fact that priority could be lost if another mortgage was registered. The subject mortgage was for three months only. Mr Theos has conceded that the knowledge he received that the defendants alleged that the transaction was fraudulent increased his anxiety to have the mortgage registered as soon as possible.”

12 The judge then noted that there had to be fraud of the opponent and that the fraud “must be common law fraud and not equitable fraud such as, for example, taking with notice”, referring to some cases.

13 His Honour continued -

“21 I have already referred to the conversations between Mr Hadid and Mr Littleford and Mr Theos. At its highest it could be said to be notice to Mr Littleford that a claim would be made that the mortgage was forged. But that does not establish that Mr Littleford knew or believed that what he was being told was true. The evidence against Mr Theos does not establish that he had reason to suppose the mortgage was a forgery accepting as I do that Mr Theos would have been aware of the allegation made by Mr Hadid and which he said raised his level of anxiety.
22 On behalf of the defendants Mr Rogers has submitted that he is entitled to relief provided he can establish “moral turpitude” associated with the registration of the mortgage and if that is so he therefore has an arguable case for subsequently establishing common law fraud. The moral turpitude alleged is the registering of the mortgage on 31 December 2001 against the background that it was done in order to defeat a claim the defendants might have otherwise had arising from the void instrument. I have already referred to the authorities which establish it is necessary to prove common law fraud. As was pointed out by Young J in Westerway & Sons v Registrar General & Ors fraud was not established merely because being aware of a complaint, the plaintiff “manoeuvred things” to get the benefit of “the system” i.e. indefeasibility.”

14 After reference to a cross-claim and some other proceedings, the judge said -

“23 … But there is nothing in the information before me capable of raising an inference that the plaintiff, Heidtman & Co or Response Finance Pty Ltd were guilty of common law fraud in having the mortgage registered. Accordingly, in my opinion, and on the assumptions I have made there is no “personal equity” in the defendants, which would enable their interest to prevail over the interest of the plaintiff conferred by registration.”

15 I respectfully have some difficulty with what the judge said in these passages. An assertion by a purported mortgagor that the mortgage was a forgery is at least notice of possible fraudulent conduct, and provides reason to suppose that the mortgage was a forgery. It would not be determinative, but people generally do not make such a serious assertion falsely and there does not seem to have been any occasion for Mr Littleford or Mr Theos to think that it had been made falsely. In J A Westaway & Son Pty Ltd v Registrar General (Young J, 15 August 1996, unreported), to which the judge referred, the complaint seems to have been that an outstanding equitable interest should mature by registration prior to the dealing which the manoeuvring of the system permitted to be registered first. This was quite different from registration after notice of forgery, on the claimants’ case done fraudulently within s 42(1) in order to defeat the forgery by obtaining indefeasibility.

16 The claimants submitted that, contrary to the judge’s view, the facts raised an arguable case of fraud within s 42(1) on the part of the opponent. They referred in particular to Assets Company Ltd v Mere Roihi (1905) AC 176, in which it was said at 210 -

“Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making inquiries for fear of learning the truth, the case is very different, and fraud may be properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon.”

17 The claimants said that there was in the present case more than that the opponent, through Heidtman & Co and Response Finance Pty Ltd, was on notice that a claim would be made and that the mortgage was forged. They said that there was an arguable case that the concern and haste which that engendered negated honest belief that the mortgage was a genuine document which could properly be acted upon, and that it made out abstaining from enquiries after suspicion had been aroused for fear of learning the truth. They pointed out that enquiry after the conversation with Mr Littleford could readily enough have supported their allegation that the mortgage was a forgery, because a comparison of signatures in the possession of the opponent’s agents differed from signatures on the claimants’ drivers’ licences.

18 The opponent’s answer to this took a number of forms.

19 She submitted that there was no actual knowledge of forgery prior to registration of the mortgage and that the allegation of fraud did not create an obligation to enquire further, so that even if it could be said that there was a want of due diligence whereby further enquiry was not made that was not sufficient for fraud. That is not a proposition which on the facts of this case can readily be accepted.

20 She submitted that in the passage from Assets Company Ltd v Mere Roihi earlier set out there was a deliberate distinction between failure to make enquiries, that being a matter relevant to notice of possible fraud prior to settlement of the mortgage transaction, and presentation for registration with an honest belief, which it was said was a matter relevant to the situation after settlement of the mortgage transaction. It was not enough, she said, that notice of fraud arousing suspicions might have been given after settlement. That is not how I read the passage from Assets Company Ltd v Mere Roihi. It seems to me that the relevant sentences were descriptions of the opposite sides of the same coin. However that be, the distinction drawn by the opponent in these submissions does not answer the relevant test. It is enough that there is an arguable case and, in my opinion there is clearly here an arguable case that, as a matter of fact and law, there was fraud for the purposes of s 42(1). In my opinion, the judge took an unduly narrow view of the import of the facts in the passages from his reasons which I have set out.

21 The opponent referred also to the pleading in the claimants’ defence, suggesting that the pleading was inadequate to carry a case of fraud for the purposes of s 42(1). Summarising the pleading, it was alleged that the opponent was on notice that the mortgage had been procured by fraud and that in fraud upon them she procured the registration of the mortgage after notice that the mortgage was procured by fraud. The point seemed to be that the pleading was tied back to notice of fraud, that that was something less than knowledge of fraud, and that for that reason fraud for the purposes of s 42(1) had not been properly alleged. Perhaps the pleading could have been more expansive and could have been more fully particularised, but it certainly did allege that the registration of the mortgage was procured in fraud of the claimants. A pleading point such as this should not be determinative on an application for summary judgment, but in any event I consider that the pleading is adequate.

22 For these reasons, in my opinion the question of the fraud exception should have been permitted to go to trial. The claimant should have the opportunity to go further, perhaps with interlocutory steps in aid of their assertion of fraud and should not be cut off by the exercise of the power to order summary judgment.

23 The question is obviously an important one, the claimants’ residence being at stake and leave to appeal should be granted. I propose that leave to appeal be granted and that it be directed that the notice of appeal be filed within seven days, that the appeal be allowed, and that the orders made by Cripps AJ on 18 December 2003 should be set aside and in lieu thereof it should be ordered that the application for summary judgment be dismissed.

24 Costs were mentioned in the course of the hearing, and I say nothing about costs for the moment.

25 IPP JA: I agree with Giles JA.

26 TOBIAS JA: As do I.

(Counsel addressed on the orders and costs.)

27 GILES JA: Then what I think we might do is we will make the orders which were previously foreshadowed. We will add to them: grant liberty to the claimants to re-plead the fraud exception under s 42(1) in their defence and if so advised by way of cross-claim, and note that as a result of what has been said today that will be the sole issue on which the matter will go to trial.

28 We order the opponent to pay the claimants’ costs of the application for leave to appeal and the appeal and that she have a certificate under the Suitors Fund Act if qualified. We order that the costs of the application before Cripps AJ be costs in the proceedings.

**********

Last Modified: 10/05/2004