CBA v Iloska
[2018] VCC 144
•23 February 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-16-02416
| COMMONWEALTH BANK OF AUSTRALIA (ABN 48123123124) | Plaintiff |
| v | |
| LILJANA ILOSKA & ANOR | Defendants |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7, 8 and 9 February 2018 | |
DATE OF JUDGMENT: | 23 February 2018 | |
CASE MAY BE CITED AS: | CBA v Iloska & Anor | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 144 | |
REASONS FOR JUDGMENT
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Subject:PRACTICE AND PROCEDURE – EQUITY
Catchwords: PRACTICE AND PROCEDURE – whether leave should be granted for lay person to represent defendant – McKenzie friend – requirement for independent interpreter
EQUITY – subrogation – general principles – where third party has paid off mortgage – presumption that third party intends to keep mortgage alive for its own benefit
Legislation Cited: Civil Procedure Act 2010 (Vic); County Court Civil Procedure Rules 2008 (Vic)
Cases Cited:Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; Apostolou v Commissioner of State Revenue [2008] VSC 332; Australia and New Zealand Banking Group Ltd v Costikidis (Unreported, Supreme Court of Victoria, Hansen J, 22 December 1994); Bofinger v Kingsway Group Ltd (2009) 239 CLR 230; Butler v Rice [1910] 2 Ch 277; Clarey v Thomson [2002] VSC 156; Commonwealth Bank of Australia v Stephens [2017] VSC 385; Ghana Commercial Bank v Chandiram [1960] AC 732; Rogers v RESI Statewide Corporation Ltd 1991) 105 ALR 145; Smith v Green (1844) 1 Coll 555; Titles Strata Management v Nirta [2015] VSC 187
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Pitt | Gadens Lawyers |
| For the First Defendant | In person |
HIS HONOUR:
Summary
1 The main issue in this case is whether the plaintiff (“the CBA”) is entitled to be subrogated to the rights which Perpetual Trustees Victoria Limited (“Perpetual”) had under the mortgage given in its favour by the first defendant over the property in Certificate of Title Volume 09130 Folio 117, being the property known as 12 Coonawarra Drive, Thomastown in the State of Victoria (“the Thomastown property”).
Background
2 On or about 4 March 1980, Liljana Iloska and her husband, Donco, became joint proprietors of the Thomastown property. They purchased the property for $40,000 from Pinewood Homes Pty Ltd.
3 On about 15 October 1992, Liljana and Donco became joint registered proprietors of the land in Certificate of Title Volume 9872 Folio 512, being the land known as 67 Arncliffe Boulevard, Greenvale, in Victoria (“the Greenvale property”). They purchased the Greenvale property for $75,000 from Fouad Mohammed Mahfouz and Souha Mahfouz. Also in October 1992, Liljana and Donco granted a mortgage over the Greenvale property (“the Greenvale mortgage”) in favour of the Commonwealth Savings Bank of Australia as security for a loan of $55,000. The Greenvale mortgage was registered in dealing number S173343N.
4 In about July 1998, Liljana and Donco executed a mortgage over the Thomastown property to the CBA. The mortgage was registered in dealing number V694848A.
5 By letter dated 17 December 1999, the CBA wrote to Liljana and Donco to advise that it had approved a Better Business Package facility for $200,000 to assist them in purchasing a commercial property. The term of the loan was 15 years. The agreed security for the loan was a second registered mortgage over the Thomastown property and a mortgage over the commercial property at Lot 281, Merola Way, Campbellfield.
6 On about 24 January 2000, Liljana and Donco executed a second mortgage in favour of the CBA over the Thomastown property. The mortgage was registered in dealing number W615025G.
7 In July 2001, the CBA wrote to Liljana and Donco to advise that it agreed to vary the Better Business Loan to increase the amount of the loan to $216,500.
8 On 15 October 2006, Liljana and Donco Iloska entered into a loan agreement with Perpetual. The facility amount was $256,000. The loan was an interest only loan for a period of five years. The security for the Perpetual loan was a first registered mortgage over the Thomastown property.
9 Pursuant to a discharge authority submitted to the CBA on about 25 October 2006, Liljana and Donco asked the CBA to discharge its security over the Campbellfield property and the Thomastown property.
10 At settlement of the Perpetual loan on 31 October 2006, the CBA received from Perpetual a payment of $155,220.19, being the amount required to pay out the Better Business loan.
11 By discharges of mortgage lodged at the Office of Titles on about 9 November 2006, the CBA discharged both mortgages over the Thomastown property.
12 On about 9 November 2006, Perpetual registered its mortgage over the Thomastown property in dealing number AE716299V (“the Perpetual mortgage”).
13 By a Supplementary Loan Agreement made on 22 November 2006, Perpetual agreed to make a further advance to Liljana and Donco in an amount of $51,752.06. The security for the additional advance was the existing Perpetual mortgage over the Thomastown property.
14 On about 27 September 2010,[1] the CBA discharged the Greenvale mortgage over the Greenvale property.
[1]The discharge document was dated 25 October 2006.
15 By a discharge authority made on 14 November 2013, Donco and Liljana asked Perpetual to discharge the Perpetual mortgage relating to both the first and second Perpetual loans.
16 By a transfer dated 13 December 2013, Liljana and Donco transferred the Thomastown property to Liljana and Tatjana Iloska as tenants in common. Liljana held 90% of the property and Tatjana 10%. The consideration for the transfer was said to be natural love and affection and $47,000.
17 By a loan agreement made on 9 December 2013, the CBA agreed to provide a loan in the amount of $431,249.08 (“the 2013 CBA loan”) to Liljana and Tatjana Iloska, the security for which was a registered mortgage by Liljana and Tatjana over the Thomastown property.
18 On 13 December 2013, Perpetual received the amount of $296,634.13 from the CBA, being the amount required to repay the indebtedness secured by the Perpetual mortgage. Upon receipt of that amount, Perpetual provided a discharge of mortgage for the Perpetual mortgage, together with the certificate of title to the Thomastown Property to the CBA’s lawyers. From the above amount, Perpetual applied $246,492.98 to the first Perpetual loan and $50,041.15 to the second Perpetual loan. The Perpetual mortgage was then removed from the title to the Thomastown property.
19 On 19 December 2013, the mortgage given by Liljana and Tatjana on 13 December 2013 (whereby they mortgaged their interest in the Thomastown property to the CBA) was registered in dealing number AK793820Y.
20 On 12 April 2016, the CBA issued a Notice of Default and a Notice of Demand to Liljana and Tatjana in respect of the 2013 CBA loan.
21 On 7 June 2017, the CBA filed a writ and statement of claim seeking, inter alia, possession of the Thomastown property and the amount of $429,949.95 against Liljana and Tatjana as the first and second defendants respectively.
22 On 23 December 2016, the CBA entered default judgment against Tatjana for possession of the Thomastown property and the sum of $445,245.49 comprising principal of $429,949.95 together with interest of $12,415.54 and costs of $2,880.00.
23 On 8 August 2017, the CBA filed an amended statement of claim.
The first defendant
24 A significant aspect of this case involved the issue of Liljana’s representation. She is a 60 year old lady whose mother tongue is Macedonian. I was told, and accept, that she has a poor command of the English language in both oral and written form. Liljana, who insisted upon being self-represented, said (according to her son) that she could give evidence and make submissions only through an interpreter. At the beginning of the trial, her son, Robert, applied to act for his mother and to interpret for her. He said that he was the only person whom his mother trusted to interpret for her. This application by Robert Iloski had two aspects:
(a)whether he could appear on behalf of his mother; and
(b)whether he could interpret for his mother.
25 In Apostolou v Commissioner of State Revenue,[2] Mandie J referred to the role of a McKenzie friend which he said was described in earlier authority in the following terms:
[2][2008] VSC 332.
“Any person, whether he be a professional man or not, may attend as a friend of either party, may take notes, may quietly make suggestions, and give advice; but no-one can demand to take part in the proceedings as an advocate, contrary to the regulations of the court as settled by the discretion of the justices.”
Mandie J acknowledged that a judge had the discretion to allow a lay person to appear for a party to litigation. He identified some factors which were commonly relevant to the exercise of that discretion:
·the conduct of a case by a lay person is not under the disciplinary control of the court (or other relevant professional and disciplinary bodies).
·the court is unlikely to receive the skilled and learned assistance that it may expect from a professionally qualified representative.
·the represented parties’ interests may not be well served by a lay representative.
His Honour noted that the factors can vary from case to case.
26 In the present case, I consider that the court can take into account also the availability of legal representation and the importance and relevance of the defence which the party seeks to advance.
27 In this case, I refused the application by Mr Iloski to appear for his mother. I did this for several reasons.
28 First, Mr Iloski is not a lawyer admitted to practise in this State and is not subject to the disciplinary control of the court or some other professional body in the same way as a practising lawyer is. To that extent, he would be unaware of his obligations to the court, which in some cases override a lawyer’s obligation to a client. Nor, if Mr Iloski breached the usual obligations binding a lawyer, would he be subject to any form of censure or sanction.
29 Secondly, because Mr Iloski is not a trained lawyer, it is unlikely that he would provide the court with the skilled assistance which it should expect from a qualified professional.
30 Thirdly, I was not confident that Mr Iloski would necessarily represent his mother’s best interests. This concern arose primarily from an allegation in the defence that the loan agreement and mortgage which the CBA relied upon for its claim to possession were not in fact signed by the first defendant. Liljana alleged that her signature was forged and that she was overseas in Macedonia with her husband at the time the loan agreement and mortgage documents were purportedly signed. Other documents to which I was taken by the plaintiff suggested that Mr Iloski and/or his wife had received from the CBA part of the funds which the CBA advanced on the strength of the impugned mortgage. In those circumstances, I considered that Mr Iloski might face a conflict of interest due to his possible involvement in the alleged fraudulent behaviour. The position here was made worse by the fact of the language barrier and my inability to know whether Mr Iloski was faithfully reporting to me his mother’s instructions and evidence.
31 After the CBA’s opening, it was clear that it no longer relied upon the impugned loan transaction and mortgage to claim the repayment of the moneys owing to the bank and possession of the Thomastown property. Rather, the CBA sought only to be subrogated to the rights of the previous mortgagee, Perpetual, at the time when the CBA paid out the defendants’ debt to Perpetual. Notwithstanding the change in the scope of the claim, I still considered that Mr Iloski’s possible involvement in fraudulent conduct which might affect his mother made him unsuitable as someone to act as her advocate and interpreter.
32 In relation to the interpreter issue, I consider it important that the court be as confident as it can reasonably be that the interpreter is accurately translating the evidence or submissions of a party. For this reason the courts have a well-established practice of usually requiring that the interpreters be NAATI accredited.[3] This means that interpreters should have a sufficiently high level of proficiency and an appreciation of the serious obligations which they have to the court and the litigant. It is also important, other than perhaps in special circumstances, that interpreters are independent of the litigants and have no personal interest in the outcome of the litigation.
[3]NAATI is the national standards and accreditation body for translators and interpreters in Australia.
33 Here, Mr Iloski might be affected in the longer term if any potential inheritance from his mother were reduced due to the loss of the Thomastown property. Further, given the indication in the documents shown to me that Mr Iloski and/or his wife obtained moneys from the CBA as a result of the CBA loan secured against the Thomastown property, it is also possible that Mr Iloski had some involvement in the alleged fraud complained of by the first defendant.
34 I emphasise in this context that I am not making any finding against Mr Iloski. No witness of the plaintiff gave any direct evidence to this effect, no such allegations were directly put to Mr Iloski and he was never required to go in the witness box and deal with such allegations. However, the fact that those sorts of findings, based upon the documents put before me, were more than a fanciful possibility, reinforced the desirability of having an accredited and independent interpreter to assist Liljana and the court.
35 Prior to trial, Liljana received recommendations or advice from the court and the plaintiff that she should obtain, or at least consider obtaining, an interpreter and legal adviser for the litigation. I also addressed these issues with the first defendant after the trial began.
36 The first defendant, through her son, said that she had suffered bad experiences with lawyers in the past and no longer trusted them to act on her behalf. This was the only reason given for not using a lawyer at the trial. Earlier in this and other litigation, the first defendant had retained lawyers and also received pro bono assistance from a barrister in drafting the defence in this proceeding. At no time did the first defendant say that she was unable to afford a lawyer. Indeed, it appeared that she had previously paid bills amounting to tens of thousands of dollars from solicitors. Thus, the fact that the first defendant was unrepresented reflected, it seemed, an unwillingness to retain lawyers rather than an inability to do so.
37 The first defendant said she had also had bad experiences with interpreters and only trusted her son to communicate with the court. She refused to use any other person in that role.
38 The issue of the first defendant’s refusal to retain a lawyer and to use an accredited independent interpreter arose on the first day of trial. At that time, I told the first defendant and Mr Iloski that I would not allow him to act for the first defendant or for him to act as the first defendant’s interpreter.
39 After the plaintiff concluded its opening, I nonetheless allowed the first defendant, through her son, to put before the court a folder of documents which the first defendant contended was relevant. However, because it was clear that there was to be no oral evidence given to explain the context of the documents and precisely how they related to the issues in the case, I did not allow Mr Iloski to provide background information by way of opening.
40 Early in the trial I gave the first defendant an outline of how the trial would be conducted and a summary of the main points of practice and procedure which would unfold. Using the analogy of a jigsaw puzzle, I said to the first defendant that if she were not going to call evidence, then she could not use her son to explain in an opening how the documents in the folder fitted together and related to the issues in the case. It seemed to me that it was a waste of the court’s and the parties’ time to have such an explanation when there was no likelihood of the first defendant calling evidence to substantiate the opening.
41 On the second day of the trial, when the plaintiff called evidence, the first defendant was not present and did not cross-examine either of the plaintiff’s witnesses. Nor was the first defendant present on the third day of the trial when the plaintiff made its final submissions.
42 Thus, although notified of her right to lead evidence and make submissions about her case and the case advanced by the plaintiff, the first defendant chose not to attend court and to take up the opportunity to exercise those rights.
43 On the second day of the trial after court rose for the day, there was an exchange of email correspondence between the court and the first defendant in the terms set out below. The court sent an email to Mr Iloski in the following terms:
“Dear Robert
This email is directed to you because the Court assumes that your mother does not read English.
We request that you please advise your mother of the following matters:
(a)The folder of documents which the defendant handed up this morning in Court has been accepted into evidence.
(b)The plaintiff has finished leading its evidence and has closed its case. This means that the only remaining task for the plaintiff is to make final submissions.
(c)If the defendant wishes to lead oral evidence or other documentary evidence, she should be at Court ready to proceed at 10.15am tomorrow, 9 February 2018.
(d)If the defendant wishes to make final submissions about either the plaintiff’s case or her own case, she should be at Court ready to proceed at 10.15am, 9 February 2018. Any factual submissions are to be based upon the evidence. Any legal submissions should refer to relevant supporting statutes, cases or text books.
If you wish to attend Court with the defendant to support her, to take notes or quietly make suggestions or advice you may do so.
Please confirm by email that you have conveyed the above information to the defendant.”
44 At about 3.45pm on 8 February 2018, the court received the following email:
“Mrs Liljana Iloska is grateful for your communication, I have conveyed the information to Mrs Liljana Iloska, who has asked me to reply with the following questions for consideration:
Will the court allow Mr Liljana Iloska to provide her evidence with respect to the matters referred to (c) and (d) below.
(c)If the defendant wishes to lead oral evidence or other documentary evidence, she should be at Court ready to proceed at 10.15am tomorrow, 9 February 2018.
(d)If the defendant wishes to make final submissions about either the plaintiff’s case or her own case, she should be at Court ready to proceed at 10.15am, 9 February 2018. Any factual submissions are to be based upon the evidence. Any legal submissions should refer to relevant supporting statutes, cases or text books.
Via an interpreter in compliance with s30 and s31 of the Evidence Act 1995, if Mrs Liljana Iloska’s interpreter, at her request, me, complying with s22 of the Evidence Act 1995?
This electronic transmission has been copied to the representatives of the CBA in compliance with the Rules of Court.”
45 In answer to the question raised by the first defendant, the court sent a final email in these terms:
“The Court requires that the interpreter be accredited and independent with no interest in the outcome of the proceeding.
It is the usual practice of this Court to require that Court interpreters:
·hold appropriate certification from the National Accreditation Authority for Translators and Interpreters; and
·are independent from the parties to the proceeding.
Thus, for the reasons mentioned in Court (which I will probably expand upon in my final judgment), you cannot be the interpreter for your mother.”
46 Thus, although notified of her legal right to lead evidence and make submissions about her case and the case advanced by the CBA, the first defendant chose not to attend court on 9 February 2018 and to take up the opportunity to exercise those rights.
47 On the following morning at about 10.43am, the first defendant, through her son, sent an email to the court which constituted a commentary on the contents of the Court Book produced by the CBA. To the extent that the first defendant sought to give evidence about the substance of documents in the Court Book, I have not taken such purported evidence into account in making my decision.
The CBA’s argument
48 The essence of the CBA’s case was that it was entitled to be subrogated to the rights which Perpetual enjoyed at the time the CBA paid out the indebtedness of Liljana and Tatjana to Perpetual and discharged the Perpetual mortgage over the Thomastown property. The CBA is suing for $296,534.13 plus interest and costs.
49 Alternatively, the CBA is suing the first defendant for $155,220.19 plus interest and costs on the basis that it is entitled in equity to be sub-subrogated to its own rights by reason of it facilitating the discharge of the earlier CBA mortgages upon payment out to the plaintiff by Perpetual on or about 31 October 2006.
The first defendant’s position
50 The first defendant’s pleading is unsatisfactory. The first defendant filed an amended defence and counterclaim in December 2016 which was drawn by Counsel.
51 In August 2017, the CBA amended its statement of claim. The new claim abandoned the previous claim for possession of the Thomastown property based on the alleged default by the first defendant under the mortgage given to secure the loan facility granted in 2013. Instead, the CBA relied upon the equitable claim to subrogation and sub-subrogation.
52 On 3 August 2017, the court ordered the first defendant to file an amended defence and counterclaim by 15 September 2017. The first defendant did not comply with that order. On 6 November 2017, Judge Marks noted that, as things stood at the time, paragraphs 10 - 15 of the amended statement of claim (which replaced the original 10 – 15 in the statement of claim) were denied in the defence and counterclaim dated 12 December 2016 and ordered that that version of the defence stand as the defence to the amended statement of claim. This seems an unusual order to make in circumstances where the court was aware that the plaintiff’s claim had changed significantly and that the defence was not responsive to the new allegations. Her Honour ordered that if the first defendant sought to do more than deny paragraphs 10 – 15 of the amended statement of claim, she had to file and serve by 20 November 2017an amended defence and counterclaim raising any positive allegations by way of defence.
53 On 24 April 2017, Judicial Registrar Tran ordered that the document entitled "Affidavit in Reply of Liljana Iloska sworn 6 April 2017" and filed on 10 April 2017 stand as Liljana’s rejoinder and reply to the reply and defence to the counterclaim dated 17 March 2017.
54 Notwithstanding these various problems, the gist of the defence is that:
(a)the first defendant was overseas at the time the CBA loan application documents and mortgage and transfer of the Thomastown property were signed in 2013; and
(b)the first defendant’s signature on those documents was forged.
(c)the first defendant is thereby not bound by the documents purportedly signed or the transactions they purported to effect.
55 However, neither the first defendant’s documents nor anything said in court by Liljana or her son appear to contest that:
(a) Perpetual paid out the CBA facility in 2006 by advancing $155,220.19 to Liljana and her husband under the Perpetual facility.
(b) as a result of the Perpetual advance, the previous mortgages registered over the Thomastown property in favour of the CBA were discharged and replaced by a mortgage in favour of Perpetual.
(c) the CBA paid out the Perpetual facility in 2013 by advancing $296,534.13 to Liljana and Tatjana.
(d) as a result, the Perpetual mortgage over the Thomastown property was discharged and replaced by a mortgage in favour of the CBA.
Legal principles
56 Subrogation, like equitable doctrines, is applicable to a variety of circumstances. Equity attaches importance to the need to fashion the particular remedy to meet the nature of the case.[4]
[4]Bofinger v Kingsway Group Ltd (2009) 239 CLR 230 at [90]-[91].
57 The general principles regarding subrogation in the present context are well established.
58 In Aged Care Services Pty Ltd v Kanning Services Pty Ltd,[5] the New South Wales Court of Appeal said:[6]
[5][2013] NSWCA 393.
[6]Ibid at [49]-[54].
“[49] First, in a general sense, subrogation is the “process by which one party is substituted for another so that he may enforce the other’s rights against a third party for his own benefit” [sic]: C Mitchell, The Law of Subrogation, Clarendon Press, Oxford (1994) at 3 cited with approval in Highland v Exception Holdings Pty Ltd (in liq) [2006] NSWCA 318; (2007) 60 ACSR 223 per Santow J at [90].
[50] Secondly, as explained by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44; 239 CLR 69 at [90], the equitable doctrine of subrogation is not a “tangled web” in need of the imposition of the “top down” reasoning which is characteristic of some all-embracing theories of unjust enrichment. Rather:
“[94] …the relevant principles of equity do not operate at large and in an idiosyncratic fashion. So it was that in Boscawen v Bajwa, Millett LJ, after denying that subrogation is a remedy which the court has a general discretion to impose whenever it thinks fit to do so, went on:
‘The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff’.”
[51] Thirdly, one well recognised area of subrogation is where there has been payment out by a third party of a prior security: see Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed (2002) at [9-060]–[9-075].
[52] Thus, where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that “the mortgage shall be kept alive for his own benefit”: see Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; see also Filby v Mortgage Express (No 2) [2004] EWCA Civ 759 at [53]; Butler v Rice [1910] 2 Ch 277; Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 202 per Windeyer J, who dissented on the facts.
[53] Fourth, the expression “kept alive” means in this context, that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party: Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 at 223F per Lord Hoffmann.
[54] In Cochrane v Cochrane (1985) 3 NSWLR 403 at 405, Kearney J accepted that the principle emerging from Ghana Commercial Bank applies, unless it is shown that the circumstances are such as to displace the presumption. His Honour observed that:
“This principle is based on equity’s concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out.” (emphasis added)
59 It is not open to doubt that where a third party pays off a mortgage, the third party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his or her own benefit: Ghana Commercial Bank v Chandiram.[7]
[7][1960] AC 732, 745.
60 The contrary intention can appear in some circumstances – for example, if rather than A paying off B’s mortgage, A lends money to B, which B uses to pay off the mortgage. In such a case, the money received by the mortgagee is in every relevant sense, the money of B and not of A.[8]
[8]See Clarey v Thomson [2002] VSC 156 at [130] per Habersberger J quoting from Meagher, Gummow and Lehane: "Equity: Doctrines and Remedies".
61 One relevant decision is that of Rogers v RESI Statewide Corporation Ltd.[9]There, Mr and Mrs Rogers were the registered proprietors as joint tenants of a property. In 1986, and again in 1987, they entered into a mortgage in favour of Westpac Banking Corporation. The first mortgage was for a home loan and the second mortgage was for a personal loan. In late 1998, Mr Rogers applied to RESI Statewide for a loan of $83,000. There was a mortgage purportedly signed by both Mr and Mrs Rogers offered as security for the loan and RESI Statewide held other documents authorising Westpac to give discharges of the two Westpac mortgages at settlement to the representative of RESI Statewide. Also, RESI Statewide was authorised to make payments to Westpac in order to discharge those two mortgages. The authority forms were all purportedly signed by Mr and Mrs Rogers. RESI Statewide received the documents bona fide believing that they were regularly executed.
[9](1991) 105 ALR 145.
62 In fact, Mrs Rogers had not signed any forms and was unaware of the financing arrangements which her husband had made with RESI Statewide. Thus, the loan transaction and security arrangements which RESI made were without her knowledge or consent and her signature was forged.
63 In reliance upon the signed authorities and the mortgage, RESI Statewide advanced $83,000, disbursing the funds as follows:
·to Westpac Savings Bank Ltd to discharge the first mortgage – $49,772.12;
·to Westpac Banking Corporation to discharge the second mortgage – $13,603.65;
·to Mr Rogers – $19,624.23.
64 RESI Statewide registered its mortgage and procured the discharge of the two Westpac mortgages. Mr and Mrs Rogers separated in January 1989. When the action commenced, the debt owing to RESI Statewide was approximately $98,000.
65 Mrs Rogers took action seeking a declaration that the RESI Statewide mortgage was void against her and an order directing the Registrar-General in South Australia to cancel the RESI Statewide mortgage. Mrs Rogers sought to undo that part of the transaction with RESI Statewide which purported to charge her interest in the property the subject of the mortgage while simultaneously retaining the benefit of the transaction insofar as it discharged the two Westpac mortgages.
66 The trial judge held that although the RESI Statewide mortgage was, by reason of the forgery, null and void for all purposes,[10] RESI Statewide was nonetheless subrogated to the benefit of the security enjoyed by Westpac when the two Westpac mortgages were paid out at settlement.
[10](1991) 105 ALR 145, 150.
67 His Honour quoted with approval the passage from the judgment in the Ghana Commercial Bank case referred to in paragraph 59 above and also referred to the decision of Butler v Rice[11] as being very much in point. In the latter case, the husband of the owner of the mortgaged property, without her knowledge, borrowed money from the plaintiff for the purpose of paying off the mortgage on an undertaking to procure that part of the money borrowed would be secured by a new mortgage. The money was advanced to the husband who paid off the mortgage. But his wife then refused to execute a new mortgage.
[11][1910] 2 Ch 277.
68 It was held that it must be presumed that the plaintiff intended to keep the first charge alive in his own favour over the property, the title deeds of which he received when the advance was made. The fact that the wife had not requested the plaintiff to make the payment, and did not know of the transaction, was held to be immaterial. Accordingly, the plaintiff was entitled to a charge over the property and interest.
69 In relation to the issue of whether it was material that Mrs Rogers had not requested the payment made by RESI Statewide to discharge the prior Westpac mortgages, his Honour quoted from the judgement of Warrington J in Butler v Rice,[12] where the trial judge said:[13]
“… It should be observed that this is not a case in which a person seeks to create a charge in his own favour. Here there was an existing charge and the only question is whether it has been paid off or kept alive. On such a question as that, it appears to me that the concurrence of the mortgagor is immaterial. Her position is not affected. The only alteration in her position is that instead of owing the money to A she will in future owe it to B.”
[12]Ibid.
[13]Ibid at 282-83.
70 His Honour went on to note that the immateriality of consent by the owner of the property was recognised as long ago as the decision in Smith v Green.[14]
[14](1844) 1 Coll 555, 563.
71 Another relevant decision is that of Clarey v Thomson.[15] In that case, a property owned by the plaintiff was sold to the defendant for $520,000. There was registered over the property a first mortgage from the plaintiff in favour of National Australia Bank (“the NAB”) as security for the sum of $149,709.50. The defendant obtained a loan of $468,000 from Permanent Trustee Co Ltd to pay the purchase price. At settlement, Permanent Trustee paid the NAB the sum of $149,709.50 and paid the balance of the moneys to a Mr Talube. The plaintiff later sought to have the contract set aside on the ground that her signature was forged. She joined Permanent Trustee and the NAB as parties to the proceedings.
[15][2002] VSC 156.
72 The NAB submitted that it had no case to answer as Permanent Trustee had paid out the NAB’s debt and was therefore subrogated to the NAB’s rights as mortgagee of the property. Thus, it argued that even if the plaintiff were held to still be the registered proprietor of the property, she would hold the property subject to Permanent Trustee’s subrogated rights as mortgagee in place of the NAB.
73 The trial judge relied upon the decisions of Ghana Commercial Bank v Chandiram[16] and Butler v Rice[17] in accepting the NAB’s argument.[18]
[16][1960] AC 732 at 745.
[17][1910] 2 Ch 277.
[18][2002] VSC 156 at [112].
74 The facts in the case before me were not really disputed. Nor was exception taken to any of the documents tendered by the parties. Those documents were in almost every case, either business records or public documents.
75 The CBA submitted that I should not accept the first defendant’s position that she did not know that the Thomastown property was encumbered after 2000. Apart from any other issue, it was unarguable that she entered into a facility with Perpetual in 2006 and that the Thomastown property was the sole security for the loan funds advanced by Perpetual. Nowhere did the first defendant make any allegation to the effect that her signature was forged in relation to any of the Perpetual documentation.
76 The first defendant also raised no allegations or complaints about the legitimacy of the supplemental loan agreement entered into with Perpetual in a later transaction. The extra funding provided by Perpetual became part of the “Secured Money” as defined in the Perpetual mortgage and the Thomastown property remained security for that further advance.
77 I am satisfied on the evidence that the CBA is entitled to be subrogated to the rights of Perpetual as they stood when the Perpetual indebtedness was paid out and the Perpetual mortgage over the Thomastown property was discharged in about 2013. The nett effect is that Liljana, instead of owing money to Perpetual, owes the same amount to the CBA. It would not be appropriate for Liljana to retain proprietorship of the Thomastown property free of the Perpetual mortgage while at the same time not being bound by the 2013 CBA mortgage. Because the CBA have paid out the Perpetual indebtedness, it would amount to double recovery by Liljana.
78 There is in my view no reason why the equitable remedy of subrogation should not be available to the plaintiff. The CBA paid out the perpetual indebtedness secured by the mortgage over the Thomastown property and the presumption is that the mortgage is kept alive for the CBA’s benefit – that is, legal relations are regulated as if Perpetual assigned its security to the CBA. There is no reason on the evidence to believe that there was any contrary intention.
79 Alternatively, if the primary claim failed, the CBA is entitled to succeed on its sub-subrogation argument – namely, it can stand in the position of the CBA when Perpetual paid out the earlier CBA mortgages over the Thomastown property in about October 2006. The amount paid out to discharge the mortgages was $155,220.19.
80 The CBA urged me to infer that the first defendant was capable of understanding at least written English. The basis of the submission was that there had been many documents signed by her since the original mortgage over Thomastown in 1980.
81 I cannot properly make such a finding. It is not appropriate when the first defendant failed to give evidence and no one has given any specific evidence to the effect that they had dealings with the first defendant in English and she spoke and acted in a way which suggested that she understood the English language. However, I do accept that there was nothing in the documents tendered in court to suggest that various loan and security documents were translated into Macedonian or that the first defendant required an interpreter to sign them. These documents included many which were created a substantial time before 2013.
Relief
82 The CBA argued that it should receive an order for subrogation and an order for the sale of the Thomastown property pursuant to Order 55 of the County Court Civil Procedure Rules 2008 (Vic).
83 The CBA relied upon the decision of Daly AsJ in Titles Strata Management v Nirta.[19] There, the plaintiff lent Mr and Mrs Nirta an amount of about $635,000 for two months. The interest rate was approximately 8% per month. The advance was secured by a mortgage over a pizza shop the defendants owned in Footscray and their family home in Altona Meadows. The purpose of the advance was to pay out a previous loan made in March 2011. This loan was secured over the pizza shop and was in default. The plaintiff made its loan in August 2011 and two months later, it was in default.
[19][2015] VSC 187.
84 The plaintiff issued proceedings against Mr and Mrs Nirta. The plaintiff obtained judgment against Mr Nirta but Mrs Nirta was granted leave to defend the proceeding on the basis that her signature to the applicable loan agreement, mortgage security and other associated documents was forged.
85 Ultimately, the court found that Mrs Nirta’s signature on the relevant documents was forged. As a result, the loan document was not enforceable. Because the covenant to pay was not incorporated or contained in the mortgage, it was not covered by the principle of indefeasibility. However, the court found that the doctrine of subrogation applied and hence, the plaintiff could stand in the shoes of the prior lender.
86 Daly AsJ made various orders including an order for possession of the first property in favour of the plaintiff, an order that the defendants execute a mortgage in registrable form over the other property to secure the indebtedness which it found, and orders made pursuant to Order 55 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) for the sale of the first property and the application of the proceeds of sale.
87 The CBA submitted that the court should follow the approach adopted in that case rather than that adopted by Sloss J in Commonwealth Bank of Australia v Stephens.[20] There, the bank sought to enforce its claims against the defendant to recover the principal sum lent and an order for possession of the security property. By way of obiter, Sloss J dealt with the argument that if the bank were not successful in enforcing its agreements with Stephens, it nonetheless could be subrogated to the rights of the previous security holder whom it had paid out. Her Honour said that the CBA, by paying $1.365 million to the prior security holder to clear its debt and discharge its mortgage, was presumed by operation of law to intend that the earlier mortgage be kept alive. Her Honour accepted that it was appropriate to make the following orders:
[20][2017] VSC 385.
(1) a declaration that the [bank] is subrogated to the rights of Perpetual pursuant to the Perpetual mortgage in respect of the payment of $1,365,662.44 together with interest and costs;
(2) an order that [Mr Stephens] execute a mortgage in registrable form in respect of the Wooralla property to give effect to the declaration set out in paragraph (1).
These orders were said to be “more conventional” than an order for possession of the security property. Her Honour’s approach was more in accordance with the orders made by Hansen J in Australia and New Zealand Banking Group Ltd v Costikidis.[21] Hence, following the conventional course, Her Honour said that the bank should prepare a form of mortgage for Stephens and the court to consider and, subject to argument, obtain an order for its execution. That mortgage would secure the sum of $1,365,662.44 and such interest as the court ordered in respect of the subrogation claim and would refer to those moneys as being immediately due and payable. Thereafter, upon demand being made in the terms of the mortgage, the bank would proceed to enforce the mortgage.
[21](Unreported, Supreme Court of Victoria, Hansen J, 22 December 1994).
88 In the present case, the CBA submitted that I should not follow Sloss J because it would lead to an unwieldy situation which could result in further litigation with consequential cost and inconvenience to the parties and the engagement of court resources. This was said to be inconsistent with the overarching purpose of the Civil Procedure Act 2010 (Vic) (“CPA”).
89 In Stephens, Sloss J did not take account of Order 55. From the report, it appears that no submissions were made with reference to this Order or the desirability of achieving finality in the litigation when granting relief consequential upon finding that the doctrine of subrogation was applicable.
90 The plaintiff submitted that, if the court declined to grant an order for possession and sale under Order 55, it would be forced to seek possession of the property from Liljana pursuant to the terms of the new mortgage after it had been executed and registered. This would require the plaintiff to issue a notice of default under the new mortgage. Then, if Liljana did not comply with the notice or surrender the property, the CBA would need to commence enforcement proceedings and an action for possession, to which presumably there could be no defence. If Liljana nonetheless sought to defend the proceedings, the CBA would have to make a summary judgment application. The costs of any enforcement proceedings would be sought on an indemnity basis. This would pose a further and unnecessary burden on whatever equity remained in the Thomastown property.
91 The CBA submitted that it was within the court’s powers and consistent both with equitable principle and the provisions of the CPA for the court to grant an order for possession of the Thomastown property and order the sale of the property.
92 The mortgage dated 31 October 2006 between Perpetual on the one hand and Liljana and Donco on the other provided that the mortgage was given in consideration of Perpetual providing a loan or other credit at the request of Liljana and Donco and secured the payment to Perpetual of the secured money (as defined in the Memorandum of Common Provisions numbered AA930 and retained by the Registrar of Titles). The mortgage also contained an acknowledgement by Liljana and Donco that having received from Perpetual valuable consideration of $256,000, they agreed to repay the money together with interest and expenses in accordance with the Memorandum of Common Provisions.
93 The Memorandum of Common Provisions itself contained the following terms:
(a) Liljana and Donco acknowledged that by the mortgage they gave Perpetual security over the Thomastown property and their right to receive money or compensation for the property;
(b) the mortgage was security for payment to Perpetual of the secured moneys and for the performance of the obligations under the mortgage. They agreed to pay the secured money as and when it became due and payable in accordance with provisions of each Secured Agreement or the Mortgage or in the absence of an agreement, on demand;
(c) “Secured Money” means:
· all amounts that are payable at any time or are contingently owing or payable to Perpetual under a Secured Agreement;
· all amounts that are payable at any time by any borrower to Perpetual on any other account whatsoever;
· all amounts that are advanced by the mortgagee on the security of the mortgage;
· Expenses.
(d) “Secured Agreement” means:
· any present or future agreement between the mortgagee and any mortgagor; and
· an agreement that varies such an agreement.
(e) “Expenses” means all amounts that the mortgagee incurs in relation to:
· the stamping and registration of the mortgage form and any associated dealing;
· seeking possession of the property or taking any other action to enforce the mortgage after an Event of Default;
· in preserving or maintaining the property (including paying insurance, rates and taxes); and
· as a consequence of Perpetual being the mortgagee, for example, in relation to any litigation or governmental inquiry in respect of the property, the mortgage or a Secured Agreement.
(f) the mortgagor shall pay interest to the mortgagee on the balance outstanding from time to time of the Secured Money calculated on a daily basis and debited monthly on the last day of each calendar month. Interest shall be calculated at the rate or rates from time to time agreed between the mortgagee and the mortgagor, or failing agreement, at the rate or rates from time to time charged by the mortgagee on comparable mortgage loans.
(g) the mortgagor must ensure that the mortgagor is not in default under the mortgage. The mortgagor must also observe and perform on time all of the mortgagor’s obligations under every Secured Agreement and any other security for the Secured Money that the mortgagor is party to.
(h) you must pay all Expenses on demand.
(i) each of the following is an Event of Default:
· the mortgagor does not pay any of the Secured Money on time;
· the mortgagor fails to comply on time with any of the mortgagor’s obligations under the mortgage;
· any information supplied to the mortgagee in connection with a Secured Agreement or the mortgage is false or, in our opinion, misleading;
· the mortgagor or a guarantor breaches any term or condition of any secured agreement or any security;
· the mortgagor or a guarantor becomes insolvent;
· the mortgagor or a guarantor becomes mentally incapacitated …;
· the mortgagor gives any mortgage or charge over the property without the mortgagee’s consent;
· the mortgagor defaults under any other mortgage or charge over the property;
· any creditor of the mortgagor commences any form of recovery action affecting the property.
94 The Secured Agreement here provided that Perpetual would lend $256,000 and that Liljana and Donco would repay the loan after five years. The loan was interest only and had notional monthly payments of $1,523.20. The interest rate varied between a high of 11.14% and a low of 7.14%.
Conclusion
95 On balance, I consider the better view is to follow the approach taken by Sloss J and Hansen J in their respective decisions. The judgment in Stephens is recent, detailed and, even though obiter on this particular point, nonetheless referred to and displayed an awareness of the Nirta decision. While I accept that Sloss J did not refer to the use of Order 55 in the manner adopted in Nirta’s case, this can hardly be taken as an endorsement of that aspect of that decision. Her Honour was plainly aware of the dichotomy between an order for possession of the subject property and the more conservative route which she would have permitted if the plaintiff’s claim had otherwise failed. In the circumstances, I propose to follow that same approach even if there is some consequential cost and delay for the plaintiff.
96 Accordingly, subject to hearing from the parties, the orders I propose to make are as follows.
The court declares that:
1.On 13 December 2013, the plaintiff paid the sum secured by mortgage AE716299V registered in respect of the property situate at 12 Coonawarra Drive, Thomastown in the State of Victoria being the property more particularly described in Certificate of Title Volume 09130 Folio 117 (‘the Property’) to Perpetual Trustees Victoria Limited ACN 004 027 258 (‘Perpetual’).
2.The plaintiff is subrogated to the rights conferred upon Perpetual under mortgage AE716299V in order to secure the indebtedness of the first defendant to the plaintiff.
3.The plaintiff has an equitable mortgage in respect of the first defendant's interest in the Property as security for the indebtedness of the first defendant to the plaintiff.
The court orders that:
4.There be judgment for the plaintiff.
5.The first defendant pay to the plaintiff the principal sum of $296,534.13 together with interest in the sum of $6,647.36, being a total judgment debt of $303,181.49 (as at 6 February 2018).
6.The first defendant execute a mortgage in registrable form (such mortgage to be prepared by the plaintiff’s solicitors) over the Property in order to secure her indebtedness to the plaintiff pursuant to paragraph 5 of these orders.
7.The plaintiff be restrained from taking any steps to register the mortgage over the Thomastown property for no less than 14 days after service upon the defendant of a certificate of indebtedness with respect to any shortfall in the amount owing to it pursuant to paragraph 5 of these orders.
8.The first defendant pay the plaintiff's costs of the proceeding (including any reserved costs) on an indemnity basis.
9.Reserve liberty to apply to the court in respect of execution by the first defendant of the said mortgage and generally as to the carrying into effect of these orders.
10.The counterclaim of the first defendant is dismissed with costs.
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