CEG Direct Securities Pty Ltd v Wang

Case •

[2021] NSWCA 76

•

07 May 2021

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

  • Summary available
  • Amendment notes
Medium Neutral Citation: CEG Direct Securities Pty Ltd v Wang [2021] NSWCA 76
Hearing dates: 10 March 2021
Date of orders: 7 May 2021
Decision date: 07 May 2021
Before: Bathurst CJ at [1]
Meagher JA at [2]
Brereton JA at [3]
Decision:

(1) Grant leave to appeal;

(2) Direct that the applicant within seven days file a Notice of Appeal in the form of the Draft Notice of Appeal;

(3) Dismiss the appeal;

(4) Remit the balance of the proceedings to the Common Law Division; and

(5) Order that the applicant pay the respondents’ costs.

Catchwords:

LAND LAW – Torrens title – Indefeasibility of title – Effects of indefeasibility – Construction of third party mortgages – Where executed pursuant to forged Powers of Attorney – Identification of secured money – Where no money advanced to or at the request of mortgagors – Where no acknowledgement of receipt – Mortgages held to have secured no money – Appeal dismissed – Balance of matter remitted

MORTGAGES AND SECURITIES – Mortgages – Duties, rights and remedies of mortgagee – Possession

CIVIL PROCEDURE – Court of Appeal – Leave to appeal – From separate questions – Practical effect of resolving claims finally and adversely to applicant – Leave granted

Legislation Cited:

Real Property Act 1900 (NSW), ss 41(1), 42, 57(1)

Supreme Court Act 1970 (NSW), s 103

Cases Cited:

Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70

CEG Direct Securities Pty Ltd v Shining Pty Ltd [2020] NSWSC 858

CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) (2020) 19 BPR ¶40,671; [2020] NSWSC 1213

English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302; [1937] HCA 6

Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9

Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR ¶30,189; [2011] NSWCA 390

Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453; [1933] HCA 38

Perpetual Trustees Victoria Ltd v Cox (2014) 17 BPR ¶33,313; [2014] NSWCA 328

Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32

Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR ¶22,281; [2004] NSWSC 745

Printy v Provident Capital Ltd (2007) 13 BPR ¶24,603; [2007] NSWSC 287

PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643

Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188

Small v Tomasetti (2001) 12 BPR ¶22,253; [2001] NSWSC 1112

Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722

Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24

Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1; [1973] HCA 14

Yazgi v Permanent Custodians Ltd (2007) 13 BPR ¶24,567 [2007] NSWCA 240

Texts Cited:

J Stoljar, “Mortgages, Indefeasibility and Personal Covenants to Pay” (2008) 82 ALJ 28

Category:Principal judgment
Parties: CEG Direct Securities Pty Ltd (Applicant)
Xihai Wang (First Respondent)
Hai Rong Li (Second Respondent)
Registrar General of New South Wales (Third Respondent)
Representation:

Counsel:
CRC Newlinds SC, J Baird & V Chan (Applicant)
DA Smallbone (First & Second Respondents)
A Douglas-Baker (Third Respondent)

Solicitors:
Ronayne Owens Lawyers (Applicant)
David Kam & Co Solicitors (First & Second Respondents)
Office of the Registrar General (Third Respondent)
File Number(s): 2020/285372
 Decision under appeal 
Court or tribunal:
Supreme Court of NSW
Jurisdiction:
Common Law Division
Citation:

[2020] NSWSC 1213

Date of Decision:
09 September 2020
Before:
Cavanagh J
File Number(s):
2018/44966

HEADNOTE

[This headnote is not to be read as part of the judgment]

The applicant is the mortgagee in respect of two registered mortgages over three properties of which the first and second respondents, the mortgagors, are the registered proprietors. The mortgages were purportedly executed on behalf of the mortgagors by their son pursuant to forged Powers of Attorney. Similarly, the son executed a Deed of Guarantee and Indemnity purportedly on behalf of the mortgagors, pursuant to those forged Powers of Attorney. The first mortgage purported to secure an advance of $200,000 to a company controlled by the mortgagors’ son, and the second mortgage purported to secure a further $181,000 advanced to that company. Clause 3 of the ‘Agreement’ page of Annexure A of the mortgages provides: [1] “You acknowledge that, as at the date of this mortgage, we have agreed to lend $200,000.00 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Mortgage Common Provisions, is called the secured money.”

1. The later mortgage specifies $381,000.00 in place of $200,000.00. The two mortgages are otherwise relevantly identical, and so for convenience only $200,000.00 is referred to in this headnote.

The company defaulted and the applicant commenced proceedings for possession. It was ordered that a number of issues be determined as separate questions. The primary judge determined that the Powers of Attorney were forged, that the Deed of Guarantee and Indemnity was consequently not validly executed, that the mortgages were not entered into by the mortgagors or by anyone acting with their knowledge or approval, and that the advances made to the company were not made at the request or direction of the mortgagors. Those determinations are not the subject of appeal. The primary judge further determined that the mortgages secured nothing, and from that determination the applicant seeks leave to appeal.

Held (per Brereton JA; Bathurst CJ and Meagher JA agreeing), granting leave to appeal, dismissing the appeal, and remitting the balance of the proceedings to the Common Law Division: [1] (Bathurst CJ), [2] (Meagher JA), [36] (Brereton JA).

While it is now well-established that under the Torrens System, and absent fraud on the part of the mortgagee, the registration of a forged mortgage confers on the mortgagee an indefeasible interest, registration does not mean that all terms and conditions have effect as if the mortgage were not forged. The quantum of the indefeasible interest depends on the construction of the registered mortgage(s): [3]-[8] (Brereton JA).

Real Property Act 1900 (NSW), ss 41(1), 42, 57(1); Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32; Small v Tomasetti (2001) 12 BPR ¶22,253; [2001] NSWSC 1112; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643; Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24; (affirmed) (1973) 129 CLR 1; [1973] HCA 14, considered.

In this case, the core question is the construction of the definition of ‘secured money’, as this is what the mortgagors have acknowledged indebtedness for. Clause 3 has the effect that the secured money is not $200,000 simpliciter, but instead $200,000 advanced to the mortgagors or at their request. As no money was advanced to the mortgagors or at their request, and as there was no acknowledgement of receipt by them, the mortgages secured nothing: [21]-[34] (Brereton JA).

Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9; Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR ¶22,281; [2004] NSWSC 745, applied; Printy v Provident Capital Ltd (2007) 13 BPR ¶24,603; [2007] NSWSC 287; Small v Tomasetti (2001) 12 BPR ¶22,253; [2001] NSWSC 1112, distinguished.

Judgment

  1. BATHURST CJ: I agree with the orders proposed by Brereton JA and with his Honour’s reasons.

  2. MEAGHER JA: I agree with Brereton JA.

  3. BRERETON JA: It is well-established that under the Torrens System, absent fraud on the part of the mortgagee, the registration of a forged mortgage confers on the mortgagee an indefeasible estate and interest in the land for the interest described in the mortgage. [2] Essentially, this is because Real Property Act 1900 (NSW), s 42(1), provides that “the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded”, except for a number of presently irrelevant exceptions; and s 42(2) then provides that “a reference to an estate or interest in land recorded in the folio of the Register includes a reference to an estate or interest recorded in a registered mortgage …”. Land subject to a registered mortgage “shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing”. [3] The interest of a registered mortgagee is an interest in the land, distinct from that of the registered proprietor,[4] which is in the nature of a statutory charge, and not (as is the case with a common law mortgage) as a transferee of an estate. [5]

    2. Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70; Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 191 (Hayne JA; Brooking JA and Tadgell JA agreeing); Yazgi v Permanent Custodians Ltd (2007) 13 BPR ¶24,567; [2007] NSWCA 240; Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [68] (Sackville AJA; Allsop P and Campbell JA agreeing); Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [23] (Macfarlan JA; Leeming JA and Brereton JA agreeing).

    3. Real Property Act 1900 (NSW), s 41(1).

    4. English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321 (Dixon, Evatt and McTiernan JJ); [1937] HCA 6.

    5. Real Property Act 1900 (NSW), s 57(1); Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453 at 466 (Dixon J; Rich J agreeing), 472-473 (Evatt J); [1933] HCA 38.

  4. However, it is also now well-established that while, absent fraud attributable to it, a mortgagee enjoys that interest notwithstanding that the registered dealing is a forgery, registration of a forged mortgage does not mean that all the terms and conditions of a forged mortgage have effect as if it were not forged. There remains the question: “what is the quantum of the indefeasible interest?” – or, as it was put by Campbell J (as he then was) in Small v Tomasetti (“Tomasetti”), “indefeasibility for what?”. [6]

    6. (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [9] (Campbell J).

  5. In Travinto Nominees Pty Ltd v Vlattas (“Travinto”),[7] a registered lease contained an option to renew which was void for non-compliance with statutory requirements. Asprey JA, with whom Holmes JA agreed, said that the indefeasible title conferred by registration was given to an estate or interest in land, and did not affect contractual rights, so that registration of the lease did not confer on the lessee an indefeasible right to renew the lease pursuant to the option. [8] Mason JA (as he then was) said that it was not inconsistent with the indefeasible title which the lessee obtained from registration to hold that the option to renew was an illegal agreement incapable of specific performance, as registration of a void lease vested the leasehold estate in the lessee, and may well have enabled enforcement of the covenants referable to the term so vested, but could not do so in relation to a covenant creating an option to renew that was made void and illegal by statute, as the indefeasibility which arose from registration did not extend to a future and distinct estate which had not been registered. [9] On appeal to the High Court, Barwick CJ, with whom McTiernan J and Stephen J relevantly agreed, found it unnecessary to decide whether an equitable interest arising on the grant of an option formed part of the interest in the land protected by registration of the lease, but observed that it must be remembered that it is the title to and possession of the land, or of the interest in land, that is rendered secure by the registration, and that in the case of a leasehold the extent of the leasehold interest may be described not merely by reference to a term of years but also by reference to the operation and effect of the terms and conditions of the lease which effect or qualify the interest in the land which the lease purports to create, with the result that registration of a memorandum of lease does not ensure the validity of every term and condition in it:[10]

“In my opinion, it must depend on the nature of the covenant and its relation to the limitation of the interest created in the land by the memorandum of lease itself.”

7. [1972] 1 NSWLR 24.

8. Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24 at 41 (Asprey JA; Holmes JA agreeing).

9. Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24 at 49-50 (Mason JA).

10. Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 at 17 (Barwick CJ; McTiernan J and Stephen J agreeing); [1973] HCA 14.

  1. In PT Ltd v Maradona Pty Ltd (“Maradona”), Giles J (as he then was), having considered Travinto and other authorities, observed:[11]

“The general position thus indicated is, I think, as follows. That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the instrument which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor.”

11. (1992) 25 NSWLR 642 at 679 (Giles J); approved in Yazgi v Permanent Custodians Ltd (2007) 13 BPR ¶24,567; [2007] NSWCA 240 at [19] (Beazley JA; Ipp JA and Tobias JA agreeing).

  1. To like effect, in Perpetual Trustees Victoria Ltd v English, Sackville AJA said:[12]

“The registration of a forged mortgage validates those terms of the mortgage which delimit or qualify the estate or interest of the mortgagee or are otherwise necessary to assure that estate or interest to the registered proprietor.”

12. (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [68] (Sackville AJA; Allsop P and Campbell JA agreeing).

  1. Generally speaking, at least, definition and quantification of the mortgagee’s indefeasible interest depends on construction of the registered mortgage,[13] as the following passage in Maradona illustrates (emphasis added):[14]

“While the extent of her personal obligation remains to be determined, it is clear that whatever obligation fell within Mrs Thompson's personal covenant was intended to be secured by the mortgage. The mortgage did not simply secure repayment by Maradona, or payment by the other guarantors, nor was whatever personal obligation may have been undertaken by Mrs Thompson by her signature of the mortgage that of a guarantor collateral to the mortgage transaction: the transaction included conferring on the mortgagee an estate or interest in the Terrey Hills property as security for Mrs Thompson's own obligation. In my view her personal covenant was so connected with the estate or interest with respect to which PT attained indefeasibility that it also achieved indefeasibility, and bound Mrs Thompson notwithstanding that I have upheld the defence of non est factum. It is therefore necessary to determine the extent of her personal obligation.”

13. Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [12] (Sackville AJA; Allsop P and Campbell JA agreeing); Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR ¶30,189; [2011] NSWCA 390 at [15]-[16] (Giles JA; Bathurst CJ, Campbell JA, Macfarlan JA and Sackville AJA agreeing); Perpetual Trustees Victoria Ltd v Cox (2014) 17 BPR ¶33,313; [2014] NSWCA 328 at [70]-[72] (Leeming JA; Macfarlan JA and Emmett JA agreeing); Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [60] (Leeming JA; Brereton JA agreeing).

14. PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 681 (Giles J). For the purposes of defining the mortgagee’s interest, it is doubtful that regard may be had to unregistered documents: Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [66]-[75] (Leeming JA; Brereton JA agreeing). The proposition in Maradona that indefeasibility attaches to the mortgagor’s personal covenant has been the subject of some well-considered commentary to the contrary: J Stoljar, “Mortgages, Indefeasibility and Personal Covenants to Pay” (2008) 82 ALJ 28.

Background

  1. The applicant CEG Direct Securities Pty Ltd (“CEG”) is the registered mortgagee of three properties (“131 Marsfield”, “22 Marsfield”, and “Hunters Hill”), of which the first and second respondents Xihai Wang and Hai Rong Li are the registered proprietors. On 10 May 2017, CEG advanced $200,000 to Shining Pty Ltd (“Shining”), a company of which the respondents’ son Mengnan Wang was the sole shareholder and director, pursuant to a loan agreement between CEG and Shining. Repayment of that advance was purportedly guaranteed by Mengnan, Xihai, and Hai Rong, pursuant to a Deed of Guarantee and Indemnity dated 10 May 2017. Mortgage AM488533, bearing the date 10 May 2017, was subsequently registered on the title of 131 Marsfield as security for this first advance (“the 131 Marsfield Mortgage”). However, the Deed of Guarantee and Indemnity, and the 131 Marsfield Mortgage, were purportedly executed on behalf of Xihai and Hai Rong by Mengnan under powers of attorney which, according to the primary judge’s uncontested finding, were forged.

  2. On 22 June 2017, CEG advanced a further sum of $181,000 to Shining, pursuant to a variation agreement between CEG and Shining dated 22 June 2017. This second advance fell within the terms of the Deed of Guarantee and Indemnity of 10 May 2017. Mortgage AM607372 dated 20 June 2017 was registered on the titles of 22 Marsfield and Hunters Hill as security for the second advance (“the 22 Marsfield Mortgage”). Again, the 22 Marsfield Mortgage was purportedly executed on behalf of Xihai and Hai Rong by Mengnan under powers of attorney which, according to the primary judge’s uncontested finding, were forged.

  3. By a further variation agreement between CEG and Shining dated 11 September 2017, the principal sum advanced to Shining was again increased, to a total of $575,000.

  4. Following default in repayment of the advances, CEG commenced proceedings claiming possession of each of the three properties, and judgment for $727,695. Judgment was obtained against Shining, and Mengnan did not file a defence. However, Xihai and Hai Rong denied that they had executed the Deed of Guarantee and Indemnity and the two mortgages, asserting that their signatures on the Powers of Attorney pursuant to which those documents had been executed purportedly on their behalf by Mengnan were forged. They also cross-claimed against the third respondent Registrar General.

The primary judgment

  1. Cavanagh J ordered that certain issues be determined as separate questions. [15] In substance, those issues were first, whether the signatures purporting to be those of Xihai and Hai Rong on the Powers of Attorney were forgeries; and secondly, if so, what if anything was secured by the mortgages on their proper construction. His Honour found that the signatures were forged,[16] that neither of the mortgages nor the Deed of Guarantee and Indemnity was validly executed by or on behalf of Xihai and Hai Rong, and that the principal sums advanced by CEG to Shining on 10 May, 21 June and 12 September 2017 were not advanced at their request or direction. [17] Those findings are not challenged.

    15. CEG Direct Securities Pty Ltd v Shining Pty Ltd [2020] NSWSC 858.

    16. CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) (2020) 19 BPR ¶40,671; [2020] NSWSC 1213 at [38]-[59] (Cavanagh J) (“Primary judgment”).

    17. Primary judgment at [60]-[61].

  2. His Honour then addressed the following questions:

“(d) Whether, even if questions (a) to (c) be answered in the negative [as they were], upon the proper construction of the [131 Marsfield] mortgage it secures, and [131 Marsfield] is charged with, payment to [CEG] of:

(i) the principal sum of $200,000 together with interest and costs, or alternatively

(ii) $nil?

(e) Whether, even if questions (a) to (c) be answered in the negative [as they were], upon the proper construction of the [22 Marsfield] mortgage it secures, and [22 Marsfield and Hunters Hill] are charged with, payment to [CEG] of:

(i) the principal sum of $381,000 together with interest and costs, or alternatively

(ii) $nil?”

  1. His Honour answered each of those questions “$nil”, [18] and it is from those answers that CEG seeks leave to appeal.

    18. Primary judgment at [92]-[141].

The mortgages

  1. Each of the mortgages in the present case was relevantly identical in terms. Each instrument comprised the standard form cover and execution pages, including at item (D):

“mortgages to the mortgagee all the mortgagor’s estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in Annexure A are incorporated in this mortgage.”

  1. Annexure A comprised a page entitled “Agreement”, also executed, containing the following: [19]

“You (the mortgagor) agree with us (the mortgagee) as follows:

The Mortgage Common Provisions in this annexure are incorporated in the mortgage. You acknowledge that you received, read and understood a copy of the Mortgage Common Provisions before signing this mortgage. A reference to “this mortgage” in the cover sheet, this Annexure A, or in any other annexure to this mortgage is a reference to the mortgage constituted by the cover sheet and those annexures including the Mortgage Common Provisions.

You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us.

You acknowledge that, as at the date of this mortgage, we have agreed to lend $200,000.00 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Mortgage Common Provisions, is called the secured money.

You acknowledge indebtedness to us for the secured money and agree to pay to us the secured money, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the facility agreement(s) in respect of the secured money are deemed to be covenants included in this mortgage.”

19. The 22 Marsfield Mortgage referred to $381,000 where the 131 Marsfield Mortgage referred to $200,000. As the instruments are otherwise relevantly identical, for convenience, only the sum of $200,000 is used hereafter.

  1. The Mortgage Common Provisions included, in clause 13.1, the following relevant definitions:

“Collateral Documents means:

(a) any present or future loan agreement, mortgage, bond, charge, guarantee, or other document under which the Mortgagor either alone or together with any other person agrees with the Mortgagee in any way;

(b) any document under which the Mortgagor either alone or with any other person agrees to pay money to the Mortgagee;

(c) any document which is agreed to be collateral to the Mortgage or is specified as collateral in the Mortgage; and

(d) any other security given to the Mortgagee to secure the Secured Money.”

  1. “Mortgage” was defined as follows:

“Mortgage means any mortgage which is expressed to incorporate the provisions of this memorandum and includes the provisions of this memorandum. If there is any conflict between the provisions of this memorandum and a mortgage incorporating the provisions of this memorandum, the provisions of that mortgage prevail;”

  1. “Secured Money” was defined as follows:

“Secured Money means all money (and any part of that money) which directly, indirectly, contingently, or otherwise at any time is or becomes due by the Mortgagor (whether alone or not) to the Mortgagee for any reason and includes any money due:

(a) pursuant to the Mortgage or a Collateral Document;

(b) to any person on whose behalf the Mortgagee holds the Mortgage; on any guarantee, bond, account, document, negotiable instrument, or other instrument; because of anything by which the Mortgagee is or becomes in any manner a creditor of the Mortgagor;

(c) on account of any person on the order, request, or under the authority of the Mortgagor; arising from anything done or omitted to be done by the Mortgagor which gives rise to a payment, expense, or loss by the Mortgagee;

(d) because of the Mortgagee drawing, accepting, endorsing, paying, or discounting any order, draft, cheque, promissory note, bill of exchange, or other negotiable instrument on behalf of the Mortgagor;

(e) under any bond, guarantee, letter of credit, or indemnity issued or given by the Mortgagee on behalf of the Mortgagor; and

(f) interest or an amount in the nature of interest on all money described in this clause at the highest rate prescribed for that money or, if none, as determined by the Mortgagee.”

What if anything do the mortgages secure?

  1. The mortgagor’s obligation is to be found primarily in clause 4 of the ‘Agreement’ page of Annexure A, by which the mortgagor acknowledges indebtedness for the “secured money” and agrees to pay the mortgagee the “secured money”, interest, and all other money due. That directs attention to the meaning of “secured money”.

  2. Ultimately, CEG did not seek to derive assistance from the definition of “secured money” in clause 13.1 of the Mortgage Common Provisions. The only conceivably relevant provision was:

“(a) pursuant to … a collateral document.”

However, the introductory words of the definition in clause 13.1 limit the definition to money due by the mortgagor to the mortgagee, and CEG did not submit that there was any collateral document which would assist it.

  1. Accordingly, the issue turned on the definition of “secured money” in clause 3 of Annexure A, set out above. In short, CEG contended that the words “this amount” in clause 3 referred to the sum of “$200,000” simpliciter; whereas the respondents submitted that it referred to the sum of $200,000 lent (or advanced) to the mortgagors or at their request.

  2. In my judgment, the respondents’ construction is to be preferred. First, the reference to “this amount” naturally refers back to the phrase “we have agreed to lend $200,000.00 to you or at your request”. Secondly, this impression is fortified by the reference to “any further advances” in the second sentence, which indicates that “this amount” refers “to the amount of $200,000.00 advanced to you or at your request”. Thirdly, to construe the mortgage as securing the sum of $200,000 simpliciter, regardless of whether or not it was “lent … to you or at your request”, would be to give it an entirely uncommercial and one-sided operation, and for that reason ought not readily be adopted.

  3. Clause 2 does not tell against this construction: the “valuable consideration” received does not import actual receipt of the advance, but refers to the agreement to make the advance “to you or at your request”.

  4. CEG submitted that the provisions of the subject mortgages were not relevantly distinguishable from those considered by Campbell J in Tomasetti, in which the mortgage relevantly provided:[20]

“The mortgagee has agreed to lend to the mortgagor and the mortgagor has agreed to borrow from the mortgagee the sum of $325,000 (hereinafter called the principal sum) …

(3) The mortgagor covenants to pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the 12th day of May 2001.”

20. (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [13] (Campbell J).

  1. Having referred to Maradona, Campbell J considered it clear that the estate or interest in the land created by registration of the mortgage was a charge securing the sum of $325,000 (together with interest etc). [21] His Honour referred to obiter remarks of Hayne JA (as he then was), with whom Brooking JA and Tadgell JA agreed, in Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd,[22] to the effect that it had not been contended that indefeasibility of a mortgage did not extend to the covenant for payment, it being plain that it did so extend. [23]

    21. Small v Tomasetti (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [15] (Campbell J).

    22. [1998] 1 VR 188.

    23. [1998] 1 VR 188 at 196.

  2. However, in Tomasetti, the covenant was to pay “the principal sum or so much thereof as shall remain unpaid”. The “principal sum” referred to “the sum of $325,000”. It was not qualified by any words such as “lend … to you or at your request”, nor contextualised by any reference to “any further advances”, such as appear in the mortgages in this case. Moreover, Campbell J does not appear to have considered whether “the principal sum” was qualified by the words “lend to the mortgagor” in such a way as to confine the defined term to money actually lent to the mortgagor.

  3. CEG also submitted that the provisions of the subject mortgages were indistinguishable from those considered in Printy v Provident Capital Ltd (“Printy”). In that case the forged mortgage provided:[24]

“The mortgagor acknowledges receipt of the principal sum of fifty thousand dollars ($50,000) (principal sum) and for the consideration of the advance of the principal sum the mortgagor hereby:

(a) …

(b) covenants with the mortgagee as follows:

(i) the mortgagor will pay to the mortgagee the principal sum or so much of the principal sum as shall remain unpaid on the date which is twelve months from the date of this mortgage, …”

24. (2007) 13 BPR ¶24,603; [2007] NSWSC 287 at [44] (Studdert J).

  1. The mortgagor, Mr Printy, conceded that registration provided relevant indefeasibility. However, whether the definition of “principal sum” caught money not in fact advanced to the mortgagor was not argued. Such an argument may have faced the obstacle that the registered instrument also contained an acknowledgement of receipt of the principal sum. As was explained by Young CJ in Eq (as he then was) in Perpetual Trustees Victoria Ltd v Tsai, [25] the mortgagee’s position may be stronger in the case of a mortgage in the traditional form which refers to a principal sum advanced and contains an acknowledgement that it has been received; although such an acknowledgement of receipt is at best prima facie evidence and would have to yield to facts as proved. [26] In the present case, there was no acknowledgement of receipt at all. As explained above, the reference to “valuable consideration” (cl 2) is not an acknowledgement of receipt. By way of contrast cl 3 is an acknowledgement of an agreement to lend and cl 4 of “indebtedness” for “secured money”, which describes an amount to be advanced and “any further advances”. Perhaps more importantly by way of distinction from the present case, the definition in Printy contained no such words as “advanced by the mortgagee to the mortgagor or at the mortgagor’s request”.

    25. (2004) 12 BPR ¶22,281; [2004] NSWSC 745 at [20]-[21] (Young CJ in Eq).

    26. Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [28] (Macfarlan JA; Leeming JA and Brereton JA agreeing).

  2. CEG also submitted that the present mortgages were distinguishable, by the absence of the use of the word “repayment”, from that which was held to secure nothing in Ippin Textiles Pty Ltd v Winau Aust Pty Ltd (“Ippin”), in which the relevant covenant was as follows (emphasis added):[27]

“‘Principal Amount’ means the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage and, if no amount is specified in Schedule A as the “Principal Amount”, that expression shall mean any amount advanced by the Lender to the Debtor, or to any other person at the Debtor’s direction, on any transaction or any amount advanced, whether directly or indirectly associated with the grant of this Mortgage;…”

27. [2021] NSWCA 9 at [16] (Macfarlan JA; Leeming JA and Brereton JA agreeing).

  1. In Ippin it was relevant that there never was, for the purposes of the definition of “Principal Amount”, an “amount advanced by the Lender to the Debtor, the repayment of which is secured by this mortgage”. That was because, although the person to whom the funds had been paid was not the “Debtor” for the purposes of the definition, even if he was there had not been an “advance”, because he stole the money rather than receiving it as a loan or “advance”, and the word “repayment” in the definition of “Principal Amount” made it clear that the amount referred to was an amount that had “actually been advanced”, as otherwise it would make no sense to talk about its “repayment” being secured.

  2. However, in Ippin that was but one indicium that contributed to the conclusion that the mortgage was intended to secure only moneys actually advanced. In the present case, although the word “repayment” is not used, its absence does not tell against construing clauses 3 and 4 together to mean that the mortgagors’ obligation to pay the secured money was to pay the $200,000 advanced “to you or at your request”.

  3. For those reasons, neither Tomasetti nor Printy is inconsistent with the view that I take of the relevant provision in this case; nor does the absence of a reference to “repayment”, such as was of some significance in Ippin, require a different result. As, on his Honour’s unchallenged findings, there was no money advanced “to you or at your request”, his Honour rightly concluded that the mortgages secure nothing.

Disposition

  1. An appeal lies from the determination of a separate question only by leave. [28] As the practical effect of the determinations was to resolve finally and adversely to CEG its claims to enforce the mortgages against the first and second respondents and for possession, and as the appeal was heard concurrently with the application for leave, leave to appeal should be granted. For the foregoing reasons, the appeal should be dismissed. The parties were in agreement that, because of outstanding potential claims by one or other of them, depending upon the outcome, against the Registrar General, this Court could not finally dispose of the matter, and that it would therefore have to be remitted.

    28. Supreme Court Act 1970 (NSW), s 103.

  2. I propose the following orders:

  1. Grant leave to appeal;

  2. Direct that the applicant within seven days file a Notice of Appeal in the form of the Draft Notice of Appeal;

  3. Dismiss the appeal;

  4. Remit the balance of the proceedings to the Common Law Division; and

  5. Order that the applicant pay the respondents’ costs.

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Endnotes

Amendments

07 May 2021 - Correct date

Decision last updated: 07 May 2021

Most Recent Citation
Cases Cited

18

Statutory Material Cited

2

Breskvar v Wall [1971] HCA 70
Breskvar v Wall [1971] HCA 70
Breskvar v Wall [1971] HCA 70