Conlan v Registrar of Titles - [2001] WASC 201

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MARK ANTHONY CONLAN (AS LIQUIDATOR OF OAKLEIGH ACQUISITIONS PTY LTD) & ORS -v- REGISTRAR OF TITLES & ORS [2001] WASC 201

CORAM: OWEN J

HEARD: 18-22 SEPTEMBER 2000, 30 OCTOBER 2000, 5 DECEMBER 2000, 30 JANUARY 2001, 2 FEBRUARY 2001

DELIVERED : 3 AUGUST 2001

FILE NO/S: CIV 2076 of 1999

MATTER :Trustees Act 1962, s 89, s 92
BETWEEN: MARK ANTHONY CONLAN (AS LIQUIDATOR OF OAKLEIGH ACQUISITIONS PTY LTD)
First Applicant
MARK ANTHONY CONLAN (AS SUPERVISOR OF ROWENA NOMINEES PTY LTD)
Second Applicant
OAKLEIGH ACQUISITIONS PTY LTD (IN LIQ)
Third Applicant
ROWENA NOMINEES PTY LTD (IN LIQ)
Fourth Applicant
MARK ANTHONY CONLAN (AS LIQUIDATOR OF ROWENA NOMINEES PTY LTD (IN LIQ))
Fifth Applicant
AND
REGISTRAR OF TITLES
First Respondent
HARDIE DEVELOPMENTS PTY LTD
Second Respondent
SUSAN JANE BENNETT
NOELEEN ANNE BINGHAM
VERNON JOHN CHITTY and PAULINE ANN CHITTY
HELLFIRE PTY LTD
BETTY FRANCES MOULTON
JOHN WILLIAM PRICE and GLADYS ETHEL PRICE
ALLAN RONALD TABE and WINNIFRED TABE
ROBERT WYNDHAM WALKER and ANNE LEONORE WALKER
JOHN BERNARD WILLIAMSON and BETTY LILLIAN WILLIAMSON
Third Respondents
JEANETTE LOMA BARRON,
COLIN JEFFREY BARRON and LISA JANET CARUSO as trustees for the JB SUPERANNUATION FUND
WILLIAM HENRY REGINALD BUDD
WILLIAM DEANE DETEZ and
LUCY ANN DETEZ
BARRY WILLIAM DROWN and
MARIE KLAIR DROWN
GEMHURST PTY LTD as trustee for the HOWE FAMILY TRUST
ANNA G HALLSWORTH-KABOUW
MILTON LYLE FREDERICK HUNT and GEORGINA MARY HUNT
MALCOLM ERNEST JOHNSON
JOHN BLAIR McCOLL
ALAN LITTLEJOHN MEATON and
AUDREY JUNE MEATON
VALERIE JOY MONKHOUSE
WILLEM NIEUWKERK and
MAARTJE NIEUWKERK
JOHN WILLIAM TOWLER SKEET
THE PUBLIC TRUSTEE as the Executor of the deceased estate of the late JOAN MINNA
SUSAN RITA TEMPLETON
MARK HERBERT WESTON and
BRONWEN JILL WESTON
WOLART NOMINEES PTY LTD
Fourth Respondents

Catchwords:

Real property - General principles - Torrens system - Indefeasibility of title - Exceptions to indefeasibility - Pooled mortgage scheme - Investors' money paid into overdrawn trust account - No right to trace - Fraud - Whether fraud of agent can be brought home to registered proprietor - In personam claim - Need for recognisable cause of action in equity or at law - Knowledge of trust account problem obtained post-registration - Whether unconscionable for registered mortgagees to insist on legal rights

Real property - General principles - Indefeasibility of title - Whether volunteers are protected by indefeasibility - What constitutes a volunteer

Contract - Particular parties - Principal and agent - Nature of a finance broker's agency - Whether agent of lender or borrower or both - Fraud of an agent - Doctrine of respondeat superior

Legislation:

Corporations Law, s 479(3), s 556

Transfer of Land Act 1893, s 68, s 134
Trustees Act 1962, s 89, s 92

Finance Brokers Control Act 1975, s 4, s 73, s 75

Result:

Preliminary questions answered

Category: A

Representation:

Counsel:

First Applicant : Mr M J Hawkins &
Prof J O'Donovan

Second Applicant : Mr M J Hawkins &
Prof J O'Donovan

Third Applicant : Mr M J Hawkins &
Prof J O'Donovan

Fourth Applicant : Mr M J Hawkins &
Prof J O'Donovan

Fifth Applicant : Mr M J Hawkins &
Prof J O'Donovan

First Respondent : Mr R M Mitchell
Second Respondent : Dr D P MacMillan &
Mr R C Kennealy

First-named Third Respondent      :        Mr D H Solomon
Second-named Third Respondent   :        No appearance
Third-named Third Respondents     :        Mr D H Solomon
Fourth-named Third Respondent     :        Ms C A Bahemia
Fifth-named Third Respondent      :        Mr D H Solomon
Sixth-named Third Respondents     :        Ms C A Bahemia
Seventh-named Third Respondent :        Mr D H Solomon
Eighth-named Third Respondents   :        Mr D H Solomon
Ninth-named Third Respondents     :        Mr D H Solomon
First-named Fourth Respondent     :        In person
Second-named Fourth Respondent :        No appearance
Third-named Fourth Respondent     :        No appearance
Fourth-named Fourth Respondents :        No appearance
Fifth-named Fourth Respondent     :        No appearance
Sixth-named Fourth Respondent     :        No appearance
Seventh-named Fourth Respondent :        No appearance
Eighth-named Fourth Respondent   :        In person
Ninth-named Fourth Respondent    :        No appearance
Tenth-named Fourth Respondent    :        No appearance
Eleventh-named Fourth Respondent:       No appearance
Twelfth-named Fourth Respondent :        No appearance
Thirteenth-named Fourth Respondent:     No appearance
Fourteenth-named Fourth Respondent:     No appearance
Fifteenth-named Fourth Respondent:       No appearance
Sixteenth-named Fourth Respondent:      No appearance
Seventeenth-named Fourth Respondent:   No appearance
Top Lodge Nominees Pty Ltd        :        Mr I A Morison &
Mr C Touyz (By leave)

Mr C Chinnery : In person (By leave)

Solicitors:

First Applicant  :        Solicitor, Ministry of Fair Trading
Second Applicant  :        Solicitor, Ministry of Fair Trading
Third Applicant  :        Solicitor, Ministry of Fair Trading
Fourth Applicant  :        Solicitor, Ministry of Fair Trading
Fifth Applicant  :        Solicitor, Ministry of Fair Trading
First Respondent  :        Crown Solicitor
Second Respondent  :        Ron Kennealy
First-named Third Respondent      :        Solomon Brothers
Second-named Third Respondent   :        No appearance
Third-named Third Respondents     :        Solomon Brothers
Fourth-named Third Respondent     :        Hammond Worthington
Fifth-named Third Respondent      :        Solomon Brothers
Sixth-named Third Respondents     :        Hammond Worthington
Seventh-named Third Respondent :        Solomon Brothers
Eighth-named Third Respondents   :        Solomon Brothers
Ninth-named Third Respondents     :        Solomon Brothers
First-named Fourth Respondent     :        In person
Second-named Fourth Respondent :        No appearance
Third-named Fourth Respondent     :        No appearance
Fourth-named Fourth Respondents :        No appearance
Fifth-named Fourth Respondent     :        No appearance
Sixth-named Fourth Respondent     :        No appearance
Seventh-named Fourth Respondent :        No appearance
Eighth-named Fourth Respondent   :        In person
Ninth-named Fourth Respondent    :        No appearance
Tenth-named Fourth Respondent    :        No appearance
Eleventh-named Fourth Respondent:       No appearance
Twelfth-named Fourth Respondent :        No appearance
Thirteenth-named Fourth Respondent:     No appearance
Fourteenth-named Fourth Respondent:     No appearance
Fifteenth-named Fourth Respondent:       No appearance
Sixteenth-named Fourth Respondent:      No appearance
Seventeenth-named Fourth Respondent:   No appearance
Top Lodge Nominees Pty Ltd    :    Hammond King Touyz
Mr C Chinnery             :     In person

Case(s) referred to in judgment(s):

Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425
Adelaide Congregation Jehovah's Witnesses Inc; Pegasus Leasing Ltd v Official Trustee in Bankruptcy for the Estate of Griggs, unreported SCt of SA (Olsson J); No 733 of 1993; 20 October 1996
Anning v Anning (1907) 4 CLR 1049
Assets Co Ltd v Mere Roihi [1905] AC 176
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 74 ALJR 862
Australian Guarantee Corporation Ltd v De Jager [1984] VR 483
Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334
Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
Barry v Heider (1914) 19 CLR 197
Bastion v Gideon Investments Pty Ltd (In Liquidation) (2000) 35 ACSR 466
Baumgartner v Baumgartner (1987) 164 CLR 137
Beatty v Australian and New Zealand Banking Group Ltd [1995] 2 VR 301
Bogdanovic v Koteff (1988) 12 NSWLR 472
Breskvar v Wall (1971) 126 CLR 376
Bromley v Holland (1802) 7 Ves 3
Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555
Butler v Fairclough (1917) 23 CLR 78
Clements v Ellis (1934) 51 CLR 217
Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423
Corin v Patton (1990) 169 CLR 540
Currie v Misa (1875) LR 10 Ex 153
Dillwyn v Llewelyn (1862) 4 De GF & J 517
Foskett v McKeown [2000] 2 WLR 1299
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Frazer v Walker [1967] 1 AC 569
Gibbs v Messer [1891] AC 248
Giumelli v Giumelli (1999) 196 CLR 101
Greer v Kettle [1938] AC 156
Grgic Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202
HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368
IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550
Karounis v The Official Trustee in Bankruptcy, unreported, SCt of SA (FCt); 1378 of 1990; 26 November 1991
King v Smail [1958] VR 273
Kooragang Investments Ltd v Richardson & Wrench Ltd [1982] AC 462
Leros Pty Ltd v Terara Pty Ltd (1992) 172 CLR 407
Lok Yew v Port Swettenham Rubber Co Ltd [1913] AC 491
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326
Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32
Mills v Stockman (1967) 116 CLR 61
Milne Feeds Pty Ltd v Bride (1993) 10 WAR 543
Muschinski v Dodds (1985) 160 CLR 583
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
National Australia Bank Ltd v Maher [1995] 1 VR 318
New South Wales Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740
Permanent Building Society (In Liquidation) v Wheeler (1992) 10 WAR 109
Public Trustee v Paradiso (1995) 64 SASR 387
Pukallus v Cameron (1982) 56 ALJR 907
Pyramid Building Society (In Liquidation) v Scorpion Hotels Pty Ltd [1998] 1 VR 188
Rasmussen v Rasmussen [1995] 1 VR 613
Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
Re Australian Home Finance Pty Ltd [1956] VLR 1
Re G B Nathan and Co Pty Ltd (In Liquidation) (1991) 24 NSWLR 674
Re Global Finance Group Pty Ltd (In Liquidation); Ex parte Read [1999] WASC 23
Re J W Murphy & P C Allen; Re BPTC Ltd (In Liquidation) (1996) 19 ACSR 569
Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84
Registrar of Titles v Franzon (1975) 132 CLR 611
Riverlate Properties Ltd v Paul [1975] Ch 133
Russo v Bendigo Bank Ltd (2000) V Conv R 54-615
Sandgate Corporation Pty Ltd (In Liquidation) v Ionnou Nominees Pty Ltd (2000) 22 WAR 172
Schultz v Cornwall Properties Ltd (1969) 90 WN (NSW) 529
Shirlaw v Taylor (1991) 31 FCR 222
Silvera v Savic (1999) 46 NSWLR 124
Smith v Jenning's Case (1610) Lane 97
Stowe v Stowe (No 2), unreported; SCt of WA; Library No 960354; 4 July 1996
Stowe v Stowe (No 3), unreported; SCt of WA; Library No 970389; 5 August 1997
Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478
Taylor v Johnson (1983) 151 CLR 422
Thomas Bates and Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505
Valoutin Pty Ltd v Furst (1998) 154 ALR 119
Vassos v State Bank of South Australia [1993] 2 VR 316
Waltons Stores (Interstate) Pty Ltd v Maher (1988) 164 CLR 387
Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25
Windsor Mortgage Nominees Pty Ltd v Cardwell [1979] ACLC 32,195
Wright v Wright (1749) 1 Ves sen 409
Yarrangah Pty Ltd v National Australia Bank Ltd [1999] NSWSC 97
Young v Murphy (1996) 1 VR 279

Case(s) also cited:

Astley v Austrust Ltd [1999] HCA 6
Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566
Brady v Stapleton (1952) 88 CLR 322
Brockway v Pando [2000] WASCA 192
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Capell v Winter [1907] 2 Ch 376
Cricklewood Holdings Ltd v CV Quigley & Sons Nominees Ltd [1992] 1 NZLR 463
Darling Island Stevedoring and Lighterage Co Ltd v Long (1957) 97 CLR 36
Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141
Ex parte Knott (1806) 11 Ves 609
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397
Gray v Johnston (1868) LR 3 HL1
Hagan v Waterhouse (1992) 34 NSWLR 308
Hawkins v Clayton (1988) 164 CLR 539
Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125
James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62
Keefe v Law Society of New South Wales (1998) 44 NSWLR 451
Lloyd v Grace, Smith & Co [1912] AC 716
Lord Provost v Lord Advocate (1879) 4 AC 823
Morlea Professional Services Pty Ltd & Anor v Richard Walter Pty Ltd (In Liq) & Ors (1999) 34 ACSR 371
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
Official Receiver in v Klau; Ex parte Stephenson Nominees (1987) 74 ALR 67
Palmer v McAllister (1991) 4 WAR 206
Perpetual Trustees WA Ltd v Attorney General (WA) (1992) 8 WAR 441
Perry v Rolfe [1948] VLR 297
Re Australian Home Finance Pty Ltd [1956] VLR 1
Re Berkeley Applegate [1989] Ch 32
Re Eastern Capital Futures Ltd (In Liq) [1989] BCLC 371
Re Lemon Tree Passage & Districts RSL and Citizens Club Co-operative Ltd (1987) 11 ACLR 796
Re New Cap Reinsurance Corporation (Bermuda) Ltd (Prov Liq Appdt) (1999) 32 ACSR 234
In the matter of; Parker (1997) 80 FCR 1
Re Brogden (1888) 38 ChD 546
Riddle v Riddle (1952) 85 CLR 202
Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331
Wirth v Wirth (1956) 98 CLR 228
Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307

OWEN J: This is a trial of preliminary issues. It involves competing claims to mortgages and to a fund of money that has accrued in an administration that commenced after the collapse of a finance broker. It involves significant questions relating to the doctrine of indefeasibility of title under the Transfer of Land Act 1893 (WA) ("TLA")

Background

Mark Anthony Conlan ("Conlan") is the liquidator of Rowena Nominees Pty Ltd ("Rowena") and of Oakleigh Acquisitions Pty Ltd ("Oakleigh"). Rowena was a finance broker licensed under the Finance Brokers Control Act 1975 (WA) ("FBCA"). It carried on business under the name "Graeme Grubb Finance Broker" ("GGFB"). In May 1999 Conlan was appointed by this Court as an independent accountant to investigate the affairs of GGFB. He was appointed provisional liquidator of Rowena on 16 July 1999 and of Oakleigh on 21 July 1999. He was appointed as liquidator of Rowena on 21 July 1999 and of Oakleigh on 25 August 1999. On 23 July 1999 Conlan was appointed supervisor of the business pursuant to powers set out in s 73 of FBCA.
GGFB was controlled by one Graeme Grubb ("Grubb"). GGFB engaged in what are known as pooled mortgages. A potential borrower would approach GGFB with a view to obtaining finance for a venture. GGFB would, in turn, approach a number of potential investors and invite then to advance moneys for the venture. Often, the amount required was beyond the resources of an individual investor and several entities or people contributed varying amounts so as to make up the whole. Promises were made to potential investors that they would be given a first mortgage security over identified property. In the main, Oakleigh did little more than act as trustee for investors who had supplied the funds to Rowena for the advances to borrowers. Often the mortgage was registered in the name of Oakleigh as mortgagee. Some of the mortgages remained in that state. In relation to others, there was a transfer of mortgage from Oakleigh to named investors. In other instances the mortgages were registered in the names of investors as mortgagees.
In many instances GGFB offered investors a cash flow guarantee, described in the documentation in this way: "GGFB will pay to you the monthly interest regardless of whether the borrower has paid us".
Rowena maintained a trust account. It maintained a separate account styled "cash flow guarantee account". On about 84 occasions between June 1996 and May 1999 the trust account was overdrawn at the close of business on a particular day, sometimes to a significant extent. This was caused, at least in part, by the way the cash flow guarantee was administered. Rowena would pay interest to the investors from the cash flow guarantee account. If there was insufficient money in that account the shortfall would be made up by transferring money from the trust account. There were many other transactions, not related to the cash flow guarantee, that resulted in the trust account being in overdraft.
In the period with which we are concerned in this application, namely April 1997 to May 1999, the trust bank account went into overdraft about 66 times.
After his appointment, Conlan inspected the books and records of GGFB. To say that they are in a mess is a significant understatement. There are deficiencies in the record keeping and it is clear that on many occasions GGFB did not fulfil the promises that it had made to investors or (sometimes) to borrowers. As time wore on the individual mortgages and borrowing arrangements fell due for repayment. Some mortgagors defaulted but others were in a position to fulfil their commitments. However, it has proved no easy task for Conlan to identify with certainty who is entitled to particular mortgages and to interest paid and principal payments received from borrowers.
On 30 September 1999 Conlan obtained an interlocutory injunction which, in substance, prevented or impeded the exercise by registered mortgagees of their rights under various mortgage arrangements entered into by, or arranged by, GGFB prior to its collapse. On 18 February 2000 I set aside those orders and substituted a different type of injunction the effect of which was to put in place a regime for dealing with individual mortgages so that they could be discharged and the proceeds paid to the mortgagees if there was no dispute and held in trust if there was a dispute. Experience with this regime raised numerous questions about the proper way to conduct the administration. Some preliminary issues, which may give guidance for the administration of the affairs of GGFB generally, were identified. It was thought convenient to relate the preliminary issues to a particular mortgage arrangement.
In one such arrangement the mortgagor is Hardie Developments Pty Ltd ("HDPL"). Various parties have made competing claims to the funds arising from the discharge of the HDPL mortgages. It seemed to present a range of issues that made it an appropriate fact situation for close examination. I should therefore set out the facts relating to the HDPL mortgages.

The Hardie Mortgages

In January 1997 HDPL entered into a contract to purchase land at 30 Waterloo Crescent East Perth ("the EP land") with a view to demolishing the building that then stood on it and constructing six high quality strata title units on the land. The purchase price was $370,000 and settlement was due on 30 April 1997. On 17 February 1997 Craig Hardie, the principal of HDPL, lodged an application with GGFB to arrange a loan of $1,218,000 for the project. The application form contains the following:
"I/We, the above Applicant/s hereby appoint you to act on my/our behalf as a finance broker to arrange the above described mortgage loan/s on my/our behalf, and agree to take up the loan/s if it is arranged by you and available to me/us on the terms and conditions set out in this application form, and to sign all necessary documentation on reasonable request and to pay [specified application and other fees]."
On 18 February 1997 GGFB wrote to HDPL quoting its own reference "Folio 4827" and saying: "we wish to confirm that your loan has been approved subject to the following terms and conditions". The loan was to be "broken up" into six loans each of $203,000, each loan to be allocated to one of the units. The advance was to be guaranteed by Hardie. I pause to note that over the life of this matter seven loan folio numbers were allocated to the Hardie arrangement. They are Folios 4827 to 4833 (inclusive). The specified terms and conditions included the provision of a first mortgage security over the land at 30 Waterloo Crescent and an apartment in Victoria Park ("the VP unit") and a second mortgage over a small farming lot in Narrogin ("Lot 142") which is registered in Hardie's name. The estimated funding date was said to be 30 April 1997. On 28 February 1997 HDPL signed and returned a copy of the loan approval letter in which it "accepted [the] loan approval letter" on the terms and conditions specified in it.

I will deal with the arrangements made between GGFB and the various investors a little later. It will be convenient to go on with the arrangements between GGFB and HDPL. Early in April Hardie negotiated with GGFB concerning the loan. Hardie was experiencing some difficulties with Bankwest, which held the first mortgage over Lot 142. In his affidavit he says that it was agreed to delete that mortgage from the list of securities to be provided. Hardie had previously dealt with Grubb when he was engaged in a construction project in Victoria Park. On that occasion he had reached an agreement with Grubb that the loan would be advanced progressively, first to fund the acquisition of the land and then by instalments as the building was constructed. In relation to the East Perth project, Hardie said that "our agreement followed the pattern of the [previous] loans namely that the loan moneys would be advanced progressively and then repaid as the settlement of the sale of completed units were carried out". Hardie also said that when the mortgages were produced he did not take much notice of what they said about payments and repayments and nor did he have legal advice.
On 30 April 1997 HDPL executed a mortgage which was later to become registered mortgage G498929 ("the Mortgage"). The mortgagee is Oakleigh. The Mortgage contains the following relevant provisions:
Principal sum:               $1,218,000
Commencement date:      30 April 1997
Repayment date:            30 October 1998
It is a registered first mortgage over the EP land and the VP unit. The preamble states that the security is being given "in consideration of [Oakleigh] at the request of [HDPL] advancing or agreeing to advance [the principal sum]". Clause 1 provides that the principal sum is repayable on demand but that demand will not be made prior to the repayment date so long as there is no default. Clause 2 provides for interest to be paid at a high, median or low rate (as set out in the schedule) depending on whether it was paid on time. The highest rate is 13 per centum per annum, the median rate is 12 per centum per annum and the lowest rate is 10 per centum per annum. In the schedule the monthly interest instalments are described in actual dollar terms calculated at the applicable rate on the full principal sum of $1,218,000. This is a little curious as the principal sum was actually advanced in instalments over time. An amount of $389,000 was advanced at the time of settlement of the property purchase. From time to time various amounts were released as progress payments, presumably as the construction project advanced. The last payment seems to have been made on 1 April 1999. The body of the mortgage does not contain provisions (either relating to advances and repayments of capital or calculation and payment of interest) of the type that are usually found in a document evidencing a draw-down facility.
Despite what Hardie says was the oral agreement he reached with Grubb, on 30 April 1997 he (as mortgagor) and HDPL (as borrower) executed a mortgage over Lot 142. This mortgage noted the existing security to Bankwest as a prior encumbrance. On 30 April 1997 Bankwest wrote to GGFB consenting to the registration of the mortgage on condition that the mortgagee execute a deed of priority. There is in evidence a copy of Bankwest's letter which contains an undated handwritten note from a Barry Collins: "Letter as sent to you - is this proceeding". On 12 May 1997 GGFB sent to Bankwest the deed of priority executed on behalf of the mortgagees. The second mortgage over Lot 142 was never registered and nor was a caveat lodged in relation to it. In his affidavit Hardie does not explain how or why the second mortgage over Lot 142 came to be executed. However, he does say this:
"[HDPL] did not authorise [GGFB] to act as its agent to give any contractual undertaking or create any charge or security over [Lot 142] to or in favour of any parties who might advance monies to [GGFB] for the purpose [sic] the advance forming part of the moneys agreed to be lent by [Oakleigh] to [HDPL] under [the Mortgage]."
I am not sure when settlement of the land purchase transaction occurred. There is evidence that a cheque for the balance due to the vendor was drawn on the Rowena trust account on 2 May 1997. However, neither the land transfer nor the Mortgage were lodged for registration until 11 June 1997. They were registered on that date. I will assume, for the purposes of these proceedings, that settlement occurred and the moneys were paid over on 2 May 1997.
The evidence of Hardie is that the total amount advanced to or on behalf of HDPL was $1,025,647.54. The evidence of Geoffrey Lasscock, a person retained by Conlan to assist him with the investigations, suggests that the figure is $1,057,908.11. Whichever figure is correct, it is significantly less than the principal sum of $1,218,000 and it is clear that some of the monies promised by GGFB to HDPL have never been advanced.
From time to time HDPL made interest payments to GGFB. They are set out in Annexure 14(c) to Lasscock's affidavit sworn 12 September 2000. Many of them were for $4,200, a figure that bears no resemblance to the amount specified in the schedule to the Mortgage or to a calculation based on the amount of the principal sum then advanced. It was the amount that Grubb asked HDPL to pay. Later in 1998, when further moneys were advanced to HDPL, Grubb told the company to increase the monthly interest payments to $5074.98, which it did. On 7 January 1999 an interest payment of $5,074.98 was made. On 9 February 1999 there was a further payment of $6,731.05 The loan folios and the reconstruction undertaken by Lasscock raise some accounting issues as to the amount of interest chargeable against, and paid by, HDPL. I do not need to determine the exact state of the account in order to dispose of this application.
In about April 1999 the affairs of GGFB came under investigation by the Australian Securities and Investments Commission ("ASIC"). In May 1999 ASIC seized, among other things, the duplicate certificate of title to the EP land. From about December 1998 Hardie had experienced problems in obtaining cheques from GGFB. The construction schedule was slowed down because moneys which should have come from GGFB were not available to pay tradesmen and sub‑contractors. Construction was finally brought to a halt in May 1999. HDPL was forced to borrow funds from other sources to complete construction works. It is not entirely clear how much HDPL had to borrow for this purpose. It was somewhere between $276,000 and $300,000. Completion of the project was achieved in about June 1999. However, the strata plan was not registered until 7 October 1999. Hardie says that the delay was caused by the reluctance of ASIC to release the title. The six units have been sold. The Mortgage has been discharged and part of the proceeds from the sales has been held by Conlan pending resolution of this dispute.

The Position of the Various Investors

One of the few things upon which everyone involved in this sorry saga agrees is that Rowena's records are notoriously unreliable. Nonetheless, they must still form the starting point for any consideration of the issue that I have to determine.
A number of investors paid funds to Rowena for the purpose of investing in the East Perth project on the strength of a first mortgage security. They did so at different times between 4 April 1997 and 12 April 1999 and in differing amounts. Thirty investors were linked in Rowena's records with the loan made to HDPL. Of them, only nine became registered mortgagees. One investor who was not linked in Rowena's records with the HDPL loan nonetheless became a registered mortgagee. The funds of that investor were loaned to another borrower and when that arrangement was finalised without the investor receiving payment, Grubb sought to secure the position through the HDPL project. Another investor was linked to the HDPL loan but it seems clear that her money was advanced to another (unrelated) borrower.
Rowena maintained, relevantly, a single trust account, styled Account No 551075797000, with St George Bank Limited, Perth. I will call this account the "trust bank account". Section 48 of the FBCA requires a finance broker to maintain a trust account. It authorises the broker to pay all moneys into one such bank account, thus avoiding the problems that are associated with a trustee mixing trust funds. However, there is an obligation under s 48(5) to account separately for the moneys of individuals on whose behalf funds are held. It is clear to me that GGFB failed dismally in this respect. There are no, or no accurate, individual ledgers clearly accounting for the moneys of individual investors or borrowers within the trust account structure. It seems to me to be, at best, imprudent practice and, more likely, a breach of fundamental trust obligations to allow the trust bank account to be overdrawn on a regular basis. These things make it very difficult to trace interests in and through the trust account. They also make it difficult to reconstruct the individual ledger accounts in any meaningful way.
There is a document prepared by or on behalf of Conlan entitled "Hardie Developments Pty Ltd - Folio 4827 ‑ 4833 Money Trail" (which I marked as MFI 61). It attempts (among other things) to reconstruct the HDPL ledger within the trust account structure. As will appear shortly, its accuracy depends on the way in which some of the individual transactions are construed. It shows just how difficult the task is.
There is a related issue. In a situation where a running account is being operated, the rule of convenience known as the Rule in Clayton's Case provides an efficient means of appropriating debits and credits. The effective application of the rule in this case will be problematic.
The Mortgage was initially registered solely in the name of Oakleigh. With the exception of the investors Hellfire and Price, all of the investors who became registered did so by way of transfers of mortgage from Oakleigh.
I will deal, as best I can, with each investor in the order in which they advanced funds.

Walker

Robert Wyndham Walker and Anne Lenore Walker (to whom I will refer as "Walker") advanced $135,000 on 4 April 1997.
As will appear shortly, some investors were advised of the HDPL project by letter of offer from GGFB. That is not the case with Walker. There is no indication of what transpired between Grubb and Walker prior to them making the decision to invest. On 4 April 1997 GGFB issued a receipt to Walker for $135,000. It appears that, on that day, the money was deposited to the trust bank account as part of a total deposit of about $400,000.
On 14 April 1997 GGFB sent to Walker a letter confirming the investment. The letter refers to a "first mortgage investment" without naming the borrower. However, it quotes Folio 4828. On 5 November 1997 GGFB sent to Walker for execution a document entitled "Deed of Appointment - First Mortgage Investment". It was signed and returned by Walker on 10 November 1997. I will describe the general contents of this document in more detail later. It is sufficient to say at this stage that it relates to the HDPL loan and it notes the security as being over the EP land and the VP unit. There is no mention of security over Lot 142. A separate deed of appointment in similar terms was sent and executed by Walker in March 1999 in relation to an "extension of the term" from 14 August 1998.
By a document dated and registered on 24 February 1999 Oakleigh transferred to Walker 1350 undivided 12180th shares in the Mortgage. Walker is, therefore, one of the registered mortgagees.

Moulton

Betty Frances Moulton advanced $25,000 on 11 April 1997 and a further $6,000 on 23 April 1997.
By a letter dated 11 April 1997 (said to be in confirmation of an earlier telephone conversation) GGFB advised Moulton of the HDPL project. In the letter the loan is said to be for $203,000 but that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over "Apartment 1, 30 Waterloo Crescent East Perth" with a total net equity of $320,000.
The amount of $25,000 was transferred from another loan folio that Moulton had with GGFB. The balance of $6,000 was paid by bank cheque and the money deposited into the trust account. There is no record of GGFB having sent to Moulton a letter of confirmation of the investment. However, on 15 December 1997 GGFB sent out a Deed of Appointment but Moulton did not sign it.
On 1 July 1997 Moulton signed a transfer of mortgage by which Oakleigh transferred to her 31 undivided 1218th shares in the Mortgage. The transfer of mortgage was registered on 24 February 1998. This was the first transfer of mortgage to be registered.

Andres

Although they are not involved in the proceedings I need to describe the position of Raymond Cecil Andres and Margaret Thelma Jane Andres ("Andres"). They advanced $203,000 on 1 May 1997. No documentation is in evidence. However, a search of the title reveals that on 15 May 1998 a transfer of mortgage was registered by which Oakleigh transferred to Andres 203 undivided 1218th shares in the Mortgage.
Andres has been repaid in full by virtue of a transaction involving Hellfire Pty Ltd ("Hellfire") and John William Price and Gladys Ethel Price ("Price"), which I will describe later.

Interpolation (1)

I need to pause for a moment. On 2 May 1997 Hardie paid $20,000 to GGFB in order to pay out the existing mortgage over the VP unit. As it turned out, the amount required to discharge that mortgage was $25,500. At settlement on 2 May 1999, GGFB paid to the vendor of the EP land and the mortgagee of the VP unit a total of $389,039. Leaving to one side the $20,000 paid by Hardie, the amount advanced ostensibly from the investors was $369,039. By that time GGFB had received from the investors Walker, Moulton and Andres a total of $369,000.
As I have already said, one of the complicating factors in this matter is that the Rowena trust account was overdrawn at close of business on numerous occasions. MFI 61 indicates that neither the trust bank account nor the reconstructed HDPL ledger were overdrawn on any day between 4 April 1997 and 2 May 1997. In fact, the first time (during the relevant period) on which the trust account became overdrawn was 13 June 1997. Save for the small amount of $39 to which I have already referred, the first time the HDPL ledger went into debit was 5 October 1998 when Andres received repayment of their principal.
In discussing the investor Walker I mentioned that in the deed of appointment there was no mention of a security over Lot 142. To save me saying it on each occasion, there is no mention of a security over Lot 142 in any of the deeds of appointment sent to, or signed by, any of the investors to whom I will refer in this section of the reasons.

Cressall and Prestney

There is very little information concerning the investors A E Cressall and M Prestney. Cressall advanced $35,000 on 6 May 1997 and was repaid in full on 6 October 1998. Prestney advanced $70,000 on 16 May 1997 and was repaid on 14 December 1998. There is no suggestion that either of them ever obtained a registered interest.

Bingham

Noeleen Anne Bingham advanced $28,000 on 20 June 1997. On the same day there was a composite deposit to the Rowena trust account of $253,000 and it is reasonable to assume that Bingham's money was included in this transaction. On 20 June 1997 the trust bank account was in credit. However, on 2 July 1997 the account overdrew. There were no payments to or on behalf of HDPL until 24 July 1997, when a progress payment of $70,000 was made.
There is no letter of offer and no receipt of the advance. However, there is a confirmation letter dated 24 July 1997.
On 21 December 1997 Bingham signed a deed of appointment appointing GGFB as her broker for the loan. Again the security is described as a mortgage over the EP land and the VP unit.
By a document dated 24 February 1999 and registered on the same day Oakleigh transferred to Bingham 280 undivided 12180th shares in the Mortgage. She is therefore one of the registered mortgagees.

Tabe

Allan Ronald Tabe and Winifred Tabe ("Tabe") advanced $2,000 on 16 September 1997 and it was deposited to the trust account that day as part of a larger deposit of $366,000. In fact, Tabe paid in a larger amount but the other moneys were allocated to borrowers other than HDPL. The trust account was in credit on that day but was overdrawn on numerous occasions between then and 13 July 1998.
Again somewhat curiously, there were no draw-downs on the HDPL loan between 24 July 1997 and 13 July 1998. On the latter day a progress payment of $30,000 was made.
There is no letter of offer and no receipt. However, on 8 September 1997 (obviously in anticipation of receipt of the moneys) GGFB sent Tabe a letter of confirmation. There is no deed of appointment.
By a document dated 24 February 1999 and registered on the same day Oakleigh transferred to Tabe 20 undivided 12180th shares in the Mortgage. They are, therefore, one of the registered mortgagees.

Barron

The position with this investor is a little more complicated. On 6 July 1998 Jeanette Loma Barron and others as trustees for the JB Superannuation Fund advanced $71,000 and it was deposited to the Rowena trust account the following day. I will refer to Jeanette Barron and to the investor, interchangeably, as "Barron". On 18 December 1998 Barron advanced a further $42,000 but according to Barron only $32,000 was to be allocated to the HDPL loan, making a total from this source of $103,000. This seems to accord with the letter of confirmation dated 21 December 1998.
Barron filed an affidavit and from that document the following facts can be gleaned. In 1997 and 1998 Barron made a number of investments through GGFB. She says that on 6 July 1998 she paid $71,000 to be advanced to Heyns and Kowadine on security of a first mortgage over a property in Waroona. This arrangement bears the reference Folio 5432 (or 5433). Apparently, GGFB recorded two separate deposits of $71,000. Barron pointed out to GGFB that she had made only one deposit in that amount. There is attached to her affidavit a document entitled "Current Contracts" which refers to the loan folios and which contains a handwritten note, apparently appended by Grubb: "Should be transferred off. Did not proceed". In is not clear on the state of the evidence whether any moneys were advanced from the trust bank account to Heyns and Kowadine. There is another note on that document indicating that Folio 5432 was cancelled and the funds used for Folio 4831. In her affidavit, Barron says that later in 1998 her "loan of $71,000 was discharged by the borrower" and "she agreed to $71,000 remaining in [the trust bank account] for a further investment". It is not clear which "borrower" Barron is there referring to and the statement may not be strictly accurate. Whatever the true situation, between July 1998 and December 1998 Barron had funds lodged with GGFB amounting (relevantly for these purposes) to $71,000.
In November 1998 she agreed to $10,000 being allocated to another mortgage investment. That sum was later repaid to her. In December 1998 she was approached by David Coxon, an employee of GGFB, who told her about the HDPL project. She had known the Hardie family for some years. Barron told Coxon she would only invest if she could be the sole registered first mortgagee as that was her investment policy. Coxon told her the only way that could be achieved was if she were to increase the investment to $103,000. Hence the payment of a further $42,000 on 18 December 1998.
Barron says that she signed a deed of appointment but did not keep a copy. There is no signed deed of appointment in evidence. The deed of appointment indicated the security was a first mortgage over the EP land and a title designated as "1770/658". The latter title had (and has) nothing to do with HDPL and the name of the registered proprietor was never mentioned to Barron and nor did she ever agree to lend money on that security.

Barron made repeated attempts to obtain the duplicate certificate of title to the EP land from Grubb. He made various excuses for the delay and then in April 1999 he wrote to her promising it would be delivered within seven days. It did not arrive. In June 1999 Barron conducted her own title search. She discovered that the land was mortgaged to Oakleigh (by that time the names of the several transferees would also have appeared) but her name did not appear as a registered mortgagee, let alone as the sole mortgagee.
This is an example of an investor who exercised caution and prudence and yet who was still caught up in the quagmire that enveloped the affairs of GGFB. Barron made her investment decision on her own knowledge of the borrower (as well, no doubt, on some representations made by GGFB) and on an express promise that she would have a first mortgage security. She made attempts to follow up the position so as to ensure that she obtained what had been promised to her. Barron never obtained a registered interest of any kind.
In the summaries prepared by Conlan (MFI 61) the payment of $71,000 on 6 July 1998 is treated as having been allocated to the HDPL loan from that time. On Barron's evidence that may not be correct. The $71,000 was initially given to GGFB so it could be advanced to borrowers Heyns and Kowadine on security of the Waroona land. This has nothing to do with HDPL. It does not relate to Folio 4831, which is the Barron reference within the HDPL loan structure. The trust account statement generated by St George Bank indicates that $71,000 was physically deposited to the account on 7 July 1998. There is no evidence that a payment was made out of the trust bank account which could in any way be linked to Barron's deposit (and I use the term linked here in a very broad and non‑technical sense) until late in 1998. It seems, therefore, that the Barron advance was originally earmarked for the Heyns and Kowardine project but there is no evidence that it was ever used for that purpose. In that sense it may then have remained as unallocated funds in the trust account until it was re‑allocated to the HDPL loan on or around 18 December 1998 without a further physical transaction in the trust bank account.
There is no doubt in my mind that Barron, although not being able to claim the benefits that go with registration, has an interest in the loan arrangements which are represented by the Mortgage. The critical, and very difficult, question is whether that interest lies as an interest of a propriety nature in the Mortgage as a whole or only in the portion of it that is retained by Oakleigh or whether it is an interest of a non‑proprietary nature.

Borlini

There is very little information concerning the investor Borlini. He (or they) advanced $35,000 on 3 September 1998. It was repaid by way of a transfer to Folio 6020 (again, nothing to do with HDPL) on 4 January 1999. There is no suggestion that Borlini obtained a registered interest.

Hellfire and Price

Thee investments made by Hellfire Pty Ltd (represented by Francis O'Sullivan) and John William Price and Gladys Ethel Price ("Price") raise quite different issues. In relation to Hellfire, two separate investments were made. This section deals only with the first investment. In August 1998 O'Sullivan and Price approached Coxon and expressed interest in investing mortgage funds in near city developments. Coxon suggested that they take over Andres share in the Mortgage.
O'Sullivan and Price did a site inspection of the East Perth project and were impressed. They decided to invest. On 1 October they each gave GGFB a cheque for $101,500. The cheques were deposited in the trust bank account on 12 October 1998. There is no offer letter but a letter of confirmation of the investment was sent. Hellfire and Price each signed a deed of appointment on 2 September 1998. The suggested security is a mortgage over the EP land and the VP unit.
By a document dated 18 November 1998 and registered on 19 November 1998 Andres (not Oakleigh) transferred to Hellfire 1015 undivided 12180 shares in the Mortgage. By a separate document dated 18 November 1998 and registered on 19 November 1998 Andres (not Oakleigh) transferred to Price 1015 undivided 12180 shares in the Mortgage. They are, therefore, registered mortgagees.

Interpolation (2)

It is common ground that there are significant (probably insuperable) difficulties in tracing funds when they are paid into an overdrawn trust account or into an account which becomes overdrawn between the times when the moneys are paid in and paid out. The state of the trust account at various times therefore becomes critical.
The Barron situation raises a couple of issues. As I have already said, it is not clear whether the Barron investment with HDPL should be seen as $71,000 on 6 July 1998 and $32,000 on 18 December 1998 or as one investment of $103,000 on the latter date. It may make a difference. The $71,000 payment was deposited into the trust account on 7 July 1998. At the commencement of business on that day the trust account was overdrawn by $24,442. The statement for that day lists a series of transactions, both debits and credits. The credits are listed first and then the debits. Each entry is followed by a "balance" figure". The balance shows a credit of $21,041 following the transaction that had been entered immediately before the $71,000 deposit. The account remained in credit for the rest of the day, with a closing balance of $114,263. What is the appropriate characterisation of this transaction? Was the account overdrawn at the time it was paid in? Is it simply an accident that the deposit of $71,000 appears in the position it does? In my view, fairness requires that this question be answered in favour of the innocent party. I will assume in favour of Barron that the account was in credit at all material times during that day.
The next payment out of the trust account (at least so far as concerns HDPL) was for $30,000 on 13 July 1998. The trust account was in credit between 7 July 1998 and 13 July 1998 and remained in that state until it became overdrawn on 22 July 1998.
The trust account then remained in credit until 3 November 1998. During the intervening period, the Hellfire, Price, Andres transaction had been effected, Cressall had been repaid and a progress payment of $105,000 was made on 16 October 1998. For some unexplained reason, GGFB was in possession of the cheques from Hellfire and Price from 1 October 1998 but did not bank them until after Andres had been paid out (5 October 1998). The payments out to Andres and Cressall caused the HDPL ledger within the accounting structure to go into debit. It went into credit again on 12 October 1998 after the cheques from Hellfire and Price were banked.
This raises another issue. If there is to be a notional ledger created by a reconstruction of the accounting records, should it bring to account the cheques that were in the possession of GGFB but which had not been banked? In this respect, is it any different to the position (such as with Barron) where money lies in the trust bank account but is not actually allocated to the particular investment until a later date? I think the answer to these questions is that the trust obligations of GGFB were so badly mismanaged that there is little point in trying to reconstruct the individual trust ledgers. However, to the extent that it is necessary, I incline to the view that a reconstruction of individual ledgers in the trust accounting records of GGFB (as distinct from the trust bank account) should include cheques that have not been presented. There is little difference in this regard between a cheque delivered to the broker for a particular transaction but not banked or advanced and money paid into the trust bank account for a particular transaction but not advanced. I think there is greater reason to regard the unpresented cheque as a credit to the ledger or folio of a particular transaction than there is, for instance, money sitting in the trust bank account but not allocated to that transaction.
The relevance of the particular issues that I have raised in this section of the reasons will become apparent in due course. I am here more concerned with setting out the factual matrix.
The trust bank account went into overdraft on numerous occasions between 3 November 1998 and 30 November 1998, which is the date of the next significant transaction.

Wolart

The position with the investor Wolart Pty Ltd raises similar problems to those encountered in the discussion of Barron.
In November 1997 Wolart paid $225,000 to GGFB to be advanced to a borrower called Dobson. This loan had the reference Folio 4950. On 30 November 1998 Dobson repaid $389,849 when the sales of some units that were under construction settled. That amount was deposited to the trust bank account on 30 November 1998. According to what appears to be a GGFB document entitled "Grubb Finance (Trust Account No 1)" in the name of Wolart, $90,849 was credited to Wolart as "part principal repaid 4950". I assume that this is part of the bank deposit of $389,849. On 16, 24 and 31 December 1998 further amounts were credited to Wolart with a similar notation.
The same document has an entry noted as "T/Jnl" (which I presume indicates that it was effected by a journal entry in the general ledger rather than as a cash transaction) on 1 April 1999, being the transfer of $90,000 to Folio 4833 for HDPL. There was no letter of offer but the confirmation letter is dated 17 March 1999. It shows the anticipated commencement date as 1 April 1999. A deed of appointment was executed on 18 March 1999 for a mortgage of $90,000 over the EP land and the VP unit.
The trust bank account was in credit at the commencement and close of business on 30 November 1998. It went into overdraft on several occasions before 14 December 1998 (the date of the next significant transaction) and on many other occasions between then and 1 April 1999. During the intervening period several progress payments were made, as was the transfer of funds on the Prestney account.
There is no suggestion that Wolart ever obtained a registered interest. As with Barron, I believe Wolart has an interest in the loan arrangement represented by the Mortgage, although the exact nature and extent of the interest is a matter that I will have to resolve.

Hellfire - Second Transaction

Hellfire advanced a further $105,000 on 14 December 1998. The circumstances in which this transaction occurred were as follows.
O'Sullivan says that he was impressed with the East Perth development. After the first investment, he visited the site on a number of occasions and spoke to Hardie. Hardie told him things were going well and that he was happy with the development. Hellfire had extra funds to invest. O'Sullivan contacted Coxon and they discussed, and agreed on, the provision of a further $105,000 to HDPL. On 14 December 1998 O'Sullivan gave GGFB cheques for $57,000, $30,000, $5000 and $13,000, making a total of $105,000. This amount was deposited into the trust bank account on 14 December 1998.
There was no letter of offer but the confirmation letter is dated "11 December". Although no year is mentioned it is reasonable to assume that the correct date is 11 December 1998. A deed of appointment was executed on 14 December 1998 for a mortgage of $105,000 over the EP land and the VP unit. The trust bank account was in credit at the commencement and close of business on 14 December 1998. It remained in credit until 23 December 1998. It became overdrawn on that day and on several days thereafter. The Prestney transfer and one progress payment of $100,000 were effected after 14 December 1998 but before 23 December 1998. Several other progress payments were made thereafter.
In January 1999 O'Sullivan conducted a title search. He ascertained that the transfer of mortgage from Andres had been registered but that the security for the second transaction had not. He immediately telephoned Grubb's solicitor to complain and was told it would be attended to. By a document dated 14 December 1998 and registered on 24 February 1999 Oakleigh transferred to Hellfire 1050 undivided 12180 shares in the Mortgage. O'Sullivan confirmed this state of affairs by a subsequent title search. Hellfire is therefore a registered mortgagee in relation to the second of its transactions.

Johnson

Malcolm Ernest Johnson paid $100,000 to GGFB on 14 December 1998. Of that amount, $30,000 was allocated to another mortgage and is not relevant for present purposes. The remaining $70,000 was allocated to the HDPL loan on Folio 4830. The amount of $100,000 was deposited to the trust bank account on 14 December 1998. The state of that account and the relevant transaction on it appear in the discussion under the preceding headings.
There was no letter of offer but the confirmation letter is dated 8 December 1998. A deed of appointment was executed on 11 December 1998 for a mortgage of $70,000 over the EP land and the VP unit.
There is no suggestion that Johnson ever obtained a registered interest. As with Barron and Wolart, I believe Johnson has an interest in the loan arrangement represented by the Mortgage, although the exact nature extent of the interest is a matter that I will have to resolve.

Sprengel

Joan Minna Sprengel paid $100,000 to GGFB on 15 December 1998. Of that amount, $50,000 was allocated to other mortgages and is not relevant for present purposes. The remaining $50,000 was allocated to the HDPL loan on Folio 4831. The amount of $100,000 was deposited to the trust bank account on 15 December 1998. The state of that account and the relevant transaction on it appear in the discussion of the Wolart and Hellfire investments.
There was no letter of offer but the confirmation letter is dated 15 December 1998. A deed of appointment was executed (but is undated) for a mortgage of $50,000 over the EP land and another piece of land being Lot 229 on Plan 8025, the subject of Certificate of Title Volume 1770 Folio 658. This latter piece of land is, I think, the title that was offered as security to (and rejected by) Barron. This raises yet another problem. The Mortgage covers the EP land and the VP unit. If, by virtue of the deed of appointment (there being no other evidence of the arrangements reached between Sprengel and GGFB), there was a promise to give Sprengel security over the EP land but not the VP unit, what is the nature of Sprengel's interest in the loan arrangement Mortgage? A possible answer to this dilemma is that the nature of the documentation overall and the way that each investor was treated tends to suggest that the intention was to confer on each investor security over the both the EP land and the VP unit. This was not a matter addressed in argument. For present purposes I am prepared to take a broad view of the documentation so as to avoid yet another technical problem arising.
There is no suggestion that Sprengel ever obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangement represented by the Mortgage.

Gemhurst

Gemhurst Pty Ltd paid $40,000 to GGFB on 16 December 1998. Of that amount, $30,000 was allocated to another mortgage and is not relevant for present purposes. The remaining $10,000 was allocated to the HDPL loan on Folio 4831. The amount of $40,000 was deposited to the trust bank account on 16 December 1998. The state of that account and the relevant transaction on it appear in the discussion under the preceding headings.
There was no letter of offer but the confirmation letter is dated 16 December 1998. It shows the commencement date as being "on receipt of funds 16 December 1998". Although there is, in the materials before the Court, a copy of a deed of appointment for a mortgage of $10,000 over the EP land and the VP unit, there is no evidence that such a document was executed. In other words, there is no direct, admissible evidence that Gemhurst was offered security over the EP land and no evidence at all that it was promised security over the VP unit.
There is no evidence that Gemhurst ever obtained a registered interest. There is a very real question, on the state of the evidence, as to the nature of extent of the interest to be ascribed to Gemhurst in the loan arrangement represented by the Mortgage. It would be necessary to draw an inference from the fact that the letter of confirmation referred to a deed of appointment and that the records of GGFB included an (unsigned) deed of appointment referring to the EP land in order to complete the evidentiary matrix. That would still not cure the problem with the VP unit. Subject to those notes of caution, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Meaton

Alan Littlejohn Meaton and Audrey Jane Meaton ("Meaton") paid $40,000 to GGFB on 17 December 1998. The funds were allocated to the HDPL loan on Folio 4831. The amount of $40,000 was deposited to the trust bank account on 18 December 1998. The state of that account and the relevant transactions on it appear in the discussion under the preceding headings.
There was no letter of offer but the confirmation letter is dated 17 December 1998. GGFB sent a deed of appointment to Meaton with the letter of confirmation. It refers to the same security arrangements as I have described for the Sprengel investment. However, the evidence does not include a signed copy of the document.
There is no evidence that Meaton ever obtained a registered interest. There are two issues here. The first is whether there is a sufficient evidentiary base on which I can make a finding that Meaton obtained an equitable interest in the Mortgage. The second issue is the one I mentioned in relation to the Sprengel investment.

Templeton

Susan Rita Templeton paid $70,000 to GGFB on 31 December 1998. It was treated as two separate loans, with $35,000 allocated to Folio 4828 and the remaining $35,000 to the HDPL loan on Folio 4832. The amount of $70,000 was deposited to the trust bank account on 4 January 1999. The trust bank account was in credit at the commencement and close of business on 4 January 1999. It remained in credit until 13 January 1999. It went into overdraft on that day, again on 21 January 1999 and again on several days thereafter. A progress payment was made on 4 January 1999 (the day of the Templeton deposit), another was made on 25 January 1999 and similar payments were made from time to time thereafter.
The records of GGFB include an (unsigned) copy of a letter of offer dated 10 December 1998 referring to security over the EP land and the VP unit. There are two confirmation letters, each dated 31 December 1998 and each for a loan of $35,000. Two deeds of appointment were executed on 31 December 1998, each for a mortgage of $35,000. They refer to the same security arrangements as I have described for the Sprengel investment.
Templeton filed an affidavit. In it she says that on 25 March 1999, at her insistence, GGFB's solicitor sent her a transfer of mortgage document to be signed. She says that she signed the document and returned it to the solicitor. There is a letter from the solicitor dated 16 July 1999 claiming the document was never received.
Templeton never obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Chitty

Vernon John Chitty and Pauline Ann Chitty ("Chitty") advanced $10,000 on 7 January 1999. It was deposited in the Rowena trust account on the same day as part of a larger deposit of $63,573. The relevant state of the account and the transactions on it are as I have described for the Templeton investment.
There was no letter of offer but there is a confirmation letter dated 7 January 1999. On 19 February 1999 Chitty signed a deed of appointment appointing GGFB as their broker for the loan. Again the security is described as a mortgage over the EP land and the VP unit but there is no mention of Lot 142.
By a document dated 23 March 1999 and registered on 26 March 1999 Oakleigh transferred to Chitty 100 undivided 12180th shares in the Mortgage. Chitty is therefore one of the registered mortgagees.

Monkhouse

Valerie Joy Monkhouse paid $50,000 to GGFB on 8 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $50,000 was deposited to the trust bank account on 12 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
There was no letter of offer but the confirmation letter is dated 7 January 1999. A deed of appointment was executed on 11 January 1999 for a mortgage of $50,000 over the EP land and the VP unit.
There is no evidence that Monkhouse ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Skeet

John William Towler Skeet paid $10,000 to GGFB on 12 January 1999. In the records of GGFB the funds were allocated to the HDPL loan on Folio 4832. The amount of $10,000 was deposited to the trust bank account on 12 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment. I would add that after 12 January 1999 the account became overdrawn on two occasion before any progress payments were made from it.
There is no letter of offer, no letter of confirmation and no deed of appointment. In other words there is no admissible evidence that Skeet was offered security over the EP land or the VP unit or both. That inference would have to be drawn from the fact that the loan was allocated to Folio 4832. In a questionnaire included in the papers given to me (the evidentiary status of which is problematic) and which appears to have been signed by Skeet on 15 March 2000 there is reference to a "security offered" (which he had inspected) and to the certificate of title volume and folio numbers 1778/769 (the EP land) and 2026/318 (the VP unit).
There is no evidence that Skeet ever obtained a registered interest. Subject to their being a sufficient evidentiary base from which to make a finding that Skeet has an interest in the loan arrangements represented by the Mortgage, the same comments apply to this investment as I have made in relation to others in a similar position.

Hunt

Milton Lyle Frederick Hunt and Georgina Mary Hunt ("Hunt") paid $88,000 to GGFB on 14 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $88,000 was deposited to the trust bank account on 14 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment. However, at the commencement of business on 14 January 1999 the trust bank account was in debit to the tune of $38,478. By the close of business on 14 January 1999 the account was in credit in an amount of $66,005. The relevant trust bank account deposit slip indicates that the Hunt cheque of $88,000 was included in the deposit of $204,925, which is the first entry made on that day. That deposit had the effect of regularising the account and it remained in credit for the rest of the day. I have raised a similar issue in discussing Barron's position. It may be different here. Barron's deposit was separately itemised and by the time it came to be made the account was in credit. In relation to Hunt there is no separate itemisation of the payment. It is not possible to say with the same certainty what the state of the account was when the Hunt cheque was actually dealt with. Nonetheless, I think a broad view has to be taken of the accounting treatment of the various entries. I will assume in favour of Hunt that the account was in credit at all material times during that day.
There was no letter of offer but the confirmation letter is dated 14 January 1999. A deed of appointment was executed on 14 January 1999 for a mortgage of $88,000 over the EP land and the VP unit.
There is no evidence that Hunt ever obtained a registered interest, although a caveat claiming an interest in the EP land and the VP unit "as mortgagee" was lodged on 20 September 1999. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements replaced by the Mortgage.

Detez

William Deane Detez and Lucy Ann Detez ("Detez") paid $10,000 to GGFB on 18 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $10,000 was deposited to the trust bank account on 18 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
There was no letter of offer but the confirmation letter is dated 11 January 1999. A deed of appointment was executed on 16 January 1999 for a mortgage of $10,000 over the EP land only. There is no mention of a security over the VP unit.
There is no evidence that Detez ever obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Budd

William Henry Reginald Budd paid $10,000 to GGFB on 5 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $10,000 was deposited to the trust bank account on 8 March 1999. The trust bank account was overdrawn at the commencement and close of business on that day. It remained in that state at all times during the day. It returned to credit before 10 March 1999, when a progress payment was made. Other than that, the state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
There is a letter of offer dated 26 February 1999. In the letter the loan is said to be for $203,000 but that GGFB would be prepared to accept lesser amounts in multiples of $5,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". The letter of confirmation is dated 8 March 1999. The copy of the deed of appointment that is in the papers is incomplete.
There is no evidence that Budd ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

McColl

John Blair McColl paid $10,000 to GGFB on 10 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $10,000 was deposited to the trust bank account on 10 March 1999. The trust bank account was in credit at all times on 10 March 1999. It went into overdraft on several occasions before 18 March 1999, which was the date on which the first progress payment was made after the McColl deposit.
There was no letter of offer. A confirmation letter was executed on or after 10 March 1999. A deed of appointment was executed on 10 March 1999 for a mortgage of $10,000 over the EP land and the VP unit.
There is no evidence that McColl ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Weston

Mark Herbert Weston and Bronwen Jill Weston ("Weston") advanced $40,000 on 17 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $40,000 was deposited to the trust bank account on 18 March 1999. At the commencement of business on 18 March 1999 the trust bank account was in debit to the tune of $205,598. By the close of business on 14 January 1999 the account was in credit in an amount of $29,924. The Weston cheque of $40,000 was included as an individual deposit and immediately before that transaction the account was in credit. It therefore is a similar situation to the Barron deposit of $71,000. The account went into overdraft on 23 and 24 March 1999. It then returned to a credit situation and was in credit at the commencement of business on 1 April 1999 when the next (and last) progress payment was made. It became overdrawn during that day and it overdrew again on 6 and 14 April 1999.
There was no letter of offer but the confirmation letter is dated 17 March 1999. A deed of appointment was executed (but undated) for a mortgage of $40,000 over the EP land and the VP unit.
There is no evidence that Weston ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Drown

Barry William Drown and Marie Klair Drown ("Drown") paid $25,000 to GGFB on 23 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $25,000 was deposited to the trust bank account on 24 March 1999. At the commencement of business on 24 March 1999 the trust bank account was in debit to the tune of $20,116. The Drown deposit was entered as an individual transaction. That deposit had the effect of regularising the account. However, it went back into overdraft a few transactions later and remained overdrawn for the rest of the day. This makes it slightly different to the situations which I described for Barron and for Hunt. The state of the account and the transactions on it after 24 March 1999 are as described for the Weston investment.
There was no letter of offer but the confirmation letter is dated 18 March 1999. A deed of appointment was enclosed with the letter of confirmation. However, the papers that are before the Court do not contain a signed copy of the relevant document. The unexecuted copy refers to security being given over the EP land and the VP unit.
There is no evidence that Drown ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.

Bennett

Susan Jane Bennett advanced $60,000 on 12 April 1999. The funds were allocated to the HDPL loan Folio 4827. It was deposited in the Rowena trust account on the same day. The trust bank account was in credit at all times during 12 April 1999. It went into overdraft on 14 April 1999. No payments were made from the account to or on behalf of HDPL on or after 12 April 1999.
There is a letter of offer dated 8 April 1999. It refers to a loan of $203,000 but indicates that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". A confirmation letter was sent on 28 April 1999. A deed of appointment was enclosed with the letter of confirmation. However, the papers that are before the Court do not contain a signed copy of the relevant document. The unexecuted copy contains no details of the security that is to be given and taken in relation to the loan.
By a document which is undated but which was stamped on 30 April 1999 and registered on the same day Oakleigh transferred to Bennett 600 undivided 12180th shares in the Mortgage. Bennett is therefore one of the registered mortgagees.

Nieuwkerk

Willem and Maartje Nieuwkerk ("Nieuwkerk") paid $50,000 to GGFB on 12 April 1999. In the records of GGFB the funds were allocated to the HDPL loan on Folio 4828. The amount of $50,000 was deposited to the trust bank account on 12 April 1999. The trust bank account was in credit at all times during 12 April 1999. It went into overdraft on 14 April 1999. No payments were made from the account to or on behalf of HDPL on or after 12 April 1999.
There is a letter of offer dated 12 April 1999. It refers to a loan of $203,000 but indicates that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". The papers that are before the Court do not contain a confirmation letter or a deed of appointment. However, the reference in the letter of offer to security over the EP land and the VP unit and the allocation of the funds to Folio 4828 is, I think, a sufficient evidentiary base on which to act.
There is no evidence that Nieuwkerk ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others in a similar position.

Hallsworth-Kabouw

I need to mention the position of Anna Hallsworth-Kabouw. She paid $20,000 to GGFB on 10 March 1999. In the papers before the Court there is a letter of confirmation citing the reference "Folio 4828" and an executed deed of appointment dated 23 April 1999 suggesting that these moneys had been allocated to the HDPL loan. However, there is a separate deed of appointment allocating the advance to Folio 6052, which has nothing whatsoever to do with HDPL. The other documentation suggests that there was only one advance of $20,000. The Hallsworth-Kabouw loan is not mentioned in MFI 61. Accordingly, I have taken it that the loan relates to Folio 6052 and not to the HDPL matter. I have effectively ignored it.

Williamson

The final investor with whom I need to deal is John Bernard Williamson and Betty Lillian Williamson ("Williamson"). Most of what follows comes from an affidavit sworn by John Williamson on 12 September 2000.
Williamson had been investing with GGFB since 1993. In February 1998 Williamson had invested, through GGFB, $96,000 in a project being undertaken by Leyport Pty Ltd. Leyport is not connected in any way to HDPL. The arrangement was for a two year loan on a first mortgage security. In February 1998 Williamson received a letter from GGFB confirming the first mortgage investment and enclosing extracts from a mortgage document which showed a number of mortgagees, including Williamson, for 96 undivided 480,000th shares. From August 1998 the monthly interest payments ceased, although Williamson did not realise this had happened until January 1999. In January 1999 Williamson contacted Grubb and was told that the Leyport development had been sold in July 1998. Williamson ascertained that they had never obtained a registered security over the Leyport development. Grubb told them the investment had been transferred to another portfolio (Sandgate) administered by him. They protested that they had never consented to the transfer and on a number of occasions sought clarification from Grubb that the investment was secure. Grubb offered them alternative securities, one of which was the HDPL properties.
By a letter of offer dated 15 April 1999 GGFB advised Williamson of the HDPL project. It sought a loan of $203,000 (but indicated it would accept multiples of $1,000) on security of a first mortgage over the EP land and the VP unit. On 30 April 1999 Williamson formally demanded repayment by GGFB of all of the principal and interest due to them. On 7 May 1999 Williamson appended a handwritten note to the 15 April communication and sent it back to GGFB. The note said: "Please advise street location and suburb of the listed properties so that we can view them before confirming our mortgage". On 18 May 1999 GGFB provided the details which Williamson had requested. Grubb had indicated to Williamson that he could transfer some of the interest held in the name of Oakleigh to secure the investment in HDPL. He also told Williamson that HDPL was a good investment.
Williamson did his own investigations of the East Perth project and was satisfied it was a reasonable investment. He also did a title search and confirmed that Oakleigh had a sufficient interest to cover their investment. After discussions with Grubb, Williamson ascertained that the amount of principal and interest owing to them was $108,000. Williamson caused his settlement agent to prepare a transfer of mortgage. They had it signed by Oakleigh and they registered it.
There is, of course, no receipt for moneys paid in relation to the HDPL loan and nor is there a letter of confirmation or a deed of appointment. However, the transfer of mortgage document to which I have referred is dated 15 April 1999 and was registered on 31 May 1999. By virtue of that document Oakleigh transferred to Williamson 1080 undivided 12180th shares in the Mortgage. The consideration is said to be $108,000.

Summary

This raises numerous different factual scenarios. The first scenario is where the investors clearly paid money for the HDPL loan, they became registered as mortgagees, there is a tolerably clear money trail of the funds into the trust bank account and out again to or on behalf of HDPL and the trust bank account was not overdrawn at any relevant time. Into this group falls Walker and Moulton.
The second scenario contains each of those factors except that the trust account was overdrawn at a relevant time. Bingham and Tabe are examples.
A third scenario again contains each of those factors except that the money trail has become totally obscure and there are problems with the account being overdrawn. Into this category I would put the Hellfire second transaction, Chitty and Bennett.
There are two other scenarios that deal with investors who became registered. The first includes the first Hellfire transaction and Price. It is like the third scenario but they became registered on a transfer from a party other than Oakleigh. The second of them relates to Williamson. It involves an investor who paid no money for the HDPL loan.
The sixth possibility includes Cressall, Prestney, Borlini. They would have been in the third scenario except that they never obtained a registered interest and, before the collapse of GGFB, they were repaid. Andres would have to be regarded as in a different category because they had obtained a registered interest.
The seventh category is those investors who remained unregistered but who were promised mortgages over the EP land and the VP unit. They paid moneys for the HDPL loan, there is no recognisable money trail, and the trust bank account was overdrawn at relevant times. There are subtle differences between some of the investors in this group but by and large they present the same problems. I would place Barron, Wolart, Johnson, Monkhouse, Hunt, Budd, McColl, Weston, Drown and Nieuwkerk in this category. Skeet would also fit here if there is a sufficient evidentiary base on which to find that the requisite securities were promised to him.
The ninth scenario covers Sprengel, Templeton and Detez. They would fit in the seventh category except that there is no mention in the documentation of them obtaining security over the VP unit. Gemhurst and Meaton would also fit here if there is a sufficient evidentiary base on which to find that the requisite securities were promised to them.
The investor who has not been included in a category is Hallsworth‑Kabouw.

Other Factual Matters

There are some other factual matters that I should mention. They form a necessary background to the decisions that I have to make on questions of law and for the application of the law to the facts as found.

Deeds of Appointment

I prefer this approach to the one which emerges from Melbourne Asset Management. Of course, the situation here is different. The proceedings were commenced by way of originating summons and the relevant parties were joined as parties. It is raised here purely on the issue of standing. It seems to me that Conlan, in his capacity as liquidator of Oakleigh and of Rowena, having been confronted by unsatisfactory corporate records and an indication that the companies had breached their obligations as trustees or had participated in the breach by others of fiduciary obligations, could seek the protection of directions under s 479(3). However, just as (in Bastion) the directions procedure would not determine as between the company and the investors whether there was a trust or any particular person was a beneficiary, it would not be an appropriate procedure to determine substantive rights by a direct attack to defeat the title of a registered mortgagee.

Another Basis for Standing

In Young v Murphy a trustee company was replaced as trustee of an investment trust. The former trustee went into liquidation. There was a change in the identity of the beneficiaries of the trust. The new trustee sued the former trustee (among others) for breach of trust. The court held that the new trustee had standing to sue the former trustee. Brooking JA said, at 725:
"… a trustee who has committed a breach of trust may be sued in respect of the breach either by a beneficiary … or by a co‑trustee of a successor trustee [authority cited]. … The standing of a trustee to have a breach of trust redressed against a trustee or a former trustee or a stranger who has become liable to redress a breach of trust is well recognised. Not only may a trustee take such proceedings, but he runs the risk of himself committing a breach of trust if he fails to do so [authority cited]. His obligation to take the proceedings (unless they be futile) is part of his duty to get in the trust estate, which includes rights of action against … former trustees and strangers for breach of trust. This is clear as a matter of both principle and authority. Moreover, since the trustee will take the proceedings for breach of trust for the benefit of the beneficiaries, he can sue even if he was a party to the breach of trust or some other breach of trust."
This is a situation which may have applied here. Rowena acted in breach of trust by operating the trust account in the way that it did. If the interests in the Mortgage had been transferred away from Oakleigh other than directly in return for advances of funds in a conventional and traceable way, a breach of trust occurred. It seems to me that the principle enunciated in Young applies and Rowena (and Oakleigh) have standing to take action to redress the breach of trust, namely to recover the interests in the Mortgage improperly transferred away. Of course, we now know (or put more accurately, I have found) that they cannot succeed on the merits as against the registered mortgagees because of the principle of indefeasibility. But to say that they could not succeed on the merits is not to deny their standing to invite the court to enter upon an adjudication of an issue brought before the court by proceedings instigated by them.
It is different to the situation which arises under s 89 or s 92 of the Trustees Act or s 75 of the FBCA. There, the claimant must bring itself within a particular description set out in the statute, for example, a trustee in which trust property is vested or the person carrying on "a business". In this case, the applicants asserted a breach of trust by Oakleigh and sought to attribute to the registered mortgagees an obligation to redress the breach. They failed to do so, but I do not think they lacked standing.

The Power of the Court to order a Discharge of Mortgage

The court has power to order the discharge of a mortgage without the consent of the mortgagee where some person has a pre‑existing legal right to require that discharge. The interest of the mortgagor in land under the Torrens system is, and always remains, a legal interest. The right to redeem (at least in the absence of default) is legal in character. The right to redeem is usually a matter of contract, being expressed in the mortgage document. In any event, it is implicit in the TLA.
However, the court is there enforcing a pre‑existing legal right in the exercise of its general jurisdiction to determine legal rights and to give effect to them. Counsel for the Registrar submitted that where a plaintiff has no pre‑existing legal right to have the registered mortgage securing an unpaid debt discharged, an order of the court requiring the discharge would alter pre‑existing legal rights rather than recognise and enforce them. Without an express statutory authority the court has no power to do so. Counsel cited s 126 of the TLA and s 420B as examples of statutory provisions empowering the Registrar and the court, respectively, to take such action. Counsel also submitted (and for reasons already expressed, I accept) that neither s 89 nor s 92 of the Trustees Act would give the court authority in the circumstances with which I am confronted.
I accept that there is no express statutory authority for the court to order that a registered mortgagee discharge the mortgage other than in accordance with a pre‑existing legal right or in circumstances where the interest was liable to be defeated at the instance of another claimant.
This leaves one other possibility. It might be argued that the court, in its inherent jurisdiction, has such a power. This was touched on by Young J in Yarrangah Pty Ltd v National Australia Bank Ltd [1999] NSWSC 97 at [27]‑[34] in an admittedly different context. His Honour was dealing with the power of judicial sale. Steytler J noted the argument in Sandgate Corporation Pty Ltd (In Liquidation) v Ionnou Nominees Pty Ltd (2000) 22 WAR 172 at 191 but did not need to decide the question because he found the necessary statutory authority to order sale of the mortgaged property in s 55 of the Property Law Act 1969.
So far as I can recall no argument was addressed to this proposition and it ought to stand over to another day when it can be fully developed.

The Remedies

The competition between the various participants in this sorry saga is not easy to resolve. There is an instant attraction in the argument put forward by the applicants and by Mr Morison, counsel for Top Lodge Nominees Pty Ltd but effectively appearing as amicus to put a view on behalf of unregistered investors, the effect of which is that all investors should be treated equally and should share pro rata. Counsel's submission was along these lines. Mortgage rights or any rights held by GGFB investors are held on a constructive trust for all GGFB investors and all loan repayments belong to the investors pro rata in the proportion the investor's advance bears to all advances. This applies whether the investor held a registered mortgage or an equitable mortgage or no security at all. It was a fraudulent and negligent broker that determined who got security and who went without. To allow the "chips to lie where they fall" would be to permit the broker's fraud and mal‑administration to impose a skewed and unfair outcome between people who did nothing wrong. To put it in the language used by counsel, to do otherwise would be for the legal system to "reward the lucky and penalise the unlucky when all were equally innocent".
It will be apparent from what I have already said that I am not comfortable with the concept of "luck" or "fortune" as the determinative factor. If regard must be had to "luck", perhaps the investor on whom fortune cast the broadest smile was Williamson. But the fact is that Williamson is protected by the doctrine of indefeasibility.
Counsel put the argument in a number of ways. Mr Morison relied on the analogy with Mushinski v Dodd but acknowledged the difficulty in identifying the relevant joint endeavour. This is not the only difficulty with the analogy. I have already spent some time on it (when discussing the in personam claim as a mechanism to challenge an otherwise indefeasible title) and I will not repeat what I have already said. For reasons which I have already expressed, I do not think the de facto relationship cases provide a model which can be extended to this factual situation.
The second basis upon which the argument was put forward was the equitable principle that equality is equity. Counsel relied on Re Australian Home Finance Pty Ltd [1956] VLR 1, Melbourne Asset Management and Windsor Mortgage Nominees Pty Ltd v Cardwell [1979] ACLC 32,195. In those cases, where there had been a mixing of trust funds, the court held that the investors should have priority over ordinary unsecured creditors but as between themselves the investors should rank equally and share pro rata.
In my view, again for reasons expressed, the principle cannot be applied where their impact would be inconsistent with the TLA. There must first be established a recognised in personam claim. If such a claim can be established then the equitable principles would come into play. To say that equity strives to achieve equality is one thing. To extend that to a situation where the result is unfortunate for one group but where that misfortune has not been caused or contributed to by conduct that can be sheeted home to those who benefit, is quite another.
The right and entitlement of registered mortgagees are relatively easy to describe. In my view their interests are inviolate under the doctrine of indefeasibility. Subject to any issue that might arise concerning the applicant's remuneration (a matter to which I will return shortly) the injunctions granted from time to time by various judicial officers (including me) ought to be discharged or varied so as not to impede any exercise by them of their rights.
The next question is how the unregistered investors' claims should be treated. Once the interests of the registered mortgagees have been accommodated, the interest that Oakleigh has in the Mortgage must be dealt with. Can the unregistered investors claim the balance of the proceeds arising from repayments made by HDPL or must those funds go into a pool to which all creditors of Rowena have access?
Investors such as Barron and Hunt argued that they should be entitled to claim directly against the proceeds of the HDPL loan. Barron pointed out that there was a counter-element of unfairness in treating all investors equally because their claims were different. In her case, for example, she had not sought an unrealistically high rate of interest. She had not been influenced by promises of unrealistic and uncommercial rates of return. She had carried out her own independent checks concerning the project and the borrower. In this respect all her dealings had been in relation to the HDPL loan. HDPL had complied with its obligations under the loan arrangement. There was no shortfall on the security. To force her to resort to a pool with other investors who might have not have exercised the same degree of diligence and who might have accepted a much higher degree of risk at the outset would be to visit on her an unfairness of a separate character.
I can see the force of that argument. If all investors were to be treated in the same way, there would be a failure to recognise that their circumstances differ. They differ in the way they interacted with GGFB and in the decision‑making processes in which they engaged. The reader has only to refer back to the nine scenarios that I have set out in the summary section following the discussion of the factual matrix for the individual investors to appreciate the differences.
However, I return to the central issue. Once the moneys were paid into the overdrawn trust account the right to trace was lost. As I have already said, the investors have an interest in the loan arrangements represented by the Mortgage. However, in my view it is an interest which, in terms of characterisation, can only be described as a mere equity. It is not possible to ascribe to it any proprietary characteristics. There is a personal claim against the defaulting broker. But this is not sufficient to convert it to a claim of a proprietary nature that could attach to the Mortgage itself. In the circumstances of this case the loss of the right to trace is critical. If that right were present the personal equity may be more than something that is merely ancillary to an interest in property. It would become a species of proprietary interest in its own right. However, if it cannot attach to the Mortgage I have difficulty in seeing how it could form the basis of a claim against the proceeds from the discharge of the Mortgage.
There is an interesting article entitled Tracing and Property Rights, Grantham and Rickett (2000) 63 MLR 905 in which the authors discuss the theoretical analysis of the law of tracing. The article adopts the generally accepted view that tracing is an evidential process rather than a right or a remedy properly so called. However, as the authors point out, it is necessary to identify the source of the claimant's right in the traceable product. The dominant academic view has been that the right always and necessarily arises as a response to the principle of unjust enrichment. However, the authors question the legitimacy of that theory in light of the House of Lords decision in Foskett v McKeown [2000] 2 WLR 1299. This judgment appears to shift the focus so that the plaintiff's claim in the traceable product is seen as a response to, and a vindication of, the plaintiff's proprietary right in the original asset.
The relevance of this analysis can be seen by resort to a further submission made by Mr Solomon (in an admittedly different context, namely issues of construction and rectification of the Mortgage) concerning the true characterisation of the loan arrangement. I have already commented that there is a respectable argument that the Mortgage should have been drafted as a conventional draw-down facility. Even though it was not drafted in that fashion the parties certainly conducted themselves in a manner consistent with a true draw-down facility. Drawing support from cases such as Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 and Associated Alloys Pty Ltd, Mr Solomon submitted that a draw-down facility mortgage creates two trusts. The first is a trust in favour of the borrower ("the primary trust") and the second in favour of the lender ("the secondary trust"). Counsel submitted that the effect of such an arrangement was that until completion of the project or default by the borrower the funds are to be held in order to be paid to or at the direction of the borrower, usually against progress certificates issued by the builder or architect. If there is a default by the borrower the lender is entitled to exercise remedies against the mortgaged property. If the project is incomplete the balance of the of the funds held in the trust account are available to the lender to be utilised in completing the project or in reducing the mortgage debt. Accordingly, there is a primary trust for the non‑exclusive benefit of the borrower and a secondary trust for the non‑exclusive use of the lender.
It seems to me that for the purpose of the analysis arising from Foskett the "plaintiff's proprietary right in the original asset" is an equitable proprietary right, namely the secondary trust. However, it is at this point that the problem emerges. There is a clear breach of trust by the broker paying the moneys into an overdrawn trust account, with the consequences that I have already mentioned. One of the consequences is that it is not possible, in a hopelessly mixed fund of this nature, to identify the trust property to which the secondary trust would attach. It therefore becomes problematic to identify, and therefore to vindicate by tracing, the plaintiff's proprietary right in the original asset.
Accordingly, and without much enthusiasm, I am obliged to conclude that the unregistered investors must assert their claims in the general administration of Rowena or Oakleigh, as the case may be, rather than directly against the Mortgage.

Liquidators Remuneration

I will shortly be publishing reasons in an associated application by the liquidator of Sandgate Corporation Pty Ltd (and others associated with the administration of that company) to have certain questions concerning remuneration answered. That raises different issues because it is an application by the liquidator of the mortgagor company. It is necessary for me to mention the Sandgate matter here for two reasons. First, the result in the two cases is different and I would not wish it to be thought I was unaware of that fact. Secondly, in the Sandgate reasons I will deal in more detail with some of the underlying issues that are relevant here. It will be sufficient for present purposes if I were to outline my views to the extent necessary to permit an understanding as to why I have decided the issue in the way that I have.
It follows from what I have said that the registered mortgagees have an indefeasible title to their respective interests under the Mortgage. They are entitled to receive the principal sum and interest due to them on the discharge of their respective interests in the Mortgage. To say that the registered mortgagees, who opposed the actions of the applicants in relation to the Mortgage, should be at risk of having their receipts reduced because of a priority claim by an external administrator of a company that is not the mortgagor would be inconsistent with the TLA.
Section 556 of the Corporations Law provides that the liquidator enjoys priority for the costs and expenses of the winding up over all other unsecured debts and claims. There are two reasons why this is of no assistance to the applicants here. First, the interests of the registered mortgagees in the Mortgagee is neither property of the company (Oakleigh or Rowena) nor is it property vested in Oakleigh as a trustee. The costs and expenses of the winding up could not take priority over the claim of a third party to property that is legally and beneficially owned by the third party. Secondly, the claims of the registered mortgagees are secured, not unsecured.
It is true that in Shirlaw v Taylor (1991) 31 FCR 222 the court held that a provisional liquidator appointed by the court has an equitable lien for the expenses and remuneration of the administration. However, this lien cannot stand in the face of an inconsistent statutory provision: see Shirlaw at 231. Even though the fund created upon the discharge of the Mortgage is the subject of an order of the court and is in the hands of a court-appointed external administrator the equitable lien that would otherwise arise cannot stand in the face of the TLA.
This is not to say that the applicants cannot claim their remuneration. However, they do not have priority for their remuneration or other costs and expenses over the claims of the registered mortgagees. They will have to look to the general funds of the administrations to recoup those expenses. The liquidator of Oakleigh might be in a slightly different position (although not in relation to the registered mortgagees). I will deal with this situation in more detail in the Sandgate reasons.

Costs

The third respondents have been substantially successful in this application for the determination of preliminary issues. They are, it seems to me, entitled to have their costs of the application paid by the applicants.
Mr Solomon has been highly and consistently critical of the activities and role of Conlan in his capacity as supervisor and liquidator. These criticisms are reflected in an application which the third respondents have made for costs on an indemnity basis. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Woodward J described one of the bases on which indemnity costs are ordered in this way, at 401:
"… it is appropriate to consider awarding "indemnity" costs whenever it appears that an action has been commenced or continued in whatever circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law."

In my view that is not the case here. Take for example the question of volunteers. There is conflicting authority on the point. It could not reasonably be said that those advising the applicants should have known that the applicants had no chance of success on that issue. Had I reached the view that King v Smail represented the law in Western Australia the overall result might have been quite different. On the other hand, if I am correct in the view that I have expressed that the investors are not volunteers, it would not have mattered whether I preferred King v Smail or Bogdanovich v Koteff. However, based on the submissions made by counsel for the third respondents, I suspect that my views on that subject may come as something of a surprise to him as well. I have not been persuaded that the commencement or continuation of the proceedings was devoid of merit in a way that would justify an award of costs on an indemnity basis.
I have also read the written submissions of the third respondent's solicitors dated 30 October 2000 and the affidavit of Bradley Gannon sworn 22 September 2000. I can only go on the materials that are presently before the Court. I am not persuaded that the broader aspects of the complaints made about the nature of Conlan's appointment, his relationship with the Board and what the solicitor described as "officious intermeddling" have been made out. Conlan has had (and continues to have) an extremely difficult task to perform. I have not seen anything that would cause me to doubt his bona fides. However, these issues may be the subject of argument and further evidence in the substantive proceedings or in other proceedings. I should say no more about that matter except that I am here dealing with answers to preliminary issues, most of which are questions of law. I am not persuaded that it would be appropriate or fair to award indemnity costs in the circumstances.
There was a suggestion that Price and Hellfire should not get costs because they could have joined with the remainder of the third respondents in their representation. I am aware of O 66 r 2(d). However, I can see that Hellfire and Price were in a slightly different situation because they took their interest in the Mortgage from Andres, not from Oakleigh. In the end I do not think that was a difference of substance. Nonetheless, I do not think it was (or should have been) so obvious as to make the need for separate representation a non‑issue.
The costs which I propose to order against the applicants should be treated as part of the costs and expenses of the winding up of Rowena and Oakleigh rather than as a charge against the balance of the proceeds (if any) arising from the discharge of the Mortgage.
I confirm the view I expressed during the course of the hearing that none of the parties who appeared in person are at risk of having costs awarded against them. However, as they were not successful in establishing their respective claims to an interest in the Mortgage, they should not have costs awarded in their favour.
I did not understand either the Registrar or HDPL to seek costs. If I am wrong in that regard, no doubt it will be raised when the parties move formally for orders.

Conclusion

I now come directly to the preliminary questions. In many cases it is difficult to give a "yes" or "no" answer or even to encapsulate the answer in a concise phrase or single sentence. The answers that are contained in this section should not be divorced from the discussion from which they emanate. In each case, the answer appears in italics:
1.Is HDPL entitled to a discharge of the Mortgage:
(a)on payment of the amount actually advanced to HDPL and interest thereon and costs, or
(b)on payment of the sum stated in the mortgage and interest thereon and costs?
Unless the Mortgage can be rectified the answer is 1(b). If an issue arises as to rate at which interest is to be calculated, there is no evidence that HDPL was in default in payments of interest as requested from time to time by Grubb.
2.Without limiting the generality of question 1:
2.1Did HDPL, by having executed a mortgage which became registered at the Department of Land Administration as G498929, in which HDPL covenanted to pay a principal sum of $1,218,000.00 and interest thereon, monthly in advance, commencing on 30 April 1997, become liable to pay that amount to the mortgagees named therein and their transferees under the mortgage and the implied covenant in s 113 of TLA?
See answer to question 1.
2.2Do the transferees of the Mortgage have by reason of the transfer and ss 113 and 228 TLA, an indefeasible title to the extent of the full amount secured?
The transferees have an indefeasible title and, subject to any claim for rectification, it is to the full amount described in the Mortgage as "the principal sum".
2.3Is HDPL entitled to rectification of the Mortgage to secure the amounts from time to time advanced rather than $1,218,000.00 as against the original mortgage and, if so, can that claim be enforced against subsequent transferees of the Mortgage?
HDPL has an entitlement to apply to have the Mortgage rectified. It is not possible, in these proceedings, to give a definitive answer to the question whether HDPL would succeed in such a claim.
2.4Whether the total principal amount as stated in the Mortgage of $1,218,000 was advanced on 30 April 1997 at settlement to HDPL in exchange for the registered mortgage securing that sum, and was from that time deposited by HDPL with GGFB until such time as HDPL required the funds for the purpose of meeting progress payments due for its construction project or made default under the Mortgage?
No.Only $389,000 was initially advanced. Further sums were advanced from time to time between 24 July 1997 and 1 April 1999.
2.5Did GGFB hold the money claimed by HDPL not to have been advanced to it on a primary trust for HDPL to be advanced against progress certificates, and, in the event that HDPL defaulted in its obligations under the Mortgage, on secondary trust for the lenders/registered mortgagees?
Yes, but because (in most cases) the funds were paid into an overdrawn trust account or an account which became overdrawn before funds were advanced from it to HDPL, the functioning of the trusts is problematic.
2.6For whom does Oakleigh hold on trust its share of:
(a)the Mortgage, and
(b)the unregistered mortgage executed 30 April 1997 over Lot 142.
Oakleigh's interest in the Mortgage is held for the benefit of all persons having claims against Rowena in relation to the trust bank account.
The unregistered mortgage over Lot 142 is not part of the security arrangements and it should be discharged in favour of HDPL.
3.Who is entitled to receive the amount payable by HDPL to discharge the mortgages created in respect of the funds repayment of which is secured by mortgage, and in what proportions and in what priority?
The registered mortgagees are entitled to receive their principal and interest and the normal costs associated with a discharge of mortgage. The balance of the funds should be held by the fifth applicant as part of the general funds available for distribution to unregistered trust claimants and others having claims against GGFB in accordance with the priorities set by law and under the Corporations Law.
4.Without limiting the generality of question 3:
4.1Has any party to these proceedings adduced evidence of fraud, dishonesty or moral turpitude, or any personal claim at law or in equity, required to challenge the indefeasible title of a registered proprietor of a TLA mortgage?
There is a sufficient case of fraud, dishonesty and moral turpitude by Grubb as an officer of Rowena but it is not such as is required to challenge the indefeasible title of a registered proprietor of a TLA mortgage.
4.2Did the authority of GGFB as an agent of a proposed lender, in light of general law principles of agency as affected by the FBCA include:-
4.2.1depositing the proposed lender's money in an overdrawn trust account maintained under FBCA?
No.
4.2.2withdrawing all money from the trust account maintained under FBCA and putting the trust account into overdraft without applying money in the trust account for the purposes of that proposed lender?
No.
4.2.3using money received from the proposed lender to achieve a purpose different from the purpose for which the moneys were received?
No.
4.3Is there any evidence of conduct by GGFB or any of its officers, servants or agents (including causing the registration of the Mortgage and transfers of shares or interests therein) which can be imputed to any registered mortgagee?
No.
4.4Is there evidence to support an enforceable claim by any person, based on dealings by that person with GGFB as agent for any registered mortgagee, to challenge the title of any registered mortgagee?
No.
4.5Can any claim to challenge the title of a registered mortgagee succeed where it is based on a remedy of tracing money through the GGFB trust account at any time after the account was first operated in overdraft?
No.
4.6For whom did Rowena hold funds on trust:
(a)HDPL, from the date of receipt by Rowena of funds provided by an investor for the purpose of being lent to HDPL with repayment secured by mortgage?
(b)HDPL, from the date that each investor received the mortgage against which Rowena was authorised to advance that investor's money, and prior to that date for the investor?
(c)Each investor who provided funds with the intention that they be lent to HDPL until such time as an advance or further advance was made to HDPL, regardless of whether the investor obtained a registered mortgage at that time?
The answer is 4.6(b).
5.Does Conlan have standing to challenge the title of any registered mortgagee on the basis of general allegations concerning the conduct of GGFB:
5.1under the FBCA?
5.2under ss 89 and 92 of the Trustees Act 1962?
5.3otherwise and, if so, how?
The answer is "no" for the FBCA and the Trustees Act but "possibly" for the Corporations Law s 479(3) and "yes" under principles such as those that emerge from Young v Murphy.
Conlan, in his capacity as liquidator of Oakleigh, has standing in this matter in the terms outlined in the body of the reasons.
6.Does any person other than Conlan have standing to challenge the title of any registered mortgagee on the basis of general allegations concerning the conduct of GGFB if the person:-
6.1was not a party to or otherwise interested in the transaction by which the registered mortgagee acquired their estate and interest ("the Transaction"); and
6.2did not deal with GGFB acting as agent for that registered mortgage in connection with the Transaction or otherwise?
As a pure question of standing (in the strict sense that I have described that concept) the answer is that an investor to a pooled mortgage scheme would have standing but on the factual scenario which unfolded in the HDPL example such a claim is unlikely to succeed.
7.Is a registered mortgagee who is a volunteer protected by the indefeasibility conferred by the TLA?
Yes.
8.If a person registered as a mortgagee paid to GGFB not less than the amount for which the person is registered as a mortgagee for the purpose of being advanced on mortgage security, can that person be treated as a volunteer?
No, although this answer is tentative and obiter.
9.Is the title of a registered mortgagee subject, or can that title be subjected, to an express, implied, constructive or resulting trust by reason of the conduct of GGFB and, if so:-
9.1what type of trust and on what basis did it arise or is it to be imposed?
9.2what property is subject to the trust, who are the beneficiaries and in what proportions?
An express, implied, constructive or resulting trust could arise in the circumstances outlined but in the factual scenario of the HDPL example, does not arise.
10.In circumstances in which those who became registered mortgagees knew or ought to have known that funds had to be pooled for the purpose of the advance to the mortgagor and that their funds were not of themselves sufficient to fund the loan to be secured by first mortgage, is it unconscionable for registered mortgagees to assert their right to indefeasibility or to assert their right in priority to those who claim their funds were advanced to the borrower, but who did not become registered.
No.
11.Whether knowledge that it may not have been the mortgagee's funds which were advanced was acquired by a registered mortgagee after the mortgage was registered creates in personam or other rights against that mortgagee in favour of investors who did not become registered; further or alternatively whether in all the circumstances those who become registered as mortgagees will be unfairly enriched such that those who did not become registered are entitled to follow the funds to them in circumstances where no personal action would otherwise lie.
No.
12.Should or were any mortgages or other property which Conlan has released or not claimed be or have been subject to the trust and, if so:-
(a)does Conlan's conduct in releasing or not claiming the mortgages or other property prevent the trust being imposed; or
(b)should Conlan be required to replenish the trust property by restoring the value of all such mortgages and other property?
This question does not arise because no trust has been found to apply.
13.Has Conlan ever had lawful authority as liquidator or as supervisor appointed under the FBCA or otherwise to seize or retain principal, interest or other money secured by a mortgage or an interest in a mortgage of which a person (not being a company of which Conlan is liquidator) (an "Independent Registered Mortgagee") is registered proprietor and, if not, should Conlan forthwith pay that money and accrued interest to the Independent Registered Mortgagee and, if not, why not?
Conlan acted in accordance with an order regularly made by a court of competent jurisdiction. Therein lies the lawful authority. However, the registered mortgagees are now entitled to receive their principal and interest, as to which see Answer 3.
14.Should Conlan have power to interfere in any way with the dealings by any Independent Registered Mortgagee and should the current interlocutory injunction enabling him to do so now be dissolved?
This question has already been answered.
15.Does the entitlement of a registered mortgagee in a registered mortgage comprise property that Conlan in his capacity as provisional liquidator of Rowena can claim an entitlement out of and, if not, does Conlan in that capacity have an entitlement to remuneration against any Independent Registered Mortgagee?
No.
16.Does the Court have the power to grant orders authorising Conlan to discharge mortgages registered under the TLA without the consent of the mortgagee under:
(a)the FBCA;
(b)the Trustees Act; or
(c)otherwise?
There is no such power arising from the FBCA or the Trustees Act but there may be a power under the inherent jurisdiction of the Court, a matter which would require further argument.
Unfortunately, the answers to these preliminary questions cannot resolve the complex legal, financial and personal issues with which the external administrators, the investors and others are confronted. A final resolution of the problems is still quite some way off and will require a good deal of lateral thinking by all concerned. I note also that the applicants (as liquidators) have expressly reserved rights which might arise, for example, under Pt 5.7B of the Corporations Law. It goes without saying that these preliminary questions do not confront issues of that nature.
I will hear the parties as to the orders that should be made in accordance with these reasons.