Elfar v Registrar General of New South Wales - [2010] NSWSC 539

No judgment structure available for this case.

CITATION: Elfar v Registrar General of New South Wales [2010] NSWSC 539

HEARING DATE(S): 27, 28 & 30 April 2010

JUDGMENT DATE :
4 June 2010

JURISDICTION: Equity

JUDGMENT OF: Ward J

DECISION: Plaintiff's claim dismissed with costs

CATCHWORDS: REAL PROPERTY - claim for compensation out of Torrens Assurance Fund - whether discharge of mortgage registered under the Act was forged - whether plaintiff was complicit in forgery or consented to discharge - whether loss caused by alleged forgery - whether loss a consequence of plaintiff’s own acts or omissions - whether plaintiff mitigated loss - HELD - discharge of mortgage not forged - plaintiff’s loss of interest in land was not a consequence of fraud - no entitlement to compensation

LEGISLATION CITED: Real Property Act 1900 (NSW)

CASES CITED: Behn v Registrar-General [1979] 2 NSWLR 496
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
Brott v R (1992) 173 CLR 426; (1992) 105 ALR 189; [1992] HCA 5
Burdis v Livsey [2003] QB 36; [2002] 3 WLR 762
Challenger Managed Investments Pty Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452
Chandra v Perpetual Trustees Victoria Ltd [2008] NSWSC 178
Glensaugh Pty Ltd v Registrar-General [2001] 1 NSWSC 1114
Kirkland v Quinross Pty Ltd [2008] NSWSC 286; (2008) 14 BPR 26,979
Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705
Malco Engineering Pty Limited v Ferreira & ors (1994) 10 NSWCCR 117
Nina Kung v Wang Din Shin [2005] HKCFA 54
Parker v Registrar-General [1977] 1 NSWLR 22
Payzu Ltd v Saunders [1919] 2 KB 581
Payzu Ltd v Saunders [1919] 2 KB 581
R v Beard (1837) 8 Car & P 143; 173 ER 434
R v Beardsall (1859) 1 F & F 529; 175 ER 839
R v Forbes (1835) 7 Car & P 224; 173 ER 99
R v Hartshorn (1853) 6 Cox CC 395
R v Parish (1837) 8 Car & P 94; 173 ER 413
Registrar of Titles v Spencer [1909] HCA 9; (1909) 9 CLR 641
Registrar-General v Behn (1981) 148 CLR 562; (1981) 35 ALR 633
Registrar-General v Behn [1980] 1 NSWLR 589; (1980) NSW ConvR 55-002
Segenhoe Ltd v Akins (1990) 29 NSWLR 569
Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] 1 Lloyd's Rep 605
Vella v Permanent Mortgagee Pty Ltd [2008] NSWSC 505

PARTIES: Karim John Elfar (Plaintiff)
Registrar General of New South Wales (Defendant)

FILE NUMBER(S): SC 2008/279272

COUNSEL: T Rickard (Plaintiff)
G A Sirtes (Defendant)

SOLICITORS: Pope & Spinks (Plaintiff)
Kel O'Keefe (Solicitor for the Registrar General)(Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

FRIDAY 4 JUNE 2010

2008/279272 KARIM JOHN ELFAR V REGISTRAR GENERAL OF NEW SOUTH WALES

JUDGMENT

1 This is an application brought by Mr Elfar for compensation from the Torrens Assurance Fund pursuant to s 129 of the Real Property Act 1900 (NSW) in respect of loss or damage suffered as a result of the operation of the Act by reason of the alleged fraudulent discharge in September 2005 of a registered second mortgage which he held over land known as Lot 11 DP708071 in Bowral, New South Wales.

2 The Elfar Mortgage, as I will call it, was discharged on 19 September 2005. Contradictory evidence was given by Mr Elfar as to how precisely he learnt that his mortgage had been discharged but in essence his position seems to be that he was informed of this by the solicitor who acted for him on conveyancing matters (Mr David Cummins of Wilkinson Throsby & Edwards) on or around 13 October 2005. Mr Elfar categorically denied signing the discharge of mortgage form which was lodged for registration in September 2005 (or any other discharge of mortgage in 2005), denied authorising anyone to sign such a form, and denied knowledge that settlement of a refinancing by the mortgagor was due to take place or was impending at that time. (He also denied that he appreciated as at that time that the only way he would be paid the moneys he was owed was if the proposed development of the property were to be completed and that for that it was necessary for the mortgagor’s refinancing to take place – something which would perhaps explain why Mr Elfar might have been prepared to agree to a discharge of his mortgage.)

3 The effect of registration of the Elfar Mortgage was to deprive Mr Elfar of his security as second mortgagee (it being conceded by his Counsel, Mr Rickard, that it was probable that, despite the discharge of mortgage, Mr Elfar retained a claim in equity against the mortgagee (Masterline Developments Pty Ltd), for whatever that may have been worth, in relation to the moneys which had been secured by that mortgage).

4 Mr Elfar lodged his claim for compensation in May 2006, after a receiver had been appointed to Masterline. Until then, the steps taken by Mr Elfar following the discharge of the Elfar Mortgage were to lodge a caveat over the title to the property (claiming an interest under a contract for sale of one of the units then proposed to be built as part of a development of the property) in October 2005 and then to report the matter to the police in Sydney in February 2006.

5 After correspondence in which further information was sought in relation to the claim, the Registrar General of New South Wales rejected Mr Elfar’s claim for compensation on 4 December 2007, which has led to the present proceedings.

6 In these proceedings, the Registrar General has put Mr Elfar to proof as to the alleged fraud in relation to the discharge of the Elfar Mortgage. The Registrar General subpoenaed two of the solicitors involved in the relevant transactions surrounding the Elfar Mortgage to give evidence (those solicitors being Mr Cummins, who has already been mentioned and was Mr Elfar’s long term solicitor in relation to conveyancing matters, and Mr Dean Groundwater, of Warren McKeon Dickson, who acted for Masterline on the refinancing of its loan facility in September 2005, in the course of which the Elfar Mortgage was discharged). Mr Elfar gave evidence himself but called no other lay evidence. (Some criticism was made by Senior Counsel for the Registrar General, Mr Sirtes SC, as to the fact that no evidence was adduced by Mr Elfar from the solicitor (Mr Martin Woods) who had advised him in late October 2005, and who it might be assumed could have shed light on any advice given to Mr Elfar after his discovery of the discharge of the Elfar Mortgage, even though that solicitor is still practising in Sydney and Mr Elfar admitted he had recently been in communication with him). Expert evidence was adduced by both parties as to the authenticity of the signature purporting to be that of Mr Elfar on the registered discharge of mortgage form.

7 The Registrar General says, in general answer to the claim, that, even if there has been a fraud in the registration of the discharge of mortgage, Mr Elfar has not suffered any loss or damage as a result of the operation of the Act as there was insufficient equity in Lot 11 to facilitate repayment of the loan which had been secured by the discharged mortgage.

8 In addition, in general answer to the claim, the Registrar General relies upon subsections s 129(2)(a) and (c) of the Act, asserting that any loss or damage suffered by Mr Elfar (which is denied) was a consequence of acts or omissions by Mr Elfar and accordingly not compensable under the Act and, in the alternative, that Mr Elfar has failed to mitigate his loss.

9 The defence based on s 129(2)(a) of the Act was not pleaded until after the close of evidence in the proceedings. At that stage, I gave the Registrar General leave to amend the Defence, over the objection maintained by Mr Rickard, on the basis indicated in the short oral reasons I gave at the time. In summary, it seemed to me that, until the emergence of evidence during the hearing (in particular, from Mr Cummins and Mr Groundwater) from which it might be inferred that Mr Elfar had acquiesced in, or had knowledge of, the provision to Masterline or to the then incoming mortgagee of a discharge of mortgage in registrable form containing a signature purporting to be his (so as to enable a discharge of the Elfar Mortgage to be registered), it could not be said that the Registrar General was aware of the factual basis for a defence under s 129(2)(a) properly to be pleaded. (In that regard, I understand that at least some of the subpoenaed solicitors’ files may have been available only shortly prior to the commencement of the hearing and it cannot be assumed that the Registrar General’s lawyers were able to procure statements in advance from the two solicitors they had subpoenaed to give evidence.)

10 Further, I considered that no prejudice could be shown to be suffered by Mr Elfar by reason of the admittedly late amendment to the pleading which could not otherwise be dealt with by a short adjournment (which I offered and which was taken) to enable instructions to be given by Mr Elfar and any further evidence to be adduced as to the matters on the basis of which the further allegation was made (and an order for costs in relation to the amendment). I directed that particulars be provided of the acts or omissions on which the Registrar General relied for the 129(2)(a) allegation (as now pleaded in paragraph 24.3 of the Amended Defence filed on 30 April 2010). In due course, further evidence was adduced from Mr Elfar in relation to matters relevant to the issue of acquiescence/knowledge pleaded in the amendment I had allowed to be made to the Registrar General’s pleading.

11 In summary, the acts, as particularised, on which the Registrar General relies for the allegation that any loss suffered by reason of the discharge of the Elfar Mortgage was a consequence of Mr Elfar’s own conduct are that:

(i) Mr Elfar acquiesced in the provision to the incoming mortgagee by Masterline and/or Mr Daniel Perkinson (Masterline’s director) of the discharge of mortgage form;

(ii) Mr Elfar, with knowledge, allowed Masterline and/or Mr Daniel Perkinson to have and remain in possession of a discharge of mortgage form purportedly or actually signed by Mr Elfar at a time at or before the date upon which a settlement conference was due to take place effectuating a refinance of the Masterline loan facility;

(iii) Mr Elfar, as second registered mortgagee, acquiesced in the refinance by Masterline of its loan facility involving the discharge of his second registered mortgage; and

12 The particulars of omission on which the Registrar General relies are that, in light of any finding consistent with the matters particularised in (i) – (iv) above, Mr Elfar by omission failed, neglected or refused to prevent the provision to the incoming mortgagee of the discharge of mortgage form and its subsequent registration.

Issues

13 The issues for determination, as in substance agreed by Counsel prior to the commencement of the hearing (but into which I have now interpolated the issues arising from the amendment to the Registrar General’s pleading) are relatively straightforward:

(i) whether Mr Elfar’s signature was forged on the discharge of mortgage form which was registered on 19 September 2005 in respect of the Elfar Mortgage and, if it was forged, whether that forgery was not one in which Mr Elfar was complicit;

(ii) whether, assuming that Mr Elfar’s signature was forged and the discharge of mortgage form registered in circumstances amounting to fraud, nevertheless Mr Elfar had acquiesced in the process by which the Elfar Mortgage was discharged (and/or, with knowledge of the relevant matters as particularised, including any forgery, did not take any steps to prevent the discharge being registered) so as to lead to a conclusion that any loss or damage suffered by him was a consequence of his own acts or omissions;

(iii) what loss Mr Elfar incurred as a result of registration of the discharge of mortgage; and

14 In essence, as I understand the Registrar General’s submissions, it is said that the court should accept that Mr Elfar signed the discharge of mortgage form which was registered but that, even if he did not, he nevertheless was complicit in the circumstances in which his purported signature was placed on the form and it was subsequently registered, so as to preclude a finding of fraud for the purposes of s 129 of the Act. Alternatively, by way of defence, it is said that, even if there was a fraud in relation to the registration of the discharge of mortgage, Mr Elfar, by his acts or omissions, acquiesced in that process and hence any loss suffered by him as a consequence is not compensable out of the Fund (pursuant to s 129(2)(a) of the Act).

15 To the extent that any complicity in the forgery (assuming it be a forgery) of Mr Elfar’s signature on the discharge of mortgage form as registered would derive from the same acts as are relied upon for the alternative defence based on acquiescence, there may be little room for such a defence to operate. In any event, as will be seen from the summary of my conclusions as to the claim based on fraud, it is not necessary for the Registrar General to rely upon the defence based on acquiescence in order to succeed in resisting Mr Elfar’s claim.

16 This is a case where credit is very much in issue. Mr Elfar gave evidence of his part in the relevant transactions. Put simply, Mr Sirtes submits that Mr Elfar’s account of events should not be believed and that the court should find that there was no fraud as alleged by Mr Elfar. For the reasons set out in this judgment, I accept that submission.

Summary

17 In summary, my conclusions on the issues stated above are as follows:

(i) I am not satisfied, on the balance of probabilities, that Mr Elfar did not sign the discharge of mortgage form which was registered on 19 September 2005 in respect of the Elfar Mortgage, nor am I satisfied on that standard of proof that if Mr Elfar’s signature on that discharge of mortgage form was forged by a third party, then that forgery was one in which Mr Elfar was not complicit. Accordingly, Mr Elfar has failed to make out his case that the discharge of mortgage was registered (and his secured interest in the relevant property lost) as a consequence of fraud.

and

Matters such as the agreement of Mr Elfar with Mr Perkinson, at an earlier stage, to discharge the Elfar Mortgage, or the provision by Mr Elfar or acquiescence in the provision to the incoming mortgagee of a signed discharge of mortgage (even coupled with knowledge that settlement of the proposed Masterline refinancing which involved a discharge of the Elfar Mortgage was to take place), and the failure of Mr Elfar to prevent registration of that other discharge of mortgage form, would amount to complicity in relation to the allegedly forged document and hence lead to a finding for the Registrar General on issue (i) above.

(However, that combination of circumstances would nevertheless in my view have permitted a finding that, even if there was a fraud and the s 129(2)(a) defence was made out, Mr Elfar had suffered no loss arising from the registration of the forged document since, had that forged document not been registered, it would nevertheless have been open to Masterline to have filed instead the document which bears what I have found to be Mr Elfar’s genuine signature. That would have produced the same result for Mr Elfar, namely that his secured interest would have been lost in any event.)

(iii) in light of the answer to (i) above, the question as to what compensable loss Mr Elfar may have suffered as a result of registration of the discharge of mortgage does not arise but, had it arisen, I would have found that Mr Elfar has suffered no compensable loss on the basis that the most likely scenario (had the discharge of mortgage not been forged, as would be the case on this hypothesis) (and leaving aside the prospect that the second version of the discharge of mortgage would have been filed instead) is the second of the scenarios postulated by Mr Rickard, namely that Mr Elfar would have allowed his interest as second mortgagee to be postponed to that of the incoming first mortgagee and allowed the BankWest refinancing to proceed. In that event, it is more likely than not that the property would still have been sold by BankWest as mortgagee in possession at or around the time that it was sold and that there would have been insufficient equity to pay out Mr Elfar’s debt; and

Facts

18 In forming a view as to the authenticity of the signature purporting to be that of Mr Elfar on the discharge of mortgage form as registered, it is necessary to consider in some detail the circumstances in which the Elfar mortgage came into being and was later discharged.

19 I should note at the outset that in evidence (from the file subpoenaed from Mr Cummins) was a collection of copies of handwritten file notes (for the most part written sequentially in a note book and date stamped, in accordance with what Mr Cummins said was his usual practice) prepared by Mr Cummins. All but one of the file notes was typed. (The reason for that may perhaps have been a concern on Mr Cummins’ part to ensure a formal record of the advice there given, though if that was the case it is difficult to see why others of the notes would not have been typed). Mr Cummins did not suggest that there was any significance to be attributed to whether or not the notes were typed. In terms of contemporaneity, the handwritten notes seem to have been taken at the time of the relevant conversation. Most of the entries also had a handwritten note of the time of the conversation or attendance. I found these notes to be the most reliable contemporaneous record of events and, as will be seen, place considerable weight on them.

20 Turning then to the relevant facts which have given rise to this dispute, I note as follows.

21 Mr Elfar is a plumber by trade. He acknowledged in the witness box that he has had 30 years’ business experience (T 33.34) and is “well aware of property matters” (T 99.9). The evidence of Mr Elfar’s own solicitor of some 20-25 years (Mr Cummins), who had acted for him exclusively in such matters, was that Mr Elfar was quite experienced in conveyancing matters (T 87.46; T 88.30). Mr Cummins had no hesitation in agreeing (on the basis of his dealings over the years with Mr Elfar in a variety of property matters) that Mr Elfar understands various property concepts (such as the difference between registered and unregistered mortgages (T 87.41), what a deed of priority is (T 88.30) and how, in the situation of a second mortgagee an acknowledgement by deed of priority with the first mortgagee, might be necessary (T.88.33)); as well as that Mr Elfar has the experience himself to complete forms such as caveats and to lodge those on title (T 117.7/10).

22 In 2004, Mr Elfar was the owner of two adjacent lots of land in Bowral (Lots 10 and 11 of DP708071) in respect of which development consent had been obtained for a residential development comprising a number of dwellings.

23 Mr Elfar deposed to having met Mr Daniel Perkinson through an associate in the building trade in 2002 and having had discussions with him in 2002/2003 as to the proposed sale to Mr Perkinson or his company, Masterline, of the Bowral development site. It seems fair to say that, on Mr Elfar‘s version of events, one would think that the relationship between he and Mr Perkinson was not particularly close (T 37.50; T 46.16-26). Nevertheless, there was apparently a fair degree of trust and co-operation between them even at what seems to have been an early stage of what became, to some extent, a shared business venture. For example, Mr Elfar seems readily to have entered into an arrangement with Mr Perkinson for the provision of vendor finance in relation to the sale of the land, the ultimate repayment of which was largely linked to the outcome of the proposed property development, secured at the outset by an unregistered mortgage protected by way of caveat alone and Mr Perkinson for his part was also prepared to provide some short term finance to assist Mr Elfar.

24 The discussions in relation to the proposed sale of the Bowral property to Masterline at least seem to have been reasonably well advanced (and may already had been the subject of an agreement between Mr Elfar and Mr Perkinson) by March 2004. I say this because, at pages 174 and 175 of Exhibit 1, there are copies of what appear to be receipts dated 12 March 2004 and purportedly signed by Mr Elfar as vendor, each acknowledging receipt from Masterline of the sum of $150,000 by way of deposit on the sale of one of the two adjacent lots of land at Bowral. Mr Elfar acknowledged that he had signed those documents (T 33.20) but (as with almost all aspects of the property transactions about which he was asked to give evidence, other than the critical question as to whether he had signed the discharge of mortgage forms which were in evidence) said he did not know what they were and could not assist in how they had come about (T 33.16; T 33.30). The facsimile transmission imprint appearing at the top of each of these pages suggests that they were transmitted to Wilkinson Throsby & Edwards on 11 March 2004 (and to or from ‘Vista de Mare’, an unexplained entity or location, on 4 March 2004). There was no evidence of payment to Mr Elfar of such sums at that time and Mr Elfar did not accept that he had received any such payments (T 33.29). (Though he later seemed to agree that he had received amounts by way of deposits back in March 2004 (T 35.18), I am not confident that his “Yes” was more than an acknowledgement of what he then saw in front of him on the documents he was being shown.)

25 There was in evidence a typed file note, which Mr Cummins accepts he prepared, apparently recording advice given by him on 29 March 2004 to Mr Elfar as to whether there was in existence as at late March 2004 a binding contract between Mr Elfar and Mr Perkinson (in the context of which reference was made to a signed guarantee of 31 October 2003 but, curiously perhaps, no reference is made to the two separate acknowledgements of receipt of deposits from Masterline in respect of the two lots some two weeks earlier). Mr Cummins’ note read:

29 March 2004 at 4.30 I phoned Elfar re contract with Perkinson. I advised I thought there was at least an arguable case that the contract which he had sent through with the fax dated 26 April [presumably either an error or the fax was a fax from the previous year] might be enforceable although I know that it was not dated on the face of the contract. There was a date but it was on the guarantee namely 31 October 2003 at the top of the guarantee and also beside the signatures. The question was whether the parties intended to be contractually bound by the contract rather than just by guarantee and I said I thought he could probably establish that was the case.

He wants to sell the property to someone else and is thinking of giving Perkinson a notice to complete under this contract, and when he fails to complete, issuing a notice terminating

I advised he should do nothing and wait and see what Perkinson does. Hopefully Karim will be able to sell the property to someone else without Perkinson realising. [As to this last sentence, Mr Cummins accepted it was a comment which he had made and not a comment by Mr Elfar; hence this does not suggest what might otherwise have been seen as an apparent willingness on Mr Elfar’s part to dispose of the property behind the existing purchaser’s back.]

Karim is in discussion with Ellsmore, another prospective purchaser and hopefully that will bring forth a result.

26 In the witness box, Mr Elfar said that he could not really remember this and that he “was just probably at that time wanting him [Mr Perkinson] to purchase the property” (T 36.9). Mr Elfar did accept, however, that there were other “people floating around to buy the property” in 2003 (T 36.15).

27 Mr Cummins’ file note nevertheless suggests more than that, namely that there had been an arrangement of some kind in place between Mr Elfar and Mr Perkinson, perhaps from as far back as October 2003, in relation to the proposed sale of the Bowral property (consistent with Mr Elfar’s evidence that discussions had taken place in 2002/3). More relevantly, for present purposes, this note is consistent with Mr Elfar not only having an understanding (as someone who had been involved in property development) of how the legal aspects of property transactions worked (insofar as he is said to have been ‘thinking’ of giving a notice to terminate the contract at that stage) but also with him having a practice of dealing directly with Mr Perkinson (or others) in property negotiations and only referring to his solicitor on what might be described as an ‘as needs’ or ad hoc basis for advice as to what he was proposing to do (rather than leaving the conduct of property transactions in the hands of his solicitor to direct on a day to day basis).

28 This accords with the evidence of Mr Cummins, to which I will refer below, but is inconsistent with the manner in which Mr Elfar was at pains to suggest that he left property matters in the hands of his solicitors (mainly Mr Cummins’) and that he did not understand the detail of what was occurring in relation to those matters. (In this regard, and without necessarily being exhaustive in my notation of relevant transcript references, I note the evidence given by Mr Elfar at T 32.38, T 33.31, T 36.23, T 38.6, T 39.36, T 47.45, T 52.23 – there, to the effect that “that is what I pay them [his solicitors] for”- T 58.17, T 69.45, T 97.25 – there, asserting that he had instructed Mr Cummins to keep in touch with Masterline’s solicitors.) Mr Elfar denied that he had been kept informed by Mr Perkinson as to matters relating to the subsequent refinancing of the Masterline loan and denied that it was he who had kept Mr Cummins informed of this (rather than the other way around) (T 70.2, T 70.16). A constant refrain from Mr Elfar was to the effect that he left matters to his solicitors to look after his interests – such as that “All I know is Mr Cummins was looking after the matter, I was not in contact with Perkinson I can tell you that” (that being said as to the position as at 26 August 2005). Mr Elfar’s evidence in this regard is inconsistent with the contemporaneous notes kept by his solicitor and, as will be apparent later, I prefer Mr Cummins’ evidence to that of Mr Elfar wherever there is a conflict between them, as I found Mr Cummins a far more reliable witness.

29 Whatever be the status of the arrangements in respect of which Mr Cummins was asked to give advice in late March 2004, and the discussions which may have taken place with other purchasers around that time, by July 2004 Mr Elfar was apparently prepared to proceed with a sale to Mr Perkinson’s company, Masterline. By contract for sale of land dated 12 July 2004, Mr Elfar agreed to sell to Masterline the two lots of land at Bowral for a total purchase price of $1,415,750. Completion of the sale was to take place within 60 days after the date of the contract. It in fact took place on 3 December 2004. There was no reference in the contract to there having already been payment of some $300,000 in total by way of deposit (as suggested in the March 2004 acknowledgements).

30 As noted, completion of the contract of sale had been due in about September 2004 in accordance with the contract. At that stage, however, it appears that Masterline was having difficulty arranging finance to complete the contract. By letter dated 9 September 2004 from Wilkinson Throsby & Edwards (on behalf of Mr Elfar) to Warren McKeon Dickson (on behalf of Masterline/Perkinson) (an unsigned file copy of which is at p 172 Ex 1), Mr Cummins noted that:

31 The reference to an incoming mortgagee ‘refinancing Westpac’ seems to be a reference to Mr Elfar discharging his mortgage with Westpac over the Bowral property (in the sum of $1.05 million) and an incoming mortgagee financing Masterline’s acquisition and development of the property.

32 Of significance, in relation to Mr Cummins’ letter, is that it records a preference (presumably that of his client, Mr Elfar, whose evidence in the witness box at T 37.10 was to the same effect, ie that he would have wanted a second mortgage) was for a second registered mortgage to be provided to secure the purchaser’s obligations but that an unregistered mortgage protected by way of caveat was not out of the question. It also (in the absence of any correspondence from Warren McKeon Dickson initially adverting to the difficulty for Masterline in funding the settlement) is consistent with Mr Elfar and Mr Perkinson as between themselves reaching arrangements in relation to the shortfall (and Mr Elfar only then informing his solicitor of the deal which had been reached in that regard, so that it could be documented or actioned in some way). Relevantly, I note that Mr Elfar accepted in the witness box (at T 37.50) that he had reached agreement with Mr Perkinson in relation to vendor finance as between themselves (ie separately from his lawyers).

33 At or around this time it seems that there were discussions as to how Mr Elfar would be able to meet an anticipated shortfall, from the settlement proceeds of the Bowral properties, of $50,000 in relation to the discharge of the Westpac mortgage in order to clear the title to the two properties. By letter dated 16 September 2004 (only the first page of which was in evidence), Mr Cummins wrote to Mr Elfar setting out his understanding of the “altered contractual arrangements” which had been made between Mr Elfar and Mr Perkinson (again, seemingly recording advice given to him by Mr Elfar of the outcome of discussions directly between Mr Elfar and Mr Perkinson). (Mr Elfar was unable to recall this at first, then suggested that the money was coming from Mr Perkinson’s mother – his conflicting evidence being at T 40.10, T 40.21, T 44.38, T 46.29, T 46.54.)

34 A file note from Warren McKeon Dickson’s file (dated 25 November 2004) similarly records that there was a shortfall of $50,000 for the discharge on settlement of the Westpac mortgage and that Mr Perkinson agreed to lend Mr Elfar that amount on a short term loan (p 169, Exhibit 1).

35 By this time, it seems to have been understood that Mr Elfar’s stated preference for a second registered mortgage was not being pressed and that there was simply to be an unregistered second mortgage and caveat. Mr Cummins was careful to ensure that Mr Elfar understood the risks of holding an unregistered (rather than registered) mortgage protected only by caveat and there was evidence of a handwritten note signed by Mr Elfar in which he acknowledges that he understood those risks (p 170 Exhibit 1).

36 As at late November 2004, it seems that Mr Elfar had been seeking additional finance in the amount of $645,000 ‘to assist with refinance of a second mortgage and pay down part-loan with Westpac Banking Corporation’ (as noted in an indicative letter of offer issued on 29 November 2004 sent to Mr Elfar care of a Mr Michael Torpey at the Willow Group – pp 147/8 Exhibit 1). After some apparent confusion in the witness box, Mr Elfar said that this was in relation to an attempt to refinance properties at Daleys Point and Burradoo (T 42.2) to “try and put it all together”. Of relevance, however, is the suggestion that a deed of priority might have been required by Westpac. (It may be that the need for refinancing as between Mr Elfar’s various properties was in the context of the perceived shortfall in payout of the Westpac finance on the settlement of the sale of the Bowral properties, given the short term of the loan being proposed by the Bank.) Whatever the position in that regard, Mr Elfar was unable to recall anything in relation to this. He was taken to a copy of correspondence from Mr Cummins on 29 November 2004 (p. 146 Exhibit 1) attaching an indicative offer of loan for that purpose (T 42.6, T 42.38-48). Mr Cummins’ letter stated, among other things, that “You have confirmed that the Deed of Priority by Westpac for $2.2 m is now not required and so we have not contacted them”, again apparently recording instructions as to commercial matters being dealt with by Mr Elfar himself.

37 The relevance of this correspondence goes to the question of Mr Elfar’s understanding of property matters (and his credit, in the face of his professed lack of understanding of such matters). At first, Mr Elfar denied having an understanding of what a deed of priority was at the relevant time (T 42.22), then he appeared to agree that he knew what one was (T 42.35) though not being 100% sure (T 43.37) and could not recall having given any instructions to Mr Cummins in relation to this (T 43.2, T 43.25, T 43.70). This must be seen in light of Mr Cummins’ evidence that Mr Elfar understood what a deed of priority was; and the contemporaneous file note which indicates that that was indeed the case.

38 Completion of the sale took place on 3 December 2004. The $50,000 shortfall to discharge the Westpac mortgage was the subject of a formal Deed of Loan between Masterline and Mr Elfar of that date, the loan being repayable within 3 months and there being provision for interest to be paid on the loan.

39 On completion, the sum of $985,000 was paid by Masterline through finance obtained from a solicitor finance company, Donovan Oates Hannaford Pty Ltd (“DOH”). The balance of the purchase price ($478,000) was the subject of vendor finance in that payment of that amount was deferred until 30 December 2005. A mortgage over both Lots 10 and 11 (the Elfar Mortgage) was granted to Mr Elfar by Masterline to secure the payment of the balance of the purchase price on or before 30 December 2005.

40 At pp 143 to 145 of Exhibit A is a copy of the stamped mortgage dated 3 December 2004 granted by Masterline Developments to Mr Elfar. Annexure A to the Elfar Mortgage contained an acknowledgement by Masterline of receipt of the principal sum of $478,000 and a covenant that this would be paid to Mr Elfar (or so much of it as remained unpaid) on 30 December 2005. Clause B contained certain covenants by Masterline with Mr Elfar including that “the mortgagor [Masterline] will be deemed to have repaid the principal sum (and such interest if any) as has accrued on it, if on or before this date the mortgagor completes a contract for the sale to the mortgagee [Mr Elfar] of a lot in a strata plan being proposed Lot 1 in a strata plan of subdivision of the land mortgaged”.

41 Relevantly, therefore, although the Elfar Mortgage made provision to permit Masterline to satisfy its obligations as to the balance of the purchase price by means of the transfer of one of the units, this did not remove Masterline’s underlying obligation to repay the sum of $478,000 plus interest on 30 December 2005. (This becomes relevant when considering whether Mr Elfar took reasonable steps to mitigate his loss once he discovered that the Elfar Mortgage had been discharged.)

42 The Elfar Mortgage was not initially registered. Here is a significant point at which the account given by Mr Elfar diverges from that of his lawyer (who has no apparent interest in the proceedings and gave evidence under compulsion by the court in the form of a subpoena ad testificandem). Mr Elfar has attested to the giving of instructions to Mr Cummins to register the mortgage granted to him. Mr Cummins’ contemporaneous documents paint a very different story. Following completion of the sale, by letter dated 9 December 2004 (an unsigned copy of which is at p 138 of Exhibit 1) Mr Cummins advised Mr Elfar that:

You have instructed us that this mortgage is not to be registered but is to be noted on the title to Ascot Road by registration of a caveat

43 From receipt of this communication, Mr Elfar must have been aware that (whether or not those had in fact been his instructions) it was Mr Cummins’ understanding that the Elfar Mortgage was not to be registered. There is nothing to suggest that Mr Elfar remonstrated with Mr Cummins or demurred from that proposition at the time. Mr Cummins noted that he had been so instructed. Mr Elfar denied having any recollection about such instructions (T 44.50) and denied that the letter accurately recorded such instructions (T 45.4).

44 Mr Cummins’ file note is at first blush inconsistent with what Mr Elfar said about the registration of the mortgage in paragraph 12 of his affidavit in these proceedings (a matter on which he was, not surprisingly, challenged in cross-examination). Mr Elfar’s response, when pressed, was that “Obviously” he had given the instructions to register the mortgage (T 10.45). In his affidavit, Mr Elfar deposed that “I instructed my solicitor to register the mortgage and I believed that he was in regular contact with the plaintiff’s solicitors during that process”. (He could not recall having said that he would not register the mortgage and did not think he would have done so (T45.21, T 45.25).)

45 The only reading of this paragraph in Mr Elfar’s affidavit which would be consistent with the evidence given by Mr Cummins (and the acknowledgement signed by Mr Elfar on 23 November 2004 that the mortgage was to be unregistered) would be if the time at which those instructions were given and ‘regular contact’ took place was in around August 2005 (when the Elfar Mortgage was ultimately registered). (In that regard, I note that Mr Elfar’s initial evidence in chief in the witness box was that he contacted his solicitor about registration of the mortgage in late 2005. Although he almost immediately corrected this and placed an early 2005 time frame on this evidence, the later date appears by reference to Mr Cummins’ notes to be the correct one, though inconsistent with the import of Mr Elfar’s affidavit).

46 If that was the purport of paragraph 12 (ie that the instructions were given around August 2005) then it is unfortunate that this was not made clear when the affidavit was prepared and sworn, since the impression conveyed by paragraph 12 as it stands (in the absence of any suggestion that for a time Mr Elfar had understood that the mortgage was to be unregistered) was that Mr Elfar had believed that he was always to obtain a registered mortgage and had so instructed his solicitors (and that his solicitor, Mr Cummins, was in regular contact with Masterline’s solicitors to achieve that), when it seems from Mr Cummins’ contemporaneous records that nothing could be further from the truth.

47 Mr Elfar was aware for quite some time that his mortgage was unregistered and had agreed that this would be the case. It was only in connection with Masterline’s attempts at refinancing the loan in mid 2005 (to which I will refer shortly) that the issue of registration of the Elfar Mortgage was again raised. Even then, I doubt that there is any basis for the suggestion that Mr Cummins was in ‘regular’ contact with Masterline’s solicitors in that regard. Rather, Mr Cummins seems to have corresponded, when instructed to do so, with Masterline’s solicitors in accordance with requests or instructions from time to time by Mr Elfar on particular issues.

48 The mortgage was stamped in early March 2005 and a caveat was lodged at that time over both Lots 10 and 11 (DP335696), recording Mr Elfar’s interest as mortgagee under an unregistered mortgage. DOH, meanwhile, had registered its first mortgage over the properties securing the moneys provided by way of finance for the acquisition of the Bowral properties. Under that loan arrangement, repayment by Masterline was due on 26 November 2005. The loan facility provided for payments during the course of construction to be made up to a total amount, including the acquisition amount, not to exceed two-thirds of the mortgagee’s valuation of the subject property on an ‘as completed’ project basis.

49 By the end of March 2005, Masterline was seeking to refinance its DOH loan. (Mr Elfar conceded that Mr Perkinson had “maybe briefly” told him that – T 46.9 – and said “There would have been discussions probably because the people he was financed with were charging him exorbitant interest” – T 46.5). That knowledge was explained away by Mr Elfar as being that Mr Perkinson had not kept him informed of anything except for the fact that he was going to refinance (T 47.5) but that is again inconsistent with Mr Cummins’ notes.

50 Mr Cummins recorded a series of conversations with or to the attention of Mr Elfar from 2pm through to 3.15pm on 29 March 2005. Those appear at pp 129/130 of Exhibit 1.

51 In the first note of 29 March at 2pm, Mr Cummins records, relevantly, that:

Ph K Elfar

Search

2. …

Can he get fixed and floating charge over assets of M.D P/Ld so can put in a Receiver

52 Mr Elfar did not recall any such conversation (T 47.19, T 47.38, T 47. 45) and said that this did not mean anything to him (T 47.29). He seemed to wish to deflect any involvement in relation to the issue as to the nature of the security he held and to place that responsibility on his solicitor: “Well I would have hoped that Mr Cummins was in contact with Warren McKeon Dickson”(the solicitors for Masterline at the time).

53 Noted at 2.45pm was the following entry in Mr Cummins’ records for that day:

Ph K Elfar

Preference

2M

- leave caveat on Ascot Rd & taking fixed & floating charge from Masterline Devs P/L.

54 Mr Elfar again could not remember this conversation (T 48.31). Following an entry at 3.15pm relating to a blank s 88B form being faxed, Mr Cummins made a final entry for that day at 3.20pm:

Ph KJE

2. Await call from Perkinson that he is refinancing

3. Secure for KE 2M or fixed & floating charge over Masterline Devs P/L.

55 The above succession of file notes suggests that there was ongoing discussion at that stage between Mr Elfar and Mr Perkinson as to the proposed refinancing of Masterline’s loan facility with DOH and that Mr Elfar was the one responsible for negotiating his owncommercial position vis a vis Perkinson/Masterline. Mr Elfar seems to have been attempting to secure an agreement with Mr Perkinson (or any incoming financier) to allow a second registered mortgage over the properties or a fixed and floating charge over Masterline’s assets in order better to secure his position in relation to the sum still owing to him in respect of the balance of the purchase price.

56 At p 107 of Exhibit 1 (as part of what appears to be a bundle of documents forming a facsimile transmission on 31 May 2005 from MJ Woods & Co to Warren McKeon Dickson referring to proceedings commenced by Mr Elfar seeking the extension of caveat) is a copy of a title search of Lot 11, Ascot Road dated 29 March 2005 at 3.35pm bearing the footer “Printed by Lawpoint on 29 Mar 2005 at 03.33pm for DJC Ref Elfar”, which records the first registered mortgage to DOH. In priority as to the time of recording on the title of Mr Elfar’s caveat was another caveat to Crown & Gleeson Securities Sydney Pty Limited. (Interestingly, there is a handwritten note at the bottom of that page with Mr Cummins’ typical date stamp of 30 March 2005, which was left unexplored and unexplained, with the words “Ph KJE. Advised above. He will get even with Perkinson”.)

57 By letter dated 1 April 2005, a copy of which is at p 128 in Exhibit 1, the lawyers acting for DOH served upon Mr Elfar, in his capacity as caveator, via his solicitors a copy of a Notice of Default of Mortgage by Masterline. Mr Elfar did not remember this (T 48.15) but says he did know there was a problem with DOH at some stage (T 48.46). (Looked at in hindsight that seems to be quite an understatement since DOH was pressing in mid-2005 for repayment of the loan and seeking to exercise rights as mortgagee to sell the property.)

58 On 4 May 2005, DOH filed a statement of claim in the Possession List seeking judgment for possession of the Bowral properties and leave to issue a writ for possession. On 10 May 2005, Mr Elfar was served, via his solicitors, with a notice to caveator of proposed lapsing of caveat application. Again, Mr Elfar did not recall this in the witness box but thought ‘something’ was done through the solicitors (not through him) (T 49.3, T 50.28).

59 By letter the following day, stated to be at Mr Elfar’s request, Mr Cummins referred the matter to MJ Woods & Co in Sydney, noting his understanding that Mr Elfar would give instructions to seek an order extending the operation of the caveat. Mr Elfar (consistent with his lack of memory on most other matters to this point and his stated recollection that he left everything to his solicitors) could not remember this but then said “I know I approached Martin Woods about this matter, because he was doing some other matters for me at the time, I just left it in his hands I suppose I didn’t fully understand what was going on, but anyway” (T50.35).

60 By letter dated 17 May 2005 (p 119 of exhibit 1) DOH’s lawyers enclosed by way of service on Mr Elfar, via Wilkinson Throsby & Edwards, a copy of a Notice of Default of Mortgage pursuant to s 57(2)(b) of the Real Property Act which had been issued to Masterline. Mr Elfar did not recall receiving this (T 50.48) but remembered that DOH were trying to take the property “under the mortgagee whatever it was” (T51.3) and Mr Cummins thought that consistent with his usual practice he would have conveyed this to Mr Elfar.

61 In Mr Cummins’ file there is a note dated 25 May 2005, which Mr Cummins identified as being in the handwriting of from his secretary, Ethel, which recorded a message from Masterline’s solicitors in relation to the refinancing:

Peter McKeon rang

Perkinson - refinance

Karim going o/seas

Refinancing and wants C [caveat] lifted

Can we get instructions

followed by a note in Mr Cummins’ writing with 25 May 2005 date stamp:

Ph Karim E

62 Mr Karim accepted that he travelled overseas a lot (“all the time” – T 51.13), which was consistent with the last note.

63 On a separate page and lined paper (the former note being on unlined paper) is what appears to be a redacted handwritten file note, in Mr Cummins’ handwriting, date stamped at the top 25 May 2005, reading as follows:

* KE will provide W/X [withdrawal of caveat]in return for registration of new 1M.

64 By facsimile transmission on 26 May 2005, presumably acting on the above instructions, Mr Cummins advised Masterline’s lawyers that Mr Elfar had instructed he would provide a withdrawal of caveat in return for the new first mortgagee consenting to the registration of the Elfar Mortgage as a second mortgage and enclosed a copy of the 3 December 2004 mortgage which had been stamped on 8 March 2005. This was, of course, a mortgage over both Lots 10 and 11. Mr Elfar did not recall if those were his instructions (T 51.21), but it seems inconceivable that Mr Cummins would have acted otherwise had he not understood them to be his instructions and his file note provides support for this.

65 On 30 May 2005, Mr Elfar’s Sydney solicitors (MJ Woods & Co) filed a summons in the Equity Division of this Court (they, or Mr Elfar, seemingly not having accepted the advice of Counsel to which reference was made in the handwritten file note of Mr Cummins on 25 May 2005) seeking an order extending the operation of Mr Elfar’s caveat. Mr Elfar, somewhat sarcastically, said that it was ‘obvious’ that he must have given the instructions to commence those proceedings, though seemingly avoiding acceptance of that proposition in cross-examination at first (T 51.40). In support of that summons, Mr Elfar affirmed an affidavit in which he deposed to the fact that there had been no repayments of his mortgage.

66 Resolution of the dispute in relation to the caveat seemed thereafter to be speedily resolved. Mr Elfar said he did not know what had happened other than that Masterline had sorted something out with DOH (T 52.5). At the time, however, it appears that Mr Elfar both knew how the proceedings had resolved and had conveyed this to Mr Cummins, since Mr Cummins made a handwritten file note on 31 May 2005 of a telephone conversation with Mr Elfar:

Ph

By agreement [with] Donovan Oates Hannaford yesterday KE now allowed to register 2M by Martin Woods

M Woods to attend forthwith to this.

but he will defer telling Perkinson this until McKeon replies to my letter

Mr Cummins’ understanding was that this note recorded his understanding (as on its face it does) that Mr Elfar wanted Mr Perkinson to pay $100,000 in partial reduction of the principal sum owing to him and that he would then accept that his mortgage could be registered as a second mortgage behind the mortgage to DOH – T 114.11. It is not clear to what letter Mr Cummins is there referring, though it would seem likely to be the letter of 26 May 2005 in which Mr Cummins advised that Mr Elfar would consent to a withdrawal of caveat in return for the first mortgagee’s consent to registration of the second mortgage. Nevertheless, it seems that steps were being taken for the removal of the caveat in advance of any confirmation as to the position of the incoming mortgagee in relation to registration of the second mortgage (which suggests that Mr Elfar was prepared to rely on whatever undertaking or agreement had been given by Masterline in that regard). (For completeness, I note that the handwritten note at p101 of Exhibit 1 also includes some boxed figures but it is not clear to me that they have any relevance.)

67 By consent on 2 June 2005 the summons against DOH was dismissed with Mr Elfar consenting to pay DOH’s costs. Warren McKeon Dickson (seemingly still retained for Mr Perkinson despite the earlier suggestion that they might be removed) wrote to Mr Perkinson on 3 June 2005 advising as to this and referring to an understanding conveyed by the solicitor acting for Mr Elfar (Mr Abreu) that ‘the parties had made other arrangements for the security of Mr Elfar’s interest in the property’, though pointing out that they were unaware as to the nature of those arrangements.

68 Mr Perkinson’s lawyers advised him on 3 June 2005 to continue to take all steps to arrange alternative finance as a matter of urgency, referring to a deadline of 17 June 2005 (see letter at p 98 Exhibit 1). In mid- June 2005 an indicative loan offer was received, via a money market broker from BankWest (pp 97, 86-96 Exhibit 1). That offer is relied upon by Mr Rickard in these proceedings as indicating the value of the property at that time (BankWest apparently being prepared to offer a facility of $3.08m to refinance and complete the development, as at 15 June 2005, on the basis that at settlement 75% of the as is value of the site ($1.36m) would be released to pay out the existing mortgage and fees – see p 97 Exhibit 1). The offer made by the bank specified, as conditions precedent to drawdown, among other things, satisfactory valuations of land value on an ‘as is’ basis of no less than $1.815m and “on completion” at no less than $4.401m. (p 90 Exhibit 1).

69 It is relevant to note that, despite Mr Elfar’s lack of recollection of much of the events chronicled above, the submissions served by Mr Rickard on Mr Elfar’s behalf in these proceedings themselves state that over that two month period there had been ‘extensive negotiations and correspondence’ between Mr Elfar’s solicitors and Masterline’s solicitors which resulted in the withdrawal of Mr Elfar’s caveat and the registration on the title of Lot 11 of the Elfar Mortgage as a second ranking mortgage on 21 July 2005, which suggests that Mr Elfar had at some stage given instructions to that effect or at least confirmed that was his understanding of events.

70 Given Mr Elfar’s initial preparedness to accept an unregistered second mortgage protected by caveat, it seems reasonable to assume that his later requirement in mid 2005 that the mortgage be registered stemmed, at least in part, from the commencement of proceedings for possession by DOH and a desire to improve his security.

71 Mr Rickard characterised this ‘to’ing and fro’ing’ in the months of June and July 2005 to achieve registration of the mortgage as evidence of Mr Elfar having gone to considerable trouble to have the second mortgage registered – T 150.31, a proposition which Masterline’s solicitor, Mr Groundwater, readily accepted; and that this indicated that Mr Elfar had placed a lot of value on the mortgage interest over lot 11, which Mr Groundwater also accepted – T150.38. (It was therefore suggested that it would be commercially unrealistic for Mr Elfar, having gone to such trouble to have his second mortgage registered, would so shortly afterwards have been prepared just to give it up. I consider this proposition later but simply note that there was a respectable commercial rationale for this, which formed the basis of Mr Groundwater’s understanding as to why the discharge was being proffered.)

72 Meanwhile, DOH, still apparently pressing to recover its loan to Masterline, arranged to list the properties for auction, first on 2 July 2005 and then subsequently to re-list them for auction on 6 August 2005. Mr Elfar said that he did not know “fully” what Mr Perkinson was up to with refinancing at the time (and initially suggested that Mr Cummins may no longer have been looking after the matter at that time T 52.22, though shortly after correcting that at T 52.30).

73 The fact that Mr Cummins was still being contacted by Mr Elfar in relation to these matters emerges from a file note in Mr Cummins’ handwriting (p72 of Exhibit 1) of a telephone conversation with Mr Elfar on 2 August 2005:

Tell Perkinson want $30,000 for postponement . (my emphasis)

Do all title searches of all properties.

74 There is no time noted for that conversation but it seems likely that it followed a telephone message from Mr Elfar (recorded by Mr Cummins’ secretary) at 8.45 on that day (p 71 Exhibit 1):

75 Mr Elfar professed no recollection of this (T53.2, T 53.17), even though Mr Rickard’s submissions (the accuracy of which Mr Elfar ultimately conceded T 53.47) referred to negotiations for the discharge or postponement of the second mortgage for a sum of $30,000 – para 13. Mr Elfar then suggested that he just could not recall the date or what that was about. Mr Elfar staunchly maintained that he had no recollection of anything to do with a $30,000 payment or a postponement fee and initially expressed considerable confusion as to what was meant by postponement (T 54.39 – T 55.10) (again being at pains to point out that he was paying solicitors to look after his interests – T 55.25, T 56.15, T 57.16). However, overnight he appeared to have reconsidered his evidence on that aspect of the matter and on the second day of the hearing he confirmed that he did understand what was meant by postponement (and remembered that there had been discussion about $30,000 sum ‘as a guarantee’).

76 Mr Cummins, in the witness box, could not recall whether his file note had recorded the instructions or instead the intention of Mr Elfar in relation to the $30,000 postponement sum (T 115.1), though the language of the note would seem to me to indicate the former, but said that he read this as having been important for him to note that Mr Elfar wanted the principal sum reduced by $30,000 for agreeing to a postponement of his mortgage (T 115.13). Relevantly, in the period from late May to August, Mr Elfar’s monetary demand in relation to the price for acquiescence in the steps required or thought to be required for the refinancing (namely postponement of his security) had considerably reduced (from $100,000 to $30,000, which perhaps is an indication of Mr Elfar’s belief that his best prospect of recovery was through the refinancing and then the development proceeding, as to which I say more later).

77 By letter dated 3 August 2005, Mr Cummins wrote to Warren McKeon Dickson advising that Mr Elfar’s mortgage was now registered over Lot 11 and stating that:

Our client is prepared to consider postponing his mortgage to the new first mortgagee, provided the terms of new first mortgage are approved by your [sic] client. You might let us have this information.

Alternatively, our client’s mortgage should be paid out at settlement of the refinancing.

78 I note that although Mr Elfar was adamant in the witness box, when questioned as to his position in relation to the postponement of his mortgage interest, that he would not have agreed, and did not agree, to weaken his position in any way (T 56.18, T 56.38) and that he was sure that his solicitor would have known that, by this he seems to have not regarded the replacement of DOH as first mortgagee by an incoming first mortgagee as a weakening of his position (T57.16, T57.26). Rather, in that context, he seems to have been concerned to maintain a second ranking secured position. This is relevant when considering what would have been the position had the discharge of mortgage form (assuming it was a forgery) not been registered. The likelihood seems to be that ultimately Mr Elfar would have been prepared at the very least to permit his mortgage interest to be postponed to that of the incoming mortgagee (albeit seeking to secure a relatively small payment as the price for so doing) rather than to risk the development failing at that point.

79 Proceedings were instituted in this Court by Masterline, by summons in August 2005, in which orders were obtained restraining DOH on an interlocutory basis from proceeding to a mortgagee auction on 6 August 2005. Mr Elfar swore an affidavit in those proceedings on 4 August 2005 for Masterline (which he initially suggested had been drafted by Martin Woods – T57.44) but which seems to have been prepared as part of the evidence for Masterline in those proceedings and hence seems more likely to have been prepared by someone at Warren McKeon Dickson. In that affidavit, Mr Elfar deposed that prior to July 2005 he became aware that DOH had appointed an agent and listed the property for public auction scheduled for 2 July 2005; that out of concern he rang the Managing Director of DOH, Peter Hannaford, two times on 1 July 2005; and that in the first conversation he said words to Mr Hannaford to the effect that he had spoken to Daniel Perkinson and that he (Daniel) was arranging to pay $100,000 that day and then asked Mr Hannaford if he was going to stop the auction (and, in response to Mr Hannaford’s question as to whether he could guarantee it, said “no, I cannot, but I understand that it’s going into your account in cash so it will be cleared funds today”). This indicates a much closer level of involvement in the refinancing than Mr Elfar was prepared to concede.

80 Mr Elfar said in paras 6-8 of that affidavit:

I am concerned that if the property is auctioned on 6 August 2005 that I will be severely financially disadvantaged. The Mortgagor [Masterline] informs me that the First Mortgagee [DOH] is owed approximately $1.1 million. My mortgage secures a loan to the Mortgagor of $475,000.

I was informed by the agent appointed by the First Mortgagee to sell the Property, that the estimated selling price at the First Mortgagee’s auction will be between $145,000.00 to $150,000.00 per site which equates to a total price for the Property of $1.150 million to $2 million. I do not know what the reserve has been set at but if the Property sells at that price, I will loose [sic] $350,000 to $375,000.

If the Mortgagor retains and develops the Property I will be repaid in full

81 Mr Perkinson also swore an affidavit in the proceedings instituted by Masterline, estimating that if the development were able to be completed a sale price of $5m for the property was expected.

82 In the witness box, Mr Elfar said that he could not remember any of the detail of that application but that “it didn’t go anywhere” (by which I can only assume he means that the proceedings were resolved before a final hearing) (T 58.35). He said that he could not even remember speaking to Mr Hannaford (but ‘probably’ did) – T 58.43, and could not remember what the amount of the Masterline loan was or what Mr Perkinson was doing in relation to the loan – T 59.7. He made a point of emphasising that he did not know where this had ‘gone to’ (although ultimately accepting that when he swore that affidavit he had done so believing in the truth of its contents) – T 60.1, T 61.6, T 61.16, T 61.28.

83 At p 62 of Exhibit 1 is a handwritten file note of Mr Cummins (which appears to be stapled to a telephone message slip dated 8 August 2005 “To DJC from Karim”), which reads:

must settle soon

Ask $30,000 for trouble from Perkinson

84 Relevantly, from this note it appears that Mr Elfar is still exhibiting a willingness at that stage to assist in the refinancing (presumably by dealing in some way with his registered second mortgage) on a payment to him of $30,000. Mr Cummins says that this note was recording instructions he received from Mr Elfar (T 116.31). Mr Elfar, not surprisingly given the tenor of his evidence to his point, did not accept that the note recorded any instructions he had given to Mr Cummins (T 62.32) and said that he could not remember any instructions to that effect (T 62.36).

85 Nevertheless, Mr Cummins clearly thought he was so instructed since, by letter dated 9 August 2005 (an unsigned file copy of which is at p 61 of Exhibit 1), Mr Cummins seems to have acted on the above instructions, advising Warren McKeon Dickson that:

postponement

$30,000

86 The next critical step occurred on 18 August 2005. Mr Cummins’ secretary Ethel records a telephone conversation with Mr Elfar as follows (p 60 of Exhibit 1) at 9.55

How is Karim to secure his interest if new mortgagee does not agree to 2nd Mortgage.

87 On 23 August 2005 a letter of offer was issued by BankWest for a $3.1m facility for the stated purposes of refinancing the DOH existing debt and to provide funds for the construction of 4 villas and 4 townhouses at the Bowral property. By letter dated 24 August 2005, Kemp Strang (acting for the incoming mortgagee) issued a seemingly pro forma checklist of requirements which made reference to the requirement for an acceptable Priority Agreement if a mortgage was required to be registered as a second or later mortgage (thus not indicating any opposition in principle thereto). This checklist was broadly acceptable to Warren McKeon Dickson, it simply noting the requirements in relation to second mortgages without commenting thereon.

88 In Mr Cummins’ file there was a telephone message slip (p45 Exhibit 1) on 24 August at 1.30pm to DJC from Karim:

Settlement for Ascot Road will be 6.9 with BankWest - $30,000 to him. Flying out to Tonga today for next three days uncontactable.

89 Mr Elfar accepted that he could have been going to Tonga at the time (he had a business partner there) (T 64.16) but said that he did not remember the particular conversation – T 64.30. Again he deflected the issue by placing responsibility onto his solicitors “All I know is at the time he [Mr Cummins] was looking after the matter. All that mattered to me was that it was getting looked after. I keep seeing $30,000. I don’t know what that is about” - T 64.30.

90 Mr Cummins, however, was quite clear that he would not have known the date of settlement but for a communication of that information from someone to him – as he did not make any enquiries of his own (T 117.31). That is inconsistent with Mr Cummins having any understanding that he had been instructed to keep up regular contact with Masterline’s solicitors as to the refinancing (as Mr Elfar had suggested) or had any other particular role to play on Mr Elfar’s behalf in the refinancing. I accept Mr Cummins’ evidence (consistent with his file notes) that Mr Elfar had provided him with information in relation to the refinancing from time to time (and not vice versa) - T 117.40.

91 At this point, the question as to how a discharge of mortgage in respect of the Elfar Mortgage came to be registered arises.

92 The records of Warren McKeon Dickson disclose an understanding on their part (derived it would seem from Mr Perkinson) that the second mortgage and Mr Elfar’s caveat would be removed on settlement. Mr Groundwater confirmed in the witness box that this was his understanding. At p 41 of Exhibit 1 is a copy of an internal “Time Task Report” in the Warren McKeon Dickson records, prepared by the solicitor having the conduct of this part of the transaction (Rebecca Flynn, now a partner of the firm). The matter reference is “Perkinson/Masterline Developments loan from Bank of Western Aust Ltd”. The note states, relevantly:

2 [as in 2 billable units] - Telephone call

^nd

Daniel will not raise this issue with Elfar yet

93 However, the suggestion that Mr Elfar had agreed to discharge the Elfar mortgage is consistent with what Mr Cummins seems to have been told on that same day. At p 39 of Exhibit 1 is a handwritten note dated 26 August 2005 of Mr Cummins’ secretary, which reads:

[Mr Cummins says that this was read by him as Mr Elfar informing him what he intended to do, not as instructions – T 118.11 and that he does not recall any explanation being given to him by Mr Elfar as to that intention – T 119.17]

Settle 6/9
Monday to sign D/M

94 Mr Cummins said that the first time he was told that Mr Elfar was going to sign a discharge of mortgage was in the above conversation – T 118.16. He gave no advice in relation to this – T 119.26 (had he done so he says he would have recorded this – T 119.22). Significantly, in my view, Mr Cummins said that he had no concerns about the prudence of what Mr Elfar had informed him he was intending to do – T 119.42. (Given that Mr Cummins had much earlier seen the need to record in writing an acknowledgement by Mr Elfar of the advice he had been given in relation to the risks of an unregistered mortgage, the lack of concern on Mr Cummins part as to what Mr Elfar was proposing to do, or as to any need to give him advice on that topic, is consistent at the very least with Mr Cummins not considering that he was in a position of adviser in relation to this part of the transaction and perhaps also as to an awareness of Mr Elfar’s commercial ability to weigh up the risks and benefits of such a course.)

95 In cross-examination by Mr Rickard, Mr Cummins explained the reference to Mr Elfar “threatening” to come into the office (to sign the discharge), on the basis that over the years Mr Elfar had often said that he was going to come in and then not turned up to the office (T 138.24). There is no explanation as to whether any discharge of mortgage was actually prepared by Mr Cummins’ office (and perhaps there would have been seen to be no hurry to do so if it was thought likely that Mr Elfar might not turn up to collect it). Mr Cummins does not recall any discharge being prepared and believes there would have been a record if one had been prepared and either sent out or collected. Mr Cummins was able to confirm that neither of the two forms in evidence was prepared in that office (by reference to the licence user details at the top left hand corner of the form).

96 Mr Elfar again said that this file note meant nothing to him. He suggested that in the normal course Mr Cummins would have to contact him to tell him to come in and sign a discharge because the matter was settling (T 65.47). Whether that had been the case in Mr Elfar’s ‘normal’ property dealings in which Mr Cummins was instructed, it certainly seems unlikely to have been the case in this one (particularly when Mr Cummins had no role in relation to the refinancing and his file notes indicate that he was simply being informed from time to time as to matters in relation to the refinancing by Mr Elfar).

97 Mr Sirtes places reliance on the fact that there was not a categorical denial by Mr Elfar that he had agreed (albeit for payment of a sum of $30,000) to give a discharge of his mortgage and the evasive nature of his responses in that regard (from T 64.39) – ranging from “Why would I do that?”, “I don’t know”, “I doubt it very much unless he paid me or whatever. But I doubt. No I’m sorry”. Nor was there a categorical denial that Mr Elfar had instructed his solicitors to prepare a discharge of mortgage (T 66.18) despite him being pressed on that question. Mr Elfar’s evidence as to the sum of $30,000 was initially to deny any recollection of what it was about (T 66.25, T 67.13, T 67.20, T67.15), saying at one point “It keeps popping up everywhere in someone’s notes” (and, as Mr Sirtes pertinently pointed out, also popping up in the very submissions served on Mr Elfar’s behalf). Mr Elfar said in this context again that he did not “fully understand postponement. Postponement of what?” – T 66.31. (Ultimately, however, Mr Elfar appears to have conceded that there was discussion about a payment of $30,000 by way of some additional security or guarantee and, similarly, overnight his understanding as to what was meant by postponement appeared to improve.)

98 On 31 August 2005, Warren McKeon Dickson forwarded to Kemp Strang various executed documents in relation to the proposed refinancing and confirming the appointment for settlement at 2 September 2005. There was no reference in that list of documents to an executed discharge of mortgage being provided. However, the draft office memo in the Warren McKeon Dickson file of that date contains instructions for the registration clerk to hand to Kemp Strang on settlement, among other things, a discharge of mortgage in relation to the mortgage lodged by Mr Elfar (p 32 Exhibit 1). Mr Groundwater gave evidence that in the ordinary course a document would not be included on such an instruction list unless the firm already held the document or was confident that it would be available for the settlement.

99 There was then an exchange of communications between Warren McKeon Dickson and DOH’s lawyers as to the whereabouts of the certificate of title for Lot 11, in the course of which it was noted by the latter that on the discharge of their client’s mortgage DOH would be required to provide the certificate of title to Mr Elfar as second mortgagee.

100 Settlement of the refinancing took place on 16 September 2005. BankWest advanced $1.3 million of which $1,121,785 was paid to the outgoing first mortgagee (DOH).

101 On 19 September 2005 a Discharge of Mortgage form in relation to the Elfar Mortgage was lodged for registration with other mortgage documents. By virtue of the order in which the documents were recorded on the title, it would seem that the form was handed to Kemp Strang, at the latest, on completion (as would be expected in circumstances where the incoming mortgagee was expecting to register its mortgage as first-ranking but where there was an existing second registered mortgage on the title).

102 This brings me to what was one of the most curious features of the matter, namely that there are in existence two copies of signed Discharge of Mortgage forms in relation to the Elfar Mortgage. Mr Elfar denies signing either of them. (Apart from his evidence that he would not ‘weaken’ his position, the only matter on which Mr Elfar was adamant in the witness box, and the only documents to which he was taken on which he expressed a definite view, were these two documents and, in particular, his denial that he had seen or signed either of them – T 68.7.)

103 From my perspective, there is a marked difference between the signatures appearing on the respective discharge forms. I will refer to the forms as P38 and P42, respectively, those numbers corresponding with the page at which a copy may be found in Exhibit 1.

104 P38 is a copy of the discharge of mortgage form which was registered in September 2005. However, on the files of Warren McKeon Dickson (which I understand were subpoenaed by the Registrar General and only inspected shortly before the hearing itself) there was found to be a copy of a different signed discharge of mortgage form (P42). Unfortunately, perhaps, the forensic expert called for Mr Elfar was not asked to comment on (nor provided with a copy of) P42.

105 Both P38 and P42 are standard Real Property Act Discharge of Mortgage forms. Both are dated (in handwriting) 26/8/05. Both seem to have been witnessed by the same person, whose surname is not legible but was suggested might be “Johns”. (Mr Rickard conceded that there was an obvious similarity in the handwriting of the witness such that it is reasonable to conclude that the same person completed both forms as witness to the execution of the form by the mortgagee.) I am informed that no “Peter Johns” at the address in Coogee has been able to be located.

106 P42 bears a facsimile imprint at the top of the page, from which it seems that it was either faxed to or from Warren McKeon Dickson at 3.46 pm on 26 August 2005. (Mr Groundwater, who gave evidence in the proceedings, was unable to enlighten me as to whether this was a fax received by or faxed from the firm but accepted that it must be one or the other.) The photocopy of this form which is in evidence (P42) has superimposed a copy of what seems to be a ‘Post It’ note, obscuring part of the details of the form, on which is written in hand the words “2^nd copy”. If this was on the original of the document as it appeared in the Warren McKeon Dickson file, then it might suggest that Masterline’s lawyers were aware that there were two versions or copies of the discharge form. However, the evidence as to the provenance of this note was not clear. (Mr Groundwater confirmed that it was in Ms Flynn’s handwriting.)

107 As noted, Mr Elfar in the witness box categorically denied that this was his signature on P42 – T 166.39 (and denied that he had authorised anyone to sign this document – T 166.42). He said that the first time he had seen this document was when it was put to him in court – T 166.46.

108 There are a number of differences between the two forms (not the least being the purported K Elfar signature to which I will return shortly). On P42 the title and other details, where completed, on the top half of the form are typed; on P38 they are handwritten. On both, the date is handwritten (in what seems to me to be very similar handwriting) and the name and address of the witness seem to be broadly the same and in very similar handwriting although there are minor differences (in the space for the name of the winess in P38, the Christian name is spelt “Petr” and the address “Arden St” has a capital R; in P42, there is a second ‘e’ in “Peter” and a lower case ‘r’ in “Arden”.) Nevertheless the witness’ details seem to have been completed in very similar handwriting (with the same misspelling of “Coogee” in both), though on P38, the address reads “Cooge Beach” not just “Cooge” as on P42.

225 Here, it was not suggested for Mr Elfar that there was any fraud other than by reference to the forgery. In any event, it seems to me that the facts (even apart from the question of who actually signed the discharge of mortgage form) do not otherwise establish the existence of any fraud. (At most, they might establish a claim by Mr Elfar against Masterline or Mr Perkinson for breach of an agreement to pay the price demanded for the discharge of mortgage.)

226 I am satisfied that there is evidence from which I can conclude that Mr Elfar was prepared to agree to discharge his mortgage (uncommercial though that decision is painted by his Counsel now as having been) and from which I can infer that he provided a signed discharge of mortgage form (in the form of that which I find him to have signed as P42) to Mr Perkinson. I consider that on the balance of probabilities he did sign the document which is P38 or else he knew and did not object to this being done in his name. There is no evidence to support a conclusion that Mr Perkinson dishonestly intended all along to induce Mr Elfar to consent to discharge of mortgage with the false promise of a payment of $30,000 (thus distinguishing this case from the situation in Behn).

227 Accordingly, I am not satisfied that the discharge of the Elfar Mortgage caused Mr Elfar to be deprived of his interest as registered mortgagee as a consequence of fraud. I find that it is more likely than not that Mr Elfar himself signed P38 or was complicit in its execution in his name. That is an end to Mr Elfar’s claim.

(ii) Acquiescence

228 For that reason it is not necessary to consider the defence pleaded by reference to s 129(2)(a) (or the remaining defences). However, had it been necessary to consider this defence then the Registrar–General would clearly bear the onus of proving any consent or complicity by Mr Elfar to the extent that these facts go the existence of any of the defences to compensation. I was taken to what was said by Bryson J (as his Honour then was) in Chandra v Perpetual Trustees Victoria Ltd [2008] NSWSC 178, at [11] to the effect that the reference to acts or omissions in this regard “must be limited to any act or omission which is in some way a fault, a failure or is otherwise a shortcoming in a way which makes it an appropriate ground for limiting the extent of compensation. In some way this is fault-related”.

229 Had it been necessary to determine the alternative defence pleaded by reference to s 129(2)(a), I would have been inclined to the view that any loss suffered by Mr Elfar had P42 itself been registered would have been a consequence of his own acts or omission, since I am satisfied on the evidence before me that (contrary to his denials in these proceedings) it is more likely than not that Mr Elfar was aware in late August 2005 that there was an imminent refinancing in the context of which a discharge of his mortgage would be required and had signed the document which is P42 and provided that to Mr Perkinson in order to facilitate that taking place. Thereafter he took no step to prevent that occurring. (Mr Sirtes relies for the submission that Mr Elfar had intimate knowledge of the progress of the refinancing by reference to documents at pp 35, 45, 60, 66/67, 71, 72, 117, which I have considered when setting out the factual background above).

230 However, it was not P42 which was in fact registered and Mr Rickard relies upon the fact that it was registration of the forged document (and not some other document) which caused the loss of Mr Elfar’s proprietary interest as second mortgagee. (It was in the context of discussion of this issue that he conceded, as I understand it, that if P42 were to be a genuine document then any loss must have been referable to breach by Mr Perkinson of his agreement with Mr Elfar, not registration per se.)

231 The complicating factor in this case is therefore that it was not P42, but rather it was P38, that was registered. If (which I have not) I had found on the balance of probabilities that P38 was a forgery (ie a document not signed by Mr Elfar and not one signed by someone else with his knowledge and consent and/or registered with his acquiescence), then the fact that Mr Elfar had put into the hands of Mr Perkinson another means of effecting a discharge of the Elfar Mortgage (ie P42), which means was not ultimately employed, does not logically lead to the conclusion that by so doing Mr Elfar had caused the loss which occurred by reason of the registration of a completely different form (of which, on this hypothesis, he was not aware). (Indeed, it is the possibility of a response of this kind which it might be suggested was part of the motivation for the creation of a second discharge of mortgage.)

232 Mr Sirtes recognised the interplay between the elements required to satisfy the plaintiff’s claim of fraud and those relied upon for the defendant’s defence under s 129(2)(a) and seemed in final submissions to tie the acquiescence claim to an awareness of what was occurring in connection with the registration of the discharge of mortgage in the context of the refinancing rather than the provision of one or other of the discharge forms as such.

233 As I understood his submission, the claim pleaded in paragraph 24.3 of the Amended Defence was one flowing from whatever findings of fact might be made to fill the gap if it were to be the case that I were to find that the signature had been placed on the document not by Mr Elfar but in circumstances where Mr Elfar was aware of what was going on and acquiesced or had knowledge of that. Mr Sirtes’ primary submission is that this would not amount to a fraud and Mr Elfar’s case would fail at that point. I agree. Mr Sirtes relies on the s 129(2)(a) defence only in the event that the document is found to be both a forgery and a fraud (in the sense that Mr Elfar was not complicit in the forgery) and only then does Mr Sirtes rely on Mr Elfar’s acquiescence in allowing someone else to sign it and not preventing it from being registered, as a defence to the claim for loss occasioned as a result of the registration.

234 The difficulty I have with that submission is in seeing how acquiescence of that kind, ie which would be sufficient to amount to an act or omission causative of the loss, would not (at least on the facts of this case) amount to complicity giving rise to a finding that the loss was not caused by fraud in the first place.

235 Therefore, I am not satisfied that (had I found in favour of Mr Elfar on issue (i)) the Registrar General would have established a defence under s 129(2)(a).

(iii) Loss suffered as a result of registration of the discharge of mortgage

236 Although this issue does not arise in light of the findings I have made above, I briefly address the question of loss.

237 Registration of the discharge of mortgage deprived Mr Elfar of his interest, as secured mortgagee, in the land. Reliance was placed by Mr Rickard on Challenger Managed Investments Pty Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452 in that regard.

238 The Registrar General contends that no loss has been suffered as a result on the basis that there was insufficient equity in Lot 11 to facilitate repayment of the loan.

239 As Mr Rickard notes, the principle in cases of this kind is clear – if Mr Elfar establishes an entitlement to compensation under s 129(1)(e), then the extent of Mr Elfar’s loss must be determined and that he is entitled to that amount of money that would place him in the same position as if the wrongful act had not taken place (Registrar of Titles v Spencer [1909] HCA 9; (1909) 9 CLR 641).

240 It is said that there are three possible scenarios as to what would have happened had the discharge by reason of the registration of P38 not occurred:

(i) no refinancing would have taken place;

(ii) the refinancing would have taken place with the Elfar Mortgage remaining in place as a second mortgagee;
(iii) the refinancing would have taken place and the Elfar Mortgage discharged as part of the refinancing.

(I interpose that a fourth scenario which was not considered but which was debated with Counsel during submissions (and which would produce no loss) would be that, rather than registration of the (on this hypothesis forged) P38, what would have been registered would be the (in my opinion genuine) P42.)

241 I consider each of the enumerated three scenarios in turn, noting at the outset that of which Mr Elfar was relevantly deprived, by reason of the discharge of mortgage, was his security over Lot 11 (not Lots 10 and 11). Mr Elfar never had more than an unsecured mortgage over Lot 10. Mr Sirtes therefore submits that if any first ranking mortgagee (in this case DOH) was entitled to claim on a mortgagee sale an amount greater than $229,875 (half of the vendor finance) against Lot 11 this would have depleted the equity available in Lot 11 to satisfy the Elfar Mortgage. Mr Rickard submits that for all practical purposes the two lots were treated as a single parcel of land by all parties in a commercial sense, since without both lots the development could not proceed and without clear title to both lots a purchaser would not be in a position to progress with the transaction. I accept that this would be so for any purchaser seeking to develop both lots in accordance with the development approval (and that this may well have been the highest and best use of the property). In any event, given the findings I make below it is not necessary to explore this issue further.

242 I also note that in considering the various scenarios Mr Rickard relies upon the August 2005 letter of offer from BankWest which had indicated that the bank placed a value on the two lots together at $2.055m. Mr Rickard submits that as only $1.3m was advanced at settlement, and the bank had been prepared to allow drawdown on settlement for up to 70% of the valuation, total funds of $1.4385m were available to be drawn down, at the time of the Masterline refinancing the parties therefore had in mind that there was equity of at least $755,000 in the combined lots (or, after, Mr Elfar’s debt was taken into account, $277,000). The amount which BankWest was apparently prepared to advance in August 2005 is certainly an indicator of the value of the property at that stage, although there may be differences in lending criteria or valuations as between financiers which would lead to a different conclusion if there were now to be a formal valuation with hindsight of the property. The only other evidence of value is to be found in what Mr Elfar himself told this Court back in August 2005 in the Masterline proceedings (namely that it was worth in the order of $1.5-$2m as is) and in the amount for which the receivers ultimately sold the property under contracts exchanged in mid 2006.

243 Mr Rickard puts the plaintiff’s loss at somewhere in the range from $317,000 to roughly $500,000 and submits that the most appropriate sum is that which represents Mr Elfar’s debt ($478,000).

(i) No refinancing

244 Mr Rickard submits that had P38 not been registered, the likelihood is that DOH would have sold as mortgagee in possession. Given the strenuous attempts DOH was taking in 2005 in order to achieve a mortgagee sale, this seems to me to be a not unreasonable assumption. Mr Rickard submits that such a sale would probably have occurred before the end of the year and that, after paying out to itself an amount of about $1.2m, allowing for extra interest and sale costs, any sale of $1.7m would have seen Mr Elfar paid out in full. On this scenario, Mr Rickard contends that the loss suffered is therefore $478,000.

245 Mr Rickard himself concedes that his calculations are based on a number of assumptions. As I understand it, Mr Rickard places reliance on the BankWest valuation as at August 2005 (which proceeded on an assumption that the ‘as is’ value of the property was $2.055m), noting that in early November 2005 BankWest was prepared to increase its facility offer from $3.1m to $3.35m. He submits, in effect, that a linear progression can be applied to the monthly decrease in value from August 2005 to the mortgagee sale in June 2006 (at a rate of $95,000 per month) from which he postulates that the property could have been sold by DOH by the end of 2005 for $1.7m, thus enabling the payment out of Mr Elfar’s debt in full.

246 Mr Sirtes criticises the speculative nature of the exercise carried out on all scenarios but in this instance what he submits is that there is no evidence that a mortgagee sale in September 2005 or shortly thereafter would have yielded enough money to pay out the first mortgagee let alone the second mortgagee. Reliance is placed on the evidence to which Mr Elfar deposed in the earlier court proceedings as to his discussions with the real estate agents as to the likely proceeds of sale if the property were to proceed to a mortgagee sale and to the effect that he stood to lose a considerable sum if that were to be the case.

247 In any event, it is submitted by Mr Sirtes that the evidence strongly supports the conclusion that Mr Elfar would ultimately not have stood in the way of a refinancing, reliance being placed on the evidence Mr Elfar himself put before this Court in the Masterline proceedings in that regard.

248 I accept Mr Sirtes’ submission that scenario one is not a realistic scenario.

(ii) BankWest refinancing with Elfar Mortgage in place

249 It seems to be accepted that this is the most realistic scenario. The BankWest documents did not suggest that consent would be unavailable for a second mortgage, simply that it would be necessary for there to be an acceptable priority agreement in place.

250 Again, Mr Rickard concedes that there is an element of speculation about what would have occurred at that point but submits that in this scenario, the development would probably have proceeded and construction finance drawn down; Mr Elfar would have received the sum of $30,000 from Mr Perkinson or Masterline “and in all probability would have obtained either a transfer of Lot 1 or repayment of the loan amount”. (Mr Rickard notes that the subsequent developer sold Lot 1 in about August 2009 for $420,000). On this scenario, Mr Elfar’s loss is said to be in the order of $500,000.

251 Mr Sirtes accepts that had the second mortgage remained on the title and been postponed to the interest of the first mortgagee, the court could conclude that Mr Elfar would have received the sum of $30,000 (though as I understand it this is not loss for which Mr Rickard contends is compensable out of the Fund). However, Mr Sirtes submits that in that event Mr Elfar would have had to wait for the property to be redeveloped in order for his debt to be paid out and that all that would have happened would have been that BankWest as mortgagee in possession would have sold the property (as it ultimately did with the sale completing in November 2006) as mortgagee in possession and paid itself out first. The mortgagee sale (which surely is the best indication of what the property could have achieved on this scenario) was for $1.32m. As this was the amount lent under the first drawdown, it is submitted that there would have been no equity left in the property to satisfy the Elfar Mortgage. (On Mr Elfar’s own calculations put before this Court in August 2005, a sale at that stage, even at the higher end of the posited range, would have produced no more than a portion of his debt - about $100,000; at the lower end of the posited range there would be no recovery out of a mortgagee sale even had his second mortgage remained on the title.)

252 It seems to me that it is unrealistic to assume (in circumstances where it was not Mr Elfar’s attempts to recoup the Elfar debt which caused the collapse of Masterline and where there is no reason to think that Masterline would not have incurred the debts the subject of the additional caveats in any event) that, but for the alleged fraudulent discharge of mortgage, the project would have continued up to completion of the development so as to enable Mr Elfar to recoup the benefit of his loan (or to take a transfer of the proposed lot 1).

253 Accordingly, on the scenario accepted as most likely to have occurred had there been no mortgage fraud, I am not satisfied that any loss has been proven as Mr Elfar would be unlikely to have recovered his money irrespective of the second mortgage security position.

(ii) BankWest refinancing but only after discharge of Elfar Mortgage

254 Mr Rickard submits that on this scenario the sum of $316,715 would have been available to pay out Mr Elfar if the loan had been drawn to the maximum. He accepts that it is unknown whether Mr Elfar would have accepted this amount or some lesser amount (in the knowledge that if he did not the property would probably have been sold by DOH).

255 Mr Sirtes points again to the speculative nature of this scenario and invites me to conclude that this is inconsistent with what Mr Elfar had himself been prepared (at least as at 26 August 2005) to accept (namely a discharge of his mortgage in the hope that the development would proceed and that he would recoup his moneys through a transfer of Lot 1).

256 There is no evidence from Mr Elfar as to what he would have done in this scenario. I see no reason to conclude that Mr Elfar would not have adopted the course he seems to have been prepared, even after the discharge to contemplate, namely not to ‘rock the boat’ but to allow the refinancing to proceed without a discharge of his debt and to hope for the development to proceed.

257 Accordingly, on none of the above scenarios has Mr Elfar suffered a loss caused by the discharge of the mortgage (though he has obviously suffered a loss by reason of his dealings with Mr Perkinson).

(iii) Mitigation

258 As to mitigation, Mr Sirtes submits that Mr Elfar did nothing to improve his position after discovery of the alleged fraud, noting that (unlike the steps taken by Mr Elfar in May 2005 to preserve his caveat over the title) Mr Elfar did not even cause a letter of demand to be sent to Masterline after the discovery of the discharge of his mortgage.

259 Mr Rickard contends that the Registrar General has not shown that there were any practical steps which could have been taken that would have resulted in some or all of the loss being recovered. Reliance is placed on Glensaugh Pty Ltd v Registrar General [2001] 1 NSWSC 1114, where a finding was made by Santow J (as his Honour then was) that the plaintiff’s failure to seek an injunction was not a failure to mitigate where the plaintiff had been given legal advice against seeking such an injunction and had been advised to pursue other (political) means of preventing the conduct which had given rise to its loss. His Honour said (at [108]):

On the evidence I find that Mr Henry, acting on behalf of the Plaintiff undertook all reasonable avenues of agitation to prevent the road’s construction (and later to facilitate its closure) that he believed were open to him at that time, and that he considered that “like any genuine, normal citizen, [he] had to follow legal advice given…or [act] prudently” (T, 42.45-6). I consider that his actions at the time were reasonable overall and not such as to deny him redress or have his damages reduced.

260 In Kirkland v Quinross Pty Ltd [2008] NSWSC 286, on the other hand, delay in the sale of property in question was held by Austin J (at [78]) to amount to a failure to mitigate resulting in loss of an entitlement to compensation from the fund for lost interest (and recovery of interest only for the period up to when it was seen as reasonable for the plaintiffs to have mitigated their loss by selling the property).

261 I note in this regard that there is no basis for a claim of contributory negligence in this context, as explained in Behn (at 512) by Holland J:

262 As to what would be necessary as a matter of general principle by way of mitigation, in Segenhoe Ltd v Akins (1990) 29 NSWLR 569, Giles J (as his Honour then was), there considering whether there was a failure to mitigate by reason of the fact that litigation had not been commenced, noted that (at 582);

Banco de Portugal v Waterlow and Sons Ltd

Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd

McGregor on Damages

263 Whether the plaintiff has acted reasonably or unreasonably must depend on the circumstances of the individual case (British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, at 688–9 per Viscount Haldane LC (with whom Lords Ashbourne, Macnaghten and Atkinson agreed); Payzu Ltd v Saunders [1919] 2 KB 581; Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] 1 Lloyd's Rep 605; Burdis v Livsey [2003] QB 36, at 86; [2002] 3 WLR 762, at 804).

264 It is submitted by Mr Rickard that by the time Mr Elfar found out about the fraud there was no way that Masterline could have restored the Elfar Mortgage to its second ranking position, there being by then not only the need for consent by BankWest but also the consent of four new caveators. (As to the consent of BankWest, there is nothing to suggest that this would not have been forthcoming and, if so, then the loss would presumably have been whatever amount by which Mr Elfar’s secured position was affected by the claims which had been made by the caveators taking priority over his interest.)

265 Mr Rickard submits that the efficacy of instituting proceedings against Masterline to restore the mortgage was highly doubtful given the lack of wrongdoing on the part of BankWest or any of the caveators. Significantly, it is submitted that the best chance of Mr Elfar recovering his loss (this being the basis on which Mr Sirtes submits Mr Elfar was content to allow his mortgage to be discharged in the first place) was for the development to be completed and for him to obtain title to Lot 1. It is said that what Mr Elfar did was reasonable – lodging a caveat in respect of his interest in Lot 1, taking legal advice and reporting the matter to the police.

266 Mr Sirtes, however, submits that Mr Elfar could have taken immediate steps to call up the loan on 30 December 2005 when it was repayable and to seek declaratory and ancillary relief in relation to the equitable interest in Lot 1 arising from the contract for sale for that lot. As I understand it, Mr Rickard conceded that such a course would have been open to Mr Elfar but submitted that until Masterline was placed into receivership in mid March 2006 there was still the chance that it could refinance and complete the development (and that it was reasonable for Mr Elfar to allow an opportunity for that to occur) and that once Masterline was placed in receivership Mr Elfar’s only recourse was against the Fund.

267 I am of the view that the delay in taking action against Masterline to recoup the debt owing to Mr Elfar was not a failure to mitigate in circumstances where it seems highly unlikely on the facts as they turned out that this would have enabled Mr Elfar to recoup the amount owing to him – at most it seems likely that this would simply have resulted in Masterline going into receivership at an earlier time and it is not suggested that if that had happened Mr Elfar would have had a greater prospect of recovery of his debt.

268 Insofar as Mr Elfar sought legal advice and acted in accordance with that legal advice, that would seem to me to have been a reasonable stance to take (the only question, perhaps, being as to whether the advice he sought, at least from Mr Woods, was advice which took into account any claim in relation to the alleged fraud – for the reasons I have set out earlier, I doubt whether advice was sought as to how to address the alleged fraud at that stage). However, in the absence of evidence from Mr Woods as to what advice he gave, I have some hesitation in accepting Mr Elfar’s version in this regard.

269 On balance, had it been necessary to determine this issue, I would have been inclined to the view that the Registrar General had not established the defence pleaded under s 129(2)(c).

Conclusion

270 I find that Mr Elfar has not suffered a loss that is compensable out of the Torrens Assurance Fund, for the reason that I am not satisfied that the loss of Mr Elfar’s interest in the land as a registered second mortgagee was as a consequence of fraud.

271 I am not satisfied that Mr Elfar’s signature on the discharge of mortgage was forged nor would I have been satisfied on the evidence before me that, if it had been forged, that any such forgery was one in which Mr Elfar was not complicit. Any loss suffered by Mr Elfar by reason of the discharge of his mortgage (and I do not consider there was any loss in fact caused by reason of that event since I accept that on the most probable scenario there would have been insufficient equity in the property to pay out his debt even had the second mortgage remained in place) was therefore not loss caused as a consequence of fraud for the purposes of the Act.

272 I therefore dismiss Mr Elfar’s claim with costs.

**********

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Citations

Elfar v Registrar General of New South Wales [2010] NSWSC 539

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CITATION:	Elfar v Registrar General of New South Wales [2010] NSWSC 539
HEARING DATE(S):	27, 28 & 30 April 2010
JUDGMENT DATE :	4 June 2010
JURISDICTION:	Equity
JUDGMENT OF:	Ward J
DECISION:	Plaintiff's claim dismissed with costs
CATCHWORDS:	REAL PROPERTY - claim for compensation out of Torrens Assurance Fund - whether discharge of mortgage registered under the Act was forged - whether plaintiff was complicit in forgery or consented to discharge - whether loss caused by alleged forgery - whether loss a consequence of plaintiff’s own acts or omissions - whether plaintiff mitigated loss - HELD - discharge of mortgage not forged - plaintiff’s loss of interest in land was not a consequence of fraud - no entitlement to compensation
LEGISLATION CITED:	Real Property Act 1900 (NSW)
CASES CITED:	Behn v Registrar-General [1979] 2 NSWLR 496 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 Brott v R (1992) 173 CLR 426; (1992) 105 ALR 189; [1992] HCA 5 Burdis v Livsey [2003] QB 36; [2002] 3 WLR 762 Challenger Managed Investments Pty Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452 Chandra v Perpetual Trustees Victoria Ltd [2008] NSWSC 178 Glensaugh Pty Ltd v Registrar-General [2001] 1 NSWSC 1114 Kirkland v Quinross Pty Ltd [2008] NSWSC 286; (2008) 14 BPR 26,979 Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705 Malco Engineering Pty Limited v Ferreira & ors (1994) 10 NSWCCR 117 Nina Kung v Wang Din Shin [2005] HKCFA 54 Parker v Registrar-General [1977] 1 NSWLR 22 Payzu Ltd v Saunders [1919] 2 KB 581 Payzu Ltd v Saunders [1919] 2 KB 581 R v Beard (1837) 8 Car & P 143; 173 ER 434 R v Beardsall (1859) 1 F & F 529; 175 ER 839 R v Forbes (1835) 7 Car & P 224; 173 ER 99 R v Hartshorn (1853) 6 Cox CC 395 R v Parish (1837) 8 Car & P 94; 173 ER 413 Registrar of Titles v Spencer [1909] HCA 9; (1909) 9 CLR 641 Registrar-General v Behn (1981) 148 CLR 562; (1981) 35 ALR 633 Registrar-General v Behn [1980] 1 NSWLR 589; (1980) NSW ConvR 55-002 Segenhoe Ltd v Akins (1990) 29 NSWLR 569 Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] 1 Lloyd's Rep 605 Vella v Permanent Mortgagee Pty Ltd [2008] NSWSC 505
PARTIES:	Karim John Elfar (Plaintiff) Registrar General of New South Wales (Defendant)
FILE NUMBER(S):	SC 2008/279272
COUNSEL:	T Rickard (Plaintiff) G A Sirtes (Defendant)
SOLICITORS:	Pope & Spinks (Plaintiff) Kel O'Keefe (Solicitor for the Registrar General)(Defendant)