Henton & Henton
[2022] FedCFamC1F 574
Federal Circuit and Family Court of Australia
(DIVISION 1)
Henton & Henton [2022] FedCFamC1F 574
File number(s): PAC 1371 of 2018 Judgment of: RIETHMULLER J Date of judgment: 17 March 2022 Catchwords: FAMILY LAW – PROPERTY – Mortgages – Allegation of fraud perpetrated by husband – Indefeasible title – Summary judgment for bank. Legislation: Family Law Act 1975 (Cth) ss 75, 79, 106B Cases cited: Hurst v Vestcorp Limited (1988) 12 NSWLR 394
Van den Heuvel v Perpetual Trustees Victoria Limited [2010] NSWCA 171
Yazgi v Permanent Custodians Limited [2007] NSWCA 240
Division: Division 1 First Instance Number of paragraphs: 34 Date of hearing: 17 March 2022 Place: Parramatta Solicitor for the Applicant: Brander Smith McKnight Lawyers Counsel for the Applicant: Mr Fantin Solicitor for the First Respondent: Anderson Boemi Lawyers Solicitor for the Second Respondent: Thomson Geer Counsel for the Second Respondent: Mr Hynes ORDERS
PAC 1371 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS HENTON
Applicant
AND: MR HENTON
First Respondent
B BANK (ACN …)
Second Respondent
order made by:
RIETHMULLER J
DATE OF ORDER:
17 MARCH 2022
THE COURT ORDERS THAT:
1.That there be summary judgment for the second respondent.
2.That the parties draw specific orders to reflect the terms of this judgment.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Henton & Henton has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE
REASONS FOR JUDGMENTRIETHMULLER J:
INTRODUCTION
The second respondent, B Bank (“B Bank”), seeks summary judgment against the husband and wife with respect to two loans secured by a mortgage over the matrimonial home.
There is no dispute as to the quantum of B Bank’s claim, which is around $360,000 for the primary debt (although there is ongoing interest and legal fees that are also claimed), secured by a mortgage over the matrimonial home located in Suburb C NSW (“the Suburb C property”). The Suburb C property is estimated to be worth $1.8 million by the husband. The Suburb C property is, on anybody’s view, worth well over $1 million.
The issue that arises in this case is that the wife says that she did not sign any agreements or mortgage documents with B Bank. The wife says that the mortgage was registered, and the documents produced, as a result of a fraud perpetrated by the husband, together with a friend or associate of his, of which she knew nothing at the time. The wife’s case is supported by copies of entries from her passport to indicate she was overseas at relevant times, and a handwriting expert report that questions whether or not the relevant signature was in fact that of the wife.
There have been interlocutory orders for the wife to produce samples of handwriting, which she has not fully complied with, the default of which has in part has led to B Bank seeking summary judgment. More significant however, is the question of whether the wife can ultimately succeed in resisting the claim by B Bank, as opposed to running her case solely against the husband in the matrimonial proceedings under s 79 of the Family Law Act 1975 (Cth) (by seeking an adjustment of the amounts of property each of them might receive on the property settlement orders, given that they have now separated).
BACKGROUND
The husband and wife purchased the Suburb C property in or around 2002, as joint tenants. The purchase was funded by a mortgage from Westpac Banking Corporation (“Westpac”), which also made further advances. In 2012, the husband approached B Bank to refinance the Westpac mortgage and provide further advances. The husband says that it was both he and the wife that approached B Bank and entered into the transactions; the wife denies this particular fact.
B Bank advanced funds which were secured by a mortgage in favour of B Bank, which was registered over the title of the property. The mortgage and loan agreements appear on their face to be in the joint names of the spouses.
There is currently owing to B Bank, as a result of the loans, some $360,660.27, together with ongoing interest accruing at $1,250.16 per month. B Bank has also incurred legal fees as a result of this protracted litigation, which has involved many court events over the last year and a half, of in excess of $150,000. Those moneys will be payable by the parties pursuant to the mortgage agreement if there is no costs order in these proceedings.
In order to deal with the wife’s allegations that the signatures purporting to be hers on the B Bank documents are forgeries, orders were made for her to provide handwriting samples for an expert to be engaged by B Bank. As I indicated above, these samples have not been forthcoming: she says there is some difficulty obtaining all of the documents, and she seeks to rely upon her report and her passport. It seems to me that there is certainly a real issue as to whether or not the signatures are those of the wife’s or forged signatures, and in the event that the signatures are forgeries, it seems that the fraud must have been knowingly perpetrated by the husband.
B Bank, however, argues that they are entitled to judgment on their claim, even if the wife’s signatures were fraudulently applied to the documents, and alternatively on the basis of the wife’s default pursuant to the discovery and signature sample orders that were previously made. It seems to me that it is more convenient to commence by looking at whether or not B Bank will ultimately succeed, even if it were the case that the wife’s signatures were forgeries placed upon the documents by others, because at this point in the proceedings it is not possible to make findings of fact about whether or not they are her signatures on the documents.
The practical effect of this dispute – that is if the wife’s signatures are forgeries – rests upon the question of whether or not B Bank has an interest in the home by way of the mortgage (or equitable interest), or merely a personal claim against the husband for repayment of a debt. The difference in the rights of B Bank (whether they are proprietary or merely personal against the husband) may be significant in the property settlement proceedings between the husband and wife. If the wife were to obtain orders in the property settlement proceedings to retain the whole of the home, the validity of the mortgage held by B Bank (or any other equitable interest it might have in the home) would determine whether the wife must pay B Bank in order to retain the property, or if they should instead become an unsecured creditor of the husband and potentially be unable to execute against the home. On the husband’s case, he has no other resources to meet the debts to B Bank, and therefore the wife, if she must meet them (or if they’re secured over the home), would need to pursue him for money that he says he cannot pay.
The wife, in the property settlement aspect of the proceedings, alleges that the husband does have other funds and resources, and continues to pursue discovery in an attempt to obtain evidence to show the existence and location of those other assets. At this point, there is no evidence before me to show that there are other identifiable assets of the husband in any other location.
If the wife did not sign the loan agreements, nor the mortgage document, then at common law neither the mortgage nor the loan contracts would bind her. However, the husband would remain bound by the mortgage and loan agreements, as he signed them, and if there was a fraud he must have been aware of the forgeries. This is for two reasons: first, the terms of the agreements apply to the husband whether the other parties sign them or not, and secondly, the husband would be estopped from relying upon any defence based upon a lack of a signature by the wife, if it were him that was involved in perpetrating a fraud.
Even if the agreements are invalid at common law, in equity there would be an implied loan agreement, and an equitable interest generated in the property in order to ensure that the fraud did not defeat B Bank, at least to the extent of the husband’s interest in the property.
However, even if there were no valid mortgage, to the extent that funds were advanced by B Bank for the purpose of discharging the existing Westpac mortgage over the property, B Bank would be entitled to restitution against both the parties, as they both benefited from their obligations to Westpac being discharged. B Bank would be entitled to trace those funds into the current home, as it is clear that this is where the value of those funds went by discharging the Westpac mortgage, thereby giving B Bank an equitable interest in that property at least to the extent of the amount used to discharge the Westpac indebtedness. It is not a situation where, even though there may have been a fraud by the husband, the wife can benefit from the B Bank discharging her obligations to Westpac and not have to pay those moneys to B Bank by way of restitution: had the fraud never occurred, she would still have owed Westpac those moneys. Similarly, even if the husband had defrauded B Bank, B Bank has discharged his obligations to Westpac, which means B Bank now has an equitable interest which allows them to trace those funds and to recover them from the husband: see Hurst v Vestcorp Limited (1988) 12 NSWLR 394 at 445.
On this basis alone, it seems to me that B Bank is entitled to judgment against the husband and wife, for the amounts that were used to discharge the Westpac mortgage, together with interest, which in this case has been calculated by B Bank at lending rates which are lower than the rate that would be applicable under the Court Rules.
However, in this case there has been a mortgage registered over the title, and the registration of mortgages under the Land Title legislation brings the benefit of the indefeasibility provisions: see Yazgi v Permanent Custodians Limited [2007] NSWCA 240.
Even if the wife’s signatures were forged, the mortgage becomes valid upon registration due to the effect of the indefeasibility provisions of the statute. At this point the wife is not able to dispute the validity of the registered mortgage, but has instead a potential claim against the Registrar of Land Titles for compensation if she has been defrauded: see Van den Heuvel v Perpetual Trustees Victoria Limited [2010] NSWCA 171.
Thus, to the extent that the mortgage secures the debts to B Bank, it is valid and can be relied upon by B Bank to recover against the property. The wife’s potential right to compensation is assessed by reference to the difference in her position had the mortgage not been registered. In this particular case, there is no difference to her position with respect to the amounts that relate to the Westpac mortgage. Nor does it seem that it is any difference to her position with respect to her one half interest in the property as the entirety of the debt owing to B Bank can be paid from the husband’s one-half interest in the land, leaving the wife’s one-half interest unaffected. It therefore seems that even if there were a forgery, the wife would not have a claim for compensation against the Registrar of Land Titles as she would have suffered no loss.
Thus, we are at the position where B Bank may rely upon the registered mortgage, even if the wife did not sign the documents. The clauses of the mortgage have extended definitions because the clauses use “I” and it is defined to include one or more of the persons who sign. The registered mortgage, therefore, secures the amounts advanced by B Bank, even if the wife’s signatures were forgeries. Even if the mortgage only bound the husband, B Bank still has a right to recover from his half share.
B Bank, therefore, have a prima facie right to exercise their powers as mortgagee and obtain orders for possession and sale of the home. The wife has no defence to the B Bank claim.
The wife is unable to pay B Bank, and unable to point to any other property of the husband at this point which could be applied to discharging the B Bank debts. There is no basis on the material before me to say that the wife has an arguable claim to defeat B Bank’s claim, or to have it deferred pending the Family Law Act 1975 (Cth) proceedings against the husband.
Alternate defences of the wife
I turn then to consider the alternative defences that were argued on the wife’s account.
The wife argued that the Court could potentially set aside the transactions between B Bank and the husband, pursuant to s 106B of the Act. In order to succeed under this section, the wife would firstly need to show that the transaction was for the purpose of defeating anticipated orders of the Court pursuant to the Act.
It is difficult to see that that could be established, given that the transaction occurred many years ago, and some years prior to separation. The fact that one spouse might be entering into transactions that are disadvantageous to the other, or even fraudulent, does not of itself show that it is for the purpose of defeating anticipated orders of the Court. However, it is perhaps arguable in this case, if it is established that the person who the wife says attended with the husband upon B Bank’s agent was in a romantic relationship with the husband, and that the transaction was for the purpose of defeating potential orders in the future.
Even if the wife may have an arguable case with respect to the prima facie availability of s 106B of the Act, she would, however, still have to persuade the Court that it was appropriate to make orders under the section in circumstances where, on her case, it does not appear that B Bank would have any prospect of recovering the funds from the husband, and there does not appear to be any evidentiary basis for concluding that B Bank in some way participated in, or was aware of, the fraud. Put simply, it appears that B Bank was the victim of the alleged fraud as much as the wife may have been, if in fact a fraud has taken place.
There was little about the transaction that would have put B Bank on notice, particularly given that the amounts involved were far less than the equity in the property and that a large part of the money advanced was to discharge the debt that the parties had to Westpac. This is not a case where the amount being borrowed consumed the vast majority of the equity in the property, or was so large that it would raise concerns as to the capacity of the parties to be able to continue to service the mortgage.
In these circumstances it is difficult to see how the Court would be persuaded to set aside a transaction against a bank which would leave the bank without any capacity to recover, particularly when the bulk of the moneys advanced were for the purpose of discharging an existing home loan. I am not persuaded that the wife has any reasonable prospects of persuading the Court to do that in the circumstances of this case. Moreover, I am not persuaded that the wife has a case with reasonable prospects of success pursuant to s 106B of the Act against B Bank.
The wife also raised in passing Pt VIIIAA of the Act, which does give the Court the power to make orders affecting third parties. An important aspect of that part of the Family Law Act 1975 (Cth) is that it does not provide for taking of property without compensation, which would be prohibited under the Constitution. If there is to be a substitution of debtors (at least with an arm’s length creditor) it must be on the basis that it does not reduce the rights of the creditor. In this case the key right of the creditor is to sell the property, pursuant to the mortgage to recover the moneys due and owing to the creditor. There is nothing that can be put forward that would provide an adequate recompense for that right of the bank as there is no other basis upon which they may recover what is owed to them.
It has been suggested that I may make orders to defer that right of the bank, given that there is significant equity in the property. However, in this case the effect of the litigation has been that the right of the bank has been deferred for a considerable period of time by the litigation alone, and there remains no specific plan about how to deal with the claim of B Bank. It seems to me inevitable that the property will need to be sold, and that in these circumstances it is difficult to see what purpose there is in continuing to defer that sale.
If the husband borrowed moneys for his own purposes – whether by fraud or even with the wife’s signature – she would also, of course, be entitled to plead the equity of exoneration to ensure that those moneys were taken from his share of the property rather than her share, at least when considering the entitlements of the parties at common law and equity. However, this does not assist the wife in this case as the entirety of B Bank’s claim can be met from the husband’s half interest as joint proprietor of the home.
Of course, once one embarks upon a consideration pursuant to s 79 of the Family Law Act 1975 (Cth) with respect to settling the property of the parties, it is only the starting point to determine their common law and equitable interests, as one then, if it is appropriate to make property settlement orders, considers the variety of factors set out in the legislation, and, importantly, if there has been conduct to waste or destroy assets, which can be taken into account under s 75(2)(o) of the Act.
These are all questions for the hearing as between the parties pursuant to s 79 of the Act, and do not involve B Bank, nor do they require B Bank as a party.
In all of the circumstances it is appropriate to give summary judgment in favour of B Bank in the amount of their claim, and to grant them orders for possession in appropriate terms. In order to protect the position of the wife with respect to the net proceeds of sale, there may need to be orders that the proceeds of sale (after payment to B Bank) are held on trust, or dealt with in specific ways, so that the moneys that are left after B Bank has sold the property and obtained their payment are secured appropriately so that they are available for property settlement orders under s 79 of the Act in due course.
I direct the parties to draw orders to reflect the terms of this judgment.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Riethmuller. Associate:
Dated: 1 September 2022
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