My Financier Securities Pty Ltd v Chen

[2020] NSWSC 273

Supreme Court

New South Wales

Medium Neutral Citation:	My Financier Securities Pty Ltd v Chen [2020] NSWSC 273
Hearing dates:	13 March 2020
Date of orders:	13 March 2020
Decision date:	13 March 2020
Jurisdiction:	Equity - Real Property List
Before:	Parker J
Decision:	See [55]
Catchwords:	MORTGAGES AND SECURITIES — mortgages — mortgage contracts — form, validity and effect – solicitor’s ad hoc authority to deliver executed mortgage instrument
Legislation Cited:	Evidence Act 1995 (NSW), s 69(2) Real Property Act 1900 (NSW), ss 36(11), 57, 58 Uniform Civil Procedure Rules 2005 (NSW), r 42.34
Cases Cited:	Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Category:	Principal judgment
Parties:	My Financier Securities Pty Limited (Plaintiff) Zhihua Chen (Defendant)
Representation:	Counsel: D Edney (Plaintiff) S Galitsky (Defendant)   Solicitors: Summer Lawyers (Plaintiff) Ian B Mitchell & Associates (Defendant)
File Number(s):	2019/270652
Publication restriction:	Nil

Judgment – EX TEMPORE

Revised and reissued 25 March 2020

1. These proceedings arise out of a mortgage dispute concerning an abortive refinancing transaction in mid-2019. The plaintiff, My Financier Securities Pty Ltd ("MFS"), was the financier. A company called Australia Successful Holdings Pty Limited ("ASH") was the proposed borrower. That company appears to have been controlled by the defendant, Zhihua Chen. Mr Chen was to guarantee ASH's liabilities for the purposes of the transaction.

2. The terms of the proposed loan required Mr Chen to grant a mortgage to MFS securing his liabilities under the mortgage. The secured property was a strata plan unit in Sydney owned by Mr Chen which had been mortgaged to another financier. In the course of the negotiations, a solicitor apparently acting for Mr Chen delivered to MFS's solicitors a mortgage of the unit, in registrable RPA form, and apparently executed by Mr Chen.

3. For some reason, the transaction did not proceed. Subsequently, Mr Chen obtained from another source the funds necessary to pay out the pre-existing mortgage on the unit. So far as the register is concerned, the unit is unencumbered.

4. In May 2019, MFS had lodged a caveat over the property to protect its interests under the transaction. Subsequently, a lapsing notice was given on behalf of Mr Chen. That led to the commencement of these proceedings.

Issues for determination

5. The mortgage document provided that the mortgagor would pay various fees on entry into the transaction (whether the loan was ultimately made or not) and also certain costs (including legal costs) associated with the mortgage. MFS seeks judgment against Mr Chen for fees and costs totalling approximately $30,000. MFS also seeks a declaration that it has an interest as equitable mortgagee in the unit, and an order for judicial sale so as to recoup the amounts claimed.

6. MFS's Statement of Claim pleads, in the conventional way, that Mr Chen entered into an agreement, in the terms of the mortgage document, to guarantee MFS's obligations. That allegation is denied in Mr Chen's defence. But counsel for Mr Chen did not dispute that the signature on the mortgage document is that of Mr Chen. The issue he raised concerns whether the solicitor was authorised to provide the document, as executed, to MFS's solicitors.

7. Counsel for Mr Chen submitted that the mortgage document is a deed and that delivery (naturally, this means authorised delivery) is required in order for it to be legally effective. I am not sure that, strictly speaking, the document is a deed. Certainly, once registered, it would have the effect of a deed: Real Property Act 1900 (NSW), s 36(11). But the document is not in the form of a deed and in its unregistered form it may not be a deed.

8. But this does not matter. For an agreement in writing, whether a deed or not, to be binding it must be accepted. In the present case, delivery of a counter-part of the deed executed by the mortgagor was clearly required to signify the mortgagor's acceptance and to bind the mortgagor as a matter of contract.

9. MFS pleaded an alternative case for recovery of some of the fees and costs under the terms of the original letter of offer (which was signed, and returned, by Mr Chen). But liability was disputed. In the course of hearing before me, MFS confined its case to reliance on the mortgage. For his part, counsel for Mr Chen accepted that if liability under the mortgage was established, that would be the end of the dispute. Accordingly, authority is the only issue of substance in the proceedings.

Summary and analysis of evidence

10. The letter of offer was signed on 3 May 2019. Both parties retained solicitors to act for them in the transaction. MFS was at all times represented by a firm known as "Summer Lawyers" at Summer Hill in inner western Sydney. Initially at least, the solicitor for the borrower parties (including Mr Chen) was Ian Burnham Mitchell, a solicitor practicing in the Central Business District of Sydney. At the time of his retainer, he practised with a firm known as Websters Solicitors. On about 1 June, he began to practise under the name “Ian B Mitchell and Associates”.

11. On 16 May, Karen Siu, a paralegal and conveyancer employed by Summer Lawyers, wrote to Mr Mitchell attaching the various security documents which had been prepared by Summer Lawyers. Ms Liu asked Mr Mitchell to arrange for them to be executed. The documents included the mortgage document which is the subject of dispute in these proceedings, or at least, an earlier draft of that document.

12. Further correspondence between Ms Siu and Mr Mitchell ensued. On Thursday 30 May, Ms Siu wrote to Mr Mitchell chasing up his response and asking whether Mr Chen had returned from vacation.

13. On the following Monday, 3 June, Ms Siu received an email from Nathan Lu. Mr Lu described himself on his letterhead as the solicitor director of a firm known as ABP (Australian Business and Property) Lawyers, practising in the Central Business District and at Eastwood. The email was headed "Australia Successful Holdings Pty Limited: Advance from My Financier Securities Pty Limited" and included the reference number "10106" used by Summer Lawyers for the matter. The email was copied to Mr Mitchell.

14. Attached to the email were copies of signed versions of some of the documents which had earlier been submitted by Summer Lawyers. This included the mortgage document. The email stated:

We act for the borrower in relation to the above matter and are instructed to forward to you a copy of the attached executed mortgage documents.

Could you please confirm whether they are acceptable so that we may have the originals sent to you as soon as possible?

We understand that interest has been charged from 23 May 2019 and look forward to your urgent response.

15. The mortgage document contained the conventional RPA certification that the document was correct for the purposes of the Real Property Act 1900. It was signed by Mr Chen. His signature was witnessed by Ho Kin Lam, who is apparently a solicitor and associate of Mr Lu. Her address was given at ABP Lawyers' address at Elizabeth Street in the Central Business District of Sydney. The execution date was given as 2 June.

16. Mr Lu's email was sent at 9:45 am on 3 June. At 10:35 am, Ms Siu responded to Mr Lu, saying that she had reviewed the executed documents. She then set out a number of comments requesting the provision of further documents or signatures. None of those requirements, however, concerned the mortgage. She said that upon receipt and approval of the missing items, Summer Lawyers would arrange a courier to collect the original documents. She added:

Noting the borrower was previously represented by another solicitor firm, and you may have not been provided with a complete version of the security documents, we enclose herewith the security documents for your perusal.

17. I assume that in referring to the security documents, Ms Siu was referring to the filed memorandum accompanying the mortgage; and, perhaps, other documents of a similar character.

18. At 10:49 am, Mr Lu responded to Ms Siu:

We are only acting in relation to the mortgage documents. Accordingly, the items on page 3 [a reference to page 3 of an earlier letter from Summer Lawyers which Ms Siu had said in her email were missing] will need to be provided to the borrower's other legal representatives.

The full documents were not provided to us, we will try to figure out how to get these signed as our solicitor in Hong Kong is no longer in the same location as the client.

Could you please confirm whether the documents that were provided to you are correctly signed so we may at least get these moving?

19. Further correspondence ensued between Ms Siu and Mr Lu concerning MFS's further requirements. It also seems that they spoke on the telephone, in the course of which, (as Ms Siu recorded in a later email) she was told that Ms Lam had witnessed Mr Chen’s signature on the documents, with Mr Lu providing legal advice to Mr Chen by way of video conference. Mr Lu also stated in one of his emails that a colleague of his in Hong Kong had witnessed Mr Chen's signatures "and verified the client" but that he (Mr Lu) had been the one who had provided the advice.

20. Eventually, on 13 June, Mr Lu sent the original mortgage document to Summer Lawyers by express post. His covering letter stated:

We have been instructed to provide the enclosed original Mortgage Document, duly executed.

21. The original mortgage document had been slightly altered. Ms Lam's address in Sydney had been crossed out and replaced with an address in Hong Kong. Otherwise the document was in the same form as the copy sent on 3 June.

22. On the following day at 4:10 pm Ms Zanne Lau, an associate with Summer Lawyers, wrote to Mr Lu as follows:

We refer to the above matter and understand that your firm acts for the Borrower, Mortgagor and the Guarantor.

We have been contacted by Mr Ian Mitchell of Messrs Ian B Mitchell & Associates today informing as follows, that:

1.   He acts for your client and is currently in possession of the certificate of title for the security property;

2.   Our office is to release the original loan documents to his clients’ representative known as Weimin Jiang.

Our firm is of course unable to release any documents provided by your firm to another firm and/or anyone who is not related to the above matter.

It appears that there might be some miscommunication between your clients, your firm and Messrs Ian B. Mitchell & Associates.

Please seek instructions from your clients as a matter of urgency and contact Mr Mitchell at xxxx xxxx to clarify the situation.

23. Mr Lu responded:

Please be advised that Websters [Mr Mitchell] will continue to act for the purchaser on the settlement of this matter.

We are only instructed to review, advise and finalise the mortgage documents.

We were advised by Websters that they have not received a copy of the documents we have sent to you and have taken the liberty of attaching our emails of 5 June 2019.

Please correspond with Websters in relation to the finalisation of this matter.

24. A copy of this email was sent to Mr Mitchell. The following Monday, Mr Mitchell wrote to Ms Lau. His email stated:

1)   I act for the registered proprietor/mortgagor.

2)   Mr Jiang is the Australian company secretary and agent for Mr Chen and his companies when he is overseas.

3)   The documents were provided to an overseas solicitor to advise Mr Chen as to the contents of the documents and his liability thereunder as required by the incoming mortgagee and for that purpose only. There was never any intention for the executed documents to be sent to the proposed mortgagee. They were to be returned to me as solicitor for Mr Chen.

25. The correspondence continued, but the later correspondence is not relevant for the purposes of these proceedings.

26. Mr Mitchell gave evidence at the hearing before me, and was cross-examined. In his affidavit he said:

To the best of my knowledge Chen did not retain any other solicitor to act for him relation to the transaction.

27. Mr Mitchell said that he first learned of the existence of Mr Lu and Ms Lam from an email to him from Summer Lawyers dated 5 June. This statement is somewhat curious as it does not refer to the email of Mr Lu's email of 3 June which was copied to Mr Mitchell. Also, to the extent that it asserts that at no stage Mr Chen retained any other solicitor, it is difficult to reconcile with Mr Mitchell's acknowledgement in his email of 17 June that the documents had been "provided to an overseas solicitor to advise Mr Chen as to the contents of the documents". But Mr Mitchell was not cross-examined on this and there is no need to explore it further.

28. Mr Mitchell said that he did not retain any other solicitor to act for Mr Chen or his agent, nor did he receive any executed documentation at any time, nor did he receive any instructions from Mr Chen to forward any such documentation to Summer Lawyers. But Mr Mitchell admitted in cross-examination that he did not have any direct knowledge of what had passed between Mr Chen on the one hand and Mr Lu and Ms Lam on the other.

Authority

29. Counsel for Mr Chen submitted that the onus lay on MFS, as plaintiff, to establish not only that Mr Chen had executed the document, but that it had been delivered with his authority. So much may be accepted. There was no question of ostensible authority raised in this case.

30. Counsel for Mr Chen pointed out that the plaintiff had not called Ms Lam, the witness to the execution of the document. Given that the authenticity of Mr Chen's signature was not in dispute, it is not easy to see why it would have been essential to call her. But I take counsel's point to be that there was no direct evidence before the Court which established that the delivery of the executed mortgage document to MFS was done with the authority of Mr Chen.

31. MFS did not call any evidence from Mr Lu (or Ms Lam) on this question. But the existence of actual authority is a factual question like any other and can be proved directly or indirectly by inference from the circumstances.

32. It was not, and could not have been, suggested that Mr Lu and his colleague Ms Lam were strangers or imposters. The very fact that the validity of Mr Chen's signature is not in issue, when it was witnessed by Ms Lam, underlines that.

33. Mr Mitchell, who had initially had carriage of the transaction, was copied in to Mr Lu's email of 3 June which announced his involvement. There was no protest from Mr Mitchell about Mr Lu's email, and in particular, about Mr Lu's statement that he acted for "the Borrower", a statement which in the context, clearly included Mr Chen.

34. In my view, these circumstances alone are such as to give rise to an inference that Mr Lu was indeed authorised to act for Mr Chen on the transaction, and in particular was authorised to deliver the mortgage to Summer Lawyers. All of Mr Lu's correspondence is consistent with this. The only contemporaneous statement in the evidence which throws any doubt on it is Mr Mitchell's statement of the 17 June which came after the relevant events, and, as his cross-examination demonstrated, was not based on his direct knowledge.

35. But matters do not end there. Mr Lu's email of 13 June is in evidence. That email stated in terms that Mr Lu had been instructed (clearly, in the context, by Mr Chen) to provide the executed version of the mortgage document to Summer Lawyers.

36. Mr Lu’s email is a business record. The email asserts as a fact that instructions were provided to him. Mr Lu would, on the face of it, have had, or at least might reasonably be supposed to have had, personal knowledge of that asserted fact; or at least his statement would appear to have been based on information directly or indirectly supplied by a person who did have such personal knowledge: see Evidence Act 1995 (NSW), s 69(2). In my view, Mr Lu's statement, although not of course conclusive, was itself evidence of the existence of the authority which Mr Lu claimed to have.

37. If Mr Lu misunderstood his instructions or in some other way lacked authority the easiest way of demonstrating that would have been for Mr Chen to give evidence. He did not. Nor did anyone else apart from Mr Mitchell give evidence on Mr Chen’s behalf, and Mr Mitchell had no direct knowledge on the question.

38. A Jones v Dunkel inference ((1959) 101 CLR 298; [1959] HCA 8) cannot be used as a basis for finding something where there is no evidence at all on which the Court can act. But it can be used where there is some other evidence to support the finding.

39. In my view this is such a case. There is a sufficient basis in the other evidence presented to the Court for finding that Mr Lu had authority. In those circumstances, the failure to call evidence from Mr Chen allows the Court to infer that his evidence would not have assisted his defence. The Court can thus more confidently reach the conclusion that Mr Lu had authority.

40. Counsel for Mr Chen took a point in submissions about the difference between the mortgage document in its final form (with the amended address of Ms Lam) and in the form which it took when a copy of it was provided under cover of Mr Lu's email of 3 June. It seems to me that the difference can readily be explained on the basis that Ms Lam was resident in Hong Kong and it was considered inappropriate to give a Sydney address for her as a witness to the document. But in any event this does not matter. I cannot see how any such alteration to the document could affect its enforceability.

Conclusion and orders

41. For these reasons, I have concluded that Mr Lu’s delivery of the mortgage document to Summer Lawyers was authorised by Mr Chen. The mortgage is enforceable against Mr Chen in equity as an agreement to grant an RPA mortgage over the property.

42. I see no need to make an order for judicial sale of the property. This is a case where the plaintiff has established an entitlement to have a mortgage instrument registered. All that is necessary is for the Court to order that the defendant take the necessary steps to cooperate in registration. This will of course require the production of a certificate of title. Once registration has been achieved MFS will be able to use the rights it has as a registered mortgagee to enforce Mr Chen's obligations. This will include, if it becomes necessary, selling the property and taking the amount due out of the proceeds: see Real Property Act ss 57, 58.

43. Strictly speaking this means it is unnecessary to go into the quantification of MFS's entitlements under the mortgage. Upon registration MFS will have sufficient ex-curial rights to secure payment of whatever amounts are due. But in order to avoid any further dispute, I propose to give judgment for the amounts owing. As I have already observed, there was no dispute in this case about MFS’s entitlement to the fees; nor, so far as I could see, to the quantum of that entitlement.

(Counsel address on form of orders and costs)

44. The parties have now addressed on the form of orders and on costs. They have agreed on a form of order to carry my reasons for judgment into effect. They have also agreed that the order requiring registration of the mortgage should be stayed for 28 days in case Mr Chen is able to satisfy his obligations to MFS in that time, or some less intrusive manner of securing the plaintiff's entitlements can be agreed.

45. The parties remain at issue on costs. Counsel for the plaintiff contended that costs should follow the event, and that indemnity costs should be awarded so as to reflect MFS’s entitlement to costs under the terms of the mortgage (the existence of which was not disputed). Counsel for Mr Chen contended, however, that MFS should not receive an indemnity costs order.

46. Counsel for Mr Chen submitted that, in view of the relatively small amount of the judgment, the proceedings should have been commenced in the Local Court. He said that in the circumstances, MFS should recover no more than costs on the ordinary basis.

44. It is, indeed, regrettable that a day's hearing time has been consumed in dealing with a dispute concerning only about $30,000 (and costs, which I trust would only be of a comparable order of magnitude). But as the form of my orders shows, these were proceedings in the nature of specific performance, and MFS has vindicated its entitlement to have the mortgage document registered. As I have already pointed out, there was no need to enter a monetary judgment at all, and I only did so in an attempt to avoid further dispute between the parties.

45. Counsel for Mr Chen did not rely on r 42.34 of the Uniform Civil Procedure Rules 2005 (NSW), which provides for special costs rules in cases where proceedings are brought in this Court when they could have been commenced in the District Court or the Local Court. Neither the District Court nor the Local Court would have jurisdiction to make the specific performance order which I have made in favour of MFS.

46. It might be said that this claim could have been run for practical purposes as a debt recovery action in the Local Court, even though the Local Court would not have had power to make orders registering the mortgage. Any judgment given by the Local Court could be enforced in the usual way, including by way of levy of property. Alternatively, if the proceedings had been brought in the District Court, it would have been possible, should sufficient ground been demonstrated for this purpose, to have the District Court make an asset preservation order. That would have ensured that MFS would have sufficient funds available against which to enforce the entitlement for which it obtained judgment in these proceedings (together with costs).

47. But such procedures for enforcement of payment out of property can be cumbersome, and they are not foolproof. There was no evidence before me that Mr Chen made any offer which would have ensured that, in the event of MFS succeeding, it would have been in a position to enforce its rights against the property or some substituted asset. One of the purposes of obtaining a Real Property Act mortgage is to obtain the right of enforcement against property which such a mortgage confers. In these circumstances, I do not think that MFS can be criticised for having pursued the proceedings in this Court.

48. Counsel for Mr Chen tendered some correspondence from Mr Mitchell at an earlier stage of the proceedings, on which Mr Mitchell complained about MFS pursuing its claim in this Court. But a reading of that correspondence demonstrates that Mr Mitchell was taking the position that MFS would fail to demonstrate that it had an entitlement by way of equitable mortgage, or other security in the property, and for that reason MFS's caveat was not justified. I have rejected those contentions in my judgment.

49. The problem of mortgage disputes in this Court, where the amount involved is relatively small, is a significant one. Apart from disputes such as the present, the Court also has to deal with cases where the mortgagor pays surplus monies into Court following the sale of the mortgaged property, and often the amount involved may be as little as a few thousand dollars. The Court is always open to suggestions from the profession about how such disputes could be resolved at minimal cost, including resolution of such disputes by the District Court or Local Court where that is possible. But, as I have explained, no suitable alternative procedure was suggested on Mr Chen's behalf in the present case.

50. It is well established that if a party has a contractual right to costs, then the court will usually exercise its discretion to award indemnity costs, so as to give the successful party the right of costs recovery which that party has, for valuable consideration, obtained contractually. I see no good reason to depart from that approach in the present case.

51. Finally, I add that if I had a different view, I would, in any event, have awarded indemnity costs against Mr Chen from November 2019, when a Calderbank offer was made to compromise the proceedings on terms which were more favourable to him than MFS ultimately obtained.

52. The orders of the Court are:

1.   Order that the defendant take all steps reasonably required on his part to enable the registration of the mortgage instrument dated 2 June 2019 of Land Title reference 7/SP66850 pages 53-60 a copy which is Exhibit ZL-1 to the affidavit of Zanne Lau of 29 August 2019 filed in these proceedings.

2.    Order that these be judgement for the plaintiff against the defendant in the sum of $32,143.35.

3.    Order that the operation of Order 1 be stayed until 10 April 2020.

4.    Order that the defendant pay the plaintiff’s costs of the proceedings on the indemnity basis.

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Decision last updated: 25 March 2020