Myers v Aquarell Pty Ltd
[2000] VSC 429
•20 October 2000
| SUPREME COURT OF VICTORIA | |
| COMMON LAW DIVISION | Not Restricted |
No. 7957 of 1999
| MARIA MYERS | Plaintiff |
| v | |
| AQUARELL PTY LTD (ACN 055 986 797) (In Liquidation) and THEO ANTHOPOULOS | Defendants |
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JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 October 2000 | |
DATE OF JUDGMENT: | 20 October 2000 | |
CASE MAY BE CITED AS: | Myers v Aquarell Pty Ltd and Anor | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 429 | |
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Summary judgment – possession of land – authority of mortgagor to enter into mortgage – Director witnessing sealing – second lease causing cancellation of first lease – s.42 of Transfer of Land Act – question of alleged fraud – agency and imputing knowledge to principle.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr P. Anastassiou with | Norton Gledhill |
| For the Defendants | Mr M. Wise | Home Wilkinson & Lowry |
HIS HONOUR:
This is an appeal from a judgment granted by Master Wheeler on 22 September 2000 whereby the plaintiff recovered possession from the second defendant, the land situate at and known as 59 One Tree Hill Road, Ferny Creek ("the property"). By reason of Rule 77.05 of the Rules of Court, the appeal is a re-hearing de novo.
Parties
The plaintiff, Maria Myers ("the plaintiff") is a company director.
The first defendant, Aquarell Pty Ltd ("Aquarell") is a company whose creditors on 17 August 1999 resolved that it be placed in liquidation. The company was registered on 5 May 1992 and between 28 August 1992 and 14 October 1996 and 30 August 1998 to 17 August 1999 was the trustee of the Heathfield Road Trust ("the Turst").
The Trust was established by a trust deed dated 24 December 1982.
The second defendant, Theodore Nicholas Anthopoulos ("Theo"), is a general beneficiary of the said trust as are the children of his union with Anita Janine Anthopoulos.
In addition to the parties to the litigation there are other persons who are involved in it.
Mrs Anastasia McCardel ("Mrs McCardel") is the sister of the plaintiff, and was a director of Aquarell between 21 August 1995 and 30 August 1998.
Anthony Anthopoulos ("Anthony") and Pat Anthopoulos ("Pat") are the brothers of Theo and were directors of Aquarell at the date of liquidation having been appointed on 30 August 1998. They have been at various times and as at this date are, the trustees of the Trust.
The present shareholders of Aquarell are the brothers Anthony and Pat who hold two and three shares respectively. Formerly the shareholders were Theo and his father who owned one share each.
Basic facts
The basic facts leading to the dispute between the parties can be briefly summarised.
Some time in 1990, Theo formed a relationship with Mrs McCardel.
On 20 May 1993 Aquarell as trustee of the trust resolved to purchase the property in dispute at 59 One Tree Hill Road, Ferny Creek. The property was purchased for the Trust. Aquarell was registered as the proprietor of the land. The property comprises a residence and a few acres of surrounding land. From time to time Theo has resided at the property.
In order to fund the purchase a loan was obtained from the National Australia Bank and a mortgage debenture was executed in favour of the bank.
In October 1997 the trustees of the trust were Mrs McCardel and the brothers Pat and Anthony. At that time Aquarell was in dispute with the National Australia Bank, the bank had appointed a receiver of the assets of Aquarell and the bank served a demand for payment of its debt which at that time was $86,104.40.
At that time the directors of Aquarell were Mrs McCardel and Theo, and from 19 January 1998 until 30 August 1998 Mrs McCardel was the sole director of the company. This fact must have been known by Theo.
Eventually Aquarell and the bank compromised their differences whereby Aquarell was to pay the sum of $27,000. At that time Messrs Oakley Thompson and Co were acting for Aquarell. The settlement was effected on or around 23 June 1998.
Mrs McCardel requested the plaintiff to lend to Aquarell the sum of $27,000 which the plaintiff agreed to do on the basis of security by way of a registered mortgage.
On 16 July 1998, the plaintiff executed a mortgage over the property at Ferny Creek. The mortgage document which was prepared by Messrs Oakley Thompson and Co described property as the land described in Certificate of Title Volume 9990 Folio 926 and that the mortgagor was Aquarell Pty Ltd. The mortgagee was described as Maria Josephine Myers of 904 Drummond Street, Carlton and the amount secured was $27,000. The due date for payment was 15 July 2003. The mortgage document was executed on behalf of Aquarell by Mrs McCardel. The common seal of the company was affixed in the presence of Mrs McCardel who signed as the sole director and as secretary of the company.
At that time she was indeed the only director of Aquarell and she was the secretary of the company.
The sum of $27,000 was provided by the plaintiff and received by the bank on 23 July 1998.
The mortgage was registered in the Office of Titles. The Certificate of Title records that the registered sole proprietor is Aquarell Pty Ltd and that there are three encumbrances, namely, a mortgage to Citibank Savings Limited, a second mortgage to the plaintiff, and a third mortgage to Mrs McCardel which was also registered on the same day as the mortgage to the plaintiff.
By reason of the fact that Aquarell was placed in liquidation the plaintiff as mortgagee was entitled to full payment of the principal sum. Aquarell has failed to pay the principal sum or any interest.
By Notice of Possession dated 10 November 1999 served on Aquarell and Theo the plaintiff demanded possession of the land.
A writ seeking possession against Aquarell and Theo was issued on 17 December 1999.
On 11 February 2000 the plaintiff entered judgment for recovery of the land against Aquarell Pty Ltd as first defendant, in default of defence.
On 23 February 2000 Theo delivered a defence and counterclaim against the plaintiff.
On 25 August 2000 the plaintiff issued a summons for summary judgment against Theo. The summons came on for hearing before Master Wheeler and he made an order that the plaintiff recover possession of the land.
By notice dated 25 September 2000, Theo appealed the judgment of Master Wheeler.
Summary judgment
The principles concerning summary judgment have developed over many years. Order 22 replaces Order 14 under the old Rules and has worked a number of changes to procedure, but has not substantially altered the principles which apply on an application for summary judgment. One important change, however, which must be noted is found in Rule 22.06(1)(b) which provides –
"(1) On the hearing of the application the court may
(a) …
(b)give such judgment for the plaintiff against the defendant on the claim … as is appropriate having regard to the nature of the relief or remedy claimed unless the defendant satisfies the court that in respect of that claim … a question ought to be tried or that there ought for some other reason be a trial of that claim or part."
(Emphasis added).
The latter part of that sub-paragraph applies where the defendant having failed to establish a defence on the merits nevertheless shows there is a reason for holding a trial.
The plaintiff must adduce evidence before the court verifying each element of his claim and a deponent must state that he or she believes there is no defence to the claim.
But the plaintiff is only entitled to judgment if there is no reasonable doubt that he is entitled to succeed.
In Jones v Stone (1894) AC 122 at p.124, Lord Halsbury stated –
"The proceeding established by that order is a peculiar proceeding, intended only to apply to cases where there can be no reasonable doubt that a plaintiff is entitled to judgment, and where, therefore, it is inexpedient to allow a defendant to defend for mere purposes of delay."
Quoted with approval by the High Court in Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5 at p.8.
In answer to the plaintiff's application a defendant may raise an irregularity to defeat the claim, by showing that the plaintiff has not proven his case or showing by proper evidence that he has a defence or there is some reason why there ought to be a trial of the claim.
The old rules obliged a defendant to prove he had "a good defence on the merits". The present phrase "a question which ought to be tried" expresses the same criterion.
The test was stated by Herring CJ and Lowe J in Australia Camco Pty Ltd v Levin and Co Pty Ltd (1947) VLR 332 at 333 –
"No question arises here as to the performance by the plaintiff of the formal requirements to support such an application, but it is said that the defendant has discharged the onus resting on him to entitle him to leave to defend. Judges have in many cases expressed the opinion that the procedure permitted by Order 14 should only lead to summary judgment in the clear case, and that in any other circumstances the normal procedure for obtaining judgment should be followed. … The courts have used varying phrases to describe the circumstances in which on the one hand leave to sign judgment should be granted or on the other leave to defend given. … From all this it appears that where there is a real case to be investigated either in fact or in law, leave to defend should be given."
(Emphasis added).
More recently the High Court has concisely summarised the court's approach in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99 –
"The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. … In our view, it is not possible to say without doubt, on the whole of the material, that there is no question to be tried concerning the payment of the deposits by the applicants. The facts which are established are inconclusive, but the respondent, as well as the appellants, was in a position to establish conclusively the payment of the deposits if that fact could be established and, given the opportunity, it did not do so. That leaves, we think, a question to be tried and although the appellants have not succeeded in positively establishing a defence, they should not in the circumstances be debarred from defending the action."
(Emphases added).
Plaintiff's proofs
The affidavits of the plaintiff establish that she lent the sum of $27,000 to Aquarell, that she and Aquarell executed a mortgage over the property securing payment, that there was a default by the borrower mortgagor, and that as against the mortgagor she has judgment for possession. The evidence also establishes that Theo claims to be a tenant in possession pursuant to a lease executed 1 April 1999 which post dated the mortgage and was entered into without permission of the plaintiff contrary to the terms of the mortgage. It is pertinent to observe that the landlord is the first defendant, Aquarell. This is of some significance when considering a defence raised by Theo that at the time of the execution of the mortgage Aquarell was not a trustee but later at the time of execution of the lease it was.
By reason of clause 27(7)(b) the mortgagor was not permitted to grant or create a tenancy without the consent in writing of the mortgagee. At no time was a request made of the plaintiff to consent to the lease.
The plaintiff is prima facie entitled to judgment for possession against Theo.
Defendant to show cause
Theo, as tenant in possession, has raised a number of issues some of which go to the plaintiff's proofs and the balance are said to raise arguable defences to the claim which would justify the proceeding going to trial.
Mr Wise of counsel for Theo has emphasised that the court should not enter judgment where there is real uncertainty without argument or further investigation of the facts as to the plaintiff's right to judgment and that judgment should not be granted in favour of a plaintiff unless it is clear there is no real question to be decided.
I deal first with the attacks made on the plaintiff's proofs.
First, it is alleged that the plaintiff has not established that she paid the amount of $27,000 to Aquarell.
The plaintiff has given evidence as to the obtaining of a bank cheque which was forwarded to the solicitors acting for the bank in July 1998.
According to the evidence of Theo, his brothers Pat and Anthony were trustees of the trust from 2 July 1998 to 30 August 1998 and that Aquarell Pty Ltd was the trustee of the trust from 30 August 1998 to 17 August 1999. At various times they have been shareholders and directors of the company. It is of significance that no evidence was given by any of the three brothers, despite the fact that each swore an affidavit in this proceeding, to the effect that the money was not paid by the plaintiff.
On the appeal documents were produced by the National Australia Bank which show beyond doubt that the cheque was received on 23 July 1998 by the bank.
This answer to the claim has no merit and should not have been raised.
Indeed, it is pertinent to observe that in none of the affidavits of the three brothers is there any mention of the loan by the bank to the trustee, the difficulties of the trust in re‑paying the loan to the bank and the compromise reached through solicitors acting for the trustee at the relevant time. It is a reasonable inference that at least one of the brothers - and most likely Theo - knew of the difficulties encountered with the bank and the steps taken to discharge the bank's debt.
The second point taken by Theo also lacks merit. It is asserted that the plaintiff has not proven that she executed the mortgage.
First of all it is noted that she has sworn in her affidavit that she did execute the mortgage. A comparison of the plaintiff's signature on her affidavit and that appearing on the photostat copy of the mortgage are identical. Further, there is no evidence from any of the brothers, and in particular Theo, to suggest that she did not execute the document.
The basis for the attack on the proof is that there is no evidence from the person who witnessed the signature on the mortgage. Further, the plaintiff did not in her affidavit refer to executing the document in the presence of the witness Julie Callinan and the submission is put that the failure to advert to the presence at the time of execution of the document, of the witness Callinan raises a question mark about the due execution of the mortgage by the plaintiff.
It is then submitted that the second defendant Theo wishes to test the plaintiff as to the execution.
I reject this argument. It has no substance. I am satisfied that the plaintiff did execute the mortgage.
The final attack upon the plaintiff's proof is that there is no proof of the due execution of the mortgage by Aquarell. This attack is two pronged. The first concerns proof of the signature of Mrs McCardel and the second issue concerns her authority to bind the company.
I will deal with the latter contention in considering the alleged defences of Theo.
The plaintiff has deposed that she is familiar with the signature of her sister and that the signature which appears upon the mortgage document is that of her sister. Again there is no evidence from Theo or his brothers to suggest that it was not executed by Mrs McCardel as sole director and sole secretary at the time of Aquarell and in my opinion the evidence established beyond doubt that she did sign the mortgage.
I now turn to the alleged defences raised by Theo.
(i)Execution by company?
The copy mortgage adduced in evidence shows that a firm of solicitors, Oakley Thompson and Co, lodged the mortgage. It has been completed in type. In particular the attestation clause concerning Aquarell is typewritten and Mrs McCardel is described in type as sole director and secretary of Aquarell.
The evidence leads to the conclusion that Messrs Oakley Thompson and Co were acting for Aquarell at the relevant time and there is no evidence from Theo or his brothers to contradict that inference.
The date of the mortgage is 16 July 1998.
At that time Mrs McCardell was the sole director and secretary of the company.
Also at that time Aquarell Pty Ltd was in fact the registered proprietor of the property which was subject to a mortgage in favour of Citibank Limited.
According to the evidence of Theo, Aquarell was trustee of the trust from 28 August 1992 to 14 October 1996 and between 15 August 1997 to 7 July 1998 Mrs McCardell and the brothers Pat and Anthony were trustees of the trust. It is asserted that between 2 July 1998 to 30 August 1998 the trustees were Pat and Anthony.
It is submitted that affixing the common seal in the presence of only one director who was also the secretary was contrary to the Articles of Association of Aquarell.
Article 91 provides that there shall be at least two directors of the company.
Article 116 provided –
"The directors shall provide a common seal for the company and shall provide for the safe custody of that seal which shall only be used by the authority of the directors previously given in the presence of one director at least who shall sign every instrument to which the seal is affixed and every such instrument shall be counter-signed by another director or the secretary or some other person appointed by the directors."
At the relevant time there was only one director, Mrs McCardel, and she was also secretary. The company Aquarell was the debtor to the National Australia Bank, it had provided the mortgage debenture which the bank was seeking to enforce and was the registered proprietor of the land.
The evidence is clear that the plaintiff had no knowledge as to the requirement of the number of directors and the provision concerning the affixing of the seal.
I am satisfied that under Article 116 only one director had to be present when the seal was affixed and the instrument could be countersigned by the secretary who also happened to be the director who was present at the time. In my opinion there is no breach of the articles concerning the affixing of the seal.
But in any event, in my opinion the operation of the indoor management rule established in Royal British Bank v Turquand (1856) 119 ER 886 and the provisions of the Corporations Law ss.127 to 129 answer the contention that there has been a non‑compliance with the constitution of the company.
Under s.127(2) of the Corporations Law, a company may execute a document if the fixing of the seal is witnessed by a proprietary company that has a sole director who is also the sole company secretary of that director. Section 129(6)(a) permits the plaintiff to assume that the document had been duly executed by the company because the common seal appeared to have been fixed in accordance with sub-section 127(2) and the fixing appeared to have been witnessed in accordance with that sub-section.
The following is noted with respect to that sub-section –
"For the purposes of making the assumption, the person may also assume that anyone who witnesses the fixing of the common seal and states next to their signatures that they are the sole director and sole company secretary of the company occupies both offices."
(Emphasis added).
The plaintiff acted in good faith with her sister and Aquarell and is entitled to assume that Mrs McCardel was sole director and secretary as she indeed was, and the seal was affixed in accordance with s.127(2). It is noted that Aquarell is not entitled to assert that the assumptions are incorrect – see s.128(1).
The plaintiff can enforce the mortgage.
The plaintiff further submits that by reason of s.42 of the Transfer of Land Act upon registration of the mortgage, the mortgagee's title is indefeasible except on the ground of fraud.
The cases do establish that upon registration an instrument of mortgage that is void or liable to be set aside on the ground that it was granted without the authority of the registered proprietor of the land, is effective to grant a mortgage. See Frazer v Walker (1967) 1 AC 569, Breskvar v Wall (1971) 126 CLR 376 and Vassos v State Bank of South Australia (1993) 2 VR 316.
I will consider the issues of indefeasibility and fraud when considering the next alleged defence raised by Theo.
No authority to execute mortgage
The evidence reveals that the trust deed was executed on 24 December 1982 and the first trustee was a company called Israpin Pty Ltd which remained trustee until 23 June 1988 when Colin Boltman took over. Aquarell Pty Ltd was registered on 5 May 1992 and on 28 August 1992 took over as trustee. From 14 October 1996 to the present there have been a number of changes of trustee.
The defendant, Theo, was the appointor and guardian under the trust and he had power to change the trustees. According to his affidavit the following changes took place –
"14/10/95 - 15/8/97
Anastasia McCardel and Brian Ogge
7/5/97 - 15/8/97
Anastasia McCardel, Brian Ogge, Pat Anthopoulos and Anthony Anthopoulos
15/8/97 - 2/7/98
Anastasia McCardell, Pat Anthopoulos and Anthony Anthopoulos
2/7/98 - 30/8/98
Pat Anthopoulos and Anthony Anthopoulos
30/8/98 - 17/8/99
Aquarell Pty Ltd
17/8/99 to date
Pat Anthopoulos and Anthony Anthopoulos."
It is noted that at the date of execution of the mortgage Aquarell Pty Ltd was not trustee of the trust and indeed had not been so since 14 October 1996.
However it is clear that at the date of execution of the mortgage and its registration Aquarell Pty Ltd was the registered proprietor of the land held by the Trust and held it in trust for the beneficiaries of the Trust.
The defence raised is that at the relevant time Aquarell was not the trustee of the trust and hence could not give a mortgage over the property. This was despite the fact that Aquarell was the original debtor to the bank, was the registered proprietor of the land at all times, was effectively controlled by Theo and his family, and Theo controlled the Trust as appointor.
This defence has not been taken by either the first defendant in its defence delivered 11 February 2000 or the second defendant, Theo, in his defence and counterclaim delivered 23 February 2000.
The only defence taken by the first defendant in relation to authority concerned the execution of the mortgage and the allegation that it was not executed in accordance with the articles of association.
More relevantly, Theo admits in his defence not only that Aquarell was at all material times the registered proprietor of the land but "says further that the first defendant held only the legal interest in the land and held such interest solely as trustee of the Heathfield Road Trust".
Further, in paragraph 18 of his defence he asserts that the land was held by Aquarell Pty Ltd solely as trustee for the Heathfield Road Trust – see paragraph 18(a). In that paragraph he asserts that the advance made by the plaintiff, which was denied, "was to discharge a debt which was not genuinely a debt of the trust".
This defence has not been relied on in the present application.
It is therefore clear that the defendant Theo has admitted that at all relevant times Aquarell was the trustee. As against this he has sworn that it was not and it has been put on his behalf that the mortgage was therefore executed by Aquarell when it was not the trustee.
The submission lacks reality. The reality was that the person controlling the trust, Theo, from time to time changed the trustees, for purposes which have not been explained, but never informed the bank that the debtor was no longer the company but other trustees and never took any steps to change the register in the Office of Titles.
What the defendant Theo has asserted in his defence is the correct position, namely, that the trustees of the Trust at all relevant times were prepared to recognise Aquarell as the legal entity which held the land on trust for the Trust. The compromise of the dispute between the National Australia Bank and the Trust was compromised in the name of Aquarell as trustee and the mortgage was prepared by solicitors acting for the trust and registered in the name of Aquarell. On any view of the evidence, Aquarell at all relevant times did hold the land on trust for the Trust even though at various times there were different trustees.
Neither Theo nor any of his brothers have given any evidence as to the circumstances of the liquidation of the debt with the bank and the execution and subsequent registration of the mortgage.
Given all the circumstances it is my opinion that what was done in the name of Aquarell bound the Trust. At no stage has the Trust attempted to set aside the mortgage or take any steps to amend the register in the Office of Titles and in my opinion the mortgage is a valid and binding document which entitles the mortgagee to take possession of the land upon default.
In answer to the defence raised by both defendants that the execution of the mortgage was not authorised because it was executed contrary to the terms of the articles of association, the plaintiff has pleaded in her reply and relied upon the submission that by registration and the provisions of s.42 of the Transfer of Land Act, the mortgage is indefeasible. The same submission is relied upon in answer to the alleged lack of authority in Aquarell to execute the mortgage.
In considering this argument, I proceed on the assumption that the mortgage document was executed without authority because of the failure to comply with the articles of association and/or the trustee was not Aquarell at the relevant time.
The authorities clearly establish that unless the mortgagee or his agent has engaged in fraud, the mortgagee acquires an indefeasible title by registration. I refer to the decision of Hayne J in Vassos v State Bank of South Australia (1993) 2 VR 316.
In that case a father, his daughter and son were the registered proprietors as tenants in common in equal shares of land subject to a registered mortgage as security for an advance of $130,000. The son subsequently procured a substitute mortgage in favour of the State Bank and gave a guarantee with a liability of $500,000 and not $130,000 as was intended by the father. The signatures of both the father and the daughter were forged on the instrument of mortgage and on the guarantee. The State Bank was not a party to the fraud, nor did it have knowledge of it when it registered the mortgage under the Act.
The father and his daughter brought proceedings for a declaration that under s.44(1) of the Act, the State Bank's paramountcy of title was defeated by the forged mortgage.
His Honour held that the title obtained by mortgagee on registration under the Act of a forged instrument of mortgage cannot be defeated on grounds of fraud if the mortgagee is not a party or privy to the fraud.
A long line of authorities have established that "fraud" for the purposes of s.42 means actual fraud, personal dishonesty or moral turpitude. In Assets Co Ltd v Mere Roihi (1905) AC 176, Lord Lindley at p.210 said –
"Fraud … means actual fraud, dishonesty of some sort, not what is called constructive or equitable fraud … ".
But as was pointed out by Mason CJ and Dawson J in Bahr v Nicolay (No. 2) (1988) 164 CLR 604 at 614, their Honours pointed out that it did not mean that all species of equitable fraud were outside the statutory concept of fraud.
Their Honours went on to say –
"According to the decisions of this court actual fraud, personal dishonesty or moral turpitude lie at the heart of the two sections and their counterparts."
The references to sections were to ss.68 and 134 of the Transfer of Land Act 1893 (WA) which are equivalent to ss.42 and 43 of the Victorian Act.
The evidence of the knowledge of the plaintiff as mortgagee is all one way. She has sworn that she had no knowledge that the mortgage may have been executed contrary to the constitution and further, that when she advanced the money to her sister she did not think about whether Aquarell owned the property in Ferny Creek as a trustee or not. She said she simply did not turn her mind to that question. Her interest was merely to assist her sister to prevent her assets being lost if the National Australia Bank took action against Aquarell. Her sister had told her that she had put money into Aquarell.
There is absolutely no evidence that the plaintiff knew or ought to have known that the mortgage was executed by the company contrary to the articles of association or that there had been a change in trustees.
The argument put forward by Mr Wise on behalf of Theo was that Mrs McCardel must have known that she could not alone witness the seal of the company Aquarell to the mortgage and that to do so would be contrary to the articles. He points out that Mrs McCardel has not filed any affidavit and that one might assume that she would be friendly to the interests of the plaintiff. It is correct that Mrs McCardel has not given any evidence and I accept that she would be sympathetic to the plaintiff's cause. However, the evidence does not persuade me that she had knowledge that the execution of the mortgage may have been contrary to the articles of association. The evidence all leads to the conclusion that the matter was handled by solicitors on behalf of Aquarell, and when she did witness the fixing of the seal she was in fact the sole director and secretary. That is how she is described. I do not know on what basis it can be said that she must have had knowledge of the articles of association that she knew what she was doing was contrary to the articles.
I add that at the date of execution the Corporations Law did permit one director companies.
However, the evidence does show that she resigned as a trustee at the beginning of July 1998. This was something that she could not have forgotten. Nevertheless, the transaction was in the hands of lawyers, the debtor to the bank was Aquarell and it was the registered proprietor of the land. The reality was as I have stated, namely, that Aquarell held the land in trust for the Trust. In those circumstances I would not be prepared to conclude that she was guilty of fraud or moral turpitude or dishonesty when she witnessed the fixing of the seal or gave the executed mortgage to the solicitors. The transaction was in the hands of solicitors and she would have no reason to know or believe that what she was doing may be wrong, improper or unlawful.
The argument that is put is that Mrs McCardel was the agent of the plaintiff at all relevant times and accordingly her knowledge was to be imputed to the plaintiff. Under s.42 it has to be fraud of the party relying on the section which destroys the protection. The argument proceeds on the assumption that Mrs McCardel was guilty of fraud within the meaning of s.42.
I have already found that in my opinion she was not guilty of actual fraud, personal dishonesty or moral turpitude.
But if I am wrong, the question arises whether her knowledge that what she was doing was either contrary to the articles of the constitution of the company or without authority as Aquarell was not a trustee should be imputed to the plaintiff.
I accept on the evidence that the plaintiff left it to Mrs McCardel to arrange for registration of the mortgage. I am prepared to infer that Mrs McCardel handed the document over to the solicitors Messrs Oakley Thompson and Co and left it to that firm to lodge the document.
I am satisfied on the evidence that that firm was not acting for or on behalf of the plaintiff.
The so called agency is that Mrs McCardel delivered the executed mortgage on behalf of the plaintiff to the solicitors for registration.
The law does recognise that in certain circumstances the knowledge of the agent is the knowledge of the principal. But not everything known to an agent is to be imputed to the principal.
When Mrs McCardel was negotiating the loan on behalf of Aquarell and agreeing to provide the mortgage and then executing it, Mrs McCardel was not acting as agent for the plaintiff. Further, any knowledge that she acquired during the course of those events she acquired not as agent of the plaintiff but whilst acting for and on behalf of Aquarell.
It is not until the plaintiff requested Mrs McCardel to take steps to have the mortgage registered that any question of agency could possibly arise in the general sense of doing something on behalf of another. The authorities establish that the general rule is that knowledge of an agent must be acquired by him in connection with the principal's business if it is to affect the principal. This means establishing first that the agent acquired the knowledge in question in the course of his employment. See Tate v Hyslop (1885) 15 QBD 368. So if an agent of a principal acquires notice of some relevant fact but not while acting for the principal then the notice or knowledge of the agent will not affect the principal. See Re Fenwick (1902) 1 Ch 507.
Further, the knowledge must be relevant to the transaction in respect of which the agent is employed. Thirdly, there must be a duty on the agent to communicate the knowledge to the principal.
I am satisfied that if Mrs McCardel was guilty of fraud or moral turpitude within the meaning of s.42 of the Act, that she acquired that knowledge prior to agreeing to undertake to do anything on behalf of the plaintiff concerning registration and that knowledge could not be imputed to the plaintiff because it was not acquired during the course of any so-called agency, nor was Mrs McCardel under any duty to tell the plaintiff of the alleged fraudulent acts.
In my opinion the defence based upon lack of authority and execution of the mortgage by the wrong trustee is not made out.
But in addition there is another reason why Theo could not succeed on the defence of lack of authority or wrongful sealing of the mortgage. Even assuming Mrs McCardell was guilty of fraud within the meaning of s.42 and the plaintiff was a party to the fraud, the fact is that the plaintiff is a registered proprietor of an interest in the property as mortgagee and Theo has no standing to set aside the mortgage.
According to Theo, Mrs McCardel ceased to be a trustee of the Trust on 2 July 1998. The date of the mortgage is 16 July 1998 and at that time the brothers Pat and Anthony were the trustees. However, at the end of August 1998 Aquarell assumed the position as trustee and remained so for nearly one year when it went into liquidation. During that time Aquarell's directors were the brothers Pat and Anthony.
Neither Pat, Anthony or Theo has given any evidence as to their respective states of knowledge concerning the mortgage. It is inconceivable that during this period none were aware of the mortgage. At some time prior to the issue of the proceeding the brothers and Aquarell no doubt learned of the existence of the plaintiff's mortgage.
At no stage has Aquarell, as registered proprietor and mortgagor sought to rescind the instrument of mortgage or to apply for rectification of the Register pursuant to s.103 of the Act.
As at today, Aquarell as mortgagor has a judgment against it for possession of the property pursuant to the said mortgage.
If the mortgage was procured by the fraud of Mrs McCardel then it would be voidable at the option of the defrauded party and no step has been taken to rescind the mortgage. Accordingly, it continues to have full force and effect.
Further, by registration the mortagee's interest remains effective until the Register is rectified.
In Breskevar v Wall (1971) 126 CLR 376 at p.385 Barwick CJ said –
"The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for the registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself is vested in the proprietor. Consequently a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or the reason for which the instrument is void."
(Emphasis added).
The same observations must apply where the instrument is voidable.
Aquarell has not purported to rescind the mortgage and has not made any application to rectify the Register. Clearly Theo as a tenant not being a party to the instrument of mortgage cannot make a decision on behalf of the registered proprietor to rescind the mortgage or to apply for rectification of the Register.
It is not open to him to seek to defend the claim on the basis that the instrument of mortgage is of no effect. Clearly it has. No attempt has been made to rescind it, set it aside or to apply for rectification of the Register under the Act.
Tenant's interest
The defendant Theo relies on a lease dated 15 March 1998 to resist the plaintiff's claim.
Section 42(2) of the Act provides –
"(2) Notwithstanding anything in the foregoing the land which is included in any folio of the register or registered instrument shall be subject to –
(a) …
(b) …
(c) …
(d) …
(e) the interest (but excluding any option to purchase) of a tenant in possession of the land."
The evidence revealed that Theo executed a lease dated 15 March 1998.
The lease is made between Theo as tenant and Mrs McCardel, Messrs Pat and Anthony Anthopoulos and Aquarell Pty Ltd as trustees of the Heathfield Road Trust.
According to the sworn evidence of Theo, Aquarell Pty Ltd was not a trustee at the time. This is further evidence which reinforces the conclusion above that the persons controlling the trust accepted and recognised that Aquarell did hold the land on trust for the trust. The period of the agreement was five years, expiring on 27 March 2003.
If this lease was still in operation then the plaintiff as mortgagee would take subject to it.
However, on 1 April 1999 Theo entered into a second lease with respect to the property.
The parties to the second lease are Theodore as tenant and Aquarell Pty Ltd "as trustee for the Heath Field Road Trust".
The premises in both leases are described as –
"59 One Tree Hill Road, Ferny Creek."
The term of the second lease is for two years starting on 1 April 1999 and the rent fixed from 1 April 1999 to 31 March 2000 is $18,420. It is noted that the rent was to be adjusted at the commencement of the second year of the term.
The second lease is a formal detailed document comprising 12 pages, 19 clauses, a schedule comprising four pages, and two pages of special conditions. The document was delivered to Citibank Limited as the first mortgagee for its permission which was given and the lease was stamped pursuant to the Stamps Act. The seal of Aquarell was witnessed by the brothers Pat and Anthony. It is dated 1 April 1999.
On its face the lease is a valid operating lease and there are no terms which make its operation conditional.
Because the second lease relates to exactly the same property as the first lease and between the same parties, the execution of it has the effect that Theo has surrendered the first lease.
In Jenkin R. Lewis v Kerman (1971) Ch 477 the Court of Appeal said this at p.496 –
"If a tenant holding land under a lease accepts a new lease of the same land from his landlord he is taken to have surrendered his original lease immediately before he accepts the new one. The landlord had no power to grant the new lease except on the footing that the old lease is surrendered and the tenant by accepting the new lease is estopped from denying the surrender of the old one. This 'surrender by operation of law' takes effect whether or not the parties to the new lease intend it to take effect. Moreover, even if there is no express grant of a new lease the old lease will be surrendered by operation of law if the arrangements made between the landlord and the tenant are such as can only be carried out so as to achieve the result which they have in mind if a new tenancy is in fact created."
(Emphasis added).
In order to counter this conclusion, Theo has alleged in his affidavit that it was not the intention to extinguish the first lease and in any event there was an agreement between he and his brothers that the landlord would declare the second lease null and void if there were any particular problems.
In his defence Theo has only relied upon the first lease and makes no mention of the second lease. On the other hand there is uncontradicted evidence from the plaintiff that at a creditor's meeting of Aquarell held in or about June 1999 Theo tabled a document which he said was a lease that Aquarell had granted to him. It is the second lease. The plaintiff swore that that was the first time she became aware of the later lease. In considering the so‑called conditions concerning the second lease one approaches the evidence of Theo with a degree of suspicion.
In his affidavit Theo referred to the fact that he moved back onto the property in March 1998 and at the time when he executed the lease on 15 March 1998 he had expressed the desire to convert a separate building on the property into a bed and breakfast business and the land adjacent to it, as a nursery. He stated that he informed the trustees of the Trust,
"And they agreed to enter into a commercial lease to provide for the balance of the property being used as a bed, breakfast and nursery. The commercial lease was intended to subsist alongside the residential lease in that each would apply in relation to separate parts of the property. On the basis of this agreement the residential lease for a period of five years was executed on 15 March 1998. The commercial lease, due to negotiations which took place as to its terms and conditions was not executed until 1 April 1999. It was never the intention of me or the trustees that the commercial lease would extinguish the residential lease."
He further stated that he has paid rent pursuant to the residential lease and not the commercial lease.
Objection was taken by plaintiff's counsel to the evidence of the subjective intentions of the parties. I uphold the objection. But in any event, in my opinion the intention that the commercial lease was to subsist alongside the residential lease cannot alter the fact that the entry into the second lease had the effect of causing a surrender of the first lease. The evidence of the intention in my opinion is irrelevant. It is what the parties agreed which is important. Further, the assertion that it was not his or the trustee's intention to extinguish the residential lease is also irrelevant.
The fact is that the second lease was forwarded to the first mortgagee for its consent, it was no doubt represented that it was to be an operative lease in accordance with its terms and the lease was stamped as such.
The fact that Theo has not paid the additional rent is not surprising. The second lease was executed only a matter of months before Aquarell went into liquidation. But that does not establish that the first lease is still valid.
The evidence reveals that correspondence passed between Theo and his brothers as trustees of the Trust in October/November 1998 which raised questions concerning the operation of the second lease.
It was submitted on behalf of Theo that the parties intended both leases to subsist at the same time in respect to different portions of the land. There is no evidence to that effect. The description of the demised premises is the same in both leases. I reject the submission.
It was further submitted that the second lease was subject to a collateral contract constituted by the letters between the parties in October and November 1998. It was said that the contract was to the effect that the second lease would not come into operation until Theo had obtained the financing and legal clearances required for the businesses to be conducted on the land. It is submitted the conditions have not been met and accordingly the second lease has not commenced.
There is no evidence to that effect. It is said that the two letters support the conclusion. It is necessary to consider their terms.
It is noted that the letter written by Theo is dated 13 October 1998 and the response of the brothers as trustees is dated 24 November 1998. It is clear from the contents of both letters that the parties were in a state of negotiation. The detailed formal lease does not contain any terms which made it conditional upon the happening of any event. It is further noted that at that stage Theo had a solicitor acting on his behalf. There is no evidence that the terms discussed in these two letters in any way form part of the second lease which was executed some four months later.
In the first letter written by Theo he refers to a proposed lease period of 30 years and an annual rental of $15,000 per annum. In the formal lease the period is two years at an annual rental of $18,420 subject to adjustment, with four further terms of seven years each.
In his letter Theo wrote –
"Should there be any problems of a legal or financial nature whatsoever I would like to have your understanding and undertaking that the said lease would be declared Null and Void and would be cancelled without jeopardising the nature of the first lease.
I would, also, like to stress that should this circumstance arise I will not be liable for the rentals until such time I have clearance to proceed with the said project."
Theo requested an undertaking in writing.
In their response dated 24 November 1998 his brothers stated that they agreed to the conditional commercial lease with the terms and conditions as proposed in the letter. The letter went on to say –
"We would like to emphasise here that we do not anticipate any problems of the nature you refer to in your letter. However, we, the trustees of the Heath Field Road Trust, undertake to cancel the commercial lease and declare it null and void should such event occur.
We, also, will not hold you liable for the rentals due under the commercial lease. However the rental due under the residential must continue to be paid.
Should your solicitor require any further reassurances, we will be happy to provide."
There is no evidence that that was the agreement at the date when the second lease was executed. Further, one would expect that if the second lease was conditional then the parties would have expressly so provided in the lease.
There is no evidence that those terms continued and were applicable as at the date of execution.
The so called terms did not concern the operation of the lease. The parties contemplated the lease would operate and that something could occur thereafter which may bring it to an end.
Two things had to happen before the second lease would be cancelled. First, that there were problems of a legal or financial nature and secondly, a declaration that the lease would be declared null and void.
There is absolutely no evidence of any legal or financial problems and further, there is no evidence that the second lease was declared null and void. Further, there is the evidence uncontradicted that Theo tabled at a meeting of creditors of Aquarell, the second lease and relied upon it as an operative lease.
In my opinion the second lease caused the cancellation of the first lease and hence the plaintiff as mortgagee is not subject to any tenant's interest.
Credibility
Finally, it is submitted on behalf of Theo that the plaintiff's credit "must be in serious question". Counsel referred to the affidavit of Mrs Myers of 24 August and stated that there were a number of inconsistencies in it. I accept that there are a number of errors and inconsistencies in the plaintiff's affidavit which she addressed in the main in her second affidavit. They are understandable errors. In my opinion they do not support the conclusion that she had any knowledge of any alleged wrong doing on the part of her sister if indeed that was the fact.
The alleged errors and inconsistencies do not cause me any doubt about the facts I have accepted which entitle the plaintiff to possession.
The written submission of counsel for Theo ended by asserting –
"The fact that some person purporting to exercise the powers of the trustee has executed without proper authority of the defendant and without power the mortgage ought to be a sufficient basis for the matter to go to trial in any event."
In my opinion there is no substance in this submission at all.
The fact was that the plaintiff lent the sum of $27,000 to Aquarell as trustee of the Trust to enable it to discharge its obligations to the National Australia Bank. The money has not been repaid by Aquarell or the Trust. The plaintiff is entitled to enforce her mortgage. The so‑called inconsistencies do not in my view in any way impinge upon the strength of the plaintiff's case against Theo or in any way support the alleged defences raised by him.
Conclusion
In my opinion the plaintiff has established her case and is entitled to judgment. The defendant has not established any arguable defence on the merits. In other words, he has not established that there is any question that ought to be tried and further, I am not persuaded that there is any other reason for granting him leave to defend.
Subject to the submissions of counsel I propose to make the following orders –
(i)That the appeal from the orders made by Master Wheeler on 22 September 2000 be dismissed and the said orders affirmed.
(ii)That the defendant Theo Anthopoulos pay the plaintiff's costs of the appeal.
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