PATELIS v SANDER - [2020] SADC 2

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PATELIS v SANDER
[2020] SADC 2
Judgment of Her Honour Judge Bochner
16 January 2020
PROCEDURE - INFERIOR COURTS - SOUTH AUSTRALIA - DISTRICT COURT
Appeal from a Master - application to strike out a paragraph in the defence - whether the Master erred in declining to strike out paragraph 27 of the second defence.
Held
1. Appeal allowed.
2. Paragraph 27 of the second defence is struck out.
Real Property Act (1886) (SA) s 69, referred to.
Arcadi v Whittem (1992) 59 SASR 515; Public Trustee v Paradiso (1995) 64 SASR 387, considered.

PATELIS v SANDER
[2020] SADC 2

The appellant has appealed a decision of a District Court Master in relation her application to strike out various paragraphs of the respondent’s second defence. The appellant sought to strike out four paragraphs of the defence and was unsuccessful in relation to each paragraph; she now appeals only in relation to one of those paragraphs.
Background
The facts of this matter are set out in some detail in the learned Master’s decision[1] (“the decision”), and I will not repeat them here, save as is necessary to make sense of this judgment.
[1] Decision No 25 of 2019.
In short, the appellant was a victim of forgery, which led to a mortgage being registered over two parcels of land of which she was a joint tenant. This much is not in dispute, and I understand that the perpetrators of the fraud have been tried and convicted in the District Court of South Australia. It is also not in dispute that the appellant first became aware of the forgery when she was served with a notice of default by the lender. The appellant was unable to raise the outstanding moneys and elected to sell the properties which were the subject of the mortgages, to repay the lender, rather than to have the properties repossessed by the lender and subject to mortgagee sales. The properties were sold, and the loans were repaid.
I further note that there is no dispute that the lender was not involved in, or otherwise aware of the forgery and was an innocent party.
The appellant then issued this proceeding against the solicitor who gave advice to the perpetrators of the fraud. She alleges that he failed to take reasonable or proper steps to verify the identity of the person signing the documents, thus allowing the forgery of her signature to occur. The causes of action on which she relies are breach of fiduciary duty, negligence and misleading or deceptive conduct.
The essence of the appellant’s case is that, on registration, the lender gained an indefeasible title in the mortgages, as an innocent third party. At paragraph 44 of the statement of claim, she pleads:
By reason of the operation of section 69 of the Real Property Act 1886 (SA), the Memorandum of Mortgage could not be avoided as against Nationwide on the grounds that the plaintiff’s signature in the Memorandum of Mortgage was a forgery.
The essence of the defendant’s defence is that the plaintiff has mistaken the legal effect of s 69 of the Real Property Act (1886) SA (“the Act”) and, in fact, the plaintiff was under no legal obligation to repay the money pursuant to the forged guarantee and mortgage documents. He says that registration did not validate the forged documents as between the lender and the signatories to the documents, but only as between the lender and an innocent third party who obtained title from the lender. Thus, the defendant makes a case for deferred indefeasibility of title, and says that, on this basis, the chain of causation between the defendant’s actions and the plaintiff’s loss has been broken by her own voluntary act in selling the properties. The success of the defendant’s case depends on the interpretation of s 69 of the Act, which provides:
69—Title of registered proprietor indefeasible
The title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interests as may be notified on the certificate of title of such land, be absolute and indefeasible, subject only to the following qualifications:
(a)    Fraud
in the case of fraud, in which case any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of this Act: Provided that nothing included in this subsection shall affect the title of a registered proprietor who has taken bona fide for valuable consideration, or any person bona fide claiming through or under him;
(b)    Forgery or disability
in the case of a certificate or other instrument of title obtained by forgery or by means of an insufficient power of attorney or from a person under some legal disability, in which case the certificate or other instrument of title shall be void: Provided that the title a registered proprietor who has taken bona fide for valuable consideration shall not be affected by reason that a certificate other instrument of title was obtained by any person through whom he claims title from a person under disability, or by any of the means aforesaid;
(c)    Erroneous inclusion of land
where any portion of land has been erroneously included, by wrong description of parcels or boundaries, in the certificate of title or other instrument evidencing the title of the registered proprietor: In which case the rights of the person who but for such error would be entitled to such land shall prevail, except as against a registered proprietor taking such land bona fide for valuable consideration, or any person bona fide claiming through or under the registered proprietor;
(d)    Omission of easement
where a right-of-way or other easement not barred or avoided by the provisions of the Rights-of-Way Act 1881, or of this Act, has been omitted or mis-described in any certificate, or other instrument of title: In which case such right-of-way or other easement shall prevail, but subject to the provisions of the said Rights-of-Way Act 1881 and of this Act; Real Property Act 1886—4.7.2016 Part 6—The title of registered proprietors 2 Published under the Legislation Revision and Publication Act 2002
(e)    Several certificates for the same land
where 2 or more certificates of title shall be registered under any of the Real Property Acts in respect of the same land: In which case the title originally first in time of registration shall prevail but without prejudice to the effect of anything done under Part 19A of this Act;
(f)     Certificate of title to be void if any person is in possession and rightfully entitled adversely to the first registered proprietor
any certificate of title issued upon the first bringing of land under the provisions of any of the Real Property Acts, and every certificate of title issued in respect of the said land, or any part thereof, to any person claiming or deriving title under or through the first registered proprietor, shall be void, as against the title of any person adversely in actual occupation of, and rightfully entitled to, such land, or any part thereof at the time when such land was so brought under the provisions of the said Acts, and continuing in such occupation at the time of any subsequent certificate of title being issued in respect of the said land;
(g)    Wife's title to prevail
where a husband shall have been wrongly registered as co-proprietor of land belonging to his wife for her separate use or as her separate property, in which case the title of the wife shall prevail except as against a registered proprietor taking such land bona fide for valuable consideration, or any person bona fide claiming through or under him;
(h)    A lease or letting for not more than a year
where at the time when the proprietor becomes registered a tenant shall be in actual possession of the land under an unregistered lease or an agreement for a lease or for letting for a term not exceeding one year: In which case the title of the tenant under such lease or agreement shall prevail;
(i)     Failure of mortgagee to comply with verification requirement if—
(i)the person by or on whose behalf a mortgage was signed or executed as mortgagor (the purported mortgagor) is not the registered proprietor of land subject to the mortgage; and
(ii)the mortgagee failed to comply with a requirement under this Act or the Electronic Conveyancing National Law (South Australia)—
(A)to verify the purported mortgagor's identity or authority to enter into the mortgage; or
(B)if the mortgage was transferred to the mortgagee—to establish that the transferor complied with an obligation imposed under this Act on the transferor, as mortgagee, to verify the identity of the purported mortgagor or to verify the purported mortgagor's authority to enter into the mortgage, the mortgagee's interest under the mortgage is not indefeasible.
The defendant’s pleading in relation to the Act is set out in paragraphs 17, 18 and 22 of the second defence. These paragraphs were three of the four paragraphs subject to the strike out application at first instance, and the plaintiff does not appeal in relation to them.
The fourth paragraph which the plaintiff sought to have struck out pleads:
27. Further and in the alternative, if the defendant is liable to the plaintiff as averred (which is denied), then the defendant says:
(a) that the plaintiff’s solicitors are, by reason of their negligence advice to the plaintiff as to the effect of section 69 of the Real Property Act 1886, the enforceability of the forged documents against the plaintiff and/or the beneficial ownership of the proceeds of the sale of the plaintiff’s share of the property sold, also liable to the plaintiff in negligence for the loss sustained by the plaintiff: and
(b) that the defendant’s liability is accordingly to be limited pursuant to section 8 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001.
It is in relation to this paragraph that the plaintiff appeals.
The grounds of appeal
The plaintiff contends that the Master applied the wrong test in determining whether the pleadings should be struck out, in that he found that the plaintiff was required to establish that on no view of the facts or the law should the pleading be permitted to remain, when the correct test is whether the pleading disclosed no reasonable ground of defence, and whether the contentions of the defendant were arguable as opposed to reasonably arguable. Further, she contends that the Master made various errors in applying the various authorities on the relevant section of the Act, and the effect of the doctrine of stare decisis.
The decision of the Master
The Master outlined the facts of the matter, and the contentions of the parties in the statement of claim and the second defence. After reviewing the submissions of the parties, the Master reviewed in detail the authorities dealing with s 69 of the Act. He also considered a number of New South Wales cases which dealt with the relevant law in New South Wales, and an article in the Adelaide Law Review which discussed a number of the South Australian and New South Wales decisions. He concluded, on the authorities:
It is clear that its proper interpretation has been a complex and confused area of the law within South Australia. There are inconsistent approaches between the Federal Court and the Supreme Court and academic commentary has been provided and is referred to in the case law. In the most recent Supreme Court decision cited, Paradiso, it does not appear to have been put to the Full Court that Arcadi was wrong, only that it was distinguishable and obiter, and need not be followed.[2]
[2] Decision No 25 of 2019 at [108].
He went on to say:
There is clearly a divergence of views on this issue between the Federal Court and those of the Supreme Court, the latter in Wicklow Enterprises Pty Ltd v Doysal Pty Ltd (1986) 45 SASR 247 and Arcadi v Whittem. However even if the Arcadi view is correct, the lender here might not have indefeasible title under the section to a mortgage interest over the plaintiff’s share of the land because the charging of the plaintiff’s share was not for valuable consideration in that the provision of the loan was entirely for the benefit of Patelis.
In my view this is not a matter which can be properly determined in the context of a strike out application because notwithstanding several Supreme Court and other decisions there remains in the long run an undoubted controversy as to the settled position concerning section 69. The defendant contends that the view taken by von Doussa J in Rogers is correct as it remains the only judgment which is clearly ratio decidendi on the issue - like the present case it involved a direct forgery. von Doussa J took the view that O’Loughlin J’s decision in Wicklow was obiter.[3]
[3] Decision No 25 of 2019 at [116]-[117].
The Master concluded:
The arguments are complex and it certainly cannot in my view be said that they are not genuinely arguable or plainly wrong.[4]
[4] Decision No 25 of 2019 at [127].
He dismissed the plaintiff’s application to have the impugned paragraphs struck out.
The arguments on appeal
The plaintiff’s position
Mr Munt, on behalf of the plaintiff put to me that the plaintiff would suffer substantial prejudice if paragraph 27 of the defence was allowed to stand. By alleging negligence on the part of the plaintiff’s solicitor, the defendant creates a conflict of interest between the plaintiff and her solicitor, Tolis and Co (“Tolis”), as a result of which Tolis would no longer be able to act for her, and she would need to retain alternative solicitors, which would result in significant legal costs being incurred. On the other hand, very little prejudice would be suffered by the defendant if paragraph 27 were struck out; he would still be able to pursue his causation argument, but would not be able to seek contribution from Tolis.
In relation to the correct test to be applied on a strike out application, Mr Munt submitted that the Master fell into error in that he said, at [106]:
To establish a basis for strikeout, the plaintiff must establish that on no view of the facts or the law should the pleading be permitted to remain.
In fact, the correct test is that the plaintiff must establish that on no reasonable view of the facts or law that the pleading should be allowed.
He further erred in [11], where he found that the contentions of the defendant were “arguable”, when in fact, he needed to find that they were “reasonably arguable”.
Mr Munt next argued that the Master took into account unpleaded matters that were raised by way of submission only, including the surrender of the properties without enforcement under a power of sale, the absence of consideration from the plaintiff, other provisions of the Act, and the fact that the lender was in fact a second mortgagee.
He further argued that the Master erred in [109], where he said:
The plaintiff has pleaded that she relied on the advice of a solicitor to justify what she did, namely to allow her property to be sold and the proceeds provided to a lender, notwithstanding that she had no personal obligation in relation to the loan. In its pleading the defendant is responding to this contention.
The plaintiff says that she does not in fact, plead reliance on the advice of her solicitor in allowing the properties to be sold. Paragraph 44 of the statement of claim (to which paragraph 27 of the defence is said to respond) simply pleads the effect of the s 69 of the Act and does not refer in any way, either directly, or by implication, to advice received by the plaintiff. Thus, there is no factual foundation on which the defendant can base his pleading in paragraph 27 of the defence. The defendant relies merely on an inference that the plaintiff obtained legal advice from Tolis prior to the sale of her properties.
The plaintiff says that any allegation of negligence made by the defendant cannot be established by inference. There must be a foundation laid as to the giving of the advice by Tolis, and how that advice was negligent. In the absence of any pleading by the plaintiff that she relied on legal advice, the defendant is unable to cause a waiver of legal professional privilege by pleading (in effect) that it is inferred that the plaintiff obtained legal advice.
The balance of the plaintiff’s submissions dealt with the effect of the various authorities, and the conflict between them.
The defendant’s submissions
Mr Manetta, who appeared on behalf of the defendant, submitted that the Master applied the correct test in determining whether paragraph 27 of the defence should be struck out. He pointed to a number of paragraphs in his reasons, where the Master clearly referred to the correct test, and submitted that the overwhelming tenor of the Master’s decision made it clear that he kept in mind the need for the questions of fact and law to be reasonably arguable. The concept of reasonableness overlaid the entirety of his reasons.
On the question of whether the plaintiff had pleaded that she relied on advice, Mr Manetta put to me that the irresistible inference of paragraph 44 of the statement of claim is that she received advice to that effect. If this is not correct, then paragraph 44 has no place in the statement of claim; it is, in effect, a non sequitur. He went on to submit that the plaintiff must be frank with the Court and disclose whether or not she received advice. He submitted that she has chosen not to do this, without denying that legal advice was given before she made the decision to sell the properties.
Mr Manetta then made lengthy submissions on the interpretation of s 69 of the Act, and effect of the authorities.
Consideration
In my view, the appeal must be allowed, albeit on a very narrow point.
I do not consider that the Master incorrectly applied the test for strike out. I accept the submission of the defendant that the entirety of the Master’s decision is overlaid with the concept of reasonableness.
Nor do I consider that the Master erred in his consideration of the authorities. It is clear that there is a conflict on the authorities. While I accept the South Australian authorities appear to be against the defendant, they are not recent authorities, and a full court may be inclined to reconsider this issue in light of the matters raised by the defendant.
As to the matters that the plaintiff says are currently unpleaded, I am of the view that, once it is accepted that the defendant’s position is reasonably arguable, those matters can be dealt with in supplementary pleadings.
In my view, the Master erred in only one respect, and that is in his finding at [109] that the plaintiff pleaded that she relied on the advice of a solicitor, thus providing a basis for the defendant’s plea in paragraph 27. Nowhere has the plaintiff pleaded that she obtained advice, or having obtained it, relied on it.
I also reject the defendant’s submission that the irresistible inference arising from paragraph 44 of the statement of claim is that the plaintiff received, and relied on legal advice.
Paragraph 44 simply pleads what the plaintiff contends is the effect of s 69 of the Act. This is the plaintiff’s contention as at the date that the statement of claim was filed. It cannot be inferred that this was her understanding of the law at any time earlier than that.
Mr Manetta put to me that it would be extraordinary for the plaintiff to have capitulated to the demands of the lender, without receiving any legal advice. With respect, I do not consider that this is necessarily the case. While one possibility is that the plaintiff obtained legal advice, it is also equally possible that, in the face of the lender’s assertion of its legal rights combined with the revelation that her husband had been party to the forgery of her signature which had led to substantial loss, the plaintiff may have simply accepted the assertions of the lender. I do not suggest that this is more likely than that she sought to obtain advice, just that it is equally likely. I further note that the plaintiff has pleaded that, after suffering a stroke in 2010, her mental and physical capacity has a been significantly impaired. It may just as easily be inferred that, as a result of this impairment, she was more likely to accept the assertions of the lender. Again, I do not suggest that this is the case; I simply raise this to point to the fact that, while it is possible that the plaintiff obtained advice, there are a number of reasons why it is equally possible that she did not do so.

In the circumstances, I am unable to find that the only inference, or even the most likely inference open on the facts of this matter is that the plaintiff must have sought and relied on legal advice prior to selling the properties subject to the mortgages.
On this basis, I am of the view that paragraph 27 of the second defence must be struck out. It is a matter of pure speculation on the part of the defendant and to allow it to remain in the absence of any supporting evidence would cause an injustice to the plaintiff.
Given that I consider that paragraph 27 of the second defence must be struck out on the basis that it does not respond to any pleading by the plaintiff, nor is it supported by any material facts relied on by the defendant, I do not consider the question of whether it is reasonably arguable that Tolis would have been guilty of providing negligent advice, by giving advice consistent with current authority in South Australia. I am of the view, however, that it would be possible for a full court to determine that the correct interpretation of s 69 is that contended for by the defendant, while also finding that advice provided by a lawyer consistent with the decision of the Full Court in Arcadi v Whittem[5] and Public Trustee v Paradiso,[6] was competently provided. The position of the defendant in this matter appears to be that the plaintiff should have been prepared to launch a test case against the lender, with a view to having Arcadi v Whittem and Public Trustee v Paradiso overturned. I express a serious reservation that a court would make this requirement of a person in the position of the plaintiff in this matter.
[5] (1992) 59 SASR 515.
[6] (1995) 64 SASR 387.
The appeal is allowed.