Permanent Mortgages Pty Ltd v Pastro
[2018] SASC 5
•30 January 2018
SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
PERMANENT MORTGAGES PTY LTD v PASTRO
[2018] SASC 5
Judgment of The Honourable Justice Parker
30 January 2018
REAL PROPERTY - TORRENS TITLE - INDEFEASIBILITY OF TITLE - EXCEPTIONS TO INDEFEASIBILITY - FRAUD OR FORGERY
REAL PROPERTY - TORRENS TITLE - INDEFEASIBILITY OF TITLE - EXCEPTIONS TO INDEFEASIBILITY - IN PERSONAM EXCEPTION
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - WHO MAY LODGE AND WHAT INTEREST SUFFICIENT - OTHER CASES
EQUITY - GENERAL PRINCIPLES - UNCONSCIONABILITY, UNCONSCIONABLE DEALINGS AND OTHER FORMS OF EQUITABLE FRAUD - KNOWLEDGE
This is an appeal against orders of a Master of this Court relating to the enforcement by the respondent of various mortgages.
The appellant challenged the decisions by the Master:
1. to refuse to refer the matter to the ordinary civil list for trial;
2. to direct the Registrar General to remove a caveat;
3. not to extend the time for removal of other caveats over the subject properties.
Held, per Parker J, dismissing the appeal:
1. The appellant does not have an arguable case, supported by evidence, which if accepted could give rise to a defence based on any of the statutory exceptions to the doctrine of indefeasibility.
2. The appellant has not shown that there is a serious question to be tried concerning the caveatable interest or that the balance of convenience favours the continuation of the caveat or extension of time to remove the caveats.
Real Property Act 1886 (SA) ss 69, 191, referred to.
Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Stone v Leonardis (2011) 110 SASR 503; Moonta Town Corporation v Rodgers (1980) 26 SASR 143, discussed.
PERMANENT MORTGAGES PTY LTD v PASTRO
[2018] SASC 5
PARKER J: This is an appeal against orders made by a Master of this Court relating to the enforcement by Permanent Mortgages Pty Ltd (PM) of mortgages. The subject mortgages were granted as security for loans taken out by a company with which the appellant was connected, SA Property Developments Pty Ltd (SAPD).[1]
[1] The Court has been informed that this company has gone into voluntary liquidation.
At the conclusion of the appeal hearing I dismissed the appeal and provided brief oral reasons. I said that I would later publish more comprehensive reasons. These are my reasons.
The following orders made by the Master are the subject of the appeal:
·The refusal of an application by the appellant for the matter to be referred from the possession list to the general civil list;
·The direction to the Registrar General to remove a caveat registered by the appellant against the title of certain land he owns at Sturt and which is subject to a mortgage held by PM; and
·The refusal of an application to extend the time for removal of caveats registered by the appellant in relation to properties he owns at Modbury Heights and Campbelltown, which are also subject to a mortgage granted by the appellant to PM.
The appellant is aged 70 years. Although he has lived in Australia since 1966 he has deposed that he has a limited command of English and was only educated to the equivalent of the year 5[2] or year 8[3] level. As he did not have legal representation, I permitted his nephew, David Pastro, to speak on his behalf (as had the Master) after confirming with the appellant that this was what he wanted. PM was represented by counsel. There was no objection by counsel to David Pastro speaking on behalf of the appellant.
[2] First affidavit of Emilio Pastro.
[3] Second affidavit of Emilio Pastro.
Grounds of appeal
The grounds of appeal advanced by the appellant are set out in the Notice of Appeal as follows:
3.1Fraudulent acts against the Defendant by the Plaintiff and Peter Rakic.
3.2Defendant has not benefitted from the plaintiffs loans as shown in 4th affidavit of Emilio Pastro which is to be filed within the next couple of days
3.3Defendant was not aware of directorship and share holdings when it is alleged documents were signed and is clearly indicated in Exhibit EP-14 that Peter Rakic was Sol Director and Secretary and is verified by Peter Do a Commissioner for taking Affidavits in the supreme court of South Australia
3.4Conflicting information in documents shown by defendant.
3.5in relation to paragraph 2.2 the Defendant is on hardship and is only receiving pension from centre link as per “Application for Remission[4]
3.6in relation to paragraph 2.4 and 2.5, the matter was referred to Judge Dart[5]
3.7orders set out in 4th affidavit of Emilio Pastro[6]
[4] Paragraph 2.2 refers to a stay sought by the appellant of the costs order made in favour of PM.
[5] Paragraphs 2.4 and 2.5 refer to reinstatement of the caveats on the Modbury Heights and Campbelltown properties.
[6] There are no orders referred to in this affidavit which was filed after the notice of appeal.
Clearly, some of those grounds make little sense. I will consider that issue below.
Background
ASIC records indicate that the appellant was a director of SAPD between 21 December 2012 and 4 October 2016. However, he asserts that he has no knowledge of that appointment, albeit that ASIC received documents purportedly signed by the appellant confirming his acceptance of the appointment. The appellant does not dispute that he continues to hold one share in SAPD. Mr Peter Rakic was at all material times a director of SAPD and since 4 October 2016 has been the sole director. He holds 99 of the 100 shares issued in SAPD.
The primary, and probably the only, business activity of SAPD was a project to construct a number of residential units on land it owned at Port Hedland in Western Australia. For reasons that are not entirely clear, but which may be linked to the decline of the iron ore industry in WA and the insolvency of the builder, that project has not been completed.
SAPD borrowed substantial funds from PM for the purposes of the Port Hedland project. The security for those borrowings was provided entirely by the appellant. He granted mortgages in favour of PM over the properties he owns at Sturt, Modbury Heights and Campbelltown. The appellant also granted security to Pepper Finance Corporation Ltd (Pepper Finance) over land he owns at Flagstaff Hill and to Liberty Financial Pty Ltd over a block of flats he owns at Whyalla Norrie. SAPD granted a mortgage to Pepper Finance over the Port Hedland property.
While Mr Rakic guaranteed the loans taken out by SAPD, he did not provide any security to PM. The appellant has asserted that he was not aware that Mr Rakic was not providing any security.
A joint venture agreement between SAPD, Mr Rakic and the appellant dated 19 October 2015 records that the appellant had granted mortgages to PM over the Sturt, Campbelltown and Modbury Heights properties as security for the monies borrowed by SAPD. I note that the appellant provided security for the borrowing by SAPD seven months before the making of the joint venture agreement.
The joint venture agreement also records that the appellant has granted unregistered second mortgages to Pivot Way Pty Ltd over the Campbelltown, Modbury Heights, Sturt and Whyalla Norrie properties. Pivot Way was trading as McGrath Homes and was the proposed builder of the Port Hedland units.
The joint venture agreement provides that at the conclusion of the Port Hedland development, Mr Rakic will be paid a management fee and the appellant a security fee as consideration for him providing security for the loans to SAPD. The provisions in the joint venture agreement relating to the payment of the management fee and security fee are not relevant to the outcome of this appeal and were not addressed in submissions by either party. Thus, it is not necessary for me to make any finding about the effect of those provisions. However, I note that payment of the management and security fees appears to be contingent upon the ultimate success of the Port Hedland project. Thus, the apparent effect of the agreement and the security granted by the appellant over his properties was to place him at serious financial risk if the Port Hedland project did not succeed.
The loan applications
On 14 January 2015, SAPD applied to LaTrobe Financial Services for mortgage finance. LaTrobe acts as the agent and manager for PM and receives loan applications on its behalf. The application form was signed by Mr Rakic and by the appellant in their capacity as directors of SAPD and also in their personal capacities. SAPD sought to borrow a total of $648,000 in two loans. The loans were to be secured by mortgages to be granted by the appellant over the Sturt and Modbury properties. The sum of $336,000 was to be secured against the Sturt property and $312,000 against the Modbury property. Of the total borrowings of $648,000, the sum of $294,000 was to be applied to discharge an existing mortgage on the Sturt property and $269,500 was to be used to discharge an existing mortgage on the Modbury property. The balance of the loan funds, being $84,500, was to be paid to SAPD.
The loan application signed by the appellant and Mr Rakic includes a statement that the total assets owned by the appellant were valued at $4,060,000. After deduction of liabilities of $2,651,500, his net assets were said to be $1,408,500. The liabilities comprised mortgages over the properties owned by the appellant. Each of the appellant and Mr Rakic declared a 50% interest in the Port Hedland land and a 50% interest in a property at Salisbury Downs.[7] Because the Port Hedland and Salisbury Downs properties were also listed as assets of SAPD, they were clearly double counted.
[7] The Salisbury Downs property was not listed in a land tax assessment issued to the appellant by Revenue SA for the year ending 30 June 2013.
The loan application also included a statement that the appellant received rental income of $264,060 per annum, while Mr Rakic declared rental income of $83,880 per annum. The source of Mr Rakic’s rental income was not explained. His only listed real property was his residence at Glenelg and the 50% interest that he asserted in the Port Hedland and Salisbury Downs properties. Mr Rakic’s accountant, Mr Chris Shaw, sent a letter to LaTrobe dated 14 January 2015[8] stating that he had a current taxable income of $90,000 per annum. The income of SAPD was also stated to be $90,000. It is possible that there may have been further double counting.
[8] The letter is dated 2014 but clearly should be 2015, as the letter refers to the details of the application made on 14 January 2015.
Copies of residential tenancy agreements relating to the Sturt and Modbury Heights properties were provided in support of the loan application. However, the appellant has deposed that the Sturt property is occupied by his brother,[9] who does not pay rent. The tenancy agreement for the Sturt property covered the period from 20 September 2014 to 20 September 2015 and was with a person named Indie Singh. Indie Singh is not the brother of the appellant.
[9] He is the father of David Pastro, the nephew of the appellant, who assisted the appellant before the Court.
The tenancy agreement for the Modbury Heights property covered the period from 7 November 2014 to 7 November 2015. The tenant was identified as Vladimir Extov. The appellant contends that Mr Extov was an associate of Mr Rakic who had some involvement in the Port Hedland proposal and has since returned to Russia. He denies that Mr Extov was his tenant.
In addition to the residential tenancy agreements, the loan application was supported by a number of other documents. One of the documents was a land tax assessment issued by Revenue SA for the year ending 30 June 2013. The assessment listed six properties owned by the appellant in South Australia. The other supporting documents comprised rate notices for the Sturt and Modbury Heights properties, a certificate of currency of landlord insurance for the Sturt property[10] and proof of identity for both Mr Rakic and the appellant.
[10] Whether the assertion by the appellant that his brother occupies the Sturt property rent free is consistent with the taking out of landlord insurance has not been explored.
In the case of the appellant the proof of identity comprised his current Australian passport and a Medicare card that had expired in May 2013. The identity documents were certified by Mr Mostyn Stehbens JP. Mr Stehbens certified that the photographic identification was a reasonable likeness to the individual and that nothing in his dealings with the customer had raised any suspicions concerning the proposed transaction.[11] He also stated that ‘face-to-face verification of the customer was carried out by me’.
[11] My observations of the appellant while he was at the bar table leave me in no doubt that he is the person shown in the passport photograph.
Mr Stehbens was an employee of Bernie Lewis Finance. The Court has been informed that the latter firm acted as a mortgage broker on behalf of SAPD, Mr Rakic and the appellant. Further documentation apparently completed by Mr Stehbens has been exhibited to the first affidavit sworn by the appellant. It appears that these documents were prepared by Mr Stehbens in support of the loan application. The appellant was described as being ‘possessed of sound real estate assets, investor/developer/builder within his own right over 40 years.’ Mr Rakic was described as ‘investor and developer with considerable experience in subdivision, planning and build projects’. The documents also included spreadsheets and summaries describing the assets held by SAPD, the appellant and Mr Rakic.
On 30 January 2015 SAPD, applied to LaTrobe to borrow a further $320,000. That loan was to be secured by a mortgage over the Campbelltown property owned by the appellant. The loan funds were to be applied to discharge an existing mortgage over the Campbelltown property in the sum of $252,000 and the balance of $68,000 was to be paid to SAPD. I also note that at this time SAPD also applied to LaTrobe to borrow a further $272,000 to be secured over a property at Salisbury Downs owned by the appellant. A note on the copy of the loan agreement exhibited to the affidavit of the appellant indicates that this loan was discharged on 11 March 2016.
There is no evidence before the Court to indicate that the identity of the appellant was verified again when the further loan application was made on 30 January 2015. However, apart from the details relating to the two additional properties that were to be mortgaged as security for the further loan, the details provided in the loan application are in all material respects identical to those provided in support of the earlier application. It may be that Mr Stehbens relied upon the proof of identity that he had sighted a few weeks earlier.
On 3 February 2015, LaTrobe sent a letter of offer to Mr Rakic and to the appellant in response to their first application for finance. The letters referred to the loans that were to be secured by mortgages over the Sturt and Modbury Heights properties. A further letter of offer was sent by LaTrobe on 2 March 2015 to each of Mr Rakic, the appellant and SAPD in connection with the loan that was to be secured by mortgage over the Campbelltown property. The letters of offer each included a recommendation that the applicant obtain legal and financial advice in relation to the loan.
On 6 March 2015, SAPD accepted the terms and conditions set out in the three letters of offer to which I have already referred. Mr Rakic signed on behalf of SAPD as a director while the appellant signed as the company secretary. Both Mr Rakic and the appellant also signed in their personal capacities as guarantors of the loans.
Also on 6 March 2015, the appellant executed mortgage documents and made several statutory declarations relating to the security that he was providing for the loans. Included amongst the documents signed by the appellant was the following statutory declaration:
I, Emilio Pastro of (address completed)
DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS:
1. I am Mortgagor for the Borrower named in certain loan and security documents between SA Property Developments Pty Ltd ACN 094 312 320 and Permanent Mortgages Propriety Ltd relating to property located at 43 Hancock Avenue Campbelltown SA 5074 Australia.
2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1.
3. After receiving that advice, I have freely and voluntarily signed the following documents;
a. The mortgage of land of Vol 5844 Fol 938
b. Statutory declaration
c. Loan contract
And I make this solemn declaration …
The statutory declaration was witnessed by Mark Sander, a solicitor and commissioner for taking affidavits. A statutory declaration in the same terms was signed by the appellant in relation to each of the mortgage agreements provided as security for the loans to SAPD.
The appellant and Mr Rakic each signed a further statutory declaration in relation to their role as the guarantor for the loans made by PM to SAPD. They stated that they had received independent legal advice concerning the loan and security documents. They also signed an acknowledgement that they had read and understood the mortgage and loan contract with LaTrobe.[12]
[12] In fact the agreement was with PM and LaTrobe was its agent.
Mr Sander certified that he had witnessed the execution of each of the relevant mortgage documents and, prior to doing so, he had satisfied himself as to the identity of the appellant in accordance with the practice for verification of identity required by the South Australian Registrar General. He stated that the appellant appeared to have similar facial characteristics as the person depicted in the photographs in the passport and in the building contractors licence.[13] I note that the passport number recorded by Mr Sander is identical to that on the photocopy of the passport taken by Mr Stehbens when he witnessed the initial loan application.
[13] As previously noted, that accords with my observations.
Mr Sander also witnessed a document entitled ‘acknowledgment by guarantor’ that was signed by the appellant and Mr Rakic in his presence. The acknowledgment by guarantor document contained the following questions:
·Have you received copies of the documents described under the heading ‘security documents’ below?
·Have you been given an opportunity to read those security documents?
·Have the security documents been fully explained to you by your solicitor?
·Do you understand the effects of the security documents and the consequences to you if the debtor defaults on his/her/their obligations to Permanent Mortgages Pty Ltd?
·In particular, do you understand that if the debtor fails to pay all of the monies due by the debtor to Permanent Mortgages Pty Ltd then Permanent Mortgages Pty Ltd will be entitled to sell your property to recover the monies due to it?
·Was this acknowledgement read and signed by you before you signed the security documents?
Each of those questions was endorsed with the answer ‘yes’ above the signatures of Mr Rakic and the appellant.
The security documents referred to in the ‘acknowledgment by guarantor’ were described as the mortgage, including the memorandum of common provisions identified by number, the deed of guarantee and indemnity including a document described as ‘things you should know about guarantees’ and the loan offer. The appellant and Mr Rakic also stated that they confirmed the accuracies of their answers to the questions and acknowledged that PM were relying on these answers in making the loan or giving the facility which is to be secured by the mortgage to the debtor. That statement was followed by the statement ‘we request Permanent Mortgages Pty Ltd to make this loan/give this facility to the debtor’. The signatures of both Mr Rakic and the appellant were witnessed by Mr Sander.
Identical acknowledgments (save for the different mortgage numbers) were signed in respect of each loan by Mr Rakic and the appellant and witnessed by Mr Sander.
Mr Sander signed a ‘certificate by independent solicitor’ dated 6 March 2015. He certified that before the security documents were executed by the guarantor he had explained the contents, nature and effect of them to the guarantor. In particular he explained and advised on the consequences of default under the relevant security documents, including the right of the lender to sell the property constituting the security. Mr Sander stated in the certificate that the guarantor appeared to be aware and of and to have understood the terms, nature and effect of the security documents and his obligations under them. He stated that he had made a complete diary note of that advice and the explanation given to the guarantor. Mr Sander also certified that he was a legal practitioner instructed and employed independently of the lender and the borrower. He further certified that he was present at the time of and had witnessed the execution of the certificate of acknowledgment and that prior to that document being signed he had been provided with evidence which satisfied him that the person was one and the same as the person named in the guarantee.
Mr Rakic has sworn an affidavit dated 3 October 2017. He deposes that he attended with the appellant at meetings with Mr Mostyn Stehbens of Bernie Lewis Finance. He stated that he had witnessed the appellant execute the loan application form. He also deposed that he was present on 6 March 2015 at a meeting with the appellant and Mr Sander. He has stated that Mr Sander was not his regular solicitor nor the regular solicitor for SAPD. The appellant and Mr Rakic had consulted Mr Sander for the purpose of completing the loan documents. He stated that he was present when Mr Sander explained the nature and effect of the loan, mortgage and guarantee documents to him and to the appellant. They both confirmed to Mr Sander that they understood the nature and effect of the documents. Mr Rakic further stated that he and the appellant had numerous discussions about the Port Hedland property development during the period that the appellant was a director of SAPD. As the ultimate issue is whether the matter should be referred to the general civil list on the basis that the appellant has an arguable case, I place no reliance on Mr Rakic’s affidavit. That is because his evidence has not been tested by cross examination in circumstances where he has effectively been accused of fraud.
PM also relies upon a document entitled ‘pre-settlement borrower speak with script’. This pro forma document purports to record a telephone conversation between a LaTrobe employee and the appellant on 24 March 2015. However, it appears that the document has been completed in advance with details that would have been known to LaTrobe from the loan application and from the records of LaTrobe. Information that would have only been known to the appellant or which required his confirmation has not been completed on the form. In particular, the employee has not confirmed that the appellant signed the security documents, nor have they confirmed whether or not his postal address would be changing.
The appellant has deposed that he was not in Adelaide on 24 March 2015 when the employee of LaTrobe ostensibly called him on his home telephone number. He has produced his credit card statement which establishes that the card was used to purchase petrol in Port Augusta on 23 March 2015 and vegetables in that city on 26 March 2016. The appellant also states that his home telephone number was not correctly recorded on the loan application forms. Thus, the number called by the LaTrobe employee was not his number.[14]
[14] The number is that of a ‘landline’ service rather than a mobile service.
The appellant has attempted to introduce into evidence a copy of the Telstra account for his home telephone service so as to prove that an incorrect number was called by LaTrobe. That document and certain other documents have been attached to court backing sheets so as to suggest that they were additional exhibits to the fourth affidavit sworn by the appellant in this matter.[15] Quite clearly, a litigant cannot add additional exhibits to an affidavit after it has been sworn and filed in the Registry. Nevertheless, given that the appellant is not legally represented and as these additional documents were effectively (albeit not formally) tendered, I indicated that I would receive them de bene esse. There is also a question as to whether the fourth affidavit, which was filed after the Master made her decision, should be received as further evidence in support of the appeal.
[15] However, the cover sheets referred to a fifth and sixth affidavit. The last affidavit filed by the appellant was the fourth.
I consider that in the interest of justice the fourth affidavit and the exhibits to that affidavit, including the additional material referred to in the preceding paragraph, should be received as further evidence in the appeal. I adopt that approach because the primary issue in this appeal is whether the Master erred in declining to refer the matter into the ordinary civil list. In deciding this appeal it is therefore appropriate to take into account evidence that is known to be available and which could be adduced by following the correct practice should the matter be referred to the general list. I therefore do have regard to the evidence that the telephone number ostensibly called by LaTrobe was not that of the appellant and that his credit card was used in Port Augusta at the relevant time.
Anything more than a cursory reading of the form makes clear that the LaTrobe employee did not manage to make contact with the appellant to discuss with him the matters referred to in the LaTrobe template. It appears that the employee partly completed the form before attempting to contact the appellant and left the form incomplete when he or she could not make contact.
While PM is not entitled to rely on the telephone contact form, the far more important issue in these proceedings is the advice provided by Mr Sander. Even if it had been the case that the LaTrobe employee had succeeded in making contact with the appellant and had discussed the matters referred to in the template, this evidence would add very little to advice provided in person by an independent legal practitioner.
The greater part of the moneys borrowed from PM were applied to discharge existing mortgages on the Sturt, Modbury and Campbelltown properties owned by the appellant. The existing mortgages were each in favour of Wilson & Copley Ltd. The appellant denies any knowledge of those mortgages. He also denies benefiting from the payments made to SAPD.
Subsequent events
SAPD defaulted on the loan repayments it was required to make to PM. Following the default, PM obtained orders from this Court for possession of the Campbelltown and Modbury Heights properties. The appellant registered caveats on the titles to those two properties and also the Sturt property.
The caveats over the Modbury Heights and Campbelltown properties were warned by PM. On 30 August 2017, the appellant applied to extend these two caveats. On 1 September 2017, Judge Dart extended the times for removal of these two caveats until 26 October 2017, so that the applications could be determined at the hearing before Judge Bochner on 25 October 2017.
No action was taken to warn the caveat on the Sturt property. However, by interlocutory application dated 29 September 2017, PM applied to have the caveat removed. That application came before Judge Bochner on 25 October 2017. As I have already noted, Judge Bochner dismissed the appellant’s application to have the proceedings relating to the Sturt property referred into the general civil list, ordered the removal of the caveat on the Sturt property and dismissed the applications to have the caveats over the Modbury Heights and Campbelltown properties extended.
The Master’s reasons
The Master first considered whether the application for possession of the Sturt property made on 27 April 2017 should be referred to the ordinary civil list to proceed on pleadings rather than being dealt with summarily by a Master. Her Honour found that the large number of documents placed before the Court did not establish an arguable defence to the claim for possession of the Sturt property. There was no evidence to support the assertion by the appellant that his signature had been obtained through forgery or fraud. The was also no evidence to suggest that the signature of the solicitor, Mr Sander, had been obtained fraudulently or through forgery, nor was there any evidence that Mr Sander was somehow involved in any fraud in relation to the matter.
The Master noted that the signatures on the documents had been witnessed by Mr Sander and he had taken the necessary steps to establish the identity of the person signing.
The Master observed that the appellant had asked her to construct a defence based on inference alone. She could not do that. The assertion that the appellant had not benefitted from the loans was not correct as the money lent by PM had been used to discharge other loans. There was no evidence to support the suggestion that the appellant was unaware of the loans made by Wilson & Copley.
The Master also found that there was no information before her that indicated unconscionability or a lack of due diligence on the part of PM. The information put to the Court by the appellant did not rise above assertion. There was no basis to find an arguable defence.
The Master reached the same conclusions in relation to the caveats. There was nothing before the Court to support the assertions made by the appellant and the evidence supported the position of PM. For that reason her Honour was not prepared to extend the time for removal of the caveats over the Modbury Heights and Campbelltown land and did not see any basis to allow the caveat on the Sturt property to remain.
The appellant’s submissions
David Pastro made extensive written submissions on behalf of his uncle, the appellant, and also oral submissions. While the written submissions are contained in several documents, to a large extent they are repetitive. The connection between some elements of the written submissions and the terms of the notice of appeal is difficult to discern. Nevertheless, David Pastro did address the issues decided by the Master, albeit that he went further at times.
The three fundamental legal issues which arise in this appeal, and which were covered by the written and oral submissions, are as follows. First, whether there is a reasonably arguable basis to contend that the fraud exception to the doctrine of indefeasibility may be made out. Secondly, whether there is a reasonably arguable basis to content that the forgery exception may be made out. Thirdly, whether it is reasonably arguable that the mortgages may potentially be set aside on the grounds of unconscionability. If any of those matters are reasonably arguable then the matter must be referred to the general civil list to be dealt with on pleadings.
The greater part of the third affidavit sworn by the appellant appears to have been drafted by a lawyer or law student. A substantial part of this affidavit comprises submissions on the law. Those submissions address the fraud and forgery exceptions to the doctrine of indefeasibility and also allege that PM had acted unconscionably. In support of the latter contention a copy of the High Court judgment in Commercial Bank of Australia Ltd v Amadio is exhibited to the affidavit.[16]
[16] (1983) 151 CLR 447.
The appellant contends that he has been the victim of a fraud committed by Mr Rakic. He states in his third affidavit that he had not signed the loan and mortgage documents or, alternatively, he had only signed the final page and had not seen the other pages of the documents. David Pastro asserted in submissions that the appellant thought the documents were connected with the purchase of property in the United States. That contention is plainly inconsistent with the assertion that the appellant had not signed the mortgage documents.
David Pastro’s written submissions clarified and expanded upon some issues referred to by the appellant in his third and fourth affidavits. The appellant had met Mr Rakic at the Royal Adelaide Show in 2012. At that time Mr Rakic was seeking to procure persons to invest in property in the United States. Following the initial contact at the Show, Mr Rakic had visited the appellant at his home and ultimately persuaded him to invest $450,000 in buying ten properties in the United States. Complex issues have since arisen and the appellant is unsure whether he actually owns the properties in the United States. He flew to the United States but was not permitted to inspect the properties. He was merely allowed to drive past them while accompanied by a Melbourne accountant who was allegedly assisting with the investments. He had paid for the accountant to travel with him to the United States.
David Pastro also stated in submissions that the appellant had borrowed money from Wilson & Copley for the purpose of investing in property in the United States. No evidence was put before the Court about the money lent by Wilson & Copley and the circumstances surrounding the mortgages provided by the appellant as security for those loans. As already noted, those mortgages were discharged with the funds lent by PM.
The appellant denies knowing that he had been a director of SAPD. He had not made any decisions as a director of SAPD nor had he taken any role in the management of the company. He also denies any knowledge of the joint venture agreement which he had purportedly signed several months after the loan applications and mortgages. He was also not aware that Mr Rakic had not provided security for the borrowing by SAPD from PM.
David Pastro criticised the conduct of Mr Sander. In particular, he contended that Mr Sander should have engaged an interpreter to assist in explaining the effect of the documents to the appellant. He also asserted that Mr Rakic should not have remained in the room when the appellant signed the documents before Mr Sander as there was allegedly a conflict of interest.
David Pastro also expressed concern at the fact that Mr Sander had witnessed other loan transaction documents affecting the interests of the appellant. Those documents related to borrowing by the appellant from Pepper Finance.
The appellant complains that Mr Sander had not completed a checklist concerning the steps taken to verify identity. However, completion of the checklist simply functions as an aide memoire. The important issue is not the completion of the checklist but what identification documents were sighted. Mr Sander certified that he had cited the appellant’s passport and builder’s licence (which included his photograph).
The appellant further complains that the builder’s licence sighted by Mr Sander had expired on 31 January 2015 even though the checklist states that all identification documents must be current. While the builder’s licence had expired about five weeks before it was produced to Mr Sander, the photograph clearly depicts the appellant. The passport sighted by Mr Sander was current. Moreover, as I noted at paragraphs [20]-[21], Mr Stehbens JP had sighted several other identifying documents and that information was provided to LaTrobe.
David Pastro submits by way of further alternative that even if the appellant had signed the documents, PM had acted unconscionably by entering into the mortgages. The primary basis for the contention of unconscionable conduct is that the appellant was unable to understand the relevant documents because of his age, poor command of English and lack of education. Apparently in support of that contention, it is also suggested that PM had acted unconscionably because it was not represented when the appellant signed the documents.
The second aspect of the contention that PM had acted unconscionably is based on the assertion that PM should have been aware that fraud was widespread in the finance industry and that what David Pastro referred to as ‘robot loans’ were commonplace. David Pastro also contends that PM was negligent in not verifying the rental and other income referred to in the loan applications.
The appellant also sought to rely upon email messages that David Pastro had exchanged with a Mr Mike Thomas, a real estate agent. The effect of the messages is that a former client of Mr Thomas had expressed dissatisfaction to Mr Thomas about the services provided to him by Mr Sander. Why the former client was dissatisfied is not stated in the messages. This material is hearsay upon hearsay and plainly inadmissible as evidence. It would also be inadmissible on the basis that, even if Mr Sander were to become a witness in these proceedings, the view held by the former client of Mr Thomas about Mr Sander is collateral evidence relevant only to his credit.
The appellant also placed reliance upon the fact that a firm of Brisbane solicitors, Mills Oakley, were acting for Pivot Way (i.e. the proposed builder of the Port Hedland development) in proceedings against him while the annual report of that firm showed that Pepper Finance (a company that had lent money to SAPD secured by a mortgage granted by the appellant) was also a client. As far as I can understand, the suggestion seems to be that the use of the same solicitor by Pivot Way and Pepper Finance indicates some form of collusion to the detriment of the appellant. That contention lacks any evidentiary or logical basis. More importantly, it is not relevant to the attack being made upon the indefeasibility of the mortgages granted to PM by the appellant as security for the loans taken out by SAPD.
One of the additional exhibits[17] to the appellant’s fourth affidavit was an affidavit sworn by Mr Sander on 28 November 2017 and apparently filed on behalf of Pepper Finance in proceedings in this Court between the appellant and that company.[18] Mr Sander deposed that on 22 May 2015 he had witnessed documents relating to the grant of a mortgage by the appellant in favour of Pepper Finance as security for a loan to SAPD. Mr Sander further deposed that he had explained the effect of that transaction. David Pastro submitted that the appellant had only met Mr Sander on one occasion. The point that David Pastro seeks to make is unclear and the content of the affidavit is not helpful to the appellant’s case. However, because the affidavit does not relate to the present proceedings, I place no reliance upon it.[19]
[17] See paragraphs [38]-[39] above.
[18] Supreme Court action number 1230 of 2017.
[19] As I have already noted, the circumstances in which the affidavit came before the Court in these proceedings are problematic.
The affidavits sworn by the appellant raised a large number of other issues of a minor nature. Some examples, amongst many, are the complaints that Mr Sander had used a rubber stamp showing an out of date address for his office, that McGrath Homes included an incorrect ABN number in its offer to build the Port Hedland units, the title of SAPD was misspelled in some ANZ bank statements and that Mr Rakic and the appellant had signed one of the documents in the place designated for the other to sign. These many minor issues do not support the contentions of fraud and forgery and do not in any way provide a basis to impugn the correctness of the decision made by the Master.
The respondent’s submissions
PM was represented by counsel in the proceedings before the Master and on the appeal. Counsel submitted that neither the fraud, nor the forgery exceptions to the doctrine of indefeasibility could possibly arise and it was not arguable that PM had acted unconscionably. Accordingly, the appellant has not raised an arguable case supported by some evidence which, if accepted, could give rise to a defence. Thus, there is no basis to refer the matter to the ordinary civil list.
Consideration
In Moonta Town Corporation v Rodgers, the Full Court held that if an arguable case is not shown by a respondent to an application for possession, the applicant is entitled to the making of an order.[20] The decision of the Full Court was affirmed by the High Court in Rodgers v Moonta Town Corporation.[21] After having referred to Rodgers, the decision of Judge Burley in National Australia Bank v Lekakis[22] and to that of Besanko J in Bayford v St George Bank Limited,[23] Peek J held in Westpac Banking Corporation v Chadha that:
In summary, provided that the applicant for an order for possession has met the requirements specified in Part XVII, Real Property Act 1886, the applicant is prima facie entitled to that order. However, if the Court is satisfied that the defendant has raised an arguable case supported by some evidence which, if accepted, could give rise to a particular defence, the matter may be referred to the ordinary civil trial list for determination.[24]
[20] (1980) 26 SASR 143.
[21] (1981) 37 ALR 49.
[22] (2003) 230 LSJS 330.
[23] [2003] SASC 210.
[24] [2012] SASC 223 at [35].
Whether or not the appellant has an arguable case so as to require referral to the general list depends upon whether the fraud or forgery exceptions to the doctrine of indefeasibility are arguable or, alternatively, whether the existence of an in personam exception is arguable based upon unconscionable conduct by PM.
The forgery exception
It is convenient to consider first whether the appellant has established an arguable case that the forgery exception to the doctrine of indefeasibility may be available to him so as to result in the setting aside of the mortgages granted to PM.
Section 69 of the Real Property Act 1886 (SA) provides that the title of every registered proprietor of land is absolute and indefeasible subject only to the qualifications set out in that section. The principle of indefeasibility extends to a registered mortgage.[25] Section 69(b) creates an exception to the indefeasibility principle by providing that a certificate or other instrument of title that has been obtained by forgery is void. However, there is an important proviso included in s 69(b) which preserves the indefeasibility of title where the registered proprietor has taken bona fide for valuable consideration.
[25] Merrell Associates Ltd v HL (Qld) Nominees Pty Ltd [2010] SASC 155. This should have been allocated an SASCFC citation as it is a Full Court decision.
The making of the loan applications to LaTrobe was a preliminary step in the process leading to the grant of the mortgage. LaTrobe received the relevant loan applications in its capacity as agent and manager for PM. Those applications had been completed with the assistance of Bernie Lewis Finance in its role as a mortgage broker. The identity of the appellant (and also Mr Rakic) had been verified by Mr Stehbens, a Justice of the Peace. Mr Stehbens sighted and took copies of the appellant’s passport and a Medicare card. There is no evidence to suggest the certification provided by Mr Stehbens was false.
The significant issue for the purposes of s 69(b) is the circumstances surrounding the signing by the appellant of the mortgage documents. Mr Sander, an independent solicitor, verified the identity of both Mr Rakic and the appellant. Once again, there is no evidence to suggest that the certification provided by Mr Sanders in his capacity as an independent solicitor was false.
The appellant has exhibited to his third affidavit part of a document dated 22 March 2013, which refers to a short term loan of $780,325 being made to SAPD, apparently for the purposes of the Port Hedland development.[26] The name of the lender is not shown in the portion of the document provided to the Court. Mr Rakic and the appellant guaranteed the loan. The appellant refers to the inclusion in the document of a statement that Mr Sander was the solicitor. It is not apparent from the incomplete document whether Mr Sander was acting for SAPD or for Mr Rakic and the appellant or for all three. The appellant has not clearly explained the reliance he places upon this prior connection with Mr Sander. I infer that he may possibly be seeking to demonstrate that Mr Sander had falsely completed the certificates relating to the loans made by PM in 2015 by stating that he was not acting for the lender or for the borrower. He may also be suggesting that Mr Sander was exposed to a conflict. However, even if Mr Sander had acted for SAPD in 2013 that would not, of itself, create a conflict that precluded him from acting for Mr Rakic and the appellant in 2015 in their capacity as guarantors. Moreover, even if Mr Sander was exposed to a conflict that would not establish a reasonably arguable case that the appellant’s signature was forged or that PM was party to a fraud against him.
[26] Exhibit EP 13 to the third affidavit of Emilio Pastro.
The suggestion by David Pastro that Mr Sanders facilitated an arrangement whereby Mr Rakic and PM would cause harm to the appellant is not supported by any evidence whatsoever. The suggestion is simply wild speculation that entirely lacks a relevant factual basis. I find that there is not an arguable case that the appellant did not sign the mortgage documents in the presence of Mr Sander.
Self-evidently, the denial by the appellant that he had signed the loan agreement and security documents, and that his signature had been forged, is inconsistent with his two alternative assertions that he had only signed the back page of the documents or that, if he had signed, he did not understand the legal effect of doing so.
For completeness, I also note that there is no evidence supporting an arguable case that PM did not obtain its interest as mortgagee bona fide and for value. First, there is no suggestion that PM had notice of the alleged forgery of the appellant’s signature. Secondly, for the reasons that follow, I am also satisfied that PM provided valuable consideration for the mortgages.
The appellant benefitted from the paying out of the loans made to him by Wilson & Copley and the discharge of the mortgages held by that firm over the Modbury Heights, Campbelltown and Sturt properties. The denials by the appellant that he had any knowledge of borrowings from Wilson & Copley and of the fact that his land had been mortgaged as security are not supported by any evidence. Even if those assertions were correct, they would not negate the fact that PM paid substantial sums of money to the direct benefit of the appellant by discharging loans secured over his land. Moreover, his denial of any relevant knowledge of the borrowings from Wilson & Copley is not consistent with his contention that he used funds borrowed from that company to purchase property in the USA after being encouraged to do so by Mr Rakic.
I find that the Master correctly concluded that there is not an arguable case that the mortgages granted by the appellant in favour of PM are void pursuant to s 69(b) of the Real Property Act on the basis that they were obtained by forgery.
The fraud exception
Section 69(a) of the Real Property Act creates an exception to the indefeasibility principle so that title is not indefeasible if it has been obtained by fraud. However, a proviso included in s 69(a) preserves indefeasibility where the registered proprietor has taken bona fide for valuable consideration.
The point of present importance in relation to the fraud exception is that the relevant interest in land must have been registered as a result of a fraudulent transaction engaged in by the person or entity whose title is impugned or their agent.[27] Thus, even if the appellant was able to persuade a Court in properly instituted proceedings that he has been defrauded by Mr Rakic, that could not result in the making of an order setting aside the mortgages granted in favour of PM.
[27] Assets Co Ltd v Mere Roihi [1905] AC 176 at 210.
In Wicks v Bennett, Knox CJ and Rich J held that in the context of s 69(a), ‘fraud’ is:
…something more than mere disregard of rights which the person sought to be affected had notice. It imports something in the nature of “personal dishonesty or moral turpitude”.[28]
The Privy Council stated in Assets Co Ltd v Mere Roihi that in this context fraud means ‘actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud’.[29] In a relaxation of that position, in Bahr v Nicolay (No 2) Mason CJ and Dawson J stated that ‘not… all species of equitable fraud stand outside the statutory concept of fraud’.[30] The learned authors of Australian Real Property Law (6th edition, 2016) have referred to several subsequent decisions of the Victorian and Queensland Courts of Appeal where it has been held that whilst fraud may include some species of equitable fraud, it is still necessary to prove some personal dishonesty on the part of the registered proprietor. [31] In the present context of determining whether there is an arguable case, it is appropriate to proceed on the basis adopted in Victoria and Queensland.
[28] (1921) 30 CLR 80 at 91.
[29] [1905] AC 176 at 210.
[30] (1988) 164 CLR 604 at 614.
[31] at 4.209 and see, for example, Pyramid Building Society(in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188.
While the focus of the affidavit evidence and the submissions made on behalf of the appellant is to allege fraud against Mr Rakic (which is not relevant for the reasons stated at paragraph [82]), it is also suggested that PM had acted jointly with Mr Rakic to damage him. However, there is absolutely no evidence before the Court to support that suggestion. It is no more than wild speculation.
There is also no evidence to suggest that PM had any knowledge of the arrangements made between Mr Rakic and the appellant apart from the fact that they wished to borrow money for the purposes of the property development to be undertaken in Port Hedland using SAPD as their corporate vehicle.
The terms of the joint venture agreement suggest that the transactions entered into by the appellant relating to the development of the land at Port Hedland exposed him to the risk of substantial financial loss if the project did not succeed. On the other hand, if the project had succeeded, he may have received a substantial benefit.
The joint venture agreement was executed several months after the mortgages were granted. It may be that there was some form of understanding or oral agreement between Mr Rakic and the appellant prior to execution of the joint venture agreement. I do not need to decide whether PM should have inquired about the arrangements between Mr Rakic and the appellant, before it lent money to SAPD. That is because the fact that the appellant may have placed himself at financial risk would not demonstrate fraud on the part of PM. It was entitled to rely upon the certification by Mr Sander that the appellant had been informed about the legal effect of the transactions and also to rely upon the fact that the appellant had signed a statutory declaration confirming that fact. Moreover, if the Port Hedland development had been successful, the appellant may have benefitted significantly.
I find that the Master correctly decided that the appellant has not established an arguable case that the interest of PM in the relevant land as mortgagee may be defeated by the fraud exception to the doctrine of indefeasibility.
Unconscionability
If PM was found to have acted unconscionably in entering into the mortgages with the appellant that would operate as an in personam exception to the doctrine of indefeasibility. The question is whether there is an arguable case that PM acted unconscionably. The issue in these proceedings is not whether Mr Rakic acted unconscionably. Any unconscionability on the part of Mr Rakic could not affect the interests of PM unless that company had knowledge, or should have had knowledge, of the unconscionable conduct engaged in by Mr Rakic.
Three elements must be established to succeed in a claim that a transaction should be set aside in equity on the grounds of unconscionability.[32] Those elements are:
·That the person seeking relief is under some special disadvantage as against the other;
·The defendant had knowledge, or ought to have had knowledge, of that special disadvantage; and
·The defendant acted unconscionably by exploiting that disadvantage to the detriment of the plaintiff.
[32] Commercial Bank of Australia v Amadio (1983) 151 CLR 447.
The basis for the special disadvantage said to be suffered by the appellant are his allegedly limited command of English, his age of 70 years and that he was only educated to the equivalent of grade 5 or grade 8 standard in Italy. Those asserted facts are broadly similar to the circumstances of the respondents in Amadio.
The further question is whether PM knew of the special disadvantage said to be suffered by the appellant or should have known of it. The obvious purpose of the certification required by PM and supplied by Mr Sander is to avoid the lender finding itself in a similar position to that of the Commercial Bank in the Amadio case.
In addition to verifying identity, Mr Sander certified that he had explained and advised on the consequences of default under the relevant security documents, including the right of the lender to sell the property constituting the security. Mr Sander stated in the certificate that the appellant appeared to be aware and of and to have understood the terms, nature and effect of the security documents and his obligations under them. The appellant also signed a statutory declaration before Mr Sander confirming that to be the case.
Verification of Mr Rakic’s income was provided by way of the letter from his accountant, who stated that he prepared his annual tax returns. While the income from rent that was said to be derived by the appellant was not verified, the copy of the land tax assessment provided in support of the loan application demonstrated that he had significant real property holdings in South Australia.
In the context of deciding whether there is an arguable case supported by some evidence, I must take into account the sworn affidavit evidence of the appellant that the residential tenancy agreements relating to the Sturt and Modbury Heights properties provided in support of the loan applications are not genuine. I also take into account the apparent double counting of income and assets between the appellant, Mr Rakic and SAPD. Thus, the contention by the appellant that PM should have exercised greater diligence before approving the loans and accepting the security that he provided may be arguable. However, even if it were to be proven that PM should have made further enquiries before approving the loans and accepting the mortgages as security, it would not assist the appellant in establishing that PM had acted unconscionably. PM was entitled to rely upon the certification provided by Mr Sander that the legal consequences of the guarantee and security provided by the appellant had been explained to him.
It has been contended that Mr Sander should have engaged an Italian interpreter to explain the consequences of signing the documents to the appellant. He has deposed that his command of English and also his education are limited. For present purposes, those assertions of fact must be accepted at face value. On the other hand, Mr Sander has certified that he did ensure that the appellant understood the effect of the transactions. It is not necessary for me to resolve the possible contradiction.[33]
[33] I have referred to a ‘possible’ contradiction because there is a possibility that even if the appellant’s command of English is limited, it may have been sufficient for him to understand that if SAPD did not repay the loans then PM would take his property.
That is because even if it were the case that Mr Sander was negligent or mistaken in his belief that the appellant had a proper understanding of the mortgage documents and their legal effect, there is no information whatsoever before the Court which might possibly suggest PM should have been aware of that fact. The material before the Court that is additional to the loan application and mortgage documents does not indicate any reason why PM should have gone behind the certification provided by Mr Sander as an independent solicitor. The contrary suggestions put by and on behalf of the appellant do not amount to more than unsupported assertion or speculation. Due to the complete absence of any contrary information, PM was entitled to rely upon Mr Sander’s certification.
The documentary material before the Court indicates that, as far as PM was concerned, it was dealing with a loan applicant whom had received independent legal advice as to the nature and effect of the transactions that he was proposing to enter. Moreover, that loan applicant held substantial assets in the form of real property and was wishing to borrow money in furtherance of a property development being conducted by a company of which he was a director and shareholder. There is nothing in those facts that should have put PM on notice that the appellant was under a special disadvantage.
For these reasons I found that the Master was correct in concluding it cannot reasonably be argued on the information before the Court that the mortgage transaction should be set aside on the ground of unconscionable conduct by PM.
The caveats
PM has applied under s 191(d) of the Real Property Act for the Registrar General to be directed to remove the caveat registered by the appellant over the title to the Sturt land. The onus lies upon the appellant to persuade the Court that the caveats should not be removed. In order to discharge that onus it would be necessary for him to persuade the Court that there is a serious question to be tried concerning the caveatable interest upon which he relies and also that the balance of convenience favours the continuation of the caveat.[34]
[34] Stone v Leonardis (2011) 110 SASR 503 at [26], White J.
The appellant relies upon the arguments discussed above concerning fraud, forgery and unconscionability as the basis to continue the caveats. My conclusion that the Master correctly decided that there is not an arguable case in respect of those matters applies equally to the removal of the caveats. I therefore dismissed the appeal against the decision of the Master to order the removal of the caveat added to the title to the Sturt land.
PM also submitted that because the appellant is the registered proprietor of the relevant land he cannot hold a caveatable interest over that land. In Stone v Leonardis, White J noted that there is a division in the authorities as to whether a party may lodge a caveat over their own land.[35] In some instances it has been held that a registered proprietor may caveat their own land provided that they have an equitable interest which is different to, or goes beyond, their interest as the holder of the estate in fee simple. White J did not find it necessary to decide the point.[36] In view of my conclusion that the appellant has not demonstrated that he has an arguable case against PM in relation to the fraud, forgery and unconscionability issues, it was not necessary for me to decide whether he had a caveatable interest over his own land.
[35] (2011) 110 SASR 503 at [36]-[39].
[36] Ibid; see also Jacen Pty Ltd v RNBL Investments Limited [2010] SADC 97.
I turn to the appeal against the refusal by the Master to extend the time for removal of the caveats over the Campbelltown and Modbury Heights properties. Section 191(1)(g) of the Real Property Act empowers the Court to extend the time for removal of a caveat. The principles to be applied in determining such an application are analogous to those applied when the Court determines an application for an interlocutory injunction. For the appellant to succeed in his application he would need to establish that there is a serious question to be tried concerning the asserted caveatable interest and that the balance of convenience favours the extension. It is also necessary for a defendant to proffer an undertaking as to damages.[37]
[37] Perpetual Trustee Company Ltd v Saunders [2013] SASC 89 at [13], White J.
In view of my findings concerning the fraud, forgery and unconscionability issues, there is not a serious question to be tried in relation to the extension of the caveats. Accordingly, I consider that the Master did not err in refusing to exercise the discretionary power to extend the time for removal of the caveat.
Conclusion
I do not consider that the appellant has raised an arguable case supported by some evidence which, if accepted, could give rise to a defence based on the statutory exceptions to the doctrine of indefeasibility based upon either fraud or forgery. I also have come to the same conclusion in relation to the in personam exception based on allegedly unconscionable conduct by PM.
I therefore found that the Master correctly decided that the matter should continue to be dealt with in the summary possession list and not referred to the ordinary civil list. For those reasons I dismissed that element of the appeal.
I also found that the Master did not err in directing the Registrar General to remove a caveat registered by the appellant against the title of the Sturt land.
I further found that her Honour did not err in refusing the application to extend the time for removal of caveats registered by the appellant in relation to the properties at Modbury Heights and Campbelltown.
For these reasons, I dismissed the appeal in all respects.
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