Theodore v Mistford Pty Ltd & Ors

[2004] HCATrans 522

[2004] HCATrans 522

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B11 of 2004

B e t w e e n -

MARIE MARGARET THEODORE

Applicant

and

MISTFORD PTY LTD

First Respondent

MAX EGERTON VINES AND VALERIE LYNETTE VINES

Second Respondents

Application for special leave to appeal

GUMMOW J
CALLINAN J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 3 DECEMBER 2004, AT 9.44 AM

Copyright in the High Court of Australia

MR K.D. DORNEY, QC:   May it please the Court, I appear with my learned friend, MR M.J. TAYLOR, for the applicant.  (instructed by North Coast Law)

MR F.W. REDMOND:   If it pleases the Court, I appear for the respondent.  (instructed by Klar & Klar)

GUMMOW J:   Yes, thank you.

MR DORNEY:   Your Honours, the primary point in such cases of special leave is whether the rule which is preserved by section 75(1) of the Land Title Act 1994 may be the deposit by way of title deeds gives rise to a security by way of equitable mortgage, can exist when there is no antecedent debt at the time of the deposit or when there is not some sum of money advanced at the time of the deposit and also in circumstances where the mortgagor is a third party to the prospective debt, whenever it should arise.

The second point is whether that rule, which is a rule that gives rise to a presumption or inference, can stand when, from examination of the evidence in this case, shows that in fact that inference or that presumption cannot be sustained because that was not the purpose for which the deposit was made in this particular case.  The third point is whether, among the orders that were made by the Court of Appeal ‑ ‑ ‑

GUMMOW J:   I think we need the sound raised a little.

CALLINAN J:   There seems to be a problem, Mr Dorney, about your voice.  I am sure it is not you but it is not only the level of sound but also there seems to be some sort of distortion of your voice.  Is there a technician available?

MR DORNEY:   I will put the other microphone closer perhaps, your Honour.  Is that any better?

HEYDON J:   I think it is better.

CALLINAN J:   It is a little, yes, Mr Dorney.

MR DORNEY:   Has that improved at all?

CALLINAN J:   Yes.

MR DORNEY:   What has happened, I think the wrong microphone has been put close.  I am sorry, your Honour.

CALLINAN J:   Yes, that is better, Mr Dorney.

MR DORNEY:   Would you like me to cover any particular point again that I have covered.

CALLINAN J:   I think we heard you.  It was just somewhat distorted. 

MR DORNEY:   The third aspect that we wish to argue is in the orders made by the Court of Appeal.  One of the orders was to create a personal obligation on the appellant herself, whereas the theory behind the matter of deposit by title deeds merely suggests that the equitable mortgage which arises is one which merely gives rise to the security itself.  It does not give rise to any personal obligation.  Our submission would be that, in any event, whatever the outcome, that particular part of the order could not stand.

GUMMOW J:   So you are saying that there was no covenant to pay.

MR DORNEY:   Not from any equitable mortgage implied by deposit of title deed.

GUMMOW J:   Yes, but outside that there was, in fact, no covenant.

MR DORNEY:   Because there was no mortgage ever executed, your Honour, yes.  This is a case, in fact, where when the day that the debt arose, if you like – I might just briefly slant it back.  On 18 July 1996 the son of the applicant delivered the mother’s title deeds to the solicitors essentially for the vendor of the business, which the son was to buy.  Four days later, on 22 July 1996, the documents in question, in particular the contract of sale, was supposed to be prepared, executed and completed.  In that contract of sale there was a term which obliged the son’s company to procure from his mother the mortgage.  Now, that mortgage of course was never procured because it was never signed by the mother.

So the argument in the Court of Appeal really was, given that background, was the deposit four days earlier of the mother’s title deeds, the mother having no interest at all in any of the transactions, sufficient to give rise to the inference or presumption of an equitable mortgage.  So there were no express terms and the only terms that could arise are those that arise from the operation of the rule with respect to deposit of title deeds.

GUMMOW J:   The submissions you have been putting to us seem to accept that section 75(1) of the Land Title Act does accept the existence of this doctrine but are you saying to us that, granted that is so, the doctrine does not extend to this case for these reasons.

MR DORNEY:   Exactly, your Honour, yes. Given the presence of section 75(1) in the Land Title Act and given that, although it is brought into modern English, it really does reflect what existed in the Real Property Act before, we cannot argue that, in fact, it does not try to sit side by side with the Statute of Frauds provisions.  So the argument simply is that given, therefore, that it does apply, and it brings into operation the presumption or inference of deposit by title deeds, how did that operate in the particular facts of this case, given particularly the lack of any debtor/creditor relationship which is the substance of giving rise to presumption of inference and again, in the particular circumstances of the third party mortgagor.

GUMMOW J:   Or an agreement.

MR DORNEY:   Or an agreement, yes.

GUMMOW J:   Do you say there was no agreement by the mother?

MR DORNEY:   There was no agreement by the mother.  In fact, the Court of Appeal found that there was no agreement by the mother.  It was argued by my learned friend ‑ ‑ ‑

GUMMOW J:   Yes, go on, please, Mr Dorney.

MR DORNEY:   If I might just take you then to the general authorities.  Turning to ‑ ‑ ‑

GUMMOW J:   Can we just go back, can we just take a minute, Mr Dorney, to look at your draft notice of appeal?  Justice Heydon reminds me it does not quite square with what you have been putting to us this morning.

HEYDON J:   Page 56.

MR DORNEY:   It does not quite meet the argument, your Honour.

HEYDON J:   It does not cover, in terms, your third point about the form of the relief.

MR DORNEY:   It does not cover that.  It also, in a sense, does not cover the potential future indebtedness.  It seems to accept the existing indebtedness which, on the facts, is just not true, but in general terms the notice of appeal covers the issue.

GUMMOW J:   What we are saying to you is if you did get a grant of leave you would have to revise your notice of appeal.

MR DORNEY:   We would have to, yes, your Honour.

GUMMOW J:   Yes, go on.

MR DORNEY:   But in substance, the argument, we would submit, is contained at least in primary form there.  If we turn to the authorities ‑ ‑ ‑

GUMMOW J:   I think we would be assisted at this stage, Mr Dorney, if we heard from Mr Redmond.

MR DORNEY:   Yes, thank you, your Honours.

MR REDMOND:   May it please the Court, I only wish to take up one point in relation to my learned friend’s submission that there was no agreement by the mother.  The evidence and the findings, both at first instance and on appeal, including the dissentient, are all one way that the son was authorised to deposit the certificate of title and I have cited, at 13.33 of the summary of argument, the English decision ‑ ‑ ‑

GUMMOW J:   Yes, but what does that mean?

MR REDMOND:   The deposit by way of security is treated both as prima facie evidence of a contract to mortgage and as part performance of that contract and so the third question does not arise.  As soon as that authorised deposit took place, Mrs Theodore had contracted to mortgage her property to my clients. 

GUMMOW J:   Where is the actual finding about the authority and what flows from it?

MR REDMOND:   The findings in relation to the Court of Appeal are at appeal book 4, paragraph [8].  I beg your pardon, that cannot be right.  It is at paragraph [8] on appeal book 30. 

GUMMOW J:   Yes, I see.

MR REDMOND:   And then at paragraph [9] on the following page, appeal book 31.

GUMMOW J:   Yes.

MR REDMOND:   I do not propose to address what was the first question said to be posed in the application other than to rely on the written summary.  I would address only the second point, that is the one posed in the application relying on the absence of any memorandum in writing capable of satisfying either section 11(1)(a) or section 59 of the Property Law Act.  There is no merit in the point.  Firstly, there is no such requirement of writing in section 59 of the Property Law Act.  Secondly, Mrs Theodore seeks to selectively apply section 11(1)(a) ‑ ‑ ‑

GUMMOW J:   But the theory is, at least since Russel v Russel, 200 years ago, that the doctrine of equitable mortgage by deposit of title deeds operates by way of exception or outside the Statute of Frauds because it is supported by an agreement and there has been part performance.  That seems to be the foundation Ashburner gave to it and that is why we were taking you to the importance of the finding of agreement, albeit not written. 

MR REDMOND:   Yes, well it has not been questioned by anybody at this stage that Mrs Theodore, in fact, authorised her son to deposit the certificate of title.  There being no challenge to that authority, the use of the section 11(1)(a) and the section 59 of the Property Law Act would amount to the very fraud that the doctrine was designed to avoid.

Might I make the point in relation to section 11(1)(a) that it is conceded that a mortgage can be created by the deposit of a certificate of title in Queensland.  There was no writing signed by Mrs Theodore granting the mortgage, but she does not rely on the absence of writing signed by her granting the mortgage.  She concedes that section 11(1)(a) has no application but she invokes the second limb of section 11(1)(a), that is in relation to the authority of her agent. 

The argument, advanced by my learned friends, reads an exception into section 75(1) of the Land Title Act:

An equitable mortgage of a lot may be created by leaving a certificate of title with the mortgagee -

should now be read as, “An equitable mortgage of a lot may be created by the registered proprietor by leaving a certificate of title with the mortgagee”.  Neither limb of section 11(1)(a) applies to the case of an equitable mortgage by deposit of certificate of title. 

Your Honours, both sections of the Property Law Act are irrelevant by reason of section 6(d) of the Property Law Act which provides that nothing in those sections affects the operation of the doctrine of part performance.  The law of equitable mortgage by deposit of title deeds depends on the same principles as those applied in cases of parallel contracts concerning land.  One of the principles applied in cases of parallel contracts concerning land is the doctrine of part performance.  Nothing in those sections affects the operation of the law relating to the equitable mortgage by deposit of title deeds, and I might finally make reference to the case I listed in the material ‑ ‑ ‑

GUMMOW J:   What do you say, Mr Redmond, as to this complaint I think that this is a third party mortgage and there was no personal covenant?

MR REDMOND:   Just as Lord Justice Peter Gibson in United Bank of Kuwait v Sahib, that the deposit by way of security is treated both as prima facie evidence of a contract to mortgage and as part performance of that contract.  It was, in fact, a contract between Mrs Theodore and my clients that she would grant the mortgage.

GUMMOW J:   Grant the mortgage but pay the debt.  When she said go guarantor, is that what is meant to be conveyed by that?

MR REDMOND:   The evidence was that she was prepared to go in on a guarantee and mortgage and the relief which we sought was that that mortgage be specifically enforced and, in fact, that was the order that was made so far as I am aware.

CALLINAN J:   Was 5 per cent interest the interest under the mortgage?

MR REDMOND:   That was selected by the Court of Appeal, your Honour.  The interest under the mortgage designated by my client was 10 per cent.

CALLINAN J:   Why did the Court choose something different from what the actual son’s mortgage dictated?

MR REDMOND:   I believe it was to do with the notion of what was a fair rate of interest for the relevant period. 

CALLINAN J:   So that was a departure from the contract of mortgage then, that was actually entered into.

MR REDMOND:    Yes, that is correct.

CALLINAN J:   What was it in part performance?  What contract was it in part performance of then, the order that ‑ ‑ ‑

MR REDMOND:    The contract of mortgage was actually entered into by Mrs Theodore following the order of the Court of Appeal following the order of the initial first instance judge and the property subsequently was sold by a mutual agreement, the proceeds await the outcome of these proceedings.  But to answer your Honour Justice Callinan’s question, the contract that my clients rely on is the contract between Mrs Theodore and

my clients.  The contract that was drawn by Mr Klar, the solicitor, involved a mortgage by Mrs Theodore and a guarantee by Mrs Theodore, a mortgage being granted over her land.  That was never signed until the order of the first instance court. 

CALLINAN J:   And that was for interest at what rate?

MR REDMOND:    It was 10 per cent, as I recall.  I did draw the Court’s attention to the case of Cooney v Burns which, I submit, is a comprehensive rebuttal of the proposition that an agent is required to be authorised in writing. In that case, the High Court dealt with a proposition advanced under section 229 of the then Instruments Act (Vic). What I have called the second limb of section 11(1)(a), that is the prohibition on a disposition of a title by a document signed by an agent, unauthorised in writing, was actually the subject of section 229 and the references I have listed in the list of material identify the four members of the Court who said that part performance is a complete answer to this argument that an agent must be authorised in writing, that just as part performance is a complete answer to the doctrine that requires a registered proprietor to sign in writing, it is also a complete answer to the argument that an agent be required to sign in writing. That is all I have for the Court.

GUMMOW J:   Yes, thank you.  Yes, Mr Dorney.

MR DORNEY:   Your Honours, if I might try and clear up some facts.  The problem simply is this, that when the Court of Appeal dealt with this matter the trial judge made findings that the mother was actually a party to the agreement which was signed by her son on the 22^nd.  Of course, the appellant argued against that.  The Court of Appeal’s findings were, if I might take your Honours to appeal book 30, paragraphs [6] and [7], particularly paragraph [7], that:

it is unnecessary to determine whether his Honour erred in finding that [the son] was acting as [the mother’s] agent “and was authorised to bind her in the terms of cl 4.3 –

Now, Justice Philippides agreed with the President so there was no finding by the Court of Appeal that in fact there was any contract of mortgage by the mother.  Justice Jerrard, who dissented, and I take your Honours to appeal book 40, paragraph [43]:

The respondents contended that the contract was correctly described by the learned trial judge as an agreement by the appellant –

that is the mother –

(made by her authorised agent) to mortgage the land.  I have explained that I take a different view, namely that the agreement was that the purchaser and guarantor would procure the [mother] to do that –

So the Court of Appeal made no finding upon that contract that the mortgage that the mother never signed and on the evidence he never saw until well after the other agreements were signed on 22 July.  So the Court of Appeal was then simply left with this notion of deposit by title deeds, equitable mortgage arising by deposit of title deeds.  The problem with the application of that theory is simply that if the deposit is truly part performance of a pre-existing agreement, what pre-existing agreement was there?  There just absolutely was not one and it is said to be part performance ‑ ‑ ‑

GUMMOW J:   It said that the deposit was with the authority.

MR DORNEY:   Yes, your Honour, but that does not matter because, on the other authorities that are listed, for instance, if you deposit the title deeds with a view to the mortgage being drawn up and there exists no debt at that time, that does not give rise to the rule in this case, and that is simply what has happened here.  At the time of the deposit, on 18 July, there was no existing debt, there was no concurrent debt.  All that occurred four days later and so the theory about part performance just cannot apply.

GUMMOW J:   But why can there not be agreement in respect of future advances?

MR DORNEY:   Yes, your Honour, that meets the problem of the Statute of Frauds because as soon as that applies, as their Honours held, and that is what the President was referring to in the paragraph I took your Honours to, that if it was true that the son was authorised to enter into the agreement on behalf of his mother, then in fact it fell foul of the Statue of Frauds provisions.  So, the only chance, in a sense, that the respondents in this case have is to convince the Court that the sole ground upon which the Court of Appeal allowed them to succeed, namely the deposit of title deeds, is a sound ground and it just is not in this case.  I am quite happy to take your Honours to all the cases that show that ‑ ‑ ‑

GUMMOW J:   No, do not do that, but can we just look at your draft notice of appeal again?

MR DORNEY:   Yes, your Honour. 

GUMMOW J:   Page 56.  What was the point you would need to add?

MR DORNEY:   Your Honour, in a sense that covers it but we would probably need to be more explicit in the sense, perhaps, on the third line after the son put the words, “potential future indebtedness”.

GUMMOW J:   Yes.

MR DORNEY:   Then we would, of course, want to argue that, in the circumstances – because the rule permits, it is only prima facie inference or rebuttal or presumption -  the rule permits an examination of the facts, and we have not taken your Honours to that, but the examination of the facts, we would submit, shows that the inference, in fact, is set to one side or the presumption is, in fact, rebutted but that really can be tied in to the first ground.

The third point we argued, which does not appear, in fact, in the notice of appeal, is simply that the Court of Appeal was not authorised to make an order that the mother have a specific personal obligation to pay any monies because the theory is that it just gives rise to the security, the security in fact can be utilised and the money obtained as a result of that can be used then to discharge the debt but no personal obligation arises under the equitable mortgage arising from deposit of title deeds.

GUMMOW J:   Yes.  What is the position about this differential interest rate that Justice Callinan was taking up with your colleague?

MR DORNEY:   It really is irrelevant because that was the interest rate in the mortgage that never, in fact, was executed by the mother and which the Court of Appeal decided not to look at because it said it would be caught by the Statute of Frauds.

CALLINAN J:   It just selected a rate out of the ether somewhere.  It was not a rate that was prescribed by any mortgage or any ‑ ‑ ‑

MR DORNEY:   Indeed not, your Honour, they just selected a rate out of the ether.

CALLINAN J:   That looks like a reasonable thing.  That is what they said.

MR DORNEY:   The case is here to permit the Court to decide that interest can accrue on the underlying debt, but that still does not give rise to an obligation on the part of the equitable mortgagor.  It is just that the security could be ‑ ‑ ‑

CALLINAN J:   Five per cent was not part of any contract, or not a term of any contract.

MR DORNEY:   No, your Honour, which tends to suggest that, in fact, they were not agreeing there was any specific mortgage.

GUMMOW J:   Yes, thank you, Mr Dorney.  Yes, there will be a grant of leave in this matter.  You will have to amend the notice of appeal, as we have been indicating, Mr Dorney.

MR DORNEY:   Yes, thank you very much, Your Honour.

GUMMOW J:   Does counsel agree it is a one day matter, a one day appeal?

MR DORNEY:   A one day appeal, certainly yes, your Honour.

GUMMOW J:   Yes, I would have thought so.  Thank you, gentlemen.

AT 10.10 AM THE MATTER WAS CONCLUDED