Perpetual Trustees Victoria Limited v English & Anor [2010] NSWCA 32 (12 March 2010)

Last Updated: 15 March 2010

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Perpetual Trustees Victoria Limited v English & Anor [2010] NSWCA 32


FILE NUMBER(S):
0040258/09

HEARING DATE(S):
12 February 2010

JUDGMENT DATE:
12 March 2010

PARTIES:
Perpetual Trustees Victoria Limited (Appellant)
Niel William English (First Respondent)
Kerrie Diane Therese English (Second Respondent)

JUDGMENT OF:
Allsop P Campbell JA Sackville AJA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
11418/06

LOWER COURT JUDICIAL OFFICER:
Simpson J

LOWER COURT DATE OF DECISION:
3 June 2009

LOWER COURT MEDIUM NEUTRAL CITATION:
[2009] NSWSC 478

COUNSEL:
Mr A Leopold SC, D F C Thomas (Appellant)
Mr J Clifton (Second Respondent)

SOLICITORS:
Gadens Lawyers (Appellant)
LAS Lawyers & Consultants (Second Respondent)

CATCHWORDS:
TORRENS SYSTEM – indefeasibility of title – one joint proprietor forges the signature of the other to a mortgage – mortgage is registered – mortgage refers to a loan agreement to which the joint proprietor’s signature was also forged – whether mortgage on its proper construction secures a debt – whether mortgagee entitled to possession against innocent joint proprietor – whether mortgagee entitled to a remedy against the perpetrator of the forgery

LEGISLATION CITED:
Bankruptcy Act 1966 (Cth)
Family Law Act 1975 (Cth)
Real Property Act 1900
Suitors’ Fund Act 1951
Land Title Act 1994 (Qld)
Land Transfer Act 1952 (NZ)

CATEGORY:
Principal judgment

CASES CITED:
Breskvar v Wall [1971] HCA 70; 126 CLR 376
C N and N A Davies Ltd v Laughton [1997] 3 NZLR 705 at 714
Consolidated Trust Co Ltd v Naylor [1936] HCA 33; 55 CLR 423
Frazer v Walker [1967] 1 AC 569
Grgic v Australia and New Zealand Banking Group Ltd (1994) 33 NSWLR 202
Lawrence v Maple Trust Co [2007] ONCA 74; 278 DLR (4th) 698; 84 OR (3d) 94
Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; 136 CLR 326
National Commercial Banking Corporation of Australia Ltd v Hedley (1984) 3 BPR 9477
Provident Capital Ltd v Printy [2008] NSWCA 131; 13 BPR 25,199
PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643
Pyramid Building Society (In Liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188
Queensland Premier Mines Pty Ltd v French [2007] HCA 53; 235 CLR 81
Sansom v Westpac Banking Corporation (1996) 7 BPR 14,615
Small v Tomassetti [2001] NSWSC 1112; 12 BPR 22,253
Solak v Bank of Western Australia Ltd [2009] VSC 82
Travinto Nominees Pty Ltd v Vlattas [1973] HCA 14; 129 CLR 1
Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45; 233 CLR 528
Westpac New Zealand Limited v Clark [2009] NZSC 73
Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; 13 BPR 24,567

TEXTS CITED:
Edgeworth B, Rossiter C J, Stone M A and O’Connor P A, Sackville & Neave Australian Property Law, 8th ed (2008)
Stoljar J, ‘Mortgages, Indefeasibility and Personal Covenants to Pay’ (2008) 82 ALJ 28
Vaughan J, ‘What Do Forged “All Moneys” Mortgages Secure?’ (2008) 82 ALJ 671

DECISION:
(1) Perpetual’s appeal against the dismissal of its claim against Ms English be dismissed.
(2) Perpetual pay Ms English’s costs of the appeal.
(3) Perpetual’s appeal against the dismissal of its claim against Mr English be allowed.
(4) Perpetual be granted leave to further amend its amended statement of claim to claim the relief against Mr English identified in the notice of appeal.
(5) The further amended statement of claim be filed within 14 days.
(6) Perpetual file within 14 days of these orders short minutes of order giving effect to the judgment to the extent that additional orders are required in consequence of the appeal being allowed.
(7) If Ms English disputes the terms of the proposed short minutes of order: (a) Perpetual should file brief written submissions accompanying the short minutes of order supporting the terms of the orders it proposes; and (b) Ms English should file within 14 days of these orders alternative short minutes of order accompanied by brief written submissions supporting the terms of the orders she proposes.
(8) Mr English pay the costs of Perpetual’s appeal against dismissal of its claim against Mr English.
(9) Perpetual, if otherwise qualified, have a certificate under the Suitors’ Fund Act 1951.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40258 of 2009

ALLSOP P

CAMPBELL JA

SACKVILLE AJA

12 March 2010

PERPETUAL TRUSTEES VICTORIA LTD ACN 004 027 258 v NIEL WILLIAM ENGLISH & ANOR

Judgment

1 ALLSOP P: I have read the reasons of Sackville AJA in draft. I agree with the orders proposed by his Honour and with his Honour’s reasons.

2 CAMPBELL JA: I agree with Sackville AJA.

3 SACKVILLE AJA: The issue in this appeal is the familiar one of which of two innocent parties should bear the loss caused by the dishonesty of a third party. The dishonesty in this particular case consisted of the actions of a joint registered proprietor of Torrens system land (“the Property”) forging the signature of his estranged wife, the other joint registered proprietor, to loan and mortgage documentation in return for a loan from an institutional lender.

4 The proceedings were instituted by the registered mortgagee (“Perpetual”), following default in the repayment of amounts said to be secured by a registered mortgage (“Mortgage”). Perpetual sought an order for possession of the Property against both registered proprietors. However, it failed at first instance, not only against the innocent joint registered proprietor but against the perpetrator of the fraud. Perpetual has appealed against the dismissal of its claims.

5 The principal contest on the appeal is between Perpetual and the innocent joint registered proprietor (“Ms English”) who knew nothing of her husband’s forgery. In addition, Perpetual appeals against the primary Judge’s dismissal of its claim against the perpetrator of the forgery, Mr English. The notice of appeal seeks an order for possession of the Property or, in the alternative, a declaration that the Mortgage is of full force and effect against Mr English’s interest in the Property and an order for the appointment of trustees of sale of the Property.

6 Whichever of the innocent parties is unsuccessful in these proceedings may have an action against a third party. (The perpetrator of the fraud, Mr English, is bankrupt although he is still the registered proprietor of a joint interest in the Property.) If Ms English is unsuccessful, she may have a claim for compensation against the Torrens Assurance Fund (“Fund”) established by s 134 of the Real Property Act 1900 (“RP Act”). Alternatively, she may have a claim against the estate of the (now apparently deceased) solicitor who purported to witness her signature to the mortgage documentation (cf RP Act, s 129(2)(b), which provides that compensation is not payable from the Fund for loss or damage that is a consequence of any fraudulent or negligent act by a solicitor and is compensable under an indemnity given by a professional indemnity insurer). If Perpetual is unsuccessful in its claim against Ms English, it may have an action against the estate of the solicitor. At this stage, however, it is unclear whether either Perpetual or Ms English has any remedy against a third party.

THE PROBLEM

7 To judge from the number of decided cases, the registration of forged mortgages under the Torrens system is a surprisingly common phenomenon. Subject to any specific statutory provisions, the starting point in Australia is the principle of immediate indefeasibility of title formulated by the Privy Council on appeal from the New Zealand Court of Appeal in Frazer v Walker [1967] 1 AC 569 and endorsed by the High Court in Breskvar v Wall [1971] HCA 70; 126 CLR 376. In the latter case, Barwick CJ, who had participated in Frazer v Walker as a member of the Privy Council, explained (at 385-386) the fundamental proposition as follows:

“The Torrens system of registered title ... is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or reason for which the instrument is void.”

8 Frazer v Walker was itself a case of a joint proprietor who forged the signature of the other joint proprietor to a mortgage over the jointly owned land, in order to secure a loan of £3000 from a lender. The lender duly became registered as mortgagee and, no payments having been made under the mortgage, exercised the power of sale. One issue was whether the innocent former joint proprietor (the husband of the forger) was entitled to relief against a party who had registered a transfer executed by the mortgagee.

9 It might have been thought that, whatever the position as between the husband and the registered mortgagee before the latter exercised the power of sale, the husband could not prevail against a purchaser from the mortgagee, where the purchaser had acted in good faith and had become registered as proprietor of the fee simple estate in the land. However, since the husband also claimed relief against the mortgagee, the Privy Council considered the position upon registration of the mortgage to which the husband’s signature had been forged.

10 The Privy Council rejected the husband’s claim for declarations that his interest had not been affected by the purported mortgage and that the mortgage was a nullity. Lord Wilberforce, speaking for the Privy Council, said (at 583) that the position did not:

“admit of any doubt. Although a mortgage of a fee simple does not take effect as a transfer of the fee simple (see [RP Act s 57(1)]) it does create a charge on the land which the Act treats as an estate or interest in the land (see [RP Act s 3(1)], definitions of [‘Mortgage’, ‘Mortgagee’, ‘Proprietor’]). It is therefore apparent that [the husband’s] counter-claim against [the mortgagee] ... was an action for recovery of land within the terms of [RP Act s 118(1)] ... The proceeding does not fall within either the exception of fraud [in RP Act s 42(1)] or within any of the other exceptions allowed by [RP Act s 118(1)].”

(In this extract I have inserted references to the provisions in the RP Act equivalent to those in the Land Transfer Act 1952 (NZ) identified by the Privy Council. The relevant provisions of the RP Act are extracted later.)

11 No issue was apparently raised in Frazer v Walker as to whether the indefeasibility of the registered mortgagee’s title extended to the covenant to repay the amount advanced by the lender to the wife on the faith of a mortgage which the husband’s signature had been forged. Later authorities in Australia and New Zealand, while acknowledging that registration of a forged mortgage confers an indefeasible title on the registered mortgagee (unless the mortgagee has been guilty of fraud), have pointed out that there is a further question to be answered, at least where the contest is between the innocent registered proprietor and the mortgagee. That question is whether the indefeasibility of the mortgagee’s title effectively validates all the terms of what otherwise would be a void instrument and, if not, what is the test for identifying the provisions of the mortgage that can be enforced against the estate or interest of the innocent registered proprietor.

12 In order to answer that question, courts have generally proceeded on the basis that it is a question of construction of the mortgage as to whether it grants the mortgagee a security interest that can be enforced against the land (including the interest of the defrauded registered proprietor). This has often involved the courts in a minute analysis of the language of complex mortgage documentation that is unlikely to have been read, let alone understood by a mortgagor. By hypothesis, the innocent registered proprietor in a case of forgery will not have even had a chance to read the documentation on which his or her fate as a proprietor will rest.

13 The problem has been compounded by the tendency of institutional lenders to rely on ever more complex documentation that is designed to ensure that they have security, not merely for a specified sum advanced to the borrowers, but for any moneys advanced to or due by them, whether in the past or in the future. These “all moneys” clauses require reference not only to the mortgage instrument itself, but to other documents which themselves may be forged. The irony is that as lenders draft ever-wider clauses they make themselves more vulnerable to the effects of forgery. This is because all moneys clauses may depend for their effectiveness on the validity of antecedent instruments that have not been, and indeed cannot be registered under the Torrens system. Since forgery renders such instruments void under the general law, the indefeasibility provisions of the RP Act may not protect the mortgagee.

14 The authorities have not always been entirely consistent in their approach to the enforceability of forged mortgages against the innocent registered proprietor whose signature has been forged, at least where the forger is a joint registered proprietor: see generally J Stoljar, ‘Mortgages, Indefeasibility and Personal Covenants to Pay’ (2008) 82 ALJ 28. The recent trend, particularly in New South Wales and New Zealand, has been unfavourable to mortgagees in such cases, as courts have tended to hold a forged but registered mortgage, as a matter of construction, does not create a security interest enforceable against the innocent registered proprietor: Westpac New Zealand Limited v Clark [2009] NZSC 73 (not following Solak v Bank of Western Australia Ltd [2009] VSC 82); Provident Capital Ltd v Printy [2008] NSWCA 131; 13 BPR 25,199; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; 13 BPR 24,567. Commentators have searched for a form of words to include in printed mortgage documentation that would be adequate to protect the mortgagee against the consequences of forgery by one of two or more registered proprietors, but they have recognised that drafting clauses that have the desired effect may not be easy: J Vaughan, ‘What Do Forged “All Moneys” Mortgages Secure?’ (2008) 82 ALJ 671.

15 Some jurisdictions have taken a different approach to the problems created by forged mortgages. In Queensland, for example, legislation imposes obligations on mortgagees to verify the identity of persons executing registrable mortgages. A mortgagee who fails to take reasonable steps to check the identity of the person signing as mortgagor will be denied the benefits of indefeasibility, should the mortgagor’s signature turn out to be forged: Land Title Act 1994 (Qld), s 185(1A). A mortgagee is deemed to have taken reasonable steps if it complies with the practices required by the Land Titles Practice Manual: s 11A. The onus is on the mortgagee to demonstrate compliance (s 185(5)) and, in the absence of compliance, a mortgagee suffering loss or deprivation due to a forgery is not entitled to compensation: s 189(1)(ab). In Ontario, the difficulties confronting an innocent registered proprietor in preventing forgery have led the courts to adopt deferred indefeasibility in preference to the principle of immediate indefeasibility endorsed in Frazer v Walker and Breskvar v Wall: Lawrence v Maple Trust Co [2007] ONCA 74; 278 DLR (4th) 698; 84 OR (3d) 94, referred to in B Edgeworth, C J Rossiter, M A Stone and P A O’Connor, Sackville & Neave Australian Property Law, 8^th ed (2008), at [5.48].

16 There was no dispute between the parties to the appeal as to the principles to be applied. In particular, they agreed that in New South Wales, the extent of the mortgagee’s indefeasible title is to be determined by a process of construction of the mortgage documentation. Before addressing the question of construction, I shall set out the background facts, including the terms of the documentation, and reproduce the relevant provisions of the RP Act.

FACTUAL BACKGROUND

17 There was no factual dispute at the trial. The following account is taken largely from the primary judgment.

18 Mr and Ms English are husband and wife, but have been separated for many years. In 1985, they purchased the Property, which is located at Castle Hill, as the matrimonial home. In due course they became joint registered proprietors of the Property. Mr and Ms English purchased the Property with the assistance of a loan from a bank, secured by a registered first mortgage.

19 After the parties separated, Mr English remained in sole occupation of the Property. Ms English made no claim to the Property under the Family Law Act 1975 (Cth) or otherwise.

20 In March 2003, Mr English made a loan application to an entity apparently associated in some way with Perpetual. He sought a loan of $536,000 in connection with his earthmoving business. The application was made in the names of both Mr and Ms English. Mr English forged Ms English’s signature on the application form.

21 The application form disclosed that Ms English lived at a different address from Mr English and had apparently done so for 10 years. The application also disclosed that $250,000 was currently owing on the Property, presumably to the then registered first mortgagee.

Loan Offer

22 On 24 April 2003, Perpetual made a “Loan Offer” to:

“Niel William English...

Kerrie Diane Therese English...”.

The Loan Offer was expressed as follows:

“The Lender offers You a Loan on the terms and conditions of this Loan Offer and the additional terms and conditions contained in the Interstar Loan Terms and Conditions Booklet (“Terms and Conditions”). (Emphasis in original.)

23 Clause 5 of the Loan Offer, under the heading “SECURITY”, contained the following statement:

“By accepting this Offer You agree that the following new Security is to be provided to the Lender for the Loan:

Registered First mortgage by Niel William English and Kerrie Diane Therese English over [the Property].”

This was said by Perpetual to constitute the “acknowledgement” required by the Mortgage later signed by Mr English and on which he forged Ms English’s signature

24 Clause 10 of the Loan Offer is of some importance. It provided as follows:

“ACCEPTING THE OFFER

To accept this Offer You and, if there is more than one person all of You, must sign and return to the Lender’s solicitors the original copy of this Offer so that it is received by the Lender’s solicitors or settlement agent within 21 days of the date of the Offer.” (Emphasis added.)

25 The Loan Offer was accompanied by the “Interstar Loan Terms and Conditions Booklet” (“Booklet”), referred to in the opening provisions of the Loan Offer. The Booklet (cl 1.1) defined “You” to mean:

“the person or persons to whom the Offer is made”.

The Booklet defined “Security” to mean:

“any existing or new mortgage or guarantee required by the Loan Offer”.

The Booklet (cl 1.2) also provided that a reference to “a group of ... persons is a reference to any one or more of them”.

26 Clause 20.3 of the Booklet provided as follows:

“Joint and several liability

If the Loan is being made to more than one person, then each person will be liable individually, and every 2 or more persons are liable jointly, for all amounts due under the Loan. All of your obligations attach to your successors and permitted assigns.”

27 Mr English purported to accept the Loan Offer by signing the document. He forged the signature of Ms English to the document to indicate her acceptance of the Loan Offer. He had no authority to purport to accept the Loan Offer on her behalf. Each signature was said to be witnessed by a solicitor, whose name, signature and stamp appeared on the document.

Mortgage

28 Perpetual prepared and presented to Mr English for signature a one page form of Mortgage. The Mortgage expressly incorporated the provisions of Memorandum No 2610615 (“Memorandum”) filed by Perpetual in the office of the Registrar-General pursuant to s 80A of the RP Act. The Memorandum constitutes part of the Register as a public record and any of its provisions incorporated in the Mortgage are deemed to be set out at length therein: ss 80A(3), (4), 96B. However, the Mortgage made no explicit reference to the Loan Offer.

29 The Mortgage identified the “Mortgagor” as:

“Niel William English ...

Kerrie Diane Therese English ...”

The Mortgage provided that the Mortgagor:

“mortgages to the mortgagee all the mortgagor’s estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in [the Memorandum] are incorporated in this mortgage.”

30 The provisions of the Memorandum included the following:

“1. UNDERSTANDING THE MORTGAGE

1.1 Definitions

In the Mortgage, the following expressions have the following meanings:

‘I’ means the person or persons named and described as the Mortgagor in the Mortgage Form and ‘me’ and ‘my’ and, if there is more than one of us, ‘us’ has a corresponding meaning.

‘You’ means the person or persons named and described as the Mortgagee in the Mortgage Form and ‘your’ has a corresponding meaning.

...

‘Enforcement Expenses’ means all reasonable amounts that you reasonably incur in relation to seeking possession of the Property or seeking any other action to enforce the Mortgage or in preserving or maintaining the Property (including paying insurance, rates and taxes) after a default by me under the Mortgage.

...

‘Mortgage’ means the Mortgage Form including all schedules and annexures and this document.

‘Mortgage Form’ means the form of mortgage which I have executed which refers to and incorporates this document.

...

‘Secured Agreement’ means:

any present or future agreement between me or us, or any one of us, and you which I acknowledge in writing to be an agreement secured by the Mortgage, or

an agreement which varies such an agreement.

‘Secured Money’ means:

all amounts which are payable at any time or are contingently owing or payable to you under a Secured Agreement, and

Enforcement Expenses.

1.2 Interpretation

In the Mortgage unless the context otherwise requires:

a word importing the singular includes the plural and vice versa,

...

a reference to any thing (including without limitation, to the Secured Money or to the Property) is a reference to the whole or any part of it and a reference to a group of things or persons is a reference to any one or more of them.

headings shall be ignored in construing the Mortgage.

...

2. MORTGAGE OBLIGATIONS

2.1 The Mortgage

I acknowledge that by the Mortgage I give you security over:

the Property; and

my right to receive any money or compensation for the Property.

2.2 Pay Secured Money

The Mortgage is security for payment to you of the Secured Money and for the performance of all of my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage.

...

2.4 Pay Enforcement Expenses

I must pay all Enforcement Expenses on demand.

...

7. DEFAULT

7.1 Events of Default

I will be in default if any of the following events of default occur:

I do not pay the Secured Money on time,

I fail to comply on time with any of my obligations under the Mortgage,

...

I breach any term or condition of any other agreement with you.

...

8. YOUR POWERS

8.1 You may exercise rights [if] there is an event of default

In the event that I failed to rectify the default in compliance with any Default Notice under Clause 7.2 you may then or at any later time exercise all of my powers as owner of the Property and all powers vested in mortgagees by any applicable law. By way of example you may:

Possession

Enter on and take possession of the Property and manage or use the Property.

...

11. GENERAL MATTERS

...

11.7 Joint and several liability

If I am comprised of more than one person, each person will be liable individually, and every two or more persons are liable jointly, for all promises and obligations under the Mortgage”

THE PROCEEDINGS

31 After Mr English failed to comply with the obligations specified in the Mortgage, Perpetual took the necessary preliminary steps to enforce its rights under cl 8.1 of the Memorandum. Perpetual then filed proceedings in the Common Law Division of the Supreme Court against Mr and Ms English. As I have noted, Perpetual sought an order for possession of the Property. It also sought judgment against Mr and Ms English in the sum of $626,370.91, being the amount said to be due under the Mortgage and the Loan Agreement constituted by acceptance of the Loan Offer.

32 Mr English filed a defence containing a number of admissions, although he did not admit defaulting under the Mortgage. Ms English filed a defence in which she denied signing the Loan Offer or the Mortgage and denied being under an obligation to make payments to Perpetual. She did not file a cross-claim.

33 Despite filing a defence, Mr English did not appear at the hearing. Ms English was represented by counsel and resisted Perpetual’s claims.

34 The primary Judge recorded in her judgment that Mr English had been made bankrupt prior to the hearing. Her Honour also recorded that Mr English’s trustee in bankruptcy had declined to appear in the proceedings to defend Perpetual’s claim against Mr English. Perpetual had not sought leave under the Bankruptcy Act 1966 (Cth) to claim relief against Mr English, other than the order for possession of the Property.

35 The trustee in bankruptcy filed a submitting appearance in the appeal. Mr English was duly served with notice of the appeal, but did not appear. Both Perpetual and Ms English were represented by counsel.

36 A possible inference from the Loan Agreement is that Perpetual’s advance of $536,000 was used by Mr English, in part, to discharge a pre-existing first mortgage over the Property on which approximately $250,000 was owing. However, Perpetual makes no claim against Ms English in respect of any benefit she may have obtained from the discharge of that mortgage.

LEGISLATION

37 Part 6 of the RP Act deals with “The Register and Registration”. Sections 41, 42 and 45 are central to the concept of indefeasibility of title:

“41(1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature.

...

42(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded [subject to a number of express exceptions].

(2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage ... that may be directly or indirectly identified from a distinctive reference in that folio.

...

45(1) Except to the extent to which this Act otherwise expressly provides, nothing in this Act is to be construed so as to deprive any purchaser or mortgagee bona fide for valuable consideration of any estate or interest in land under the provisions of this Act in respect of which the person is the registered proprietor.

(2) Despite any other provision of this Act, proceedings for the recovery of damages, or for the possession or recovery of land, do not lie against a purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act merely because the vendor or mortgagor of the land:

(a) may have been registered as proprietor through fraud or error, or by means of a void or voidable instrument, or

...”

38 Section 118, which appears in Part 13 (“Civil Rights and Remedies”) provides further protection for the registered proprietor:

“118(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:

(a) proceedings brought by a mortgagee against a mortgagor in default,

...

(d) proceedings brought by a person deprived of land by fraud against:

(i) a person who has been registered as proprietor of the land through fraud, or

(ii) a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.

...”

39 Part 7 of the RP Act is concerned with “Dealings”. Division 3 of Pt 7 (ss 56ff) contains provisions relating to mortgages.

40 Section 57 provides as follows:

“57(1) A mortgage ... under this Act has effect as a security but does not operate as a transfer of the land mortgaged or charged.

(2) A registered mortgagee ... may, subject to this Act, exercise the powers conferred by section 58 if:

(a) in the case of a mortgage ... default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage ... or in the payment, in accordance with the terms of the mortgage ... of the principal, interest ... or other money the payment of which is secured by the mortgage...”

41 Section 57 must be read with s 58 which relevantly provides as follows:

“58(1) Where a mortgagee ... is authorised by section 57(2) to exercise the powers conferred by this section, the mortgagee ... may sell the land mortgaged ..., or any part thereof, and all the estate and interest therein of the mortgagor ...”

PRIMARY JUDGMENT

42 The primary Judge noted (at [25]) Ms English’s submission that, on its proper construction, the Mortgage secured nothing and therefore Perpetual had no interest in the Property. Ms English’s alternative submission was that Perpetual was limited to enforcing its security against Mr English’s joint interest in the Property. In her Honour’s view, resolution of the issue depended purely on the proper construction of the relevant documentation.

43 The primary Judge pointed out (at [31]) that it had not been in dispute that registration of the Mortgage conferred an indefeasible title on Perpetual as the mortgagee. However:

“The crucial issue is the identification of the ‘estate or interest’ that, upon registration, is made indefeasible.”

Her Honour reformulated (at [34]) the issue for determination in terms suggested by counsel for Perpetual:

“... whether, given the forgery, the Mortgage over [Ms] English’s interest in the Property secures the obligation of Mr English to repay to [Perpetual] the amount borrowed by him (plus interest etc) under the Loan Agreement.” (Emphasis in original.)

44 The primary Judge analysed a series of cases in New South Wales involving the registration of forged mortgages. She relied on a passage in the judgment of Giles J in PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643, at 679, which had been widely quoted in later cases:

“The general position thus indicated is, I think, as follows. That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the instrument which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor.”

45 Her Honour accepted (at [55]), on the authority of Small v Tomassetti [2001] NSWSC 1112 (Campbell J), that a mortgage expressed to be security for a specified sum owed by “the mortgagor” to the mortgagee delineates the estate or interest in the land secured by the mortgage and “achieve[s] indefeasibility”. This is so even if the “debt” is created by a forgery (at [123]). However, in her Honour’s view (at [124]):

“Where the mortgage does not expressly state the quantum of the debt, but adopts it by reference to a separate document (that is not incorporated in the mortgage), that does not confer indefeasibility, because what is contained in the separate document is merely a personal covenant.”

Her Honour thought (at [126]) that it was rather curious that:

“the fate of an innocent owner, entirely ignorant of a purported loan and mortgage in his/her name, can depend upon the fortuitous circumstance that the mortgagee has or has not included, with sufficient specificity in the mortgage documents, the debt the subject of the mortgage. Yet that appears to be the position.”

46 The primary Judge considered (at [131]) that there was no question that moneys were in fact and in law owing by Mr English under the Loan Agreement. (I shall address the correctness of this assumption later.) There was equally no question that Ms English owed no such moneys. The cases established (at [135]) that:

“registration confers upon a mortgage indefeasibility of whatever title is registered, forgery notwithstanding; they do not establish that registration of a mortgage (forged or not, but all of the cases to which I was referred do involve forgeries) renders a forged loan agreement binding upon the landowner, such as to attract to the mortgagee the benefit of s 42.”

47 Ms English had argued that the definition of the word “I” in cl 1.1 of the Memorandum showed that the word (and similar words) referred to both Mr and Ms English, not to either of them. Accordingly, in order to satisfy the definition of “Secured Agreement”, the acknowledgement referred to in that definition had to be given by both Mr and Ms English. No such acknowledgement had ever been given.

48 Perpetual’s answer was that each of Mr and Ms English was to be regarded individually as a Mortgagor. But according to her Honour (at [149]):

“Perpetual’s approach cannot survive the most cursory examination of the language of the contractual documents. The mortgage document itself refers to ‘the Mortgagor’ in the singular, even though two individuals are named. The use of the pronoun ‘I’ to stand for both individuals indicates that, for the purpose of the contractual arrangements, they are to be regarded as a single entity, or a composite.”

49 If “I” in the definition of “Secured Agreement” could be construed as meaning any or either of a plurality of mortgagors, then one or more of the original borrowers could further encumber an already mortgaged property without the knowledge or consent of the other or others (at [154]). Her Honour considered that such a construction would lead to surprising results. Accordingly (at [156]):

“The consequence is that there is no ‘Secured Agreement’, and the mortgage secures nothing, including Mr English’s interest in the property. I recognise the unfairness to Perpetual of this result, but the principle of indefeasibility is apt to create unfairness.”

50 The primary Judge pointed out (at [163]) that this conclusion did not mean that the absence of Ms English’s signature was fatal to Perpetual’s reliance on that document as creating a personal liability in Mr English. In her Honour’s opinion:

“[u]nlike the requirements of the mortgage ... the requirement that both purported borrowers sign the loan offer is severable”.

51 This issue was, however, “peripheral” because Perpetual’s claim was for possession of the Property and it had abandoned any claim against Mr English independently of the Mortgage. Whether it could enforce the Loan Agreement was not a matter before the Court (at [164]).

52 The primary Judge considered that Perpetual also had to fail in its claims on the ground that the purported acknowledgement in the Loan Agreement was no acknowledgement at all. Her Honour gave (at [166]-[167]) two reasons for this conclusion:

“Firstly, ‘Secured Agreement’ is defined as an agreement acknowledged in writing to be an agreement secured by ‘the Mortgage’; but ‘the Mortgage’ is defined to mean ‘the Mortgage Form’; and ‘Mortgage Form’, in turn, is defined to mean ‘the form of mortgage which I have executed’; and ‘I’, of course, means both Mr English and Ms English. There is, therefore, no ‘Mortgage Form’ executed by Mr English and Ms English; there is, therefore, no ‘Mortgage’ within the meaning of the definition.

Secondly, what is put forward on behalf of Perpetual as the ‘acknowledgement in writing’ (in clause 5 of the Loan Agreement) is not an acknowledgment of a ‘Loan Agreement’, but is an acknowledgement in writing of a ‘Loan’.” (Emphasis in original.)

53 For these reasons, the primary Judge dismissed Perpetual’s statement of claim.

SUBMISSIONS ON THE APPEAL

54 As I have noted, it was common ground on the appeal that Perpetual’s entitlement to exercise its power of sale over Ms English’s interest in the Property depended on the proper construction of the Mortgage having regard to the fact that Ms English had never signed either the Loan Offer or the Mortgage itself. Neither Perpetual nor Ms English submitted that the primary Judge had misstated the general principles she had drawn from the authorities.

Perpetual’s Submissions

55 Perpetual submitted that it had not been open to the primary Judge to dismiss its claim against Mr English, regardless of the outcome of its claim against Ms English. Mr English had filed a defence in the proceedings in which he admitted, among other things, that he had mortgaged the Property to Perpetual to secure the moneys advanced and that he was under an obligation to repay those moneys plus interest. He had therefore admitted that the Mortgage secured his obligations under the Loan Agreement. In any event, to refuse to grant relief against Mr English, would allow him (although he had not in fact sought to do so) to take advantage of his own wrong.

56 In the alternative, Perpetual sought leave to amend its statement of claim to rely on the principle that where a mortgage is purportedly executed by both spouses, but the signature of one has been forged by the other, the mortgagee obtains an equitable mortgage against the interest of the forger: Sansom v Westpac Banking Corporation (1996) 7 BPR 14,615, at 14,634, per Sheller JA (with whom Priestley JA agreed).

57 Perpetual further submitted that the primary Judge should have concluded that Mr English’s obligations under the Loan Agreement were secured by the Mortgage over both his interest and Ms English’s interest in the Property. According to Mr Leopold SC, who appeared with Mr Thomas for Perpetual, the critical issue was the meaning of the word “I” in the definition of “Secured Agreement”. On its proper construction, the word referred to either Mr English or Ms English. It was therefore enough that Mr English had acknowledged in writing that the Loan Agreement was secured by the Mortgage, even though Ms English had never done so.

58 Mr Leopold submitted that this conclusion was supported by cl 1.2 of the Memorandum, which provided that a word importing the singular included the plural and vice versa, unless the context otherwise required. He contended that the primary Judge had wrongly regarded the definition of “I” in cl 1.1 of the Memorandum as unaffected by cl 1.2.

59 Perpetual’s written submissions placed no reliance on cl 1.2 of the Memorandum insofar as it provided that a reference to a group of persons is a reference “to any one or more of them”. When it was pointed out in oral argument that this paragraph of the interpretation clause seemed to provide more substantial textual support for his argument than other parts of cl 1.2, Mr Leopold enthusiastically embraced the suggestion.

60 Mr Leopold submitted that just as “I” should be read as referring to either Mr or Ms English for the purposes of the definition of “Secured Agreement”, the same meaning should be attributed to “I” when used in the definition of “Mortgage Form”. Thus there was a Mortgage that could be the subject of an acknowledgement, even though Ms English had never executed the form of Mortgage signed by Mr English.

Ms English’s Submissions

61 Mr Clifton, who appeared for Ms English, supported the reasoning of the primary Judge. He emphasised that while a Secured Agreement could be “between me or us, or any one of us, and you”, only “I” could acknowledge the Secured Agreement. The definition of “I” made it clear that the acknowledgement had to be executed by both Mr and Ms English. No such acknowledgement had been executed. Thus the definition of Secured Agreement was not satisfied and the Mortgage, while “standing as indefeasible”, secured nothing.

62 Mr Clifton’s principal answer to Perpetual’s belated reliance on the “group of persons” paragraph in cl 1.2, was that cl 1.2 was not intended to apply to the definition of “I” in cl 1.1. The latter was intended to be a complete definition and it would alter its sense if the general provisions of cl 1.2 were to be incorporated. The definition of “I” was not merely a matter of economy of language, but of establishing the identity of the Mortgagor.

63 In any event, the purported acknowledgement of the Mortgage in the Loan Agreement was ineffective. What was required was an acknowledgement in the Loan Agreement that it was an agreement secured by the Mortgage – that is, secured by “the form of mortgage which I have executed”. There was no such form of mortgage, since Ms English had never executed the form of mortgage.

64 Ms English’s written and oral submissions did not advert to the significance of the stipulation in cl 10 of the Loan Offer that the offer was capable of acceptance only by both offerees (Mr and Ms English) signing the document.

65 Mr Clifton informed the Court that Ms English did not wish to be heard in support of the primary Judge’s conclusion that Perpetual’s registered mortgage was not enforceable against Mr English’s interest as joint registered proprietor of the Property. Ms English’s position of neutrality does not, of course, relieve Perpetual from demonstrating that the primary Judge erred on this aspect of the case.

Supplementary Written Submissions

66 The parties were given leave to file supplementary written submissions on issues that were identified in the course of the hearing, in particular the significance of the “group of ... persons” provision in cl 1.2 of the Memorandum. In addition, the parties were asked to consider in their supplementary written submissions the significance of cl 10 of the Loan Agreement, a matter that had escaped attention in argument.

67 The parties duly filed supplementary written submissions. I shall refer to them insofar as necessary to explain my reasoning.

REASONING

Perpetual’s Claim Against Ms English

Principles

68 Since neither party disputed the primary Judge’s statement of the relevant principles, the submissions did not canvass the case law in detail. However, the submissions implied that the parties did not take issue with the following principles:

1. Registration of a mortgage does not transfer the fee simple estate, but the mortgage takes effect as a security over the land: RP Act, s 57(1). Upon registration, the land becomes liable as security in manner and subject to the covenants set forth in the mortgage: RP Act, s 41(1); Provident Capital v Printy at [25], per Basten JA (with whom Tobias and McColl JJA agreed).

2. Registration of a forged mortgage confers an indefeasible title on the mortgagee, provided that the mortgagee has not been party or privy to the fraud and no other exception to indefeasibility applies: Breskvar v Wall; Yazgi v Permanent Custodians at [14], per Beazley JA (with whom Ipp and Tobias JJA agreed); Pyramid Building Society (In Liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, at 191, per Hayne JA (with whom Brooking and Tadgell JJA agreed).

3. Registration of the mortgage does not necessarily ensure the validity of every term of the mortgage, irrespective of the relationship between the term and the estate or interest created by the mortgage itself: Travinto Nominees Pty Ltd v Vlattas [1973] HCA 14; 129 CLR 1, at 17, per Barwick CJ (with whom McTiernan and Stephen JJ agreed). Hence a personal right created by a covenant in a mortgage, such as a guarantee, is not rendered indefeasible by registration of the mortgage: Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; 136 CLR 326, at 343, per Gibbs J; PT v Maradona.

4. In New South Wales, the view has been taken that a personal covenant in a registered but forged mortgage to pay the amount of the mortgage debt, where the debt exceeds the value of the property, is not protected by the indefeasibility provisions of the RP Act: Grgic v Australia and New Zealand Banking Group Ltd (1994) 33 NSWLR 202, at 224, per Powell JA (with whom Meagher and Handley JJA agreed); cf Pyramid Building Society v Scorpion Hotels, at 196, where a different view may have been taken.

5. The registration of a forged mortgage validates those terms of the mortgage which delimit or qualify the estate or interest of the mortgagee or are otherwise necessary to assure that estate or interest to the registered proprietor: PT v Maradona, at 679; Yazgi v Permanent Custodians, at [19]-[20].

6. It is necessary to construe the terms of a mortgage to determine the scope of the estate or interest in respect of which indefeasibility is conferred by registration of the mortgage: Yazgi v Permanent Custodians, at [22]. Thus whether registration of a forged mortgage allows the mortgagee to enforce its security interest in the land in relation to a debt or obligation arising under an agreement separate from the mortgage is a question of construction of the mortgage: Westpac v Clark, at [43], per Blanchard, Tipping and Wilson JJ.

7. Generally speaking, if the mortgagee specifies a sum of money (plus interest) as the amount secured by the mortgage, the charge created by the mortgage will secure the amount so specified even if the document creating the indebtedness is void under general law principles: Small v Tomasetti.

8. However, if as a matter of construction, the mortgage does not take effect as a security over the land in relation to a claimed debt or obligation, registration of the mortgage will not entitle the mortgagee to exercise remedies, such as the power of sale, to enforce any such claimed debt or obligation: Provident Capital v Printy, at [50]-[52]; Yazgi v Permanent Custodians, at [25]ff. The question of construction may be particularly difficult where the registered mortgage refers to antecedent documentation which is not incorporated in the Torrens register and which may be invalid on general law principles.

Construction of the Mortgage

69 A good deal of the argument on the appeal centred on the definitions and interpretation provisions of the Memorandum and their relationship with cl 2.2 of the Memorandum. It will be recalled that cl 2.2 of the Memorandum provides as follows:

“2.2 Pay Secured Money

The Mortgage is security for payment to you of the Secured Money and for the performance of all of my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage.”

70 As I have noted, Mr Clifton submitted on behalf of Ms English that the definition of “I” in cl 1.1 of the Memorandum should be read independently of the interpretation provision (cl 1.2). He made this submission because the definition of “I”, if read alone, tends to suggest that the reference to “my obligations” in cl 2.2 is confined to the obligations incurred by both Mr and Ms English, as distinct from one or other of them.

71 As Mr Leopold pointed out in Perpetual’s supplementary written submissions, the “group of ... persons” provision in cl 1.2 of the Memorandum is expressed to apply where there is a “reference” to a group of persons. The definition of “I” in cl 1.1 refers to such a group, namely Mr and Ms English, who are identified as “the Mortgagor in the Mortgage Form”. Given that the condition for the application of the “group of ... persons” provision in cl 1.2 is satisfied, there is, as Mr Leopold submits, no good reason why that provision and the definition of “I” cannot be read together. The difference between the two is simply that cl 1.1 states that certain defined expressions “have the following meanings”, in the Mortgage, while cl 1.2 states rules for interpretation of the Mortgage “unless the context otherwise requires”. Provided that the context does not otherwise require, a rule of interpretation stated in cl 1.2 is quite capable of being applied to a definition in cl 1.1.

72 Accordingly, there is no reason why the definition of “I” in cl 1.1 should not be read in accordance with the rule of interpretation in cl 1.2 that:

“a reference to a group of ... persons is a reference to any one or more of them.”

The dictionary meaning of “group” includes two or more people.

73 It follows that the definition of “I” in cl 1.1 of the Memorandum means:

“the persons named and described as the Mortgagor [that is, Mr and Ms English and either of them]”.

The words “me”, “my” and “us” have a corresponding meaning.

74 This conclusion does not, however, necessarily mean that cl 2.2 should be construed to create a security interest in favour of Perpetual that allows it to exercise a power of sale over Ms English’s interest in the Property by reason of Mr English’s failure to comply with the terms of the Loan Offer. It is necessary to construe cl 2.2 having regard to the terms of the Loan Offer (a document which does not form part of the Torrens system register), including the term prescribing the means by which the offerees could accept the Loan Offer.

75 The statement in cl 2.2 that the Mortgage is security for payment to “you” (that is, Perpetual) of the “Secured Money”, requires reference to the definition of the latter term. “Secured Money” means, relevantly:

“all amounts which are payable at any time or are contingently owing or payable to you under a Secured Agreement.” (Emphasis added.)

The definition of “Secured Money” does not itself identify the person or person by whom the moneys are payable.

76 The definition of “Secured Money” requires reference to be made, in turn, to the definition of “Secured Agreement”. For present purposes, the definition has two cumulative components:

“any present ... agreement between me or us, or any one of us, and you”; and

“which I acknowledge in writing to be an agreement secured by the Mortgage”.

77 Mr Leopold identified the “present agreement” to be the Loan Offer dated 24 April 2003 which Mr English purported to accept and to which Ms English’s signature as acceptor had been forged. It will be recalled that cl 10 of the Loan Offer provides that:

“To accept this Offer You and, if there is more than one person all of You, must sign and return ... the original copy of this Offer ... within 21 days ...” (Emphasis added.)

The expression “You” is defined in the Booklet to mean “the person or persons to whom the Offer is made”.

78 The Loan Offer bore the genuine signature of Mr English purporting to agree to the terms of the Offer and accepting it. It also bore the forged signature of Ms English purporting to accept the Offer. The express statement in the Offer, that it was capable of acceptance only if all the persons to whom the Offer was made signed the acceptance, was plainly never complied with. In these circumstances, no enforceable agreement ever came into force between Perpetual and the husband and wife, or between Perpetual and the husband. The signature of Mr English alone was not capable of constituting acceptance of the Loan Offer. Perpetual never made an offer to Mr English alone and he never purported to accept any such offer.

79 It follows from what I have said that the first limb of the definition of “Secured Agreement” in the Mortgage was not satisfied. There was no “present agreement” between Perpetual and Mr and Ms English, or between Perpetual and Mr English, at the time Mr English executed the Mortgage. There was no money payable under a Secured Agreement and therefore there were no amounts satisfying the definition of “Secured Moneys” in cl 1.1 of the Memorandum. The Mortgage was not security for the payment of any Secured Money since there was nothing that satisfied that definition. In short, the undertaking in cl 2.2 of the Memorandum to pay the Secured Money as and when it became due had nothing to operate on.

80 It is therefore irrelevant that the word “I” is to be read as a reference to either the husband or wife, or to both of them. In whatever way “I” or the related pronouns are interpreted for the purposes of the Mortgage, it does not alter the fact that there is no Secured Money in respect of which the Mortgage is to be security.

81 Perpetual’s supplementary written submissions sought to avoid the conclusion I have expressed by contending that cl 10 of the Loan Offer had no application where only one person (Mr English) was aware of the Loan Offer and that person had admitted in his pleadings that he was liable to Perpetual under the Loan Agreement. The submissions did not explain, however, why these matters justified ignoring the express terms of the Loan Offer when considering whether an agreement on the terms of the Loan Offer came into force between Perpetual and one or both of Mr and Ms English.

82 The Loan Offer, on its face, was made to Mr and Ms English and required acceptance by both of them. The fact that Ms English was unaware of the Loan Offer does not alter the requirements for a valid acceptance. Mr English’s admissions in his pleadings, whatever effect they may have in Perpetual’s case against him, cannot alter the fact that Ms English never accepted the Loan Offer and therefore the requirements of cl 10 of the Loan Offer were never satisfied.

83 The absence of any concluded agreement between Perpetual and Mr and Ms English, or between Perpetual and Mr English, does not mean that Perpetual is without remedies against Mr English in respect of the moneys advanced to him. Perpetual might well have an action against Mr English, for example, for money had and received, although that will be of little value given Mr English’s bankruptcy. As I mention later, the Mortgage to which Mr English forged Ms English’s signature might take effect as an equitable mortgage to Perpetual of Mr English’s interest in the Property.

84 Another possibility is that Mr English, in proceedings between himself and Perpetual, might be estopped from denying that an agreement in the terms of the Loan Offer had come into force between them. Perpetual’s supplementary written submissions make no reference to estoppel, presumably because it has never pleaded such a case against either Mr English or Ms English.

85 If, however, Perpetual did seek to make out a case of estoppel against Mr English, an issue would arise as to whether any estoppel available against him could avail Perpetual against Ms English. To put the matter another way, it is far from obvious that the expression “present agreement” in the definition of “Secured Agreement” in cl 1.1 of the Memorandum is apt to embrace, not an agreement in fact entered into, but one which a fraudulent party is estopped from denying in proceedings brought by the defrauded lender. The issue was not argued, but I doubt that the definition of “Secured Agreement” should be given such an expansive interpretation. The contra proferentem principle would seem to have particular force when applied to the construction of an instrument not only drawn up by an institutional lender, but the terms of which are sought to be enforced against a party who is neither a party to the instrument nor aware of the circumstances giving rise to the estoppel.

86 There is a further difficulty confronting Perpetual. The second element of the definition of “Secured Agreement” requires a present agreement:

“which I acknowledge in writing to be an agreement secured by the Mortgage”.

87 The acknowledgement for the purposes of this definition is said to be the statement of cl 5 of the Loan Agreement, as follows:

“By accepting this Offer You agree that the following new Security is to be provided to the Lender for the Loan:

Registered First Mortgage by [Mr and Ms English over the Property]”.

88 Since the Offer was never accepted, the terms of cl 5 of the Loan Offer were never satisfied. That is, both Mr and Ms English never agreed that the Mortgage was to be provided to Perpetual for the Loan.

89 Even if the word “I” in the definition of “Secured Agreement” is construed to mean “either of us”, it is difficult to see how the fact that Mr English signed the Loan Offer could amount to an acknowledgement for the purposes of the definition of “Secured Agreement”. Perpetual’s case was that cl 5 of the Loan Offer constituted the acknowledgement, not that Mr English’s purported acceptance constituted the acknowledgement, but the terms of cl 5 were never satisfied because the Loan Offer was never validly accepted. In my view, an acknowledgement for the purposes of the definition of Secured Agreement must be one that is effective according to the terms of the instrument in which it appears. Clause 5 of the Loan Offer was simply not satisfied and thus could not constitute an acknowledgement.

Disposition of the Appeal

90 For these reasons I conclude that the Mortgage, on its proper construction, does not provide security for the payment of any “Secured Money”. In particular, the Mortgage is not security for the payment of any moneys that might have been due under the Loan Offer, had that Offer been validly accepted. Perpetual is not entitled to enforce its power of sale against Ms English’s interest in the Property.

91 It follows that Perpetual’s appeal against the primary Judge’s rejection of its claim against Ms English must be dismissed.

A Comment on the Integrity of the Register

92 Since the RP Act embodies a system of title by registration, the maintenance of a publicly accessible register containing the terms of registered dealings is of paramount importance: Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45; 233 CLR 528, at ([37]), per curiam (a case involving constructing a registered easement). As the High Court pointed out in Westfield Management v Perpetual Trustee, at 539 ([39]), a third party who inspects the register cannot be expected to look further for extrinsic material that might have existed at the time the interest was created. For that reason, the Court rejected a contention that a registered instrument should be construed by reference to extrinsic evidence relating to matters not on the register: at 539-540 ([40]-[44]).

93 A party inspecting the register might be concerned to ascertain the precise nature of the security interest held by a registered mortgagee. This would be so, for example, where that party was contemplating taking a transfer of the mortgage. What is the position of the transferee where the mortgage, as a matter of construction, does not secure an “indebtedness” created by an antecedent transaction? Can it be said that the transferee’s reliance on the register is misplaced and that therefore the integrity of the register is compromised?

94 The position of the transferee of a mortgage upon registration of the transfer is governed by ss 51 and 52 of the RP Act. Section 51 provides that upon registration of the transfer the estate or interest of the transferor as set forth in the instrument, with the rights, powers and privileges thereto belonging, shall pass to the transferee. Section 52(1) provides that by virtue of the transfer of a mortgage, the right to sue upon the mortgage and to recover any debt or sum of money thereunder is transferred so as to vest the same at law as well as in equity in the transferee.

95 If a registered mortgage, upon its proper construction, does not secure an “obligation” created by an antecedent void instrument, it is unlikely that the transferee of the mortgage would be in a better position than the transferor to enforce the mortgage against an innocent joint registered proprietor whose signature had been forged to the antecedent instrument and to the mortgage: cf Consolidated Trust Co Ltd v Naylor [1936] HCA 33; 55 CLR 423, at 434-435 ([8]), per Dixon and Evatt JJ; Queensland Premier Mines Pty Ltd v French [2007] HCA 53; 235 CLR 81, at 99 ([49]), per Kiefel J (with whom Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ agreed); Provident Capital v Printy, at [31]-[38].

96 This does not necessarily mean, however, that the register lacks integrity or that it cannot be relied upon by a party proposing to take a transfer of the mortgage, provided that the reliance is consistent with a recognition of the limits on the concept of indefeasibility. The conclusion does mean that where the precise nature and extent of the security interest of a registered mortgage depends, as a matter of construction of the mortgage, on the efficacy of antecedent documents that do not form part of the register, the transferee, in order to protect itself against the risk of fraud, must be satisfied as to the validity of the antecedent documentation. If the documentation turns out to be void, whether because of forgery or for other reasons, the difficulty cannot be attributed to a lack of integrity of the register. Rather, it is a product of the invalidity of documentation that is not affected by the principle of indefeasibility of title and as to the validity of which the register says nothing.

97 It is true that the consequence of the invalidity of antecedent documentation may produce the result that a registered mortgage does not secure a debt. But that is the situation where a mortgagor repays the mortgage debt, yet the mortgage remains undischarged: cf C N and N A Davies Ltd v Laughton [1997] 3 NZLR 705 at 714; J Stoljar, ‘Mortgages, Indefeasibility and Personal Covenants to Pay’ (2008) 82 ALJ 28 at 30.

98 It is also true that in a given case, as the authorities demonstrate, it may be very difficult to determine, without reference to the antecedent documentation and knowledge of the circumstances in which it was executed, the precise extent of the registered interest to which indefeasibility attaches. Perhaps that suggests that unless the effect of the registered instrument is abundantly clear, caution should be exercised before assuming that the registered instrument will necessarily validate an otherwise void antecedent transaction that forms no part of the register. It also suggests that Parliament might give careful attention to legislation of the kind that has been enacted in Queensland (see [15] above).

Perpetual’s Claim Against Mr English

99 The conclusion that the Mortgage, as a matter of construction, does not provide security to Perpetual in respect of any “Secured Money” leaves open the question of whether Perpetual has an enforceable security over Mr English’s interest in the Property. Mr English’s position is different from that of Ms English, for two reasons.

100 First, Mr English made admissions in pleadings filed on his behalf that were never withdrawn. Secondly, it was Mr English who forged his wife’s signature to the Loan Offer and Mortgage and presented both documents to Perpetual as bearing the genuine signature of Ms English. It is hardly to be supposed that the perpetrator of a forgery should be able to escape liability to a mortgagee on the ground that the forgery rendered the mortgage documentation void or otherwise ineffective. It is for this reason that where a mortgage is purportedly executed by both spouses, but the signature of one has been forged by the other, the mortgagee obtains an equitable mortgage enforceable against the interest of the forger: Sansom v Westpac Banking Corporation (1996) 7 BPR 14,615, at 14,634, per Sheller JA (with whom Priestley JA agreed). As Hodgson J explained in National Commercial Banking Corporation of Australia Ltd v Hedley (1984) 3 BPR 9477, at 9483, the principle rests on two independent bases. First, the courts imply an agreement between the forger and the mortgagee for the forger to mortgage his or her interest as security for the loan provided by the mortgagee. Secondly, an estoppel arises from the representation made by the forger, relied on by the mortgagee, that the spouse’s signature is genuine.

101 In his defence filed in the present proceedings, Mr English made the following admissions:

Perpetual agreed to provide credit to him and Ms English on the terms specified in the Loan Agreement;

he and Ms English, jointly and severally, agreed to repay the amounts due under the Loan Agreement, together with interest, charges and expenses;

the Loan Agreement enabled Perpetual to require him to make repayment in full of all money owing under the Loan Agreement upon default by him or by Ms English.

by the Mortgage, he and Ms English mortgaged to Perpetual the Property to secure the sum of $536,000 advanced under the Loan Agreement, plus interest;

pursuant to the Mortgage he and Ms English were under an obligation to Perpetual to repay the sum of $536,000, or so much as was outstanding, together with interest; and

the Mortgage contained terms to the effect that upon default being made, Perpetual could exercise its power of sale and take possession of all or any of the Property.

102 The defence did not admit default in making payments expressed to be done under the Loan Agreement. However, the evidence established that default occurred and her Honour so found.

103 In view of the admissions and the finding to which I have referred, subject to one matter to which I shall refer, Perpetual is entitled to relief against Mr English on the basis that the Mortgage secures the loan of $536,000, plus associated interest and charges, against Mr English’s interest in the Property.

104 The qualification to what I have said is that the relief sought in the amended statement of claim on which Perpetual relied at trial was in substance limited to an order for possession of the Property and judgment against Mr and Ms English in the sum of $626,370.91. The notice of appeal, as I have mentioned, seeks, in the alternative, a declaration that Mr English’s interest is subject to the Mortgage and an order for the appointment of trustees for sale of the Property. No amendments to claim this relief have yet been made to the pleadings.

105 As I have noted, at the trial, by reason of Mr English’s bankruptcy, Perpetual did not seek possession of the Property. The notice of appeal identifies additional relief sought against Mr English. That relief, insofar as it seeks an order for the appointment of trustees for the sale of the Property, affects Ms English’s interest. Having regard to form of the notice of appeal and the fact that neither Mr English nor his trustee in bankruptcy has appeared on the appeal, I would allow Perpetual to file a further amended statement of claim seeking the relief identified in the notice of appeal. I would also make a declaration in the terms sought in the notice of appeal.

106 Ms English should be given an opportunity to consider whether she objects to the appointment of trustees for sale of the Property. It may be that the parties can agree on short minutes of order to give effect to the judgment. If they cannot, they should have the opportunity to make short written submissions on the form of additional orders.

107 I should make one additional observation. Had it been necessary to do so, I would have been prepared to grant leave to Perpetual, upon notice to Mr English and his trustee in bankruptcy, to amend its pleadings to claim relief on the ground that the Loan Agreement and Mortgage took effect on an equitable mortgage of Mr English’s interest in the Property. However, in view of the conclusions I have reached, it is not necessary to grant Perpetual leave to rely on the equitable mortgage contention.

CONCLUSION

108 Perpetual’s appeal against the dismissal of its claim against Ms English should be dismissed with costs.

109 Perpetual’s appeal against the dismissal of its claim against Mr English should be allowed. Perpetual should be granted leave to file a further amended statement of claim seeking the relief against Mr English identified in the notice of appeal and should file an amended statement of claim within 14 days.

110 The parties should bring in agreed short minutes to give effect to the judgment to the extent that it allows the appeal. If the parties cannot agree on the appropriate short minutes, each should file proposed short minutes with brief written submissions supporting the form of orders.

111 I propose the following orders:

1. Perpetual’s appeal against the dismissal of its claim against Ms English be dismissed.

2. Perpetual pay Ms English’s costs of the appeal.

3. Perpetual’s appeal against the dismissal of its claim against Mr English be allowed.

4. Perpetual be granted leave to further amend its amended statement of claim to claim the relief against Mr English identified in the notice of appeal.

5. The further amended statement of claim be filed within 14 days.

6. Perpetual file within 14 days of these orders short minutes of order giving effect to the judgment to the extent that additional orders are required in consequence of the appeal being allowed.

7. If Ms English disputes the terms of the proposed short minutes of order:

(a) Perpetual should file brief written submissions accompanying the short minutes of order supporting the terms of the orders it proposes; and

(b) Ms English should file within 14 days of these orders alternative short minutes of order accompanied by brief written submissions supporting the terms of the orders she proposes.

8. Mr English pay the costs of Perpetual’s appeal against dismissal of its claim against Mr English.

9. Perpetual, if otherwise qualified, have a certificate under the Suitors’ Fund Act 1951.

LAST UPDATED:
12 March 2010