Bay Bon Investments Pty Ltd v Sultana

The security documents

1. As mentioned, the Mortgage is dated 12 November 2002. The mortgagee was Hocana Pty Ltd. In a box on the front page entitled "MORTGAGOR" the names John Joseph Sultana and Carolyn Irene Sultana (the Defendants) appear. Immediately underneath the following appears: 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 Annexure A /memorandum No. Q860000 filed at Land And Property Information New South Wales are incorporated in this mortgage.
2. Signatures purporting to be those of the mortgagors appear having been witnessed by Christine Anne Cross who is apparently the Second Defendant's sister.
3. Annexure A relevantly provides: FOR THE CONSIDERATION OF $116,000.00 The receipt of the said sum is hereby acknowledged and the Mortgagor hereby: (a) … (b) covenants with the Mortgagee as follows: Firstly - The Mortgagor will pay to the Mortgagee the principal sum, or so much thereof as shall remain unpaid, on the 1 May 2003, … Fourthly - the principal sum hereby lent shall be deemed to include any further monies lent by the Mortgagee to the Mortgagor hereafter and increase accordingly.
4. Memorandum Q860000 consists of 13 clauses. Only clause 13 is relevant and it provides: Every covenant expressed or implied in these presents and by which more persons than one covenant shall, unless the contrary intention is expressed, bind such persons, and every two or greater number of them jointly and each of them severally, and every reference in these presents to the Real Property Act, 1900, or the Conveyancing Act, 1919, shall be construed as including every Act amending or in substitution for the Act referred to. (emphasis added)
5. The Mortgage was registered and given number 9120264D.
6. There were two variations of the Mortgage dated 23 April 2003 and 26 June 2003. The effect of these variations was to increase the principal sum and to extend the term of the Mortgage. Neither is material for present purposes.
7. On 5 April 2004 the Mortgage was transferred from Hocana Pty Ltd to Stacks Managed Investments Ltd.
8. There were then three further variations on 2 April 2004, 20 August 2004 and 24 May 2005. None of these is material for present purposes.
9. The final variation of the Mortgage is dated 1 September 2009. It is of some significance for the present Motion. I note in passing that it extended the term to 1 May 2010, that being the default date relied upon in the Statement of Claim.
10. As with the original Mortgage the MORTGAGOR was said to be John Joseph Sultana and Carolyn Irene Sultana. Clause 4 said that the provisions of the Mortgage were varied as set out in Annexure A. Annexure A consisted of a number of boxes with descriptors in the left column and the information in the right column. Next to "(m) BORROWER(S)" appeared "John Joseph Sultana and Carolyn Irene Sultana". Next to "(r) SPECIAL CONDITIONS" was this (inter alia): 3. Memorandum No Q860000 is hereby withdrawn and is replaced with Memorandum No. AC218459F and each of the Debtors agree to be bound by the terms of the Memorandum No.AC218459F
11. Memorandum AC 218459F relevantly provided: 2. This memorandum, when read in conjunction with the front page of any mortgage which refers to it, including the SCHEDULE, incorporates a deed of mortgage (headed Mortgage Provisions), a deed of loan (headed Loan Provisions), a deed of guarantee (headed Guarantee Provisions), a deed of charge (headed Charge Provisions) and a deed granting a power of attorney (headed Power of Attorney Provisions). … 12. In the event that the item BORROWER in the SCHEDULE names more than one person then all persons named will be bound jointly and severally by the LOAN. In the event no-one is named as BORROWER then the MORTGAGOR will be deemed to be named as the BORROWER. … 15. If the item SPECIAL CONDITIONS appears in the SCHEDULE then those covenants will be taken to supplement the AGREEMENTS. If the SPECIAL CONDITIONS are inconsistent with any of the terms of the AGREEMENTS then the SPECIAL CONDITIONS will prevail, provided always that ambiguities will be construed in favour of the LENDER. 16. If in the SCHEDULE more than one MORTGAGOR, BORROWER, GUARANTOR or CHARGOR is listed then those words should be read as the plural. … 24. AGREEMENTS means jointly and severally the MORTGAGE, LOAN, GUARANTEE, CHARGE and the POWER OF ATTORNEY. … 29 DEBTORS or DEBTOR means jointly and severally the MORTGAGOR, BORROWER, GUARANTOR and the CHARGOR … 32 LOAN means the agreement constituted by that part of this memorandum headed "Loan Provisions" read together with the SCHEDULE. … 33. MORTGAGE means the agreement constituted by that part of this memorandum headed "Mortgage Provisions" and by the SCHEDULE and the front page of the mortgage which refers to this memorandum.
12. On 3 June 2011 the Mortgage was transferred from Stacks Managed Investments Ltd to the Plaintiff.

The issues

1. The parties agree that the issues are:
2. Whether, properly construed, the Mortgage although not executed by Mr Sultana, upon registration conferred an estate or interest on the Plaintiff in respect of the whole of the Property, which estate or interest secures the total sum owing to the Plaintiff pursuant to the terms of the Mortgage as varied;
3. Whether the relief sought in prayer 1 of the Motion ought to be granted.
4. For the purposes of the Motion which I am hearing the Plaintiff agrees that the First Defendant did not, despite attestation, sign or authorise, instruct of consent to any person on his behalf signing any of the documents for the Mortgage and any of the variations and did not know that the property was subject to the Mortgage. The Plaintiff also agrees that the Second Defendant forged the First Defendant's signature on all of the documents for the Mortgage and the variations. The First Defendant agrees that the principal sum and any other monies owing were not repaid by the expiry date and have not been repaid at all.
5. The parties also agreed that there was no issue about whether the registered Mortgage secured the covenant to pay. The sole issue concerned whether on its proper construction the Mortgage imposed a joint liability or a joint and several liability. If the former only then Mr Sultana's interests would not be affected by the registration of the Mortgage. If there was a joint and several liability his interest would be affected.
6. The parties did not suggest that issues that commonly arise on summary judgment applications from the application of the usual test from such cases as General Steel Industries Inc v Commissioner for Railways (NSW) (1965) 112 CLR at 129 were relevant. In that way the hearing of the Motion proceeded as if the matter for determination was the hearing of a separate question.

Submissions

1. The Plaintiff submitted that although the covenant to pay and the statement about what the mortgagor mortgaged left it equivocal as to whether it was a joint and several liability the incorporation of cl 13 of Memorandum Q860000 showed clearly that the liability was a joint and several one. The Plaintiff submitted that nothing changed in substance by the 2009 variation of Mortgage. Although a new memorandum was incorporated in place of Q860000 the effect of the definition of "BORROWER" and the meaning given to "DEBTORS" or 'DEBTOR" in cl 29 of the Memorandum showed clearly that the liability was joint and several.
2. Mr Sultana submitted that the starting point was that there is a presumption that a contract made by two or more persons is joint with express words being necessary to make it joint and several, relying on that statement from a book by G Williams, "Joint Obligations" (1949) London, Butterworths & Co., at p35, endorsed by Beazley JA (with whom Ipp and Tobias JJA agreed) in Sabah Yazgi v Permanent Custodians Limited [2007] NSWCA 240 at [10].
3. Mr Sultana submitted, first, that Memorandum Q860000 was not incorporated into the Mortgage against him. That was because the starting point is that the covenant that purported to incorporate the Memorandum was a joint covenant by Mr and Mrs Sultana and not a joint and several one.
4. Mr Sultana further submitted that even if the Memorandum was incorporated the critical words in cl 13 are "in these presents". He submitted that that refers to the document which is incorporated and not to the covenants contained in the Mortgage into which it is incorporated. e He submtiHe submitted that cl 13 of the Memorandum would be inconsistent with a construction of the promises in the Mortgage itself which presumes that they are joint and not joint and several.
5. In relation to the variation in 2009 Mr Sultana accepted that if Memorandum AC218459F replaces Memorandum Q860000 then there is a joint and several liability. If, however, Memorandum Q860000 was in incorporated into the Mortgage originally then what is contained in Special Condition 3 in the variation, working on the basis that it is a new agreement or new contract, is a single joint promise to withdraw the earlier memorandum and insert the new one. There are no other words to rebut the presumption that it is a joint promise. There is a second, separate promise made by each of the debtors that can be considered to be a joint and several obligation to be bound by the terms of the new memorandum. However, one only reaches that position if the first memorandum is withdrawn and that withdrawal binds Mr Sultana.

Consideration

1. Section 41 of the Real Property Act provides: 41 Dealings not effectual until recorded in Register (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. (2) (Repealed)
2. The principles relevant to forged mortgages and indefeasibility were set out by Sackville AJA (Allsop P and Campbell JA agreeing) in Perpetual Trustees Victoria Limited v English [2010] NSWCA 32 at [68] as follows: 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.
3. If it is established that the liability is a joint and several liability to pay the Mortgage sum then Mr Sultana will be bound notwithstanding he did not sign the Mortgage. So much is made clear in Perpetual Trustees Victoria Limited v Cipri [2008] NSWSC 1128. There the wife forged the husband's signature on the loan agreement and the mortgage. The mortgage was registered, default occurred, and the Plaintiff sought possession of the property against both the husband and wife.
4. Justice Hall held at [56] that by reason of the definition of "Secured Money" in the mortgage, the mortgage secured the obligations of the wife to pay the amounts owing under the loan agreement. The husband did not owe any money under the loan agreement because he was never a party to it. His Honour then went on to say: [89] By reason of the definition of "Secured Money" employed in clause 3.1 of the Memorandum to the Mortgage, the Mortgage itself secured Mrs Cipri's indebtedness under the loan. That debt was money payable or owing by her, she being severally, as well as jointly, liable to Perpetual. [90] Given that the Mortgage secured Mrs Cipri's indebtedness (that being the entire amount lent under the Loan Agreement) and as the whole of the property was subject to the Mortgage, Perpetual is entitled to enforce the Mortgage against both the first and second defendants' interests in the property. [91] Although at common law a mortgage purportedly signed by two joint tenants is not enforceable against the joint tenant whose signature on the mortgage has been forged, absent fraud on the part of the mortgagee or its privies, the fact of registration confers on the mortgagee an indefeasible interest in the land the subject of the mortgage irrespective of whether the mortgage was a forgery: Breskvar v Wall (1971) 126 CLR 376; Tsai (supra) at [11], [13]; Chandra (supra) at [1]. [92] The plaintiff is, accordingly, entitled to enforce the mortgage and seeks to invoke s.58 of the Real Property Act, this section conferring the power of sale on a mortgagee in circumstances where the requirements of s.57(2) of the Act have been satisfied.
5. A similar approach was taken by Adamson J in Permanent Custodians Limited v John Nobilo [2012] NSWSC 109 at [86] to [102].
6. It is necessary to see, therefore, if the liability of the defendants was joint only, or joint and several.

Was Memorandum Q860000 incorporated in the Mortgage against Mr Sultana?

1. Mr Sultana's submission against incorporation distinguishes between cl 13 of the Memorandum being contained as a clause in the Mortgage itself and in another document incorporated into that Mortgage. He argues, in effect, that, because of the presumption in favour of joint liability only, the indefeasibility given to the Mortgage does not extend at least to the covenant which purports to incorporate the Memorandum. The difficulty with that argument is that the words in the Mortgage "and covenants with the mortgagee that the provisions set out in annexure A/Memorandum Number Q860000 … are incorporated in this mortgage" would mean that what is contained in Annexure A would also not be incorporated against Mr Sultana. Yet Mr Sultana makes no such submission and accepts that the covenant contained within Annexure A attracts indefeasibility against him.
2. The submission does not sit easily with the result in Cipri because, in the same way, the Memorandum in that case containing the term that made liability joint and several where there was more than one Mortgagor, was covenanted to be incorporated into the Mortgage in the same way as in the present case: see at [44] to [48]. However, I note that no argument was apparently put in that case that the covenant incorporating the Memorandum was itself not a joint and several one.
3. The error in the submission, however, lies in failing to have regard to the position at the time of registration. It is only at that point that any liability can affect Mr Sultana. The Mortgage that was registered contained a covenant which incorporated both Annexure A and Memorandum Q860000. It is not to the point to enquire whether Q860000 was incorporated in a way that affected Mr Sultana's own interest. It was incorporated into the Mortgage and effect had then to be given to it.

Did clause 13 affect covenants in the Mortgage?

1. Clause 13 of Q860000 made the liability for any and every covenant, unless the contrary intention is expressed, to be joint and several. However, Mr Sultana submitted that it was limited by the words "in these presents", with the result that it was speaking only of clauses in the Memorandum and not the mortgage. He also submitted that to apply it to the terms of the Mortgage itself would be inconsistent with the presumption referred to earlier at [18]. I do not accept those submissions.
2. Once Q860000 is incorporated into the Mortgage "these presents" include the Mortgage as a whole with both Annexure A and Q860000. Q860000 was never a document intended to stand alone. It was drafted and registered to avoid the clauses it contained having to be physically included in each mortgage that seeks to take advantage of it. It must have been the intention of both the draftsman and the parties to any mortgage (including Mrs Sultana) seeking to incorporate its terms that those terms would come to form part of the mortgage in which reference to it is made.
3. When the Mortgage including the incorporated documents is read as a whole clause 13 will determine that the proper construction of the covenant to pay is a joint and several one. There is no inconsistency as Mr Sultana submitted. There is simply, in the first instance, a presumption contained in the covenant in the Mortgage itself. Where there is a clause such as clause 13 the presumption falls away because the clause contains express words making the obligation joint and several.
4. Clause 13 results in Mrs Sultana having an obligation to pay the principal sum. That obligation was secured by the Mortgage over the whole of the land and the Plaintiff is therefore entitled to possession of the land against both Mr and Mrs Sultana: Cipri at [90].

The 2009 variation

1. The initial question to ask in respect of the variation is what effect does the variation have on the original Mortgage. In Scarel v City Loan and Credit Corporation Pty Ltd (1986) 4 BPR 9226 Young J (as his Honour then was) said (at p 9227): Such authority as there is on the point, authority which is recognised by the standard books on the Conveyancing Act: see Stuckey on the Conveyancing Act, 2nd Edition, page 202 and Woodman & Nettle on the Real Property Act p 469 indicates that the legal effect of a variation of mortgage, where at least there is an alteration in the principal sum, is that a new contract has come into force compounding the terms of the previous mortgage, plus the variations. That statement is based on two decisions of the New Zealand Court of Appeal, namely, In re Goldstone's Mortgage (1916) 35 NZLR 489 at Public Trustee v Mortleman & ors (1928) 47 NZLR 337, both of which appear to support it.
2. That decision was followed by Barrett J (as his Honour then was) in Torre v Jonamill [2002] NSWSC 152 at [24].
3. Although Scarel was distinguished by Allen J in Mulinglebar Pty Ltd v Wongala Holdings Pty Ltd [1995] ANZ Conv R 25; (1994) NSW Con R 55-697 different considerations prevailed in that case.
4. The effect of the 2009 variation was, therefore, that a new contract came into existence between the parties. That, of course, is also borne out by two matters. First, the express terms of the variation provide that what had been contained in Memorandum Q860000 was no longer to apply but there was to be substituted the provisions of Memorandum AC218459F. Contrary to the position in Mulinglebar where Allen J found the original mortgage remained in force because the parties did not intend to rescind it, all of the indications in the present case are that the parties to the variation of mortgage did by the variation intend to rescind the previous mortgage as varied to that point: Tallerman and Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 112 and 135.
5. Secondly, MORTGAGE is defined as meaning the agreement constituted by (a) that part of "this memorandum", that is, AC218459F, (b) the SCHEDULE, and (c) the front page of the Mortgage which refers to "this memorandum". The Mortgage does not by that definition include what had been entered on 12 November 2002. That is a clear indication that the parties did intend to rescind that earlier Mortgage. Further, the definitions of LOAN and AGREEMENTS make clear that the only obligations referred to are those in the Variation together with the SCHEDULE and AC218459F.
6. It is necessary therefore to consider the issue of whether the covenants are joint only or joint and several in terms of the provisions of the 2009 variation and Memorandum AC218459F and nothing more.
7. Mr Sultana accepts that if Memorandum AC218459F is the operative memorandum then there is a joint and several obligation for the payment of the debt. That concession is properly made when regard is had to the terms of Special Condition 3 and clauses 12 and 29 of the Memorandum.
8. The definition of DEBTOR means (inter alia) BORROWER or MORTGAGOR, and the Schedule identifies the BORROWER as John Joseph Sultana and Carolyn Irene Sultana and the front page of the Variation shows that those people are also the MORTGAGOR. Annexure A is said to simply to vary the Mortgage without their being any covenant on the part of the mortgagor.
9. Mr Sultana argues that the agreement to withdraw Memorandum Q860000 is a single joint promise without there being any words or indication to rebut the presumption of a joint promise. In my opinion this submission has no regard to the fact that the variation is a new mortgage and that, as with the submission concerning the incorporation of Q860000, the position must be examined at the time of registration.
10. If, as I have held, this variation is a new mortgage, "each of the Debtors" agree to be bound by AC218459F. Mr Sultana accepts that he is bound by that promise. But if this is a new mortgage there is no need to go further in relation to Q860000 because it forms no part of the new mortgage constituted by the Variation, the Schedule and AC218459F.
11. If I am wrong in holding that it is a new mortgage, I have already held that Q860000 was incorporated into the original Mortgage and that clause 13 operated generally on covenants. In those circumstances Clause 13 is an expressed contrary intention to the presumption that the promise to withdraw Q860000 is a joint promise only.

Conclusion

1. These determinations are always difficult because one of two innocent parties must suffer from the criminality of the fraudulent party. The Plaintiff is entitled to possession of the whole of the land. However, Mr Sultana may have rights to claim against the Torrens Assurance Fund.
2. I make the following order: 1. Judgment for the Plaintiff for possession of the whole of the land contained in Folio Identifier 5/584714 being the property situated at and known as 3777 Wallanbah Road, Nabiac in the State of New South Wales.

Amendments 03 December 2015 - Publication date amended to 3 December 2015 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2015