CEG Direct Securities Pty Ltd v Wang

The primary judgment

1. Cavanagh J ordered that certain issues be determined as separate questions. [15] In substance, those issues were first, whether the signatures purporting to be those of Xihai and Hai Rong on the Powers of Attorney were forgeries; and secondly, if so, what if anything was secured by the mortgages on their proper construction. His Honour found that the signatures were forged, [16] that neither of the mortgages nor the Deed of Guarantee and Indemnity was validly executed by or on behalf of Xihai and Hai Rong, and that the principal sums advanced by CEG to Shining on 10 May, 21 June and 12 September 2017 were not advanced at their request or direction. [17] Those findings are not challenged.
2. His Honour then addressed the following questions: "(d) Whether, even if questions (a) to (c) be answered in the negative [as they were], upon the proper construction of the [131 Marsfield] mortgage it secures, and [131 Marsfield] is charged with, payment to [CEG] of: (i) the principal sum of $200,000 together with interest and costs, or alternatively (ii) $nil? (e) Whether, even if questions (a) to (c) be answered in the negative [as they were], upon the proper construction of the [22 Marsfield] mortgage it secures, and [22 Marsfield and Hunters Hill] are charged with, payment to [CEG] of: (i) the principal sum of $381,000 together with interest and costs, or alternatively (ii) $nil?"
3. His Honour answered each of those questions "$nil", [18] and it is from those answers that CEG seeks leave to appeal.

The mortgages

1. Each of the mortgages in the present case was relevantly identical in terms. Each instrument comprised the standard form cover and execution pages, including at item (D): "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 are incorporated in this mortgage."
2. Annexure A comprised a page entitled "Agreement", also executed, containing the following: [19] "You (the mortgagor) agree with us (the mortgagee) as follows: The Mortgage Common Provisions in this annexure are incorporated in the mortgage. You acknowledge that you received, read and understood a copy of the Mortgage Common Provisions before signing this mortgage. A reference to "this mortgage" in the cover sheet, this Annexure A, or in any other annexure to this mortgage is a reference to the mortgage constituted by the cover sheet and those annexures including the Mortgage Common Provisions. You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us. You acknowledge that, as at the date of this mortgage, we have agreed to lend $200,000.00 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Mortgage Common Provisions, is called the secured money. You acknowledge indebtedness to us for the secured money and agree to pay to us the secured money, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the facility agreement(s) in respect of the secured money are deemed to be covenants included in this mortgage."
3. The Mortgage Common Provisions included, in clause 13.1, the following relevant definitions: "Collateral Documents means: (a) any present or future loan agreement, mortgage, bond, charge, guarantee, or other document under which the Mortgagor either alone or together with any other person agrees with the Mortgagee in any way; (b) any document under which the Mortgagor either alone or with any other person agrees to pay money to the Mortgagee; (c) any document which is agreed to be collateral to the Mortgage or is specified as collateral in the Mortgage; and (d) any other security given to the Mortgagee to secure the Secured Money."
4. "Mortgage" was defined as follows: "Mortgage means any mortgage which is expressed to incorporate the provisions of this memorandum and includes the provisions of this memorandum. If there is any conflict between the provisions of this memorandum and a mortgage incorporating the provisions of this memorandum, the provisions of that mortgage prevail;"
5. "Secured Money" was defined as follows: "Secured Money means all money (and any part of that money) which directly, indirectly, contingently, or otherwise at any time is or becomes due by the Mortgagor (whether alone or not) to the Mortgagee for any reason and includes any money due: (a) pursuant to the Mortgage or a Collateral Document; (b) to any person on whose behalf the Mortgagee holds the Mortgage; on any guarantee, bond, account, document, negotiable instrument, or other instrument; because of anything by which the Mortgagee is or becomes in any manner a creditor of the Mortgagor; (c) on account of any person on the order, request, or under the authority of the Mortgagor; arising from anything done or omitted to be done by the Mortgagor which gives rise to a payment, expense, or loss by the Mortgagee; (d) because of the Mortgagee drawing, accepting, endorsing, paying, or discounting any order, draft, cheque, promissory note, bill of exchange, or other negotiable instrument on behalf of the Mortgagor; (e) under any bond, guarantee, letter of credit, or indemnity issued or given by the Mortgagee on behalf of the Mortgagor; and (f) interest or an amount in the nature of interest on all money described in this clause at the highest rate prescribed for that money or, if none, as determined by the Mortgagee."

What if anything do the mortgages secure?

1. The mortgagor's obligation is to be found primarily in clause 4 of the 'Agreement' page of Annexure A, by which the mortgagor acknowledges indebtedness for the "secured money" and agrees to pay the mortgagee the "secured money", interest, and all other money due. That directs attention to the meaning of "secured money".
2. Ultimately, CEG did not seek to derive assistance from the definition of "secured money" in clause 13.1 of the Mortgage Common Provisions. The only conceivably relevant provision was: "(a) pursuant to … a collateral document." However, the introductory words of the definition in clause 13.1 limit the definition to money due by the mortgagor to the mortgagee, and CEG did not submit that there was any collateral document which would assist it.
3. Accordingly, the issue turned on the definition of "secured money" in clause 3 of Annexure A, set out above. In short, CEG contended that the words "this amount" in clause 3 referred to the sum of "$200,000" simpliciter; whereas the respondents submitted that it referred to the sum of $200,000 lent (or advanced) to the mortgagors or at their request.
4. In my judgment, the respondents' construction is to be preferred. First, the reference to "this amount" naturally refers back to the phrase "we have agreed to lend $200,000.00 to you or at your request". Secondly, this impression is fortified by the reference to "any further advances" in the second sentence, which indicates that "this amount" refers "to the amount of $200,000.00 advanced to you or at your request". Thirdly, to construe the mortgage as securing the sum of $200,000 simpliciter, regardless of whether or not it was "lent … to you or at your request", would be to give it an entirely uncommercial and one-sided operation, and for that reason ought not readily be adopted.
5. Clause 2 does not tell against this construction: the "valuable consideration" received does not import actual receipt of the advance, but refers to the agreement to make the advance "to you or at your request".
6. CEG submitted that the provisions of the subject mortgages were not relevantly distinguishable from those considered by Campbell J in Tomasetti, in which the mortgage relevantly provided: [20] "The mortgagee has agreed to lend to the mortgagor and the mortgagor has agreed to borrow from the mortgagee the sum of $325,000 (hereinafter called the principal sum) … (3) The mortgagor covenants to pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the 12th day of May 2001."
7. Having referred to Maradona, Campbell J considered it clear that the estate or interest in the land created by registration of the mortgage was a charge securing the sum of $325,000 (together with interest etc). [21] His Honour referred to obiter remarks of Hayne JA (as he then was), with whom Brooking JA and Tadgell JA agreed, in Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd, [22] to the effect that it had not been contended that indefeasibility of a mortgage did not extend to the covenant for payment, it being plain that it did so extend. [23]
8. However, in Tomasetti, the covenant was to pay "the principal sum or so much thereof as shall remain unpaid". The "principal sum" referred to "the sum of $325,000". It was not qualified by any words such as "lend … to you or at your request", nor contextualised by any reference to "any further advances", such as appear in the mortgages in this case. Moreover, Campbell J does not appear to have considered whether "the principal sum" was qualified by the words "lend to the mortgagor" in such a way as to confine the defined term to money actually lent to the mortgagor.
9. CEG also submitted that the provisions of the subject mortgages were indistinguishable from those considered in Printy v Provident Capital Ltd ("Printy"). In that case the forged mortgage provided: [24] "The mortgagor acknowledges receipt of the principal sum of fifty thousand dollars ($50,000) (principal sum) and for the consideration of the advance of the principal sum the mortgagor hereby: (a) … (b) covenants with the mortgagee as follows: (i) the mortgagor will pay to the mortgagee the principal sum or so much of the principal sum as shall remain unpaid on the date which is twelve months from the date of this mortgage, …"
10. The mortgagor, Mr Printy, conceded that registration provided relevant indefeasibility. However, whether the definition of "principal sum" caught money not in fact advanced to the mortgagor was not argued. Such an argument may have faced the obstacle that the registered instrument also contained an acknowledgement of receipt of the principal sum. As was explained by Young CJ in Eq (as he then was) in Perpetual Trustees Victoria Ltd v Tsai, [25] the mortgagee's position may be stronger in the case of a mortgage in the traditional form which refers to a principal sum advanced and contains an acknowledgement that it has been received; although such an acknowledgement of receipt is at best prima facie evidence and would have to yield to facts as proved. [26] In the present case, there was no acknowledgement of receipt at all. As explained above, the reference to "valuable consideration" (cl 2) is not an acknowledgement of receipt. By way of contrast cl 3 is an acknowledgement of an agreement to lend and cl 4 of "indebtedness" for "secured money", which describes an amount to be advanced and "any further advances". Perhaps more importantly by way of distinction from the present case, the definition in Printy contained no such words as "advanced by the mortgagee to the mortgagor or at the mortgagor's request".
11. CEG also submitted that the present mortgages were distinguishable, by the absence of the use of the word "repayment", from that which was held to secure nothing in Ippin Textiles Pty Ltd v Winau Aust Pty Ltd ("Ippin"), in which the relevant covenant was as follows (emphasis added): [27] "'Principal Amount' means the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage and, if no amount is specified in Schedule A as the "Principal Amount", that expression shall mean any amount advanced by the Lender to the Debtor, or to any other person at the Debtor's direction, on any transaction or any amount advanced, whether directly or indirectly associated with the grant of this Mortgage;…"
12. In Ippin it was relevant that there never was, for the purposes of the definition of "Principal Amount", an "amount advanced by the Lender to the Debtor, the repayment of which is secured by this mortgage". That was because, although the person to whom the funds had been paid was not the "Debtor" for the purposes of the definition, even if he was there had not been an "advance", because he stole the money rather than receiving it as a loan or "advance", and the word "repayment" in the definition of "Principal Amount" made it clear that the amount referred to was an amount that had "actually been advanced", as otherwise it would make no sense to talk about its "repayment" being secured.
13. However, in Ippin that was but one indicium that contributed to the conclusion that the mortgage was intended to secure only moneys actually advanced. In the present case, although the word "repayment" is not used, its absence does not tell against construing clauses 3 and 4 together to mean that the mortgagors' obligation to pay the secured money was to pay the $200,000 advanced "to you or at your request".
14. For those reasons, neither Tomasetti nor Printy is inconsistent with the view that I take of the relevant provision in this case; nor does the absence of a reference to "repayment", such as was of some significance in Ippin, require a different result. As, on his Honour's unchallenged findings, there was no money advanced "to you or at your request", his Honour rightly concluded that the mortgages secure nothing.

Disposition

1. An appeal lies from the determination of a separate question only by leave. [28] As the practical effect of the determinations was to resolve finally and adversely to CEG its claims to enforce the mortgages against the first and second respondents and for possession, and as the appeal was heard concurrently with the application for leave, leave to appeal should be granted. For the foregoing reasons, the appeal should be dismissed. The parties were in agreement that, because of outstanding potential claims by one or other of them, depending upon the outcome, against the Registrar General, this Court could not finally dispose of the matter, and that it would therefore have to be remitted.
2. I propose the following orders: 1. Grant leave to appeal; 2. Direct that the applicant within seven days file a Notice of Appeal in the form of the Draft Notice of Appeal; 3. Dismiss the appeal; 4. Remit the balance of the proceedings to the Common Law Division; and 5. Order that the applicant pay the respondents' costs.

Endnotes

1. The later mortgage specifies $381,000.00 in place of $200,000.00. The two mortgages are otherwise relevantly identical, and so for convenience only $200,000.00 is referred to in this headnote.
2. Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70; Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 191 (Hayne JA; Brooking JA and Tadgell JA agreeing); Yazgi v Permanent Custodians Ltd (2007) 13 BPR ¶24,567; [2007] NSWCA 240; Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [68] (Sackville AJA; Allsop P and Campbell JA agreeing); Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [23] (Macfarlan JA; Leeming JA and Brereton JA agreeing).
3. Real Property Act 1900 (NSW), s 41(1).
4. English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321 (Dixon, Evatt and McTiernan JJ); [1937] HCA 6.
5. Real Property Act 1900 (NSW), s 57(1); Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453 at 466 (Dixon J; Rich J agreeing), 472-473 (Evatt J); [1933] HCA 38.
6. (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [9] (Campbell J).
7. [1972] 1 NSWLR 24.
8. Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24 at 41 (Asprey JA; Holmes JA agreeing).
9. Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24 at 49-50 (Mason JA).
10. Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 at 17 (Barwick CJ; McTiernan J and Stephen J agreeing); [1973] HCA 14.
11. (1992) 25 NSWLR 642 at 679 (Giles J); approved in Yazgi v Permanent Custodians Ltd (2007) 13 BPR ¶24,567; [2007] NSWCA 240 at [19] (Beazley JA; Ipp JA and Tobias JA agreeing).
12. (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [68] (Sackville AJA; Allsop P and Campbell JA agreeing).
13. Perpetual Trustees Victoria Ltd v English (2010) 14 BPR ¶27,339; [2010] NSWCA 32 at [12] (Sackville AJA; Allsop P and Campbell JA agreeing); Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR ¶30,189; [2011] NSWCA 390 at [15]-[16] (Giles JA; Bathurst CJ, Campbell JA, Macfarlan JA and Sackville AJA agreeing); Perpetual Trustees Victoria Ltd v Cox (2014) 17 BPR ¶33,313; [2014] NSWCA 328 at [70]-[72] (Leeming JA; Macfarlan JA and Emmett JA agreeing); Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [60] (Leeming JA; Brereton JA agreeing).
14. PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 681 (Giles J). For the purposes of defining the mortgagee's interest, it is doubtful that regard may be had to unregistered documents: Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [66]-[75] (Leeming JA; Brereton JA agreeing). The proposition in Maradona that indefeasibility attaches to the mortgagor's personal covenant has been the subject of some well-considered commentary to the contrary: J Stoljar, "Mortgages, Indefeasibility and Personal Covenants to Pay" (2008) 82 ALJ 28.
15. CEG Direct Securities Pty Ltd v Shining Pty Ltd [2020] NSWSC 858.
16. CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) (2020) 19 BPR ¶40,671; [2020] NSWSC 1213 at [38]-[59] (Cavanagh J) ("Primary judgment").
17. Primary judgment at [60]-[61].
18. Primary judgment at [92]-[141].
19. The 22 Marsfield Mortgage referred to $381,000 where the 131 Marsfield Mortgage referred to $200,000. As the instruments are otherwise relevantly identical, for convenience, only the sum of $200,000 is used hereafter.
20. (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [13] (Campbell J).
21. Small v Tomasetti (2001) 12 BPR ¶22,253; [2001] NSWSC 1112 at [15] (Campbell J).
22. [1998] 1 VR 188.
23. [1998] 1 VR 188 at 196.
24. (2007) 13 BPR ¶24,603; [2007] NSWSC 287 at [44] (Studdert J).
25. (2004) 12 BPR ¶22,281; [2004] NSWSC 745 at [20]-[21] (Young CJ in Eq).
26. Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 at [28] (Macfarlan JA; Leeming JA and Brereton JA agreeing).
27. [2021] NSWCA 9 at [16] (Macfarlan JA; Leeming JA and Brereton JA agreeing).
28. Supreme Court Act 1970 (NSW), s 103.

Amendments 07 May 2021 - Correct date 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: 07 May 2021