As a corollary to this basis for the principle, there is no occasion for equity to intervene by way of subrogation where there is available to the third party a remedy at law or in equity sufficient to avoid an unconscionable result.
(I have inserted the Corrigendum at [1985] 3 NSWLR xi).
47 In the Fourth Edition (2002) of Meagher, Gummow & Lehane Equity Doctrines and Remedies the corresponding treatment of this doctrine is found at paras [9-060] to [9-075]. See too Fisher and Lightwood's Law of Mortgage Aust. Ed. (1995) at [14.6]. At [9-075] the learned authors of the 4th Ed of Meagher, Gummow and Lehane comment on the place in this doctrine of Banque Financière de la Cité v. Parc (Battersea) Ltd [1999] 1 AC 221 and the speech of Lord Hoffmann which applied unjust enrichment law to subrogation.
48 An explanation in terms of the intention or the presumed intention of the payer of the basis on which a person who pays off an existing mortgage is entitled to be subrogated to the position and the rights of the mortgagee who has been paid does not give the law a basis which is clear or can be readily understood. The reference to the intention or presumed intention of the payer may introduce an element which is not necessary for an understanding of subrogation but is unfortunately distracting, particularly where the intention is presumed or, it might be said, fictitious. It will be seen that in the first paragraph in the passage from Cochrane v. Cochrane which I have set out Kearney J referred to Ghana Commercial Bank v. Chandiram in which the Privy Council stated the rule in terms of presumed intention, but in the second paragraph Kearney J explained the principle in terms of the position in conscience of the mortgagor, to which the intention of the payer that he should or should not have security, if he had any intention about it, is relevant but not necessarily conclusive. Observations of Lord Hoffmann in Banque Financière de la Cité v. Parc (Battersea) Ltd at pp232-234 illustrate the difficulties of relating subrogation in this context to intention, when intention is a fictitious element and also when it is not.
49 References to the intention of the payer fail to express anything which is central to the doctrine of subrogation. It sometimes happens that the person to whom a presumed intention to keep a mortgage alive is imputed has actually acted to bring about its discharge; that is so in the present case. The essence of the doctrine is elsewhere than in an intention or presumed intention of the payer to rely on the mortgage which was paid off. Intention may be significant where it is for some reason clear that the payer did not intend to be secured at all; otherwise it appears to me to be unfortunate that it should have a part in a statement of the doctrine.
50 I would respectfully say that Lord Hoffman's relation, at 234, of subrogation to unjust enrichment was not articulated in the authorities to which his Lordship referred, and is not established in Australian case law. In my understanding explanation of subrogation in terms of restitution and unjust enrichment was introduced by Millett LJ in Boscawen v. Bajwa [1996] 1 WLR 328 at 334, and was not earlier found. Lord Hoffmann's reference to the law of restitution does not, in my respectful opinion, provide an explanation for the mortgagor's being treated as bound, in equity, to treat the person who paid off the previous mortgage as entitled to security under it. Restitution would provide a basis for treating the mortgagor as obliged to restore to the person who paid it the amount which had been paid to the mortgagee: the concept is inadequate for also treating the mortgagor as obliged to hold the payer secured. This is particularly clear where, as in this case, and in other cases where subrogation has been held to exist, the mortgagor in fact had no dealings with the payer, or where the payer believed that he was getting security under arrangements in which the mortgagor was not in fact involved. To my mind it is enough to see subrogation as an entitlement which equity accords to the payer, firmly established by judicial decisions notwithstanding that a satisfactory doctrinal basis is difficult to identify, and notwithstanding that classification of the mortgagor's position as unconscionable seems very attenuated.
51 On the facts of the present case the intention of the plaintiffs that they should have security over the Paddington property for the money they advanced is unmistakably clear; there is no room for a presumption, because their intention to obtain security was the whole basis of their involvement. Fortuitously the security to which they claim to be subrogated still exists in the highly concrete form of a registered and undischarged first mortgage. The plaintiffs did not intend that mortgage to continue to exist: they made firm preparations to discharge it, which were defeated by the Registrar General's intervention. The Friels were bound by that registered mortgage, having regard to the operation of s.42 of the Real Property Act 1900; Residential Housing Corporation was protected by s.42 because it was not involved in the frauds which brought that mortgage into existence and brought about its registration.
52 There was some discussion during the hearing of whether the Friels were bound by the personal covenants in the first mortgage; I am inclined to think that they were not, but the question is of no importance for disposition of the case because the effect of s.42 is that the Paddington land was fully and effectually charged with the debt due to Residential Housing Corporation, and the Friels would be advantaged by the discharge of their land from the debt in much the same way as if they themselves were discharged from personal covenants. The intervention of the plaintiffs and their payment of the mortgage debt under the influence of a further array of fraudulent conduct is a fortuitous set of circumstances, when viewed from the point of view of the Friels, in which a large sum of the plaintiffs' money has gone to relieve the Friels of an obligation charged on their land. It would be unconscionable of the Friels to take advantage as against the plaintiffs of the discharge of their land from that obligation, however unjust to the Friels were the circumstance in which that obligation was earlier charged on their land.
53 In P T Limited v. Maradona Pty Ltd [1991] 25 NSWLR 643 the facts before Giles J, and the facts in Travinto Nominees Pty Ltd v. Vlattas (1973) 129 CLR 1 and in Consolidated Trust Co. Ltd v. Naylor (1936) 55 CLR 423, the High Court decisions on which Giles J's opinion was based, did not include the element present here that the purported personal covenants were forged covenants with which the Friels had no association whatsoever. In the Residential Housing Corporation mortgage, as in P T Limited v. Maradona Pty Ltd, the mortgage did not specify the amount of money charged on the property except in the personal covenant, and that amount was ascertainable only by reference to the personal covenant and liability incurred under it. Notwithstanding that the language used in each of those cases supports the view that liability for personal covenants in mortgages is within the indefeasibility conferred by registration, in none of those cases was the present problem or anything at all like it actually addressed. The doubt I have expressed does not appear to me to have any influence on the outcome of the present case. The value of the property is such that it is unlikely that there would ever be any wish to enforce the personal covenant, and the personal covenant establishes the amount of money charged on the property whether or not it is enforceable personally against the Friels. Remedies which elsewhere in this judgment I find are available to the Friels make the question of enforcement against them personally academic. In the whole circumstances of the Friels it is unjust that any liability should be charged on their property, but the plaintiffs and Residential Housing Corporation are not involved in the frauds which make the circumstances unjust, and subrogation and related questions of conscience should be addressed in a narrower frame.
54 The principal basis of the submissions made by Mr Sirtes of counsel for the Friels was that there is no ground on which it is unconscionable of the Friels not to treat the plaintiffs as having security over the Paddington land, because the Friels had no part whatever in the chain of events, both as to Residential Housing Corporation's advancing money and acquiring security over the Paddington land, and also as to the plaintiffs' advancing money in the belief that they were obtaining security over the Paddington land, paying off the amount apparently due to Residential Housing Corporation, and failing because of intervention by the Registrar General to get the registered mortgage which the plaintiffs expected to have. The Friels took no part in the whole chain of events from beginning to end, and did nothing at all, by act or omission, to contribute to the plaintiffs' difficulties. Mr Sirtes submitted that as the Friels knew nothing about the fraudulent Residential Housing Corporation mortgage, or about the detriment the Friels had suffered by its registration, it cannot be said that there is some unconscionability on their part when the debt so charged on their land was relieved by payment by another person who was also a stranger to them. Mr Sirtes suggested that their position in conscience is not adversely affected by these transactions, and that no degree of unconscionability such as would support the plaintiffs' claim to subrogation could arise. Mr Sirtes contended that it was not to the point for the plaintiffs to assert that Residential Housing Corporation had an entitlement to make a claim against the Friels and their land because its first mortgage was registered and protected by s.42; the plaintiffs are not Residential Housing Corporation.
55 Mr Sirtes referred to the following passage in Registrar General v. Gill (NSW CA 14 August 1994 unreported) cited in Meagher, Gummow & Lehane Equity Doctrines and Remedies 4th Ed. at [9-070]:
The equitable principles relating to subrogation aim to adjust the interest of three parties, such as a creditor, a debtor and an insurer or surety, in such a way as to avoid the unconscionable result of double recovery by the creditor or inequitable discharge of the liability of the debtor.
56 Mr Sirtes described his clients as an entirely innocent party who had nothing to do with any of the transactions, and contended that it would be contrary to the development of the law regarding the equity of subrogation that their behaviour should be said to be unconscionable, when the circumstances were entirely beyond their control.
57 I do not accept Mr Sirtes' submission because it does not appropriately attribute effect to the first mortgage and the entitlement of Residential Housing Corporation to a first mortgage over the Paddington land; these existed notwithstanding that the Friels had no part whatsoever in the events which brought them into being; they existed because s.42 of the Real Property Act gives effect to the first mortgage on its registration. The Friels' land was charged by the first mortgage, and the payment by the plaintiffs discharged the Friels' land of this obligation; the Friels were advantaged by the payment and to the extent of the payment, and no less so because of the unjust circumstances in which their land came to be bound by the first mortgage.
58 Mr Sirtes also submitted that (as is quite correct) it was not the intention of the plaintiffs that they should be secured by the first mortgage or by subrogation to rights under it. However in my opinion it is sufficient that the plaintiffs intended to have security of some kind and that their payment went towards discharging the previously existing security. (The intention that they should have security is spoken of in the authorities as presumed intention, and may not be a real requirement; but in the present case there is no doubt on the facts that the plaintiffs had an actual intention to that effect.) Mr Sirtes contended, correctly, that the plaintiffs had no actual intention to keep the registered first mortgage alive; quite the contrary they went to some lengths to have it discharged, and they did not choose to take an assignment of it. The terms of the security which the plaintiffs intended to have differed very markedly from the terms of the Residential Housing Corporation mortgage.
59 The position in conscience of the Friels is markedly different from the position of the Rices in Butler v. Rice; Mr Sirtes went to some lengths to develop the differences. The adverse comments which were made of the Rices in that case can have no parallel here. However the essential element that the plaintiffs paid money to discharge a mortgage over the Friels' property, and the further element, if it be essential, that the plaintiffs intended to take security for their payment, are present here.
60 Mr Sirtes referred to Porter v. Associated Securities Ltd (1976) 1 BPR 9279 and to this passage in the judgment of Needham J (at 9294-9295):
As I have said, there is no doubt of the principle of subrogation as it applies to a person paying off a mortgage, or lending money for that purpose which is so used see Butler v Rice[1910] 2 Ch 277 and Ghana Commercial Bank v Chandiram [1960] AC 732. But in the present case, in my opinion, the defendant did not come within that principle. It financed the purchase by Edroga Investments Pty Ltd (thereby obtaining security for its advance over the beachfront land). The money used to pay off the mortgage to the Bank was money paid by Edroga Investments Pty Ltd (even though borrowed from the defendant) on account of the plaintiff. It was in every relevant sense the plaintiff's money, not the defendant's.
61 I observe that in Porter's case there was no subrogation where the money of the payer was advanced to the debtor notwithstanding that money could be traced as then having been used by the debtor to pay the secured debt. The circumstances showed that the payer did not intend to have security at all.
62 Mr Sirtes also contended that there are discretionary grounds on which I should withhold equitable relief from the plaintiffs. This contention was based on what he said was the high rate of interest provided for by the Residential Housing Corporation mortgage to which, as Mr Sirtes submitted, the plaintiffs must be taken to have asserted that they are subrogated, notwithstanding that their counsel sought the benefit of interest calculated in accordance with s.94 of the Supreme Court Act. This submission was not well based because the terms of the Residential Housing Corporation mortgage as established in evidence do not include any provision for the payment of interest at a calculated rate, or for the payment of any interest other than the one payment for which the mortgage provided. It provides only for payment of $75,000 interest payable once only, a nominated sum and not a sum calculated by the application of any rate to the principal. I interpose that in my view the circumstances show no ground upon which I should as a matter of discretion award interest to the plaintiffs against the Friels under s.94 of the Supreme Court Act.
63 In my view the plaintiffs are entitled by subrogation as against the Friels to have the security afforded by the registered mortgage treated as being available to the plaintiffs. Their right extends only to $515,000 which is the part of the advance which was paid to Residential Housing Corporation; this was not the whole of the advance or of the loss sustained by the plaintiffs.
64 Claims made by the plaintiffs, and by the Friels in the third cross-claim against the Registrar General fall to be decided under Pt.14 The Torrens Assurance Fund and in particular s.129 of the Real Property Act 1900. Part 14 was inserted by the Real Property Amendment (Compensation) Act 2000 which took effect on 15 September 2000. Part 14 and s.129 are parts of a comprehensive reform of provisions of the Real Property Act relating to civil rights and remedies, the earlier form of which was found in Pt.14 ss.121 to 135. The legislation was completely recast into new Parts 13 and 14 after extensive consideration by the Law Reform Commission of New South Wales leading to its Report 76 (1996) "Torrens Title: Compensation for Loss". The workings of the previous legislative scheme encountered considerable practical difficulties in the course of public administration, with complex and technical litigation in which the assurance fund was zealously defended and appeals were common, so that recourse to the assurance fund where the workings of the Torrens System imposed losses was not readily available.
65 In his Second Reading Speech in the Legislative Assembly on 3 May 2000 Mr Yeadon, the then Minister for Information Technology who had carriage of the Bill, said among other things
The great advantages of the Torrens System over the common law title, also known as the Old System, are the relative speed, simplicity and low costs of conveyancing procedure. To a large extent these are made possible by the State guarantee of title and the related compensation provisions recorded by the Real Property Act 1900, the two major elements of the Torrens System of land title. The provision of compensation by the State is an essential component of the State guarantee of land title.
Unlike the common law situation where a land owner may recover his or her land by legal action against a current owner who acquired the land through a forged or fraudulent instrument, under the Torrens System the registered proprietor's ownership cannot be disturbed unless he or she was a party to the fraud. In the case of Torrens Title, where an owner loses land as a result of forgery or other frauds, his or her right to recover the land is converted to right to compensation. The difference is that, under the old System, the owner recovers the land and the innocent purchaser forfeits the purchase price, while under the Torrens System the innocent purchaser retains the land and the former owner is compensated financially. The Torrens Assurance Fund provides monetary compensation not only to a person who is deprived of land by the operation of the Torrens System but also to a person who suffers loss through a mistake in the Land Titles Office or through an error, omission or misdescription in the register of titles.
The benefit of the compensation scheme is that it reinforces public confidence in the State guarantee and in the integrity and accuracy of the Register of Title. Moreover, the compensation provisions are so deeply ingrained in the Torrens System that without such a scheme there would be significant and detrimental repercussions in conveyancing costs and practices.
66 As yet Pts 13 and 14 have received judicial consideration in few cases. In Diemasters Pty Ltd v. (Meadowcorp) Pty Ltd (2001) 52 NSWLR 572 at 584 Windeyer J:
The words 'as a result of the operation of the Act' are new. It is quite unlikely that they were intended to make access to the Assurance Fund more restrictive than under the old s.126, which it replaced. That is apparent from the report of the Law Reform Commission: Report 76 (1996) Torrens Title: Compensation for Loss , and the second reading speech of the Minister: (Parliamentary Debates, Legislative Assembly, 3 May 2000 at 5187)
67 Conceptions basic to the Torrens System of title by registration, and the primacy given to the Register, require that where the operation of the Torrens System imposes loss or damage, compensation should be made available by the State. It can be readily foreseen that no matter how much care and skill are exercised by public officers who conduct registration processes and maintain the Register, the workings of the Torrens System will from time to time impose loss and damage; and it can also be readily foreseen that no matter how competent and well-intentioned the public officers are, from time to time they will make mistakes which will have consequences in the Register and will cause loss and damage. The word "Assurance" is often apposed to "Insurance" so as to refer to provision made for events which will certainly happen, in contrast with insurance as provision against events which contingently may happen. This may explain the choice of the word "Assurance" in the title of Pt.14; it is a fair certainty that there will be losses and claims.
68 As well as the claim of justice that compensation should be readily available in appropriate cases, the availability of compensation assists the effective conduct of business by public officers. An illustration that this is so is furnished by considering the applications under s.111 for new certificates of title which were made in the present case. Applications for new Certificates of Title could reasonably be met with responses of greatly varying intensity. Observations by counsel have indicated many respects in which the applications and claims made in them and documents brought forward in support of them could have been further investigated, by correspondence, by retaining private investigators, by following up references to addresses, telephone numbers and professional persons, by insisting on production of rate notices rather than s.603 Certificates, and in other ways. Under s.12 the Registrar General is well empowered to pursue inquiries and to compel production of information. In the administration of the Real Property Act the Registrar General must come to a decision fairly rapidly when confronted with an application for a new Certificate of Title about whether it is appropriate to accept the facts as represented in the application, and if not, about how intensely investigation should be pursued. There are very many applications for new Certificates of Title, very few of them are fraudulent and decisions about which of them should be accepted on their face, which should be investigated and how rigorously, and what time should be given to investigation are decisions in which the availability of compensation has a place. Effective administration requires some balancing of risks and remedies when adopting administrative practices to deal with such applications.
69 In Pt.13 s.120 authorises proceedings for the recovery of damages to be brought by any person who suffers loss or damage as a result of the operation of the Act in respect of any land, where the loss or damage arises from stated circumstances. Subsections (2) and (3) have the effect that where proceedings of a kind dealt with in s.120 are brought against the Registrar General they are to be taken in accordance with Pt.14. In my understanding s.120 does not create a cause of action or an entitlement to the recovery of damages, but by subs.(1) authorises proceedings for the recovery of damages to be taken; in most or perhaps all cases authorisation by s.120 is superfluous as an entitlement would exist under the general law. For present purposes the operation of s.120 which is significant is its direction of proceedings against the Registrar General into proceedings in accordance with Pt.14.
70 Part 14 includes s.129 which is in the following terms:
129 Circumstances in which compensation payable
(1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from:
(a) any act or omission of the Registrar-General in the execution or performance of his or her functions or duties under this Act in relation to the land, or
(b) the registration (otherwise than under section 45E) of some other person as proprietor of the land, or of any estate or interest in the land, or
(c) any error, misdescription or omission in the Register in relation to the land, or
(d) the land having been brought under the provisions of this Act, or
(e) the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud, or
(f) an error or omission in an official search in relation to the land,
is entitled to payment of compensation from the Torrens Assurance Fund.
(2) Compensation is not payable in relation to any loss or damage suffered by any person:
(a) to the extent to which the loss or damage is a consequence of any act or omission by that person, or
(b) to the extent to which the loss or damage:
(i) is a consequence of any fraudulent, wilful or negligent act or omission by any solicitor, licensed conveyancer or real estate agent, and
(ii) is compensable under an indemnity given by a professional indemnity insurer, or
(c) to the extent to which that person has failed to mitigate the loss or damage, or
(d) to the extent to which the loss or damage has been offset by some other benefit to that person that has arisen from substantially the same circumstances as those from which the loss or damage has arisen, or
(e) to the extent to which the loss or damage arises because of an error or miscalculation in the measurement of land, or
(f) to the extent to which the loss or damage arises from:
(i) the breach by a registered proprietor of any trust (whether express, implied or constructive), or
(ii) the inclusion of the same land in two or more grants, or
(g) to the extent to which the loss or damage arises from the recording, or the omitting to record, in the Register of an approved determination of native title or other matter relating to native title rights and interests, or
(h) to the extent to which the loss or damage arises from circumstances in respect of which this Act provides that proceedings against the Registrar-General do not lie, or
(i) to the extent to which the loss or damage arises from an error contained in a plan lodged in accordance with Division 3C of Part 2 of the Conveyancing Act 1919 .
(3) Subsection (2) (g) applies whether the loss or damage is alleged to have been suffered:
(a) by a holder of native title or a claimant for native title, or
(b) by a person deprived of land or an estate or interest in land as a result of the making of an approved determination of native title, or
(c) by any other person,
but does not apply to an error made by the Registrar-General in the recording of matter in the Register.
71 Subsection (1) does not expressly refer to negligence or fault of the Registrar General, and entitlements to compensation from the Torrens Assurance Fund under subs.129(1) arise in the circumstances indicated in subparas.(a) to (f), some of which involve or could involve some negligence or fault of the Registrar General, but others of which create an entitlement in circumstances which may not include any element of fault.
72 In Cirino v. Registrar General (1993) 6 BPR 13,260 Cole J said (at 13,263):-
Second, "omission" where used in s 127 does not necessarily involve failure to comply with a duty. It merely means absence of a material entry ( Dobbie v Davidson ) [1991] 23 NSWLR 625 (compare Trieste Investments Pty Ltd v Watson (1963) 64 SR (NSW) 98). "Omission" has the same meaning in s 42(1)(b) as it does in s 126 and where secondly appearing in s 127(1) (see Priestley JA in Dobbie at 647).