Ginelle Finance Pty Limited v Diakakis

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST

10151/02 GINELLE FINANCE PTY LIMITED v MICHAEL DIAKAKIS

JUDGMENT 1 HIS HONOUR: By notice of motion filed on 29 July 2002 the plaintiff, Ginelle Finance Pty Limited, seeks an order for summary judgment pursuant to Pt 13 r 2 of the Supreme Court Rules, and also an order for summary dismissal of the defendant's cross claim against it pursuant to Pt 13 r 5 of the Rules. In addition, the plaintiff seeks leave for a writ of possession to issue forthwith and an order for costs. 2 The plaintiff is the registered proprietor of an interest in a property situated at 259 Botany Street, Kingsford and that interest arises as second mortgagee under a mortgage registered pursuant to the Real Property Act, 1900 on the title to that property. The plaintiff seeks summary judgment on its claim for possession of the property by reason of default in payments under the registered mortgage. 3 For his part, the defendant asserts that he is the owner of the property and that he borrowed no money from the plaintiff and entered into no mortgage over that property in favour of the plaintiff. It is the defendant's claim that the signature purporting to be his on the mortgage subsequently registered is a forgery. For the purposes of the present motion, I must, and I do, proceed upon the assumption that the defendant's assertion is the fact. 4 The defendant has amended his pleading and in addition to denying execution of the mortgage and the making of any advance to him, he also pleads reliance upon his amended first cross claim against the plaintiff and in particular on paras 9(A)-(H) which are expressed as follows: "9A. The cross defendant knew or ought to have known that the cross claimant was a pensioner and unable to repay the mortgage repayments on the Mortgage. PARTICULARS 9B. a) The cross defendant, by its agent, AAA Finance, had received a loan application in the name of the Cross Claimant stating that the cross claimant was a 'retired/pensioner'; b) The cross defendant, by its agent, AAA Finance, was aware that the account purporting to be in the name of the Cross Claimant was in arrears of the previous outgoing mortgage; 9C. The cross defendant owed the cross claimant an obligation, in equity, to ensure that all conditions of the loan and Mortgage were satisfied. 9D. The cross defendant knew or ought to have known that it was in breach of the aforesaid obligation. PARTICULARS 9E. a) The cross defendant imposed conditions in a letter dated 24 September 2001 from Bleier Mortgage Corporation, the agent of the cross defendant; b) The loan was to be for 'business purposes' when the cross defendant knew or ought to have known it was not being applied or used for business purposes; c) The loan was conditional upon a letter being provided by the cross claimant's Accountant stating that in the Accountant's opinion the cross claimant could afford to pay the interest under the loan, when the cross defendant knew or ought to have known that the cross claimant was unable to pay the interest under the loan; d) The loan was conditional upon a letter being provided by the cross claimant's Accountant stating that in the Accountant's opinion the cross claimant can make arrangements to repay the principal at the end of the term of the loan, when the cross defendant knew or ought to have known that the cross claimant could not make arrangements to repay the principal at the end of the term; e) The loan was conditional upon the cross claimant providing evidence that he had satisfactorily repaid the mortgage repayments on the outgoing mortgage when the cross defendant knew or ought to have known that the repayments on the outgoing mortgage were in arrears. 9F. Further, and in the alternative, the cross defendant owed the cross claimant an obligation in equity, to ensure that the title deed to the property belonging to the cross claimant was used for proper purposes, and for authorised purposes. 9G. The cross defendant is in breach of the aforesaid obligation in that the cross claimant did not authorise the use of his title deed for the purpose of effecting registration of the Mortgage in favour of the cross defendant. 9H. The cross defendant knew or ought to have known that the cross claimant did not so authorise the use of his title deed." 5 A party seeking summary judgment under Pt 13 r 2 is required to satisfy the court that there is really no triable issue and it is clear that caution is to be exercised in entertaining an application such as that now before the Court. In their joint judgment in Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99 Mason CJ and Murphy, Wilson, Deane and Dawson JJ said: "The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v. Union Bank of Australia Ltd. (1917) 23 CLR. 5; Jones v. Stone [1894] A.C. 122; Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262." 6 The burden rests upon the plaintiff to persuade the Court that there is no real question to be tried: see Singh v Kaur (1985) 61 ALR 720 per Samuels JA at 722. Similar considerations apply to the plaintiff's application for summary dismissal of the defendant's cross claim: see General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125. 7 The defendant is also pursuing cross claims against the members of the firm of Grogan and Webb, solicitors, alleging negligence in the discharge of their professional responsibilities owed to him concerning the relevant mortgage. A further claim of the same nature is made by the plaintiff against another solicitor as third cross defendant. Finally, the defendant has pleaded a cross claim against Permanent Custodians Limited, which company also advanced money on the security of a registered mortgage on the Kingsford property. Again the defendant has pleaded that the mortgage in favour of Permanent Custodians is a forgery. None of these cross claims is the subject of an application for summary dismissal. 8 The evidence before the Court on this motion consists of an affidavit of Nicole Stein sworn 25 July 2002 and an affidavit of the defendant sworn 9 October 2002. Additionally both the plaintiff and the defendant rely upon a number of exhibits. Neither deponent was required for cross examination on his or her affidavit. 9 Ms Stein's affidavit evidences the mortgage, the default, the giving of the requisite notice under s 57(2)(b) of the Real Property Act and a failure to satisfy the requirements of such notice. In his affidavit the defendant evidenced his birth in Greece, that he is now sixty-three years of age, that he cannot read or write English, and that his ability to converse in English is limited. The defendant's affidavit contains a denial of any involvement whatsoever in the mortgage transaction. 10 The plaintiff relies upon the provisions of the Real Property Act in its application for the orders which it seeks, and upon the unchallenged evidence that its mortgage has been registered on the title to the property. In particular, the plaintiff relies upon ss 41 and 42 of the Real Property Act which provide for indefeasibility of title for a person who is "the registered proprietor for the time being of any estate or interest in land…except in case of fraud" (s 42(1)). It is not contended by Mr Confos, who appears for the defendant, that the plaintiff acted fraudulently in the circumstances in which the mortgage was executed and subsequently registered. 11 I understand it to be well settled that fraud by a person other than the party relying upon the indefeasibility that accompanies registration is not fraud within the exception referred to in s 42. The registered proprietor has to be involved in the fraud either personally or by its agents to lose the benefit of registration. In Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202 at 221 Powell JA stated the position thus: "Despite the passage of some ninety years since Lord Lindley, when delivering the opinion of the Judicial Committee in Assets Co Ltd v Mere Roihi [1905] AC 176 at 210, said: '... By fraud in these acts is meant actual fraud, ie, dishonesty of some sort, not what is called constructive or equitable fraud - an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further, ... the fraud which must be proved in order to invalidate the title of a registered purchaser for value, ... must be brought home to the person whose registered title is impeached or to his agents'

and the many cases which have been decided in that period of ninety years, the position still remains that, for the purposes of s 42 of the Act, 'fraud' comprehends actual fraud, personal dishonesty or moral turpitude on the part of the registered proprietor of the subject estate or interest or of that registered proprietor's agents: see Bahr v Nicolay [No 2] (at 614) per Mason CJ and Dawson J; (at 631-632) per Wilson J and Toohey J." 12 The circumstance that a dealing which is registered is a forged document does not of itself defeat indefeasibility of title as ordinarily effected by registration. In Garofano v Reliance Finance Corporation Ltd (1992) 5 BPR 11941 at 11944 Meagher JA, with whose judgment Mahoney JA and Priestley JA agreed, said: "A series of authorities in this state have decided that forgery does not prevent the operation of the doctrine of indefeasibility: Mayer v Coe (1968) 88 WN (Pt 1) (NSW) 549; Ratcliffe v Watters (1969) 89 WN (Pt 1) (NSW) 497; Schultz v Corwill Properties Pty Ltd (1969) 90 WN (Pt 1) 529; and Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32." 13 Then, in Story v Advance Bank (1993) 31 NSWLR 722 Gleeson CJ, with whose judgment Cripps JA agreed, said at 736: "It is now settled that, subject to certain qualifications, the indefeasibility of title conferred by these provisions [a reference to ss 42 and 43 of the Real Property Act], even in the case of registration of a void instrument, takes effect immediately upon registration: Frazer v Walker [1967] 1 AC 569, Breskvar v Wall (1971) 126 CLR 376, Bahr v Nicolay [No 2] (1988) 164 CLR 604, Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407. Subject to the same qualifications, the mortgagee under a registered mortgage obtains an indefeasible title upon registration even though the signature of the mortgagor has been forged: Mayer v Coe (1968) 88 WN (Pt 1) (NSW) 549; [1968] 2 NSWR 747." 14 Mr Young here submits that indefeasibility of title has been conferred upon the plaintiff effective from registration of the mortgage to it, and that the plaintiff has discharged the burden imposed upon it in seeking summary judgment. This submission applies alike to the application for summary judgment on the plaintiff's claim, and for summary dismissal on the defendant's cross claim. 15 Mr Confos has submitted that the registration did not protect the plaintiff against personal equities. Counsel referred to Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537 at 563 where Mahoney JA said, as to s 42 of the Real Property Act, that "…it does not operate to protect…against what have been described as the 'personal equities'…: Breskvar v Wall (1971) 126 CLR 376 at 385 per Barwick CJ; see Frazer v Walker (1967) 1 AC 569 at 585. These personal equities include, of course, equities created by the registered proprietor after he has become registered: see, e.g., Barry v Heider (1914) 19 CLR 197. But, in my opinion, they are not limited to these. They include equities which have arisen from things which have happened before he became registered." 16 What is encompassed in the concept of a "personal equity"? 17 In Garofano (supra), Meagher JA said at 11945 (referring to "personal equity"): "I cannot see what that expression is meant to cover except known legal causes of action (for example, deceit) and known equitable causes of action (for example, undue influence)." 18 Then in Grgic (supra), Powell JA said at 222-223: "I am of the view that the expressions 'personal equity' and 'right in personam' encompass only known legal causes of action or equitable causes of action, albeit that the relevant conduct which may be relied upon to establish 'a personal equity' or 'right in personam' extends to include conduct not only of the registered proprietor but also of those for whose conduct he is responsible, which conduct might antedate or postdate the registration of the dealing which it is sought to have removed from the Register." 19 How then does Mr Confos assert there is a triable issue here? 20 It was submitted that the plaintiff obtained registration of its mortgage by the unauthorised use of the defendant's title deed in circumstances in which the plaintiff's solicitor had notice that such use was unauthorised. Mr Confos placed reliance upon the decision in Mercantile Mutual Life Insurance Co. v Gosper (1991) 25 NSWLR 32. 21 How is it claimed that such notice arose? 22 As I understand it, the argument runs thus: the plaintiff was one of two mortgagees whose mortgages were registered on the title to the subject property (the fourth cross defendant, Permanent Custodians, was the earlier of these two mortgagees). Each such mortgagee had the same solicitors acting for it. Those solicitors must have had the defendant's certificate of title in order to register each mortgage. Since the plaintiff's mortgage was the later of the two mortgages to be registered, the plaintiff's solicitors must have been aware when presenting it to permit registration of that mortgage that the defendant did not authorise that use of his certificate of title. The knowledge of the solicitor became the knowledge of the plaintiff. Hence, as in Gosper, the circumstances entitled the defendant to have the forged mortgage set aside. 23 I am not attracted by that submission. Indeed, I accept Mr Young's submission that Gosper is distinguishable. 24 In Gosper the mortgagee held the certificate of title of the mortgagor pursuant to a genuine mortgage, but then produced it to permit of the registration of the forged variation of mortgage. In the opinion of Mahoney JA (expressed at 49) the mortgagee "held the certificate of title for the purposes only of the mortgage and subject to, inter alia, the obligation not to permit it to be used for any other purpose." However, there is not in the present case the pre-existing relationship between the plaintiff and the defendant such as existed in Gosper. There the mortgagee had been holding the title deed for several years prior to the time that the mortgagor's husband fraudulently procured further advances, forging the mortgagor's signature on the variation of mortgage. This was then registered upon the presentation by the mortgagee of the certificate of title which it had been holding. 25 Those circumstances are to be contrasted with the present case, in which there was no pre-existing relationship between the plaintiff or its solicitors and the defendant. 26 Immediately prior to the plaintiff's advance pursuant to its mortgage, its solicitors were on notice of two earlier registered mortgages which were to be discharged from the funds to be advanced by Permanent Custodians and the plaintiff. Details of those earlier mortgages, including the principal sums, the commencement dates and the terms, were set out by the solicitors for those earlier mortgagees in the document introduced into evidence as Exhibit B. Then by letter dated 18 October 2001 those same solicitors, Messrs Grogan and Webb, authorised the plaintiff's solicitors to make payments on settlement of the mortgage transactions, which settlement was to take place on 19 October 2001. Omitting formal parts, the letter of authority was in these terms: " RE: DIAKAKIS Mortgage advance to: PERMANENT CUSTODIANS AND GINELLE FINANCE Security: 259 Botany Road, Kingsford We refer to the above matter which is expected to settle at the offices of Legalink, Level 8, The Law Society Building, 170 Phillip Street, Sydney on Friday, 19th October, 2001. Could we please settle at 2.00 pm instead of 2.30 pm ? Please confirm to our office. On settlement of this matter you are authorised and directed to pay the following monies: MAY BE TRUST CHEQUES: 1. Grogan & Webb $ 4,120.82 2. Grogan & Webb $ 3,504.16 3. Grogan & Webb $4,116.65 MUST BE BANK CHEQUES : 4. Grogan & Webb Trust Account $294,629.17 5. J. Diakakis $74,314.20 TOTAL $380,685.00" 27 It is plain that the advances from Permanent Custodian and the plaintiff were to be applied to discharge the earlier mortgages, details of which were revealed by search on 19 October 2001 (see Exhibit C). It is also plain that the mortgages in favour of Permanent Custodian and the plaintiff were registered at the same time, because those two mortgages have consecutive dealing numbers: "8053869" and "8053870" (see annexure C to the affidavit of Nicole Stein 25 July 2002). 28 There is no evidence to indicate that the solicitors for the plaintiff had access to the relevant certificate of title earlier than the time of settlement referred to in the letter set out in para 26 above. Presumably the deed was then made available by Grogan and Webb upon payment of what was required to discharge the earlier mortgages. 29 The mere lack of authority from the defendant to register the plaintiff's mortgage does not create a personal equity: see Vassos v State Bank of South Australia (1992) V Conv R 54-443 per Hayne J at 65-180 to 65-181 and Story (supra) per Gleeson CJ at 736-737. As Gleeson CJ observed in Story (at 737): "Unless a number of the leading cases concerning registration of forged instruments were wrongly decided, it [a personal equity] cannot arise out of the bare fact of the forgery." 30 In the present case it is accepted that the plaintiff was not involved in any fraud. It advanced money upon an apparently regular mortgage. 31 Mr Confos submitted that there was a further feature of this case which gives rise to a triable issue. This arises out of loan conditions which were set by the mortgage broker, Bleier Mortgage Corp. Pty Ltd. 32 On 24 September 2001 that broker obtained what purported to be the defendant's signature on a document advising of approval of an application for finance (Exhibit 3): " SUBJECT: DIAKAKIS We advise that the following application for finance has been approved subject to the following indicative terms and conditions:- 1. Loan Advance: The lesser of $26,500.00 or 75% of valuation.

2. Interest Rate: 19.00% reducing to 16.50% upon payment within seven days, monthly on the total amount to be advanced. The Lender reserves the right to vary this rate at any time prior to settlement of this advance.

4. Security: SECOND Mortgage over the property known as 259 BOTANY STREET, KINGSFORD.

[Signature] (Borrower must sign here)" 33 The conditions attached to that letter included the following: "21. Accountant's Letter: It is a condition that the Borrower's Accountant must provide a letter stating that in the Accountant's opinion the Borrower can afford to pay the interest under the loan and can make arrangements to repay the principal at the end of the term. Please note we will provide an Accountant's Certificate as part of the mortgage documentation which must be returned prior to settlement." 34 The defendant denies that he had any dealings with the broker and he denies that his signature appears on the document set out above. The truth of such denials is to be assumed for the purposes of this motion, as is the assertion that no accountant's letter was presented as required by Condition 21 set out above. 35 Mr Confos submitted that since conditions had been attached to the loan by the broker, as the plaintiff's agent, these conditions could not be waived unilaterally. He submitted further that the plaintiff had an obligation to ensure that the conditions were complied with, and if it failed to do so, then in equity it should be prevented from relying upon the mortgage and its registration. 36 Mr Confos was unable to refer to any authority that directly supported that wide-reaching submission. I do not accept that the failure of a lender to enforce a condition of a loan such as that here imposed can give rise to a personal equity to have the registered mortgage set aside. In my opinion, no triable issue arises on this alternative basis. 37 I therefore conclude that the plaintiff is entitled to enforce its security and to have the orders sought. Any redress available to the defendant must be found elsewhere than in proceedings against the plaintiff. 38 Accordingly, I make the orders sought in paras 1, 2, 3 and 4 of the notice of motion filed on 29 July 2002.

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