Hypec Electronics v Registrar-General [2008] NSWSC 18 | Case summary

Section 57 provides that a mortgage has effect as a security but does not operate as a transfer of the mortgaged land. A registered mortgagee may, in conformity with the statute, exercise a power of sale. 38 Giles J held that a personal covenant to pay money thereby secured including any guarantee or indemnity by the mortgagor or other indebted person was so connected with the estate or interest in the registered mortgage that it also achieved indefeasibility and bound the mortgagor notwithstanding, in that case, the availability of the defence of non est factum. 39 I would have thought that a similar approach was apposite with respect to the mortgage of the Laughtondale property. Mr and Mrs Mead as mortgagors gave security with respect to their personal guarantees in respect of the liability of Mrs Mead and Grace Yang and in respect of the liability of Hypec. 40 The liquidator, however, submitted that these obligations were collateral and not essential to the mortgaged estate and did not obtain the benefits of indefeasibility upon registration of the transfer of the mortgage. Reference was made to Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 434-435 where Dixon and Evatt JJ had confined the Real Property Act 1900, s 51 and s 52 to matters affecting the mortgage transaction as between mortgagor and mortgagee. Their Honours said: "The statue is concerned with dealings in land and it is because a mortgage involves such a dealing that the statue prescribes how mortgages may be transferred and with what consequences. It is concerned with the mortgage transaction in its entirety as it affects the land, and, therefore, extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction. A surety's obligation stands in a different relation to the dealing. His liability is introduced by way of additional security. It is personal and, except as a result of subrogation, does not directly or indirectly affect the land. Rights of subrogation are not of a kind falling within the scope of the Real Property Act . A guarantee is thus collateral to the mortgage transaction, and the circumstance that the obligation is expressed in the mortgage instrument must be regarded as accidental to the mortgage transaction and not as characteristic of the dealing contemplated by the legislation. In relation to transfers of mortgage secs. 51 and 52 should be understood as dealing only with rights, powers, privileges, debts and sums of money affecting the mortgage transaction as between mortgagor and mortgagee." 41 But that case involved the question whether the transferee of a mortgage could, upon registration, pursue a third party surety on a covenant of guarantee contained in the instrument of mortgage. The guarantor was not, as here, a mortgagor. Here, the secured moneys obligation of Mr and Mrs Mead included all moneys that the debtor and the mortgagor, or either of them, owed, or would owe, to the mortgagee on any account whether as principal or surety. 42 In my view, as in Maradona, those personal covenants are so connected with the estate or interest in the registered mortgage that they benefit from indefeasibility under the Real Property Act s 42(1). 43 The recent decision of the High Court in Queensland Premier Mines Pty Ltd v French [2007] HCA 53 does not assist the liquidator. The debtors entered into loan agreements. They were secured by mortgage. The mortgagee assigned its rights under the mortgage and loan agreements to the respondent. Marminta Pty Ltd obtained an order for specific performance of the assignment of the mortgagors to it. There was no agreement to assign the benefit of the loan agreements to Marminta. The respondent sued on the loan agreements. 44 The Land Title Act 1994 (Qld), s 62 is in similar terms to the Real Property Act 1900, s 52. Marminta argued that the right to sue under the mortgage vested in it pursuant to the statutory provision and it was substituted for the respondent under the loan agreements. That contention was rejected. Kiefel J, with whom the other members of the Court agreed, said at [59] that the fundamental point was that there was no agreement to assign the benefit of the loan agreements to Marminta. Her Honour continued at [60]: "The simple facts are that the debt sought to be recovered by Mr French arose under the loan agreements, not under the mortgages. Mr French was the assignee of the right to recover the moneys owing under the loan agreements; Marminta was not an assignee from him. He retained the right to sue for and recover those moneys from QPM and the Beckinsales. Section 62 of the Land Title Act did not operate to vest those rights in Marminta." 45 Those circumstances are vastly different from the instant ones in which there is no entitlement in a person other than the mortgagee to the benefit of any loan agreement. 46 I reject the submission that the mortgage over the Laughtondale property did not secure the debt of Mrs Mead and Grace Yang on the basis that it had been paid out by Grace Yang when she paid $1,174,815.38 to CBA on 2 May 1997. And I reject the submission that the mortgage over the Laughtondale property did not secure the Hypec debt as that obligation was collateral and not essential to the mortgaged estate. I reject the submission that the mortgage over the Laughtondale property secured nothing when it was registered to Grace Yang. 47 If the above analysis is wrong and Grace Yang's payment to CBA discharged her indebtedness and that of Mrs Mead to CBA, counsel for Mrs Tsui relied upon the Law Reform (Miscellaneous Provisions) Act 1965, s 3. It provides, relevantly for present purposes, that a person who, being liable with another for a debt, pays the debt, is entitled to stand in the place of the creditor and to use all the remedies of the creditor to obtain from the co-debtor indemnity for the loss sustained by the person who paid the debt. But the person is not entitled to recover from the co-debtor more than the proportion to which, as between those parties themselves, that person is justly liable. 48 It was submitted that the effect of the provision was to enable Grace Yang to enforce 50% of the debt of she and Mrs Mead of $500,761.20. 49 It is my present view that it is unnecessary for Mrs Tsui to rely upon this provision for the reasons expressed above. But I will hear further argument on the matter. 50 If, contrary to my view, the correct analysis of the transactions of 2 May 1997 is that the debt of $500,761.20 was extinguished, Grace Yang was, under the above provision, entitled to recover from Mr and Mrs Mead 50% of that figure together with the $670,026.68 debt of Hypec under the mortgage of the Laughtondale property. 51 The notes forming part of the financial statements of Hypec Information Technology Services Pty Ltd for the period 9 January 1997 to 30 June 1997 showed loans of $580,727 of which a note recorded that $533,889 was due to Grace Yang. 52 Brian Arthur Lloyd, the accountant for the Hypec companies, drew up these accounts on information provided to him by Mrs Mead. Mr Lloyd said that Hypec Information Technology paid some of the Hypec creditors and loans were made to it by members of the Yang family. He was not aware until well after 1997 that Hypec's indebtedness of over $1 million to CBA had been assigned to Grace Yang. 53 In about 2000, Mr Lloyd was instructed to issue 900,000 shares to Grace Yang and he charged her loan account accordingly. He said it was then in credit in excess of $900,000. He said the purpose was to improve the balance sheet. Prior to the allotment it showed a negative equity. The capitalization of $900,000 of Grace Yang's loan converted shareholders' equity to a positive figure. 54 The liquidator submitted that this capitalisation discharged any indebtedness to Grace Yang formerly owed by Hypec to CBA. In consequence, the submission ran, by the time the mortgages were transferred to Vinemoon they secured nothing. 55 I reject this submission. Hypec Information Technology commenced business on 9 January 1997. In the accounts for the period ended 30 June 1997 there is no acknowledgment of a debt of the order of $670,062.68 due by Hypec Information Technology to CBA. Nor was it logical for the new company to assume the liability of Hypec. 56 Mr Lloyd said that the new company took over quite a lot of the creditors of Hypec. He readily agreed when it was put to him that in reality all previous creditors of Hypec found their way into the books of the new company. But that is demonstrably incorrect. There was no inclusion in the balance sheet as at 30 June 1997 of the Hypec debt to CBA. Furthermore, there was no evidence of the bank's acceptance of a novation of the liability from Hypec to Hypec Information Technology and there was no evidence of any amendment of the bank's security documents to extend the mortgages over the West Ryde and Laughtondale properties to an indebtedness of Hypec Information Technology. 57 In the circumstances, I accept the submission of counsel for Mrs Tsui that the capitalisation related to debts incurred by Hypec Information Technology to Grace Yang and did not include the debt due by Hypec to CBA that had been assigned to her in May 1997. 58 It follows that the liquidator fails in his principal submission that when Mrs Tsui became the registered holder of the mortgages over the West Ryde and Laughtondale properties they secured nothing. The Liquidator's case - sham 59 The liquidator submitted that the transfers of the mortgages over the West Ryde and Laughtondale properties to Grace Yang were shams and should be disregarded. 60 A transaction is a sham if the parties thereto intend to give to third parties the appearance of creating legal rights and obligations different from the actual legal rights and obligations that the parties intend to create (Snook v London and West Riding Investments Ltd (1967) 2 QB 786 at 802). 61 Grace Yang gave, and CBA received, over $1 million for the assignment from CBA to Grace Yang of the mortgages over the West Ryde and Laughtondale properties. The transactions between the parties were effected according to the tenor of the executed documents. They were not "a spurious imitation, a counterfeit, a disguise or a false front" (Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454). 62 The liquidator submits that the purpose of the transaction was to make Grace Yang Hypec's greatest creditor so that, over time, accrued interest would eat up Mr Mead's equity in the company and he would have no remedy against Mrs Mead in the Family Court proceedings because, on paper at least, she, too, would be deprived of the value of her interest in the company. 63 In support of this contention the liquidator relied on the fact that Grace Yang made no demand for payment of principal or interest; the only attempts by Mrs Tsui to realise her investment were ineffective; Grace Yang transferred the mortgages to Vinemoon for only $300,000; Mr To purchased the mortgages for that amount; Mr To transferred the mortgagors to Mrs Tsui for no consideration; and each of the Yang family, Mr To and Mrs Tsui had longstanding relationships indicating that their dealings were not at arm's length. 64 There are at least two reasons why this submission must fail. First, any purpose that Grace Yang had in taking the transfer of the mortgagees does not alter the fact that transfers were given and taken according to the tenor of the documents. In those circumstances, the transfers themselves could not be shams. 65 Secondly, Mrs Tsui became the registered mortgagee of the properties and, subject to the exceptions in the Real Property Act 1900, s 42 her interests are indefeasible. There is no exception for a sham transaction unless it be, or be part of, a fraud within the meaning of the exception in that provision. The situation is analogous to that in Maradona where Giles J found that the personal covenant of the debtor was so connected with the estate or interest with respect to which the mortgagee attained indefeasibility that it also achieved indefeasibility and bound the debtor notwithstanding that his Honour had upheld her defence of non est factum. 66 In the circumstances it is unnecessary for me to make findings with respect to the indicia relied upon by the liquidator to support his submission of sham. 67 But it should be said that there are countervailing arguments. If Grace Yang held the mortgages on trust for Mrs Tsui it was up to Mrs Tsui and not Grace Yang to determine whether demand should be made under the mortgages. Further, a quiescent approach to the rights under the mortgages by Grace Yang or Mrs Tsui does not, of itself, support a sham characterisation. 68 Mrs Tsui's abortive attempts to sell the properties occurred well after her registration as mortgagee and it is arguable that they ought not to be taken into account in determining the effect of registration. She did obtain orders for possession and there is evidence to suggest that she was confused as to her rights and amended her course of action upon receiving legal advice. 69 If Grace Yang held the mortgages on trust for Mrs Tsui, her transfer of them to Vinemoon was in breach of that trust. Mrs Tsui says she was unaware of this transaction until well after it occurred. She said she then set in train the transfer of the mortgages to Mr To, an Australian resident prepared to act on her behalf. If there was a breach of trust, the quantum of the transfer price makes no difference and should have little bearing upon the ultimate question whether Mrs Tsui obtained her registration by fraud, if she was unaware of the transaction. Mr To regarded himself as holding the mortgages in trust for Mrs Tsui. He had paid his own moneys to acquire the mortgages as a loan to Mrs Tsui secured on a property of hers in Taiwan. In those circumstances, the ultimate transfer of the mortgages to Mrs Tsui when Mr To indicated he no longer wished to hold them, is appropriate and not an indication of sham. The Liquidator's case - fraud 70 Neither in written submissions nor in final address did the liquidator specifically argue that Mrs Tsui was not entitled to indefeasibility because of fraud. None of the other exceptions in the Real Property Act 1900, s 42(1) were raised by any party. In submissions on behalf of Mr Mead, however, fraud was raised and some of the liquidator's submissions may have a bearing on the issue. 71 The transfer of the mortgages from Mr To to Mrs Tsui was stated to be for no consideration. But, in the absence of fraud, that does not deprive Mrs Tsui of the benefit of indefeasibility. The Real Property Act 1900, s 42 applies as well to a volunteer as to a transferee for value (Bogdanovic v Koteff (1988) 12 NSWLR 472). 72 The liquidator submitted that there were serious doubts whether Mrs Tsui and her Taiwanese friends ever sent money to Grace Yang. 73 In February 1996, CBA wrote to Grace Yang informing her that a telegraphic transfer of $499,990 had been received from Taiwan. The remitter was stated to be Grace Yang. Mrs Tsui was pressed about this matter in cross-examination. She could not explain the remitter details. It was put to her that she had not remitted the funds. This she denied. 74 I accept that Mrs Tsui remitted $500,000 less a bank fee to Grace Yang. There was also in evidence a Chinese bank document recording a transfer of $500,000 to CBA for the benefit of Grace Yang, the sender clearly identified as Mrs Tsui. The document bears a signature for Mrs Tsui in characters similar to the characters of her signature on her affidavits. 75 Mrs Tsui mortgaged her house to provide the funds. She was paying interest of 7% or 8%. The liquidator submitted that when the original investment proposal failed it was unlikely that one would leave the funds with Grace Yang while continuing to pay interest in Taiwan. But the proposal to invest in the West Ryde and Laughtondale properties was put to Mrs Tsui in late 1996 and she not only sought a return on her investment but also the retention of the properties for worship according to the Tao religion. I reject the submission that these factors should cause me to find that Mrs Tsui did not remit $500,000 to Grace Yang. 76 I find that the other Taiwanese ladies remitted to Grace Yang the funds they claimed to have sent. 77 Ms Wang is also known as Wang Shu Chen. The CBA documents addressed to Grace Yang with respect to the remittances made by Ms Wang identified Yang Yi Ming as the remitter of the first amount, Yang Chu Ping as the person who ordered the second remittance and BL & GY International as the remitter of the last amount. There were no details of the sending bank with respect to the first transmission and, while the payment details of the third transmission referred to a telegraphic transfer from Taiwan, a Stockholm bank was identified as the sender. Ms Wang could not explain these discrepancies. 78 Yang Yi Ming and Yang Chu Ping were sisters of Grace Yang. Ms Wang said she took the sisters and a representative of BL & GY International with her to assist in preparing the English portion of the transfer documents. She was not shaken in cross-examination from her denial that the Chinese bank documents were not genuine and that she had not remitted the moneys. I accept her evidence that she did. She was a lady of some means with a number of properties. She had sold a property for over $6 million new Taiwanese dollars and utilised $4.5 million Taiwanese dollars to fund the last remittance to Grace Yang. She had invested elsewhere outside Taiwan and had large returns from other properties. Her motive in investing in the West Ryde and Laughtondale properties was a combination of a spiritual return and a financial return. She understood the moneys advanced to Grace Yang were to be used to purchase those properties and she was agitated when she discovered that only the mortgages had been purchased. 79 The CBA documentation with respect to the three remittances I find were made by Ms Liang had similar discrepancies. The first two recorded Grace Yang as the remitter. The final one was said to be by order of Yang Chu Ping. But, again, there were Chinese bank documents that recorded the amounts before bank fees and show Ms Liang as the sender. She said she had taken Yang Chu Ping to the bank with her and she withdrew each of the amounts from her account. She denied that the Chinese bank documents were not genuine and she denied that she had not forwarded the moneys to Grace Yang. She said she treated the moneys as charitable since a temple was involved. At first she intended to invest the moneys, she did not know she was buying a temple. But later she thought she was helping out with the temple. 80 A similar pattern arises with respect to the remittances of Ms Lin, also known as Lin Chiang Feng Chiao. The Westpac Banking Corporation letters addressed to Grace Yang record one remittance by order of Yang I-Long, a brother of Grace Yang and another by order of Yang Chu Ping. There was no Australian bank letter in evidence with respect to remittance of $170,000 but there was a Chinese bank document recording Lin Chiang Feng Chiao as the applicant and, in relation to the other remittances, the applicant was recorded as Lin Chiang Feng Chiao care of Yang I-Long and Yang Chu Ping. The remittances were said to be by order of Yang I-Long and Yang Chu Ping. The forms contained Chinese characters as the signature of Ms Lin similar to those on her affidavit. Ms Lin said she needed assistance at the bank because she could not read English very well and Yang I-Long and Yang Chu Ping represented her at the bank. Ms Lin said her aim in contributing funds to the purchase of the West Ryde and Laughtondale properties was to make a monetary return on her investment. But when she discovered that the properties were being used for Taoist purposes, she did not ask for any benefit. She said that she would now like her money back. It was put to Ms Lin that she did not send moneys to Grace Yang and that the Chinese bank documents were not genuine. She denied these assertions. 81 Each of the four ladies executed a power of attorney of trust account recording their remittances to Grace Yang whose chop also appeared on the Chinese versions. Further, a notification of trust fund completion in each case certifying that the funds had been used to purchase the West Ryde and Laughtondale properties contained the chop of Grace Yang. 82 The liquidator submitted that there was no explanation as to why the funds were transferred to Australia before Grace Yang took an assignment of the mortgages over the two properties and there was no explanation of why remittances were made in odd amounts. 83 Neither of these issues was taken up with the witnesses in cross-examination. Clearly, funds, rather than a promise to provide funds, were needed in Australia if Grace Yang was to be in the secure position of being able to take the assignment of the mortgages. And the Taiwanese ladies might well have made their instalments as they had spare funds that they could afford to devote to the proposed purchase of the two properties. 84 Ms Wang, Ms Liang and Ms Lin provided information to Grace Yang or Mrs Tsui for the purpose of the preparation of their affidavits. There is some similarity between them. But each was adamant in cross-examination that the events, as they recounted them, occurred. They were not shaken from this position. 85 Grace Yang was called as a witness in the liquidator's case. She confirmed that she received the moneys claimed by the Taiwanese ladies to have been remitted. 86 I therefore reject the submission of the liquidator that there are serious doubts as to whether the moneys were advanced by the Taiwanese ladies to Grace Yang. I reject the underlying assumption that there was a conspiracy between the Taiwanese ladies and Grace Yang to fabricate the situation that they independently advanced funds to her. 87 I find that Grace Yang received the funds from the Taiwanese ladies and held them on trust to be contributed to the purchase price of the West Ryde and Laughtondale properties. I find that in taking a transfer of the mortgages rather than a purchase of the properties, Grace Yang was in breach of that trust. I find that the properties Grace Yang acquired, namely the mortgages, were held by her on trust for Mrs Tsui who held in trust for herself and the other Taiwanese ladies she represented. 88 The liquidator submitted that the funds utilised on 2 May 1997 to take an assignment of the mortgages of the West Ryde and Laughtondale properties included $485,618.50 raised by Mrs Mead and Grace Yang on the security of property owned by them at Quoin Island in Queensland. I & L Securities Pty Ltd made $500,000 available and the solicitor acting as agent recorded that of that sum, $485,618.50 was paid to CBA. 89 Likewise, the solicitors for Mary Short, who provided $500,000 on security of the Ryedale Road property and another property recorded that $483,777.90 was paid to CBA. 90 The balance of the $1,174,815.38 paid to CBA was $205,418.98. It was shown as a withdrawal from Grace Yang's bank account. It, or a portion of it, may have been drawn from the moneys advanced by the Taiwanese ladies. 91 Grace Yang denied that the two loans of $500,000 were used in this fashion. She said that CBA lent her the $485,618.50, which she used as working capital for Hypec Information Technology. She said the $483,777.90 was deposited by CBA into the bank account of Lamron Pty Ltd, which also utilised the funds as working capital for Hypec Information Technology. Grace Yang and Mrs Mead were the directors of Lamron. 92 Because of the view I take of the relief to which Mrs Tsui is entitled, it is unnecessary for me to resolve this issue. Mrs Tsui accepted the source of the funds put forward by the liquidator once the documents were made available to her legal advisers. 93 Had it been necessary for me to resolve the conflict, I would have favoured the assertion of the liquidator. CBA having made demand for payment under its securities is highly unlikely to have made almost $1 million available by way of loan to Grace Yang or to Lamron or to have done so without security. Grace Yang put no security documents in evidence. 94 The liquidator submitted that Mrs Tsui's cross claim was not a genuine one. This submission arose out of an incident in the course of Mrs Tsui's cross-examination on behalf of Mr Mead. Mrs Tsui asked whether it was her intention to pursue Grace Yang for damages of may be $1 million dollars or more. She answered that question in the negative in the following context: "Q: Is Grace Young still at friend or yours? A: Yes. Q: You know in these proceedings you want to sue her personally for a large amount of money, don't you? A: I just complain about Grace Yang, but I'm not sure I will do this in the Court. Q: You are not sure because you might have discussions with her and sort things out later; is that right? A: No. This is not my decision. I have to consult with other people, and then we can make the final decision. Q: But do you intend to pursue Grace Young for damages of maybe $1 million or more? Is that your intention? A: No." 95 After the luncheon adjournment, Mrs Tsui explained her embarrassment at having been asked those questions while Grace Yang sat at the bar table: "Some of the questions I am not sure because Grace Yang she was here so I cannot make a clear answer because Grace Yang was here." 96 Mrs Tsui confirmed she wished to continue with her cross claim including the relief sought against Grace Yang. Cross-examined on this issue she said she had to face the realities. During the luncheon adjournment she asked a solicitor to help her telephone Ms Wang in Taiwan. She spoke with her but not the other investors. While Ms Wang wanted to proceed Mrs Tsui, emotionally, did not want to do so: "Q: And you said before lunch that you, you and your other investors, who in effect you represent in these proceedings, had not made a decision yet whether to sue Grace? A: In fact, according to me, I do not want to sue Grace because she is present in the Court right now. If I sue her, how can I become a friend later with Grace, and also other people just want to do this thing by law. But emotionally I don't want to do this." 97 Far from this evidence suggesting that Mrs Tsui's cross claim was not genuine, I am of the view that it enhanced her veracity. The reality of the situation required her to proceed for the benefit of the other investors although, emotionally, she did not wish to do so. 98 As I have already mentioned, the liquidator questioned Mrs Tsui's attempts to realise the investments. First, she executed transfers under power of sale of the properties to herself for a nominal consideration. The Lands Titles Office rejected the transfers. 99 In August 2004, Mrs Tsui exchanged contracts for the sale of the two properties to Kwunyum Pty Ltd for no deposit when the company had no means of completing the purchases. The directors of the company were Amy To, Mr To's wife and Lorna Lam, a solicitor. The purchase price for the two properties was $1.9 million. Mrs Tsui said that Ms Lam told her she had the ability to raise the finance. The sales did not proceed upon Mrs Tsui's lawyers' advice to her. 100 After the current proceedings were commenced, Mrs Tsui again attempted to sell the West Ryde and Laughtondale properties. The liquidator brought an injunction proceeding to restrain Mrs Tsui's exercise of her power of sale and that resulted in consent orders. 101 The problem the liquidator had in raising the above issues as relevant to the question whether Mrs Tsui's title was tainted by fraud and, in consequence, lacked the indefeasibility afforded by the Real Property Act 1900, s 42 was that they suffered the disability that knowledge of them was not sheeted home to Mrs Tsui or those she represented. 102 The liquidator conceded that he could not establish that Mrs Tsui was aware of the decision of Campbell J in Hypec Electronics Pty Ltd (in liq) v Mead [2003] NSWSC 934 in which his Honour held Hypec to have the beneficial title to the West Ryde and Laughtondale properties. 103 On 4 December 2001, Hypec lodged caveats over the West Ryde and Laughtondale properties claiming an equitable interest or estate as owner or, alternatively, as co-owner in equity of an estate in fee simple pursuant to a constructive trust arising by operation of law from monetary contributions towards the purchase price. 104 The liquidator submitted that I should infer that Mrs Tsui knew from the caveats and from her close dealings with the Yang family what was going on at the time and the liquidator's claim to the property or, alternatively, if she did not know, she knew enough to be put on inquiry when she took the assignments and saw the caveats and she wilfully, intentionally, refrained from making those inquiries that would have told her what was going on particularly in circumstances where the Yang family decided not to contest the fight. 105 It is a serious matter to infer fraud. The Court must feel an actual persuasion of its incurrence or existence before the finding can be made (Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362). 106 I am not convinced that notice of the unregistered claim of the liquidator was sufficient to constitute fraud. In Carvita Holdings Pty Ltd v Mitsubishi Bank of Australia Ltd (1993) 6 BPR 97460, the plaintiff was a lessee under an unregistered agreement for lease of a shop in a shopping centre. Before it became the registered mortgagee of the shopping centre, the defendant was given notice of the lease but had not consented to it. The mortgagee entered into physical possession of the shop without warning. The plaintiff obtained an injunction. McClleland CJ in Eq refused a continuation of the injunction and ordered that it be discharged. His Honour held that the mortgagee's notice of the unregistered agreement for lease did not constitute fraud within the meaning of the Real Property Act 1900, s 42. 107 The fraud the liquidator appeared to rely upon was that the transfer of the mortgages from CBA were taken by Grace Yang in order that Hypec would become indebted to her and, with accrued interest, the equity in Hypec would be eaten up and Mr Mead would be prejudiced in Family Court proceedings by the diminution in value of his 50% equity in Hypec. 108 None of that was sheeted home to Mrs Tsui or the investors she represented or to Mr To. Indeed, moneys were advanced from Taiwan, not to enable Grace Yang to acquire a transfer of the mortgages, but rather for Grace Yang to purchase on behalf of the Taiwanese ladies the West Ryde and Laughtondale properties. The evidence went no further, in my view, than that Mrs Tsui and the persons she represented and Mr To as friends or acquittances of the Yang family were aware that Mr and Mrs Mead's marriage was in jeopardy and they were in dispute. 109 On that evidence I do not feel an actual persuasion that Mrs Tsui is guilty of fraud in taking the transfers of the mortgages from Mr To on 21 April 2004 and in registering the transfers on 27 April 2004. The Liquidator's case - Limitation period 110 The liquidator succeeds in his submission that by February 2003, by operation of the Limitation Act 1969, s 43, any claim to interest under the mortgages ceased to be maintainable. Mrs Tsui has accepted that proposition as being correct. Mr Mead's case 111 The major contention in Mr Mead's case is based upon the proposition that a common theme in the various transactions and steps that have been undertaken in the period since 1996 with respect to the Yang family and litigation in which they have been involved, is that matrimonial assets have been involved, and a process of transferring those assets into the names of persons or entities other than Mrs Mead, or a process of having persons or entities other than Mrs Mead make claims against those assets, has been undertaken for the purpose of attempting to deprive the Family Court of Australia of any matrimonial property to distribute to Mr Mead. 112 First, for the reasons set forth above I am of the view such knowledge has not been established on the part of Mrs Tsui or those she represents. 113 Secondly, the underlying proposition depends upon a finding that Mrs Tsui advanced no funds and provided no consideration for the acquisition of the registered mortgages. The findings I have made defeat that proposition. 114 I have also found that the mortgages transferred to Grace Yang secured the debt formerly due by Mrs Mead to CBA and the debt formerly due by Hypec to CBA and the capitalisation of the debt owed by Hypec Information Technology to Grace Yang did not extinguish the Hypec debt. 115 Thus, Mr Mead fails in the major contention in his cross claim that the mortgages secured no indebtedness to Mrs Tsui and, further, that Mrs Tsui, by reason of her knowing involvement in a fraudulent scheme whereby the mortgages were transmitted by registered transfer into her name despite there being no moneys advanced by her under the mortgages and no consideration provided by her for the receipt of the transfer of the mortgages, does not receive the benefit of indefeasibility under the Real Property Act 1900, s 42. 116 It was pointed out on behalf of Mr Mead that it is sufficient if the relevant fraud is brought home to the registered proprietor's agent (Assets Co Ltd v Mere Roihi [1905] AC 176). It was submitted that Mr To was Mrs Tsui's agent and it was sufficient if knowledge of the fraud was brought home to him. 117 Mr To executed a document on 31 March 2005 to the effect that he claimed no legal or equitable claim in respect of the release of a mortgage over the Quoin Island property and confirmed that he would be entitled to claim a simple debt against Mrs Mead personally. Mr To acknowledged that he took this course to assist Mrs Mead in her proceedings against Mr Mead in the Family Court. But that was a document that came into existence well after the registration of his transfer of the mortgages to Mrs Tsui and Mr To in further cross examination denied that the $300,000 that he had paid in 2002 to take the transfer of the mortgages from Vinemoon was really for Mrs Mead's benefit. He denied that Mrs Tsui never had any involvement in the West Ryde and Laughtondale properties. He denied that he had been asked to put his name to the transactions to help Mrs Mead or Grace Yang. He denied that they were not real transactions. He denied that he had been asked to do these things on behalf of Grace Yang or Mrs Mead and he denied that he was the agent of Grace Yang or Mrs Mead. 118 On his bank statements, Mr To wrote against his payment of $300,000 that it was a loan to the Yangs. He subsequently whited out that note when, he said, he was apprised of the real nature of the transaction by Mrs Tsui. 119 I do not regard those portions of the evidence of Mr To as establishing that he, as agent of Mrs Tsui, was aware of any fraudulent scheme that affected his transfer of the mortgages to Mrs Tsui and her registration of them. 120 I have already considered the liquidator's submissions that the transactions were shams. No further submission was put forward that the transactions were nullities. 121 Mr Mead fails in his principal claims that the mortgages registered in the name of Mrs Tsui are nullities, that they secure no indebtedness to Mrs Tsui and that, by reason of Mrs Tsui's knowing involvement in a fraudulent scheme whereby the mortgages were transmitted by registered transfer into her name despite there being no moneys advanced by Mrs Tsui under the mortgages and no consideration provided by her for receipt of the transfer of the mortgages, they do not receive the benefit of indefeasibility under the Real Property Act 1900, s 42. 122 By his cross claim Colin Mead raised a further claim to relief under the Conveyancing Act 1919, s 37A which avoids alienations of property with intent to defraud creditors. It provides as follows: "(1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice to the intent to defraud creditors." 123 The argument was that Grace Yang's transaction with Vinemoon was not intended to be an absolute transfer of the mortgages and, upon the redemption of the indebtedness of $300,000, Grace Yang became entitled to a reconveyance of the mortgages. The transfers from Vinemoon to Mr To, therefore, constituted a voluntary alienation of property by Grace Yang. This, it was argued, was with the intent to defraud Mr Mead by excluding a valuable asset of Grace Yang from the reach of Mr Mead under an indemnity costs order he had obtained against her. 124 In my view, the submission fails. The mortgages were not valuable assets of Grace Yang. She held them on trust for Mrs Tsui and those she represented. Their transfer to Vinemoon was in breach of trust. Mrs Tsui, upon learning of the transaction, sought and obtained the further transfer of the mortgages from Vinemoon to Mr To as her agent or trustee. The transactions did not constitute a voluntary alienation of property by Grace Yang with intent to defraud her creditors. 125 Colin Mead's alternative claim to relief must fail. Conclusion 126 In my view, Mrs Tsui is entitled to a declaration that she holds indefeasible registered title to the mortgages over the West Ryde and Laughtondale properties. She is entitled to a declaration that the debt formerly owed to CBA by Hypec is a debt presently due and payable to her. 127 I will hear the parties further on the question whether Mrs Mead's debt, formerly due to CBA, is presently due and payable to Mrs Tsui and should be so declared or whether part only of the debt is presently due and payable under the Law Reform (Miscellaneous Provisions) Act 1965, s 3 or for some other reason. 128 In the circumstances, it is unnecessary for me to consider the alternative relief in the form of an award of damages against Grace Yang and I refrain from doing so. 129 I will hear the parties on the appropriate terms of the declarations and the terms of any resultant orders and I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.

Hypec Electronics v Registrar-General

At a glance

Court

Decision date

Before

Source

Judgment (15 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (8)

Cited By (1)