Ippin Textiles Pty Ltd v Winau Aust Pty Ltd

utt's Land Law (7th ed, 2017, Lawbook Co) Mark Leeming, "Receipts clauses and 'contractual estoppel' revisited" (2018) 134 Law Quarterly Review 171-176 Category: Principal judgment Parties: Ippin Textiles Pty Ltd (First Applicant) Jia He Family Investments Pty Ltd (Second Applicant) M Wang Family Pty Ltd (Third Applicant) Winau Aust Pty Ltd (First Respondent) Shunjiyuan Investments Pty Ltd (Second Respondent) 183 Eastwood Pty Ltd (Third Respondent) Registrar General of New South Wales (Fourth Respondent) Representation: Counsel: M W Young SC (Applicants) F Lim (sol) (First to Third Respondents) H Altan (Fourth Respondent)

Solicitors: Bransgroves Lawyers (Applicants) Francis Lim Barristers & Solicitors (First to Third Respondents) Stephen Prent, Registrar General of New South Wales (Fourth Respondent) File Number(s): 2020/199551 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2020] NSWSC 434; [2020] NSWSC 586 Date of Decision: 22 April 2020; 19 May 2020 Before: Kunc J File Number(s): 2018/170894

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] In 2016, 183 Eastwood Pty Ltd purchased three parcels of land at Eastwood (the "Lands"). In 2018, Mr Scott Chan fraudulently procured ASIC to record him as the sole director and secretary of 183 Eastwood; Westpac Banking Corporation to open a bank account in the name of 183 Eastwood (with only Mr Chan entitled to operate it) (the "WBC Account"); and NSW Land Registry Services to issue him with replacement Certificates of Title for the Lands. On 29 January 2018, Mr Chan executed, purportedly on behalf of 183 Eastwood but without its authority, mortgages over the Lands in favour of the Mortgagees as security for a loan of $4 million. The Mortgagees paid the available loan amount into the WBC Account. The Mortgagees then registered the mortgages and a Mortgage Common Provisions document. Within the registered documents was a "Redacted Schedule A", which included a Special Condition stating: "if for any reason Schedule A is or becomes wholly or partly void, voidable or unenforceable … this Redacted Schedule A replaces Schedule A". The unredacted Schedule A, which was not registered, named Mr Chan as a "Debtor", "Mortgagor" and "Guarantor". The registered documents named only 183 Eastwood as "Mortgagor" and did not relevantly refer to Mr Chan. After not receiving any repayments, the Mortgagees served a Notice of Default and sold the Lands. The proceeds of sale were subsequently paid into court pending the outcome of these proceedings. Kunc J of the Equity Division directed that the following Separate Question be determined first: "[w]hether, properly construed, the Registered Mortgage … secure[s] anything in favour of the Mortgagees against the Lands … and against the proceeds of sale …". By judgments of 22 April 2020 and 19 May 2020, his Honour answered the Separate Question in the negative. The Mortgagees then sought leave to appeal to this Court, challenging the primary judge's answer to the Separate Question. The Court granted leave to appeal but dismissed the appeal: Per Macfarlan JA (Leeming and Brereton JJA agreeing at [48] and [80]): The mortgage conferred on the Mortgagees an indefeasible title by way of security, notwithstanding that its execution and registration was brought about by the fraud of Mr Chan: [24]; Real Property Act 1900 (NSW) ss 41, 42, 57. The question nevertheless remains whether the mortgage secures anything in favour of the Mortgagees against the Lands: [25]. Even if it is assumed that the mortgage identifies the amount intended to be secured and acknowledges receipt by the Mortgagor, this constitutes at best prima facie evidence of what is asserted and must yield to the facts as proved: [28]. No "advance" was made to 183 Eastwood, as payment into the WBC Account set up by Mr Chan without authority did not constitute payment to 183 Eastwood: [29]. The advance that the mortgage was intended to secure was not therefore made and the mortgage secures nothing: [45]. Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328; Petersen v Moloney (1951) 84 CLR 91; [1951] HCA 57, referred to. Furthermore, the mortgage did not secure any liabilities of Mr Chan to the Mortgagees: [30]. Although the unregistered, unredacted Schedule A referred to Mr Chan as a "Debtor", "Mortgagor" and "Guarantor", the Redacted Schedule A did not: [30]-[31]. Even if the registered mortgage could properly be regarded as embracing an unregistered document incorporated by reference, the Special Condition specifically excluded the unredacted Schedule A from the ambit of the mortgage in circumstances such as occurred: [32]. Additional reasons per Leeming JA (Brereton JA agreeing at [80]): This appeal raised a pure question of law, concerning whether and the extent to which a registered mortgage secured anything, when the registered dealing was signed by a fraudster impersonating the mortgagor: [48]. The rights the Mortgagees enjoyed were by dint of statute, and that is the necessary starting point: [49]-[54]; Real Property Act, ss 41, 42, 57. The primary submission on appeal was that a forged mortgage could gain indefeasibility under the Real Property Act and that as a matter of construction it extended to the money advanced by the Mortgagees: [60]. However, 183 Eastwood did not receive the funds contended to have been advanced by the Mortgagees, as Mr Chan obtained them through fraud: [63]. There was no "advance" by the Mortgagees to 183 Eastwood under the mortgage: [63]. Mr Chan was personally obliged at law and in equity to repay the Mortgagees, but the question is whether that obligation was secured by the mortgage: [64]. The correctness of the Mortgagees' submission that the unredacted Schedule A was incorporated by reference into the registered mortgage is doubted: [67]-[74]. However, it is not necessary to decide, as the existence of the Special Condition is determinative: [75]. By their Special Condition, the Mortgagees identified the very possibility of the unredacted Schedule A being void, in which case it was replaced by Redacted Schedule A: [78]. Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45; Deguisa v Lynn [2020] HCA 39; 94 ALJR 1020; Westpac Banking Corporation v Clark [2009] 1 NZLR 201; [2008] NZCA 346; Westpac New Zealand Ltd v Clark [2010] 1 NZLR 82; [2009] NZSC 73, referred to.

Judgment

1. MACFARLAN JA: In 2016, 183 Eastwood Pty Ltd, the third respondent, purchased three parcels of land at Eastwood in Sydney (the "Lands"). As at 22 January 2018 Mr John Lau and Mr Eric Lin were the directors of the third respondent and Mr Steven Ju was the secretary. On about that date Mr Scott Chan, without the knowledge of Messrs Lau, Lin and Ju, applied in the name of the third respondent, but without its authority, to the present applicants (the "Mortgagees") for a loan of $4.5 million at an interest rate of 2.5%, to be secured by mortgages over the Lands and by personal guarantees of Messrs Lau and Lin. The loan was approved on or about the same date.
2. Also in January 2018, and again without the authority of the third respondent, Mr Chan procured the Australian Securities and Investments Commission ("ASIC") to record him as the sole director and secretary of the third respondent, procured Westpac Banking Corporation ("WBC") to open a bank account in the name of the third respondent (with Mr Chan as the only person entitled to operate the account) and procured Land Registry Services (NSW) to issue to Mr Chan replacement Certificates of Title for the Lands.
3. On about 29 January 2018, once more without the authority of the third respondent, Mr Chan executed, purportedly on behalf of the third respondent, mortgages over the Lands. Thereafter Mr Chan fraudulently procured the Mortgagees to pay the available loan amount into the WBC account, resulting in $3,791,266.88 being remitted into that account. The Mortgagees subsequently registered the mortgages and the "Mortgage Common Provisions" document (the "MCP") to which the mortgages referred.
4. No repayments of the supposed loan having been made, the Mortgagees served a Notice of Default and sold the Lands in exercise of their powers of sale. All parties concerned agreed to the sale proceeding and to the proceeds of $6.88 million being held in solicitors' trust accounts. Those proceeds were subsequently paid into court.
5. In proceedings between those interested in that fund, including the Registrar General of NSW (the "RG") (because of the potential for a claim against the RG on the Torrens Assurance Fund established under the Real Property Act 1900 (NSW)), Kunc J of the Equity Division directed that the following question (the "Separate Question") be determined separately from other issues in the proceedings: "Whether, properly construed, the Registered Mortgage (being the mortgages referred to in… the Amended Statement of Claim) secure anything in favour of the Mortgagees against the Lands (being the real property referred to in… the Amended Statement of Claim) and against the proceeds of sale of the Lands, which proceeds are now held in Court."

Relevant statutory provisions

1. The following provisions of the Real Property Act are relevant to the proposed appeal: 41 Dealings not effectual until recorded in Register (1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature. … 42 Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: [a number of presently irrelevant exceptions are then stated]. (2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio. (3) This section prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in this section.

The terms of the registered mortgage

1. The mortgage, as registered, comprised a three page Mortgage Form (which included in it a "Redacted Schedule A") and the MCP.

Schedule A

1. A question arose during the hearing in this Court as to whether a redacted or an unredacted Schedule A was registered. This was clarified after the hearing by the parties' confirmation that only the former was registered. Unless otherwise indicated, references below to Schedule A are to its registered, and therefore redacted, form.
2. The Mortgage Form names the third respondent as Mortgagor and the present applicants as Mortgagee. It continues: "The mortgagor mortgages the estate and/or interest in land specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions."
3. It then identifies the MCP as containing the relevant terms and conditions. Schedule A identifies the Principal Amount as $4 million and refers to the interest rate to be charged. It continues: "Special Condition This is a redacted version of Schedule A between Ippin Textiles Pty Ltd ACN 125 870 546, Jia He Family Investments Pty Ltd ACN 604 379 044 as trustee for Jia He Trust, M Wang Family Pty Ltd ACN 621 977 348 as trustee for Wang Family Trust and 183 Eastwood Pty Ltd dated on or about the same date as this Mortgage. This Mortgage shall be interpreted as though all the provisions of Schedule A are set out at length in this Mortgage save if for any reason Schedule A is or becomes wholly or partly void, voidable or unenforceable in which case this Redacted Schedule A replaces Schedule A."
4. The unredacted Schedule A, which was not registered, includes the following definitions: "Borrower(s): [the third respondent] … Commencement Date: [blank] Date for the Payment of Interest: On the first day of each month after the Commencement Date. Debtor(s): [the third respondent and Mr Scott Chan] … Final Repayment Date: On the same day which is 5 Months after the Commencement Date. Guarantor: Scott Chan … Lender(s): [the Mortgagees are named] … Mortgagor(s): Means the Debtor(s). Principal Amount: $4,000,000".
5. In the execution portion of the unredacted Schedule A, the third respondent is referred to as the "Borrower/Debtor/Mortgagor" and Mr Chan is referred to as the "Guarantor/Debtor/Mortgagor".

The MCP

1. The MCP contains the following definitions in clause 1.1, to be applied "unless the context otherwise requires": "'Borrower' means the Person named in Schedule A as the Borrower; … 'Commencement Date' means the earlier date of: (a) the [date] specified in Schedule A as the commencement date; or (b) the date when the Principal Amount - (or any part thereof) is advanced by the Lender to the Debtor (or at the Debtor's direction), whichever date is the earlier; … 'Debtor' means the Borrower and/or the Mortgagor as the case may be: (a) where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor. (b) where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several.; … 'Final Repayment Date' means the date specified in Schedule A as the final repayment date for the Debtor to pay to the Lender all of the Secured Money; … 'Memorandum' means this Memorandum of Common Provisions, including all of the Schedules hereto; … 'Mortgage' means this mortgage and includes any amendment, extension or variation of it; … 'Mortgaged Property' means the Land and the Charged Assets; 'Mortgagor' means the person named in Schedule A as the Mortgagor; … 'Obligation' means all obligations, covenants, conditions, stipulations, warranties, guarantees, undertakings, assurances and agreements (whether present or future and whether express or implied) arising under or imposed by this Mortgage or by operation of Legislation or law as a result of the grant by the Mortgagor of this Mortgage; … '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; … 'Secured Money' means the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever and includes, without limitation: (a) the Principal Amount; …"
2. The MCP contains the following clauses of present relevance: "2. Creation of security in the Mortgaged Property 2.1 The Mortgagor hereby grants to the Lender a mortgage of the Mortgaged Property to secure: (a) the payment (including the punctual payment) of the Secured Money or any part thereof; and (b) the performance, including the punctual performance, of all of the Obligations. … 2.3 The Mortgagor agrees that it is granting this Mortgage and that it agrees to perform all of the Obligations for valuable consideration received by it and/or by the Borrower from the Lender with the Mortgagor's knowledge and consent including by the advance of the Principal Amount. … 3. Debtor's covenants to pay and perform Obligations 3.1 The Debtor covenants that the Debtor: (a) shall pay the Secured Money (or any part thereof) to the Lender: (i) in accordance with the terms of this Mortgage and by the end of the Term; or (ii) if no time for payment is specified, immediately on demand by the Lender; and (b) shall perform, observe and comply with all of the Obligations at all times and at its own cost. … 28. The Guarantee … 28.3 The Guarantor: (a) enters into this Guarantee because it has a desire that the Lender advance the Principal Amount to the Borrower under this Mortgage; …"

The judgment at first instance

1. The primary judge answered the Separate Question in the negative. Amongst the issues he addressed were the following.

Were any funds advanced to or at the direction of the third respondent under the mortgage?

1. The primary judge found that payments by the Mortgagees of the intended advance into the WBC bank account opened by Mr Chan were not payments to the third respondent because there was no banker-customer contract between WBC and the third respondent, nor, because of his absence of authority on behalf of the third respondent, could it be said that to the extent that those payments ultimately came into the possession of Mr Chan that, as a result, they constituted payments to the third respondent. In consequence, his Honour found that for the purposes of the definition of "Principal Amount" in the MCP, there never was an "amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage".
2. His Honour considered that the word "Debtor" in this expression meant the "Borrower", that is, the third respondent, but even if he were wrong in that conclusion, so that Mr Chan was to be regarded as a "Debtor", there still had not been an "advance" under the mortgage. His Honour considered that there was no "advance" to Mr Chan because he stole the money rather than receiving it as a loan or "advance".
3. His Honour continued: "[120] It also follows from the foregoing that the Court accepts the plaintiffs' argument that there was never a 'Commencement Date' and, therefore, no 'Final Repayment Date'. This means that 183 Eastwood was never in breach of a repayment obligation that entitled the Mortgagees to exercise their power of sale over the Lands. Nor was there any such breach which would enliven Mr Chan's obligations as guarantor. [121] This analysis means that, in the events which happened, the Mortgages did not secure anything and that it is 183 Eastwood and not the Mortgagees that is entitled to the proceeds of sale of the Lands currently paid into Court. This is sufficient to dispose of the Separate Question, but in deference to the arguments made and the possibility the matter may go further, I will set out my conclusions on the other issues."

Is anything secured by the mortgage?

1. Under this heading the primary judge emphasised that the Mortgage Form refers to the mortgage being "security for the debt or liability described in the terms and conditions set out or referred to in this mortgage". His Honour then noted that the reference in the definition in cl 1.1 of the MCP of "Secured Money" to a liability to the Lender includes the "Principal Amount" and that the definition of "Principal Amount" refers to the amount "stipulated" in Schedule A as the Principal Amount. His Honour then rejected a submission that the effect of the word "stipulated" in this definition obviated the need for the Mortgagees to prove that any amount had been advanced to the third respondent. Referring to Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328, his Honour stated that the word "repayment" in the definition of "Principal Amount" made it clear that the amount referred to is an amount that had "actually been advanced", and that "[i]f the amount had not in fact been advanced, then it would make no sense to talk about its 'repayment' being secured by the Mortgage" (at [141]).

Consideration of the proposed appeal

1. Section 57(1) of the Real Property Act provides that a mortgage registered under the Act "has effect as a security but does not operate as a transfer of the land mortgaged…" (see also s 41 quoted in [9] above). Further, by reason of s 42 of the Act, registration of a forged mortgage, as occurred in the present case, "confers an indefeasible title on the mortgagee, provided that the mortgagee has not been party or privy to the fraud and no other exception to indefeasibility applies" (see Perpetual Trustees Victoria Ltd v English [2010] NSWCA 32 at [68(2)] and the authorities there cited).
2. These provisions indicate that the mortgage in the present case conferred on the Mortgagees an indefeasible title by way of security, notwithstanding that execution and registration of the mortgage was brought about by the fraud of Mr Chan without the knowledge or consent of the registered proprietor of the Lands, the third respondent.
3. As encapsulated in the Separate Question stated by the primary judge for decision, the question nevertheless remains whether the mortgage "secure[s] anything in favour of the Mortgagees against the Lands" (see [5] above). If it does not, the Mortgagees have no claim to the proceeds of sale now held in court and the appeal (assuming leave be granted) against the primary judge's negative answer to the Separate Question must be dismissed.
4. In support of their proposed appeal the Mortgagees referred to various provisions of the mortgage that they submitted constituted acknowledgments of the receipt by the third respondent of an advance intended to be secured by the mortgage (being $4 million). They submitted that their claim to take the proceeds of sale in payment of the amount allegedly owed to them could thus be proved by tender of the mortgage, which by reason of its registration obtained the protection of the indefeasibility provisions of the Real Property Act. Thus, they submitted that they did not need to rely upon evidence of any extrinsic circumstance or document to enable them to enforce the mortgage.
5. The provisions of the mortgage that the Mortgagees relied upon in this respect are to the following effect (see [16]-[17] above for the full text of the provisions relied upon). Principally they relied on cl 2.1 which states that the purpose of the mortgage is to secure payment of the Secured Money, cl 1.1 which includes the Principal Amount within the definition of Secured Money, cl 2.3 which refers to the Mortgagor having received valuable consideration including by the advance of the Principal Amount and cl 3.1 which provides for the "Debtor" to pay the Secured Money to the Mortgagees. The Mortgagees also relied on the definitions of Debtor, Principal Amount and Secured Money. The MCP then related these provisions back to [the redacted] Schedule A which refers to the Principal Amount as $4 million.

Conclusion

1. As the primary judge's negative answer to the Separate Question is determinative of the Mortgagees' claim against the proceeds of sale of the Lands, leave to appeal should be granted. For the reasons I have given, the appeal should however be dismissed with costs.
2. I propose the following orders: 1. Grant leave to appeal. 2. Direct the applicants within 14 days to file and serve a Notice of Appeal in the form of the draft Notice of Appeal provided to the Court. 3. Dismiss the appeal with costs.
3. LEEMING JA: This appeal from an answer to a separate question on agreed facts raises a pure question of law, concerning whether and the extent to which a registered mortgage secures anything, when the registered dealing was signed by a fraudster impersonating the mortgagor. I agree with Macfarlan JA. The following additional reasons are by way of elaboration, rather than qualification.
4. It was common ground, at least on appeal, that the documents signed by Mr Chan, purporting to be sole director and secretary of 183 Eastwood Pty Ltd, were forgeries which gave rise to no indebtedness by that company. Statute aside, that would be an end to the matter. However, as is so often the case, it is necessary to start with statute: see Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29; 94 ALJR 818 at [14] and the (numerous) cases there cited, to which may be added what was said, appositely to the present appeal, by Dixon, Evatt and McTiernan JJ in English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321; [1937] HCA 6: "The question which calls for decision arises out of the operation of the statutory provisions, and although the legal result ensuing from the situation created by those provisions must be determined by the principles of the general law where the expression of legislative intention stops short, it is necessary, before resorting to them, to obtain a complete understanding of the statute and exhaust the implications it contains."
5. This is because such rights as the Mortgagees enjoyed were enjoyed by dint of statute. The mortgages were registered under the Real Property Act 1900 (NSW). Each took effect as a charge over the land, rather than as a conveyance with a promise to reconvey: s 57. Upon registration, "the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing": s 41. As registered mortgagees, they enjoyed the "estate or interest in land recorded in a folio of the Register": s 42. I shall return to the significance of "set forth and specified" and "recorded" below.

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: 12 February 2021