//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2001] WASC 201
defendant. Preliminary questions answered; the parties were to be heard on the formal orders to be made.
The judgment dealt with competing claims to a mortgage arranged through a failed finance broker. The broker's trust-account practices made it impossible to identify and trace many investors' money. The court held that the registered investors kept their registered mortgage interests because the broker's fraud was not legally attributable to them and the unregistered investors did not establish a recognised personal claim against them. The unregistered investors had to pursue claims in the general administrations rather than directly against the mortgage. HDPL's mortgage, read as written, secured $1,218,000, although less had been advanced; a separate rectification case could potentially alter that result, but was not decided.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
2,225 words · generated 02/10/2026
This was a trial of preliminary issues about competing claims to mortgage interests and money held after the collapse of a finance broker, Graeme Grubb Finance Broker (GGFB) ([1]–[2]). GGFB arranged pooled mortgage investments. Investors supplied money for borrowers' projects and were generally promised first-mortgage security. Oakleigh Acquisitions Pty Ltd (Oakleigh) often held the mortgage as trustee for investors, while Rowena Nominees Pty Ltd (Rowena) operated the brokerage and trust account ([3]).
7 cited instruments linked from this judgment.
The dispute examined in detail concerned Hardie Developments Pty Ltd (HDPL), which borrowed for a development at 30 Waterloo Crescent, East Perth. The registered mortgage named Oakleigh as mortgagee and stated a principal sum of $1,218,000. The funds were advanced in instalments, and the total actually advanced was materially less than the stated sum ([10]–[17]). Investors paid money to Rowena at different times. Some received registered transfers of shares in the mortgage; others were promised security but remained unregistered ([21], [25]).
The central practical difficulty was Rowena's trust account. It was repeatedly overdrawn, records were unreliable, and there were no accurate individual ledgers to show which investor's funds went where ([5]–[7], [20]–[24]). The broker's collapse left Conlan, as liquidator and supervisor, to deal with the mortgage proceeds and conflicting investor claims. The court considered whether the registered investors' interests could be displaced, whether the unregistered investors could trace money into the mortgage or its proceeds, and what amount HDPL had to pay to discharge the mortgage.
The judgment answered preliminary questions to guide the administration. It did not finally decide every matter, particularly HDPL's possible rectification claim. The court stated that those answers should not be separated from the full reasons on which they depended ([384]).
The court began with the Torrens principle that registration itself vests title. Under the Transfer of Land Act 1893 (WA), the registered proprietor's interest is protected except where an identified exception applies ([159]–[164]). The relevant exceptions were fraud and recognised rights in personam. The court also considered whether volunteers are protected by indefeasibility.
On fraud, Owen J accepted that Grubb's conduct amounted to at least equitable fraud and that Rowena and Oakleigh were fixed with his misconduct ([145]–[146]). But that did not answer whether the conduct could defeat the registered investors' titles. The statutory fraud exception required fraud to be brought home to the registered proprietor or its agent, and the judgment treated the relevant fraud as needing dishonesty ([166]–[170]).
GGFB's mishandling of investor money was outside its authority as agent for the investors. The court reasoned that taking or holding funds pending advance could fall within the agency, but putting them into an overdrawn account or applying them for unauthorised purposes did not ([244]–[246]). The investors themselves had no actual knowledge of the defaults, and there was no evidence of wilful blindness or knowledge that could be imputed to them ([147], [246]). The registered transfers gave those investors the mortgage interests promised to them. The broker's wrongdoing against investors who did not receive registered interests did not, without more, infect the separate transactions by which others became registered ([252]–[262]). The fraud exception therefore did not apply.
The unregistered investors also argued that it was unconscionable for registered investors to retain their interests after learning about the trust-account problems. The court rejected the argument because the in personam exception is not a free-standing appeal to fairness. It must be based on a recognised legal or equitable cause of action and must remain consistent with the statutory scheme ([171]–[176], [271]–[290]). The court found no sufficient basis for knowing receipt or unjust enrichment, and considered the analogy with constructive-trust cases arising from failed joint endeavours inapposite. The registered investors had received what they had bargained for, and their interests were not obtained because of the unregistered investors' contributions ([274]–[286]).
Tracing failed for a separate reason. Once the account was overdrawn, the account represented a debt due by GGFB to its bank, rather than an identifiable fund of trust money. Equitable tracing could not proceed through that overdrawn fund ([272]–[273]). The court therefore concluded that the unregistered investors had to assert claims in the general administrations rather than directly against the mortgage ([366]–[370]).
The mortgage amount turned on construction. Its text defined the principal sum as $1,218,000, required repayment of that sum, and calculated monthly interest by reference to that figure. Owen J concluded that this was clear and unambiguous, and that the document did not provide the usual terms of a draw-down facility ([293]–[298]). However, HDPL's possible claim for rectification was not decided. The court considered that more evidence, including evidence relevant to the parties' intentions, was needed ([299]–[305]). It also held that indefeasibility did not automatically bar a properly grounded in personam rectification claim against registered transferees, while leaving the substantive requirements open ([313]–[319]).
The judgment did not create an entirely new framework for Torrens indefeasibility. It applied the accepted starting point that registration vests title and that a registered proprietor is generally protected from prior unregistered interests ([159]–[163]). It explained that statutory fraud must be attributable to the registered proprietor or its agent, and that mere notice of an unregistered interest is not itself fraud ([166]–[170]).
Its important contribution in this dispute was the application of those principles to a pooled mortgage scheme. It distinguished the broker's broader misconduct in handling a shared trust account from the individual transactions by which specific investors became registered. In the court's analysis, the transaction to examine was the transaction by which each registered mortgagee obtained title, not the entire course of the broker's business from the original loan application through to the collapse ([249]–[255]). This individualised approach led to the conclusion that the broker's failure to register some investors did not, by itself, undo the registration of others.
The judgment also affirmed a restrained approach to in personam claims. It explained that the exception preserves ordinary legal and equitable causes of action against registered proprietors, but does not authorise courts to create new claims merely because a result seems unfair ([271], [288]–[290]). The claimants needed a recognised cause of action, and that cause had to fit with ss 68 and 134 of the TLA.
On volunteers, Owen J held that the TLA's indefeasibility protection could apply to a registered volunteer. He preferred the reasoning in Bogdanovic v Koteff over King v Smail and other contrary views, focusing on the paramount role of the statutory registration provisions ([187]–[200]). Separately, he offered a tentative, expressly obiter view that several investors who had paid money in return for promised mortgage interests might not be volunteers in the relevant sense ([201]–[212]).
The judgment's conclusions were preliminary answers in this particular dispute. It did not decide every investor's ultimate claim against the companies, nor did it determine HDPL's rectification case. The text supplied here includes the judgment's discussion of earlier authorities but contains no material about later judicial treatment. It therefore does not establish whether later courts followed, distinguished or altered these conclusions.
At [159], Owen J states: “The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor.” In plain English, the register does not merely record a title that existed before registration. Registration is the event that gives the registered proprietor the relevant title, subject to the statutory exceptions.
At [247], the court concludes: “Accordingly, this is not a situation in which the fraud of the agent can be ‘brought home to’ the registered mortgagees.” The point is not that the broker's conduct was acceptable. The court had found serious misconduct. Rather, the investors' titles could not be defeated unless the broker's fraud was legally attributable to them in the way required by the Torrens fraud exception.
At [273], the judgment says that tracing cannot be pursued through “an overdrawn and therefore non-existent fund.” This explains the effect of the account's overdraft. Once the account was in debit, the court could not identify an existing fund in that account as containing the investors' money.
At [290], Owen J says: “The in personam exception to indefeasibility has not been made out on the facts of this case.” In ordinary terms, the investors had not established a recognised personal claim against the registered mortgagees that could displace the titles conferred by registration.
At [298], the court concludes that the mortgage's wording was “clear and unambiguous.” It therefore treated the stated $1,218,000 principal sum as the amount secured by the registered mortgage unless the document was later rectified.
At [319], the court leaves open a claim by HDPL against registered investors. Registration alone did not bar rectification, but HDPL would need to establish the necessary equitable basis, including unconscionable conduct where required. That was not finally determined on the preliminary-issue evidence.
The judgment is most directly relevant to disputes where a finance intermediary pools investor money, holds it in a trust account, and arranges registered mortgage interests for some investors while leaving others without registration. It is especially pertinent where the trust account is overdrawn and incomplete records make it difficult to show whether an individual investor's contribution reached the borrower.
The fraud analysis is relevant where a claimant seeks to attribute an intermediary's dishonest conduct to a registered proprietor. The judgment focuses on the agency's scope, the nature of the particular transaction that resulted in registration, and whether the registered proprietor had knowledge or was wilfully blind ([230], [244]–[247], [254]–[262]). It does not treat the broker's general wrongdoing as automatically defeating every registered interest.
The tracing reasoning applies to the specific problem of trying to identify money in an account that has become overdrawn. The court treated that balance as a debt owed to the bank rather than a continuing fund that could be traced ([272]–[273]). The judgment also makes clear that unclear accounting records and a running account can make reconstruction unreliable ([22]–[24], [61]–[67]).
The rectification discussion is relevant where a registered mortgage states a fixed amount, but the borrower says that the parties intended a different arrangement, such as a facility limited to amounts actually drawn. The court's construction of the document was separate from the unresolved question whether evidence of common or unilateral mistake could justify rectification ([291]–[305]).
The supplied judgment gives no account of decisions made after 3 August 2001. It is therefore not possible, from this source alone, to state how later courts have treated Conlan v Registrar of Titles, including whether they have followed, distinguished or criticised its reasoning.
The judgment itself discusses earlier authority. It identifies Breskvar v Wall and Frazer v Walker as supporting immediate indefeasibility, and uses Leros Pty Ltd v Terara Pty Ltd to explain the effect of registration on prior unregistered interests ([159], [162]–[163]). On fraud, it discusses Assets Co Ltd v Mere Roihi, Schultz v Cornwall Properties Ltd and other cases concerning when an agent's conduct can be attributed to a registered proprietor ([166]–[170], [232]–[241]). On in personam claims, it discusses Grgic and Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd ([172]–[176], [285]). Those discussions show the authorities Owen J considered; they are not evidence of subsequent treatment of this judgment.
For current research purposes, the judgment's own limits are important. Several statements are expressly tentative or obiter, including the discussion of whether particular investors were volunteers and the possible scope of the court's inherent power to order discharge ([201]–[212], [352]–[356]). The rectification issues were not finally determined ([303]–[319]). The conclusions about later treatment cannot be filled in from the judgment alone.
The most immediate unresolved issue was HDPL's rectification claim. The court held that the mortgage, as written, secured $1,218,000, but did not determine whether the document could be rectified to reflect the parties' actual intentions. The evidence did not permit a final decision about mutual mistake, and the unilateral-mistake case lacked evidence on important elements ([299]–[305]). Any claim against registered transferees would also have to meet the in personam requirements described by the court ([314]–[319]).
The nature and extent of some unregistered investors' interests also remained fact-sensitive. The judgment identifies gaps in the evidence about whether certain investors were promised security over both the East Perth land and the Victoria Park unit, and whether some documents were executed or merely prepared ([81]–[88], [100]–[110]). Those details could matter to the merits of individual claims in later proceedings.
Owen J did not finally resolve whether any particular investor should be regarded as a volunteer for every relevant purpose. The court's general answer was that volunteers could obtain indefeasible title, but its assessment of several investors' consideration was expressly tentative and obiter ([200]–[212], [318]–[319]).
The judgment also left open the court's inherent power to order discharge of a registered mortgage in the absence of consent and without an existing legal right to discharge. Owen J said the issue required fuller argument ([352]–[356]). It further noted that the liquidators had reserved claims that might arise under Pt 5.7B of the Corporations Law, and that those matters were not addressed by the preliminary questions ([385]).
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : MARK ANTHONY CONLAN (AS LIQUIDATOR OF OAKLEIGH ACQUISITIONS PTY LTD) & ORS -v- REGISTRAR OF TITLES & ORS [2001] WASC 201
HEARD : 18-22 SEPTEMBER 2000, 30 OCTOBER 2000, 5 DECEMBER 2000, 30 JANUARY 2001, 2 FEBRUARY 2001
MATTER : Trustees Act 1962, s 89, s 92
BETWEEN : MARK ANTHONY CONLAN (AS LIQUIDATOR OF OAKLEIGH ACQUISITIONS PTY LTD)
MARK ANTHONY CONLAN (AS SUPERVISOR OF ROWENA NOMINEES PTY LTD)
MARK ANTHONY CONLAN (AS LIQUIDATOR OF ROWENA NOMINEES PTY LTD (IN LIQ))
JOHN BERNARD WILLIAMSON and BETTY LILLIAN WILLIAMSON
COLIN JEFFREY BARRON and LISA JANET CARUSO as trustees for the JB SUPERANNUATION FUND
GEMHURST PTY LTD as trustee for the HOWE FAMILY TRUST
THE PUBLIC TRUSTEE as the Executor of the deceased estate of the late JOAN MINNA
Real property - General principles - Torrens system - Indefeasibility of title - Exceptions to indefeasibility - Pooled mortgage scheme - Investors' money paid into overdrawn trust account - No right to trace - Fraud - Whether fraud of agent can be brought home to registered proprietor - In personam claim - Need for recognisable cause of action in equity or at law - Knowledge of trust account problem obtained post-registration - Whether unconscionable for registered mortgagees to insist on legal rights
Real property - General principles - Indefeasibility of title - Whether volunteers are protected by indefeasibility - What constitutes a volunteer
Contract - Particular parties - Principal and agent - Nature of a finance broker's agency - Whether agent of lender or borrower or both - Fraud of an agent - Doctrine of respondeat superior
Finance Brokers Control Act 1975, s 4, s 73, s 75
First Applicant : Solicitor, Ministry of Fair Trading
Second Applicant : Solicitor, Ministry of Fair Trading
Third Applicant : Solicitor, Ministry of Fair Trading
Fourth Applicant : Solicitor, Ministry of Fair Trading
Fifth Applicant : Solicitor, Ministry of Fair Trading
Fourth-named Third Respondent : Hammond Worthington
Sixth-named Third Respondents : Hammond Worthington
Astley v Austrust Ltd [1999] HCA 6
Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566
Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322
Brockway v Pando [2000] WASCA 192
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Capell v Winter [1907] 2 Ch 376
Cricklewood Holdings Ltd v CV Quigley & Sons Nominees Ltd [1992] 1 NZLR 463
Darling Island Stevedoring and Lighterage Co Ltd v Long [1957] HCA 26; (1957) 97 CLR 36
Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141
Ex parte Knott (1806) 11 Ves 609
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397
Hagan v Waterhouse (1992) 34 NSWLR 308
Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125
James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62
Keefe v Law Society of New South Wales (1998) 44 NSWLR 451
Lloyd v Grace, Smith & Co [1912] UKHL 1; [1912] AC 716
Lord Provost v Lord Advocate (1879) 4 AC 823
Morlea Professional Services Pty Ltd & Anor v Richard Walter Pty Ltd (In Liq) & Ors [1999] FCA 1820; (1999) 34 ACSR 371
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146
Official Receiver in v Klau; Ex parte Stephenson Nominees (1987) 74 ALR 67
Palmer v McAllister (1991) 4 WAR 206
Perpetual Trustees WA Ltd v Attorney General (WA) (1992) 8 WAR 441
Perry v Rolfe [1948] VicLawRp 51; [1948] VLR 297
Re Australian Home Finance Pty Ltd [1956] VicLawRp 1; [1956] VLR 1
Re Berkeley Applegate [1989] Ch 32
Re Eastern Capital Futures Ltd (In Liq) [1989] BCLC 371
Re Lemon Tree Passage & Districts RSL and Citizens Club Co-operative Ltd (1987) 11 ACLR 796
Re New Cap Reinsurance Corporation (Bermuda) Ltd (Prov Liq Appdt) (1999) 32 ACSR 234
In the matter of; Parker (1997) 80 FCR 1
Re Brogden (1888) 38 ChD 546
Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202
Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331
Wirth v Wirth [1956] HCA 71; (1956) 98 CLR 228
Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307
1 OWEN J: This is a trial of preliminary issues. It involves competing claims to mortgages and to a fund of money that has accrued in an administration that commenced after the collapse of a finance broker. It involves significant questions relating to the doctrine of indefeasibility of title under the Transfer of Land Act 1893 (WA) ("TLA")
2 Mark Anthony Conlan ("Conlan") is the liquidator of Rowena Nominees Pty Ltd ("Rowena") and of Oakleigh Acquisitions Pty Ltd ("Oakleigh"). Rowena was a finance broker licensed under the Finance Brokers Control Act 1975 (WA) ("FBCA"). It carried on business under the name "Graeme Grubb Finance Broker" ("GGFB"). In May 1999 Conlan was appointed by this Court as an independent accountant to investigate the affairs of GGFB. He was appointed provisional liquidator of Rowena on 16 July 1999 and of Oakleigh on 21 July 1999. He was appointed as liquidator of Rowena on 21 July 1999 and of Oakleigh on 25 August 1999. On 23 July 1999 Conlan was appointed supervisor of the business pursuant to powers set out in s 73 of FBCA.
3 GGFB was controlled by one Graeme Grubb ("Grubb"). GGFB engaged in what are known as pooled mortgages. A potential borrower would approach GGFB with a view to obtaining finance for a venture. GGFB would, in turn, approach a number of potential investors and invite then to advance moneys for the venture. Often, the amount required was beyond the resources of an individual investor and several entities or people contributed varying amounts so as to make up the whole. Promises were made to potential investors that they would be given a first mortgage security over identified property. In the main, Oakleigh did little more than act as trustee for investors who had supplied the funds to Rowena for the advances to borrowers. Often the mortgage was registered in the name of Oakleigh as mortgagee. Some of the mortgages remained in that state. In relation to others, there was a transfer of mortgage from Oakleigh to named investors. In other instances the mortgages were registered in the names of investors as mortgagees.
4 In many instances GGFB offered investors a cash flow guarantee, described in the documentation in this way: "GGFB will pay to you the monthly interest regardless of whether the borrower has paid us".
5 Rowena maintained a trust account. It maintained a separate account styled "cash flow guarantee account". On about 84 occasions between June 1996 and May 1999 the trust account was overdrawn at the close of business on a particular day, sometimes to a significant extent. This was caused, at least in part, by the way the cash flow guarantee was administered. Rowena would pay interest to the investors from the cash flow guarantee account. If there was insufficient money in that account the shortfall would be made up by transferring money from the trust account. There were many other transactions, not related to the cash flow guarantee, that resulted in the trust account being in overdraft.
6 In the period with which we are concerned in this application, namely April 1997 to May 1999, the trust bank account went into overdraft about 66 times.
7 After his appointment, Conlan inspected the books and records of GGFB. To say that they are in a mess is a significant understatement. There are deficiencies in the record keeping and it is clear that on many occasions GGFB did not fulfil the promises that it had made to investors or (sometimes) to borrowers. As time wore on the individual mortgages and borrowing arrangements fell due for repayment. Some mortgagors defaulted but others were in a position to fulfil their commitments. However, it has proved no easy task for Conlan to identify with certainty who is entitled to particular mortgages and to interest paid and principal payments received from borrowers.
8 On 30 September 1999 Conlan obtained an interlocutory injunction which, in substance, prevented or impeded the exercise by registered mortgagees of their rights under various mortgage arrangements entered into by, or arranged by, GGFB prior to its collapse. On 18 February 2000 I set aside those orders and substituted a different type of injunction the effect of which was to put in place a regime for dealing with individual mortgages so that they could be discharged and the proceeds paid to the mortgagees if there was no dispute and held in trust if there was a dispute. Experience with this regime raised numerous questions about the proper way to conduct the administration. Some preliminary issues, which may give guidance for the administration of the affairs of GGFB generally, were identified. It was thought convenient to relate the preliminary issues to a particular mortgage arrangement.
9 In one such arrangement the mortgagor is Hardie Developments Pty Ltd ("HDPL"). Various parties have made competing claims to the funds arising from the discharge of the HDPL mortgages. It seemed to present a range of issues that made it an appropriate fact situation for close examination. I should therefore set out the facts relating to the HDPL mortgages.
10 In January 1997 HDPL entered into a contract to purchase land at 30 Waterloo Crescent East Perth ("the EP land") with a view to demolishing the building that then stood on it and constructing six high quality strata title units on the land. The purchase price was $370,000 and settlement was due on 30 April 1997. On 17 February 1997 Craig Hardie, the principal of HDPL, lodged an application with GGFB to arrange a loan of $1,218,000 for the project. The application form contains the following:
"I/We, the above Applicant/s hereby appoint you to act on my/our behalf as a finance broker to arrange the above described mortgage loan/s on my/our behalf, and agree to take up the loan/s if it is arranged by you and available to me/us on the terms and conditions set out in this application form, and to sign all necessary documentation on reasonable request and to pay [specified application and other fees]."
11 On 18 February 1997 GGFB wrote to HDPL quoting its own reference "Folio 4827" and saying: "we wish to confirm that your loan has been approved subject to the following terms and conditions". The loan was to be "broken up" into six loans each of $203,000, each loan to be allocated to one of the units. The advance was to be guaranteed by Hardie. I pause to note that over the life of this matter seven loan folio numbers were allocated to the Hardie arrangement. They are Folios 4827 to 4833 (inclusive). The specified terms and conditions included the provision of a first mortgage security over the land at 30 Waterloo Crescent and an apartment in Victoria Park ("the VP unit") and a second mortgage over a small farming lot in Narrogin ("Lot 142") which is registered in Hardie's name. The estimated funding date was said to be 30 April 1997. On 28 February 1997 HDPL signed and returned a copy of the loan approval letter in which it "accepted [the] loan approval letter" on the terms and conditions specified in it.
12 I will deal with the arrangements made between GGFB and the various investors a little later. It will be convenient to go on with the arrangements between GGFB and HDPL. Early in April Hardie negotiated with GGFB concerning the loan. Hardie was experiencing some difficulties with Bankwest, which held the first mortgage over Lot 142. In his affidavit he says that it was agreed to delete that mortgage from the list of securities to be provided. Hardie had previously dealt with Grubb when he was engaged in a construction project in Victoria Park. On that occasion he had reached an agreement with Grubb that the loan would be advanced progressively, first to fund the acquisition of the land and then by instalments as the building was constructed. In relation to the East Perth project, Hardie said that "our agreement followed the pattern of the [previous] loans namely that the loan moneys would be advanced progressively and then repaid as the settlement of the sale of completed units were carried out". Hardie also said that when the mortgages were produced he did not take much notice of what they said about payments and repayments and nor did he have legal advice.
13 On 30 April 1997 HDPL executed a mortgage which was later to become registered mortgage G498929 ("the Mortgage"). The mortgagee is Oakleigh. The Mortgage contains the following relevant provisions:
14 It is a registered first mortgage over the EP land and the VP unit. The preamble states that the security is being given "in consideration of [Oakleigh] at the request of [HDPL] advancing or agreeing to advance [the principal sum]". Clause 1 provides that the principal sum is repayable on demand but that demand will not be made prior to the repayment date so long as there is no default. Clause 2 provides for interest to be paid at a high, median or low rate (as set out in the schedule) depending on whether it was paid on time. The highest rate is 13 per centum per annum, the median rate is 12 per centum per annum and the lowest rate is 10 per centum per annum. In the schedule the monthly interest instalments are described in actual dollar terms calculated at the applicable rate on the full principal sum of $1,218,000. This is a little curious as the principal sum was actually advanced in instalments over time. An amount of $389,000 was advanced at the time of settlement of the property purchase. From time to time various amounts were released as progress payments, presumably as the construction project advanced. The last payment seems to have been made on 1 April 1999. The body of the mortgage does not contain provisions (either relating to advances and repayments of capital or calculation and payment of interest) of the type that are usually found in a document evidencing a draw-down facility.
15 Despite what Hardie says was the oral agreement he reached with Grubb, on 30 April 1997 he (as mortgagor) and HDPL (as borrower) executed a mortgage over Lot 142. This mortgage noted the existing security to Bankwest as a prior encumbrance. On 30 April 1997 Bankwest wrote to GGFB consenting to the registration of the mortgage on condition that the mortgagee execute a deed of priority. There is in evidence a copy of Bankwest's letter which contains an undated handwritten note from a Barry Collins: "Letter as sent to you - is this proceeding". On 12 May 1997 GGFB sent to Bankwest the deed of priority executed on behalf of the mortgagees. The second mortgage over Lot 142 was never registered and nor was a caveat lodged in relation to it. In his affidavit Hardie does not explain how or why the second mortgage over Lot 142 came to be executed. However, he does say this:
"[HDPL] did not authorise [GGFB] to act as its agent to give any contractual undertaking or create any charge or security over [Lot 142] to or in favour of any parties who might advance monies to [GGFB] for the purpose [sic] the advance forming part of the moneys agreed to be lent by [Oakleigh] to [HDPL] under [the Mortgage]."
16 I am not sure when settlement of the land purchase transaction occurred. There is evidence that a cheque for the balance due to the vendor was drawn on the Rowena trust account on 2 May 1997. However, neither the land transfer nor the Mortgage were lodged for registration until 11 June 1997. They were registered on that date. I will assume, for the purposes of these proceedings, that settlement occurred and the moneys were paid over on 2 May 1997.
17 The evidence of Hardie is that the total amount advanced to or on behalf of HDPL was $1,025,647.54. The evidence of Geoffrey Lasscock, a person retained by Conlan to assist him with the investigations, suggests that the figure is $1,057,908.11. Whichever figure is correct, it is significantly less than the principal sum of $1,218,000 and it is clear that some of the monies promised by GGFB to HDPL have never been advanced.
18 From time to time HDPL made interest payments to GGFB. They are set out in Annexure 14(c) to Lasscock's affidavit sworn 12 September 2000. Many of them were for $4,200, a figure that bears no resemblance to the amount specified in the schedule to the Mortgage or to a calculation based on the amount of the principal sum then advanced. It was the amount that Grubb asked HDPL to pay. Later in 1998, when further moneys were advanced to HDPL, Grubb told the company to increase the monthly interest payments to $5074.98, which it did. On 7 January 1999 an interest payment of $5,074.98 was made. On 9 February 1999 there was a further payment of $6,731.05 The loan folios and the reconstruction undertaken by Lasscock raise some accounting issues as to the amount of interest chargeable against, and paid by, HDPL. I do not need to determine the exact state of the account in order to dispose of this application.
19 In about April 1999 the affairs of GGFB came under investigation by the Australian Securities and Investments Commission ("ASIC"). In May 1999 ASIC seized, among other things, the duplicate certificate of title to the EP land. From about December 1998 Hardie had experienced problems in obtaining cheques from GGFB. The construction schedule was slowed down because moneys which should have come from GGFB were not available to pay tradesmen and sub-contractors. Construction was finally brought to a halt in May 1999. HDPL was forced to borrow funds from other sources to complete construction works. It is not entirely clear how much HDPL had to borrow for this purpose. It was somewhere between $276,000 and $300,000. Completion of the project was achieved in about June 1999. However, the strata plan was not registered until 7 October 1999. Hardie says that the delay was caused by the reluctance of ASIC to release the title. The six units have been sold. The Mortgage has been discharged and part of the proceeds from the sales has been held by Conlan pending resolution of this dispute.
20 One of the few things upon which everyone involved in this sorry saga agrees is that Rowena's records are notoriously unreliable. Nonetheless, they must still form the starting point for any consideration of the issue that I have to determine.
21 A number of investors paid funds to Rowena for the purpose of investing in the East Perth project on the strength of a first mortgage security. They did so at different times between 4 April 1997 and 12 April 1999 and in differing amounts. Thirty investors were linked in Rowena's records with the loan made to HDPL. Of them, only nine became registered mortgagees. One investor who was not linked in Rowena's records with the HDPL loan nonetheless became a registered mortgagee. The funds of that investor were loaned to another borrower and when that arrangement was finalised without the investor receiving payment, Grubb sought to secure the position through the HDPL project. Another investor was linked to the HDPL loan but it seems clear that her money was advanced to another (unrelated) borrower.
22 Rowena maintained, relevantly, a single trust account, styled Account No 551075797000, with St George Bank Limited, Perth. I will call this account the "trust bank account". Section 48 of the FBCA requires a finance broker to maintain a trust account. It authorises the broker to pay all moneys into one such bank account, thus avoiding the problems that are associated with a trustee mixing trust funds. However, there is an obligation under s 48(5) to account separately for the moneys of individuals on whose behalf funds are held. It is clear to me that GGFB failed dismally in this respect. There are no, or no accurate, individual ledgers clearly accounting for the moneys of individual investors or borrowers within the trust account structure. It seems to me to be, at best, imprudent practice and, more likely, a breach of fundamental trust obligations to allow the trust bank account to be overdrawn on a regular basis. These things make it very difficult to trace interests in and through the trust account. They also make it difficult to reconstruct the individual ledger accounts in any meaningful way.
23 There is a document prepared by or on behalf of Conlan entitled "Hardie Developments Pty Ltd - Folio 4827 - 4833 Money Trail" (which I marked as MFI 61). It attempts (among other things) to reconstruct the HDPL ledger within the trust account structure. As will appear shortly, its accuracy depends on the way in which some of the individual transactions are construed. It shows just how difficult the task is.
24 There is a related issue. In a situation where a running account is being operated, the rule of convenience known as the Rule in Clayton's Case provides an efficient means of appropriating debits and credits. The effective application of the rule in this case will be problematic.
25 The Mortgage was initially registered solely in the name of Oakleigh. With the exception of the investors Hellfire and Price, all of the investors who became registered did so by way of transfers of mortgage from Oakleigh.
26 I will deal, as best I can, with each investor in the order in which they advanced funds.
27 Robert Wyndham Walker and Anne Lenore Walker (to whom I will refer as "Walker") advanced $135,000 on 4 April 1997.
28 As will appear shortly, some investors were advised of the HDPL project by letter of offer from GGFB. That is not the case with Walker. There is no indication of what transpired between Grubb and Walker prior to them making the decision to invest. On 4 April 1997 GGFB issued a receipt to Walker for $135,000. It appears that, on that day, the money was deposited to the trust bank account as part of a total deposit of about $400,000.
29 On 14 April 1997 GGFB sent to Walker a letter confirming the investment. The letter refers to a "first mortgage investment" without naming the borrower. However, it quotes Folio 4828. On 5 November 1997 GGFB sent to Walker for execution a document entitled "Deed of Appointment - First Mortgage Investment". It was signed and returned by Walker on 10 November 1997. I will describe the general contents of this document in more detail later. It is sufficient to say at this stage that it relates to the HDPL loan and it notes the security as being over the EP land and the VP unit. There is no mention of security over Lot 142. A separate deed of appointment in similar terms was sent and executed by Walker in March 1999 in relation to an "extension of the term" from 14 August 1998.
30 By a document dated and registered on 24 February 1999 Oakleigh transferred to Walker 1350 undivided 12180th shares in the Mortgage. Walker is, therefore, one of the registered mortgagees.
31 Betty Frances Moulton advanced $25,000 on 11 April 1997 and a further $6,000 on 23 April 1997.
32 By a letter dated 11 April 1997 (said to be in confirmation of an earlier telephone conversation) GGFB advised Moulton of the HDPL project. In the letter the loan is said to be for $203,000 but that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over "Apartment 1, 30 Waterloo Crescent East Perth" with a total net equity of $320,000.
33 The amount of $25,000 was transferred from another loan folio that Moulton had with GGFB. The balance of $6,000 was paid by bank cheque and the money deposited into the trust account. There is no record of GGFB having sent to Moulton a letter of confirmation of the investment. However, on 15 December 1997 GGFB sent out a Deed of Appointment but Moulton did not sign it.
34 On 1 July 1997 Moulton signed a transfer of mortgage by which Oakleigh transferred to her 31 undivided 1218th shares in the Mortgage. The transfer of mortgage was registered on 24 February 1998. This was the first transfer of mortgage to be registered.
35 Although they are not involved in the proceedings I need to describe the position of Raymond Cecil Andres and Margaret Thelma Jane Andres ("Andres"). They advanced $203,000 on 1 May 1997. No documentation is in evidence. However, a search of the title reveals that on 15 May 1998 a transfer of mortgage was registered by which Oakleigh transferred to Andres 203 undivided 1218th shares in the Mortgage.
36 Andres has been repaid in full by virtue of a transaction involving Hellfire Pty Ltd ("Hellfire") and John William Price and Gladys Ethel Price ("Price"), which I will describe later.
37 I need to pause for a moment. On 2 May 1997 Hardie paid $20,000 to GGFB in order to pay out the existing mortgage over the VP unit. As it turned out, the amount required to discharge that mortgage was $25,500. At settlement on 2 May 1999, GGFB paid to the vendor of the EP land and the mortgagee of the VP unit a total of $389,039. Leaving to one side the $20,000 paid by Hardie, the amount advanced ostensibly from the investors was $369,039. By that time GGFB had received from the investors Walker, Moulton and Andres a total of $369,000.
38 As I have already said, one of the complicating factors in this matter is that the Rowena trust account was overdrawn at close of business on numerous occasions. MFI 61 indicates that neither the trust bank account nor the reconstructed HDPL ledger were overdrawn on any day between 4 April 1997 and 2 May 1997. In fact, the first time (during the relevant period) on which the trust account became overdrawn was 13 June 1997. Save for the small amount of $39 to which I have already referred, the first time the HDPL ledger went into debit was 5 October 1998 when Andres received repayment of their principal.
39 In discussing the investor Walker I mentioned that in the deed of appointment there was no mention of a security over Lot 142. To save me saying it on each occasion, there is no mention of a security over Lot 142 in any of the deeds of appointment sent to, or signed by, any of the investors to whom I will refer in this section of the reasons.
40 There is very little information concerning the investors A E Cressall and M Prestney. Cressall advanced $35,000 on 6 May 1997 and was repaid in full on 6 October 1998. Prestney advanced $70,000 on 16 May 1997 and was repaid on 14 December 1998. There is no suggestion that either of them ever obtained a registered interest.
41 Noeleen Anne Bingham advanced $28,000 on 20 June 1997. On the same day there was a composite deposit to the Rowena trust account of $253,000 and it is reasonable to assume that Bingham's money was included in this transaction. On 20 June 1997 the trust bank account was in credit. However, on 2 July 1997 the account overdrew. There were no payments to or on behalf of HDPL until 24 July 1997, when a progress payment of $70,000 was made.
42 There is no letter of offer and no receipt of the advance. However, there is a confirmation letter dated 24 July 1997.
43 On 21 December 1997 Bingham signed a deed of appointment appointing GGFB as her broker for the loan. Again the security is described as a mortgage over the EP land and the VP unit.
44 By a document dated 24 February 1999 and registered on the same day Oakleigh transferred to Bingham 280 undivided 12180th shares in the Mortgage. She is therefore one of the registered mortgagees.
45 Allan Ronald Tabe and Winifred Tabe ("Tabe") advanced $2,000 on 16 September 1997 and it was deposited to the trust account that day as part of a larger deposit of $366,000. In fact, Tabe paid in a larger amount but the other moneys were allocated to borrowers other than HDPL. The trust account was in credit on that day but was overdrawn on numerous occasions between then and 13 July 1998.
46 Again somewhat curiously, there were no draw-downs on the HDPL loan between 24 July 1997 and 13 July 1998. On the latter day a progress payment of $30,000 was made.
47 There is no letter of offer and no receipt. However, on 8 September 1997 (obviously in anticipation of receipt of the moneys) GGFB sent Tabe a letter of confirmation. There is no deed of appointment.
48 By a document dated 24 February 1999 and registered on the same day Oakleigh transferred to Tabe 20 undivided 12180th shares in the Mortgage. They are, therefore, one of the registered mortgagees.
49 The position with this investor is a little more complicated. On 6 July 1998 Jeanette Loma Barron and others as trustees for the JB Superannuation Fund advanced $71,000 and it was deposited to the Rowena trust account the following day. I will refer to Jeanette Barron and to the investor, interchangeably, as "Barron". On 18 December 1998 Barron advanced a further $42,000 but according to Barron only $32,000 was to be allocated to the HDPL loan, making a total from this source of $103,000. This seems to accord with the letter of confirmation dated 21 December 1998.
50 Barron filed an affidavit and from that document the following facts can be gleaned. In 1997 and 1998 Barron made a number of investments through GGFB. She says that on 6 July 1998 she paid $71,000 to be advanced to Heyns and Kowadine on security of a first mortgage over a property in Waroona. This arrangement bears the reference Folio 5432 (or 5433). Apparently, GGFB recorded two separate deposits of $71,000. Barron pointed out to GGFB that she had made only one deposit in that amount. There is attached to her affidavit a document entitled "Current Contracts" which refers to the loan folios and which contains a handwritten note, apparently appended by Grubb: "Should be transferred off. Did not proceed". In is not clear on the state of the evidence whether any moneys were advanced from the trust bank account to Heyns and Kowadine. There is another note on that document indicating that Folio 5432 was cancelled and the funds used for Folio 4831. In her affidavit, Barron says that later in 1998 her "loan of $71,000 was discharged by the borrower" and "she agreed to $71,000 remaining in [the trust bank account] for a further investment". It is not clear which "borrower" Barron is there referring to and the statement may not be strictly accurate. Whatever the true situation, between July 1998 and December 1998 Barron had funds lodged with GGFB amounting (relevantly for these purposes) to $71,000.
51 In November 1998 she agreed to $10,000 being allocated to another mortgage investment. That sum was later repaid to her. In December 1998 she was approached by David Coxon, an employee of GGFB, who told her about the HDPL project. She had known the Hardie family for some years. Barron told Coxon she would only invest if she could be the sole registered first mortgagee as that was her investment policy. Coxon told her the only way that could be achieved was if she were to increase the investment to $103,000. Hence the payment of a further $42,000 on 18 December 1998.
52 Barron says that she signed a deed of appointment but did not keep a copy. There is no signed deed of appointment in evidence. The deed of appointment indicated the security was a first mortgage over the EP land and a title designated as "1770/658". The latter title had (and has) nothing to do with HDPL and the name of the registered proprietor was never mentioned to Barron and nor did she ever agree to lend money on that security.
53 Barron made repeated attempts to obtain the duplicate certificate of title to the EP land from Grubb. He made various excuses for the delay and then in April 1999 he wrote to her promising it would be delivered within seven days. It did not arrive. In June 1999 Barron conducted her own title search. She discovered that the land was mortgaged to Oakleigh (by that time the names of the several transferees would also have appeared) but her name did not appear as a registered mortgagee, let alone as the sole mortgagee.
54 This is an example of an investor who exercised caution and prudence and yet who was still caught up in the quagmire that enveloped the affairs of GGFB. Barron made her investment decision on her own knowledge of the borrower (as well, no doubt, on some representations made by GGFB) and on an express promise that she would have a first mortgage security. She made attempts to follow up the position so as to ensure that she obtained what had been promised to her. Barron never obtained a registered interest of any kind.
55 In the summaries prepared by Conlan (MFI 61) the payment of $71,000 on 6 July 1998 is treated as having been allocated to the HDPL loan from that time. On Barron's evidence that may not be correct. The $71,000 was initially given to GGFB so it could be advanced to borrowers Heyns and Kowadine on security of the Waroona land. This has nothing to do with HDPL. It does not relate to Folio 4831, which is the Barron reference within the HDPL loan structure. The trust account statement generated by St George Bank indicates that $71,000 was physically deposited to the account on 7 July 1998. There is no evidence that a payment was made out of the trust bank account which could in any way be linked to Barron's deposit (and I use the term linked here in a very broad and non-technical sense) until late in 1998. It seems, therefore, that the Barron advance was originally earmarked for the Heyns and Kowardine project but there is no evidence that it was ever used for that purpose. In that sense it may then have remained as unallocated funds in the trust account until it was re-allocated to the HDPL loan on or around 18 December 1998 without a further physical transaction in the trust bank account.
56 There is no doubt in my mind that Barron, although not being able to claim the benefits that go with registration, has an interest in the loan arrangements which are represented by the Mortgage. The critical, and very difficult, question is whether that interest lies as an interest of a propriety nature in the Mortgage as a whole or only in the portion of it that is retained by Oakleigh or whether it is an interest of a non-proprietary nature.
57 There is very little information concerning the investor Borlini. He (or they) advanced $35,000 on 3 September 1998. It was repaid by way of a transfer to Folio 6020 (again, nothing to do with HDPL) on 4 January 1999. There is no suggestion that Borlini obtained a registered interest.
58 Thee investments made by Hellfire Pty Ltd (represented by Francis O'Sullivan) and John William Price and Gladys Ethel Price ("Price") raise quite different issues. In relation to Hellfire, two separate investments were made. This section deals only with the first investment. In August 1998 O'Sullivan and Price approached Coxon and expressed interest in investing mortgage funds in near city developments. Coxon suggested that they take over Andres share in the Mortgage.
59 O'Sullivan and Price did a site inspection of the East Perth project and were impressed. They decided to invest. On 1 October they each gave GGFB a cheque for $101,500. The cheques were deposited in the trust bank account on 12 October 1998. There is no offer letter but a letter of confirmation of the investment was sent. Hellfire and Price each signed a deed of appointment on 2 September 1998. The suggested security is a mortgage over the EP land and the VP unit.
60 By a document dated 18 November 1998 and registered on 19 November 1998 Andres (not Oakleigh) transferred to Hellfire 1015 undivided 12180 shares in the Mortgage. By a separate document dated 18 November 1998 and registered on 19 November 1998 Andres (not Oakleigh) transferred to Price 1015 undivided 12180 shares in the Mortgage. They are, therefore, registered mortgagees.
61 It is common ground that there are significant (probably insuperable) difficulties in tracing funds when they are paid into an overdrawn trust account or into an account which becomes overdrawn between the times when the moneys are paid in and paid out. The state of the trust account at various times therefore becomes critical.
62 The Barron situation raises a couple of issues. As I have already said, it is not clear whether the Barron investment with HDPL should be seen as $71,000 on 6 July 1998 and $32,000 on 18 December 1998 or as one investment of $103,000 on the latter date. It may make a difference. The $71,000 payment was deposited into the trust account on 7 July 1998. At the commencement of business on that day the trust account was overdrawn by $24,442. The statement for that day lists a series of transactions, both debits and credits. The credits are listed first and then the debits. Each entry is followed by a "balance" figure". The balance shows a credit of $21,041 following the transaction that had been entered immediately before the $71,000 deposit. The account remained in credit for the rest of the day, with a closing balance of $114,263. What is the appropriate characterisation of this transaction? Was the account overdrawn at the time it was paid in? Is it simply an accident that the deposit of $71,000 appears in the position it does? In my view, fairness requires that this question be answered in favour of the innocent party. I will assume in favour of Barron that the account was in credit at all material times during that day.
63 The next payment out of the trust account (at least so far as concerns HDPL) was for $30,000 on 13 July 1998. The trust account was in credit between 7 July 1998 and 13 July 1998 and remained in that state until it became overdrawn on 22 July 1998.
64 The trust account then remained in credit until 3 November 1998. During the intervening period, the Hellfire, Price, Andres transaction had been effected, Cressall had been repaid and a progress payment of $105,000 was made on 16 October 1998. For some unexplained reason, GGFB was in possession of the cheques from Hellfire and Price from 1 October 1998 but did not bank them until after Andres had been paid out (5 October 1998). The payments out to Andres and Cressall caused the HDPL ledger within the accounting structure to go into debit. It went into credit again on 12 October 1998 after the cheques from Hellfire and Price were banked.
65 This raises another issue. If there is to be a notional ledger created by a reconstruction of the accounting records, should it bring to account the cheques that were in the possession of GGFB but which had not been banked? In this respect, is it any different to the position (such as with Barron) where money lies in the trust bank account but is not actually allocated to the particular investment until a later date? I think the answer to these questions is that the trust obligations of GGFB were so badly mismanaged that there is little point in trying to reconstruct the individual trust ledgers. However, to the extent that it is necessary, I incline to the view that a reconstruction of individual ledgers in the trust accounting records of GGFB (as distinct from the trust bank account) should include cheques that have not been presented. There is little difference in this regard between a cheque delivered to the broker for a particular transaction but not banked or advanced and money paid into the trust bank account for a particular transaction but not advanced. I think there is greater reason to regard the unpresented cheque as a credit to the ledger or folio of a particular transaction than there is, for instance, money sitting in the trust bank account but not allocated to that transaction.
66 The relevance of the particular issues that I have raised in this section of the reasons will become apparent in due course. I am here more concerned with setting out the factual matrix.
67 The trust bank account went into overdraft on numerous occasions between 3 November 1998 and 30 November 1998, which is the date of the next significant transaction.
68 The position with the investor Wolart Pty Ltd raises similar problems to those encountered in the discussion of Barron.
69 In November 1997 Wolart paid $225,000 to GGFB to be advanced to a borrower called Dobson. This loan had the reference Folio 4950. On 30 November 1998 Dobson repaid $389,849 when the sales of some units that were under construction settled. That amount was deposited to the trust bank account on 30 November 1998. According to what appears to be a GGFB document entitled "Grubb Finance (Trust Account No 1)" in the name of Wolart, $90,849 was credited to Wolart as "part principal repaid 4950". I assume that this is part of the bank deposit of $389,849. On 16, 24 and 31 December 1998 further amounts were credited to Wolart with a similar notation.
70 The same document has an entry noted as "T/Jnl" (which I presume indicates that it was effected by a journal entry in the general ledger rather than as a cash transaction) on 1 April 1999, being the transfer of $90,000 to Folio 4833 for HDPL. There was no letter of offer but the confirmation letter is dated 17 March 1999. It shows the anticipated commencement date as 1 April 1999. A deed of appointment was executed on 18 March 1999 for a mortgage of $90,000 over the EP land and the VP unit.
71 The trust bank account was in credit at the commencement and close of business on 30 November 1998. It went into overdraft on several occasions before 14 December 1998 (the date of the next significant transaction) and on many other occasions between then and 1 April 1999. During the intervening period several progress payments were made, as was the transfer of funds on the Prestney account.
72 There is no suggestion that Wolart ever obtained a registered interest. As with Barron, I believe Wolart has an interest in the loan arrangement represented by the Mortgage, although the exact nature and extent of the interest is a matter that I will have to resolve.
73 Hellfire advanced a further $105,000 on 14 December 1998. The circumstances in which this transaction occurred were as follows.
74 O'Sullivan says that he was impressed with the East Perth development. After the first investment, he visited the site on a number of occasions and spoke to Hardie. Hardie told him things were going well and that he was happy with the development. Hellfire had extra funds to invest. O'Sullivan contacted Coxon and they discussed, and agreed on, the provision of a further $105,000 to HDPL. On 14 December 1998 O'Sullivan gave GGFB cheques for $57,000, $30,000, $5000 and $13,000, making a total of $105,000. This amount was deposited into the trust bank account on 14 December 1998.
75 There was no letter of offer but the confirmation letter is dated "11 December". Although no year is mentioned it is reasonable to assume that the correct date is 11 December 1998. A deed of appointment was executed on 14 December 1998 for a mortgage of $105,000 over the EP land and the VP unit. The trust bank account was in credit at the commencement and close of business on 14 December 1998. It remained in credit until 23 December 1998. It became overdrawn on that day and on several days thereafter. The Prestney transfer and one progress payment of $100,000 were effected after 14 December 1998 but before 23 December 1998. Several other progress payments were made thereafter.
76 In January 1999 O'Sullivan conducted a title search. He ascertained that the transfer of mortgage from Andres had been registered but that the security for the second transaction had not. He immediately telephoned Grubb's solicitor to complain and was told it would be attended to. By a document dated 14 December 1998 and registered on 24 February 1999 Oakleigh transferred to Hellfire 1050 undivided 12180 shares in the Mortgage. O'Sullivan confirmed this state of affairs by a subsequent title search. Hellfire is therefore a registered mortgagee in relation to the second of its transactions.
77 Malcolm Ernest Johnson paid $100,000 to GGFB on 14 December 1998. Of that amount, $30,000 was allocated to another mortgage and is not relevant for present purposes. The remaining $70,000 was allocated to the HDPL loan on Folio 4830. The amount of $100,000 was deposited to the trust bank account on 14 December 1998. The state of that account and the relevant transaction on it appear in the discussion under the preceding headings.
78 There was no letter of offer but the confirmation letter is dated 8 December 1998. A deed of appointment was executed on 11 December 1998 for a mortgage of $70,000 over the EP land and the VP unit.
79 There is no suggestion that Johnson ever obtained a registered interest. As with Barron and Wolart, I believe Johnson has an interest in the loan arrangement represented by the Mortgage, although the exact nature extent of the interest is a matter that I will have to resolve.
80 Joan Minna Sprengel paid $100,000 to GGFB on 15 December 1998. Of that amount, $50,000 was allocated to other mortgages and is not relevant for present purposes. The remaining $50,000 was allocated to the HDPL loan on Folio 4831. The amount of $100,000 was deposited to the trust bank account on 15 December 1998. The state of that account and the relevant transaction on it appear in the discussion of the Wolart and Hellfire investments.
81 There was no letter of offer but the confirmation letter is dated 15 December 1998. A deed of appointment was executed (but is undated) for a mortgage of $50,000 over the EP land and another piece of land being Lot 229 on Plan 8025, the subject of Certificate of Title Volume 1770 Folio 658. This latter piece of land is, I think, the title that was offered as security to (and rejected by) Barron. This raises yet another problem. The Mortgage covers the EP land and the VP unit. If, by virtue of the deed of appointment (there being no other evidence of the arrangements reached between Sprengel and GGFB), there was a promise to give Sprengel security over the EP land but not the VP unit, what is the nature of Sprengel's interest in the loan arrangement Mortgage? A possible answer to this dilemma is that the nature of the documentation overall and the way that each investor was treated tends to suggest that the intention was to confer on each investor security over the both the EP land and the VP unit. This was not a matter addressed in argument. For present purposes I am prepared to take a broad view of the documentation so as to avoid yet another technical problem arising.
82 There is no suggestion that Sprengel ever obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangement represented by the Mortgage.
83 Gemhurst Pty Ltd paid $40,000 to GGFB on 16 December 1998. Of that amount, $30,000 was allocated to another mortgage and is not relevant for present purposes. The remaining $10,000 was allocated to the HDPL loan on Folio 4831. The amount of $40,000 was deposited to the trust bank account on 16 December 1998. The state of that account and the relevant transaction on it appear in the discussion under the preceding headings.
84 There was no letter of offer but the confirmation letter is dated 16 December 1998. It shows the commencement date as being "on receipt of funds 16 December 1998". Although there is, in the materials before the Court, a copy of a deed of appointment for a mortgage of $10,000 over the EP land and the VP unit, there is no evidence that such a document was executed. In other words, there is no direct, admissible evidence that Gemhurst was offered security over the EP land and no evidence at all that it was promised security over the VP unit.
85 There is no evidence that Gemhurst ever obtained a registered interest. There is a very real question, on the state of the evidence, as to the nature of extent of the interest to be ascribed to Gemhurst in the loan arrangement represented by the Mortgage. It would be necessary to draw an inference from the fact that the letter of confirmation referred to a deed of appointment and that the records of GGFB included an (unsigned) deed of appointment referring to the EP land in order to complete the evidentiary matrix. That would still not cure the problem with the VP unit. Subject to those notes of caution, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
86 Alan Littlejohn Meaton and Audrey Jane Meaton ("Meaton") paid $40,000 to GGFB on 17 December 1998. The funds were allocated to the HDPL loan on Folio 4831. The amount of $40,000 was deposited to the trust bank account on 18 December 1998. The state of that account and the relevant transactions on it appear in the discussion under the preceding headings.
87 There was no letter of offer but the confirmation letter is dated 17 December 1998. GGFB sent a deed of appointment to Meaton with the letter of confirmation. It refers to the same security arrangements as I have described for the Sprengel investment. However, the evidence does not include a signed copy of the document.
88 There is no evidence that Meaton ever obtained a registered interest. There are two issues here. The first is whether there is a sufficient evidentiary base on which I can make a finding that Meaton obtained an equitable interest in the Mortgage. The second issue is the one I mentioned in relation to the Sprengel investment.
89 Susan Rita Templeton paid $70,000 to GGFB on 31 December 1998. It was treated as two separate loans, with $35,000 allocated to Folio 4828 and the remaining $35,000 to the HDPL loan on Folio 4832. The amount of $70,000 was deposited to the trust bank account on 4 January 1999. The trust bank account was in credit at the commencement and close of business on 4 January 1999. It remained in credit until 13 January 1999. It went into overdraft on that day, again on 21 January 1999 and again on several days thereafter. A progress payment was made on 4 January 1999 (the day of the Templeton deposit), another was made on 25 January 1999 and similar payments were made from time to time thereafter.
90 The records of GGFB include an (unsigned) copy of a letter of offer dated 10 December 1998 referring to security over the EP land and the VP unit. There are two confirmation letters, each dated 31 December 1998 and each for a loan of $35,000. Two deeds of appointment were executed on 31 December 1998, each for a mortgage of $35,000. They refer to the same security arrangements as I have described for the Sprengel investment.
91 Templeton filed an affidavit. In it she says that on 25 March 1999, at her insistence, GGFB's solicitor sent her a transfer of mortgage document to be signed. She says that she signed the document and returned it to the solicitor. There is a letter from the solicitor dated 16 July 1999 claiming the document was never received.
92 Templeton never obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
93 Vernon John Chitty and Pauline Ann Chitty ("Chitty") advanced $10,000 on 7 January 1999. It was deposited in the Rowena trust account on the same day as part of a larger deposit of $63,573. The relevant state of the account and the transactions on it are as I have described for the Templeton investment.
94 There was no letter of offer but there is a confirmation letter dated 7 January 1999. On 19 February 1999 Chitty signed a deed of appointment appointing GGFB as their broker for the loan. Again the security is described as a mortgage over the EP land and the VP unit but there is no mention of Lot 142.
95 By a document dated 23 March 1999 and registered on 26 March 1999 Oakleigh transferred to Chitty 100 undivided 12180th shares in the Mortgage. Chitty is therefore one of the registered mortgagees.
96 Valerie Joy Monkhouse paid $50,000 to GGFB on 8 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $50,000 was deposited to the trust bank account on 12 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
97 There was no letter of offer but the confirmation letter is dated 7 January 1999. A deed of appointment was executed on 11 January 1999 for a mortgage of $50,000 over the EP land and the VP unit.
98 There is no evidence that Monkhouse ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
99 John William Towler Skeet paid $10,000 to GGFB on 12 January 1999. In the records of GGFB the funds were allocated to the HDPL loan on Folio 4832. The amount of $10,000 was deposited to the trust bank account on 12 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment. I would add that after 12 January 1999 the account became overdrawn on two occasion before any progress payments were made from it.
100 There is no letter of offer, no letter of confirmation and no deed of appointment. In other words there is no admissible evidence that Skeet was offered security over the EP land or the VP unit or both. That inference would have to be drawn from the fact that the loan was allocated to Folio 4832. In a questionnaire included in the papers given to me (the evidentiary status of which is problematic) and which appears to have been signed by Skeet on 15 March 2000 there is reference to a "security offered" (which he had inspected) and to the certificate of title volume and folio numbers 1778/769 (the EP land) and 2026/318 (the VP unit).
101 There is no evidence that Skeet ever obtained a registered interest. Subject to their being a sufficient evidentiary base from which to make a finding that Skeet has an interest in the loan arrangements represented by the Mortgage, the same comments apply to this investment as I have made in relation to others in a similar position.
102 Milton Lyle Frederick Hunt and Georgina Mary Hunt ("Hunt") paid $88,000 to GGFB on 14 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $88,000 was deposited to the trust bank account on 14 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment. However, at the commencement of business on 14 January 1999 the trust bank account was in debit to the tune of $38,478. By the close of business on 14 January 1999 the account was in credit in an amount of $66,005. The relevant trust bank account deposit slip indicates that the Hunt cheque of $88,000 was included in the deposit of $204,925, which is the first entry made on that day. That deposit had the effect of regularising the account and it remained in credit for the rest of the day. I have raised a similar issue in discussing Barron's position. It may be different here. Barron's deposit was separately itemised and by the time it came to be made the account was in credit. In relation to Hunt there is no separate itemisation of the payment. It is not possible to say with the same certainty what the state of the account was when the Hunt cheque was actually dealt with. Nonetheless, I think a broad view has to be taken of the accounting treatment of the various entries. I will assume in favour of Hunt that the account was in credit at all material times during that day.
103 There was no letter of offer but the confirmation letter is dated 14 January 1999. A deed of appointment was executed on 14 January 1999 for a mortgage of $88,000 over the EP land and the VP unit.
104 There is no evidence that Hunt ever obtained a registered interest, although a caveat claiming an interest in the EP land and the VP unit "as mortgagee" was lodged on 20 September 1999. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements replaced by the Mortgage.
105 William Deane Detez and Lucy Ann Detez ("Detez") paid $10,000 to GGFB on 18 January 1999. The funds were allocated to the HDPL loan on Folio 4832. The amount of $10,000 was deposited to the trust bank account on 18 January 1999. The state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
106 There was no letter of offer but the confirmation letter is dated 11 January 1999. A deed of appointment was executed on 16 January 1999 for a mortgage of $10,000 over the EP land only. There is no mention of a security over the VP unit.
107 There is no evidence that Detez ever obtained a registered interest. Subject to the issue that I have raised concerning the absence of any arrangements for security over the VP unit, the same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
108 William Henry Reginald Budd paid $10,000 to GGFB on 5 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $10,000 was deposited to the trust bank account on 8 March 1999. The trust bank account was overdrawn at the commencement and close of business on that day. It remained in that state at all times during the day. It returned to credit before 10 March 1999, when a progress payment was made. Other than that, the state of that account and the relevant transactions on it appear in the discussion concerning the Templeton investment.
109 There is a letter of offer dated 26 February 1999. In the letter the loan is said to be for $203,000 but that GGFB would be prepared to accept lesser amounts in multiples of $5,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". The letter of confirmation is dated 8 March 1999. The copy of the deed of appointment that is in the papers is incomplete.
110 There is no evidence that Budd ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
111 John Blair McColl paid $10,000 to GGFB on 10 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $10,000 was deposited to the trust bank account on 10 March 1999. The trust bank account was in credit at all times on 10 March 1999. It went into overdraft on several occasions before 18 March 1999, which was the date on which the first progress payment was made after the McColl deposit.
112 There was no letter of offer. A confirmation letter was executed on or after 10 March 1999. A deed of appointment was executed on 10 March 1999 for a mortgage of $10,000 over the EP land and the VP unit.
113 There is no evidence that McColl ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
114 Mark Herbert Weston and Bronwen Jill Weston ("Weston") advanced $40,000 on 17 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $40,000 was deposited to the trust bank account on 18 March 1999. At the commencement of business on 18 March 1999 the trust bank account was in debit to the tune of $205,598. By the close of business on 14 January 1999 the account was in credit in an amount of $29,924. The Weston cheque of $40,000 was included as an individual deposit and immediately before that transaction the account was in credit. It therefore is a similar situation to the Barron deposit of $71,000. The account went into overdraft on 23 and 24 March 1999. It then returned to a credit situation and was in credit at the commencement of business on 1 April 1999 when the next (and last) progress payment was made. It became overdrawn during that day and it overdrew again on 6 and 14 April 1999.
115 There was no letter of offer but the confirmation letter is dated 17 March 1999. A deed of appointment was executed (but undated) for a mortgage of $40,000 over the EP land and the VP unit.
116 There is no evidence that Weston ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
117 Barry William Drown and Marie Klair Drown ("Drown") paid $25,000 to GGFB on 23 March 1999. The funds were allocated to the HDPL loan on Folio 4833. The amount of $25,000 was deposited to the trust bank account on 24 March 1999. At the commencement of business on 24 March 1999 the trust bank account was in debit to the tune of $20,116. The Drown deposit was entered as an individual transaction. That deposit had the effect of regularising the account. However, it went back into overdraft a few transactions later and remained overdrawn for the rest of the day. This makes it slightly different to the situations which I described for Barron and for Hunt. The state of the account and the transactions on it after 24 March 1999 are as described for the Weston investment.
118 There was no letter of offer but the confirmation letter is dated 18 March 1999. A deed of appointment was enclosed with the letter of confirmation. However, the papers that are before the Court do not contain a signed copy of the relevant document. The unexecuted copy refers to security being given over the EP land and the VP unit.
119 There is no evidence that Drown ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others having an interest in the loan arrangements represented by the Mortgage.
120 Susan Jane Bennett advanced $60,000 on 12 April 1999. The funds were allocated to the HDPL loan Folio 4827. It was deposited in the Rowena trust account on the same day. The trust bank account was in credit at all times during 12 April 1999. It went into overdraft on 14 April 1999. No payments were made from the account to or on behalf of HDPL on or after 12 April 1999.
121 There is a letter of offer dated 8 April 1999. It refers to a loan of $203,000 but indicates that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". A confirmation letter was sent on 28 April 1999. A deed of appointment was enclosed with the letter of confirmation. However, the papers that are before the Court do not contain a signed copy of the relevant document. The unexecuted copy contains no details of the security that is to be given and taken in relation to the loan.
122 By a document which is undated but which was stamped on 30 April 1999 and registered on the same day Oakleigh transferred to Bennett 600 undivided 12180th shares in the Mortgage. Bennett is therefore one of the registered mortgagees.
123 Willem and Maartje Nieuwkerk ("Nieuwkerk") paid $50,000 to GGFB on 12 April 1999. In the records of GGFB the funds were allocated to the HDPL loan on Folio 4828. The amount of $50,000 was deposited to the trust bank account on 12 April 1999. The trust bank account was in credit at all times during 12 April 1999. It went into overdraft on 14 April 1999. No payments were made from the account to or on behalf of HDPL on or after 12 April 1999.
124 There is a letter of offer dated 12 April 1999. It refers to a loan of $203,000 but indicates that GGFB would be prepared to accept lesser amounts in multiples of $1,000. The security is said to be a first mortgage over the EP land and the VP unit having a "total nett equity security of $320,000". The papers that are before the Court do not contain a confirmation letter or a deed of appointment. However, the reference in the letter of offer to security over the EP land and the VP unit and the allocation of the funds to Folio 4828 is, I think, a sufficient evidentiary base on which to act.
125 There is no evidence that Nieuwkerk ever obtained a registered interest. The same comments apply to this investment as I have made in relation to others in a similar position.
126 I need to mention the position of Anna Hallsworth-Kabouw. She paid $20,000 to GGFB on 10 March 1999. In the papers before the Court there is a letter of confirmation citing the reference "Folio 4828" and an executed deed of appointment dated 23 April 1999 suggesting that these moneys had been allocated to the HDPL loan. However, there is a separate deed of appointment allocating the advance to Folio 6052, which has nothing whatsoever to do with HDPL. The other documentation suggests that there was only one advance of $20,000. The Hallsworth-Kabouw loan is not mentioned in MFI 61. Accordingly, I have taken it that the loan relates to Folio 6052 and not to the HDPL matter. I have effectively ignored it.
127 The final investor with whom I need to deal is John Bernard Williamson and Betty Lillian Williamson ("Williamson"). Most of what follows comes from an affidavit sworn by John Williamson on 12 September 2000.
128 Williamson had been investing with GGFB since 1993. In February 1998 Williamson had invested, through GGFB, $96,000 in a project being undertaken by Leyport Pty Ltd. Leyport is not connected in any way to HDPL. The arrangement was for a two year loan on a first mortgage security. In February 1998 Williamson received a letter from GGFB confirming the first mortgage investment and enclosing extracts from a mortgage document which showed a number of mortgagees, including Williamson, for 96 undivided 480,000th shares. From August 1998 the monthly interest payments ceased, although Williamson did not realise this had happened until January 1999. In January 1999 Williamson contacted Grubb and was told that the Leyport development had been sold in July 1998. Williamson ascertained that they had never obtained a registered security over the Leyport development. Grubb told them the investment had been transferred to another portfolio (Sandgate) administered by him. They protested that they had never consented to the transfer and on a number of occasions sought clarification from Grubb that the investment was secure. Grubb offered them alternative securities, one of which was the HDPL properties.
129 By a letter of offer dated 15 April 1999 GGFB advised Williamson of the HDPL project. It sought a loan of $203,000 (but indicated it would accept multiples of $1,000) on security of a first mortgage over the EP land and the VP unit. On 30 April 1999 Williamson formally demanded repayment by GGFB of all of the principal and interest due to them. On 7 May 1999 Williamson appended a handwritten note to the 15 April communication and sent it back to GGFB. The note said: "Please advise street location and suburb of the listed properties so that we can view them before confirming our mortgage". On 18 May 1999 GGFB provided the details which Williamson had requested. Grubb had indicated to Williamson that he could transfer some of the interest held in the name of Oakleigh to secure the investment in HDPL. He also told Williamson that HDPL was a good investment.
130 Williamson did his own investigations of the East Perth project and was satisfied it was a reasonable investment. He also did a title search and confirmed that Oakleigh had a sufficient interest to cover their investment. After discussions with Grubb, Williamson ascertained that the amount of principal and interest owing to them was $108,000. Williamson caused his settlement agent to prepare a transfer of mortgage. They had it signed by Oakleigh and they registered it.
131 There is, of course, no receipt for moneys paid in relation to the HDPL loan and nor is there a letter of confirmation or a deed of appointment. However, the transfer of mortgage document to which I have referred is dated 15 April 1999 and was registered on 31 May 1999. By virtue of that document Oakleigh transferred to Williamson 1080 undivided 12180th shares in the Mortgage. The consideration is said to be $108,000.
132 This raises numerous different factual scenarios. The first scenario is where the investors clearly paid money for the HDPL loan, they became registered as mortgagees, there is a tolerably clear money trail of the funds into the trust bank account and out again to or on behalf of HDPL and the trust bank account was not overdrawn at any relevant time. Into this group falls Walker and Moulton.
133 The second scenario contains each of those factors except that the trust account was overdrawn at a relevant time. Bingham and Tabe are examples.
134 A third scenario again contains each of those factors except that the money trail has become totally obscure and there are problems with the account being overdrawn. Into this category I would put the Hellfire second transaction, Chitty and Bennett.
135 There are two other scenarios that deal with investors who became registered. The first includes the first Hellfire transaction and Price. It is like the third scenario but they became registered on a transfer from a party other than Oakleigh. The second of them relates to Williamson. It involves an investor who paid no money for the HDPL loan.
136 The sixth possibility includes Cressall, Prestney, Borlini. They would have been in the third scenario except that they never obtained a registered interest and, before the collapse of GGFB, they were repaid. Andres would have to be regarded as in a different category because they had obtained a registered interest.
137 The seventh category is those investors who remained unregistered but who were promised mortgages over the EP land and the VP unit. They paid moneys for the HDPL loan, there is no recognisable money trail, and the trust bank account was overdrawn at relevant times. There are subtle differences between some of the investors in this group but by and large they present the same problems. I would place Barron, Wolart, Johnson, Monkhouse, Hunt, Budd, McColl, Weston, Drown and Nieuwkerk in this category. Skeet would also fit here if there is a sufficient evidentiary base on which to find that the requisite securities were promised to him.
138 The ninth scenario covers Sprengel, Templeton and Detez. They would fit in the seventh category except that there is no mention in the documentation of them obtaining security over the VP unit. Gemhurst and Meaton would also fit here if there is a sufficient evidentiary base on which to find that the requisite securities were promised to them.
139 The investor who has not been included in a category is Hallsworth-Kabouw.
140 There are some other factual matters that I should mention. They form a necessary background to the decisions that I have to make on questions of law and for the application of the law to the facts as found.
141 The various deeds of appointment are in substantially similar terms. The deeds used for Walker, Bingham and Moulton are slightly different but the material terms are to the same effect. They purport to be an appointment by the investor of GGFB as the investor's agent and attorney but there are real problems of construction to which I will return later.
142 When a person reading these reasons comes to the final conclusion that I express towards the end, he or she may wonder why I have gone into this amount of detail. In the end, it probably does not matter whether investors were promised a mortgage over the VP unit and nor do the differences between the various "categories" or "scenarios" have practical effect. The significant distinction is between those who are registered and those who are not. The former have claims on the Mortgage and the latter have claims on the trust account. I mention it for two reasons. First, I think it is important for each investor to see that I have considered his, her or its position. Secondly, it may become relevant should any party wish to take the matter further.
143 Rowena gave instructions to the solicitors who prepared the Mortgage and, with one exception, the various transfers of mortgage. Kott Gunning, as solicitors, prepared the mortgage document on instructions from GGFB. In the book of documents prepared by the Registrar of Titles for the hearing there is a letter dated 10 June 1997 signed by Grubb addressed to the DOLA which suggests that GGFB probably lodged the Mortgage for registration. All of the transfers of mortgage, except those relating to Moulton and Williamson, were prepared and registered by Grubb Legal, a firm conducted by Grubb's son. Grubb Legal acted on instructions from GGFB. The transfer of mortgage from Oakleigh to Williamson was prepared and registered by Williamson's settlement agent. The copy of the transfer document from Oakleigh to Moulton that is in evidence does not indicate who prepared or registered the document.
144 There is no doubt in my mind that there was an express promise made by GGFB to most, if not all, of the investors that they would be protected by a first ranking mortgage security. Some of the investors stipulated that they must be a sole mortgagee and were never told about the pooled arrangement. Others must have been aware of the pooling because of the letters of offer. Nonetheless, for GGFB not to honour the promise to afford the investors registered mortgagee status was a clear breach of duty.
145 So too was Grubb's participation in the operation of a trust account that consistently and continually went into overdraft. It is, I think, accurate to say that the intentional removal of funds from a trust account and the application of those funds for a purpose other than that for which they were deposited with the trustee would be theft. At the very least it would be a breach of a trustee's duty to hold and preserve trust property. At the moment I cannot see how the operation of a trust account in overdraft (unless by mistake or some other unintended cause) could be other than a breach of duty.
146 In my view, there is sufficient evidence from which I should proceed on the basis that Grubb was guilty of (at least) equitable fraud. I am also satisfied that Grubb was the moving force behind Rowena and Oakleigh such that Rowena and Oakleigh are fixed with the frauds and breaches of duty perpetrated by Grubb.
147 There is no evidence on which I could make a finding that the investors, or any of them, had actual knowledge of Grubb's defaults. Nor is there evidence of constructive knowledge in the sense that the investors, acting reasonably, should have known of those defaults.
148 The uncontroverted evidence of Hardie is that he and Grubb agreed to delete the mortgage over Lot 142 from the list of securities to be given and taken. There is no evidence that any of the investors were promised, or even told about, the mortgage over Lot 142.
149 There is no evidence that Oakleigh did other than hold its interest in the Mortgage as a trustee for those who were (or would become) entitled to it. There is no evidence that either Oakleigh or Rowena provided, from funds to which it was beneficially entitled, any part of the moneys that were advanced to HDPL. Nor is there evidence that Oakleigh or Rowena had in the trust bank account any moneys to which it was beneficially entitled.
150 Against that factual background, I am called upon to answer certain preliminary questions. At the end of these reasons I will have to set them out in full in order to formulate the appropriate answers. To save replication, I will not do so here. However, in summary form they cover the following general areas, many of which overlap.
151 1. How much money was actually advanced by GGFB to HDPL and how much money will HDPL have to repay in order to secure a discharge of the Mortgage? As it is common ground that the sum actually advanced was less than the amount designated as the principal sum in the Mortgage, this raises an issue as to the right or entitlement of HDPL to seek rectification of the Mortgage.
152 2. On registration of the various transfers of interests under the Mortgage, did the registered mortgagees obtain an indefeasible title? Has anyone established a case of fraud or a personal equity sufficient to displace what would otherwise be the effect of registration, namely to confer on the registered holder an indefeasible title?
153 3. Was GGFB an agent and, if so, what was the nature of the agency and was it the agent of the borrower or the lenders or both? Were GGFB's actions in relation to the operation of the trust bank account and in securing or assisting to secure registration of the Mortgage and the various transfers of mortgage within the actual or apparent authority of GGFB as an agent? Can the actions of GGFB as an agent be imputed to the registered mortgagees?
154 4. Do the applicants have standing to pursue the claims made in the originating summons?
155 5. To the extent that HDPL has repaid, or is obliged to repay, moneys to secure a discharge of the Mortgage and those moneys have been, or are, paid to the applicants, on whose behalf do the applicants hold the moneys?
156 6. Does the Court have power to make orders authorising the applicants to discharge mortgages registered under the TLA without the consent of the registered mortgagee?
157 This is a very broad summary only. Within each area there are several sub-issues which are the subject of specific questions in the preliminary issues. I will now embark on a discussion of the broad issues but not necessarily in the order in which they appear in the list of preliminary questions.
158 It is convenient to commence with an examination of the concept of indefeasibility of title. I do so because of the importance of registration of interests in land under the TLA and under the Torrens system generally.
159 It is often said that the Torrens system is a system of title by registration rather than a system of registration of titles. The certificate of title does not describe the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor: Breskvar v Wall (1971) 126 CLR 376 per Barwick CJ at 385-86. Indefeasibility of title is a recognition of this fundamental concept. It means that the interest of the registered proprietor is paramount and protected against unregistered estates and interests regardless of the time of their creation. As with most legal doctrines it is subject to exceptions, some of them expressed in the statute and others which have been implied into the statutory scheme.
160 The critical statutory provisions are s 68 and s 134. Section 68(1) commences with these words:
"Notwithstanding the existence in any other person of any estate or interest whether derived by grant or transfer of the fee simple from the Crown or otherwise which but for this Act might be held to be paramount or to have priority the proprietor of land or of any estate or interest in land under the operation of this Act shall except in case of fraud hold the same subject to such encumbrances as may be notified on the registered certificate of title for the land; but absolutely free from all other encumbrances whatsoever ... ."
161 The section then proceeds to set out a number of exceptions, including (among other things) rights to land included in a title by misdescription, rights acquired by adverse possession and the interest of a tenant in possession under an unregistered lease for a term not exceeding 5 years (but not extending to an option of purchase or renewal in such a lease). Section 134 provides, relevantly:
"Except in the case of ... fraud ... no person contracting or dealing with or taking or proposing to take a transfer or other instrument from a person who is or becomes the proprietor of any registered land lease mortgage or charge shall be required ... to inquire or ascertain the circumstances under ... which such proprietor or any previous proprietor thereof was or becomes registered ... or shall be affected by notice actual or constructive of any trust or unregistered interest any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud."
162 The doctrine is best explained by reference to Leros Pty Ltd v Terara Pty Ltd (1992) 172 CLR 407. Very briefly, the facts were that T had leased a shop from U (the registered proprietor) for a term of five years with an option of renewal for a further seven years. The lease was not registered. U transferred the title to W, which became the registered proprietor. T lodged a caveat to protect its leasehold interest. L then became registered as proprietor on a transfer from W. L had notice of the option to renew when it acquired the title. At the expiration of the initial term T purported to exercise the option to renew but L declined to accept it. The Court held the registration of the transfer to W had the effect of extinguishing the option to renew (although not the leasehold interest itself) as against W and future registered proprietors. Mason CJ, Dawson and McHugh JJ said, at 418-19:
"... the effect of the registration of a subsequent dealing bringing about the registration of proprietorship of an estate or interest in land is to extinguish all prior unregistered estates or interests which, but for that registration, would have conflicted with the proprietor's estate or interest or encumbered that estate or interest, unless the prior unregistered estate or interest falls within the exceptions to indefeasibility of title mentioned in s.68. In other words, a person seeking to preserve an unregistered interest not falling within those exceptions must register that interest in advance of the registration of a subsequent inconsistent dealing or prevent such registration by caveat or otherwise, and thereby enable registration of the unregistered interest. Once that interest is defeated by registration of a subsequent inconsistent dealing bringing about the registration of a new proprietor, the first interest is extinguished for all purposes and cannot be asserted against any later proprietor. The first interest does not become an inchoate interest capable of being asserted against a later proprietor or an interest which remains in suspension so that it is capable of subsequent revival against such a proprietor. ... .
It is an incident of the indefeasibility of the title of the registered proprietor not only that he or she holds free from prior unregistered interests, except those specified in s.68, but also that he or she has the capacity to transfer a title to the interest of which he or she is proprietor to a successor, free from such unregistered interests. In this respect, the operation of the Act is similar to the operation under the general law of the doctrine of the bona fide purchaser for value who acquires the legal estate without notice of a prior equitable interest. The acquisition of the legal title by such a purchaser in those circumstances defeats the prior equitable interest in the sense that the interest is destroyed. Thus a subsequent purchaser with notice of the equitable interest, who purchases from the first purchaser, is not bound by the interest. If it were otherwise, a bona fide purchaser might be unable to deal with his or her property. The sale of the property would be clogged."
163 There was a time when the statutes were interpreted as conferring what was termed "deferred indefeasibility". According to this doctrine, where a person becomes the registered holder of an interest by virtue of a void or forged instrument that interest remains capable of being destroyed until there is a further transaction by virtue of which an innocent party, who dealt on the face of the register, takes a registered interest: Gibbs v Messer [1891] AC 248; Clements v Ellis [1934] HCA 18; (1934) 51 CLR 217. The alternative position is called "immediate indefeasibility". It is the concept described in the dicta in Leros that I have set out. Immediate indefeasiblity is now accepted to be the correct approach. This was made clear in Frazer v Walker [1967] 1 AC 569 and Breskvar. However, I note also the comments of Hayne J in Vassos v State Bank of South Australia [1993] VicRp 74; [1993] 2 VR 316 at 332 where his Honour described these phrases as "no more than convenient shorthand expressions generally describing the effect of the provisions of the Torrens legislation". The point, however, is that s 68 is to be regarded as the paramount provision of the TLA.
164 There are two exceptions to the indefeasibility doctrine that are relevant in this case. One is fraud and the other is the preservation of rights in personam. There is a third matter. It is whether a volunteer is protected by the doctrine of indefeasibility. In the submissions of some of the parties this question was characterised as involving as an issue whether there was a general exception to indefeasibility in the case of a volunteer.
165 I will give a brief outline of the legal principles relevant to fraud and the preservation of in personam rights. I will then deal with the question of volunteers before returning to consider the application of the other two exceptions to the facts of the case
166 Both s 68 and s 134 make it clear that a person who achieves registration through fraud does not hold the title free of prior unregistered interests. There is no dispute as to what is meant by "fraud" in this context. "Fraud" means actual dishonesty or moral turpitude: Assets Co Ltd v Mere Roihi [1905] AC 176 at 210; Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 at 90. But not all species of equitable fraud stand outside the statutory concept of fraud, but dishonesty is an essential element: Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 at 631-32; Pyramid Building Society (In Liquidation) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 193.
167 The exception "in the case of fraud" is limited to fraud by or on behalf of the party who obtains registration: Breskvar at 384. Put in a slightly different way, the fraud which must be proved in order to invalidate the title of a registered proprietor must be brought home to the person whose registered title is impeached or to his or her agents: Assets Co Ltd at 210. It is a fraud for which the person who becomes registered can be said to be responsible: Registrar of Titles v Franzon [1975] HCA 41; (1975) 132 CLR 611 at 618.
168 It has generally been thought that a fraud will only impeach a title if it is found to exist in the circumstances leading up to registration: Lok Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 at 503-05; Breskvar at 384. However, more recent authority has opened up the possibility that fraud may also encompass matters occurring after registration. In Bahr, at 615, Mason CJ and Dawson J said they did not regard the previous authorities as amounting to "definitive pronouncements that fraud is confined to fraud in the obtaining of a transfer or in securing registration". This is not a view that was shared by Wilson and Toohey JJ: see 633. In view of the clear statements in Lok Yew and Breskvar, I think the better view is that fraud is, relevantly, fraud committed in the act of acquiring a registered title. I think that Windeyer J took this approach in Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478, a case with which I will deal in detail later.
169 The mere fact that the person who becomes registered knows of the existence of a prior unregistered interest and, having become registered, relies on the indefeasibility doctrine to defeat that interest does not constitute fraud: Mills v Stockman [1967] HCA 15; (1967) 116 CLR 61 at 78
170 In the circumstances of this case, there being no evidence at all of any fraudulent conduct by the investors themselves, whether the conduct of Grubb or anyone else acting on behalf of Rowena or Oakleigh is a relevant fraud which can be brought home to the registered proprietors of the Mortgage. This raises the question of agency as between Rowena and the investors.
171 From early times it was recognised that the Torrens statutes, while "giving greater certainty to titles of registered proprietors did not [exclude] the fundamental doctrines by which Courts of Equity ... enforced, as against registered proprietors, conscientious obligations entered into by them": Barry v Heider [1914] HCA 79; (1914) 19 CLR 197 at 213. It is not surprising, therefore, that the authorities recognise that indefeasibility does not interfere with the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or equity, for such relief as a court, acting in personam, could grant: Frazer at 585.
172 In Grgic Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Powell JA described in personam claims as follows, at 222 - 223:
" ... the expressions 'personal equity' and 'rights in personam' encompass only known legal causes of action or equitable causes of action, albeit that the relevant conduct that 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 for those for whose conduct he is responsible, which conduct might pre-date or post-date the registration of the dealing which it is sought to have removed from the register."
173 In the circumstances of this case it would be necessary to identify a cause of action by which an unregistered investor could assert a right to have the interest of a registered mortgagee set aside. Such a claim must not be inconsistent with s 68 or with s 134: Bahr at 613, 638. In other words, it must be sympathetic to the general requirements of the statutory scheme.
174 If an unregistered investor's in personam claim is, for example, to be based on knowing receipt of trust property under the second limb in Barnes v Addy it could succeed only if it were established that the registration of the mortgage had been dishonestly obtained. It would be necessary to show that the registered mortgagee had done something beyond knowingly obtaining the registered interest that might defeat a prior unregistered interest: Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 136, 156. In such a case the purpose of the in personam remedy is not to free a transferee from defects in its transferor's title but, rather, to free the transferee from defects with which it has burdened its own title.
175 In this way, it can be seen that different considerations might apply to the in personam remedy than those that apply directly to fraud when the impugned conduct is that of a person other than the registered proprietor. It would, I think, be necessary to fix the registered proprietor with knowledge of the dishonest purpose or other wrong-doing. The approach would be similar to that of equitable fraud. This was the situation with which Malcolm CJ dealt in Milne Feeds Pty Ltd v Bride (1993) 10 WAR 543 where his Honour said, at 553:
"... equitable fraud could only be established by showing that the [registered proprietor] participated in the transaction with knowledge of a dishonest design on the part of the [wrongdoer] on the footing that in this context the 'knowledge' means actual knowledge or a calculated abstention from inquiry."
176 I think that the in personam remedy could, in a proper case, extend to the recognition of a constructive trust over a mortgage where registration is dishonestly obtained. But it may not be necessary to do so because the presence of dishonesty would, I think, render the registered interest liable to be defeated because it is tainted by a species of fraud recognised by the statute.
177 There is conflicting authority on the question whether a volunteer obtains an indefeasible title on registration. It is essentially a matter of statutory interpretation.
178 Those who contend that indefeasibility extends to volunteers argue that s 68(1) is the paramount provision of the TLA and the other sections (at least for the purposes of the doctrine of indefeasibility) are ancillary to it. Section 68(1) contains an express exception for volunteers in relation to portions of land that are, by wrong description of parcels or boundaries, included in a certificate of title. Section 199 also contains express exceptions to the protection afforded to a registered proprietor against ejectment. In relation to two of them, s 199(iv) and (v), there is express reference to the position of a volunteer. These express and specific exceptions would be otiose if there were a general implicit exception which applied to volunteers. This, it is argued, is inconsistent with the existence of an unstated general exception.
179 The notice provisions in s 134 are concerned only with the effects of notice of a prior unregistered interest and say nothing about any lack of consideration. Section 134 is merely ancillary to the main indefeasibility provision. It does not control the effect of s 68 on an issue that is not directly addressed in it.
180 Counsel for the applicants pointed to the many sections in the TLA which, either in the section heading or the body, mention "purchase", "purchaser", "bona fide" and "valuable consideration". This, counsel submitted, indicated a legislative intention that only purchasers for valuable consideration would acquire an indefeasible title. However, in a careful analysis of the relevant provisions of the TLA, counsel for the Registrar developed the argument that these provisions do not indicate a legislative intent to that effect. I am indebted to counsel for the analysis and adopt it. I will summarise the argument on the sections to which counsel for the applicant referred.
181 I turn now to the authorities in which this issue has been considered. So far as concerns the submissions on behalf of the applicant, the starting point is the dicta of Kitto J in IAC (Finance) Pty Ltd v Courtenay [1963] HCA 64; (1963) 110 CLR 550 at 572:
"A provision that a person is not to be affected by notice of prior interests has no application to him so long as he remains unregistered. For the same reason, it has no application even to one who has become registered, if he acquired his estate or interest as a volunteer. It is only a person having a legal estate or legal interest acquired for value whose position is prejudiced by his having received, before paying his money, direct or constructive notice of an outstanding equitable interest. This is so even under the Real Property Act (NSW) for a registered interest is not (as was suggested in the course of the appellant's argument) some special kind of statutory interest - it is a legal interest, acquired by a statutory conveyancing procedure and protected from competition to the extent provided for by the Act, but having, subject to the Act, the nature and incidents provided by the general law. So all the provision does which I have quoted from s 43 is to protect against notice of any trust or unregistered interest a legal estate acquired for value".
182 However, as counsel for the Registrar pointed out, in that passage Kitto J was dealing with a person who did not hold a registered interest and who sought to rely on the statutory provision which is equivalent to s 134. The fact that this section did not protect volunteers in the factual situation which applied in IAC (Finance) Pty Ltd says little about whether other provisions of the TLA might operate to protect the volunteers. I will return to IAC (Finance) Pty Ltd a little later.
183 Before leaving the early High Court decisions I should mention Brunker v Perpetual Trustee Co Ltd [1937] HCA 29; (1937) 57 CLR 555. There are comments in the case about the position of volunteers. However the context in which those remarks occur involved an unregistered transfer. Dixon J was discussing equitable interests, not legal interests, under the Torrens system. In dicta at 599 - 600 his Honour left open the wider question of the application of the indefeasibility provisions to volunteers when he commenced a passage with the phrase "if [the Torrens] system allows a volunteer to acquire an indefeasible right ..." (my emphasis).
184 In King v Smail [1958] VicRp 44; [1958] VR 273 a husband and wife were registered as the proprietors of land as joint tenants. The husband executed a transfer of his interest in the land to the wife by way of gift. Before the transfer was registered the husband executed a deed of arrangement under the bankruptcy legislation. The trustee lodged a caveat claiming an equitable interest in the land under the terms of the deed of arrangement. In proceedings by the wife to remove the caveat the question was whether the trustee had an interest which had priority over the registered title of the wife. Adam J held that s 42 of the Victorian Act (which is equivalent to s 68) did not give the wife priority because she was a volunteer and the doctrine of indefeasibility only protected bona fide purchasers for value. Adam J said, at 276:
"Although s 42 of the Transfer of Land Act 1954 in itself affords no ground for distinguishing between the volunteer and the purchaser for value and would appear to give paramount effect to registered title in either case, other sections in the Act draw a distinction between the volunteer and the purchaser for value and appear to justify the conclusion that upon the registration of dealings subsequent to initial registration under the Act, it is purchasers for value only who were intended to have the benefit of s 42."
185 His Honour then conducted an analysis of other provisions of the Act in much the way that I have set out above, although reaching the opposite conclusion to that which I have reached. Adam J was particularly influenced by s 43, which is in similar terms to s 134. He said, at 277 - 278:
"The protection given by s 43 to a registered proprietor, ie the legal owner of land, against the consequences of notice actual or constructive of trusts or equities affecting his transferor has point where the legal owner is a purchaser for value. A purchaser for value has by virtue of this section the immunity from prior equities of a bona fide purchaser of the legal estate without notice under the general law. On the other hand, to confer on a mere volunteer immunity from the consequences of notice would be illusory, for as already stated the volunteer was, on well-settled rules of equity, subject to equities which affected his predecessor in title whether with or without notice of such equities."
186 I pause to note that King involved a transaction that was, arguably, voidable under the Victorian equivalent to s 89 of the Property Law Act 1969 as being a voluntary alienation done with intent to defraud creditors. I mention this only because it may be thought there is a policy reason in favour of denying to volunteers the protection of indefeasibility to prevent fraudulent transactions of this nature. Of course, if the transferee had knowledge of the fraudulent intent it would not be protected in any event. In other situations statutory provisions such as s 89 of the Property Law Act 1969, ss 120-122 of the Bankruptcy Act 1966 and ss 565-567 of the Corporations Law are adequate to prevent deliberate abuse. It is not necessary to import a further exception to s 68 in order to achieve that objective.
187 In Bogdanovic v Koteff (1988) 12 NSWLR 472 the Court of Appeal in New South Wales came to the opposite conclusion. B had lived in a house with SK in circumstances which led her to claim she had an equitable interest in the property. SK died leaving a will in which he left all his property (including the land) to K. A transmission application was registered as a result of which K became the sole proprietor of the land. The question was whether, as a volunteer (he having taken the land under the terms of SK's will), K could claim an indefeasible title free from any equity or equitable interest that B might be able to establish. The Court answered the question in the affirmative. Priestley JA (with whom Hope JA and Samuels JA agreed) referred to Frazer and Breskvar and said, at 480:
"The broad proposition arrived at by Adam J in King, that a registered proprietor, being a mere volunteer does not obtain a title free from prior equities, must, following Breskvar, be replaced by a formulation based on what the High Court said in that case. There is such a formulation in Windeyer J's reasons. After referring to what Torrens himself said in his 1862 handbook on the Real Property Act of South Australia to the effect that his system left each freeholder in the same position as a grantee direct from the Crown, Windeyer J went on, at 400:
'This is an assertion that the title of each registered proprietor comes from the fact of registration, that it is made the source of the title, rather than a retrospective approbation of it as a derivative right. I say that only to emphasize that the doctrine of an indefeasible title arising by registration was seen as the very essence of the Torrens system from its beginning. In the present case, the decision of the Privy Council in Frazer v. Walker (1967) 1 AC 569 recognizes that the registered proprietor has the legal property in the land, subject only to equities and such interests as the Act expressly preserves.'
Similar statements were made by other members of the court, see Barwick CJ (at 385), Menzies J (at 397), Walsh J (at 405) and Gibbs J (indirectly) (at 413)."
188 In Rasmussen v Rasmussen [1995] VicRp 38; [1995] 1 VR 613 H became the registered proprietor of certain farming lands as a beneficiary under a will. E claimed an interest in the lands under a "common interest constructive trust". The court upheld the claim. One of the questions which then arose was whether H was protected by the doctrine of indefeasibility. Coldrey J noted the conflict between King and Bogdanovic and to the conclusion in the latter that in light of Frazer and Breskvar, King could no longer be regarded as good law. His Honour then said, at 632 - 634:
"It is to be noted however that Breskvar and Frazer were each concerned not with the situation of a mere volunteer but with that of a purchaser for value. In neither case was the judgment of Adam J considered by the court. Moreover, in the High Court decision of Bahr v Nicolay, which is not cited in Bogdanovic, there are passages in various of the judgments that appear to confine the protective operations of the relevant Transfer of Land Act sections to purchasers for value. (Again there is no reference to King v Smail).
............
In my view the reasoning in the High Court decisions does not destroy the principles enunciated in King's case. That case is a careful reasoned judgment and, with respect, I prefer it to that of the New South Wales Full Court in Bogdanovic. It is to be noted that Bogdanovic contains no discussion of the rationale for distinguishing between the indefeasibility of title of a purchaser for value as distinct from a mere volunteer.
.............
Whilst granting the importance of what has become known as the 'paramountcy provisions' of the Torrens statutes (for example s 42), there is an overriding principle of fairness which ought to permit a person whose equity in land will be defeated by the actions of the penultimate registered proprietor in donating such land to a volunteer to enforce that equity in the land against such volunteer albeit that the volunteer has become the registered proprietor of it. A distinction in the application of the indefeasibility provisions to a bona fide purchaser for value and a mere volunteer is, in my view, both rational and principled. On the one hand it recognises the desirability of commercial certainty in property transactions and on the other allows full play to equitable precepts.
Consequently I regard the decision of Adam J in King v Smail as correctly stating the law in Victoria and accordingly I do not regard the plaintiff's claim as defeated by the circumstance that the defendant is now the registered proprietor of the disputed property."
189 I will return to the consideration of Bahr in a moment. Just in passing I should say that it is hardly surprising that Bahr was not cited in Bogdanovic. Bahr was heard in September 1987 and the decision handed down on 15 April 1988. Bogdanovic was heard in November 1987 and the decision handed down on 19 April 1988.
190 The next relevant decision is Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119. Although decided in the Federal Court it, too, is a decision on the Victorian legislation. I do not need to describe the facts and I should mention that the comments about indefeasibility are obiter. Finkelstein J, having referred to King, Bogdanovic and IAC (Finance) Pty Ltd, said, at 136 - 137:
"When it is accepted, as it must be, that s 43 does not relieve a volunteer from equities which affected his transferor it is difficult to see why s 42 should be held to give that protection. Such a view would be inconsistent with the structure and text of the Transfer of Land Act. It should also be noted that King v Smail was followed by Coldrey J in Rasmussen v Rasmussen [1995] VicRp 38; [1995] 1 VR 613 in preference to Bogdanovic. In my view King v Smail correctly states the law."
191 There are a couple of other decisions to which I can make passing reference. There is a bland statement by Hodgson CJ in Eq in Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124 at 136 that "it is clear that the indefeasibility provisions of the Real Property Act 1900 do operate in favour of volunteers". However, the point was not necessary for the decision and it is not developed. It may well have been a recognition of the binding effect (in New South Wales) of Bogdanovic. Counsel for the applicants also sought to draw comfort from the decision of Olsson J in Adelaide Congregation Jehovah's Witnesses Inc; Pegasus Leasing Ltd v Official Trustee in Bankruptcy for the Estate of Griggs, unreported SCt of SA (Olsson J); No 733 of 1993; 20 October 1996. His Honour said, at 99: "It is clear from a reading of the section (and well established by authority) that indefeasibility is not conferred on a mere volunteer". The section to which his Honour was referring is the equivalent to s 68. However, a close reading of the relevant section of the South Australian legislation reveals that the proviso is in materially different terms to that contained in s 68 of the TLA. The decision is therefore of limited utility so far as concerns the proper interpretation of the TLA.
192 I think the critical point is the recognition in Frazer that s 68 is the paramount provision of the TLA and that sections such as s 134 are ancillary to it. King was decided at a time when this was not necessarily received doctrine. At the time there was a respectable body of opinion to the effect that these other sections of the Act governed (or at least were relevant to) the broad import of the indefeasibility doctrine: see, for example, Clements v Ellis [1934] HCA 18; (1934) 51 CLR 217 at 241 - 245. As Priestley JA pointed out in Bogdanovic, following Breskvar there can be no doubt that Frazer represents the orthodox construction of this central tenet of the Torrens legislation. It follows also from the dicta of Mason CJ, Dawson and McHugh JJ in Leros at 418 (which I have already set out) to the effect that, a registered title is free from unregistered interests that would have conflicted with the proprietor's estate unless the prior unregistered interest falls within the exceptions to indefeasibility of title mentioned in s 68.
193 I return to Bahr, and to the reliance placed on it by the trial Judge in Rasmussen. I think it is important to recognise what Bahr was about. It was about the nature of fraud as it applies to the Torrens system and about in personam rights under that system. In other words it was about an express exception contained in s 68 and about a further exception that is not mentioned in the legislation but which is well recognised in the authorities. True it is that in the passages from Bahr that are mentioned in Rasmussen their Honours made reference to "dealing with" the registered proprietor, a concept that may be seen as more apt to a transaction for value. But that is the situation with which the court was confronted in Bahr (as, I accept, it was in Frazer and Breskvar). However, in Bahr there is express recognition of both Frazer and Breskvar and nowhere is there to be found any dissent from, or query about, the fundamental principle of paramountcy that emerges from those two authorities (among others).
194 I am not sure that resort to general notions of fairness as a means to read down the paramount import of s 68 (an approach that commended itself to the trial judge in Rasmussen) is appropriate. After all, the doctrine of indefeasibility is not absolute: see Vassos v State Bank of South Australia [1993] VicRp 74; [1993] 2 VR 316 at 322. But there are very good reasons for construing the legislation according to its tenor and limiting the exceptions to those for which the legislature has made express provision and those that are recognised by clear judicial authority, such as the preservation of the in personam claim. In my view there is some (admittedly limited) scope within the recognised exceptions to import notions of fairness. But as the fact situation of this case demonstrates, totally innocent people are going to be hurt by the resolution of the legal issues and their application to the disaster that others have foisted on them. There is no way that the questions raised by this case can be answered without some of the investors, through no fault of their own, being unable to recover all or some of the money they have invested. Accordingly, to use general notions of fairness as a means of implying further exceptions into the statutory scheme is apt to raise as many questions as it will answer.
195 I am conscious of the words of Mason CJ and Dawson J in Bahr at 615:
" ... we agree with Higgins J. in Stuart v. Kingston when his Honour said (at p 345) that there was much to be said for the view, expressed by Stawell C.J. on the equivalent Victorian provision, that the section should be "construed strictly" and the exception "liberally". The section restricts, in the interests of indefeasibility of title, rights which would exist otherwise at law or in equity."
196 Nonetheless, indefeasibility is at the heart of the Torrens system. As was said in Franzon at 620 - 621 "the protection of the registered proprietor is paramount". This was reiterated in a note in (1992) 66 ALJ 507 where the author said: "Public confidence in the Torrens system depends on the rock-solid effect of registration". The principle of indefeasibility is well understood by lawyers and by the commercial community. In my view it must be given the utmost respect and should be applied according to its tenor. Another way of putting the same point emerges from a note under the title "Indefeasibility and sleights of hand" in (1992) 66 ALJ 596. In a comment on Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 (a case in which a registered proprietor was held not to be bound by a forged variation of a registered mortgage which had increased the principal sum) the author said:
"... registration of the variation should have resulted in [the registered proprietor] being bound by the (new) personal covenant to pay the (increased) principal. This may seem a harsh result. But indefeasibility of title - at least 'immediate' indefeasibility of title - is a harsh doctrine. That is the whole point. Any other approach diminishes the effectiveness of registration and compels that very investigation into the history of transactions and titles that Sir Robert Torrens was at pains to abolish."
197 Before I leave the authorities, I wish to say a little more about IAC (Finance) Pty Ltd. Kitto J predicated his conclusion that s 134 did not protect a volunteer on the notion that, once registered, the legal interest is of the same nature as a legal interest in land under the general law, thus importing concepts that apply to old system land. Even if that be correct (and following the affirmation of the paramountcy of s 68 it may fall to be reconsidered one day) it does not compel the conclusion that indefeasibility cannot apply to a volunteer. In this respect I think it is significant that in Bogdanovic the court left open the question whether knowledge of B's interest by K before he became registered would enable B to assert her rights against K.
198 To the extent that it is necessary to examine the other provisions of the TLA to ascertain whether there is a legislative intention to exclude volunteers from the benefits of indefeasibility, I find compelling the proposition that the critical provisions contain their own express recognition of the position of a purchaser for value. These provisions would be otiose if there were a general, unstated, exception concerning volunteers. So far as concerns the other sections to which reference was made, I repeat what I have already said. Almost all of them cater for situations in which a transaction for value would inevitable arise. For example, sales by a mortgagee, under execution and by an insolvency administrator. They have nothing to say about the general approach of the Torrens system to volunteers.
199 Looking at the other sections of the TLA there is at least one provision that might be taken as exhibiting an intent to make a want of consideration irrelevant (subject, of course, to express exceptions). Section 85 provides that "every transfer or other instrument shall be deemed of the same efficacy as if under seal" once it has been signed and registered. It is trite law that one of the consequences of a document being executed under seal is that a lack of consideration is not fatal to its enforceability, although it may be a circumstance relevant to whether equitable relief is available. In HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368 JD Phillips J noted, at 388, that a consequence of the Victorian equivalent of s 85 was that a want of consideration became irrelevant on registration. I am not sure how far this argument can be extended and I mention it more as a makeweight.
200 In my view the doctrine of indefeasibility can apply to the holder of a registered interest where the proprietor has become registered through a voluntary transaction. If the registered interest is to be defeated it must be attacked according to one of the exceptions recognised by the TLA or at law. It follows that I find compelling the reasoning in Bogdanovic. With very great respect to the judicial officers who have expressed a different view I am unable to agree with them. I should refer, in conclusion, to an article by P Radan entitled "Volunteers and Indefeasibility" which is to be found in (1999) 7 Australian Property Law Journal 197. The reasoning contained in the article was of great assistance to me in crystallising my own views. I am indebted to the author accordingly.
201 Although it is not strictly necessary for the decision, I wish to raise the question whether the investors in this case really are volunteers. This issue is raised in the eighth question posed for preliminary determination. However, it was not seriously argued and, for the most part, the submissions proceeded on the basis that they were volunteers. What I am about to say is obiter and, because it is likely to arise in other proceedings, I do not wish to be seen to have expressed a view that will prevent parties from raising it again should it be relevant.
202 Every student or practitioner who has had the slightest confrontation with equity knows the phrase: "equity will not assist a volunteer". But what does this mean and how did it arise?
203 The texts seem to define the term "volunteer" by asking who is not a volunteer. Put at its simplest, a person is not a volunteer if he or she has provided valuable consideration in a common law sense or, alternatively, is within the scope of marriage consideration: Hanbury, Modern Equity 8th ed 1962, p131; Pettit, Equity and the Law of Trusts 1966, p50. The question of marriage consideration can be ignored for present purposes. To ascertain what is meant by the phrase "valuable consideration in a common law sense" regard must be had to the law of contract. Any attempt to define the term "consideration" is bound to attract criticism. Once again, putting it in a very broad sense, consideration at common law can be described as the price for which a promise is purchased: Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424 at 461. Alternatively, it may be described as some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other: Currie v Misa (1875) LR 10 Ex 153 at 162.
204 It is difficult to ascertain from the old cases exactly why equity refused to intervene in favour of a volunteer. The author of Spry, ICF Equitable Remedies 4th ed 1990 pp55-56 suggests that the reluctance of courts of equity to do so was because they did not regard the mere giving of a promise by the defendant as itself creating a situation where it would be inequitable were the promise not to be performed. The author goes on to say (in the context of a discussion about the availability of specific performance): "It is thus the provision of something of value, the element of the bargain, which renders a failure to perform so unconscionable that enforcement may be obtained in specie if otherwise appropriate". The dicta of Isaacs J in Redman v Permanent Trustee Co of New South Wales Ltd [1916] HCA 47; (1916) 22 CLR 84 at 96 supports that view.
205 This, it seems to me, is a little strange given that the common law would (and will) often accept something which is entirely inadequate or lacking in actual value as being "good" consideration. Perhaps the doctrine is not as absolute as might be thought. I note that in Redman, at 97, Isaacs J ruled that it was fatal to the enforcement in equity of the impugned contract that "there was absolutely no consideration moving from [the party seeking to enforce it]" (my emphasis). This may give some comfort to an approach that looks at the precise circumstances of an individual case. It needs also to be said that the doctrine of consideration (or perhaps more correctly the consequences of there being an absence of consideration) is itself changing. I need only give a few examples. The courts have not hesitated to intervene in what is essentially a contractual dispute but in which there is no consideration by employing equitable estoppel: see Waltons Stores (Interstate) Pty Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387. Another example is what is sometimes referred to as the emerging doctrine of partial failure of consideration: see Burrows, The Law of Restitution, 1993 pp 253-57. I mention also the altered understanding of the "existing duty" rule in cases such as Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723.
206 In any event, as with most things in the law, the rule that equity will not assist a volunteer is subject to exceptions. For example, equity redefined and extended the concept of "marriage consideration" to encompass persons and situations who or which would not have come within the doctrine as it was originally understood. In another situation, equity would perfect an imperfect gift of land by conveyance in circumstances such as those that occurred in the well known case of Dillwyn v Llewelyn [1862] EngR 908; (1862) 4 De GF & J 517. I also note that equity once developed a somewhat curious notion called "valuable consideration in the second degree" (see, for example, Wright v Wright (1749) 1 Ves sen 409) to provide relief to persons who were, strictly speaking, volunteers.
207 I can appreciate the argument that in the strict application of contract law the investors may be regarded as volunteers. Put at its simplest this is because they cannot establish that they provided value (namely money) for their registered (or unregistered) interests in the Mortgage. They cannot establish, by a chain of transactions through the trust bank account, that the money they advanced found its way to HDPL in return for which they obtained an interest in the Mortgage initially granted by HDPL to Oakleigh. I pause to note that this argument does not apply to Walker and Moulton and, possibly, to Bingham and Tabe.
208 However, the question remains whether a court of equity would be bound to deny relief to the investors solely on the basis that they were volunteers. Stripped of the legal niceties the situation in relation to most (although I acknowledge, not all) of the investors is this. An investor agrees to advance money to assist HDPL in a commercial venture. The investor is promised a mortgage over HDPL's land as security for the advance. The investor actually and physically parts with its money for the intended purposes. Due to the ineptitude, fraud or breach of duty of an intermediary, money actually does flow to HDPL but not in the way intended, not in the amounts intended and not in a way that can demonstrate a nexus between the investor's advance and the payments to HDPL.
209 I doubt very much whether a lay person would characterise the investor as a volunteer. In this respect it is interesting to look at the dictionary definition of the word "volunteer", not as an aid to construction in the legal sense but rather to see how it might be popularly understood. The Shorter Oxford Dictionary defines volunteer as: "A person to whom a voluntary conveyance is made; a person who benefits by a deed made without money or other consideration being given or promised in return". Here the investor has given money in return for the promise of a mortgage.
210 We now know that the promise to give the mortgage securities to the investors (other than those who are already registered) cannot be performed. To resort to the vernacular, the horse has bolted. But, if it were possible, I cannot see why it would be inequitable to insist on the promise being performed (or in the case of those who have become registered, recognising the fact of registration) simply because the misconduct of an intermediary has prevented moneys actually advanced by the investor being linked to the Mortgage that is in existence. Of course, equity would have to deal with the relationship between the investors as between themselves. This presents other difficult issues. But in terms of characterisation, I am not at all sure that equity would, or should, regard the investors as volunteers.
211 At one stage during the hearing, one of the counsel commented: "If they can't trace, their volunteers". I am not sure that this is correct. There may be other reasons, apart from things that might result in the characterisation of a person as not having provided consideration, that will interfere with the right to trace. For example, to trace in equity there must be an initial fiduciary relationship. The right might founder at that point. Similarly, it might be denied because the person concerned has acquiesced in the wrongful conduct said to give rise to the right to trace. The fact situations in most of the cases which were referred to involve, unarguably, an absence of consideration in a way that would be regarded, in normal parlance, as voluntary. Anning v Anning [1907] HCA 13; (1907) 4 CLR 1049 and Brunker v Perpetual Trustee Co Ltd [1937] HCA 29; (1937) 57 CLR 555 involved voluntary conveyances of land. In Corin v Patton [1990] HCA 12; (1990) 169 CLR 540 a person had severed a joint tenancy by transferring her interest to a trustee on trust for her. She then left the resulting tenancy in common by will.
212 This argument arises in the context of the doctrine of indefeasibility and its application (or non-application) to the registered mortgagees. As I have said, in view of the conclusion that the doctrine of indefeasibility can apply to a person who has become registered by a voluntary transaction, this is not necessary to the decision. However, I incline to the view that Walker, Moulton, Bingham, Tabe, Hellfire, Price and Chitty are not volunteers in the relevant sense. I do not think this applies to Williamson. Their situation is more akin to, for example, a financier which secures a previously unsecured debt without advancing further moneys, forbearing to sue or giving or providing something else of value.
213 Of course, the unregistered investors are themselves calling in aid the equitable jurisdiction of the court so as to upset the title of the registered holders or, alternatively, to attach a claim to the Mortgage or its proceeds, rather than to rely on a claim against GGFB generally. This puts them in competition with other creditors having a claim generally against GGFB. To that extent, similar considerations may apply to them.
214 I have already indicated my finding that there is no evidence that any of the investors involved in the HDPL mortgages actually knew of the relevant fraud. If, therefore, the fraud exception to indefeasibility is to impeach a registered mortgagee's title it could only be on the basis of a fraud perpetrated by the agent of the investor concerned. Assuming, for the purposes of the argument (and it is not a difficult assumption to make) that officers of GGFB acted in a fraudulent manner, were those officers acting as agent for the investor in the carrying out the activity to which the fraud speaks? Additionally, was the conduct such as "to be brought home to" the investor or such that the investor "can be said to be responsible"?
215 It is difficult in proceedings such as these, which are conducted on documentary material and without the benefit of cross-examination, to make definite findings on things like the creation of an agency relationship and the nature and extent of the duties and responsibilities of the parties to the arrangement. I will just have to do the best that I can with the available documentation.
216 It is almost impossible to define, satisfactorily, the concept of agency. However, in Fridman, The Law of Agency, 4th ed, the following definition is proffered at p 8:
"Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, is such a way as to be able to affect the principal's legal position in respect of strangers to the relationship by the making of contracts or the disposition of property."
217 An agency relationship may exist at the level of contract but in any event the law confers powers and imposes duties which, though they may be modified by the terms of the contractual arrangement, exist independently of contract. The general law attributes to an agent duties which are of a fiduciary nature. The characterisation of the relationship as fiduciary in character is of relevance to these proceedings.
218 The position contended for by the applicant is that GGFB was the agent of the investors. This is said to arise from two sources. One is the terms of the FBCA and the other is the documents evidencing the arrangements.
219 Section 4 of the FBCA defines "finance broker" in this way: "a person who, as an agent, in the course of business negotiates or arranges loans of money for and on behalf of other persons but does not include the exceptions specified in section 5(1)". None of the exceptions in s 5(1) are relevant. "Business" is defined as "the business of a finance broker". It seems to me that these definitions are equally applicable to a broker acting as agent for a lender or a borrower or perhaps even both. The word is used in s 4 as a noun. The Macquarie Dictionary defines "loan" as "something lent or furnished on condition of it being returned". The verb "to lend" is more apt to describe the act of a person (the lender), having money, making that money available to another person (the borrower) on terms as to repayment of principal and interest, security and the like. But in modern parlance the noun "loan" is used to describe the act of lending (as in "to make a loan") or the act of borrowing (as in "to take out a loan").
220 There are other sections in the FBCA that suggest the agency relationship is not necessarily confined to a lender. Section 83(2)(b) contemplates that the Finance Brokers Supervisory Board may take disciplinary action against a broker where prejudicial conduct has occurred "in the course of any dealings with a borrower or a lender or a prospective borrower or lender". I mention the following other references:
"all parties to the loan" in s 48(3);
"receives money for or on behalf of any other person" in s 49(1);
"the person on whose behalf money is received" in s 49(6).
221 I have already set out the relevant part of HDPL's application dated 17 February 1997 to GGFB for finance. While it does not use the term "agent" it expressly provides for an appointment of GGFB "to act on [our] behalf as a finance broker to arrange the [loan]". It is described as a "certificate of appointment in accordance with [FCBA]". It is a reasonable inference, therefore, that the concept of "finance broker" is to be understood in the way that it is used in FCBA. This involves the conduct of a business as an agent.
222 The form of deed of appointment most commonly used in these transactions is poorly drafted. It contains two recitals
"A. This Deed of Appointment is to be read in conjunction with and ancillary to the Deed of Mortgage and the Loan Agreement ("the Agreement") between the Borrower, the Lender and the Guarantor.
B. This deed evidences the appointment by the Lender of the Broker as the Lender's Agent and Attorney in relation to the enforcement of the Lender's rights under the Agreement."
"1. The Lender agrees to appoint the Broker as its agent in relation to the Agreement for the following purposes:
1.1 Negotiating and giving full force and effect to the loan by the Lender ... to [HDPL] pursuant to the terms of a Deed of Mortgage to be made between the Borrower of the first part, Guarantor of the second part and the Lender of the third part ("the Agreement") which loan is to be secured against a Deed of Mortgage granted by the [HDPL] over the land described in the Schedule hereto ("the Land").
1.2 Collecting payments made by [HDPL] pursuant to the Agreement.
1.3 Apply and invest the repayments in the manner authorised by the Agreement or conveyed to the Broker by the Lender.
2. The Lender agrees to appoint the Broker as its Attorney for the purpose of enforcing the Lender's rights under the Agreement including but not limited to the following:
2.1 To take such legal action as the Broker considers necessary or desirable for protecting the position of the Lender and for enforcing the lender's rights and remedies pursuant to the Deed of Mortgage including:
(a) ... initiating legal proceedings on the Lender's behalf in the name of the Lender;
(b) drafting, preparing, filing and serving ... legal documents and proceedings ... that the Broker considers necessary to enforce the terms of the Deed of Mortgage;
(c) amending the particulars of the Deed of Mortgage to ensure correct registration with the Department of Land Administration;
(d) the express authority to determine the priority of the lender's interest in the mortgaged security.
2.1[sic] The Lender will give immediate notification of any legal action commenced on its behalf by the Broker.
2.3 All legal costs incurred as a result of legal action taken against the borrower, will be the sole liability of the Broker."
224 Clause 3 provides for the lender to pay a fee to the broker. By cl 4 the lender agrees "to ratify and confirm any legal action taken by the Broker".
225 The recitals are not without their difficulties. There is no "Loan Agreement" between the HDPL (borrower), the investor (lender) and Hardie (guarantor) as contemplated by the defined term "the Agreement" in Recital A. Nor, for that matter, is there a "Deed of Mortgage" between those parties. For those investors who obtained a transfer of an interest in the Mortgage there is, in an indirect way, an arrangement which affects those three parties but it would be stretching the language to describe it as a "Deed of Mortgage between the borrower the lender and the guarantor". The effect of Recital B is that the agency is limited to "the enforcement of the Lender's rights under the (non-existent) Agreement".
226 There is an inconsistency between the recitals and cl 1. Despite the fact that "the Agreement" is a defined term in Recital A, the same term is then redefined in cl 1.1 to be, in effect, the Mortgage, although, as I have already said, it is not easy to reconcile the wording used in cl 1.1 with the document we now know to be the Mortgage. There is a further inconsistency between the recitals and cl 1.1. While the agency contemplated by Recital A is of a limited type, the wording of cl 1.1, providing as it does for an agency to "negotiate and give full effect to the loan " is of considerably wider import. So too is the authority conferred by cl 1.2 to collect payments. The problems of construction are compounded by cl 1.3. That clause refers to "the Agreement". This must be a reference to "the Agreement" as contemplated by Recital A. This is because there is no provision in the Mortgage (assuming that to be "the Agreement" defined in cl 1.1) which deals with the application and further investment of moneys repaid by the borrower.
227 I note also that the term "the Agreement" as defined in cl 1.1 refers to a Deed of Mortgage "to be made ...". If this is to be read contemplating a mortgage document that would be prepared and signed in the future, it did not occur.
228 In cl 2, the language seems to revert to the more limited form of authority contemplated in Recital A, namely, the enforcement of rights. The subparagraphs of cl 2 seem more apt to describe legal proceedings or enforcement action although there is a reference in cl 2.1(b) to "legal documents" in contra-distinction to "proceedings". There is also cl 2.1(c) which permits amendments to be made to the Deed of Mortgage to ensure that it is properly registered.
229 Frankly, I am not sure what all of this means in relation to the nature and extent of the agency between GGFB and the investors. I do not think it necessarily follows from the documentation that there was a wide ranging agency relationship between GGFB and the individual investors for all purposes. I note that the terms of the letter of offer (where such a document exists) indicate that the legal documentation is to be prepared by the nominated solicitors (either Kott Gunning or Grubb Legal) with the comment that the investor is at liberty to have its own solicitors peruse the documents. Even that does not necessarily indicate that GGFB is appointed as agent for the purpose of bringing into existence and effecting the registration of the relevant mortgage documents.
230 However, for the purposes of deciding the issues raised in this application I am prepared to assume that GGFB was the agent of the individual investors for the purpose of receiving the moneys to be advanced to HDPL and arranging the preparation and registration of the relevant security documents. This does not mean it was agent for the investors only. The description given by one of the parties was that "GGFB was a limited ad hoc agent for the investors and the borrower". It think this is an apt description.
231 Counsel for the applicants submitted that the relevant fraud in this case is the act of sending on the path to registration mortgages that do not reflect the true nature of the transaction. An alternative view is that the relevant fraud is the act of overdrawing the trust account and perhaps using trust funds for nefarious purposes. I will return to this aspect a little later because it is, I think, necessary to state with more precision the extent of the agency relationship in order to ascertain the impact of such fraudulent conduct as is found to have been perpetrated. Before doing so, I need to discuss some of the legal issues that determine when the fraud of an agent can be sheeted home to the principal for the purposes of the TLA.
232 In Assets Co Ltd their Lordships said, at 210;
"... the fraud which must be proved in order to invalidate the title of a registered purchaser for value ... must be brought home to person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part."
233 In Schultz v Cornwall Properties Ltd (1969) 90 WN (NSW) 529 Street J examined this statement and said, at 537, that it involves two alternative situations. First, where the fraud is actually committed by ("brought home to") the person whose title is impeached or his agents. Secondly, where the person whose title is impeached or his agents have knowledge that a fraud has been committed. As to the first situation, his Honour said, at 537 - 538:
"If ... the fraud is that of an agent for the person whose title is impeached, the principle of respondeat superior, with all its limitations and qualifications, is applicable. The matter is to be tested by investigating whether or not the principal is, in the particular circumstances under consideration, liable to the person who has been defrauded for the acts of the agent. On this topic one need not delve more deeply than the general statement in Bowstead on Agency, 13th ed, p242: 'An act of an agent within the scope of his actual or apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests. The principle is general, applicable to cases of actual and apparent authority; in tort; in the disposition of property; a similar result appears even in criminal cases. But the mere fact that the principal, by appointing the agent, gives that agent the opportunity to steal or otherwise behave fraudulently does not without more make him liable: the agent must normally be acting within the scope of his actual or apparent authority for the principal to be responsible'."
234 In relation to the second situation, Street J said, at 538, that the person whose title is impeached or his agents must have knowledge of the presence of a fraud in the transaction under investigation. It is knowledge of a fraud committed by someone for whom the principal is responsible that exposes the title of the registered proprietor to challenge. In those circumstances the agent will have knowledge of the fraud but that is not sufficient. The knowledge of the agent will only affect the principal if it can be imputed to the principal. Street J said, at 538-39, that the ordinary principles of vendor and purchaser law relating to imputed notice would apply equally to imputed knowledge in this situation. The ordinary principle is that there is an irrebutable presumption that the agent has communicated the relevant matter to the principal and evidence is not admissible to establish the contrary. However, his Honour noted an exception to that general principle enunciated in Williams on Vendor and Purchaser; 4th ed:
".... If the matter, of which it is sought to affect the principal with notice, is the agent's own fraud or fraudulent dealing or some equity arising thereout, ... then the principal is permitted to give evidence to rebut the presumption and prove his ignorance of the matter; for the supposition that the agent communicated his fraud to the principal is too improbable to be entertained, even by a court of equity."
235 The phrase "respondeat superior" means "let the principal answer". In general terms it embodies the principle of vicarious liability. I do not think it is necessary to examine the doctrine in detail, because its application to fraud under the Torrens legislation is sufficiently explained in Schultz. It is to be borne in mind that the situation with which we are concerned does not involve strict liability. The principal will be tainted by the fraud of the agent only in the circumstances described in Schultz. Even if it is a classical application of respondeat superior, the doctrine does not import strict liability: Kooragang Investments Ltd v Richardson & Wrench Ltd [1982] AC 462 at 475.
236 There have been other attempts to describe the position of a principal when confronted with a fraud by his or her agent. In Franzon, Mason J said, at 618:
"There are several reasons why the reference to 'fraud' should be read as a reference to fraud for which the person becoming registered is responsible. This is the meaning that the word "fraud" bears in the sections dealing with indefeasibility under the Torrens system. See Assets Co. Ltd. v. Mere Roihi (1905) AC 176, at p 210 where it was expressed as fraud 'brought home to the person whose registered title is impeached or to his agents'. Although s 201 is not a provision which relates directly to indefeasibility of title, it is complementary to those provisions which regulate indefeasibility of title and it provides compensation for loss of an indefeasible title."
237 In Russo v Bendigo Bank Ltd [1999] VSCA 108; (2000) V Conv R 54-615, Batt JA said, at 64,370: "the fraud 'must be brought home to' the registered proprietor or his agents. That means that it must be sheeted home to the registered proprietor or his agents, that he or they must be shown to be infected by it or complicit in it". This, if I may say so with respect, is a very useful exposition of the relevant doctrine. The words "infected by it or complicit in it" are a useful way of explaining the broad terms "brought home to" (used by the Privy Council) or "for which the person becoming registered is responsible" (used by the High Court).
238 Russo is important for another reason. In that case a person forged the signature of the registered proprietor on a mortgage. A clerk at the lender's solicitor attested the signature although she did not see the person sign. The solicitor was unaware of the clerk's failure properly to witness the execution of the document. The solicitor certified title to the lender and the loan moneys were advanced. The solicitor then forwarded the mortgage for registration. The Court held that the conduct of the clerk did not amount to fraud and the title of the lender could not be impeached. However, the Court went on to say that had the problems with execution been characterised as fraud they would have fallen within the scope of the solicitor's authority and hence be something for which the lender would be responsible. Ormiston JA said, at [49]:
I would have found it hard to reach a conclusion that the bank should not be responsible for the acts of its solicitor in circumstances such as the present, if fraud had been established, assuming the fraud in question not to have been for his own benefit. He was engaged to act as the bank's solicitor and to advise it in relation to the very transaction, that is, what was thought to be a mortgage by the appellant in favour of the bank. ... If he had consciously gone forward and obtained registration of the mortgage in the knowledge of, or wilfully blind to, the fact only that it was not properly attested, then I doubt that would have involved him doing something outside the scope of his authority. If he had been party to the lodging of the documents ... then he would be doing so in order to carry out the instructions of his client, the bank, and it was only by chance that the document was not properly executed or attested. The same reasoning would apply if [the clerk] were to be held (contrary to my opinion) to have been guilty of fraud on the same limited basis." [emphasis added]
239 There are instances in the reported cases where a party who has not personally been guilty of fraud has been tainted by the fraud of an agent. Beatty v Australian and New Zealand Banking Group Ltd [1995] VicRp 57; [1995] 2 VR 301 and National Australia Bank Ltd v Maher [1995] VicRp 23; [1995] 1 VR 318 are examples. However, the courts will not lightly hold the principal liable for the acts of the agent. I note that in each of Shultz, Vassos, Pyramid Building Society and Russo, for example, the attempt to impeach the title of the registered proprietor failed on the facts.
240 The final case with which I propose to deal in this section is Re Global Finance Group Pty Ltd (In Liquidation); Ex parte Read [1999] WASC 23. This case arose in the context of yet another "pooled mortgage" investment problem. McKechnie J found no evidence that funds other than those provided by the registered holders of the mortgage had been advanced for the mortgage. Nevertheless, his Honour went on to consider the fraud exception to indefeasibility. Having referred to Breskvar and Assets Co Ltd his Honour said, at [54]-[55]:
"[The passage from Assets Co at 210] was cited with approval by Hayne JA in Pyramid Building Society (In liq) v Scorpion Hotels Pty Ltd (1998) VR 188. In that case, Hayne JA, with whom Brooking JA and Tadgell JA agreed, held that the title obtained by a mortgagee on registration under the Transfer of Land Act upon a forged instrument of mortgage cannot be defeated on grounds of fraud if the mortgagee was not party or privy to the fraud.
It is true that in Assets Co Lord Linley speaks of both the principal and the agent. However, in my opinion, agency is only relevant where the principal has knowledge of the actions of the agent or directs the agent in the actions to be taken. Assuming for the moment that [the broker] engaged in fraud by improperly mixing investors' funds prior to registration, that act of fraud would not defeat the estate of those whose names appear on the title. The reason for that is, absent knowledge or wilful blindness on the part of the principal investors who were registered, the acts of [the broker] are so far beyond the agency as to sever connection with the principal. In Schultz v Corwill Properties Pty Ltd (1969) 90 WN (NSW) 529, Street J decided the case, in the manner I have just outlined after reference to Assets Co.
241 In my view, with respect, the statement that "agency is only relevant where the principal has knowledge of the actions of the agent or directs the agent in the actions to be taken" may be a little too broad. It deals with the second situation mentioned by Street J in Schultz but I am not sure that it fully covers the first situation.
242 It is necessary to stand back, as it were, and re-examine the nature of the transactions in which the investors became involved. It has to be borne firmly in mind that each investor is to be treated as an individual. There is no evidence of any association between them, with the exception of Price and Hellfire who seem to have negotiated together. Grubb approached each investor (or they approached him) separately.
243 Although the term "pooled mortgage" may not have been used by Grubb (or other employees of GGFB) in their dealings with prospective investors, it must have been obvious to at least some of the investors that they would be sharing the security arrangement with others. I say this because of the content of the letters of offer that some (although not all) of the investors seem to have received. They refer to a mortgage of $203,000 but with the ability to advance in multiples of $1,000 or $5,000. They contain the sentence: "Your right as regards the investment are the same as if you had invested the whole $203,000 and are not affected in any way". In some instances there is no letter of offer in evidence and no other admissible evidence on which a finding could be based that the investor knew that he or she was to be part of a pooled scheme. In at least one instance, the evidence is to the contrary. Baron, for example, says that she was unaware that the arrangement involved a pooled facility. She says that her policy was to invest only as a sole first registered mortgagee. Had she known that was not to be the case in the HDPL arrangement she would not have become involved.
244 It is necessary to identify the relevant "fraud" perpetrated by GGFB. There are at least two possibilities. First, if the relevant fraud is the conduct of GGFB in taking and using trust moneys for unauthorised purposes, money from investors, paying it into an overdrawn trust account, one consequence of this is that the investors cannot trace their funds. But in my view, no ramifications flow to those investors who obtained a registered interest in the Mortgage. It is so far outside the proper and lawful activities of the conduct of a finance broking business that it could not be characterised as within the scope of the actual or ostensible authority of GGFB as an agent. In my view the proper characterisation of the activities of GGFB is as agent for the borrower, for some purposes and as agent for the lender, for other purposes. I have already said the deeds of appointment are so poorly drafted that it is difficult to place reliance on them so as to make precise findings as to the extent of the agency.
245 Assuming, as I am prepared to do, that the agency relationship between GGFB and the investors extended, at least in part, to the negotiations for, and giving effect to, the loan it would include the taking of the moneys from investors and dealing with those moneys pending the advance to the borrower. In holding the moneys pending their advance to the borrower the agent was acting as a trustee. It probably does not matter a great deal whether the moneys were held on trust for the investor or the borrower. At all times during that aspect of the transaction, GGFB was in a fiduciary relationship with the investors. That relationship involved duties of loyalty, trust and confidence. In my view (and in the circumstances of this case) it was not within the scope of the actual or ostensible authority of GGFB as agent to mix moneys which it held on trust with other moneys held on trust for other beneficiaries but not to:
(a) pay the moneys into a composite trust account that was or had been operated in overdraft; or
(b) misuse the moneys with which it had been entrusted by failing to apply them for the purposes for which they had been received or by applying them for an unauthorised purpose.
246 In my view, if the "fraud" which is under consideration in deciding whether the title of the registered mortgagees can be impeached is the fraud of GGFB, through its officers and employees in mishandling the trust moneys, it is not a fraud:
(a) in which the investors were personally implicated;
(b) committed by the agent of the investors acting within the scope of the actual and apparent authority of the agency relationship; and
(c) of which the investors had actual knowledge or in respect of which they had exercised wilful blindness or of which knowledge could be imputed to them.
247 Accordingly, this is not a situation in which the fraud of the agent can be "brought home to" the registered mortgagees. It does not, therefore, come within the exception to indefeasibility provided for in s 68 of the TLA. The title of the registered mortgagees must prevail.
248 I turn now to the second possibility. This is the alternative on which the applicants placed reliance. In the words used by Dr O'Donovan, on behalf of the applicants, the relevant fraud is "the fraud of Mr Grubb in sending on the path to registration mortgages that do not reflect the true nature of the transaction".
249 At the outset of this section of the reasons for decision I stressed the importance of looking at the situation of each investor in his, her or its individual capacity. When I set out the passage from the reasons of Ormiston JA in Russo I emphasised the phrase in which his Honour noted that the impugned conduct went "to the very transaction, that is, what was thought to be a mortgage by the appellant in favour of the bank".
250 If what is sought to be impeached is the title of a registered mortgagee then "the very transaction" which falls to be scrutinised is the transaction by which that investor obtained title. It is implicit in the submissions of Dr O'Donovan on behalf of the applicants that "the transaction" encompasses almost the entirety of the dealings involving the parties who are affected by this unfortunate saga. I take this from what was said by counsel, for example at p 663 of the transcript:
"The fraud after registration should be linked to the pool investment, which occurred before registration. The two ... should be seen as part of the one arrangement, which was hatched before registration and which continued after registration."
251 There are several reasons why I have doubts about this proposition. First, the mere fact that it was a "pooled investment" does not, of itself, create a situation where there is but one transaction. This is epitomised in the circumstances of this case where the loan arrangement developed over a number of years. In some of the other cases in this Court concerning the activities of finance brokers we have seen pooled mortgages where there was one fund of money and one mortgage entered into at the outset of the transaction in which all of the investors or prospective investors were involved. This is different. The arrangement (at least as it was put into practice, even though it is not accurately reflected in the Mortgage) was for periodic draw-downs. Accordingly, there was no imperative to have all of the investors in place at the outset of the arrangement. But it does not alter the fact that each investor was contacted individually, negotiated individually and took his, her or its interest (or more accurately for most of them, what was promised to be the relevant interest) in the arrangement individually.
252 It is trite to say that there can only be one registered "first mortgage". This is the effect of s 53 of the TLA. Of course, there can be partial interests in the one "first mortgage" (as happened here). The same effect could be achieved by deeds of priority entered into between the holders of registered mortgages, or even of unregistered mortgages, altering the rankings which would otherwise apply under the legislation. But that is not relevant here. When each investor agreed to advance money the investor did so on the promise that it would obtain a registered mortgage security. Those investors who obtained a registered interest did so in accordance with what they were promised. They paid to GGFB the moneys that they had undertaken to provide (either by direct payment or by re-allocation of funds from previous investments) and they eventually received the promised security.
253 I acknowledge that in many instances the timing of the various aspects of the transaction is unsatisfactory but that will come as no surprise to anyone who has had to examine the activities of this so-called "business". For example, Walker advanced funds in April 1997, executed the deed of appointment in November 1997 and took a transfer of the interest in the Mortgage from Oakleigh in February 1999. However, I am not sure that the timing of the various steps in the transaction is determinative, at least for these purposes. The eventual registration of the transfer of the interest in the Mortgage was done pursuant to the original arrangement and was no more, and no less, than what was envisaged.
254 Should, then, the situation be characterised as "sending on the path to registration mortgages that do not reflect the true nature of the transaction"? In my view this question falls to be answered in the negative. I do not think it is correct to look at it as, effectively, one transaction which commenced with the loan application by HDPL and continued through the preparation and registration of the Mortgage to Oakleigh, the receipt of moneys from various investors from time to time, the draw-downs by HDPL, the transfers of mortgage and the eventual collapse of the arrangement. Rather (and I am here concerned with the indefeasibility aspects of the arrangement only) I think it is necessary to focus on the transaction by which the individual registered mortgagee became registered. That is the transaction which must be impeached if the title is to fall. It is in relation to that transaction that the principal must be answerable for the fraud of the agent if the title is to be impeached. Looked at in this way, I do not think it can be said that the individual transfers of mortgage do not represent the "true nature of the transaction".
255 There is, perhaps, another way of looking at this situation. GGFB committed a fraud against the unregistered investors by failing to advance to HDPL the whole of the moneys received from them and failing to effect a transfer to them of the relevant proportionate interest in the Mortgage. So far as concerns the investors who did obtain registered status, the situation, properly characterised, is that there was no relevant fraud perpetrated on them in that respect. It does not mean they are somehow responsible for the fraud perpetrated on those who did not obtain registered status.
256 I want now to examine some of the individual fact situations in order to test the statements of principle that I have just enunciated. In doing so, I must inevitably reflect on the chronology. That is, the order in which and times at which, things happened. But I do so for purposes of illustration only. As was said during argument whether and when things happened in what might loosely and inaccurately be called the business practices of GGFB was something of a lottery. The chronology is, therefore, only one plank or aspect of the reasoning process which I wish to test by reference to the individual fact situations.
257 By 23 April 1997 Moulton had provided to GGFB $31,000 for the purposes of the HDPL arrangement. On 24 February 1998 the transfer of mortgage in her favour was registered. This was the first such transfer to be registered. After Moulton became the registered holder of an interest in the Mortgage, GGFB entered into arrangements with all of the investors whose positions I have described earlier in these reasons from and including Barron. In Bank of South Australia Ltd v Ferguson [1998] HCA 12; (1998) 192 CLR 248 the Court re-iterated, at 258, that for fraud to be operative it must operate on the mind of the person said to have been defrauded and to have induced detrimental action by that person. I just do not see how it could be said that a transfer of 31 undivided 1218th shares in the Mortgage to Moulton in February 1998, exactly in accordance with what can be assumed to have been anticipated when the idea was first generated in April 1997, did not reflect the true nature of the transaction.
258 Taking this example further, consider the position of Moulton vis-a-vis Barron. If the fraud on Barron is said to be capable of impeaching Moulton's title the reasoning process must be along these lines. The operative fraud would have to be a fraud that operated on Barron's mind and which induced her to act to her detriment. It is difficult to see how the registration of the Moulton transfer in February 1998 could be so categorised bearing in mind that the relevant detrimental action on which Barron embarked was the commitment of funds in either July or December 1998. This situation could only be brought within the fraud exception in s 68 if, first, the "very transaction" (using the terminology of Ormiston JA in Russo) is wider than the path to registration and, secondly, the minority view of Mason CJ and Dawson J in Bahr is correct and post-registration events can constitute fraud. Neither finds favour with me.
259 The Barron scenario raises yet another difficulty. The very clear evidence arising from Barron's affidavit is that she would have nothing of pooled mortgage arrangements. She was expecting to be the sole registered first mortgagee. In other words she did not contemplate any sort of arrangement by which she would share "star billing" with Moulton or anyone else for that matter. How could it be said, then, that the existence of a registered mortgage in favour of Moulton was a relevant fraud that acted on the mind of Barron and induced her to act to her detriment? I think the true characterisation of the relevant fraud is the failure of GGFB to carry out the promise that Coxon made on behalf of the broker, namely, to arrange a first mortgage security in favour of Barron. This, it seems to me, is not a case where (to use the terminology of Batt JA in Russo) the fraud is such that Moulton is infected by it or complicit in it.
260 I accept that the transfers of mortgage in favour of Bingham, Tabe, Hellfire (second transaction), Walker, Chitty and Bennett occurred at a later time and the chronological issues are different. Nonetheless, there are similar timing issues as between these individuals and some of the other investors (such as Budd, McColl, Weston, Drown and Nieuwkerk) who came into the picture at a late stage. I am troubled also by the Williamson situation but I will return to it later.
261 Another individual scenario that highlights a difficulty is that of Hellfire and Price. The very transaction into which they entered in October and November 1998 was to acquire the interest on Andres in the HDPL mortgage. Overlooking for a moment the timing difference in the receipt of the cheques from Hellfire and Price (1 October 1998), the payment out to Andres (5 October 1998) and the deposit of the cheques into the trust account (12 October 1998), this appears to be a transaction of a different character again. On one view of it, the consideration was to pass from Hellfire and Price to Andres, not to HDPL. The letter of confirmation and the deed of appointment relevant to this investment throws doubt on that construction.
262 Whether the fraud of GGFB is said to be constituted by the mishandling of the trust account or by the way the registered mortgagees obtained that status, the question is whether it is of such a nature and character that it can be brought home to the mortgagees. In my view the answer is in the negative. If it is the former, GGFB was acting without authority in the relevant sense. If the latter, the transaction has to be identified clearly. When that is done, the relevant fraud is not such as could be said to infect the registered mortgagee who has obtained nothing more than that which was promised. There is no element of forgery in the transfer documents. There is no element that the Registrar was misled or deceived or that the physical process of registration somehow miscarried. To that extent cases such as Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; [1984] VR 483 and Beatty are different.
263 The purpose of the discussion at the moment is to arrive at a conclusion whether the fraud exception to indefeasibility applies so as to impeach the otherwise secure titles of the registered mortgagees. I am not here trying to craft a remedy and what I am about to say should not be taken as an indication that I have lost sight of that fact.
264 When the individual situations are closely scrutinised this must be the result. It is, as I have already conceded, something of a lottery. Some investors obtained what they were promised and others did not. There seems to have been no logic, rhyme or reason applied by Grubb and others in the way that the investors were treated. It may be painted as good fortune that (for example) Walker obtained a registered interest almost two years after they parted with their money and yet Barron, despite diligent efforts, did not. It would be more than mere semantics if I were to characterise this as being Barron's misfortune rather than a windfall to Walker, who obtained no more than they were promised.
265 If, for example, a finding of fraud were to depend on the characterisation of it being an entire transaction involving a pooled mortgage then Barron would be in a different position to the other investors who did not obtain a registered interest. Nor, it seems to me, should the issue of fraud be decided by reference to the timing of the advance of funds and the date of registration. That is simply an accident brought about by the inefficiency (and worse) of the officers and employees of GGFB. The proper and reasoned application of basic principle (bearing in mind that this all stems from the statute) requires a strict approach that will not see differing and perhaps inconsistent results emerging.
266 I can deal with the in personam exception in slightly less detail. Much of the argument was taken up by the true nature of constructive and resulting trusts and the way that an equitable charge might operate in a situation such as this. However, I think to some extent those considerations arise at the end, rather than the start, of the discussion.
267 The argument put by the applicants goes something like this. Rowena offered investors the opportunity of earning interest by making a loan to HDPL secured by first mortgage investments. The investors were told how much was being sought and that instalments of not less than a stated figure would be accepted. Each investor agreed, in effect, to take a mortgage from HDPL if their money was pooled with money supplied by other investors and advanced to HDPL. I pause there to note, as I have already mentioned, that the admissible evidence does not go so far as to attribute to all of the investors knowledge that they were to be part of a pooled mortgage scheme and, in the case of Barron, the evidence is to the contrary. Nonetheless, for the purpose of dealing with this aspect of the preliminary issues I will presume that all investors had knowledge that they were to be part of a pooled scheme.
268 It follows from the knowledge that there would be a pooled scheme that the investors entered into a common enterprise when they paid the money to GGFB. The common enterprise was that their money would be pooled with funds received from other investors for the purpose of being advanced to HDPL on security of a first mortgage. The common endeavour or enterprise has failed. It is not possible for any investor to say that his, her or its money has actually been advanced to HDPL because the trust account has, from time to time, been overdrawn. The right of investors to be registered as a mortgagee would only arise if and when the money that they provided was advanced to HDPL in accordance with the arrangement. As it is not possible to say that the investor's money has been advanced the right to registration of money has not arisen. They have nonetheless become registered.
269 Counsel further developed the contention in this way. Letters and circulars were sent to the investors (see the annexures to Conlan's affidavit). By this means, the applicants say the investors were kept informed from the time the injunction was initially granted in September 1999 about the problems being encountered. From at least September 1999, the investors had knowledge that the trust bank account had, from time to time, been overdrawn. This post-registration knowledge would make it inequitable for the registered mortgagees, knowing that it is not their money which had been advanced to HDPL, to assert that they are nonetheless entitled to be paid the proceeds from the discharge of the mortgage free of any claim by the other investors. The reasons is that to do so would be inconsistent with the pre-registration arrangement (that is, the common enterprise) for them to receive the benefit of a mortgage in return for advancing the money to Hardie without regard to the position of other participants in the same common enterprise. It would be unconscionable for the registered mortgagees to assert a right to receive the proceeds of the mortgage and the shares for which that person has become registered to the exclusion of any other claimant on the GGFB trust account.
270 In these circumstances, counsel for the applicants submitted, there is a relevant unfairness arising from the unconscionable assertion of these rights such as to require the imposition of a constructive or resulting or an equitable charge. As a consequence, the fund arising from the discharge of the mortgage would be available rateably to all those having a claim against GGFB.
271 There are three critical features of this argument. First, in the circumstance of this case, it arises largely because of the difficulties of tracing into or through an overdrawn trust account. Secondly, it must be based on a cause of action that the law (or equity) recognises. In other words, it is not an independent cause of action in its own right. Thirdly, it depends on notions of unfairness or unconscionable conduct. It might, I think, be worthwhile repeating the description of the in personam exception given by Young J in Grgic at 222 - 223:
" ... the expressions 'personal equity' and 'rights in personam' encompass only known legal causes of action or equitable causes of action, albeit that the relevant conduct that 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 for those for whose conduct he is responsible, which conduct might pre-date or post-date the registration of the dealing which it is sought to have removed from the register."
272 One of the few things on which all persons represented before the Court agreed was that the various claimants could not trace their funds because the trust bank account had become overdrawn. It is trite law that trustees must not mix trust funds with their owns funds or with moneys held on trust for other persons. This rule is altered by s 48 of the FBCA, which permits a finance broker to maintain a single trust bank account. That a statute can have this effect is recognised in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 74 ALJR 862 at [34]. However, it is a consequence of the accounting and audit provisions of the FBCA that separate ledgers must be kept for individual investors identifying transactions in respect of funds held on behalf of separate investors.
273 Once, as happened here, the trust account became overdrawn it became impossible to identify the separate moneys advanced by individual investors. This is because the trust bank account (once overdrawn) constituted a debt due by GGFB to the bank, rather than moneys of the persons who had entrusted it to the broker. Equitable tracing, though devised for the protection of trust moneys misapplied, cannot be pursued through an overdrawn and therefore non-existent fund: Re Goldcorp Exchange Ltd [1994] UKPC 3; [1995] 1 AC 74 at 104-05; Bishopsgate Investment Management Ltd v (in Liquidation) v Homan [1995] Ch 211 at 220.
274 So far as I could see no-one sought to argue that the relevant cause of action to which the in personam claim could attach was derived from Barnes v Addy. There would be a logical difficulty in identifying the trust property said to have been received at the time when the registered mortgage interest was taken. In any event, the issue of knowledge, whether knowing receipt of trust property or knowing participation in a breach of trust, would not have been established on the facts.
275 There was passing reference during argument to a claim in unjust enrichment. However, the proposition was not developed and I can understand why. Without going into detail, it is difficult to see which of the recognised heads of the doctrine of unjust enrichment would avail the unregistered investors.
276 That leaves the claim as framed by counsel for the applicants. It depends very much on analogy with cases such as Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137. It must be borne in mind that these cases arose from attempts by a person who had been a party to a failed personal relationship to seek compensation for efforts or moneys expended during the course of the relationship. As I pointed out in Stowe v Stowe (No 2), unreported; SCt of WA; Library No 960354; 4 July 1996 and Stowe v Stowe (No 3), unreported; SCt of WA; Library No 970389; 5 August 1997, while the personal relationship was the starting point, the mere existence of a de facto relationship, without more, would not be sufficient to establish the claim. In Muschinski, Deane J said, at 619:
'... the principle [of equity] operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party should enjoy it. The content of that principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do ... '
277 In Baumgartner, Mason CJ, Wilson and Deane JJ described the concept, at 148, as arising from "the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them".
278 The claim based on a trust of this nature has some difficult hurdles to overcome. It depends on a finding of unconscionable conduct that can be sheeted home to the registered proprietor. Otherwise it would fall foul of the dicta in Assets Co Ltd that there must be something more than a mere assertion of an adverse claim. Lord Lindley, in delivering the opinion of the Privy Council, said, at 204 - 205:
"Then it is contended that a registered owner may hold as trustee and be compelled to execute the trusts subject to which he holds. This is true; for, although trusts are kept off the register, a registered owner may not be beneficially entitled to the lands registered in his name. But if the alleged cestui que trust is a rival claimant, who can prove no trust apart from his own alleged ownership, it is plain that to treat him as a cestui que trust is to destroy all benefit of registration. Here the plaintiffs set up an adverse title and nothing else; and to hold in their favour that there is any resulting or other trust entitling them to the property is, in their Lordship's opinion, to do the very thing that registration is designed to prevent."
279 I am disinclined to accept this aspect of the case. The argument relies not on the taking of a registered interest but rather on the assertion of a right to retain that interest in the knowledge of the problems associated with the trust account. This may be an implicit acknowledgment by those putting the submission forward that there are difficulties in relying on the wrongdoing of someone other than the registered proprietor. True it is that Young J in Grgic said that a personal equity could arise because of the conduct of a person for whose conduct the registered proprietor was responsible. I have already found (in relation to fraud) that the registered investors are not responsible for the fraud of GGFB or its officers in relation to the registration of the interests. It is difficult to see how, if that conduct of the agent was not a fraud for which the registered investors were responsible, it could nonetheless be conduct for which they were responsible in the context of an in personam claim.
280 It is not a fraud merely to take a registered interest in the knowledge that it will defeat a prior unregistered interest: Mills v Stockman. Why, then, should what is, in effect, the very same result be brought about by conduct of the registered proprietor which falls short of fraud and which occurred at a later time? This, it seems to me falls perilously close to being an in personam claim that is entirely inconsistent with ss 68 and 134 of the TLA. There is another temporal problem here. In many instances the effect would be to deprive the registered holder of priority at the behest of the person whose claim was not only unregistered but which came into being subsequent to the creation of the registered interest. I am not sure that equity would be entirely comfortable with such an outcome.
281 There is another aspect. What is it that, according to the argument, the person whose title is subject to defeasance, is said to be retaining? The answer is the registered interest in the Mortgage. I repeat what I have said at some length earlier in these reasons. What the registered investors have is exactly what they bargained for - nothing more and nothing less. This, it seems to me, is a different situation from that which confronted the courts in the de facto relationship cases. There, the plaintiff expended money or effort (or both) on the basis and for the purposes of the relationship or joint endeavour. The substratum of the joint relationship or endeavour was removed without attributable blame. Assuming for the purposes of argument that it is appropriate to characterise the relationship between the investors, as between themselves, as one of joint endeavour it might be said that each of these criteria has been satisfied. The unregistered investors have advanced funds for the purpose of the joint endeavour (the pooled mortgage scheme) and the substratum has been removed without blame which can be attributed to either the registered or the unregistered mortgagees.
282 But there, I think, the analogy ceases to have legitimacy. At the heart of the de facto cases lies the principle that unless equity were to intervene the property would be "enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party should enjoy it". That is not the case here. It cannot be said that it was not "specifically intended or specifically provided for" that the registered investors would obtain a registered interest in the Mortgage. That the other investors did not obtain the very same thing, even though they were promised it, is not something that can be sheeted home to the those who obtained registered status. I think the opposing argument would be to the effect that it was a feature of the joint endeavour that all of the investors would obtain registered status and that all would be equal. This is correct so far as it goes. But the very nature of the arrangement left open the possibility that mortgages or transfers of mortgages would be created from time to time. As I have already said, this is not a case where all of the investors were in place from the outset. It would seem strange if an investor, like Moulton for example, who is not affected by the trust account problems, and whose registered mortgage interest was in place before some of the other investors entered the joint endeavour should find herself vulnerable because of the claims of the latter.
283 It can be put in a slightly different way. One of the difficulties is to identify any relevant nexus between the advance of moneys by the unregistered investors and the benefit obtained by the registered mortgagees in obtaining registered status. If a relevant unconscionability (whether it be seen as direct or by virtue of some notion of unjust enrichment) is to arise it must, I think, stem from some such nexus. The registered investors did not obtain that status because of the advances made by the other investors. Their position was not elevated by any act done by the others. The two things are entirely separate. Indeed, that is the whole point. It is the random nature of what might inappositely be called the decision-making process of GGFB that has caused this problem to arise. This brings into stark relief the nature of the constructive trust for which the applicants contend as "a remedial response to the claim for equitable intervention" (see Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [3]). The nexus argument also reflects the use of the constructive trust to "restore to a party the contributions made to the joint endeavour" (see Baumgartner).
284 Looked at in the broadest possible way, I can see no material difference between the investors taking the registered interests in a way that is personally without blame and them refusing to renounce that interest once they became aware of the trust account problems. It seems to me not to matter, here, whether the investors can be said to have given value or they are volunteers. They were all subject to the fraudulent activities of GGFB and its officers. The consequences of the fraud may be different for the separate classes of investor. But that, it seems to me, is not sufficient to render the conduct of the registered holders as unconscionable should they elect to maintain their legal rights.
285 This conclusion is, in my view, in sympathy with the result arrived at by the Full Court in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd. In that case the court held that where registration of a mortgage was honestly obtained, it could not, consistently with the principles of indefeasibility, be set aside by an in personam claim based on knowing receipt of trust property. The "knowledge" sought to be established in that case was constructive knowledge that the property of a trustee company was being disposed of in breach of trust. While I acknowledge that this is a different case (and is not put forward on a Barnes v Addy basis) I think the reasoning is apposite. However, the constructive knowledge which the trial Judge (and the dissentient in the Full Court) found to have been impressed on the registered proprietor must have been converted to actual knowledge after the event. In this respect, it is similar to the claim now sought to be advanced. In Macquarie the Barnes v Addy problem did not affect the title of the registered proprietor leading up to and including registration or afterwards. That being so it is difficult to see why, in this case, the trust account problems, which do not infect the title leading up to and including registration, should do so because of knowledge gained after registration.
286 I am not saying that the remedial effect of a constructive trust would never have a role in a situation such as this. Clearly it would. But it is difficult to see the recognised, conventional cause of action at law or in equity that would enliven the jurisdiction of the Court to impose such a trust in the circumstances of this case. Similarly there may be cases in which a resulting or implied trust could arise. But I can see no room for equity to intervene in this instance. Even if a cause of action could be identified, I think that in the peculiar circumstances of this case it would be difficult to brand as unconscionable the impugned conduct of the registered investors.
287 There is another issue. I cannot see how a trust, which in this case would have a proprietary dispositive effect requiring the registered investors to execute a discharge of mortgage for the benefit of the unregistered investors (rather the mortgagor), could be other than inconsistent with ss 68 and 134 of the TLA.
288 I think I should repeat by way of reminder, the note of caution expressed by Deane J in Muschinski, at 615:
"The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles ---. Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity.
Thus it is that there is no place in the law of this country for the notion of 'a constructive trust of a new model' which, '[b]y whatever name it is described, --- is --- imposed by law whenever justice and good conscience' (in the sense of 'fairness' or 'what was fair') 'require it': per Lord Denning MR, in Eves v Eves; and Hussey v Palmer . Under the law of this country ---proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion ---, subjective views about which party 'ought to win' --- and 'the formless void of individual moral opinion'."
289 I do not deny that there is an element of unfairness to the unregistered investors in not treating them the same way as the registered holders fall to be considered because of the TLA. Nor do I underestimate the emotional and financial pain that this whole sorry episode has caused for the investors generally. Having said that, I accept the closing remarks of counsel for the Registrar on this particular issue. It is clear from the authorities that the in personam claim must be based on more than an innate sense of fairness. It must be a recognised legal or equitable cause of action. A court needs to proceed with caution. It must not, through sympathy for the plight of the unregistered investors, develop a rule of equitable principle that is so broad as to make inroads into the principle of indefeasibility. That principle must be paramount. Unless there is identified some personal conduct by the registered proprietor or by some person for whose conduct he or she is responsible, the general rule is that registered title ought to prevail. This provides an important element of certainty in the administration of the TLA.
290 In my view the in personam exception to indefeasibility has not been made out on the facts of this case.
291 The principal sum specified in the Mortgage is $1,218,000. The amount actually advanced to HDPL is either $1,025,674.54 or $1,057,908.11. The question is what amount can the registered mortgagees (Oakleigh and the registered investors) insist on receiving in return for a full discharge of the Mortgage.
292 This is essentially a question of construction of the mortgage document. The principles relevant to the construction of documents are well known. My understanding of them is set out in detail in Permanent Building Society (In Liquidation) v Wheeler (1992) 10 WAR 109 at 118 - 120 and Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 at 430 - 437. I will not repeat what I said in those cases.
293 It would, in my view, be a very respectable argument that the Mortgage should have been drafted in terms that showed it provided security for amounts to be drawn down from time to time up to a maximum of $1,218,000. It was not drafted in those terms. The consideration clause provides as follows:
"In consideration of [Oakleigh] at the request of [HDPL] advancing or agreeing to advance the sum of $$1,218,000 ("the Principal Sum") to [HDPL] ... ("the Borrower")
......
[HDPL] ... covenant[s] with [Oakleigh] as follows:
1. On demand to pay to [HDPL] the Principal Sum ... ."
294 Counsel for HDPL placed emphasis on the phrase "advancing or agreeing to advance" and submitted that, properly construed, the consideration clause did not entail an obligation or liability on the mortgagor to pay the whole of the Principal Sum irrespective of whether some lesser sum had actually been advanced or whether no monies whatever had been advanced. Counsel submitted that a construction which obliged the mortgagor to pay the whole of the stipulated sum in those circumstances would be absurd. It is a canon of construction that where there is an ambiguity in the language the court will adopt a construction that avoids an absurd, capricious or unjust result. On the other hand, for this to apply the result must be "absurd" and not simply "unreasonable": Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [22].
295 In the circumstances of this case there is a very fine line, calling for a value judgment, whether the result would be unreasonable or whether it would be absurd, capricious or unjust. However, the first question is whether there is any ambiguity in the language employed by the parties in the Mortgage. The first canon of construction is that, in general terms, unless there is ambiguity the words used by the parties must bear their natural and ordinary meaning and be construed according to their tenor. The defined term "the Principal Sum" refers to the fixed, stipulated amount of $1,218,000. It seems to me that the phrase "advancing or agreeing to advance" refers to the timing of the advance rather than the sum to be advanced. Even then, I think it recognises that the advance may not have been made at the time when the document was executed. It does not reflect the usual terms of a draw-down facility in which moneys, up to a maximum specified amount, are to be called for and made available in instalments from time to time.
296 It is always necessary to look at the document as a whole. In my view the other provisions of the document are to similar effect. Clause 1 obliges HDPL to pay, on demand, "the Principal Sum". Under cl 2 HDPL is required to pay to Oakleigh interest "on the Principal Sum calculated at the Highest Rate specified in the Schedule", although there is provision to pay interest at the "Median Rate" or the "Lowest Rate" specified in the Schedule if the monthly payments were made on time. Clause 2 also provides: "[HDPL] shall pay ... interest on the Principal Sum in the manner and on the dates specified for payment in the Schedule ... ".
297 In the Schedule, the "Highest Rate" is specified as 13 per centum per annum, the "Median Rate" as 12 per centum per annum and the "Lowest Rate" as 10 per centum per annum. There is another item entitled "Monthly interest instalments". It specifies monthly instalments as $13,195 at the Highest Rate, $12,180 at the Median Rate and $10,150 at the Lowest Rate. Rudimentary mathematics reveals that the those monthly sums are exactly the relevant rate calculated on $1,218,000. If regard is head to the evidence, the monthly instalments in the amounts specified in the Mortgage were not demanded or paid. But that is not to the point. This is a construction question.
298 In my view the language that the parties have chosen to employ is clear and unambiguous. For the purposes of the Mortgage document the Principal Sum is $1,218,000 even though some lesser amount was actually advanced. That is the proper construction of the Mortgage document.
299 Counsel for HDPL submitted that if the construction issue were to be found against HDPL the Mortgage ought to be rectified so as to reflect the true terms of the arrangement. This raises at least four issues. First, whether the grounds for equitable intervention by way of rectification have been made out. Secondly, whether the doctrine of estoppel by deed would prevent HDPL from asserting a right to rectification. Thirdly, whether the indefeasibility doctrine is a complete bar to rectification. Fourthly, whether, even if rectification would be available at the suit of HDPL against the original mortgagee, it could be ordered against the transferees of the Mortgage.
300 The main thrust of HDPL's case on this issue was in support of rectification for mutual mistake. Although it is often more difficult to establish, rectification is sometimes ordered for unilateral mistake. As to the former, the elements necessary to justify a decree of rectification for mutual mistake were not in issue. In Pukallus v Cameron [1982] HCA 63; (1982) 56 ALJR 907 at 909 Wilson J identified the elements in these terms:
(a) there must be an intention common to both parties at the time of the contract to include in their bargain a term which by mutual mistake is omitted; and
(b) the party seeking rectification must advance convincing proof that the written contract does not embody the final intention of the parties.
301 In relation to unilateral mistake, I think HDPL's argument would be that, to the knowledge of the plaintiffs, HDPL signed the Mortgage in the mistaken belief that it recorded its intention that it was a true draw-down facility, which mistaken belief was induced by representations or unconscionable conduct by or on behalf of GGFB. In this respect the dicta of Clarke J in New South Wales Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 is apposite. His Honour said, at 747:
"[Counsel] contended that rectification was never available where there is simply a mistake as to the construction of the writing and he referred to Frederick E Rose (London) Ltd v Wm H Pim Jnr & Co Ltd [1953] 2 QB 450 in support of this proposition.
There is however a line of authority that satisfies me that rectification is available in circumstances where the parties have used words which, when properly construed, do not express their true intention. These authorities are cited in support of the following proposition which appears in Halsbury, 4th ed, vol 32 par 51 at 30:
'Rectification is also available where words were purposely used or omitted but in the mistaken belief that they bore a different meaning from their correct meaning as a matter of construction.'
The most recent authority in which a clear statement in support of Halsbury can be found is Re Butlin's Settlement Trusts [1976] Ch 251 at 260 per Brightman J:
'Furthermore, rectification is available not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of construction. In such a case, which is the present case, the court will rectify the wording of the document so that it expresses the true intention.' "
302 The issue of unconscionability would inevitably arise (once again) were HDPL to rely on unilateral mistake in any suit for rectification. In this respect it might be able to assert an unfair reliance by a lender on its strict legal rights: see, for example, Thomas Bates and Son Ltd v Wyndham's (Lingerie) Ltd [1980] EWCA Civ 3; [1981] 1 WLR 505. Another approach would be to assert what was described as "sharp practice" in Riverlate Properties Ltd v Paul [1975] Ch 133 at 145. That case was referred to with approval in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 431.
303 It can be seen immediately that there are severe difficulties in deciding the merits of a claim for rectification in proceedings of this nature. Unlike construction, rectification depends largely on the subjective intention of the parties. The evidence adduced by HDPL goes part of the way towards establishing the necessary elements of a claim for mutual or common mistake but it is not complete. In relation to unilateral mistake, there is simply no evidence on some of the vital elements. In saying this I mean no criticism of those who prepared the case. The determination of preliminary issues (as in this case) does not normally permit of cross-examination and it would be unusual to decide a disputed rectification suit without the benefit of cross-examination. Similarly, to decide common mistake by reference only to the evidence of one party to the transaction (Hardie) without hearing form the other (Grubb) would not be desirable.
304 In other words, if HDPL is to achieve a discharge of the Mortgage by paying a sum less than $1,218,000 it will first be necessary to have the Mortgage rectified. Putting it bluntly, I would not take much persuading that as between HDPL and Oakleigh, the Mortgage ought to be rectified. The position as between HDPL and those to whom a registered interest in the Mortgage was transferred, presents greater difficulties.
305 However, I cannot decide whether it is entitled to a decree for rectification on the available evidence. However, what I can do is see whether either of the other three issues that I have identified permit of an answer which would effectively dispose of the issue against HDPL regardless of the merits.
306 The first question is whether the doctrine of estoppel by deed would be a bar to relief. In Greer v Kettle [1938] AC 156 Lord Maugham described the doctrine in this way:
"Estoppel by deed is a rule of evidence founded on the principle that a solemn and unambiguous statement or engagement in a deed must be taken to be binding between parties and privies and therefore as not admitting of contradictory proof. It is important to observe that this is a rule of common law, ... . The position at equity is and was always different in this respect, that where a proper ground for rectifying a deed, eg because it was based on a common mistake as to fact, then to the extent of the rectification there can plainly be no estoppel based on the original form of the instrument."
307 In Karounis v The Official Trustee in Bankruptcy, unreported, SCt of SA (FCt); 1378 of 1990; 26 November 1991 the court held that this doctrine could apply to a mortgage registered under the South Australian equivalent to the TLA.
308 Counsel for HDPL submitted that the company should be able to call in aid an equity to intervene to protect it from having to repay more than it received and that it would not be prevented from so applying by the doctrine of estoppel by deed. In my view that is an arguable contention. However, once again I cannot determine the merits. As Lord Maugham pointed out, it is a rule of evidence. It would not be possible to determine where the equities truly lay on the material in its present state.
309 I have already found that the registered mortgagees have obtained an indefeasible title and that it is not subject to defeasance on grounds of fraud or by way of an in personam claim at the behest of, or for the benefit of, the unregistered investors. The next question is whether, as between the mortgagor and the mortgagee, the covenants in the mortgage requiring HDPL to repay the Principal Sum and interest are inviolate in the sense that the doctrine of indefeasibility protects them from any claim for rectification.
310 In additional written submissions counsel for HDPL argued that indefeasibility goes to the acquisition of a legal interest in land and to concerns such as priority. It does not, with a mortgage, define contractual liability to payment. Indefeasibility will protect, as part and parcel of the interest conferred on a mortgagee, something which is annexed to the interest of the mortgagee. Arguing by analogy to the difference between a right of renewal and an option to purchase in a lease (the former being an integral part of the estate vested in the lessee but the latter not being so regarded) the exact amount of the principal sum ought not to be seen as part and parcel of the interest protected by registration. In support of the analogy, counsel referred to Mercantile Credits Ltd v Shell Company of Australia Ltd [1976] HCA 9; (1976) 136 CLR 326, especially per Gibbs J at 343, 346 - 347. At 343 Gibbs J referred specifically to a guarantee contained in a mortgage as a covenant of the type that would not be protected.
311 I am unable to agree with counsel's contentions in this respect. The question is whether the particular covenant, in this case the personal covenant to repay the principal sum and interest, is so intimately connected to the interest in land itself that it must be regarded as part of the overall transaction to which registration extends protection. I think that it is. In Consolidated Trust Co Ltd v Naylor [1936] HCA 33; (1936) 55 CLR 423 Dixon and Evatt JJ said, at 343:
"[The TLA] is concerned with the mortgage transaction in its entirety as it affects 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."
312 I have no difficulty with that proposition. I note also Public Trustee v Paradiso (1995) 64 SASR 387. In that case the signature of one mortgagor was forged and that of another obtained by fraud. There was no effective loan transaction between the apparent parties to the mortgage. Both the mortgagor and the mortgagee were entirely innocent. Nonetheless, the court held that the mortgagee was entitled to recover the moneys secured by the mortgage. It was argued that as there was no effective loan transaction between the parties the mortgage was, in fact, security for nothing and no liability arose under it. This argument was rejected. Prior J (with whom the other members of the court agreed) said that the South Australian equivalent to the TLA made the land "liable as security in the manner and subject to the conditions and contingencies set forth and specified in (the mortgage)". The indefeasible title gained as mortgagee is subject to rights in personam between the parties to the mortgage. However the liability as security could not be "a nothing". The covenant to repay gained its authority from registration and had to be respected as such.
313 This, it seems to me, is correct. It cannot be the case that while a mortgagee obtains an indefeasible title to the security it does not extend to the covenant to repay. However, as Paradiso recognises, all aspects of the indefeasible title may be subject to challenge in an in personam claim. A claim for rectification to cause the mortgage to reflect the common intention of the parties (or to correct a unilateral mistake) as to the true definition of the principal sum secured by the mortgage and repayable under it is, it seems to me, an equity that comes within the in personam doctrine.
314 A more difficult issue is whether, whatever may be the position as between a mortgagor and the original mortgagee, the equity for rectification could be maintained as against a transferee who has become registered as the holder of an interest in the mortgage.
315 Mr Solomon submitted that the answer to this question was, emphatically, in the negative. He referred to Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478. W, as lessee, entered into a lease with R. The lease contained a rent review provision. R sold the land to T and T became the registered proprietor. After T acquired the reversion a question arose as to whether the rent review provision properly reflected what had been agreed between W and R. The trial Judge found that the result arising from the plain wording of the clause was merely unreasonable (not absurd) and construed it in favour of T. However, there was an alternative claim for rectification. His Honour found that, as between W and R, rectification was available. He then had to consider whether a suit for rectification lay with W as against T. The trial Judge pointed out that a right to rectification is a mere equity rather than an equitable interest. Having considered various authorities concerning mere equities, the doctrine of notice and competition with equitable interests he said, at [48]: "the only sensible conclusion to be drawn is that unless there is some right in personam T takes free of the equity of rectification. In other words T holds free from some equity, not notified on the register, which can only exist through attachment to an interest in land". As to the in personam claim, the trial judge said (at [52]) that under the Torrens system (and following Bahr):
"... while notice [of the equity of rectification] itself cannot lead to a right in personam, notice together with an agreement to be bound by the interest can amount to unconscionable conduct justifying relief."
316 On the facts, the trial Judge found against W on the claim for rectification against T. However, what is important is that he did not say that the mere fact of registration of the transfer (which in this case would be the transfer of mortgage) would inevitably shut out or bar the equity for rectification. In Tanzone, there had been various agreements entered into between the parties which might (although as it turned out, did not) amount to unconscionable conduct in the sense outlined. For sake of completeness, I should add that the decision was overturned on appeal (see Westpac Banking Corporation v Tanzone Pty Ltd, previously referred to) but on the construction issue only. The Court of Appeal did not deal with rectification.
317 Counsel for HDPL submitted that where a mere equity is ancillary to an interest in land (such as a mortgage) a transferee of a mortgage taking without notice of the equity may be bound by it. Counsel cited Tanzone, as well as other decisions in support of that submission. It will be apparent from what I have already said that I accept the submission. Counsel went on to say that in this instance the equity for rectification was ancillary to an interest in land, namely the Mortgage, and I accept that too. He said that a transferee taking with notice of the equity may be bound by it. I do not think that is correct in the way that it is phrased. There would need to be more than mere notice of the equity. This is in accord with what was said in Tanzone. In any event, it follows as a matter of logic. It would be very strange if mere knowledge were not sufficient to constitute fraud (within the exceptions to indefeasibility) and yet it was sufficient to ground a claim falling short of fraud but amounting to a recognisable in personam claim. There must, I think, be something more than mere knowledge of the right to seek rectification. There must be something amounting to unconscionable conduct.
318 Counsel went on to submit that the situation would be different if the transferees were volunteers. He also submitted that, on the facts of this case, they were volunteers. As I have already said, the question whether the investors in this case are volunteers was not really argued even though it is raised in question 8 in relation to registered mortgagees. Some passing comments were made by counsel for the Registrar to the effect that they were not volunteers but, for the most part, the submissions proceeded on an assumption that they were. In an earlier section of these reasons I have made some comments which are obiter on this issue. I do not think it is appropriate to take the matter any further. Of course, what I have said is that volunteers have the same claim on the protection afforded by the doctrine of indefeasibility as do registered proprietors who gave full value. I do not resile from anything I have said in that respect.
319 In my view, the ability of HDPL to seek rectification against the registered investors under an in personam claim is not shut out or barred simply by the fact that the latter have become registered. HDPL could only do so if it could establish unconscionable conduct on the part of the registered investors so as to defeat what would otherwise be an indefeasible title. I proffer the tentative view that HDPL would have significant hurdles to overcome but I should not be taken as having expressed a concluded view. Everything would depend on the range of issue raised and the material available to support the case. If the parties wish to take this matter further, it should be done in a properly constituted suit for rectification. In any such suit the issue whether the investors were volunteers and, if so, whether that affects the position, should be regarded as open and as not having been finally dealt with in these reasons.
320 I should add that to the extent that Oakleigh still holds an interest in the Mortgage, the potential claim by HDPL against it for rectification is not beset by these problems, or at least some of them. However, it still falls to be decided on a full appreciation of the evidence. It may be possible for the relevant parties to reach an extra-curial solution.
321 There was some suggestion made during argument that HDPL had defaulted in carrying out its obligations under the Mortgage. In my view, any failure to pay instalments of interest occurred after GGFB had itself defaulted in making moneys available to HDPL. If there was a relevant default by HDPL it would not take much to convince me that it was such as to justify relief against forfeiture.
322 In my view the evidence supports the view that the mortgage over Lot 142 was not part of the final security arrangements as agreed between GGFB and Hardie. Just why Hardie executed the mortgage is a mystery. Nonetheless, none of the investors were promised a mortgage over Lot 142. In my view the registered proprietors are entitled to receive a discharge of the unregistered mortgage over Lot 142 without payment of anything on account of principal or interest.
323 Arguments about standing are among the most arid with which courts are confronted. Nonetheless, they have to be resolved. Here, the applicants contend that they have standing under one or more of s 75 of the FBCA, ss 89 or 92 of the Trustees Act 1962 and s 479(3) of the Corporations Law.
324 The question of standing in this factual situation can be answered in a simple fashion. There is one mortgage, namely the Mortgage. There are various interests in the Mortgage, including the legal interest retained by Oakleigh. In terms of standing, I think the first applicant (namely Conlan as liquidator of Oakleigh) has standing to bring an application in furtherance of his duty to preserve trust property. In this instance the trust property is the interest of Oakleigh in the Mortgage. However, because of the nature of the trust bank account transactions and the way that the Mortgage was initially taken and, from time to time, made the subject of dealings, the liquidator had a legitimate interest in taking proceedings to ascertain the nature and extent of the claims to the Mortgage generally.
325 I will, however, deal with the issues of standing apart from this conclusion in case it becomes necessary in order to deal with other fact situations.
326 Section 73 of the FBCA confers on the District Court power, on the application of the Board, and whenever it appears the broker is incapable of conducting or is not conducting the business in accordance with the FBCA, to authorise the Board to appoint a supervisor of the business. However, the powers or (if the heading to the section is a guide) the duties of the supervisor conferred or imposed by s 75 of FBCA are rather limited. The section is, relevantly, in these terms:
"(1) The supervisor shall carry on the business for the purpose of concluding or disposing of matters commenced but not concluded on behalf of clients of the business and, where necessary, for the purpose of disposing of, or dealing with, documents relevant to those matters, ... .
(2) The supervisor may, on production of his instrument of appointment
(a) require
(i) the finance broker ... to produce to the supervisor any books, files, papers, or documents relating to the practice that, in the opinion of the supervisor, may be reasonably necessary for the purposes of carrying on the business; and
(ii) the manager ... of a bank in which the finance broker ... has or had deposited money, notwithstanding any rule or law to the contrary, to disclose every account of that finance broker ... that, in the opinion of the supervisor, may be relevant to the carrying on of the business ... ;
(b) enter upon any premises of the finance broker ... and take possession of all books, files, papers, documents, and other things relating to the business, and that, in the opinion of the supervisor, may be relevant to or necessary for the carrying on of the business."
327 Put shortly, the powers (or duties) of the supervisor are to take possession of documents, obtain information about bank accounts and "carry on the business for the purpose of concluding or disposing of matters commenced but not concluded on behalf of clients of the business". I do not think the concluding words of s 75(1), namely to dispose of or deal with documents, add much to the concept of carrying on business in order to conclude matters already in train. Nor, for that matter, does s 75(2). It simply empowers the supervisor to take possession of documents that he or she considers necessary in order to carry on the business.
328 Counsel for the applicants placed emphasis on the fact that Rowena had possession of the duplicate certificate of title. While I can see why it would be said that Oakleigh (which retained a majority legal interest in the Mortgage) would have an interest in retaining possession of the duplicate certificate of title, I am not sure how this reflects on the concept of carrying on the business for the purposes stated in the FBCA.
329 It seems to me that once the moneys had been collected from the investors, the mortgage registered and the funds advanced to HDPL the loan had been "negotiated and arranged". Accordingly the "business" (as that term is defined in s 4) had been completed. The argument advanced by counsel for the applicants is that the concept of carrying on business would encompass, relevantly, at least two things. First, the commencement of legal proceedings to prevent registered mortgagees from recovering moneys which, on the face of the register, were due to them by HDPL. Secondly, to sort out "the confused state of Rowena's records and the uncertainty about who was entitled to the fund paid by the mortgagor to discharge the mortgage". Counsel for the applicants submitted that as the section was remedial, the supervisor's powers should not be construed narrowly. As a statement of principle, I think that is correct. However, the plain meaning of the language employed by Parliament cannot be ignored. These things would not, I think, be part of the "business". The statutory powers or duties contained in s 75 would not extend to that type of activity.
330 There is another matter. The definition of "business" in the FBCA has, as a critical element, a relationship of agency. Assuming for the moment that the relationship between GGFB and the investors was one of agency, there is no reason to doubt that the agency could be terminated. The general rule is that an agency is terminable at will: Bromley v Holland [1802] EngR 163; (1802) 7 Ves 3 at 28. While there is no evidence before me of a formal cancellation of the agency by notice, the conduct of the investors is consistent only with that course having been taken. It is also the law that the service of a formal instrument is not the only way in which an agency may be terminated. It is sufficient if there are acts amounting to a revocation of the agent's authority by the principal: Smith v Jenning's Case (1610) Lane 97. If resort is had to the deed of appointment in order to expand or extend the concept of the "business" for the purposes of this agency relationship, the same considerations would apply.
331 It seems to me to be a little strange that the powers of a supervisor are so limited. Section 75 mirrors, to a significant degree, the provisions of s58E of the Legal Practitioners Act 1893. Experience with that section suggests that it is predominantly aimed at protecting the interests of the clients (or former clients) of a defaulting solicitor. It is not aimed at the winding up of a legal practice in the same way as an external administrator would wind up the affairs of a business under, say the Corporations Law or the Bankruptcy Act 1966 (C'th). I think that the protection of the clients is also at the heart of s 75. However, Parliament has chosen language that seems to me to restrict the ambit of the powers that a supervisor may employ. The analogy with the Legal Practitioners Act reinforces my view that the powers and duties of a supervisor do not extend to the type of activity here in question. The sorting out of the trust account and the assessment of competing claims on it are, it seems to me, the province of an external administrator rather than a person appointed to carry on business so as to complete matters already in train.
332 As a gratuitous comment, based on experience with the current problems thought might be given to expanding the powers of a supervisor in the FCBA. The regime that used to apply to official management under the Companies (Western Australia) Code might be a useful model. I say this recognising that most would say that official management was, at best, cumbersome and, more accurately, almost useless. However, the specification of the powers and duties in Pt XI of the Code might be a good starting point from which to develop an appropriate regime.
333 It is common ground that Rowena did not maintain or operate a trust account in accordance with its statutory duties as a broker under the FBCA and generally in accordance with its duties as a trustee. Nonetheless, Rowena clearly was a trustee for some purposes. So too was Oakleigh. There is no suggestion that Oakleigh held its legal interest in the Mortgage (or any part of it) beneficially. The identity of the beneficiaries on whose behalf Oakleigh held its legal interest in the Mortgage is a vexing question. But it does not alter the fact that the interest is not beneficially held.
334 Section 89(1) of the Trustees Act enables a trustee or a person beneficially entitled under a trust to seek from the court authorisation to certain dealings with trust property.
"Where in the opinion of the Court any ... disposition, or ... transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the Court, ... the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income."
335 It follows inexorably from my conclusion that the registered mortgagees have an indefeasible title that the interests of those persons does not constitute trust property which is "vested in a trustee", namely the applicants. Similarly, the other claimants (such as the unregistered investors) are not persons who are "beneficially interested under the trust". Accordingly (and although the opposite result may have been seen to be desirable in the circumstances) s 89(1) has no application as against the investors who obtained registered interests in the Mortgage. As I have already indicated, different considerations apply to Oakleigh, but that is not material at the moment.
336 The other section on which reliance was placed is s 92. It confers on a trustee a right to apply to the court for directions. Section 92(1) provides:
"Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee."
337 The same considerations apply. The section deals only with applications to the court made by a trustee of property which is to be the subject of a direction. It has no application to the legal title to the interests held by the registered mortgagees (other than Oakleigh).
338 Later in these reasons I am going to discuss Young v Murphy (1996) 1 VR 279. I have come to the view that the principles arising from Young are sufficient to afford the applicants standing. It raises a conceptual question that applies to a claim under either s 75 of the FBCA or s 89 and s 92 of the Trustees Act. I confess that I am not sure whether it is really a question of standing at all. The factual matrix is not entirely devoid of all elements of the carrying on of a business to complete uncompleted matters or of the trappings of trusteeship. I have come to the conclusion that none of those sections applies to the factual matrix in which the applicants (and all other parties) find themselves. But does the end result determine the issue of standing?
339 Standing simply means the capacity or right of a person to be heard in courts or tribunals: Butterworths Australian Legal Dictionary 1997, p 1106. In Locus Standi, Stein, 1979, the author says, at 3:
"The [term] ... 'standing to sue' ... denote[s] the right of an individual or a group of individuals (not necessarily constituting a legal entity) to have a court enter upon an adjudication of an issue brought before the court by proceedings instigated by the individual or the group. That right, once found, exists apart from the factual or legal merits of the issue before the court or the jurisdiction of the court to adjudicate on the issue."
340 There are some occasions when issues of standing and entitlement on the merits are inseparable. In Locus Standi, A Commentary on the Law of Standing in Canada, Cromwell, 1986, at p 2 the author gives the example of an application for mandamus in which it is necessary to establish a "legal specific right" to the enforcement of the particular duty.
341 Standing usually arises in litigation having a public interest element and where a statute confers a right of audience on someone variously described as "an interested person" or "a person aggrieved" or the like. That is not the case here. While these issues are of considerable interest to the public they are essentially private commercial claims. The statutes do not give any guidance as to standing in the way that I have just outlined. This is not to say that issues of standing are irrelevant in private commercial disputes. They are relevant. However, I am not sure whether there is the same need to use standing rules to avoid abuse of process, inappropriate utilisation of public resources and the like in private commercial disputes as there is in public interest litigation.
342 What I am now deciding are preliminary issues. I can therefore answer the questions of standing by reference to the result. On the factual basis presented to me, and in the light of my determination of the questions of law, the applicants cannot succeed in their claim. To that extent they have no standing. But the bland answer to the question must be seen in the light of this discussion. It should not be taken as an indication that I believe the applicants were not entitled even to ask the court to "enter upon an adjudication of an issue brought before the court by proceedings". Rather, it is because the court, having had the benefit of full argument on preliminary questions, has decided that the applicants could not succeed on the merits.
343 The next question is whether there is any comfort for the applicants in s 479(3) of the Corporations Law. That subsection reads: "The liquidator may apply to the Court for directions in relation to any matter arising in the winding up".
344 In Re G B Nathan and Co Pty Ltd (In Liquidation) (1991) 24 NSWLR 674 McLelland J delivered what is now regarded as the seminal analysis of the nature of applications under s 479(3). His Honour concluded, at 679:
"The historical antecedents of s 479(3), the terms of the subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction
Modern Australian authority confirms the view that s 479(3) 'does not enable a court to make binding orders in the nature of judgments' and that the function of a liquidators application for directions 'is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before liquidation' [authorities cited]."
345 There are, then, obvious limitations in the procedure under s 479(3). However, McLelland J went on to say, at 680, that in an appropriate case it would be possible to convert proceedings commenced under the section so that the court could make orders declaratory of substantive rights and intended to have binding effect on the parties to the proceedings.
346 In Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd [1994] FCA 1031; (1994) 49 FCR 334 Northrop J took a more expansive view of the powers under the section. The factual matrix in that case bore some resemblance to the situation with which I am confronted here. A company received funds to be advanced to borrowers and secured by mortgages. The funds were paid into a bank account in such a way as to be inextricably mixed with other trust funds and tracing was impossible. The company went into liquidation and a fund was created comprising some mortgages, proceeds from the discharge of other mortgages and moneys that had been received from investors but not advanced to borrowers. The liquidator classified the creditors into various classes and applied for directions under s 479(3) relating to the entitlement of the various claimants to the fund. Northrop J decided that the court had power to make finally determinative declarations and orders in the proceedings under s 479(3). He specifically declined to follow Re G B Nathan & Co.
347 McLelland J continued the debate in Re J W Murphy & P C Allen; Re BPTC Ltd (In Liquidation) (1996) 19 ACSR 569. His Honour, at 570 - 571, re-affirmed the view he had formulated in Re G B Nathan & Co and expressed doubt about the correctness of Melbourne Asset Management. The latest case on the subject is Bastion v Gideon Investments Pty Ltd (In Liquidation) [2000] NSWSC 939; (2000) 35 ACSR 466. The company was the trustee of a trading trust that had received funds from 250 investors. There was no signed trust deed and the documents did not set out the number of units held by each investor. No separation of trust and non-trust assets was evident and the trust had sustained substantial losses. The liquidator applied for directions under s 479(3) that he would be justified in, among other things, recognising the existence of an express trust on the terms of the unsigned deed and recognising certain persons as beneficiaries of that trust. Austin J did not refer to Melbourne Asset Management. However, he followed Re G B Nathan & Co so far as it concerned the nature and scope of the power to give directions. In relation to the direction that the liquidator be entitled to recognise an express trust and to recognise persons as beneficiaries, his Honour said, at [48]-[49]:
In my opinion the subject matter of the first application is a proper subject matter for an application for directions under s 479(3). It is appropriate for the liquidator, confronted by unsatisfactory corporate records and uncertain indications that a large part of the company's business was conducted as trustee, to bring the facts before the Court and seek the protection of directions under s 479(3). It is appropriate for the Court to give the direction sought by the liquidator once it is satisfied, as I am, that all reasonable inquiries have been made by the liquidator to establish the true facts. In this case I am impressed by the thorough and systematic investigations that have been conducted.
... I should note the very limited scope of the protection that directions under s 479(3) will give in the present circumstances. The directions will not determine as between the company and the investors whether there is a trust or any particular person is a beneficiary or any particular assets are held by the company in trust for the investors, and will not protect the company or liquidator from any claims by persons who do not receive a distribution but are able to establish that they should have been recognised as beneficiaries. As McLelland J pointed out in the G B Nathan case (at 681), the significance of the directions is only that if the liquidator acts in accordance with them and has made full and fair disclosure of the material facts, he will be protected from claims by unsecured creditors or contributories in respect of any alleged breach of his duties as liquidator.
348 I prefer this approach to the one which emerges from Melbourne Asset Management. Of course, the situation here is different. The proceedings were commenced by way of originating summons and the relevant parties were joined as parties. It is raised here purely on the issue of standing. It seems to me that Conlan, in his capacity as liquidator of Oakleigh and of Rowena, having been confronted by unsatisfactory corporate records and an indication that the companies had breached their obligations as trustees or had participated in the breach by others of fiduciary obligations, could seek the protection of directions under s 479(3). However, just as (in Bastion) the directions procedure would not determine as between the company and the investors whether there was a trust or any particular person was a beneficiary, it would not be an appropriate procedure to determine substantive rights by a direct attack to defeat the title of a registered mortgagee.
349 In Young v Murphy a trustee company was replaced as trustee of an investment trust. The former trustee went into liquidation. There was a change in the identity of the beneficiaries of the trust. The new trustee sued the former trustee (among others) for breach of trust. The court held that the new trustee had standing to sue the former trustee. Brooking JA said, at 725:
"... a trustee who has committed a breach of trust may be sued in respect of the breach either by a beneficiary ... or by a co-trustee of a successor trustee [authority cited]. ... The standing of a trustee to have a breach of trust redressed against a trustee or a former trustee or a stranger who has become liable to redress a breach of trust is well recognised. Not only may a trustee take such proceedings, but he runs the risk of himself committing a breach of trust if he fails to do so [authority cited]. His obligation to take the proceedings (unless they be futile) is part of his duty to get in the trust estate, which includes rights of action against ... former trustees and strangers for breach of trust. This is clear as a matter of both principle and authority. Moreover, since the trustee will take the proceedings for breach of trust for the benefit of the beneficiaries, he can sue even if he was a party to the breach of trust or some other breach of trust."
350 This is a situation which may have applied here. Rowena acted in breach of trust by operating the trust account in the way that it did. If the interests in the Mortgage had been transferred away from Oakleigh other than directly in return for advances of funds in a conventional and traceable way, a breach of trust occurred. It seems to me that the principle enunciated in Young applies and Rowena (and Oakleigh) have standing to take action to redress the breach of trust, namely to recover the interests in the Mortgage improperly transferred away. Of course, we now know (or put more accurately, I have found) that they cannot succeed on the merits as against the registered mortgagees because of the principle of indefeasibility. But to say that they could not succeed on the merits is not to deny their standing to invite the court to enter upon an adjudication of an issue brought before the court by proceedings instigated by them.
351 It is different to the situation which arises under s 89 or s 92 of the Trustees Act or s 75 of the FBCA. There, the claimant must bring itself within a particular description set out in the statute, for example, a trustee in which trust property is vested or the person carrying on "a business". In this case, the applicants asserted a breach of trust by Oakleigh and sought to attribute to the registered mortgagees an obligation to redress the breach. They failed to do so, but I do not think they lacked standing.
The Power of the Court to order a Discharge of Mortgage
352 The court has power to order the discharge of a mortgage without the consent of the mortgagee where some person has a pre-existing legal right to require that discharge. The interest of the mortgagor in land under the Torrens system is, and always remains, a legal interest. The right to redeem (at least in the absence of default) is legal in character. The right to redeem is usually a matter of contract, being expressed in the mortgage document. In any event, it is implicit in the TLA.
353 However, the court is there enforcing a pre-existing legal right in the exercise of its general jurisdiction to determine legal rights and to give effect to them. Counsel for the Registrar submitted that where a plaintiff has no pre-existing legal right to have the registered mortgage securing an unpaid debt discharged, an order of the court requiring the discharge would alter pre-existing legal rights rather than recognise and enforce them. Without an express statutory authority the court has no power to do so. Counsel cited s 126 of the TLA and s 420B as examples of statutory provisions empowering the Registrar and the court, respectively, to take such action. Counsel also submitted (and for reasons already expressed, I accept) that neither s 89 nor s 92 of the Trustees Act would give the court authority in the circumstances with which I am confronted.
354 I accept that there is no express statutory authority for the court to order that a registered mortgagee discharge the mortgage other than in accordance with a pre-existing legal right or in circumstances where the interest was liable to be defeated at the instance of another claimant.
355 This leaves one other possibility. It might be argued that the court, in its inherent jurisdiction, has such a power. This was touched on by Young J in Yarrangah Pty Ltd v National Australia Bank Ltd [1999] NSWSC 97 at [27]- [34] in an admittedly different context. His Honour was dealing with the power of judicial sale. Steytler J noted the argument in Sandgate Corporation Pty Ltd (In Liquidation) v Ionnou Nominees Pty Ltd [2000] WASC 91; (2000) 22 WAR 172 at 191 but did not need to decide the question because he found the necessary statutory authority to order sale of the mortgaged property in s 55 of the Property Law Act 1969.
356 So far as I can recall no argument was addressed to this proposition and it ought to stand over to another day when it can be fully developed.
357 The competition between the various participants in this sorry saga is not easy to resolve. There is an instant attraction in the argument put forward by the applicants and by Mr Morison, counsel for Top Lodge Nominees Pty Ltd but effectively appearing as amicus to put a view on behalf of unregistered investors, the effect of which is that all investors should be treated equally and should share pro rata. Counsel's submission was along these lines. Mortgage rights or any rights held by GGFB investors are held on a constructive trust for all GGFB investors and all loan repayments belong to the investors pro rata in the proportion the investor's advance bears to all advances. This applies whether the investor held a registered mortgage or an equitable mortgage or no security at all. It was a fraudulent and negligent broker that determined who got security and who went without. To allow the "chips to lie where they fall" would be to permit the broker's fraud and mal-administration to impose a skewed and unfair outcome between people who did nothing wrong. To put it in the language used by counsel, to do otherwise would be for the legal system to "reward the lucky and penalise the unlucky when all were equally innocent".
358 It will be apparent from what I have already said that I am not comfortable with the concept of "luck" or "fortune" as the determinative factor. If regard must be had to "luck", perhaps the investor on whom fortune cast the broadest smile was Williamson. But the fact is that Williamson is protected by the doctrine of indefeasibility.
359 Counsel put the argument in a number of ways. Mr Morison relied on the analogy with Mushinski v Dodd but acknowledged the difficulty in identifying the relevant joint endeavour. This is not the only difficulty with the analogy. I have already spent some time on it (when discussing the in personam claim as a mechanism to challenge an otherwise indefeasible title) and I will not repeat what I have already said. For reasons which I have already expressed, I do not think the de facto relationship cases provide a model which can be extended to this factual situation.
360 The second basis upon which the argument was put forward was the equitable principle that equality is equity. Counsel relied on Re Australian Home Finance Pty Ltd [1956] VicLawRp 1; [1956] VLR 1, Melbourne Asset Management and Windsor Mortgage Nominees Pty Ltd v Cardwell [1979] ACLC 32,195. In those cases, where there had been a mixing of trust funds, the court held that the investors should have priority over ordinary unsecured creditors but as between themselves the investors should rank equally and share pro rata.
361 In my view, again for reasons expressed, the principle cannot be applied where their impact would be inconsistent with the TLA. There must first be established a recognised in personam claim. If such a claim can be established then the equitable principles would come into play. To say that equity strives to achieve equality is one thing. To extend that to a situation where the result is unfortunate for one group but where that misfortune has not been caused or contributed to by conduct that can be sheeted home to those who benefit, is quite another.
362 The right and entitlement of registered mortgagees are relatively easy to describe. In my view their interests are inviolate under the doctrine of indefeasibility. Subject to any issue that might arise concerning the applicant's remuneration (a matter to which I will return shortly) the injunctions granted from time to time by various judicial officers (including me) ought to be discharged or varied so as not to impede any exercise by them of their rights.
363 The next question is how the unregistered investors' claims should be treated. Once the interests of the registered mortgagees have been accommodated, the interest that Oakleigh has in the Mortgage must be dealt with. Can the unregistered investors claim the balance of the proceeds arising from repayments made by HDPL or must those funds go into a pool to which all creditors of Rowena have access?
364 Investors such as Barron and Hunt argued that they should be entitled to claim directly against the proceeds of the HDPL loan. Barron pointed out that there was a counter-element of unfairness in treating all investors equally because their claims were different. In her case, for example, she had not sought an unrealistically high rate of interest. She had not been influenced by promises of unrealistic and uncommercial rates of return. She had carried out her own independent checks concerning the project and the borrower. In this respect all her dealings had been in relation to the HDPL loan. HDPL had complied with its obligations under the loan arrangement. There was no shortfall on the security. To force her to resort to a pool with other investors who might have not have exercised the same degree of diligence and who might have accepted a much higher degree of risk at the outset would be to visit on her an unfairness of a separate character.
365 I can see the force of that argument. If all investors were to be treated in the same way, there would be a failure to recognise that their circumstances differ. They differ in the way they interacted with GGFB and in the decision-making processes in which they engaged. The reader has only to refer back to the nine scenarios that I have set out in the summary section following the discussion of the factual matrix for the individual investors to appreciate the differences.
366 However, I return to the central issue. Once the moneys were paid into the overdrawn trust account the right to trace was lost. As I have already said, the investors have an interest in the loan arrangements represented by the Mortgage. However, in my view it is an interest which, in terms of characterisation, can only be described as a mere equity. It is not possible to ascribe to it any proprietary characteristics. There is a personal claim against the defaulting broker. But this is not sufficient to convert it to a claim of a proprietary nature that could attach to the Mortgage itself. In the circumstances of this case the loss of the right to trace is critical. If that right were present the personal equity may be more than something that is merely ancillary to an interest in property. It would become a species of proprietary interest in its own right. However, if it cannot attach to the Mortgage I have difficulty in seeing how it could form the basis of a claim against the proceeds from the discharge of the Mortgage.
367 There is an interesting article entitled Tracing and Property Rights, Grantham and Rickett (2000) 63 MLR 905 in which the authors discuss the theoretical analysis of the law of tracing. The article adopts the generally accepted view that tracing is an evidential process rather than a right or a remedy properly so called. However, as the authors point out, it is necessary to identify the source of the claimant's right in the traceable product. The dominant academic view has been that the right always and necessarily arises as a response to the principle of unjust enrichment. However, the authors question the legitimacy of that theory in light of the House of Lords decision in Foskett v McKeown [2000] UKHL 29; [2000] 2 WLR 1299. This judgment appears to shift the focus so that the plaintiff's claim in the traceable product is seen as a response to, and a vindication of, the plaintiff's proprietary right in the original asset.
368 The relevance of this analysis can be seen by resort to a further submission made by Mr Solomon (in an admittedly different context, namely issues of construction and rectification of the Mortgage) concerning the true characterisation of the loan arrangement. I have already commented that there is a respectable argument that the Mortgage should have been drafted as a conventional draw-down facility. Even though it was not drafted in that fashion the parties certainly conducted themselves in a manner consistent with a true draw-down facility. Drawing support from cases such as Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia [1991] FCA 344; (1991) 30 FCR 491 and Associated Alloys Pty Ltd, Mr Solomon submitted that a draw-down facility mortgage creates two trusts. The first is a trust in favour of the borrower ("the primary trust") and the second in favour of the lender ("the secondary trust"). Counsel submitted that the effect of such an arrangement was that until completion of the project or default by the borrower the funds are to be held in order to be paid to or at the direction of the borrower, usually against progress certificates issued by the builder or architect. If there is a default by the borrower the lender is entitled to exercise remedies against the mortgaged property. If the project is incomplete the balance of the of the funds held in the trust account are available to the lender to be utilised in completing the project or in reducing the mortgage debt. Accordingly, there is a primary trust for the non-exclusive benefit of the borrower and a secondary trust for the non-exclusive use of the lender.
369 It seems to me that for the purpose of the analysis arising from Foskett the "plaintiff's proprietary right in the original asset" is an equitable proprietary right, namely the secondary trust. However, it is at this point that the problem emerges. There is a clear breach of trust by the broker paying the moneys into an overdrawn trust account, with the consequences that I have already mentioned. One of the consequences is that it is not possible, in a hopelessly mixed fund of this nature, to identify the trust property to which the secondary trust would attach. It therefore becomes problematic to identify, and therefore to vindicate by tracing, the plaintiff's proprietary right in the original asset.
370 Accordingly, and without much enthusiasm, I am obliged to conclude that the unregistered investors must assert their claims in the general administration of Rowena or Oakleigh, as the case may be, rather than directly against the Mortgage.
371 I will shortly be publishing reasons in an associated application by the liquidator of Sandgate Corporation Pty Ltd (and others associated with the administration of that company) to have certain questions concerning remuneration answered. That raises different issues because it is an application by the liquidator of the mortgagor company. It is necessary for me to mention the Sandgate matter here for two reasons. First, the result in the two cases is different and I would not wish it to be thought I was unaware of that fact. Secondly, in the Sandgate reasons I will deal in more detail with some of the underlying issues that are relevant here. It will be sufficient for present purposes if I were to outline my views to the extent necessary to permit an understanding as to why I have decided the issue in the way that I have.
372 It follows from what I have said that the registered mortgagees have an indefeasible title to their respective interests under the Mortgage. They are entitled to receive the principal sum and interest due to them on the discharge of their respective interests in the Mortgage. To say that the registered mortgagees, who opposed the actions of the applicants in relation to the Mortgage, should be at risk of having their receipts reduced because of a priority claim by an external administrator of a company that is not the mortgagor would be inconsistent with the TLA.
373 Section 556 of the Corporations Law provides that the liquidator enjoys priority for the costs and expenses of the winding up over all other unsecured debts and claims. There are two reasons why this is of no assistance to the applicants here. First, the interests of the registered mortgagees in the Mortgagee is neither property of the company (Oakleigh or Rowena) nor is it property vested in Oakleigh as a trustee. The costs and expenses of the winding up could not take priority over the claim of a third party to property that is legally and beneficially owned by the third party. Secondly, the claims of the registered mortgagees are secured, not unsecured.
374 It is true that in Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222 the court held that a provisional liquidator appointed by the court has an equitable lien for the expenses and remuneration of the administration. However, this lien cannot stand in the face of an inconsistent statutory provision: see Shirlaw at 231. Even though the fund created upon the discharge of the Mortgage is the subject of an order of the court and is in the hands of a court-appointed external administrator the equitable lien that would otherwise arise cannot stand in the face of the TLA.
375 This is not to say that the applicants cannot claim their remuneration. However, they do not have priority for their remuneration or other costs and expenses over the claims of the registered mortgagees. They will have to look to the general funds of the administrations to recoup those expenses. The liquidator of Oakleigh might be in a slightly different position (although not in relation to the registered mortgagees). I will deal with this situation in more detail in the Sandgate reasons.
376 The third respondents have been substantially successful in this application for the determination of preliminary issues. They are, it seems to me, entitled to have their costs of the application paid by the applicants.
377 Mr Solomon has been highly and consistently critical of the activities and role of Conlan in his capacity as supervisor and liquidator. These criticisms are reflected in an application which the third respondents have made for costs on an indemnity basis. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 Woodward J described one of the bases on which indemnity costs are ordered in this way, at 401:
"... it is appropriate to consider awarding "indemnity" costs whenever it appears that an action has been commenced or continued in whatever circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law."
378 In my view that is not the case here. Take for example the question of volunteers. There is conflicting authority on the point. It could not reasonably be said that those advising the applicants should have known that the applicants had no chance of success on that issue. Had I reached the view that King v Smail represented the law in Western Australia the overall result might have been quite different. On the other hand, if I am correct in the view that I have expressed that the investors are not volunteers, it would not have mattered whether I preferred King v Smail or Bogdanovich v Koteff. However, based on the submissions made by counsel for the third respondents, I suspect that my views on that subject may come as something of a surprise to him as well. I have not been persuaded that the commencement or continuation of the proceedings was devoid of merit in a way that would justify an award of costs on an indemnity basis.
379 I have also read the written submissions of the third respondent's solicitors dated 30 October 2000 and the affidavit of Bradley Gannon sworn 22 September 2000. I can only go on the materials that are presently before the Court. I am not persuaded that the broader aspects of the complaints made about the nature of Conlan's appointment, his relationship with the Board and what the solicitor described as "officious intermeddling" have been made out. Conlan has had (and continues to have) an extremely difficult task to perform. I have not seen anything that would cause me to doubt his bona fides. However, these issues may be the subject of argument and further evidence in the substantive proceedings or in other proceedings. I should say no more about that matter except that I am here dealing with answers to preliminary issues, most of which are questions of law. I am not persuaded that it would be appropriate or fair to award indemnity costs in the circumstances.
380 There was a suggestion that Price and Hellfire should not get costs because they could have joined with the remainder of the third respondents in their representation. I am aware of O 66 r 2(d). However, I can see that Hellfire and Price were in a slightly different situation because they took their interest in the Mortgage from Andres, not from Oakleigh. In the end I do not think that was a difference of substance. Nonetheless, I do not think it was (or should have been) so obvious as to make the need for separate representation a non-issue.
381 The costs which I propose to order against the applicants should be treated as part of the costs and expenses of the winding up of Rowena and Oakleigh rather than as a charge against the balance of the proceeds (if any) arising from the discharge of the Mortgage.
382 I confirm the view I expressed during the course of the hearing that none of the parties who appeared in person are at risk of having costs awarded against them. However, as they were not successful in establishing their respective claims to an interest in the Mortgage, they should not have costs awarded in their favour.
383 I did not understand either the Registrar or HDPL to seek costs. If I am wrong in that regard, no doubt it will be raised when the parties move formally for orders.
384 I now come directly to the preliminary questions. In many cases it is difficult to give a "yes" or "no" answer or even to encapsulate the answer in a concise phrase or single sentence. The answers that are contained in this section should not be divorced from the discussion from which they emanate. In each case, the answer appears in italics:
1. Is HDPL entitled to a discharge of the Mortgage:
(a) on payment of the amount actually advanced to HDPL and interest thereon and costs, or
(b) on payment of the sum stated in the mortgage and interest thereon and costs?
Unless the Mortgage can be rectified the answer is 1(b). If an issue arises as to rate at which interest is to be calculated, there is no evidence that HDPL was in default in payments of interest as requested from time to time by Grubb.
2.1 Did HDPL, by having executed a mortgage which became registered at the Department of Land Administration as G498929, in which HDPL covenanted to pay a principal sum of $1,218,000.00 and interest thereon, monthly in advance, commencing on 30 April 1997, become liable to pay that amount to the mortgagees named therein and their transferees under the mortgage and the implied covenant in s 113 of TLA?
2.2 Do the transferees of the Mortgage have by reason of the transfer and ss 113 and 228 TLA, an indefeasible title to the extent of the full amount secured?
The transferees have an indefeasible title and, subject to any claim for rectification, it is to the full amount described in the Mortgage as "the principal sum".
2.3 Is HDPL entitled to rectification of the Mortgage to secure the amounts from time to time advanced rather than $1,218,000.00 as against the original mortgage and, if so, can that claim be enforced against subsequent transferees of the Mortgage?
HDPL has an entitlement to apply to have the Mortgage rectified. It is not possible, in these proceedings, to give a definitive answer to the question whether HDPL would succeed in such a claim.
2.4 Whether the total principal amount as stated in the Mortgage of $1,218,000 was advanced on 30 April 1997 at settlement to HDPL in exchange for the registered mortgage securing that sum, and was from that time deposited by HDPL with GGFB until such time as HDPL required the funds for the purpose of meeting progress payments due for its construction project or made default under the Mortgage?
No. Only $389,000 was initially advanced. Further sums were advanced from time to time between 24 July 1997 and 1 April 1999.
2.5 Did GGFB hold the money claimed by HDPL not to have been advanced to it on a primary trust for HDPL to be advanced against progress certificates, and, in the event that HDPL defaulted in its obligations under the Mortgage, on secondary trust for the lenders/registered mortgagees?
Yes, but because (in most cases) the funds were paid into an overdrawn trust account or an account which became overdrawn before funds were advanced from it to HDPL, the functioning of the trusts is problematic.
2.6 For whom does Oakleigh hold on trust its share of:
(b) the unregistered mortgage executed 30 April 1997 over Lot 142.
Oakleigh's interest in the Mortgage is held for the benefit of all persons having claims against Rowena in relation to the trust bank account.
The unregistered mortgage over Lot 142 is not part of the security arrangements and it should be discharged in favour of HDPL.
3. Who is entitled to receive the amount payable by HDPL to discharge the mortgages created in respect of the funds repayment of which is secured by mortgage, and in what proportions and in what priority?
The registered mortgagees are entitled to receive their principal and interest and the normal costs associated with a discharge of mortgage. The balance of the funds should be held by the fifth applicant as part of the general funds available for distribution to unregistered trust claimants and others having claims against GGFB in accordance with the priorities set by law and under the Corporations Law.
4.1 Has any party to these proceedings adduced evidence of fraud, dishonesty or moral turpitude, or any personal claim at law or in equity, required to challenge the indefeasible title of a registered proprietor of a TLA mortgage?
There is a sufficient case of fraud, dishonesty and moral turpitude by Grubb as an officer of Rowena but it is not such as is required to challenge the indefeasible title of a registered proprietor of a TLA mortgage.
4.2 Did the authority of GGFB as an agent of a proposed lender, in light of general law principles of agency as affected by the FBCA include:-
4.2.1 depositing the proposed lender's money in an overdrawn trust account maintained under FBCA?
4.2.2 withdrawing all money from the trust account maintained under FBCA and putting the trust account into overdraft without applying money in the trust account for the purposes of that proposed lender?
4.2.3 using money received from the proposed lender to achieve a purpose different from the purpose for which the moneys were received?
4.3 Is there any evidence of conduct by GGFB or any of its officers, servants or agents (including causing the registration of the Mortgage and transfers of shares or interests therein) which can be imputed to any registered mortgagee?
4.4 Is there evidence to support an enforceable claim by any person, based on dealings by that person with GGFB as agent for any registered mortgagee, to challenge the title of any registered mortgagee?
4.5 Can any claim to challenge the title of a registered mortgagee succeed where it is based on a remedy of tracing money through the GGFB trust account at any time after the account was first operated in overdraft?
(a) HDPL, from the date of receipt by Rowena of funds provided by an investor for the purpose of being lent to HDPL with repayment secured by mortgage?
(b) HDPL, from the date that each investor received the mortgage against which Rowena was authorised to advance that investor's money, and prior to that date for the investor?
(c) Each investor who provided funds with the intention that they be lent to HDPL until such time as an advance or further advance was made to HDPL, regardless of whether the investor obtained a registered mortgage at that time?
5. Does Conlan have standing to challenge the title of any registered mortgagee on the basis of general allegations concerning the conduct of GGFB:
5.2 under ss 89 and 92 of the Trustees Act 1962?
The answer is "no" for the FBCA and the Trustees Act but "possibly" for the Corporations Law s 479(3) and "yes" under principles such as those that emerge from Young v Murphy.
Conlan, in his capacity as liquidator of Oakleigh, has standing in this matter in the terms outlined in the body of the reasons.
6. Does any person other than Conlan have standing to challenge the title of any registered mortgagee on the basis of general allegations concerning the conduct of GGFB if the person:-
6.1 was not a party to or otherwise interested in the transaction by which the registered mortgagee acquired their estate and interest ("the Transaction"); and
6.2 did not deal with GGFB acting as agent for that registered mortgage in connection with the Transaction or otherwise?
As a pure question of standing (in the strict sense that I have described that concept) the answer is that an investor to a pooled mortgage scheme would have standing but on the factual scenario which unfolded in the HDPL example such a claim is unlikely to succeed.
7. Is a registered mortgagee who is a volunteer protected by the indefeasibility conferred by the TLA?
8. If a person registered as a mortgagee paid to GGFB not less than the amount for which the person is registered as a mortgagee for the purpose of being advanced on mortgage security, can that person be treated as a volunteer?
No, although this answer is tentative and obiter.
9. Is the title of a registered mortgagee subject, or can that title be subjected, to an express, implied, constructive or resulting trust by reason of the conduct of GGFB and, if so:-
9.1 what type of trust and on what basis did it arise or is it to be imposed?
9.2 what property is subject to the trust, who are the beneficiaries and in what proportions?
An express, implied, constructive or resulting trust could arise in the circumstances outlined but in the factual scenario of the HDPL example, does not arise.
10. In circumstances in which those who became registered mortgagees knew or ought to have known that funds had to be pooled for the purpose of the advance to the mortgagor and that their funds were not of themselves sufficient to fund the loan to be secured by first mortgage, is it unconscionable for registered mortgagees to assert their right to indefeasibility or to assert their right in priority to those who claim their funds were advanced to the borrower, but who did not become registered.
11. Whether knowledge that it may not have been the mortgagee's funds which were advanced was acquired by a registered mortgagee after the mortgage was registered creates in personam or other rights against that mortgagee in favour of investors who did not become registered; further or alternatively whether in all the circumstances those who become registered as mortgagees will be unfairly enriched such that those who did not become registered are entitled to follow the funds to them in circumstances where no personal action would otherwise lie.
12. Should or were any mortgages or other property which Conlan has released or not claimed be or have been subject to the trust and, if so:-
(a) does Conlan's conduct in releasing or not claiming the mortgages or other property prevent the trust being imposed; or
(b) should Conlan be required to replenish the trust property by restoring the value of all such mortgages and other property?
This question does not arise because no trust has been found to apply.
13. Has Conlan ever had lawful authority as liquidator or as supervisor appointed under the FBCA or otherwise to seize or retain principal, interest or other money secured by a mortgage or an interest in a mortgage of which a person (not being a company of which Conlan is liquidator) (an "Independent Registered Mortgagee") is registered proprietor and, if not, should Conlan forthwith pay that money and accrued interest to the Independent Registered Mortgagee and, if not, why not?
Conlan acted in accordance with an order regularly made by a court of competent jurisdiction. Therein lies the lawful authority. However, the registered mortgagees are now entitled to receive their principal and interest, as to which see Answer 3.
14. Should Conlan have power to interfere in any way with the dealings by any Independent Registered Mortgagee and should the current interlocutory injunction enabling him to do so now be dissolved?
15. Does the entitlement of a registered mortgagee in a registered mortgage comprise property that Conlan in his capacity as provisional liquidator of Rowena can claim an entitlement out of and, if not, does Conlan in that capacity have an entitlement to remuneration against any Independent Registered Mortgagee?
16. Does the Court have the power to grant orders authorising Conlan to discharge mortgages registered under the TLA without the consent of the mortgagee under:
(b) the Trustees Act; or
There is no such power arising from the FBCA or the Trustees Act but there may be a power under the inherent jurisdiction of the Court, a matter which would require further argument.
385 Unfortunately, the answers to these preliminary questions cannot resolve the complex legal, financial and personal issues with which the external administrators, the investors and others are confronted. A final resolution of the problems is still quite some way off and will require a good deal of lateral thinking by all concerned. I note also that the applicants (as liquidators) have expressly reserved rights which might arise, for example, under Pt 5.7B of the Corporations Law. It goes without saying that these preliminary questions do not confront issues of that nature.
386 I will hear the parties as to the orders that should be made in accordance with these reasons.
Mark Anthony Conlan (As Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors
Registrar of Titles & Ors [2001] WASC 201
(1998) 195 CLR 566
(1952) 88 CLR 322
(1995) 185 CLR 410
(1957) 97 CLR 36
(1997) 77 FCR 141
(1988) 81 ALR 397
(1992) 34 NSWLR 308
(1988) 164 CLR 539
(1998) 44 NSWLR 451
(1990) 170 CLR 146
(1987) 74 ALR 67
(1991) 4 WAR 206
(1992) 8 WAR 441
(1997) 80 FCR 1
(1952) 85 CLR 202
(1988) 13 NSWLR 331
(1956) 98 CLR 228
(1990) 98 ALR 307
(1971) 126 CLR 376
(1992) 172 CLR 407
(1934) 51 CLR 217
(1917) 23 CLR 78
(1988) 164 CLR 604
(1975) 132 CLR 611
(1967) 116 CLR 61
(1914) 19 CLR 197
(1994) 33 NSWLR 202
(1993) 10 WAR 543
(1963) 110 CLR 550
(1937) 57 CLR 555
(1988) 12 NSWLR 472
(1998) 154 ALR 119
(1999) 46 NSWLR 124
(1991) 25 NSWLR 32
(1954) 92 CLR 424
(1916) 22 CLR 84
(1988) 164 CLR 387
(1994) 34 NSWLR 723
(1907) 4 CLR 1049
(1990) 169 CLR 540
(1998) 192 CLR 248
(2000) 74 ALJR 862
(1985) 160 CLR 583
(1987) 164 CLR 137
(1999) 196 CLR 101
(1992) 10 WAR 109
(1999) 21 WAR 425
(1982) 56 ALJR 907
(1986) 6 NSWLR 740
(1983) 151 CLR 422
(1976) 136 CLR 326
(1936) 55 CLR 423
(1995) 64 SASR 387
(1996) 1 VR 279
(1991) 24 NSWLR 674
(1994) 49 FCR 334
(2000) 22 WAR 172
(1991) 30 FCR 491
(1991) 31 FCR 222
Preliminary questions answered; the parties were to be heard on the formal orders to be made.