Paradise Constructors & Co Pty Ltd v Poyser [2007] VSCA 316

2 The judge below set out the factual background to the matter as follows: [3]**

[The mortgagor] granted various securities over the property in order to obtain loans. On 31 January 2005 she borrowed an unspecified sum from Hill Stephens & Associates Pty Ltd ("Hill Stephens") on the security, it would seem, of the property. The security is described in Caveat No. AD448193P which is said to be dated 16 February 2005. On that day, 16 February 2005, Hill Stephens assigned the debt to the plaintiff, Paradise Constructors & Company Pty Limited.

On 3 March 2005 the defendant, Maxwell Andrew Poyser, lodged a caveat over the property as evidence of a loan which had previously [been] made by him to Mrs Ga[j]ic.

The loan had been agreed to in October 2004 but the advance took place on 29 November 2004. On 29 November the solicitor for Mrs Ga[j]ic settled with Bruce Wainwright, the solicitor for Mr Poyser, and handed to him an executed mortgage. Mr Wainwright said that interest had been prepaid. The mortgage as it stood at that stage is Exhibit PC1 to the affidavit of Mr Strangio of 2 November 2007. Mr Wainwright said that he inserted the date of settlement as the date of the mortgage. The instrument of mortgage which was in fact lodged in the Titles Office on 25 May 2005, some months after this date, contains further changes to the document which was produced at the settlement.

First, in the document Exhibit PC1, the commencing date of the mortgage is simply an unspecified date in October 2004. The mortgage also requires payment of interest in these terms: "The whole of the interest payable in advance" and in the box dated first payment there is an unspecified date in October 2004.

In each of these boxes Mr Wainwright made entries in his own handwriting so that date for the payment of interest became the first of each month and the date of the first payment was to be 29 November 2004. As I have indicated Mr Wainwright says that the interest was in fact prepaid and so that it was, in fact, not payable on the first of each month. The loan is repayable to Mr Poyser on 31 October 2005.

What has since happened is that Mr Poyser, upon the failure of the borrower, Mrs Ga[j]ic, to pay the principal sum on the date for completion of the mortgage has on 7 March 2006 brought proceeding No. 5016 of 2006 to recover the money lent. The judgment of the Court of Appeal shows that on 7 April 2006 Mrs Ga[j]ic and her husband, who was also a defendant, entered an appearance but on 11 May 2006 default judgment was entered against them entitling Mr Poyser to recover possession of the property. On 19 May 2006 he sought possession.

That proceeding made its way to the Court of Appeal and, ultimately, the default judgment was not disturbed. Mr Poyser now is about to obtain possession of the property. The contest is now not between Mr Poyser and Mrs Ga[j]ic as the owner, but between Mr Poyser and Paradise Constructors as the assignee of Hill Stephens who is a creditor of Mrs Ga[j]ic. The situation that then arises here is that Mr Poyser has a registered mortgage which he seeks to enforce. Paradise Constructors has an unregistered security protected by the caveat. I should add that there are two later caveats lodged.

3 In the proceedings below the appellant's counsel contended that the mortgage was a nullity because Mr Wainwright had materially altered it. The appellant therefore sought an interlocutory injunction to prevent Mr Poyser taking possession of the property and exercising his power of sale, until the validity of his mortgage was determined at trial.

**4 The question before his Honour was whether the alterations made to the mortgage by the mortgagee's solicitor were material alterations, so that the mortgage was invalid under the rule in Pigot's case.[4] His Honour referred to the principle formulated by Tadgell J in Birrell v Stafford[5] which was 'to the effect that an instrument will have been altered in a material way if it has a different operation than it would have had in its original condition.'[6]

5 His Honour held that the insertion of the date 29 November 2004 in the blank space on the standard form Torrens mortgage as the 'date of this mortgage' and the substitution of 29 November 2004 for an unspecified date in October 2004 in the spaces for the 'commencing date' and 'date of first payment of interest' were not material alterations.

6 His Honour said that the altered document had a different legal effect from the original document, because it required interest to be payable on the first of each month, rather than requiring the whole of the interest to be paid in advance. However when the circumstances of the case were taken into account this was not a material alteration. He said:**

Since the mortgagor had paid the interest, the circumstances are such that, from a commercial point of view, the document had no different effect at all by reason of Mr Wainwright's insertion of some other arrangement to pay the interest. The matter might be tested if it came to a conflict between the parties as to the non payment of interest in terms of the amendment made by Mr Wainwright. It would seem to me that any claim by Mr Poyser based on the non-payment of a monthly instalment, in breach of the term inserted by Mr Wainwright's amendment, would be a futile one and would be easily rejected by the fact common to the parties that all the interest had been prepaid.[7]

7 His Honour dismissed the application for an interlocutory injunction because the point taken by Paradise was not arguable, and there was no purpose in sending the matter to trial. He also refused an application by Paradise for an order that if Mr Poyser sold the property, the whole of the proceeds should be paid into Court, because this was also based on the argument that Mr Poyser's mortgage was void.

**8 In essence, grounds of appeal 1 to 6 allege that his Honour erred in deciding that the question of the validity of the mortgage was not arguable.

9 Grounds 7 and 8 contend that his Honour should have considered whether the balance of convenience favoured the grant of an interlocutory injunction. It was said that the balance of convenience favoured preservation of the status quo because the appellant's mortgage was the first to be notified by way of caveat in the Register of Titles and also because building work was urgently required to make the property safe.**

Grounds 1 to 6 - the validity of the mortgage

10 The parties consented to having the appeal heard by a bench of two,[8] and the hearing of the appeal was expedited. Three days before the appeal was heard (the final business day prior to the hearing of the appeal and a day after filing their initial submissions) the respondent filed and served a supplementary submission with the Court and on the appellant. The supplementary submission contended that even if the mortgage was void at common law under the rule in Pigot's case, its registration gave the respondent an indefeasible title under s 42 of the Transfer of Land Act 1958.

11 At the hearing of the appeal counsel for the appellant contended that it was not open to the respondent to rely on matters raised in a supplementary submission. Counsel for the appellant submitted that the court should not hear submissions on s 42, because the section had not been relied upon in the proceedings below and was not addressed in his Honour's judgment. Counsel also submitted that the respondent should have filed and served a notice of contention under Rule 64.17(5) of the Supreme Court (General Civil Procedure) Rules 2005 if it sought to have his Honour's decision affirmed on that ground.

12 Counsel for the respondent sought the exercise of the court's discretion to permit argument as to whether s 42 of the Transfer of Land Act 1958 conferred indefeasibility of title on the mortgagee, even if the mortgage had been materially altered. Because this point turned solely on the legal effect of registration under that Act, he submitted that the principle in Whisprun Pty Ltd v Dixon[9] did not prevent the respondent from relying on s 42. He said that in the proceedings below it was not contended that the mortgagee's registration had been obtained by fraud. Nor was there any possibility that the point based on s 42 could have been met by rebutting evidence.

13 Counsel for the appellant submitted that if the issue of indefeasibility of title had been raised before the judge below, counsel for the appellant might have sought to cross-examine the mortgagee's solicitor about the circumstances which led to him altering the mortgage. The respondent should therefore not be permitted to rely on s 42 of the Transfer of Land Act 1958 on the hearing of the appeal.

14 The Court exercised its discretion to treat the respondent's submission as if it were a notice of contention. However, because of the short notice given to the appellant, leave was granted to the appellant to file written submissions on the matters raised by the respondent. The appellant was also given leave to file affidavits deposing to any matters relevant to the respondent's claim that the mortgage was indefeasible under s 42 of the Transfer of Land Act 1958 (for example evidence that registration of the mortgage was obtained by fraud).

15 The appellant's counsel provided a written submission to the Court on the effect of s 42 but no affidavit was filed. In that submission counsel contended that Mr Wainwright's affidavit of 2 November 2007, which was sworn for the purposes of the proceedings below, raised questions that ought to be investigated at a trial. IN that affidavit, Mr Wainwright deposed that the mortgage had been held in escrow pending settlement and that he had inserted commencement dates. He also said he did not recall why he altered the provision relating to payment of interest. It is common ground that the whole of the interest was paid in advance.

16 Counsel's written submission contended that the affidavit is internally inconsistent because in one paragraph Mr Wainwright asserted that the mortgage was held in escrow pending settlement and in another he deposed that the executed mortgage was handed to him at settlement. Counsel also contended that Mr Wainwright's alteration of the clause relating to payment of interest raised a reasonable inference that the mortgage was altered deliberately 'for the purpose of creating false opportunities for the mortgagee to assert breach by way of failure to meet monthly interest payments before the term of the mortgage, and that this would give the respondent an advantage against other mortgagees as well as against the registered proprietor.' It was said that the Court should not permit the respondent to rely on s 42 of the Transfer of Land Act 1958, because if this matter had been raised below, the appellant could have cross-examined Mr Wainwright on these issues.

17 I do not agree. In the proceedings below it was open to the appellant's counsel to call Mr Wainwright and cross-examine him on any alleged inconsistencies in his affidavit. Counsel for the appellant did not cross-examine Mr Wainwright, even though it must have been obvious that any alleged fraud would have assisted the appellant's case that the alteration was material and that an interlocutory injunction should be granted. Thus even if the respondent had relied upon s 42 in the proceedings below, I am not satisfied that this issue could or might possibly have been met by evidence adduced by cross-examining Mr Wainwright. I am fortified in this conclusion by the fact that the appellant has not filed an affidavit which provides evidentiary support for the assertion that the interest clause was altered for a fraudulent purpose. There is no affidavit from Mrs Gajic which alleges that any fraud against her occurred as the result of registration of the mortgage.

18 In Whisprun v Dixon Gleeson CJ, Mc Hugh and Gummow JJ said that:**

Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action.[10]

**19 In my opinion this is not a case in which the interests of justice should prevent the respondent from asserting that s 42 is the answer to the appellant's claim that the mortgage is void under the rule in Pigot's case. The issue is a legal one which can be resolved by the application of existing authorities. Further, resolving the issue without reference to the indefeasibility provisions in the Transfer of Land Act 1958 would be contrary to the policy expressed in that legislation and to the interests of justice. For these reasons I have taken account of the respondent's submission on the effect of s 42 in deciding whether this appeal should be allowed.

20 Counsel for the appellant submitted that the mortgage was void because the alterations made to it by the respondent's solicitor were material, within the test of materiality accepted by Tadgell J in Birrell v Stanford.[11] The alterations made the instrument a different one, having regard to the intention of the parties. It was said that the altered instrument operated differently from the original in two respects.

21 First, the reference to a 'blank' date in October 2004 in the spaces in the mortgage document dealing with the commencement date of the mortgage and the date of first payment of interest showed that the intention of the parties was that the mortgage should commence on an unspecified date in October 2004. The parties' intention that the mortgage should commence in October 2004 could also be inferred from the selection of 31 October 2005 as the due date for repayment of the loan, because it was customary for a loan to be made for a 12 month period rather than an 11 month period. The alteration of the document by the inclusion of a commencement date of 29 November 2004 was therefore inconsistent with the parties' intention. The onus was on the respondent to show that the parties had not intended the mortgage to commence operation until a later date and there was no evidence of such an intention.

22 Secondly, the alteration required interest to be paid on the first of each month, while the original provision required the whole of the interest to be paid in advance. The alteration was inconsistent with the legal effect of the unaltered document and with the parties' intentions. Counsel submitted that the alteration was material, even though the changes did not operate to the prejudice of the mortgagor.[12] Further, it was contended that his Honour should have applied the dictum of Bray CJ in Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd that:**

It is, of course, the ostensible effect of the alterations which matters, not the way in which a court of equity would in appropriate proceedings deal with the altered document...[13]

**23 Thus it was said that even though the mortgagee might not have been able to enforce the clause relating to payment of interest on the first of each month, the mortgage was void because its effect was different from the effect of the document in its original form. For that reason it was said that his Honour had erred in deciding that the respondent had no chance of success if the matter went to trial.

24 Counsel for the respondent contended that the alterations were not material and had therefore not invalidated the mortgage. So far as the insertion of 29 November 2004 as the commencing date of the mortgage was concerned, it was conventional practice for banks (and by implication other lenders) to insert a commencement date after execution of a mortgage. The date of 29 November 2004 was the date that the advance was actually made by the mortgagee. The parties did not intend that interest should accrue from a date before draw down, but from the date of settlement.

25 Counsel for the respondent also submitted that the insertion of the commencement date was both expressly and impliedly authorised by the parties. Clause 14 of the mortgage provided that:**

The Mortgagor hereby irrevocably ... appoints the Mortgagee ... the attorney of the Mortgagor for the purpose of doing ... all acts and things ... including ... power -

(a) to do any act or execute or amend any document (including this Mortgage) to enable registration thereof ...

**26 Clause 31(5) further provides that '[a]ll powers ... and authorities conferred on the Mortgagee may be exercised on behalf of ... the Mortgagee ... by any of its solicitors ...' Counsel submitted that clause 14 allowed the insertion of the commencement date to enable the mortgage to be registered.

27 Further, counsel for the respondent said that the learned judge was correct in holding that the insertion of the provision making interest payable on the first of each month was immaterial, because the mortgagor had prepaid the whole of the interest, on 29 November 2004, as was intended by the parties. The alteration of that clause in the mortgage had no legal effect, because interest had already been paid.

28 As I have said, counsel for the respondent submitted that even if the alterations were material, the effect of registration of the mortgage on 25 May 2005 was to make the mortgage indefeasible,[14] despite any defect in it, except in the case of fraud.[15] There was no evidence that the alterations had been made fraudulently.

29 In my opinion the learned judge correctly in concluded that Paradise did not have an arguable case that the mortgage to the respondent was void, because of the alterations made by Mr Poyser's solicitor.

30 The primary reason for my view is that even if the alteration would have made the mortgage void or voidable[16] at common law, under s 42 of the Transfer of Land Act 1958 the mortgage became indefeasible on registration, in the absence of fraud on the part of the registered proprietor.[17] In Morton v Black, where the mortgagor alleged that the mortgage was void because her solicitor had altered it before it was registered, but after she had signed it, Young J pointed out that the effect of registration was to pass the mortgagee an indefeasible interest.[18] He said:**

In Mayer v Coe,[19] the present Chief Justice said of Frazer v Walker[20] "the Privy Council decision is direct and binding authority laying down that a registered proprietor who acquires his interest under an instrument void for any reason whatsoever obtains on registration an indefeasible title"...Thus on registration of the mortgage no matter what its formal deficiencies the defendant obtained an indefeasible title to the mortgage.[21]

**31 In Karacominakis v Big Country Developments Pty Ltd, Giles JA referred to the rule in Pigot's case and said that registration under the Torrens system validated a document which had been materially altered.[22] In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd this Court held that Macquarie Bank was entitled to enforce a registered mortgage which had been forged by a third party, over property owned by the defendant company.[23] There can be no rational basis for differentiating between a mortgage which is void at common law because it is forged and one which would be void because it has been materially altered.[24]

32 Counsel for the appellant contended that s 42 does not apply in the circumstances of this case, for three reasons. First, it was said that s 42 does not apply to documents altered before registration. In support of that submission counsel relied upon the comment of Young J in Morton v Black that '[o]nce a genuine copy of the instrument is registered there is no purpose to be served by applying that rule.'[25]

33 But that statement must be read in the context of the whole of Young J's judgment. Young J initially discussed the effect of alteration of a registrable instrument under the Transfer of Land Act 1958 before it was registered. [26] The rule in Pigot's case does not apply to invalidate a document which is altered before it comes into operation. Under the Torrens system an unregistered instrument does not pass any legal interest until registration.[27] Young J said that prior to registration a document which has been materially altered is not enforceable against a person who did not assent to the terms of the document in its altered form. However it is that lack of assent, rather than the rule in Pigot's case, which makes it unenforceable. His Honour went on to explain that:**

There is, of course, an additional reason why the rule in Pigot's case has nothing to do with the present litigation and this is because the rule has no operation at all in respect of a registered document.[28]

**34 In the passage set out in para 30 above Young J affirmed the principle that registration of the mortgage confers an indefeasible title on the mortgagee, even if the document is void at common law.

35 Counsel for the appellant also relied on a statement made by Bainton J, the trial judge in Karacominakis, that '[i]t is possible to subserve the Real Property Act provisions to the Pigot case principle....'[29] It is most unfortunate that counsel did not go on to quote the remainder of the sentence, which was '...but all learning as to the effects of the Act is to the contrary.'[30] Nor did counsel for the appellant refer to the observation of Giles JA (with whom Handley and Stein JJA agreed) that registration of a void document under the Torrens system usually makes it valid. Giles JA said that:**

Registration of a void instrument may be effective to confer title, as in registration of a forged instrument,[31] registration of an instrument void because of statutory prohibition or failure to meet statutory requirements,[32] and registration of an instrument avoided by the operation of the rule against perpetuities.[33] There is no reason why registration should not cure invalidity from the operation of the rule in Pigot's case, and in Morton v Black[34] it was held that it does. (Indeed, it was held that in any event the rule has no operation in respect of a registered document; no-one argued this point, and it is not necessary to consider it.)

**36 Secondly, counsel said that the appellant has an in personam right against the respondent to compel the setting aside of the mortgage. The in personam exception to indefeasibility[35] allows a person who has a claim in law or equity arising out of the acts of the registered proprietor[36] to assert that claim against that proprietor. The equitable interest which a purchaser of land acquires under an enforceable contract of sale with the registrable proprietor is an example of an enforceable in personam right.[37]

37 Counsel for the appellant relied on the decision of the New South Wales Court of Appeal in Mercantile Mutual Life Insurance Co Ltd v Gosper[38] to argue that the appellant had an in personam right against the respondent to have the registered mortgage set aside. In that case Mrs Gosper's land was subject to a mortgage in favour of the appellant. The amount secured on the land was increased by the registration of a mortgage forged by Mrs Gosper's late husband. The appellant had dealt entirely with Mrs Gosper's husband, even though Mrs Gosper was the sole registered proprietor.

38 The majority of the Court (Kirby P and Mahoney JA) held that Mrs Gosper was only liable to the bank for the original amount of the mortgage and was entitled to have the Register rectified. Mahoney JA said that 'it is proper to accept that, on the existing state of authorities, the mere fact of forgery of the instrument does not establish a "personal" equity'[39] coming within the in personam exception. However Mrs Gosper had a personal equity against Mercantile Mutual because it had used the certificate of title, which it held as her mortgagee, to register the variation of mortgage without her authority. Kirby P reached the same conclusion. His primary reason for holding that Mrs Gosper should be restored to her position before the forged variation of mortgage was registered was that she had an equity of redemption in the mortgaged land, which was not affected by the forged variation of mortgage. The dissentient, Meagher JA, held that registration of the forged variation of mortgage made it indefeasible and that the respondent did not have any in personam right against the mortgagee.

39 I have some doubts as to whether Mercantile Mutual Life Insurance Co Ltd v Gosper would be followed in Victoria in light of the decision of the Court of Appeal in Macquarie Bank Ltd v Sixty-Fourth Throne,[40] which is discussed below. But in any event subsequent authority has confined its effect. In Story v Advance Bank of Australia Ltd[41] the New South Wales Court of Appeal (Gleeson CJ, Mahoney JA and Cripps JA) held that the registered proprietor of land was bound by a forged mortgage granted in favour of the bank and that the mortgagor did not have a personal equity to have the forged mortgage set aside.[42] Gleeson CJ referred to Hayne J's comment in Vassos v State Bank of South Australia that:**

The bare fact that a party has not assented to the transaction recorded in an instrument registered under Torrens system legislation does not, in my opinion, give that person a right enforceable by in personam action to have the transaction reversed.[43]

**40 Mahoney JA also accepted that the mere fact that a mortgage was defectively executed did not, of itself, give the registered proprietor a personal equity to have the mortgage set aside.[44] A fortiori, the registration of a document which is altered but not forged, does not, of itself, give the appellant any claim in personam against the respondent.

41 In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd the majority of this Court held that the mortgagee bank's carelessness in failing to check the attesting signatures affixed to a forged mortgage from a trust company did not give the trust company an in personam right under the principle in Barclays Bank v O'Brien[45] to have the mortgage set aside. The remarks of Winneke P relating to the scope of the in personam exception are apposite to the circumstances in the present case. His Honour said that:**

It is, I concede, logically attractive to argue that legitimate equitable claims should not be emasculated by setting the threshold level of conduct, short of statutory fraud, too high; on the other hand it is, in my view, an argument of equally compelling force that the threshold should not be set so low as to defeat the concept of indefeasibility which is entrenched in and central to the Torrens system of registration of interests in land; a system which itself recognises that the register is paramount and that, save in exceptional circumstances, those who have suffered loss, without any fault on their own part, will have to content themselves with compensation out of the fund made available for the purpose.[46]

**42 In this case it is a third party and not the mortgagor which seeks to assert a personal equity against the mortgagee. In order to do so the mortgagee must point to acts of the mortgagee which would make it unconscionable for the respondent to rely on its registration vis a vis the appellant.

43 It is not enough for the appellant to show that Mrs Gajic may have an equity of rectification against the respondent, though she has not asserted such an equity. The appellant must have an in personam claim itself. The appellant was neither a party to the mortgage between the respondent and Mrs Gajic, nor a transferee of that mortgage. It could not have sought rectification of that mortgage. There is no other basis on which the appellant could make an in personam claim against the respondent. Consequently this exception to indefeasibility does not apply.

44 Thirdly, it is contended that the respondent's solicitor was fraudulent and that this fraud can be attributed to the mortgagee. Counsel submitted that '[t]he notion of fraud is a wide one and includes equitable fraud and acting in bad faith.'[47] In the context of the Torrens system that proposition is clearly wrong. In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd[48] this Court reaffirmed the long-established principle that under the Torrens system fraud means 'personal dishonesty or moral turpitude.'[49] Section 43 of the Transfer of Land Act 1958 makes it clear that mere notice of an interest does not amount to fraud. Thus, even if the respondent registered its mortgage knowing that this would give it priority over the appellant's mortgage, this would not amount to fraud.

45 Counsel for the appellant relied upon National Australia Bank Ltd v Maher[50] in support of the proposition that the registration of the mortgage did not necessarily confer indefeasible title on the respondent. In that case it was held that the mortgagee bank did not have indefeasible title because a bank officer had fraudulently altered the mortgage by adding the title particulars of two properties to it, prior to registration. The proposition is uncontroversial, but does not avail the appellant, who has not shown that there is an arguable case that Mr Poyser, or his solicitor, obtained the registration of the mortgage by fraud.

46 Counsel also relied upon the decision of the High Court in Brunker v Perpetual Trustee Company Ltd.[51] In that case Dixon and Rich JJ held that the insertion of reference to a mortgage in a transfer of land by the solicitors of the transferee after the transferor had died was a material alteration.[52] The transfer in that case had not been registered and the issue which the Court was required to decide was whether the gift had passed an equitable interest to the transferee because the gift had been perfected prior to registration. It was therefore unnecessary for the Court to consider whether the effect of registration was to pass an indefeasible title to the land to the transferee.

47 It follows from the cases discussed above that even if the alteration to the mortgage was a material one, the registration of the mortgage meant that the rule in Pigot's case does not apply. The respondents do not have an arguable case that the mortgage was void because its registration conferred an indefeasible title on the respondent.

48 So far as the insertion of the commencement date is concerned, there is a secondary reason for my conclusion. I accept counsel for the respondent's submission that clause 14 of the mortgage gave the respondent's solicitor express authority to insert a commencement date.

49 In his affidavit the respondent's solicitor said that the mortgage was executed on or about 21 October 2004, but was held in escrow pending settlement. That evidence was not challenged by the appellant in the hearing below. The loan was advanced on 29 November 2004. The mortgage was then handed to the respondent's solicitor for registration and the whole of the interest was prepaid. The solicitor said that he had inserted the date of 29 November 2004 in three places in the mortgage document in order to enable its registration. The loan was actually advanced on that date. I do not accept the appellant's submission that the parties intended that the mortgage should commence on some different date.

50 In Smart v Australia & New Zealand Banking Group Ltd[53] the date of receipt of a memorial of an old law deed was inserted in the mortgage about six weeks after it had been executed. Batt JA held that this was not a material alteration and that in any case it was authorised by a provision in the mortgage authorising the respondents to 'do every such thing as to perfect or attempt to perfect the security intended to be given.'[54] Clause 14 of this mortgage, which 'permits the mortgagee to amend any document (including this Mortgage) to enable registration thereof' has a similar effect. As Andrew Beehag comments in his article on 'Unilateral Alterations to Mortgage Documents':**

Most mortgages contain clauses enabling the party receiving or holding the document to make amendments or alterations to give effect to the pre-agreed intention of the parties. ... It is submitted that the effect of these clauses will give the registering party express authority when the courts will not imply such authority (for example, when the instrument puts the parties into contractual relations for the first time).[55]

**51 Even if there had been no clause of this kind in the mortgage, I am inclined to the view that the mortgagee had implied authority to alter the mortgage for the purposes of making it registrable. In Birrell v Stafford, Tadgell J (as he then was) held that a bank officer's insertion of the date for the commencement of a guarantee was not a material alteration, because the delivery of the guarantee leaving the date of execution blank impliedly authorised the bank to insert a date indicating when the guarantee was to take effect.[56] The same can be said in this case so far as the insertion of the 'date of this mortgage' in the blank space on the document.

52 Counsel for the respondent submitted that the reasoning in Birrell v Stafford was inapplicable to the change from an unspecified date in October 2004 to 29 November 2004, in the spaces relating to the commencement date and the date of first payment, because the reference to October 2004 showed that the mortgage was intended to come into operation no later than 31 October 2004. I do not agree. In my view there was ample evidence from the terms of the mortgage, read in the light of surrounding circumstances, from which the learned judge could infer that the parties intended the mortgage to operate and interest to accrue from the date of settlement, on 29 November 2004.

53 In Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd, Bray CJ said that:**

Where, however, an agreement in fact has been reached between the parties and one of them subsequently executes the formal document and hands it over to the other, I think he will readily be regarded as having conferred on that other implied authority to fill up blanks which he must be taken to know were present in the document when he signed it, and to alter the document if necessary to make it conform to the common contractual intention where by mistake it does not do so.[57]

**54 At first sight the alteration of the term to make interest payable monthly creates more difficulty. It did not reflect the intention of the parties and cannot therefore be regarded as falling within the mortgagee's express or implied authority to complete the mortgage document. The appellant contends that this was a material alteration within the test set out by the Full Court of the Supreme Court of Victoria in Colonial Bank of Australasia v Moodie[58] and applied by Tadgell J in Birrell v Stafford. The effect of Pigot's case is therefore that the mortgage is void.[59]

55 Counsel for the appellant also relies on the decision of the Privy Council in Goss v Chilcott,[60] an appeal from the New Zealand Court of Appeal. In that case the defendant altered the terms of a mortgage which was in his possession as the agent of the mortgagee finance company, without the knowledge of the mortgagors. The alteration extended the period of the mortgage and altered the dates for payment of interest. In the Privy Council[61] it was assumed that the effect of the alteration was to discharge the mortgagors' liability under the mortgage, though the mortgagors were held liable to the mortgagee company for the amount of the loan, under restitution principles.[62] In the Court of Appeal, Richardson J who delivered the judgement of the Court of Appeal also said that it had been accepted that the alteration was material, with the result that 'it was unnecessary to review the maze of case law on materiality.'[63]

56 Because of the effect of s 42 of the Transfer of Land Act, it is not necessary to reach a conclusion on this issue. However in my view the principle in Pigot's case does not apply on these particular facts. In this case no assistance of a court of equitable jurisdiction was required, because the parties intended that the whole of the interest should be prepaid. Neither the mortgagor or mortgagee sought to enforce the terms of the mortgage in its altered form. Because the mortgagor complied with the obligation to prepay the interest, the altered payment of interest form had no effect on her obligations. The dictum of the Full Court in Colonial Bank of Australasia v Moodie[64] that the relevant question is whether the altered document would have a different operation from the document in its original condition, was not concerned with such a situation. As I have said, the issue of materiality was not discussed in Goss v Chilcott, and in any case it is distinguishable on the same basis as the Colonial Bank case.

57 It is important to note that the parties to the mortgage did not treat themselves as bound by the altered terms, but simply gave effect to the original terms of the mortgage. To apply the rule in Pigot's case in this situation would give it an entirely arbitrary operation.

58 In my opinion it is also relevant to take account of the fact that the mortgagor was not prejudiced by the alteration. Counsel for the appellant relied upon the dictum of the Full Court in Colonial Bank of Australasia v Moodie to the effect that an alteration may be material even if it does not prejudice the party who did not make it. But this proposition was doubted by both Bray CJ and Walters J in the Armor Coatings case. Bray CJ pointed out that the old authority in Darcy and Sharpe's case[65] was to the contrary effect and said that 'it is highly desirable, in my view, that this primitive and arbitrary rule should be confined as closely as respect for the doctrine of precedent will admit.'[66] Walters J held that the alterations to the document in the Armor Coatings case were not material because they 'were not destructive of the appellant's rights.'[67]

59 In Farrow Mortgage Services Pty Ltd (In Liquidation) v Slade Gleeson CJ (as he then was) expressed agreement with the views expressed by Bray CJ in the Armor Coatings case and regarded the fact that an alteration to a guarantee was to the advantage of a guarantor as relevant in deciding whether the alteration was material.[68] In the same case Cole JA said that 'an alteration benefiting a guarantor is not a material alteration.'[69]

60 In this case, the alteration to the clause relating to payment of interest did not necessarily benefit the mortgagor but neither did it disadvantage her.

61 I also note that the rigidity of the rule in Pigot's case that an alteration to a deed necessarily avoids it, has been consistently criticised. In the Armor Coatings case Bray CJ discussed its history. His Honour said that:**

Originally, I think, the rule springs, as Salmond and Williams say at p. 573, from an archaic notion of the sacrosanct and talismanic effect of the seal of the obligor on the wax on the parchment of the deed. The deed was surrounded with a magic aura. Anything which violated its integrity destroyed its mana. No doubt also in the seventeenth century, and even more so earlier, copies of documents could not be multiplied with the present facility and the only copy of a bond or mortgage would be likely to be the original held by the creditor. There may well have been reasons, which do not exist now, why there should be strong sanctions against tampering with the text of the deed, even in the most immaterial of particulars. No doubt it was for these reasons that Lord Coke said in Pigot's case[70] that an alteration by or, I presume, with the authority of the obligee would avoid the deed even if the alteration was not material. But it is apparent that even he shrank from the strict logic of this way of thinking when he said that alteration by a stranger would not avoid the deed if the alteration was not material ...[71]

62 After pointing out that the rule originally applied to any alteration of a contract or deed after it had been executed, but was modified in Aldous v Cornwell[72] to confine it to material alterations, he continued as follows:

Once it is established that the court is entitled to look at the nature of the alteration it is clear there can be no automatic sanction for a violation of the document's integrity. And speaking for myself, if it is possible to look at the effect of the alteration, I can see no reason why, unless constrained otherwise by authority, the court should not look at the motive of it too, and, if it can, adopt the American rule that the absence of fraudulent or wrongful intention may be of importance ...

Since Pigot's case the rule has been considered in many cases. It is, in my view, impossible to reconcile all of them, and I do not propose to canvass all of them. Unless I am constrained to do otherwise by authority binding on me I prefer to follow those cases which have interpreted the rule as liberally and reasonably as possible. There is in my view, little reason for preserving , in a rational system of law, a rule which instead of adjusting the equities of the case to the circumstances and nature of the alteration visits the document with total nullity.[73]

**63 In Karacominakis v Big Country Developments Pty Ltd Giles JA noted that there was considerable debate about the scope of the rule that a deed or other written document is avoided if it is materially altered.[74] He agreed with Bray CJ that the rule should be interpreted as liberally or reasonably as possible. The same view was expressed by Gleeson CJ in Farrow Mortgage Services Pty Ltd (In Liquidation) v Slade.[75] I also agree with that view. The criticism made by Bray CJ is particularly powerful in the circumstances of this case, where the claim that the mortgage is void because it was materially altered is relied upon by Paradise in order to avoid the operation of normal priority principles. In these circumstances, where the parties to the mortgage proceeded on the basis that the interest was payable as specified in the original document, and Paradise suffered no prejudice as a result, I cannot see any justification for applying the 'primitive and arbitrary rule' in Pigot's case to avoid the mortgage.

64 Because I have concluded that grounds of appeal 1 to 6 are not arguable, there is no basis for granting an interlocutory injunction to restrain the mortgagee from exercising his right to possession. It is therefore unnecessary to discuss grounds 7 and 8. Under s 42 of the Transfer of Land Act 1958 Mr Poyser's registered mortgage takes priority over Paradise's unregistered mortgage. No issue of balance of convenience arises.

65 I would therefore dismiss the appeal against his Honour's refusal to grant an injunction until the issue of the enforceability of the mortgage is determined at trial.**

66 I agree with Neave JA, for the reasons she has given, that the appeal against the refusal to grant an interlocutory injunction should be dismissed.

67 In my opinion, none of the alterations to the mortgage calls for the application of the rule in Pigot's case. Moreover, upon registration of the mortgage, the respondent obtained an indefeasible title which, subject to the exceptions referred to in the reasons of Neave JA, would remain unaffected by any material alteration made to the mortgage prior to its registration.

[1] Paradise Constructors & Co Pty Ltd v Poyser [2007] VSC 496.

[2] In related proceedings, Gajic & Anor v Poyser [2007] VSCA 175, Mrs Gajic unsuccessfully attempted to set aside a judgment for possession that was entered against her, in default of defence. The respondent in that appeal was also Maxwell Andrew Poyser.

[3] Paradise Constructors & Co Pty Ltd v Poyser [2007] VSC 496, [2]-[8].

[4] [1572] EngR 180; (1614) 77 ER 1177, (1614) 11 Co Rep 26b.

[5] [1988] VicRp 39; [1988] VR 281.

[6] Paradise Constructors & Co Pty Ltd v Poyser [2007] VSC 496, [11].

[7] Paradise Constructors & Co Pty Ltd v Poyser [2007] VSC 496, [13].

[8] As allowed under Rule 64.27 of the Supreme Court (General Civil Procedure) Rules 2005.

[9] [2003] HCA 48; (2003) 77 ALJR 1598.

[10] [2003] HCA 48; (2003) 77 ALJR 1598, 1608.

[11] [1988] VicRp 39; [1988] VR 281.

[12] See Colonial Bank of Australasia v Moodie [1880] VicLawRp 156; (1880) 6 VLR (L) 354, 356 which was cited by Tadgell J at [1988] VicRp 39; [1988] VR 281, 285 in support of this proposition.

[13] (1978) 17 SASR 259, 280.

[14] Frazer v Walker [1967] 1 AC 569; Morton v Black (1986) 4 BPR 9164, 9166.

[15] In certain circumstances a person might acquire in personam rights against a registered mortgagee. It is not claimed that these arose here.

[16] There is some doubt about which of these consequences apply see Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313, [47] (Giles JA).

[17] Or fraud of the registered proprietor's agent which can be imputed to the registered proprietor; see Andrew Beehag 'Unilateral Alterations to Mortgage Documents' (1996) 7 Journal of Banking and Finance Law and Practice 289, 300.

[18] (1986) 4 BPR 9164, 9166. However, Young J said that, strictly speaking this was not a case where the rule in Pigot's case applied, because the document was unregistered and therefore inoperative.

[19] (1968) 88 WN (Pt 1) (NSW) 549, 5558.

[20] [1967] 1 AC 569.

[21] Ibid 9167 (citations in original).

[22] [2000] NSWCA 313, [51] ("Karacominakis"). See also Barton v Upton [2000] TASSC 20, [9]-[10].

[23] [1998] 3 VR 133. I return to this case in the context of the discussion of the in personam exception below.

[24] Counsel for the appellant contended that the mortgage was invalid under Goss v Chilcott (1996) 3 WLR 180, 183. But in that case, the mortgage was not registered.

[26] Young J appears to suggest that no interest passed. But it is clear that an equitable interest can pass under the contract which lies behind the registrable instrument see Barry v Heider [1914] HCA 79; (1914) 19 CLR 197.

[27] See for example Transfer of Land Act 1958, s 40.

[28] Morton v Black (1986) BPR 9164, 9166.

[29] Quoted in the judgment of Giles JA of the Court of Appeal:[2000] NSWCA 313 [49].

[31] Frazer v Walker [1967] 1 AC 569; Mayer v Coe (1968) 88 WN (Pt1)(NSW) 549; Ratcliffe v Watters (1969) 89 WN (Pt1)(NSW) 497; Schultz v Corwill Properties Ltd (1969) 90 WN (Pt1)(NSW) 529; Grundy v Ley (1984) 2 NSWLR 467; Garofano v Reliance Finance Corp Ltd (1992) NSW Conv R 55-640; Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202.

[32] Boyd v Mayor of Illington (1924) NZLR 1174; Breskvar v Wall; Sutherland Shire Council v Moir (1982) 49 LGRA 114.

[33] Consolidated Development Pty Ltd v Holt (1986) 6 NSWLR 607.

[35] See Frazer v Walker [1967] AC 569.

[36] Breskvar v Wall (1971) 126 CLR 376, 384-385; Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604. In Mercantile Mutual Life Insurance Co Ltd v Gosper at 46 Mahoney JA expressed doubt as to whether a personal equity could only arise from the acts of the registered proprietor him or herself, as Barwick CJ suggested in Breskvar v Wall (1971) 126 CLR 376, 384-385.

[37] Barry v Heider [1914] HCA 79; (1914) 19 CLR 197; Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, 613 (Mason CJ and Dawson J).

[38] (1991) 25 NSWLR 32.

[40] [1998] 3 VR 133.

[41] (1993) 31 NSWLR 722.

[42] Note that the case turned in part on the effect of the Companies (New South Wales) Code, ss 68A and 68D, which codifies the common law rule of 'indoor management' applicable to companies. The conclusions relating to the effect of registration under the Torrens system were expressed as an alternative ground for the conclusion that the mortgagor was bound.

[43] [1993] VicRp 74; [1993] 2 VR 316, 332.

[44] (1993) 31 NSWLR 722, 739; Cripps J agreed with Gleeson CJ.

[45] [1993] UKHL 6; [1994] 1 AC 180.

[46] Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133, 136.

[47] Relying on SZFDE v Minister for Immigration and Citizenship [2007] HCA 35.

[48] [1998] 3 VR 133 (Winneke P and Tadgell JA, Ashley JA dissenting).

[49] Assets Co Ltd v Mere Roihi [1905] AC 176, 210.

[50] [1995] VicRp 23; [1995] 1 VR 318.

[51] [1937] HCA 29; (1937) 57 CLR 555.

[52] Latham CJ considered that the alteration was not material, because it reflected the intention of the parties.

[53] [2002] VSCA 111.

[54] See [2002] VSCA 111, [15].

[55] (1996) 7 Journal of Banking and Finance Law and Practice 289, 295-296.

[56] [1988] VR 218, 287-288.

[57] (1976) 17 SASR 259, 277 ('Armour Coatings').

[58] (1880) 6 VLR 354 ('Colonial Bank').

[59] It should be noted that Pigot's case originally applied only to alterations of deeds. Under s 40 of the Transfer of Land Act 1958 an instrument does not take effect as a deed until registration. However the rule in Pigot's case was extended to other instruments in Master v Miller [1791] EngR 1399; (1791) 4 TR 320; 100 ER 1042.

[60] [1996] 3 WLR 180.

[61] [1996] 3 WLR 180, 183.

[62] The agent who altered the mortgage was the brother of the second defendant and the advance was in fact made to him through the defendants.

[63] [1995] 1 NZLR 263, 269.

[64] (1880) 6 VLR 354.

[65] [1687] EngR 623; (1584) 74 ER 257, 1 Leon 282.

[66] (1976) 17 SASR 259, 282.

[68] (1996) 38 NSWLR 636, 640.

[70] [1572] EngR 180; (1614) 77 ER 1177, 11 Co Rep 26b.

[71] (1978) 17 SASR 259, 275.

[72] (1868) LR 3 QB 573.

[73] 17 SASR, 275-276.

[74] [2001] NSWCA 2, [47].

[75] (1996) 38 NSWLR 636, 640.