Permanent Custodians Ltd v El Ali

CATCHWORDS : MORTGAGE - indefeasibility of title - forgery - mortgagee sale not satisfying debt - liability of defrauded mortgagor - PRACTICE AND PROCEDURE - res judicata - issue estoppel - capacity to challenge mortgage other than as interest in land without setting aside judgment for possession

LEGISLATION CITED : Civil Procedure Act 2005 Real Property Act 1900

Adams v Kennick Trading (International) Limited & Ors (1986) 4 NSWLR 503 Breskvar v Wall [1971] HCA 70; (1971) 126 CLR 376 English Scottish & Australian Bank Ltd v Phillips [1937] HCA 6; (1937) 57 CLR 302 CASES CITED : Frazer v Walker [1967] 1 AC 569 Garofano v Reliance Finance (1992) 5 BPR 11,941; [1992] NSW Conv R 59,659 (55-640) Garrard (t/as Arthur Anderson & Co) & Ors v Email Furniture Pty Ltd (1993) 32 NSWLR 662 Provident Capital Limited v Printy [2008] NSWCA 131

Permanent Custodians Ltd (Plaintiff/Respondent) PARTIES : Mohamed El Ali (First Defendant) Baheja Awad (Second Defendant/Applicant)

A C Casselden (Plaintiff/Respondent) COUNSEL : No Appearance (First Defendant) P M Barham (Second Defendant/Applicant)

Gadens Lawyers (Plaintiff/Respondent) SOLICITORS : No Appearance (First Defendant) MCW Lawyers (Second Defendant/Applicant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12469/2006 Permanent Custodians Ltd v Mohamed El Ali & Anor

JUDGMENT 1 HIS HONOUR: Ms Baheja Awad, the second defendant in the substantive proceedings, applies to set aside part only of the default judgment issued on 26 October 2006, which judgment gave possession of land that was subject to a mortgage to the mortgagee, the plaintiff in the substantive proceedings, and also ordered the first and second defendants to pay a money amount. 2 The notice of motion initially came before the Registrar, who, on 25 February 2008, dismissed the notice of motion and ordered the second defendant to pay costs. 3 Ms Awad, the second defendant, has applied by motion on notice for a review of the Registrar's decision and, as a consequence, for the orders sought in the initial motion. 4 Ms Awad is the first defendant's brother's mother-in-law. She alleges that the first defendant (Mr El Ali), with the assistance of others, arranged a mortgage of the property at 111 Twynan Street, Katoomba, of which she was one of the registered owners, and alleges an equitable interest in the remainder of the title. Ms Awad alleges that she, at no time, signed the mortgage or loan documents and that her signature on those documents is a forgery. It is alleged that she received no benefit from the moneys advanced. 5 Ms Awad does not dispute the enforceability of the mortgage. The mortgagee sale (which has occurred) did not satisfy the totality of the debt and Ms Awad challenges the capacity of the mortgagee to enforce, against her, any money amount owing over and above the value obtained for the property. 6 The mortgagee submits that, on discretionary grounds, the default judgment should not be set aside and, further, submits that while the judgment for possession is extant (and there is no attempt to set aside that aspect of the judgment), the money amount and debt is res judicata, has merged in the original judgment and/or Ms Awad is estopped from challenging the debt. 7 The last issue outlined above (i.e. the issue apart from delay and the like) raises the extent to which indefeasibility of title allows a debt to be enforced beyond the value of the interest in the land, and the necessary elements of a judgment for possession. Substantive Proceedings 8 A review is not an appeal, but the findings of fact by the learned Registrar are not substantially in dispute. Even if they were, on the material before the Court as presently constituted, I would make the same findings of fact. Most of the facts are uncontentious. 9 The Registrar summarised the circumstances of the substantive proceedings in the following way: "The substantive proceedings were commenced by Statement of Claim filed on 24 May 2006, which named Mohamad El Ali as first defendant and Bahja Awad as second defendant.

The proceedings related to a property located at 111 Twynan Street Katoomba. The plaintiff sought possession and leave to issue a Writ of possession as well as judgment against the first and second defendants in the sum of $161,703.83.

It was alleged in the Statement of Claim that the first and second defendants were the registered proprietors of the subject property and that pursuant to an agreement, the plaintiff provided credit to them. The defendants gave a mortgage over the property to the plaintiff and agreed to make payments. It is alleged there was a default.

Judgement was obtained for possession of the property, 111 Twynan Street Katoomba. In addition the plaintiff obtained judgment against the first and second defendants in the sum of $174,653.47." Background 10 Ms Awad is divorced. She received a property settlement around March 2002 after which her son-in-law Hussain El Ali persuaded her to lend him approximately $65,000. 11 Ms Awad's son-in-law persuaded her to purchase the property at 111 Twynan Street, Katoomba. After some initial reluctance, Ms Awad agreed to buy the property. Originally the agreement was to buy the property, pay the full amount for the property and the property would be registered in the name of Ms Awad and her son-in-law. At the time of signing the document, much conversation occurred that, it is alleged, Ms Awad did not understand. Ms Awad was told, by her son-in-law, that his brother would be the other registered proprietor, because he (the son-in-law) was a bankrupt and could not own the property. She was also told that Mr Mohamed El Ali (the son-in-law's brother) had borrowed some money from a friend to help towards the purchase of the property. It is alleged that,in fact,no money, other than that provided by Ms Awad, was used to purchase the property. 12 Despite her apprehension, Ms Awad signed the documents and purchased the property. She was not, however, sent copies of the documents (a contract for sale of property, copy of transfer, copy of a title search and a copy of the settlement adjustment sheet and trust account statement) by her then solicitors. Notwithstanding the original agreement for the son-in-law to pay Ms Awad rent, he did not. 13 Thus, Ms Awad, who, as has been stated, was divorced and had received a property settlement in or about 2002, had lent her son-in-law $65,000 and then purchased a property for which she had paid the entirety of the purchase price, but the property was registered in both her name and the name of her son-in-law's brother (Mr Mohamed El Ali, the first defendant in these proceedings). 14 Ms Awad alleges that Mr El Ali (the first defendant), in concert with others, arranged a mortgage of the property for $150,000 with Permanent Custodians, the plaintiff in these proceedings. Ms Awad alleges that she did not sign the mortgage or loan document and that her signature on those documents is forged. Ms Awad also alleges that she received no benefit from the moneys advanced. 15 In January 2004, Ms Awad instructed Mr Brian Phillips to commence proceedings in respect of the property at Katoomba and the moneys lent to her son-in-law. By this time, it seems, her son-in-law and daughter had separated. 16 Ms Awad lodged a caveat over dealings in the property at Katoomba on 21 September 2005 (caveat AB808384W). 17 Proceedings were commenced by Ms Awad (Supreme Court File No. 6243/2005), which proceedings sought recovery of the money lent to her son-in-law and relief in respect of the property at Katoomba. The proceedings allege that she, Ms Awad, had not signed the loan document or mortgage. The defendants to the action included the plaintiff in these proceedings, Permanent Custodians, another mortgagee company, Mr El Ali (the first defendant in these proceedings) and Ms Awad's son-in-law. The proceedings were subsequently discontinued against Permanent Custodians. 18 On 2 May 2006, Gadens, on behalf of Permanent Custodians, wrote to Ms Awad advising that the mortgage registered on her property at Katoomba was in arrears. On 23 August 2006, Gadens wrote to the solicitors for Ms Awad and enclosed a copy of the Statement of Claim in the present proceedings. Gadens sent further correspondence indicating an intention to take possession of the property and exercise mortgagee sale rights. 19 On 26 October 2006, as previously indicated, judgment issued and the Court ordered that: "(1) The plaintiff be given possession of the land described in the Schedule;

(2) The first defendant and second defendant pay to the plaintiff $174,653.47."

The schedule identified the land as the property, to which previous reference has been made, in Katoomba. 20 The judgment was obtained by default, there being no defence filed by Ms Awad, or on her behalf, and no appearance by Ms Awad at the proceedings. 21 On 19 October 2006, Gadens, on behalf of Permanent Custodians, wrote to Ms Awad's solicitor indicating that their client "intends to take possession of and exercise power of sale over" the property at Katoomba. 22 On 22 November 2006, having obtained judgment by default, Gadens wrote to Ms Awad's solicitor again and dealt with a proposed sale of the property at Katoomba and the necessity to have the consent of Permanent Custodians. The letter also dealt with the discharge of the mortgage and the alleged refusal of Ms Awad to dismiss the proceedings against Permanent Custodians. Permanent Custodians reserved their rights under the loan agreement and mortgage, and at law, including the right "to recover any shortfall in respect of the mortgage debt from your client". 23 On 1 December 2006, Ms Awad's solicitor wrote indicating that the 2005 proceedings would be discontinued against Permanent Custodians and dealing with other, currently irrelevant, matters. 24 In January 2007, Permanent Custodians took possession of the property and Gadens, on their behalf, sought and received from Ms Awad a withdrawal of the caveat over the property at Katoomba. The property was sold on 13 July 2007. 25 The evidence before the Registrar, and the evidence before the Court, as presently constituted, discloses that, notwithstanding the warning in the letter of 22 November 2006, referred to above, it was not until 1 August 2007 that Ms Awad's solicitor was made aware of the judgment for a money sum against, inter alia, Ms Awad. 26 The property sale realised an amount, which did not cover the totality of the debt, and Permanent Custodians sought to recover $59,500 from Ms Awad. The letter, of 1 August 2007, enclosed a copy of the default judgment, which contained the order for the payment of the money sum. 27 By letter dated 30 August 2007, Ms Awad's solicitor wrote to Gadens accusing them of discourtesy in obtaining default judgment for a money amount, in circumstances where they were aware that Ms Awad had a solicitor on the record, in the justiciable controversy between the various parties, without notifying that solicitor. Ms Awad's solicitor sought the consent of Permanent Custodians to the setting aside of the judgment debt, obtained against Ms Awad, and advised them that, should they refuse to consent to the setting of the judgment debt, Ms Awad would move by motion seeking the setting aside of the judgment and indemnity costs. 28 Gadens contended, and still contends, that there was no breach of professional standards. No defence had been filed and judgment had been obtained. Permanent Custodians submit that Ms Awad, and her solicitor, were well aware of the sale of the property and it did not, and does not, consent to the setting aside of judgment. As a consequence, the notice of motion was filed and the matter now requires determination by the Court. This judgment, I make it clear, is not critical of the actions of Gadens. They acted, it seems, properly at all times. 29 The default judgment, as one would expect, given it has been the subject of a writ of possession, has been entered. Setting Aside Default Judgment 30 Pursuant to Uniform Civil Procedure Rule 36.16, the Court has jurisdiction and power to set aside a default judgment, even though it has been entered. Like the exercise of most discretions reposed in the Court, the task of any judicial officer, faced with an application, is to balance the interests of the plaintiff and the defendant to determine whether the moving defendant should, in the interests of justice, be permitted to contest the claim that has otherwise been determined: Adams v Kennick Trading (International) Limited & Ors (1986) 4 NSWLR 503; Garrard (t/as Arthur Anderson & Co) & Ors v Email Furniture Pty Ltd (1993) 32 NSWLR 662 at 671. 31 In circumstances such as the present, the Court will generally require that the defendant explain the default that gave rise to the entry of the judgment. Further, the defendant must show a defence, on the merits, which aspect will be dealt with separately in this judgment. 32 Since the promulgation of the Civil Procedure Act 2005, the injunction of the legislature, in ss 56, 57, 58 and 59 thereof, must inform the exercise of discretion by the Court. 33 In the current circumstances, Ms Awad, through her solicitor, corresponded with Permanent Custodians, through its solicitor, and made it aware of her interest and claims, at least in outline. Ms Awad allegedly, suffered a particular disability because of her unfamiliarity with the English language. Further, it seems that, from the outset, Ms Awad, on advice, differentiated her interest in defending the possession and mortgagee sale from the contractual issues associated with personal debt. That differentiation was not made as express as it should have been. Nevertheless, it seems that Ms Awad's solicitor was unaware of the money judgment until a time well after the entry of the judgment and after the mortgagee sale. 34 It is not the function of the Court, in these proceedings, to determine the truth or otherwise of the allegations made by Ms Awad. Nor do those allegations suggest that there has been fraud or misconduct on the part of Permanent Custodians or their solicitors. Indeed, it is because there has been no fraud on the part of Permanent Custodians that no issue can be taken with the writ of possession and the right of Permanent Custodians to effect a mortgagee sale. 35 While it is regrettable that, at the outset, the appropriate steps were not taken to defend the proceedings, it seems that Permanent Custodians do not suffer irreparable damage, or substantial injustice, if Ms Awad were permitted to agitate her defence in relation to the money claim. 36 Nothing has been done by Permanent Custodians, in relation to the money debt, that cannot be compensated, at least substantially, by an appropriate order for costs, should they be successful. 37 On the other hand, if there be a worthwhile defence, and if it were to be successful, Ms Awad would be irrevocably prejudiced by a delay that, at worst, is not hers, but her solicitors. I do not, with that last comment, suggest a criticism of her solicitor or indeed any party in these proceedings. 38 In order to ensure that the real issues between the parties may be resolved justly, quickly and cheaply, the Court should, subject to the availability of a defence, allow the setting aside of the default judgment in so far as it deals with the money claim. Different issues would arise in relation to the possession of land, even if it could be shown that there is a defence to the mortgagee possession and sale. This would be because the mortgagee sale had already been effected and Permanent Custodians had acted in a way that would be difficult to compensate appropriately. Further, Ms Awad knew of the judgment for possession and provided a withdrawal of the caveat to facilitate the sale. It is unnecessary, because of the nature of the motion that is before the Court, to determine these issues. 39 As is clear from the foregoing, I agree with the Registrar that there is an acceptable explanation for the delay and that the interests of justice would, assuming a good defence, require Ms Awad to be permitted to contest Permanent Custodians' claim, notwithstanding her failure to file a defence within time. Arguable Defence: Res Judicata and/or Issue Estoppel 40 The Registrar concluded that, unless the judgment for possession were set aside, Ms Awad could not dispute the fact that the mortgage secured the loan agreement against her interest. Nor, the Registrar found, could she dispute that there was a default under the loan agreement. As a consequence, because Ms Awad was not seeking to set aside judgment for possession, Ms Awad could not assert a viable defence in relation to the judgment for the monetary debt and an order setting aside the judgment would not issue. 41 For a cause of action to have merged in judgment and be unavailable for subsequent proceedings, the cause of action must have been the subject of judgment on its merits in earlier proceedings. It is a complete bar and no discretion exists for a court to allow subsequence proceedings. 42 Issue estoppel, on which Permanent Custodians relies, is similar to res judicata. In issue estoppel, it is the issue or question that must have been decided (or not agitated) in earlier proceedings, in circumstances where the issue (of fact or law) forms the ingredients (or part of the ingredients) of the earlier cause of action. But it is not required to be the same cause of action. 43 In the present proceedings, if Permanent Custodians had sued for possession only, it could have later sought the shortfall from the proceedings of the mortgagee sale. As such, the question is whether Ms Awad is able to defend only the latter aspect, even though the judgement for possession remains on foot, i.e. does it involve the same cause of action (res judicata) or the same issue (issue estoppel)? If either is the case, Ms Award has no defence. To answer the question, the fundamental basis of the possession claim and the money claim must be examined. A Comparison of the Issues: Possession and Money 44 As earlier noted, Ms Awad alleges that the mortgage and loan documents were, in so far as they purport to be signed by her, a forgery. As also earlier stated, it is not the task of the Court, on a motion to set aside default judgment, to determine the truth, or otherwise, of any contest of fact between the parties. For the purposes of this application, I must assume that Ms Awad's allegations can be proved. 45 But for the operation of the doctrine of indefeasibility of title, central to the operation of the Torrens Title System, no liability would ordinarily accrue where the document has been procured fraudulently. A forgery of the signature of one of the parties is, against that party, a document procured by fraud (at least) and, against the party whose signature has been forged, is void. 46 In the case of a registered mortgage, the doctrine of indefeasibility of title renders the interest, identified by the mortgage, valid and enforceable, notwithstanding any invalidity in the mortgage instrument itself. 47 The foregoing is a fundamental feature of the system of land title in Australia. Indefeasibility of title guarantees the title of those with a registered interest in land, to the extent of that interest. 48 Lord Wilberforce in delivering the opinion of the Privy Council in Frazer v Walker [1967] 1 AC 569 at 580-581 described "indefeasibility" as "a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever; as will be seen later, there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him." 49 It is necessary to repeat the provisions of the Real Property Act 1900, so far as relevant, being ss 41, 42, 57(1) and (2), 58 and 60. "[41] Dealings not effectual until recorded in Register (1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature.

[42] Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: (a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land, (a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act, (b) in the case of the omission or misdescription of any profit à prendre created in or existing upon any land, (c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and (d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected:

Provided that: (i) The term for which the tenancy was created does not exceed three years, and (ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years. (2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio.

[57] Procedure on default (1) A mortgage, charge or covenant charge under this Act has effect as a security but does not operate as a transfer of the land mortgaged or charged. (2) A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if: (a) in the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest, annuity, rent-charge or other money the payment of which is secured by the mortgage or charge or of any part of that principal, interest, annuity, rent-charge or other money, (a1) in the case of a covenant charge, default has been made in: (i) the payment, in accordance with the terms of the judgment to which the covenant charge relates, of the principal, interest or other money the payment of which is secured by the covenant charge, or (ii) the payment, in accordance with the terms of that judgment, of any part of that principal, interest or other money, (b) where: (i) the default relates to that payment, or (ii) in the case of a mortgage, the default does not relate to that payment and notice or lapse of time has not been dispensed with under section 58A, a written notice that complies with subsection (3) has been served on the mortgagor, charger or covenant charger in the manner authorised by section 170 of the Conveyancing Act 1919 , (b1) where a notice is required to be served under paragraph (b), a copy of that notice has been served (in the manner authorised by section 170 of the Conveyancing Act 191 9 ) on: (i) each mortgagee, chargee or covenant chargee (if any) of the land mortgaged or charged under a registered mortgage, charge or covenant charge which has less priority than that of the person intending to exercise the power of sale, and (ii) each caveator (if any) who claims as an unregistered mortgagee or chargee to be entitled to an estate or interest in the land mortgaged or charged, and (c) where such a notice is so served, the requirements of the notice are not complied with within the time notified pursuant to subsection (3) (d). …

[58] Power to sell (1) Where a mortgagee, chargee or covenant chargee is authorised by section 57 (2) to exercise the powers conferred by this section, the mortgagee, chargee or covenant chargee may sell the land mortgaged or charged, or any part thereof, and all the estate and interest therein of the mortgagor, charger or covenant charger, and either altogether or in lots by public auction or by private contract, or both such modes of sale, and subject to such conditions as the mortgagee, chargee or covenant chargee may think fit, and to buy in and resell the same without being liable for any loss occasioned thereby, and to make and execute all such instruments as shall be necessary for effecting the sale thereof, all which sales, contracts, matters, and things hereby authorised shall be as valid and effectual as if the mortgagor, charger or covenant charger had made, done, or executed the same, and the receipt or receipts in writing of the mortgagee, chargee or covenant chargee shall be a sufficient discharge to the purchaser of such land, estate, or interest, or of any portion thereof, for so much of the purchaser's purchase money as may be thereby expressed to be received. (2) No such purchaser shall be answerable for the loss, misapplication, or non-application, or be obliged to see to the application of the purchase money by the purchaser paid, nor shall the purchaser be concerned to inquire as to the fact of any default or notice having been made or served as referred to in section 57 (2). (3) The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee, chargee or covenant chargee; thirdly, in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority; and the surplus (if any) shall be paid to the mortgagor, charger or covenant charger, as the case may be.

[60] In case of default, entry and possession, ejectment The mortgagee, chargee or covenant chargee upon default in payment of the principal sum or any part thereof, or of any interest, annuity, or rent-charge secured by any mortgage, charge or covenant charge may: (a) enter into possession of the mortgaged or charged land by receiving the rents and profits therefor, or (c) bring proceedings in the Supreme Court or the District Court for possession of the said land, either before or after entering into the receipt of the rents and profits thereof, and either before or after any sale of such land effected under the power of sale given or implied in the mortgage, charge or covenant charge, in the same manner in which the mortgagee, chargee or covenant chargee might have made such entry or brought such proceedings if the principal sum, interest, annuity, or rent-charge were secured to the mortgagee, chargee or covenant chargee by a conveyance of the legal estate in the land so mortgaged or charged." 50 Indefeasibility of title is the subject of much authority. The fact, if it be the fact, that the signature on the mortgage is not the signature of the relevant registered proprietor does not affect the validity of the title obtained once the document is registered. The expression in s 43 of the Real Property Act, requiring a dealing with "the registered proprietor", does not affect the indefeasibility of a title obtained through a forged mortgage. The mortgage, once registered, and the certificate of title, which evidences it, is conclusive and protects the registered proprietor of the interest (in this case the mortgage) against actions to recover the land or override the interest that the registered title evidences: Breskvar v Wall [1971] HCA 70; (1971) 126 CLR 376 at 384-385 (per Barwick CJ). 51 Different issues arise when the person who takes the interest under a forged document has been party to the fraud. However, with the fraud of the transferee of the interest being the only possible relevant exception, it is established that immediately upon registration of a mortgage (or any other interest) the registered interest holder obtains good title, even where there has been a forgery of the transfer or instrument creating the interest: Garofano v Reliance Finance (1992) 5 BPR 11,941; [1992] NSW Conv R 59,659 (55-640). 52 The foregoing principles are, largely, by way of background to the analysis that now follows. Neither of the parties claims that the mortgage, once registered, is void, or that the title or interest obtained on registration of the mortgage was capable of being challenged. Nor does either party challenge the proposition that the mortgagee sale, effected as described above, was invalid or capable of being challenged. 53 The foregoing is recited because an understanding of the principles is essential in determining the elements necessary to enforce a mortgage that has been registered. 54 It is not an essential element in the successful prosecution of proceedings for possession of land, and to effect a mortgagee sale, that there is a valid mortgage. It is only necessary that the mortgage is registered pursuant to the Real Property Act. 55 Indefeasibility is granted to the interest in land recorded in the folio (s 42, above) and that interest is held subject to any other registered interests in the estate, but absolutely free from all other interests. Further, default on the mortgage (of any kind and by any party) gives rise to the remedies described in s 58 and following of the Real Property Act. The Court of Appeal in Provident Capital Limited v Printy [2008] NSWCA 131 said: "[28] Of greater direct relevance to the present case is the provision made in the Real Property Act for powers of enforcement. Section 58 provides a power of sale; s 57 provides the circumstances in which it may be availed of. Section 57(2) relevantly provides:

'A registered mortgagee ... may, subject to this Act, exercise the powers conferred by section 58 if: (a) in the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest ... or other money the payment of which is secured by the mortgage or charge ....'

[29] The section also provides for the service of a written notice on the mortgagor: s 57(2)(b) and (3). Where those conditions have been satisfied, the mortgagee is authorised to exercise the powers conferred by s 58, namely that 'the mortgagee ... may sell the land mortgaged ... and all the estate and interest therein of the mortgagor ...': s 58(1). Section 58(3) provides for the disposition of proceeds of sale:

'(3) The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee ...; ... and the surplus (if any) shall be paid to the mortgagor ....'

[30] The language of 'indefeasibility' is not entirely apt in relation to an interest which arises by way of security for payment of a debt. The effect of ss 41 and 42 of the Real Property Act may more clearly be expressed as providing that, upon registration, the land becomes charged as security for the debt secured by the mortgage, regardless of any form of invalidity which may afflict the mortgage under the general law. Accordingly, the fact that no debt exists to be secured by the mortgage, because the covenant is ineffective under the general law, is a factor which must be put to one side. The mortgagee has a statutory right, as against the land, to recover the debt if not paid in accordance with the requirements of the mortgage. If upon exercising a statutory power of sale, the mortgagee were not entitled to recoup itself from the proceeds of sale to the extent necessary to extinguish the debt, the power of sale would be rendered nugatory. Similarly, an action to recover the proceeds of sale from the mortgagee by the former registered owner would seem to set at nought the statutory allocation of the proceeds under s 58(3). Nevertheless, that is the effect of the orders made by the primary judge in the present case and it is, accordingly, necessary to consider the justification presented by the plaintiff (with the support of the Registrar-General) and accepted by the trial judge." (Per Basten JA, with whom Tobias and McColl JJA agreed.) 56 In enforcing a registered mortgage, the mortgagee is enforcing a statutory right, as against the land, to recover the debt, if not paid in accordance with the requirements of the registered mortgage. This is done by exercising the power of sale under ss 57 and 58 of the Real Property Act: see Provident Capital at [29]; English Scottish & Australian Bank Ltd v Phillips [1937] HCA 6; (1937) 57 CLR 302. 57 The statutory right granted is a right to enforce the debt by sale of the land and is a right that operates notwithstanding that there may be no personal covenant and despite the fact that the mortgage may be forged: Provident Capital at [31]-[32]. 58 Enforcement, under ss 57 and 58 of the Real Property Act, does not require proof that Ms Awad defaulted on the mortgage. It requires proof only that there has been default. 59 The error in the submission of the plaintiff is essentially that the contractual debt for the money is confused with the interest in the land obtained on registration. The Real Property Act, and the principle of indefeasibility, protects the interest in the land and the rights under the statute, even though the underlying mortgage may have been void. But the Real Property Act does not validate a contract beyond its status as an interest in property and the statutory rights to enforce that interest in property. The mortgage secures the debt by providing an interest in the land to secure the debt. It does not (absent an independent contractual validity in the mortgage and loan documents) secure debts beyond the interest in land. 60 In order to obtain the writ of possession and to effect a mortgagee sale, it is not an essential element of the judgment that the obligations contained in the mortgage are effective and valid, beyond their capacity as a charge against the land itself. 61 As a consequence, with great respect to the learned Registrar, it is possible to challenge the money judgment, in so far as it exceeds any amount obtained from the mortgagee sale, without challenging the writ of possession or the mortgagee sale. 62 For those reasons, there is a defence available to Ms Awad, which has not merged in the judgment for possession and does not conflict with the doctrines of estoppel or res judicata. For that reason, the Court makes the following orders:

(i) Order 2 of the judgment made and entered in these proceedings on 26 October 2006 be set aside as against the second defendant;

(ii) The second defendant be granted leave to file a defence in the form annexed to the affidavit in support of the notice of motion filed 17 October 2007;

(iii) The parties have liberty to apply for any further or consequential order, including an order for costs, within 7 days of the date hereof by serving a written submission in support thereof and providing same to my Associate. Any other party has liberty within a further 7 days to respond thereto.

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