Permanent Custodians v Yazgi & Anor

15 In 1994 Sabah returned to Lebanon where she married Yasin Yazgi. She then returned, by herself, to Australia. In 1995 Yasin Yazgi joined Sabah in Australia and they lived with her family for about one year. The following year they rented a unit together. Sabah worked for about six months after Yasin came to Australia. Yasin found employment during 1997. 16 In 1998 Sabah Yazgi sold her Willmot property for $82,000. There was little or no capital gain. She then purchased a unit at 5/40 Arthur Street, Punchbowl for the sum of or $132,000. The unit was registered in her name only. She did not borrow any money from any financial institution. She had saved $20,000 being the rent moneys from the Willmot property. The remainder of the money came from her family. 17 In 1999, Yasin had settled a compensation claim for $43,000. Sabah Yazgi's evidence was that some proceeds of this compensation was spent on Yasin's trip to Lebanon, presents for his family and living expenses for them. However, the Commonwealth Bank records (Ex D) show that on 11 April 2000 the sum of $43,857.70 was deposited into their joint bank account. On 27 April 2000 the sum of $43,000.70 was withdrawn and placed into a new account in the name of Sabah Ibrahim, (Sabah's maiden name). It was not until about five months later, that is on 22 September 2000, that $20,000 was withdrawn from that account. 18 Yasin Yazgi expressed his desire to live in a house. On 27 February 2001 Sabah Yazgi sold the unit for $155,000. After the expenses were deducted she was left with a balance of approximately $150,000. At this time Yasin was working at a fruit shop while Sabah was not working. They began looking for another property to buy and found one at Myall Street, Punchbowl. They approached the Commonwealth Bank to borrow $100,000 to purchase the property. According to Mrs Yazgi, an officer of the Commonwealth Bank said to her words to the effect "Since your husband is the only one working he should be on title as an owner."

19 On 4 April 2001 Sabah and Yasin Yazgi bought 5 Myall Street, Punchbowl for the sum of $260,000. They used $150,000 from the proceeds of the sale of the Arthur Street property, $10,000 from Yasin Yazgi's compensation settlement money and $100,000 by loan from the Commonwealth Bank. Sabah Yazgi deposed that the $100,000 from the Commonwealth Bank was the first loan for any purpose that she had obtained from any financial institution. 20 In about 2002 Sabah Yazgi started working at the same fruit and vegetable shop at Bankstown with her husband Yasin Yazgi as a shop assistant. In October 2003 Yasin Yazgi stopped working at the shop. Neither Sabah Yazgi or Yasin Yazgi had ever been involved in any business either together or separately. 21 In October 2003 Yasin and Sabah Yazgi borrowed a further $17,000 from the Commonwealth Bank to renovate the Myall Street property.

The loan agreement and mortgage documents 22 To understand how the loan agreement and mortgage came about between Permanent Custodians and the Yazgi's, the diagram below is helpful.

23 AFIG is a delegate of Australian Mortgage Securities Limited (AMS). AMS is the trust manager in relation to the ARMS II mortgage fund. The plaintiff is a trustee of the ARMS II mortgage fund. AMS delegates to AFIG the exercise of certain powers and discretions and performances of certain obligations that AMS has as trust manager for the ARMS II mortgage fund of which the plaintiff is a trustee (although James Chaytor in his affidavit of 22 May 2006 incorrectly states that AMS is trust manager for the plaintiff). Included in these delegated duties is the management and servicing of loans and mortgages originated by Royal Guardian Mortgage Corporation Pty Limited (Royal Guardian) one of which is the loan and mortgage which are the subject of these proceedings. Royal Guardian is a Tier 1 mortgage originator retained by AFIG, on behalf of AMS, to exercise certain powers and discretions and perform certain obligations that AMS has as trust manager for the ARMS II mortgage fund, including the origination of loans and mortgages (paras [3]-[6] Aff Chaytor, 22/05/2006). 24 Mr Chaytor, the Collections Manager for AFIG Wholesale Pty Limited (AFIG), prepared affidavits that were based upon documentation from AFIG and Royal Guardian. He had no personal knowledge of the transactions. Mr Tomasin had prepared affidavits and had personal knowledge of the transactions but he was overseas at the time of the trial. If Mr Tomasin had been able to give evidence, this Court would have had the benefit of Royal Guardian's knowledge of the transaction and the role of Mr Akkari. 25 When giving evidence and being cross examined Mr Chaytor answered the questions with an economy of words. While I accept that Mr Chaytor had no personal knowledge of the Yazgi transactions, he did not really turn his mind to assisting this Court. I accept his evidence so far as it went. 26 On about 11 November 2003 Royal Guardian received a home loan application form in which Yasin Yazgi and Sabah Yazgi were nominated as the borrowers. The application form indicated the Yazgi's sought to borrow the sum of $335,000. This application form disclosed that the referrer or broker was A & T Mortgage Group by "Akkari Sahr". There is an inconsistency as to the amount to be borrowed in the application form as on page four under Part B, $97,000 was sought to refinance the owner occupied residence, and a further $70,000 was sought for home improvements and investments. Thus, the total of the loan sought was only $167,000 not $335,000 (Annexure A, Aff J Chaytor, 04/12/2006). On 13 November 2003 an officer of Royal Guardian conducted a telephone interview with Mr Yazgi. There was no telephone interview with Mrs Yazgi. 27 In respect of loans and mortgages originated by Royal Guardian (similarly for all Tier 1 mortgages originators/managers) it was a requirement of AFIG's that before AFIG issued conditional approval of a loan and mortgage Royal Guardian completed and sent to AFIG's credit team the following documents: A Mortgage Purchase Application, Schedule 1 to the Mortgage Purchase Application, Schedule 2 to the Mortgage Purchase Application, a completed Mortgage Loan Servicing Calculator, and a copy of the Lenders Mortgage Insurance acceptance advice. 28 The Mortgage Purchase Application was the document by which Royal Guardian (similarly for all Tier 1 mortgage originators/managers) requested from AMS a prospective loan and mortgage. Schedule 1 to the Mortgage Purchase Application set out, among other things, the proposed borrower's or borrowers' names and address, the loan amount, the loan purpose, the mortgages' name and the security address. Schedule 2 to the Mortgage Purchase Application was a checklist from Royal Guardian which confirmed that Royal Guardian had completed steps, complied with requirements and held documents on its file as required by AFIG for a Mortgage Purchase Application to be submitted to AFIG. For example, at numbered point 7 of Schedule 2 Royal Guardian verified that it had obtained and held evidence of income of the borrowers on its file. The letter verifying Yasin Yazgi's employment is undated. It is written on Style Construction (Aust) Pty Limited letterhead and states that Yassin (sic) Yazgi had been working for Style Construction (Aust) Pty Limited since August 2002 as a carpenter and earned a gross weekly income of $1,450. The letter was signed by Mark Akkari. Coincidently, the employer of Mr Yazgi has the same last name as "the broker" Sahr Akkari. The Royal Guardian form states that Sabah was working at Compass Centre Fruit but the Royal Guardian Home Loan application dated 11 November 2003 form referred to Sabah's occupation as "home duties". 29 In relation to the checklist, Ms Bresovnik of Royal Guardian had indicated that there was a record of interview for each borrower on file, but no copy of such a record was actually attached. The loan purpose by now was expressed to be for three purposes, firstly, refinance an owner occupied property for $97,000, secondly, $25,000 for home improvements, and finally, $213,000 for future investment purposes. It is $213,000 required for future investment purposes that is of significance. 30 On 25 November 2003, and again on 2 December 2003 Mr Yazgi and Sahr Akkari entered into loan and fee agreements which were purported to have been executed by Mrs Yazgi. Prior to the loan agreement and mortgage being entered into Ms Jodie Kehane, a paralegal within the firm Webster O'Halloran & Associates a firm of solicitors (the solicitors), conducted the preparation and settlement of the loan and mortgage. Ms Kehane gave evidence and was cross examined. I found her to be a truthful witness and I accept her evidence. 31 On 15 December 2003, the solicitors received instructions from AMS, via Royal Guardian, to act in relation to the loan and mortgage documents. On 16 December 2003, Ms Kehane forwarded the letter addressed to Mr Y Yagzi and Mrs S Yazgi enclosing a loan agreement, mortgage, authority and undertaking, direct authority and a statutory declaration. 32 On 22 December 2003 Mr Yazgi and Sahr Akkari entered into a Deed of Loan which was purported to have been executed by Mrs Yazgi. 33 During late December 2003 and early January 2004, Ms Kehane received a number of telephone calls in relation to the loan and mortgage from a person she understood to be Mr Yagzi. He did not speak English very well and she had difficulty understanding what he was saying. Most of the time she would say to Mr Yazgi words to the following effect "I cannot understand you. You should get your solicitor or broker to contact Royal Guardian. I do not understand you, talk to them." 34 In early January 2004, Ms Kehane received by mail, an unwitnessed Mortgage, Loan Agreement, Borrowers Acknowledgement, Declaration by Borrower, Interpreters Certificate, Authority & Undertaking and Statutory Declaration and Direct Debit Request in respect of the loan. By the mortgage not being witnessed, she meant that the signatures of the borrowers were present on the mortgage but there were no signatures or other details in the spaces which were to be completed and signed by the witnesses to the borrowers' signatures. The sections at the bottom left of pages one and two of the mortgage were blank. This was not an uncommon occurrence. Ms Kehane said that she frequently received documents from borrowers, and even borrowers' solicitors, which had been signed by the borrowers but where the borrowers' signatures had not been witnessed. It was not her practice to make photocopy of these unwitnessed documents for her file. 35 On 8 January 2004, Ms Kehane had a conversation with Yasin Yazgi in which she advised him, speaking slowing and deliberately, of which loan and mortgage documents were outstanding in words to the following effect: "I know it is difficult to understand but there are a number of documents outstanding including evidence of council and water rates and the Mortgage which has not been witnessed. You need to provide these to us so we can settle. You should talk to your solicitor." 36 Ms Kehane never spoke nor had any contact with Mrs Sabah Yazgi. 37 When Ms Kehane received a document which had been signed by the borrower(s) but not witnessed, it was her practice to notify the borrower(s) if they did not have solicitors acting for them or if they did to notify the borrower(s') solicitor that the document was not witnessed. She would then return to the borrower(s) or the borrower(s') solicitor the original signed but unwitnessed document. Before sending this document back she always drew a circle in pencil around the sections that should have been completed but were not; and sent a new "clean" document to be executed and witnessed to replace the document that was returned to her unwitnessed. On this new document she always marked with pencil crosses where the borrower(s) and witness were to sign and she placed "Sign Here" tags indicating where the borrower(s) were to sign. In short, both the deficient document and the newly drafted document were sent to the borrower. 38 It was the practice of Ms Kehane to send a new "clean" document because if she just sent the original document back the witness would not be able to actually witness the signature of the borrower(s) on the document. She sent the original signed but unwitnessed document back with the blank sections circled to show the borrower(s) where the problem with the original documents was in order to assist the borrower(s) in getting the "clean" version of the document witnessed. 39 In about mid January 2004, Ms Kehane received by mail copies of Bankstown City Council rates in respect of the property, Sydney Water bill in respect of the property and the witnessed mortgage documents. 40 The document headed "Declaration of Borrower" (Ex B6) is noteworthy. The borrower was specified to be only Yasin Yazgi yet the form was purportedly signed by Yasin and Sabah Yazgi. Paragraph one is left blank but should have been completed. Paragraph [2] states that "I have received independent legal advice regarding the loan and security referred to in paragraph 1". Paragraph [1] does not refer to any loan and security documents. Perhaps the highlight is at paragraph [3] where Mr Yazgi states: "After receiving that advice I have freely and voluntarily signed the following documents: (a) N.S.W Driver's Licence No. ............... (b) Medicare No. ............... (c) Commonwealth Account No. ................" 41 Had Ms Kehane read this document she would have realised that it was incomplete, uncertain as to whether it applied to one or both Yazgis and more importantly that some of its contents were nonsense and this meant that whoever filled out this form has little or no understanding of what he or she was declaring to be true. 42 Ms Kehane gave evidence and was cross-examined. When she was asked if she understood that Sahr Akkari was the broker sponsoring the transaction, she replied that she did not know then and did not even know that now. Ms Kehane was asked to assume that Mr Akkari was the broker and whether it was quite unusual for the broker sponsoring the transaction to receive 50 percent of the proceeds. She agreed that it was in fact, more than unusual; it was cause for some real inquiry (t 45.55). Likewise, Mr Chaytor agreed it would be unusual for a broker propounding a loan application to be a recipient of 50% or more of the funds (t 18.56). 43 I accept that Ms Kehane acted for Permanent Custodians not the Yazgis. Prior to her receiving the signed documents, Ms Kehane had several conversations with Mr Yazgi. She could not understand him but referred him to a solicitor or broker. Next Ms Kehane received the unwitnessed loan documentation and mortgage documents which she returned to Mr and Mrs Yazgi with an explanatory letter and fresh copies of documents to be witnessed. After this she received another phone call from Mr Yazgi. Again she could not understand him. While Ms Kehane never personally spoke to Sabah Yazgi, she did address the letters to both Yasin Yazgi Sabah Yazgi and received signed documents purportedly from Sabah Yazgi and Yasin Yazgi in return. But when Ms Kehane received the nonsensical Borrowers acknowledgment form where Mr Yazgi declared that after receiving independent legal advice regarding the loan and security documents, he freely signed a New South Wales driver's licence, Medicare and a Commonwealth Bank account, she should have become concerned. 44 Had she read that declaration she would have appreciated that the borrower had not understood what he had signed and that declaration was meaningless. It also would have been clear that Mr Yazgi had not received independent legal advice. The declaration, even though it had a signature purporting to be that of Sabah Yazgi, does not refer to her. It should have been even clearer to Ms Kehane that Mrs Yazgi had not received legal advice. In my view these events, particularly the last one, should have been enough to put Ms Kehane on notice that something was wrong and a more detailed check was warranted. A more thorough check would have revealed that the broker was to receive over half the proceeds of the loan, that Mrs Yazgi had never actually been interviewed and that no-one had ever spoken to her. Had someone in the hierarchy of processing made personal contact with Mrs Yazgi, as required in the AFIG guidelines it would have been apparent that she knew nothing of the loan.

The loan agreement and the mortgage 45 Leaving aside the issue of whether the signature of Sabah Yazgi was hers or not, on 7 January 2004, a document entitled "Loan Agreement" was executed by Permanent Custodians. The loan agreement incorporated a Borrowers' Acknowledgement, Borrowers' Declaration, Borrowers' Advice Acknowledgement, Interpreter's certificate and Terms and Conditions Release No 1.06. 46 Once again, leaving aside the issue of whether the signature of Sabah Yazgi was hers or not, on 6 February 2004, a mortgage was executed in favour of Permanent Custodians over the property comprised in Certificate of Title Folio Identifier C/338681 and known as 5 Myall Street, Punchbowl (the property) as security for the amount owing pursuant to the Loan Agreement. 47 On or about 6 February 2004, the Mortgage was registered at Land and Property Information NSW (LPI) and allocated dealing No AA438750J (the mortgage). That Mortgage incorporated the terms of Memorandum No 2584554.

Settlement of the loan 48 On 4 February 2004, Webster O'Halloran & Associates wrote to Westpac Banking Corporation (Westpac) requesting Westpac to prepare the following bank cheques to be withdrawn from Webster O'Halloran's trust account after a telegraphic transfer deposit of $335,000 (the loan amount). They comprised of Webster O'Halloran, $470.50; LPI NSW, $192.00; Office of State Revenue (OSR), $1,281.00; Royal Guardian, $580.00; Sahr Akkari, $166,000.00; Legs Lawyers, $500.00; Commonwealth Bank of Australia (CBA), $109,124.29; and Y & S Yazgi, $56,852.21. 49 On 5 February 2004, Permanent Custodians advanced $335,000 to the trust account of Webster O'Halloran, solicitors. Webster O'Halloran (the solicitors) acted for Permanent Custodians. On 6 February 2004, settlement of the loan took place. Jomador, a representative of Legs Lawyers attended purportedly on behalf of the Yazgis. Ms Kehane attended on behalf of Webster O'Halloran. Ms Kehane handed over the cheques to a representative of Legs Lawyers. On 6 February 2004, Webster O'Halloran wrote to Yasin Yazgi and Sabah Yazgi, by registered mail, confirming settlement of the loan and attaching a bank cheque in the amount of $56,852.81. 50 Loan account No 1051674/1 was established by AFIG in the names of Yasin and Sabah Yazgi (the loan account) for the purpose of facilitating the loan repayment. No payments were made to this account. On 8 March 2004, there was a default in respect of the first scheduled repayment of the loan. 51 On 9 February 2004 Yasin Yazgi paid the cheque received at drawdown into his personal account No 69-7765 at the Bankstown branch of Westpac without provision of the benefit of any such funds to Mrs Yazgi. On 11 February 2004 Mr Yazgi withdrew $50,000 from the Westpac account. On 13 February 2004 he withdrew $800 from the Westpac account. On 19 February 2004 Mr Yazgi withdrew $5,000 from the Westpac account, at which time the whole of the funds obtained from Permanent Custodians were exhausted without any benefit passing to Mrs Yazgi. 52 Prior to settlement of the loan, the property was subject to a mortgage in favour of Commonwealth Bank of Australia (Ex B1) (CBA mortgage) and a caveat lodged by Sahr Akkari (the caveat). In January 2004, the CBA was directed to discharge the CBA mortgage on repayment of the total debt owed by Yasin and Sabah Yazgi to CBA. 53 On 6 February 2004, at the settlement of the loan, Jomador handed to a representative of the CBA the bank cheque and in return was handed a Discharge of Mortgage 7644040 from CBA and a bank cheque in the sum of $166,000 addressed to Sahr Akkari and in return was handed a Withdrawal of Caveat in respect of the Caveat. Hence, Mr Akkari, the original broker of the loan, received a substantial amount of the proceeds of that loan. 54 On 8 March 2004 the solicitor for Mrs Yazgi wrote to Royal Guardian indicating that the signatures purporting to be that of Sabah Yazgi on the loan agreement and mortgage were forgeries and that the fraud was perpetuated by Yasin Yazgi and Sahr Akkari and that the fraud had been reported to Bankstown Police. On 6 April 2004, after settlement, Endeavour Law representing Royal Guardian Mortgage Corporation Pty Ltd sent a letter to A & T Mortgage Group Pty Ltd t/as Akkari Finance. This letter noted that Sahr Akkari had a caveat registered over the property at 5 Myall St, Punchbowl, and was paid $166,000.00 at the settlement of the finance for the withdrawal of the caveat. Royal Guardian noted in the letter that Sabah Yazgi was disputing the payment, and therefore all documents would need to be produced to show a basis for the claim of $166,000.00. 55 On 13 August 2004, Permanent Custodians entered into possession of the property. At that time the property had a damaged roof, hot water system, laundry tub and cladding. Between 6 October 2004 and 13 October 2004 various contractors, on behalf of Permanent Custodians, performed work on the property to repair the roof, hot water system, laundry tub and cladding at a total costs of $3,396.

The evidence of Sabah Yazgi (now Ibrahim) 56 Prior to the luncheon adjournment being taken, on the first day Mrs Yazgi gave evidence, she was shown a document which was covered up with only a signature "S Yazgi" visible. When Ms Yazgi was asked if it was her signature, she replied "No it is not my signature." (t 77.11). The document which Ms Yazgi was shown was in fact the affidavit verifying the further amended defence (Ex C) and the signature on that document was hers. 57 Sabah Yazgi gave evidence and was cross examined. At times she became visibly and audibly upset. After the luncheon adjournment on the first day of Sabah Yazgi's cross examination, the Court granted an adjournment on the basis that it was unwise to continue given that Sabah Yazgi was extremely upset and distressed. After lunch, Mrs Yazgi's answers were largely unresponsive. That afternoon she consulted her general practitioner who provided a medical certificate (Ex 1) which explained, rather unhelpfully, that Sabah Yazgi was unfit to continue her usual occupation that day due to stress and anxiety. 58 The next morning, Sabah appeared composed and was able to answer the questions posed during cross examination. Kamal and Fadia Zakhia operate the Punchbowl Pharmacy. Sabah Yazgi knows both of them. She says that she definitely did not sign these documents in front of them. Ms Yazgi was asked if she and her husband had, in early January 2004, signed documents which were witnessed by the pharmacists at Punchbowl Pharmacy. She replied that she had never signed anything (t 76.47). She correctly identified her signature on the Commonwealth Bank mortgage and denied that she signed the documentation in relation to the loan agreement and mortgage dated February 2004.

59 While Sabah Yazgi became upset and then unresponsive with her answers, this Court did not form the opinion that she was deliberately being untruthful. Certainly she was incorrect when she claimed that the signature verifying the amended defence was not hers. Even prior to that question, Mrs Yazgi appeared to be frightened and scared in the witness box. Her former husband Mr Yazgi has threatened her on a number of occasions. Taking into account her limited understanding of English and her lack of education, I accept her evidence, that she did not sign the mortgage and loan documents, as being truthful. I also accept her evidence that she did not attend the pharmacy at Punchbowl to have her signature witnessed on the mortgage and loan documentation. I accept that she did not sign any of the documentation surrounding this transaction and loan and was completely unaware of the loan until 20 February 2004. 60 Sabah Yazgi's account of how she became aware of the loan document and mortgage is consistent with the rest of her evidence. On 20 February 2004 Yasin told her he had to go to Melbourne on an urgent business trip. Coincidentally, she looked at the joint bank passbook they had with the Commonwealth Bank. She observed that the bank had not withdrawn the usual fortnightly mortgage repayment. She phoned the bank and was told that the loan account had been closed. She tried to telephone Yasin the following day on his mobile but he did not answer his phone. 61 On the following Monday, 23 February 2004, she went to the bank at Bankstown and was told that the home loan had been paid out in full. She did not hear from her husband. On Tuesday, 24 February 2004, she received a letter from Royal Guardian dated 19 February 2004 addressed to her husband and herself purporting to relate to a loan from that company. She had never heard of that company and knew nothing about a loan to them. Upon receipt of that letter Sabah Yazgi phoned Royal Guardian. She had a conversation with a lady who spoke Lebanese and was told "You have a loan with Royal Guardian". Sabah Yazgi replied "I knew nothing about it". An appointment was made for her to see Mr Tomazin, the manager of Royal Guardian. 62 On 24 February 2004 Mrs Yazgi reported the fraud to the Police at Bankstown. A copy of the report is in evidence. After making enquiries as to the whereabouts of Yasin Yazgi, who had still not returned home, she was told by a member of the police force that her husband had left Australia but no further details were given. At the meeting on 25 February 2004 between Sabah Yazgi and Mr Tomazin at Royal Guardian, a broker called Sakar Akkari was also present. Mr Tomazin said "Mr Akkari arranged the loan between your husband and Royal Guardian." Mr Akkari said words to the effect "I have never met Mrs Yazgi. My dealings have been with her husband." Sabah Yazgi's evidence is that she never met Mr Sakar Akkari before that meeting. I accept Mrs Yazgi's evidence that she had never previously met Mr Sakar Akkari. 63 At that meeting Mrs Yazgi was given copies of the loan documents. She had not seen any of these documents before the meeting and observed that a number of the documents had signatures purporting to be her signature. I accept this evidence. 64 The forged signatures on the front page of the mortgage were apparently witnessed by Fadia Zakhia and Mrs Yazgi's forged signature on the schedule referred to in the mortgage (second page) was apparently made before Kamal Zakhia. The declaration by borrower (Ex B6) which bears her forged signature was apparently also made before Kamal Zakhia.

The witnessing of the signatures of the loan agreement and mortgage 65 The mortgage between Permanent Custodians Limited as mortgagor and Yasin Yazgi and Sabah Yazgi dated 6 February 2004 (Ex B5) was witnessed by Fadia Zakhia. The schedule to that Mortgage (Also Ex B5) is undated but it was witnessed by Kamal Zakhia. Sabah Yazgi is adament that she did not sign these documents nor did she attend the pharmacy at Punchbowl (t 82.5). 66 On the front page of the mortgage is the signature of Fadia Zakhia, being the person who witnessed the signatures of S Yazgi and Y Yagzi. Fadia Zakhia is a pharmacist and the owner of a pharmacy at 252-254 The Boulevarde, Punchbowl. Kamal Zakhia is Fadia's brother and the general manager of the pharmacy. They both gave evidence. Neither of them actually remember witnessing the signature of Yasin Yazgi and/or Sabah Yazgi. Hence, their evidence is based on their usual practice. 67 Fadia Zakhia gave evidence that she would witness anywhere up to 50 documents per day as a Justice of the Peace. Kamal Zakhia would witness anywhere up to 30 or 50 documents per day. They admit that it is their signatures that appear on the mortgage document and Schedule respectively. Additionally, Kamal also says he witnessed S Yazgi's signature on the Declaration of Borrower, the Authority and Undertaking and the Statutory Declaration. 68 The Zakhias say that their practice as Justices of the Peace were to, first require the person whose signature was to be witnessed to produce identification with a signature on it and this was usually a driver licence. They would then require the person to sign the document in front of them. After watching the person sign the document they would check the signature on the identification against the signature on the document and confirm that they were the same. They would then witness the signature on the document by dating, signing and adding their details, such as name, address and Justice of the Peace number where required, to the document. 69 However, on 29 April 2004 both produced identical letters (except for the date of attendance) addressed "To Whom It May Concern". The letter continued: "…a man with a woman came to the pharmacy asking for a Justice of the Peace. They wanted me to witness their signatures. I have asked them for a photo ID. Mr. & Mrs. Yazgi presented their photo ID then I have examined both Identification Cards and witnessed them signing the documents before me. The signatures on the documents matched the signatures on the ID." (Exs 2 & 3) 70 The contents of this letter convey that they had some recollection of Mr and Mrs Yazgi's attendance. 71 They both denied knowing Sahr Akkari. I found the manner in which they both gave their evidence to be unconvincing. Fadia Zakhia was reluctant to concede that she ever made a mistake. As she says she is a perfect pharmacist, "perfect in every way." (t 115.8). I do not accept that they actually witnessed Sabah Yazgi's signature on the mortgage and loan documents in the manner that they say they did. 72 A few days later, on a Sunday in late February/early March, Sabah Yazgi's sister Rima Ibrahim was at her house cleaning the car that Yasin Yazgi drove and while doing so she found some documents. These documents comprised of a Deed of Loan purportedly between Mr and Mrs Yazgi as borrowers and Sahr Akkari as lender, a Loan and Fee Agreement apparently between Sahr Akkari on the one side and Sabah and Yasin Yazgi on the other dated 2 December 2003, a Loan and Fee Agreement dated 20 January 2004 apparently between Sahr Akkari on one side and Sabah and Yasin Yazgi on the other and a Declaration as to Purpose of Credit Form. 73 Mrs Yazgi believed that Sahr Akkari who is a party to each loan agreement is one and the same person as the broker she was introduced to at the offices of Royal Guardian at the meeting on 24 February 2004. 74 On 25 February 2004 after Mrs Yazgi had been to see Mr Tomazin, Sakar Akkari rang her and said words to the effect "I know someone in Lebanon and I can get them to make your husband come back to Australia. Your husband is responsible for what has happened. It's unfair your husband has taken the money as I have to repay it." She replied "This is not my problem. Do whatever you want to with my husband. Don't ring me again." Mr Akkari did not give evidence before this Court. 75 In about mid March Mrs Yazgi received an overseas call from her husband. He said to her words to the effect "This is me. How are you?" She replied "How can you have the guts to call me after what you have done?" He replied "I have the right. You are my wife." She replied "Don't call me again." 76 Three or four days after Easter 2004 her husband came to her house. Her sister Rima and brother Mohammed were also present. Mr Yazgi said to Sabah words to the effect "I've done wrong. I know I'm going to have to pay for it but I want you to forgive me. I'm ready to go to the police to tell them everything I've done. I'm also prepared to go to your solicitor to tell him what I've done." She then said "You have put me in a lot of trouble and you have to get me out of it. Instead of owing the bank $100,000.00 the whole house now will belong to the bank." Mr Yazgi replied "I'm ready to go to the police and tell them you haven't signed anything and know nothing about all this and I did it all and if I have to be punished for it I'm ready for it. I'll also go to your solicitor and tell him." 77 In about April 2004, Yasin Yazgi said to Mohamad Ibrahim, Sabah's brother words to the effect, "I regret what I did. I'm sorry for what I did and I ask for your forgiveness. I was under a lot of pressure. I owed a lot of money." Mohamad said "We all have loans to pay but we don't do what you did." Yasin said "I was gambling. The first time I won $100,000.00 and I became greedy and kept gambling. Whenever I needed money Akkari would give it to me. First $20,000.00 then $30,000.00. He arranged money through a lady. I don't known who that lady was. The lady lent me $80,000.00." Mohamad said "Did Sabah sign any paper." Yasin replied "No. I signed the paper. Akkari put a lot of pressure on me because he wanted his money back."

The handwriting expert's evidence 78 Dr Steven Strach, Handwriting and Questions Document Examiner, furnished a reported dated 22 February 2005 and addendum dated 6 December 2006. He was examined and cross examined and I accept his evidence. His evidence supports that of Sabah Yazgi that the purported signature on the loan agreement, and the mortgage which includes the schedule are not hers. 79 Dr Strach expressed his opinions in paragraphs [23] to [24]. "23. Although it is not possible that the writer of the specimen signatures did not write any of these questioned signatures in a style different from the specimens, the evidence provides varying degrees of support for the hypothesis that another person wrote each questioned signature. As a result of my observations, I have reached two categories of conclusions, depending on the original or reproduction nature of the document in combination with the nature of differences observed as described in the following two paragraphs. I was able to reach only qualified or highly qualified conclusions in this case. This was because of the simple signature style consisting of a small amount of writing in block capitals, the natures of some of the differences found (some being only slight departures from the specimens, although often repeated from one questioned signature to another) and the reproduction natures of some of the questioned signatures.

24. I have concluded that it is probable that a person or persons other than the writer of the specimen signatures wrote the questioned S. Yazgi signatures on the documents Q1, Q7, Q8, Q10 and Q12 and the original of the signature reproduced on document Q6." 80 When giving evidence, Dr Strach said that "probable" when used by him meant "more likely than not". The Q1 document is headed "LOAN & FEE AGREEMENT" in lender name Sahr Akkari and borrower names Sabah Yazgi and Yasin Yazgi, dated 16 December 2003 (Ex B2). The Q7 and 8 are registered mortgage document numbered AA438750J in mortgagor names Yasin Yazgi and Sabah Yazgi, mortgagee name Permanent Custodians Limited, dated 6 February 2004 and the schedule (Ex B5). These are the two most important documents in these proceedings. 81 Q6 is a reproduction (fax) headed Discharge Authority (to Commonwealth Bank of Australia) in loan account name Y & S Yazgi, dated 12 January 2004. The other documents are a Deed of Loan in borrower names Sabah Yazgi and Yasin Yazgi and lender name Sahr Akkari, and "INTERPRETER'S CERTIFICATE" bearing signatures S. Yazgi and Yasin "Yasgi", not dated (Q12) (Ex B4). 82 Dr Strach also concluded that there is significant doubt about the authenticity of the questions S Yazgi signatures on documents Q2, Q3 and Q11 and the originals of those reproduced on documents Q4, Q5, Q9 (three signatures on Q9). For these signatures he was unable to reach a conclusion in qualitative probability terms. He states, "Another way of expressing my opinion about these signatures is to state that there is a distinct possibility that another person or persons wrote the originals of these questions signatures." 83 These documents are a document headed "(NON CONSUMER CREDIT CODE-UNREGULATED) ACCEPTANCE AND RECEIPT" with borrower signatures S. Yazgi and Yasin "Yasgi" dated 7 January 2004 (Q2); "BORROWER'S ACKNOWLEDGEMENT" with signatures S. Yazgi and Yasin Yazgi (but written name spelled "Yasgi" for the latter), dated 7 January 2004 (Q3) (Ex B3); a reproduction of Statutory Declaration with mortgagor signatures S. Yazgi and Yasin "Yasgi", dated 7 January 2004 (Q4); A reproduction of a Direct Debit Request Form in borrower names Yasin Yazgi and Sabah Yasgi, dated 7 January 2004 (Q5); a reproduction of "DECLARATION AS TO PURPOSE OF CREDIT (For Investment Business Loans ONLY) with signatures (three of each) Yasin "Yasgi" and S. Yazgi, not dated (Q9); and a reproduction of a "declaration by borrower" in name Yasin Yazgi marked as made and subscribed by S & Y Yazgi, dated 7 January 2004 (Q11).

Was Mrs Yazgi's signature a forgery on the mortgage and loan document? 84 It is common ground that the standard of proof in relation to whether there has been fraud is the one espoused in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-363 where Dixon J stated: "It is often said that such an issue as fraud must be proved "clearly", "unequivocally", "strictly" or "with certainty". … This does not mean that some standard of persuasion is fixed intermediate between satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by which reasonable satisfaction is attained." 85 Sabah Yazgi was adamant that she did not sign the mortgage document or the loan agreement. I accept that Sabah's evidence at times was unresponsive and vague. Sometimes, it may have been due to translation difficulties such as that identified by the interpreter in relation to the word "believe". As previously stated, I do not accept the evidence of the Zakhia's who supposedly witnessed Sabah Yazgi's signature. The handwriting expert's evidence is that the signatures on these documents are not those of Sabah Yazgi. It is my view that the signatures on the mortgage, the schedule to the mortgage and the loan agreement purporting to be the signature of Sabah Yazgi are forgeries. I make this finding in accordance with the Briginshaw test above. I am satisfied with certainty that these signatures are forgeries. I am also satisfied with certainty that the signatures purporting to be those of Sabah Yazgi on the loan deed and the fee agreements with Sahr Akkari are forgeries.

The law 86 Mrs Yazgi submitted that a relationship of principal, agent and sub-agent exist between Permanent Custodians, RGMC and A & T Mortgage Corporation and Akkari, on the basis that the Mortgage Purchase Application makes it clear that the obligation to fund the proposed loan is dependent upon slavish adherence by RGMC to the requirements of the funder's Correspondent Deed and the Operations Manual procedures. The second defendant maintains that the legal rights of Permanent Custodians, therefore, are governed by the acts and state of mind of its agents, as if they were Permanent Custodians own acts and state of mind (see Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679, at 693-8; Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, at [103] per Handley JA). 87 Mrs Yazgi further submitted that this agency relationship makes the fraud of Akkari the fraud of Permanent Custodians. Permanent Custodians, it submitted, was not an innocent third party the subject of an elaborate sham, but rather a part of the process, allowing its processes to be abused by Sahr Akkari, an agent of Permanent Custodians, who was the true intended beneficiary of the majority of the funds. She submitted that the conduct by this agent of PCL, in short compass, constituted at least recklessness (if it was not in fact wilful conduct) and by reason of the falsity of the certification thereby was sufficient to constitute fraud within the meaning of s 42(1) of the Real Property Act 1900 (NSW) (RP Act), relying on National Commercial Banking Corporation Ltd v Hedley (1984) 3 BPR 9477; Australian Guarantee Corporation Ltd v De Jager [1984] VR 483; Scallan v Registrar-General (1988) 12 NSWLR 514; Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561. 88 In the Junior Partner Agreement between Royal Guardian Mortgage Corporation Pty Ltd and A & T Mortgage Group t/as Akkari Finance signed 13/08/2003, in Paragraph 1, a Junior Partner is defined as: "A party or person who introduces prospective loan applicants to the Mortgage Manager. It does not mean or imply expressly or implicitly any relationship of a Jnr Partnership or agency in the legal, financial or accounting sense." 89 This document seeks to suggest that the relationship between Akkari and Royal Guardian is not one of agency. Sahr Akkari was the broker of the transaction, although on some documents he is described as the "lender". Such documents include the Loan & Fee Agreement purported to be signed on 25 November 2003 and 2 December 2003, and the Deed of Loan (undated). From the evidence available (and there was no evidence from Mr Sahr Akkari who is the principal of A & T Mortgage Group Pty Limited), A & T Mortgage Group did not represent itself as having the power to bind Royal Guardian. Mr Akkari did not represent himself as being an agent of Royal Guardian. 90 There are two issues to be determined. Firstly, whether Permanent Custodians is fixed with the knowledge of the fraud by the acts and knowledge of its agents; and secondly, whether Permanent Custodians had actual knowledge of the fraud or, acted with dishonesty or moral turpitude. 91 While Khoshaba was concerned with setting aside agreements under s 7(1) of the CR Act, the following passages are relevant. 92 In Khoshaba Handley JA stated at [102]-[103]: "102 The appellant was a trustee for Resimac Ltd which managed a securitised mortgage programme. Resimac employed Australia Mortgage Wholesalers Pty Ltd (AMW) as its agent to assess loan applications on its behalf and pass on to Resimac approved applications for its acceptance. However it is clear from the evidence of Mr Tadros of AMW that Resimac relied on AMW to ensure that applications fell within its guidelines and were otherwise appropriate for acceptance. One of the duties of AMW as agent of Resimac was to satisfy itself that the information on the loan application was correct and to approve or reject applications in accordance with Resimac's guidelines.

103 In cases such as this the legal rights of the principal are governed by the acts and state of mind of the agent as if they were its own: Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd [2001] 50 NSWLR 679, 693-98, not affected on this point by the decision of the High Court (2003) 214 CLR 514. Accordingly the knowledge of AMW, including its knowledge that Resimac's guidelines had not been complied with, was for legal purposes the knowledge of Resimac, and the appellant as trustee for Resimac can be in no better position." 93 In Khoshaba knowledge of fraud was fixed on a principal whose agent had assessed loan applications on the principal's behalf where the agent knowingly had done so in breach of the principal's guidelines. The relationship and business practices of a number of parties in the matter before me give rise to an arrangement akin to that found in Khoshaba. There is this type of relationship between the plaintiff (Permanent Custodians) which acts as trustee for Arms II Mortgage Fund of which AMS is the trust manager, which delegates some of its obligations and duties to AFIG. Furthermore, Royal Guardian forms part of this relationship as Royal Guardian is a mortgage originator retained by AFIG, on behalf of AMS, to exercise certain powers and discretions and perform certain obligations. Amongst the duties delegated to Royal Guardian is the origination of loans and mortgages. The knowledge of any one of these parties can therefore be fixed on another party privy to the relationship. 94 Prior to registration, Royal Guardian would have been aware of the existence of a letter by Style Construction (Aust) Pty Limited signed by Mark Akkari which verified the employment of Yasin Yazgi. It would also have been aware that almost half the loan ($213,000) was to be used for future investment purposes and that about half of the proceeds of the loan were to be paid to the broker Sahr Akkari. Ms Bresovnik of Royal Guardian had indicated that there was a copy of interview for Mrs Yazgi on file when in fact there was not. Had Mrs Yazgi been interviewed in accordance with Royal Guardian's guidelines, Ms Bresovnik would have become aware that Mrs Yazgi was not in fact seeking the loan. It would have been most likely that the proposed loan would not have gone ahead. 95 Sahr Akkari was aware that the signatures of Sabah Yazgi appearing on the mortgage and loan documents were forgeries. He was also aware that the signatures mortgage and loan agreement were not properly witnessed by the Zakhia's. However, this knowledge cannot be fixed on Royal Guardian prior to the registration of the mortgage. Royal Guardian may have been aware that Mrs Yazgi had not been interviewed and that Mr Akkari the broker was to retain more than half of the proceeds of the loan but this does not establish that Royal Guardian had actual knowledge of the fraud. Mr Tomasin only discovered that the broker had never met Mrs Yazgi and the broker's dealings were solely with her husband after the mortgage was registered. 96 When AFIG Wholesale became involved, it acquired less actual knowledge than Royal Guardian. In re-examination, Counsel for the plaintiff inquired of Mr Chaytor what the normal course of events is between Royal Guardian and AFIG Wholesale: 97 Mr Foster for the plaintiff: "Do you recall you were shown a record of interview dealing with Mr Yazgi and we conceded that there was no corresponding document for Mrs Yazgi. Would records of interview one, two or as many as there were be in the normal course of events provided by Royal Guardian to AFIG?" 98 Mr Chaytor replied "No." (t 28.21-27) 99 But this does not matter because the knowledge of Royal Guardian is fixed upon AFIG Wholesale in accordance with Khoshaba.

Indefeasibility of title 100 Permanent Custodians submitted that whether or not Mrs Yazgi executed the subject mortgage, by reason of its registration pursuant to the provisions of the RP Act, the mortgage registered No AA438750J had achieved indefeasibility over the subject property. Pursuant to s 42 of the RP Act the estate of the registered proprietor is paramount. The indefeasibility of title pursuant to s 42 extends to the title of a mortgagee. A registered proprietor under the RP Act has a valid title even if the transaction immediately antecedent to the registration of the interest was void "[i]t matters not what the cause or reason for which the instrument is void" - see Breskvar v Wall (1971) 126 CLR 376 at 386 per Barwick CJ, at 406 - 407 per Walsh J. 101 As a result, interest under the RP Act will be valid even if the transaction underlying it was the result of a forgery (see Frazer v Walker [1967] 2 AC 569 and Perpetual Trustees Victoria v Tsai [2004] NSWSC 745 at [13]). The only relevant exception to indefeasibility of title is actual fraud - s 42(1) of the RP Act. The pleadings of Mrs Yazgi expressly attempt to defeat the mortgage by alleging fraud. 102 In Davis v Williams [2003] NSWCA 371; (2003) 11 BPR 21,313, Young CJ in Eq. held (at paragraphs [85] - [86]: "85 On the other hand, as Hinde, McMorland & Sim point out in their Butterworths Land Law in New Zealand (Butterworths, Wellington, 1997) p 141 (cited herein as "Hinde"), statutory fraud "is (1) Wider than the common law concept of fraud because it is not confined to deceit or fraudulent misrepresentation; and (2) Narrower than equitable fraud because dishonesty in the sense of moral turpitude is an essential element" and it must be "brought home to the registered proprietor or to the registered proprietor's agent.

86 It is clear that statutory fraud is actual fraud, not constructive or equitable fraud and that actual fraud connotes personal dishonesty or moral turpitude, but that this does not mean that all species of equitable fraud stand outside the statutory concept of fraud: Assets Co Ltd v Mere Roihi [1905] AC 176, 210; Bahr v Nicolay (No 2) (1988) 164 CLR 604. As the High Court said in that lastmentioned case at 614, the fraud or dishonesty is "dishonesty on the part of the registered proprietor in securing his registration as proprietor." 103 At paragraph 110 his Honour continued: "110 Even though anyone who attests a dealing under the Torrens system falsely is in one sense committing fraud against the Registrar General, the cases show that that is not enough. It will be enough if an officer of the interested party which has become registered knowingly or recklessly certifies so that the registration is effected (De Jager, Hedley, Sansom). It will not be enough if some officer of the person who obtains registration without any moral turpitude or intention of depriving a person of an interest in land makes a false attestation (Russo). In all cases it must be shown that there was fraud by the person becoming registered or its agent in obtaining registration so that an interest which would otherwise take priority over that interest has been defeated." 104 In Hedley, Hodgson J (as he then was) had occasion to consider a mortgage which bore signatures apparently of a husband and his wife when, in fact, the husband's signature was genuine but the wife's signature was a forgery. The signatures on the mortgage had been witnessed by an employee of the mortgagee bank (at 9477, 9480 - 9482). In that case, the fraud on the Registrar-General was found to have been committed by the mortgagee, by its employee, and as a consequence the registration (but not the deed constituting the mortgage) was set aside.

Knowledge of fraud 105 While it can be said that the solicitors acting for Permanent Custodians were certainly not as diligent as they should have been, their actions do not amount to fraud - see Damdounis v Recorder of Titles (2002) 11 Tas R 185 at [17]. To find fraud, there has to be an element of dishonesty or moral turpitude. Even when Permanent Custodians is fixed with the knowledge of its agents as outlined earlier, I am not satisfied that Permanent Custodians acted with dishonesty or moral turpitude. Permanent Custodians did not act consciously through its officers knowing that Mrs Yazgi's signatures were false. The registration of the mortgage has conferred indefeasibility on Permanent Custodians. But there remains the question indefeasibility for what? I shall return to this topic after I have addressed the issue of whether Mrs Yazgi has personal equities sufficient to set aside the mortgage.

Personal equities of Mrs Yazgi? 106 Mrs. Yazgi submitted that she has a subsisting personal equity that she may propound as against Permanent Custodians by reason of its pre-registration conduct, with the result that the Mortgage ought be set aside as an incident of restoring the Register to its proper state prior to the registration of the Mortgage. It is submitted by Mrs Yazgi that there was a dramatic shift of the personal equity she enjoyed and this leads to the conclusion that she is entitled to have the position disclosed by the Register restored to the position which existed on and before 6 February 2004. 107 In Ginelle Finance Pty Ltd v Diakakis (2002) 12 BPR 22, 137, Studdert J helpfully summarised what is encompassed in the concept of personal equity and I have reproduced paragraphs [17], [18] and [29]. "[17] In Garofano [ v Reliance Finance Corp Ltd (1992) 5 BPR 11,941], Meagher JA said at 11,945 (referring to "personal equity"); I cannot see what that expression is meant to cover except known legal causes of action (for example, deceit) and known equitable causes of action (for example, undue influence). [18] Then in Grgic [ v Australian and New Zealand Banking Group ( 1994) 33 NSWLR 202] , Powell JA said at 222-3: I am of the view that the expressions "personal equity" and "right in personam" encompass only known legal causes of action or equitable causes of action, albeit that the relevant conduct which 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 of these for whose conduct he is responsible, which conduct might antedate or postdate the registration of the dealing which it is sought to have removed from the Register. [29] …As Gleeson CJ observed in Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722) at 737: "Unless a number of the leading cases concerning registration of forged instruments were wrongly decided, it [a personal equity] cannot arise out of the bare fact of the forgery."" 108 The registered proprietors of the subject property were both Yasin Yazgi and Sabah Yazgi. Permanent Custodians did not have a pre-existing relationship with Mrs Yazgi nor Mr Yazgi. I have outlined the conduct of the agents and the solicitor acting for Permanent Custodians earlier in this judgment. Their overall conduct I have said, amounted to a lack of diligence. Mrs Yazgi was totally innocent of any wrong doing. She had no role to play in the forged mortgage, loan agreement and other documentation. She was the one who provided nearly all of the funds to purchase the property which, prior to this loan, was subject to a mortgage to Commonwealth Bank. 109 I am unable to find any legal cause of action or equitable cause of action which would give rise to personal equity.

Indefeasibility for what? 110 I found this to be the most difficult issue for determination. Permanent Custodians submitted that the mortgage secures over the subject property the repayment of the whole of the debt owing to the plaintiff. Mrs Yazgi submitted that the Mortgage ought be set aside on the basis that the Loan Agreement also is a fabrication as against Mrs. Yazgi, as upon the proper construction of s 36(11) of the RP Act 1900, it is not a deed so called by reason that she did not sign it, and thereby it creates no debt due by her to any person. 111 Section 36(11) of the RP Act states that "Upon registration, a dealing shall have the effect of a deed duly executed by the parties who signed it." As Mrs Yazgi did not sign the loan agreement it does not have the effect of a deed, at least so far as she is concerned. It is doubtful that the loan agreement is a dealing. It was not registered. In any event the loan agreement is unenforceable as against Mrs Yazgi. However, it should be noted that Sabah Yazgi is named as a borrower (page 6) in the loan agreement. 112 In Small v Tomasetti [2001] NSWSC 1112 Campbell J explained at [10] to [17]: "10 In PT Limited v Maradona (1991) 25 NSWLR 643 at 679 Giles J considered a mortgage which is a mortgage which secured (inter alia ) sums of money which were owing to the mortgagee by the mortgagor and any other indebted person or either or any of them. The particular problem in that case arose from the fact that a Mrs Thompson, who was a mortgagor, had executed a guarantee at a time when she lacked capacity. She also executed the mortgage at the time she lacked capacity. In consequence, Giles J held that a defence of non est factum would succeed.

11 In relation to the mortgage, his Honour needed to consider what the effect was of the registered mortgage being given indefeasible status. His Honour stated the relevant legal principle as follows (679B): "That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the interest which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor".

12 In the case before him, Giles J held that the failure of the guarantee to create any obligation on the part of Mrs Thompson meant that the mortgagee in that case was indefeasibly entitled to a mortgage, but a mortgage which secured nothing. On the face of the registered mortgage, one could not tell what was the extent of the estate or interest of the mortgagee - one was, instead, referred to other documents which were not themselves registered, and which were void because of Mrs Thompson's lack of capacity. That case illustrates the way that one needs to look at the terms of the particular mortgage that is the subject of litigation to work out the scope of any estate or interest in the land which is created indefeasibly by the registration of that mortgage.

13 The first mortgage in the present case is one which contains the following term: "The mortgagee has agreed to lend to the mortgagor and the mortgagor has agreed to borrow from the mortgagee the sum of $325,000 (hereinafter called the principal sum)...

(3) The mortgagor covenants to pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the 12th day of May 2001.

(4) The mortgagor will pay interest on the principal sum or on so much of it for the time being as shall remain unpaid...at the rate of $11.75 (Eleven dollars seventy five cents) percentage per annum as follows". 14 The terms of the second mortgage are identical in the respects just quoted, save that the principal sum is $65,000 and the rate of interest is 18.5 percent per annum.

15 In these circumstances, it is, in my view, clear that the estate or interest in the land which is created by the registration is a charge which secures at the least (so far as the first mortgage is concerned) the sum of $325,000, together with interest which accrues on it and is unpaid, and (so far as the second mortgage is concerned) the sum of $65,000, together with interest which accrues on it and is unpaid.

16 There are certain other covenants in the mortgage which make provision for payment of various costs and expenses but, as I understand it, the claim for principal and interest will exhaust the funds available, and so it is not necessary to decide whether there is an indefeasible title in relation to those additional covenants.

17 This conclusion is consistent with the obiter remarks of Hayne JA (with whom Brooking and Tadgell JJA agreed) in Pyramid Building Society (In Liquidation) v. Scorpion Hotels Pty Ltd (Supra) at 196: "It has not been contended that indefeasibility of a mortgage does not extend to the covenant for payment and it is plain that it does so extend: Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326 at 343 per Gibbs J; PT Limited v Maradona Pty Ltd (1992) 25 NSW LR 643 at 681."" 113 In terms of obligations under a mortgage, Butterworths, Halsbury's Laws of Australia, vol 19 (at March 9, 2007) 295 Mortgages and Securities, 'III Rights and Liabilities', [6755] put it like this. An obligation on the mortgagor to pay the principal and interest secured by the mortgagee can take a variety of forms. They are firstly, the mortgage may secure moneys advanced pursuant to an identified separate loan agreement and confer an obligation on the mortgagor to comply with the terms of that separate loan agreement; secondly, the mortgage may secure all moneys advanced to the mortgagor and confer an obligation on the mortgagor to comply with the terms of respective advances; and lastly, the mortgage may incorporate the terms governing the advance of moneys. The mortgages in Small fall within the third category outlined above. The mortgage in this case is by way of reference to an identified separate loan agreement, which falls within the first category outlined above. 114 It is necessary to examine the terms of the mortgage, attached schedule and memorandum No 2584554 so as to ascertain the scope of the estate or interest in the land which became indefeasible by the registration of the mortgage. These three documents were the only documents that were registered. 115 In the Mortgage document the mortgagor is described as Yasin Yazgi and Sabah Yazgi and the mortgagee is described as Permanent Custodians Limited ACN 001 426 384. 116 The mortgage states: "Yasin Yazgi and Sabah Yazgi mortgages to the mortgagee all the mortgagor's estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in annexure /memorandum No. 2584554 filed at Land and Property Information New South Wales are incorporated in this mortgage." 117 The annexure is not specified (it is left blank). There is however a schedule attached to the mortgage. The schedule was registered.

(a) The Schedule 118 The Schedule reads: "You (the Mortgagor) agree with us (the Mortgagee) as follows: 1. The provisions in the memorandum filed in the Land Title Office as Number 2584554 ("memorandum") are incorporated in this mortgage… 2. You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us. 3. If any of the terms of this schedule is inconsistent with the memorandum, this schedule prevails. 4. "The Borrower" means Yasin Yazgi and Sabah Yazgi. 5. "Housing Loan Contract" means the Residential Housing Loan Contract dated the day of 2003 between the Borrower and the Mortgagee. 119 I interpose but once again, the above paragraph has not been completed. The date has been left blank. 6. "Mortgage Debt" means and includes: (a) all moneys actually or contingently owing or payable from time to time under the Housing Loan Contract by the Borrower to the Mortgagee.

(b) accrued interest on any such moneys; and (c) all payments made by or on behalf of the Mortgagee and all costs, charges and expenses (including costs as between solicitor and own client) incurred by or on account of the Mortgagee, in the exercise or execution or attempted exercise or execution of all or any of the powers, authorities and discretions conferred under, pursuant to or exercisable by virtue of this Mortgage or the Housing Loan Contract; and (d) all other costs, charges and expenses which the Mortgagee may incur or become liable for or in connection with the Housing Loan Contract or this Mortgage." 120 A mortgage includes an express or implied personal covenant that the mortgagor pay a debt to the mortgagee (Sutton v Sutton (1882) 22 Ch D 511 at 515 per Jessel MR; Corbett v Sullivan (1898) 4 ALR 38). As previously stated there is no express term to that effect. The personal covenant must be implied.

(b) The Memorandum 121 Clause 1.1 of the memorandum No 2584554 (the memorandum) is incorporated into the mortgage. It contains the definitions of "Mortgage Debt", "Secured Agreement" and "you". According to the schedule, if the terms of the schedule are inconsistent with the terms of the memorandum, the schedule prevails (paragraph 3). 122 These definitions in the memorandum are: ""Mortgage Debt" means all money which any one or more of you:

(c) may come to owe us if a particular event occurs or a particular circumstance comes to exist, in each case, under this Mortgage or any Secured Agreement." 123 "Secured Agreement" is defined and "means any agreement which you and we agree in writing is a Secured Agreement. 124 The word '"you" means the Mortgagor under this mortgage. If there is more than one person specified as the Mortgagor, "you" means those persons separately and all of them as a group. 125 While the literal interpretation of the schedule is awkward it reads that Mr and Mrs Yazgi jointly and severally agree that "The Borrower" means Yasin Yazgi and Sabah Yazgi (paragraph 4). There is inconsistency between the definition of "Mortgage Debt" in the schedule and the memorandum, so it is the definition of "Mortgage Debt" in the schedule that prevails. Paragraph 6 of the schedule defines "mortgage debt", and paragraph 6(a) refers to "all moneys actually owing or contingently owing" or "payable under the Housing Loan Contract by the Borrower to the Mortgagee". The Borrower is defined in the schedule as Sabah Yazgi and Yasin Yazgi. This interest is indefeasible. 126 Hence, the mortgage numbered AA438750J provides Permanent Custodians with an indefeasible interest in all moneys actually payable under the housing loan by Yasin Yazgi and Sabah Yazgi. It is with regret that I must reach the conclusion that the mortgage operates to secure payment by Sabah Yazgi in addition to Yasin Yazgi of the whole of the moneys due and payable under the loan agreement. This is a harsh result. 127 In case I am wrong on this issue, I have considered the remaining issues.

Does Mr Yazgi have one-half interest in the property? 128 Permanent Custodians submitted that Mr Yazgi had a one-half interest in the subject property, and therefore only half of the mortgage debt should be set aside, not the whole amount due under the mortgage. 129 It is accepted that the starting proposition, and general rule, is that where two people purchase a property, whether in the names of one or other of them or as co-owners, be that as tenants in common or joint tenants, they are presumed to hold the property in equity in the same proportions as that in which they contributed to the purchase price. That presumption is rebuttable, and is subject to various exceptions. One recognised exception is that where two people who are married to each other purchase property and have it conveyed to them as joint tenants they are presumed to hold the property in equity in equal shares notwithstanding that their respective contributions to the purchase may not have been equal - see Trustee of the Property of Cummins (a bankrupt) v Cummins (2006) 80 ALJR 589 at [55] and following, especially at [68] - [72]; Calverley v Green (1984) 155 CLR 242 at 259 - 261; Pettitt v Pettitt [1970] AC 777 at 815; Neilson v Letch (No 2) [2006] NSWCA 254 at [25] - [38]; Draper v Official Trustee in Bankruptcy [2006] FCAFC 157 at [78] - [84]; and Jacob's Law of Trusts in Australia, 6th ed at 301. 130 Mrs Yazgi provided almost all of the funds ($250,000) that were used to purchase the property in April 2001 by selling a property she had owned in her name. The mortgage for the property at 5 Myall Street, Punchbowl (the subject of these proceedings) to the Commonwealth Bank was in both Mr and Mrs Yazgi's names. The mortgage was for the sum of $100,000. In 2003 they jointly borrowed a further $17,000 from the Commonwealth Bank for renovations to the property. At the time of the purchase of the subject property they had been married for approximately six years. 131 Mrs Yazgi had not worked since 6 months after their marriage. Mr Yazgi was providing for the living expenses for both of them, first out of his wages, then out of his compensation payments, then out of the settlement and thereafter out of his wages again. The disputed loan transaction took place in February 2004, nearly three years after the property was purchased. Mrs Yazgi did not give any evidence to suggest that her intention was to hold the property in equity otherwise than as joint tenants. It is my view that the presumption that they owned the property as joint tenants in equal shares has not been rebutted. It is my view that Mr Yazgi has an equal share in the property. That is a one half interest. 132 If I am wrong on the indefeasibility issue, then Mrs Yazgi is liable to pay Permanent Custodians the sum of $54,562.15 plus interest on that amount.

Is the Contracts Review Act applicable? 133 The short answer is no, it is not. 134 Permanent Custodians submitted that there is no "contract" that can be said to have been unjust at the time it was entered into, in that Mrs Yazgi was not a party to any "contract", as (on this hypothesis) she did not sign any contractual document. It follows that as a consequence, the Contracts Review Act 1980 has no application and the Court has no power to grant relief thereunder to Mrs Yazgi. I agree with this submission. As in Permanent Trustee Co Ltd v Frazis [1999] NSWSC 319 at [17], it is Mrs Yazgi's case that she never entered into the transactions being the mortgage and agreement for loan. As she denies that she ever entered into the contract (and I have made a finding to this effect) then she cannot at the same time argue that the contract was unjust. So far as the mortgage is concerned s 19(1) of the Contracts Review Act specifically states that the Act does not apply to a contract constituted by a land instrument that is registered under the RP Act. If I am wrong in following the approach in Frazis, the Contracts Review Act does not apply to the registered mortgage.

The position of Mr Yazgi 135 Mr Yasin Yazgi did not appear at the trial and was called three times outside Court. Mr Yazgi was personally served with a letter by Permanent Custodians' solicitors dated 28 November 2006 notifying him of the hearing date. Mr Yazgi has not filed a Notice of Appearance nor a Defence. He has not taken any active role in these proceedings. He admitted to his wife Sabah Yazgi, "I'm ready to go to the police and tell them you haven't signed anything and know nothing about all this". 136 I am satisfied that Yasin Yazgi signed the mortgage (including the schedule), the loan agreement and the other documentation relating to the loan. The loan agreement refers to Mr and Mrs Yazgi as being jointly and severally liable. As there has been a default in payment of the loan repayments, Permanent Custodians is entitled to possession of the subject property. Permanent Custodians is also entitled to judgment against the defendants for the judgment debt once up to date details as to the current amount outstanding is known. I propose to dismiss the further amended statement of cross-claim. Costs are reserved.

(1) The plaintiff is entitled to possession of the property described as Folio Identifier C/338681 known as 5 Myall Street, Punchbowl as against the defendants.

26/07/2007 - Removal of Driver's Licence Number, Medicare Number and Bank Account details from paragraph 40. - Paragraph(s) Paragraph 40

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