THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
DUNFORD J
9 APRIL 1999
12857/98 - Permanent Trustee Company Limited v Gorgios FRAZIS & Ors
JUDGMENT
1 HIS HONOUR: By Notice of Motion filed on 28 January 1999 the first and second defendants (the applicants) apply to set aside a judgment entered in default of appearance for possession of premises known as 131 The Grand Parade, Brighton-Le-Sands. The application for judgment was filed on 16 December 1998, the Statement of Claim having been served on 28 November 1998 and the judgment took effect on 5 January 1999. A stay of execution on the judgment is presently in force until further order.
2 By its Statement of Claim filed 23 November 1998 the plaintiff alleged a Loan Agreement dated 26 May 1998 under which the plaintiff advanced $331,500 to the three defendants secured by a registered mortgage under the Real Property Act 1900, registered no. 5051250 dated 2 May 1998 by the first and second defendants as registered proprietors of the subject premises. The Statement of Claim further alleged default by way of arrears under the Loan Agreement and the Mortgage.
3 The explanation proffered for the failure to file a Notice of Appearance in time is essentially that the first and second defendants changed their solicitors, their fresh solicitor took holidays over the Christmas period and when her office re-opened in mid January the judgment had been entered and the writ of possession issued. The explanation is not entirely satisfactory but it is not such as would prevent the judgement being set aside if the first and second defendants were able to show a bona fide defence on the merits. The defence sought to be raised by the first and second defendants, who are husband and wife and parents of the third defendant is that they never signed the relevant Loan Agreement or had anything to do with it, they never signed the Mortgage and they never received the money, all of these things being done in their name apparently by their son who it appears forged or caused to be forged their signatures on the relevant documents.
4 The facts were set out in more detail in the affidavits sworn by the applicants. Those affidavits show the following history which has not been challenged and which I accept for the purposes of this application. The first and second defendants are the registered proprietors for an estate in fee simple of the subject property and about 4 December 1990 executed a mortgage in favour of the Commonwealth Bank of Australia to secure a loan of $20,000 which was used for the purchase of a motor vehicle. A copy of the mortgage is annexed to their affidavits and the signatures thereon are genuine. When the loan was repaid the Certificate of Title was left with the Commonwealth Bank for safe keeping.
5 Subsequently in 1996 the three defendants applied to the Commonwealth Bank for a further loan of $180,000 for construction of a second level which they were proposing to build on their existing property and the loan was subsequently approved. However, the local council would not approve the extensions, and so far as the applicants were concerned the loan from the Commonwealth Bank and the mortgage did not proceed and the applicants signed a letter, prepared by their son the third defendant, which they believed was to notify the bank that they would not be taking up the loan, and which they assumed their son delivered to the bank. The applicants are of Greek origin and their spoken English is poor and their written English very weak. They never received any part of the $180,000, the subject of the proposed loan nor any correspondence in relation to it. There was however, a mortgage to the Commonwealth Bank purporting to be from the applicants registered on the Certificate of Title and they say their signatures on this document were forged, and the witness who purported to witness their signatures was a friend of their son. The inference is open that the son forged their signatures and appropriated the whole of the money for his own purposes.
6 Subsequently, at about the end of 1997 their son approached the applicants and told them of a scheme whereby a large amount of money from overseas could be deposited in an account in Australia, 30% of which would be available to the person establishing the account, apparently as some sort of fee for the use of the account. The first defendant told his son that he would be willing to go ahead so long as he did not have to use his property as a guarantee and the second defendant said she would be prepared to go ahead with the scheme provided there was no problem with the Taxation Department and the transaction was legal. The second defendant recalls that at about this time she overheard her son have a number of telephone conversations with a man called "Robert" from the company Eurofinance (Eurofinance Corporation Pty Limited) and she believed these conversations related to the transfer of the overseas funds. A mortgage loan application was presented to Eurofinance dated 27 March 1998 purporting to be signed by both applicants on the referral of Adam Moustakis of Adam Partners. It was an application for a loan of $340,000 and the purpose given was to re-finance a Commonwealth Bank loan and purchase an investment property for approximately $200,000. Both applicants deny that the purported signatures on that application are theirs. On 30 March 1998 Eurofinance sent a Letter of Offer of Loan to the applicants and their son, and the letter contains an endorsement purporting to be by the three defendants accepting the terms of the letter. Both applicants deny that the signatures purporting to be theirs were signed by them.
7 At the beginning of May 1996 their son said to the second defendant "We have to go and see a solicitor in connection with the scheme for the transfer of the money from overseas. He is the solicitor preparing the documents for the transfer of the funds". He also told her "Do not ask too many questions because he will require a higher commission." They then went to see Mr James Dimitrious, a Greek speaking solicitor, at Burwood. They visited Mr Dimitrious twice and on the second occasion he showed them some documents which appeared to relate to the subject property and said to the second defendant something to the effect of "One bank will have to pay another, that is the Commonwealth Bank". She became concerned when she heard this but did not ask any questions because of what her son had told her previously.
8 At about that time the applicants received a bundle of documents. They went to see Mr Robert Miles, solicitor from Barter Perry, who said to them "Do not sign the documents as they are strong documents for a loan. Do not sign the documents." (I infer that the applicants were referred to Mr Miles as an independent solicitor as they were going guarantors for the loan agreement to which their son was also a party but offering no security.) They then went to the Hilton Hotel where their son made a telephone call to "Robert" and said to him "My parents will not sign the documents because their solicitor will not allow them." Their son told them "Robert said that its too late now, that the moneys have arrived from overseas and that we have to go ahead," to which the second defendant said "If I do not have to sign them I will proceed. If I have to sign the documents I do not want to proceed".
9 The Loan Agreement dated 26 May 1998 and the Mortgage to the plaintiff dated 22 May 1998 purport to be signed by the first and second defendants and the Loan Agreement also by the third defendant. The first and second defendants deny that they signed the documents. All signatures purport to be witnessed by Stanley Christy of 35/195 Gardeners Road, Eastlakes whom the second defendant says is known to her as a friend of her son, but she denies ever signing any documents in his presence. On 6 May 1998, the second defendant opened a St George Bank Priority Saver Account with the sum of $500 in anticipation of the depositing of the overseas funds.
10 On settlement, $15,000 was paid to Adam Partners presumably as a commission, $1,624 to Mr James Dimitrious as solicitor acting on behalf of the mortgagors, $158,542.59 to discharge the loan to the Commonwealth Bank of Australia (which loan the applicants believed had never been taken up) and $149,299.41 was drawn in favour of G & A Frazis and paid into Mrs Frazis' St George Bank Priority Saver Account. At the time she believed this was part of the funds coming from overseas. In June 1998 she signed a withdrawal slip for $149, 299 on her son telling her such moneys had to be paid to the Commonwealth Bank to discharge the tax liability for the remainder of the moneys that would be transferred from overseas into the account. Needless to say those moneys were never seen again and no funds ever came from overseas.
11 On behalf of the plaintiff/respondent, it has been submitted that its mortgage having been registered, its title is indefeasible and reliance is placed on s 42 of the Real Property Act 1900. The applicants on the other hand submit that they have a good defence on the merits and rely on a number of different grounds, namely:
1. Fraud;
2. The fact that they were in occupation at the relevant time;
3. Unconscionability;
4. The Contracts Review Act 1980 ; and
5. An equitable right to have the transaction set aside.
12 There is evidence of fraud particularly, but not limited to, the forgery of the relevant Loan Agreement and registered Mortgage, but there is no evidence that the plaintiff played any part in, or was aware of, such fraud; and in order to defeat the indefeasibility of title established by s 42 and the other provisions of the Real Property Act 1900, the fraud must be that of the person acquiring the title, in this case the plaintiff. A number of cases have established that notwithstanding forgery of the mortgage, the mortgagee acquires an indefeasible title provided that the fraud cannot be sheeted home in some way to such mortgagee: Grgic v Australian and New Zealand Banking Group Limited (1994) 33 NSWLR 202, Vassos v State Bank of South Australia [1993] 2 VR 316, and can enforce the mortgage, not only against the security, but also on the personal covenants: PT Limited v Maradona Pty Limited (1992) 25 NSWLR 643.
13 As I say, there is no evidence of the plaintiff being involved in, or aware of, the fraud but the applicants seek to suggest that there was involvement or at least knowledge of the fraud on the part of Eurofinance, and seek to fix the plaintiff with responsibility for such fraud. The position of Eurofinance in the transaction is not entirely clear but the application for the loan was made to that company, and although the Loan Agreement nominates the plaintiff as the lender, Eurofinance is designated the "manager" and under the agreement is given the authority to set the variable rate of interest and change it at any time, to approve fortnightly in lieu of monthly repayments, to change any of the financial information in the Loan Agreement without the borrower's consent, including fees and charges, to suspend repayments in the event of illness or unemployment and other powers. The powers and authorities conferred on Eurofinance as manager are in my opinion sufficient to establish a prima facie case that Eurofinance was the agent of the plaintiff in respect of the Loan Agreement and the Mortgage, and I would be prepared to hold that the involvement in or notice of, the fraud by Eurofinance, could defeat the indefeasible title of the plaintiff; but I can see no such evidence; the highest the evidence goes in this regard is the reference in the second defendant's affidavit to her son having conversations with "Robert" from Eurofinance, and on one occasion telling him that she and her husband would not sign the documents. Assuming that "Robert" was told that, it would seem Eurofinance was subsequently presented with documents apparently regular and apparently signed by the applicants. In my view this is not sufficient evidence to establish fraud on the part of the plaintiff's agent.
14 There is also a passage in the Statement of the first defendant annexed to the solicitor's affidavit as follows:
"On some occasions I recall that my son would telephone the company known as Eurofinance and he would speak to a person by the name of Robert and make enquiries as to when the documents would be prepared for the overseas funds.
I recall that I received a telephone call from a man by the name of Robert from Eurofinance and he said I am calling about the 30% of the monies. I asked for his telephone number and I informed him that Mike Frazis would call him back."
but this passage is not re-produced in his affidavit. It is difficult to see any valid reason why "Robert", if he was from Eurofinance, or anyone speaking to him, would be referring to "overseas funds" or "30%" but this of itself would not provide evidence that Eurofinance was involved in the fraud. As I say, the passage was not reproduced in the first defendant's affidavit.
15 It was further claimed that Adam Moustakas trading as Adam Finance was also an agent of the plaintiff, but the material in the affidavits goes no further than to show Adam Finance as mortgage brokers, whom it would seem arranged and negotiated the loan from the plaintiff and Eurofinance on behalf of the third defendant. I can see no evidence which suggests that Adam Finance were in any way acting on behalf of the plaintiff or Eurofinance and accordingly, even if there were evidence of Adam Finance being a party to the fraud or having knowledge of it (and there is no such evidence), such fraud could not be brought home to the plaintiff.
16 Next it was submitted that, as the applicants were in actual occupation and possession of the subject premises at the time the mortgage was given, the plaintiff as mortgagee had notice of their interest, and accordingly took the mortgage subject to that interest. There was a principle at common law that a purchaser had constructive notice of the interest of any person in occupation of the land; this was sometimes known as the Rule in Daniels v Davidson (1809) 16 Ves 249, 33 ER 978, see also Hunt v Luck [1901] 1 Ch 45, affirmed [1902] 1 Ch 428, but that principle only applied where a person other than a person with apparent title was in occupation, and here the applicants were the registered proprietors, and the principle does not apply to land under Torrens Title except in the circumstances set out in s 42(1)(d), and the applicants were not in possession as tenants but as registered proprietors for an estate in fee simple.
17 Thirdly, the defendants seek to rely on the provisions of the Contracts Review Act 1980 and they allege that the contract was unfair both in the manner in which it was made and its terms: cf AGC (Advances) Limited v West (1986) 5 NSWLR 590 at 620; but the applicant's complaint in this case is not that a contract they entered into with the plaintiff was unjust, their case is that they never entered into such a contract at all; and I fail to see how parties who deny that they entered into a contract can at the same time argue that such contract was unjust. The Contracts Review Act 1980 is an Act designed to review unfair contracts, not an Act to set aside relationships or obligations constituted by forged documents. The applicants' present predicament is not due to them having entered into a contract which was "unjust" within the meaning of that Act, but to the operation of the relevant provisions of the Real Property Act 1900 and in particular to the force and effect which that Act gives, on registration, to forged instruments. I am not aware of, and was not referred to, any case where relief has been granted under the Contracts Review Act 1980 to set aside a contract where the documents evidencing such alleged contract have been forged.
18 The next two grounds can be taken together, namely that it would be unconscientious for the plaintiff to enforce the Loan Agreement and Mortgage against the applicants, or that they have some other equitable ground for having those documents set aside or not enforced, and reliance is placed particularly on Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. Once again, the applicants are confronted by the same problem, namely that they cannot show that the plaintiff or any of its agents was responsible for, or had any knowledge of, any unconscientious or fraudulent conduct.
19 It would appear that on the evidence presented, and assuming the forgery can be proved at a final hearing, the applicants would have a claim for damages against the third defendant, and if the judgment cannot otherwise be satisfied, rights against the Torrens Assurance Fund: Real Property Act 1900, s 126, but that does not give them a defence to the plaintiff's claim for possession. The position of Mr Dimitrious is unclear, he acted as solicitor for all the three defendants on the discharge of the Commonwealth Bank Mortgage and the fresh Mortgage to the plaintiff and also the Loan Agreement and the Fees Agreement indicated that he charged for acting on each of these matters. However, although the plaintiffs apparently went to his office twice, the affidavit is silent as to whether or not he ever explained to them the nature of the transactions which he believed they were entering into, and he certainly did not have them sign the relevant documents in front of him. If he had, it would seem the forgery could not have taken place; but Mr Dimitrious is not before the Court and his version of what transpired may be significantly different from that of the applicants.
20 It follows that the evidence adduced on the application does not show a prima facie defence on the merits to the plaintiffs claim for possession and in the circumstances I have no alternative but to dismiss the application with costs. I consider that execution of the writ of possession should be stayed for a further six weeks to enable the applicants to consider their position and obtain advice on the possibilities of an appeal, or alternatively to find alternative accommodation.