Perpetual Limited v Barghachoun

JUDGMENT 1 HIS HONOUR: Perpetual Limited lent money, secured by a mortgage over property owned by Mr Abdul Kader Barghachoun. Some payments on the mortgage were not made, and others were not made punctually. Perpetual served the appropriate default notices, and, after significant time, foreclosed on the mortgage. A statement of claim was filed in the Court seeking a writ of possession and default judgment on the monetary debt. Default judgment issued for both the writ of possession and the monetary amount. On application by Mr Barghachoun, the default judgment for the monetary amount was set aside, but the Registrar refused to set aside the writ of possession. Mr Barghachoun seeks to review the Registrar's refusal. There is no suggestion that Perpetual behaved inappropriately, but there is an allegation that a mortgage broker was concerned in a fraud, for which conduct Perpetual is responsible. This judgment deals with the "appeal". Principles on Review 2 The orders of the Registrar were, technically, interlocutory. Those orders dealt with an application, of an interlocutory nature, being the setting aside of default judgment previously issued. As a consequence, there is greater flexibility in the application of the principles in this matter than if this were an appeal. However, the terms of s 75A of the Supreme Court Act 1970 no longer govern reviews of the judgment of a Registrar. They are governed by the provisions of UCPR 49.19 of the Uniform Civil Procedure Rules 2005, which grants the Court jurisdiction to review any act or order of the Registrar and to confirm, vary, discharge or otherwise deal with that act or order as the Court thinks fit. 3 The powers conferred on the Court in a review are conspicuously different from the powers on "appeal": Tomko v Palasty (No 2) [2007] NSWCA 369. As a consequence, Mr Barghachoun is not required to demonstrate that there has been material error of fact or principle. Further, there is far greater flexibility in allowing fresh or further evidence on appeal. Notwithstanding the foregoing, a review is not a hearing de novo. In the absence of further or fresh evidence, respect must be afforded to the judgment of the Registrar, which will not be overturned simply on the basis that the Court, as presently constituted, would have exercised a discretion differently. 4 In this appeal, Mr Barghachoun seeks to file an amended defence and makes different allegations, the effect of which is to alter fundamentally the material upon which the Registrar decided the matter. There is also significantly different affidavit evidence before the Court. As a consequence, the Court must determine the matter on the basis of the material before it and the decision of the Registrar is less relevant, if not totally irrelevant. Facts 5 This controversy is within very short compass, at least insofar as the interlocutory proceedings are concerned. There is no controversy that there exists a mortgage over the property owned by Mr Barghachoun and that the mortgagee is Perpetual. There is also no doubt and/or no controversy that the mortgage is in default. There is no allegation, nor could there be, that Perpetual has acted inappropriately or unfairly in the manner in which it, as distinct from its agent, has sought to enforce its interests and rights. The only controversy, to be determined at trial, is the circumstances in which Mr Barghachoun executed the mortgage. 6 It is presently inappropriate for the Court to determine the truth or otherwise of the controversial allegations that are sought to be made in the proposed amended defence and/or in the cross-claim. That which follows is a summary of that which is alleged, not a finding that it is true or a determination of the evidence that may come before the Court, except that the Court will determine, to the extent necessary, what procedural steps have been taken. 7 The loan agreement and mortgage were executed on 8 September 2003 and registered on 21 October 2003. Default notices were served on 31 October 2005, 3 July 2006, 16 April 2007 and 27 October 2008. Perpetual filed its statement of claim on 15 January 2009 and served the occupiers on 30 January 2009. 8 Solicitors then acting for Mr Barghachoun and the second defendant requested further and better particulars on 4 February 2009 and on 7 February 2009. Those same solicitors then contacted the solicitors acting for Perpetual and told them to "do nothing" because the "matter is being discussed among family members". On 11 February 2009, and 8 March 2009, Mr Barghachoun and the second defendant respectively were served. 9 In relation to the third defendant, an order for substituted service issued and, pursuant to that order, the third defendant was served on or about 1 June 2009. On 5 August 2009, default judgment and writ of possession issued. On 11 August 2009, the eviction was scheduled for 27 August 2009 and on 18 August 2009 the solicitors then acting for one or more of the defendants advised Perpetual of a proposed notice of motion. The notice of motion was served, together with an affidavit of Mr Barghachoun, on 19 August 2009. 10 On 25 August 2009, the Court issued orders staying the writ of possession, until 2 September, to which date the matter was adjourned. The Court directed that any application to extend the operation of the stay, which had just been granted, be supported by a notice of motion and affidavit, which would also be returnable on 2 September. On 25 August 2009, a further notice of motion and affidavit was filed. When the matter was listed before the Court, on 2 September 2009, consent orders issued requiring Mr Barghachoun to serve any further evidence upon which he relied by 4 September 2009, the plaintiff to serve any evidence upon which it relied by 7 September 2009, and re-listing the matter for 10 September 2009. 11 On 8 September 2009, Perpetual served two further affidavits, which service was the catalyst for a successful adjournment application at the hearing on 10 September. As a result of that hearing, Mr Barghachoun was given liberty to file any further affidavits by 5.00pm on 11 September. No further evidence was filed by that time. Nor did Mr Barghachoun file a draft amended defence. 12 Eventually, material was filed, and, on 14 September 2009, Registrar Bradford set aside the default judgment against Mr Barghachoun for the monetary sum and granted leave to Mr Barghachoun to file a defence. Cost orders were made. On the same day, application was made before the duty judge, being the Court as presently constituted, and orders issued, on condition, staying the execution of the writ of possession until 16 October 2009. The conditions included an undertaking by Mr Barghachoun that the property in question would be insured to its full value, that a copy of the certificate of insurance would be provided to the plaintiff and that Mr Barghachoun would expedite the hearing of each notice of motion to set aside judgment for possession. 13 On 15 September 2009, Registrar Bradford granted Mr Barghachoun further liberty to file and serve an amended notice of motion, which was to be filed and served by Friday 18 September 2009. Consequential directions were also made. 14 On 2 October 2009, the Court made orders, the effect of which was to allow the plaintiff to file in Court its motion and rely on it. The Court adjourned the motion, and the amended motion of Mr Barghachoun, until 14 October 2009, and adjourned the proceedings until 4.00pm on 14 October 2009. 15 On 8 October 2009, the matter was heard urgently, on the application of the plaintiff, due to a failure, or alleged failure, of Mr Barghachoun to comply with the undertakings given on 14 September 2009. The stay was set aside. The failure to comply with the undertaking was the failure to provide a copy of the certificate of insurance to Perpetual. 16 On 14 October 2009, the notices of motion were set down for hearing and the matter proceeded to hearing, after some further skirmishes, concluding on 2 November 2009. 17 By that time, Mr Barghachoun had filed and served a draft amended defence and a further amended notice of motion, with which the Court is now dealing. The original defence, on behalf of Mr Barghachoun, filed on 18 September 2009, denies signing or knowingly signing the mortgage or loan agreement. The defence alleges that any signature purporting to be his on the loan agreement is a forgery or has been obtained by fraud by the plaintiff and the third defendant. The same allegation is made in relation to the mortgage. The lack of particularity of the fraud alleged in this defence was a matter of some criticism by the Court. It was also the basis for the plaintiff's motion to strike out. 18 Mr Barghachoun changed solicitors. The new solicitors, on or about 22 October 2009, filed an amended version of the defence (or, more accurately, the proposed defence) and a proposed cross-claim. That defence (and the cross-claim) admits the existence of both the mortgage and the loan agreement but continues to deny that Mr Barghachoun signed or knowingly signed the documents in question. 19 The plaintiff, Perpetual, raises the difference between the pleading in relation to the mortgage and the loan agreement, because, as to the loan agreement, Mr Barghachoun does not admit signing the document (as distinct from denying it). Such a distinction may be illusory: Samaan bht Samaan v Kentucky Fried Chicken Pty Ltd [2009] NSWSC 1265 at [5] and [32]-[34] and the cases cited therein. 20 Essentially, the proposed defence and cross-claim alleged that Perpetual operated through an agent, who was at all times the ostensible and actual agent of Perpetual, in the negotiation of the loan, in the decision about whether to enter the loan, in the investigation into the capacity of the borrowers to repay, and in the negotiation and procuring of the mortgage to secure the loan. 21 Further, the proposed defence and cross-claim allege that an employee of the agent accompanied the third defendant to Westmead Hospital, where Mr Barghachoun was recovering from an operation. At that meeting, it is alleged, the third defendant induced Mr Barghachoun to sign certain documents, which may have been the mortgage and/or loan agreement. The conversation did not occur in English. There is an allegation that the employee of Perpetual's agent could understand the language in which Mr Barghachoun and the third defendant were speaking. But there is no evidence to that effect, or raising that prospect beyond suspicion. 22 In any event, notwithstanding the foregoing, the Court will proceed to deal with the matter on the basis that the agent (and, through it, Perpetual) was aware of the conversation between the third defendant and Mr Barghachoun. Mr Barghachoun alleges that the agent: knew that Mr Barghachoun was elderly and could neither speak nor read English; knew that he was unwell; knew that he was not in a fit state to sign documents or make decisions of a serious nature; knew, assumed or suspected that he was wholly reliant on his sons for any commercial or personal dealings in English; and knew that he had not received any legal advice about the loan. Further, Mr Barghachoun alleges that the agent, through its employee (and Perpetual, through its agent), was aware that the third defendant was misleading Mr Barghachoun. 23 The evidence of the conversation at the hospital derives from the affidavit of Mr Barghachoun dated 20 October 2009. It attests that the third defendant arrived, unannounced, with the employee of the agent and he introduced the employee as being the person "from the bank", who "is going to help us obtain the money to purchase the unit." 24 Further, the evidence recounts that during the conversation, the third defendant said to Mr Barghachoun "these papers needed to be signed to purchase the unit" and "sign here". Mr Barghachoun signed the papers. Principles on Indefeasibility and Consideration 25 Indefeasibility of title is the most fundamental feature of the land registration system in Australia. Under it, the State guarantees the title of those with a registered interest in land, to the extent of that interest. The foregoing is trite. But the principle is so important, and adherence to it so essential, that registered title is able to be challenged, under the legislative provisions in each of the States, only in the most exceptional circumstances. The Torrens system has enabled conveyance with certainty in Australia and, even though there may be occasions where notions of comparative justice may seem to have been transgressed, it is essential that indefeasibility of title is not undermined. 26 As a consequence of the foregoing, when Perpetual registered its mortgage over Mr Barghachoun's land, it obtained a good title as mortgagee, whether or not Mr Barghachoun signed the mortgage and/or the loan agreement. Indefeasibility of title principles, subject to the statutory exceptions, protect that title from attack: ss 42 and 43 of the Real Property Act 1900; Frazer v Walker [1967] 1 AC 569 at 580-581; Breskvar v Wall [1971] HCA 70; (1971) 126 CLR 376 at 384-385. 27 In Breskvar, supra, Barwick CJ (at 384-385) said: "[13] These sections are to my mind central to the Torrens system of title by registration: they make the certificate conclusive evidence of its particulars and protect the registered proprietor against actions to recover the land, except in the specifically described cases. Section 44 complements these provisions by providing that the registered proprietor holds the land absolutely free from all unregistered interests except (a) 'in the case of fraud' - which means except in the case that the registration as proprietor was obtained by the proprietor's own fraud - see Assets Co. Ltd. v. Mere Roihi (1); (b) in the case of a proprietor claiming the same land under a prior certificate of title or under a certificate of title issued under Pt III of the amendment of the Act in 1952, i.e. a certificate based on a possessory title, or under a prior registered grant; (c) in the case of right of way or other easement omitted from or misdescribed in the certificate of title; and (d) in the case of the wrong description of the land or of its boundaries.

[14] The opinions held in some places in the past that the conclusive quality of the certificate of title did not enure for the benefit of a registered proprietor, other than the proprietor firstly registered on the land being brought under the provisions of The Real Property Act seem to me to be more than difficult to maintain in the light of the provisions to which I have referred but, in any case, they were shown to be untenable by the decision of the Privy Council in Assets Co. Ltd. v. Mere Roihi (1905) AC 176 where Lord Lindley pointed out that 'the sections making registered certificates conclusive evidence of title are too clear to be got over'. 'In dealing with actions between private individuals, their Lordships are unable to draw any distinction between the first registered owner and any other.' (1905) AC, at p 202 This is also made clear by the more recent decision of the Privy Council in Frazer v. Walker (1967) 1 AC 569, at pp 581, 584-585. Proceedings may of course be brought against the registered proprietor by the persons and for the causes described in the quoted sections of the Act or by persons setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title: or in default of his compliance with such an order on his part, perhaps vesting orders may be made to effect the proper interest of the claimants in the land. Also s.124 gives the Supreme Court power to cancel an entry in the register book and to substitute another entry in the event of the recovery of any land by ejectment from a fraudulent proprietor or from any of the persons against whom an action of ejectment is not expressly barred by the Act. This is the only power of the Supreme Court to amend the register. See Assets Co. Ltd. v. Mere Roihi (1905) AC 176, at p 195; Frazer v. Walker (1967) 1 AC 569, at p 581. Section 85 of the Land Transfer Act 1952 (N.Z.) with which the last-mentioned case was concerned gives the power of amendment upon the recovery of any land estate or interest by any proceeding whereas s.124 of the Act deals only with the recovery of land by action of ejectment. The suit for declarations and orders for amendment of the register brought by the appellant in Frazer v. Walker (1967) 1 AC 569 was held by the Privy Council in that case to be an action for the recovery of land: (1967) 1 AC, at p 586. The appellants' suit in this case was not an action of ejectment but it was, in my opinion, an action for the recovery of land and, in any case, so far as it concerned the first respondent was within the exceptions contained in s.123. Such a suit not within those exceptions would be effectively barred by s.123. Thus, except in and for the purposes of such excepted proceedings, the conclusiveness of the certificate of title is definitive of the title of the registered proprietor. That is to say, in the jargon which has had currency, there is immediate indefeasibility of title by the registration of the proprietor named in the register. The stated exceptions to the prohibition on actions for recovery of land against a registered proprietor do not mean that that 'indefeasibility' is not effective. It is really no impairment of the conclusiveness of the register that the proprietor remains liable to one of the excepted actions any more than his liability for 'personal equities' derogates from that conclusiveness. So long as the certificate is unamended it is conclusive and of course when amended it is conclusive of the new particulars it contains." 28 Therefore, immediately upon registration of an interest (in this case the mortgage), the registered interest holder (Perpetual) obtains good title. Good title is obtained even where there has been a forgery of the transfer or instruments creating the interest: see also Garofano v Reliance Finance (1992) 5 BPR 11,941; [1992] NSWConvR 59,659 (55-640). 29 Because the exception, relevant to the current proceedings, is an allegation of fraud, it is necessary to deal with the manner in which "fraud" is construed in relation to the exception to indefeasibility. In Assets Co Ltd v Mere Roihi [1905] AC 176, in a much cited passage, Lord Lindley stated: "Passing now to the question of fraud, their Lordships are unable to agree with the Court of Appeal. Sects. 46, 119, 129, and 130 of the Land Transfer Act, 1870, and the corresponding sections of the Act of 1885 [and his Lordship identifies them] appear to their Lordships to shew that by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud - an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further, it appears to their Lordships that the fraud which must be proved in order to invalidate the title of a registered purchaser for value, whether he buys from a prior registered owner or from a person claiming under a title certified under the Native Land Acts, must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making inquiries for fear of learning the truth, the case is very different, and fraud may be properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon." ( Mere Roihi , supra, per Lords Macnaghten, Davey, Robertson, Lindley and Sir Arthur Wilson, at 210.) 30 Forgery is clearly a subset of fraud and would fall within the ordinary meaning of the word: Assets, supra, at 211; Schultz v Corwill Properties (1969) 2 NSWR 576 at 582. But on the basis of the evidence relied upon by Mr Barghachoun, Perpetual could have had no knowledge of any forgery, either itself or through its agent. I accept, for present purposes that relate to whether Mr Barghachoun's proposition is arguable, that the act of the agent, within the scope of its actual or apparent authority, does not cease to bind Perpetual, merely because the agent may have been acting fraudulently and in furtherance of its own interests. On the evidence before the Court, Perpetual's agent knew that Mr Barghachoun signed the relevant documents. 31 Further, on the evidence before the Court, Perpetual's agent, assuming its employee understood the conversation, would have known that Mr Barghachoun was borrowing money from a bank for the purpose of purchasing a unit. No evidence suggests that Perpetual's agent was aware that the amount to be borrowed was not to be used for the purchase of the unit. This is not fraud of the kind to which the foregoing authorities refer, and it does not constitute an exception to indefeasibility of title to which Perpetual is entitled. 32 On the allegations that are before the Court, Perpetual may have significant problems relating to its liability arising from its duty to ensure, through its agent, that Mr Barghachoun obtained independent legal advice and was not under a disability of the kind that would affect the monetary debt. But such issues do not amount to fraud of the kind that forms an exception to indefeasibility established by the Real Property Act. 33 As a consequence, and bearing in mind that any exercise of discretion under the Civil Procedure Act 2005 must facilitate the quick, cheap and just resolution of the real issue between the parties, it would be pointless to allow Mr Barghachoun, on the evidence available to the Court, to agitate the writ of possession. Nevertheless, both because of Mr Barghachoun's age and the circumstances, I will continue the stay for a short period to allow for a reasonable time for Mr Barghachoun to vacate the premises. 34 The Court makes the following orders:

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