Perpetual Trustees Australia v Richards

(1) Perpetual Trustees Australia Limited's pleading against the Azzopardis' in the FASC dated 11 October 2007 is summarily dismissed. DECISION : (2) Perpetual Trustees Australia Limited's notice of motion seeking separate determination of issues filed 1 February 2008 is dismissed. (3) Perpetual Trustees Australia Limited is to pay the Azzopardis' and Mr Richards's costs of both motions.

CATCHWORDS : SUMMARY JUDGMENT - separate determination of issues

Australian Securities and Investments Commission Act 2001 (Cth) Consumer Credit Code LEGISLATION CITED : Contracts Review Act 1980 Real Property Act 1900 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules

ABB Engineering Construction Pty Limited v Freight Rail Corp [1999] NSWSC 1037 Breskvar v Wall (1971) 126 CLR 376 Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 Chen v Song [2005] NSWSC 19 Dunstan v Simmie Co Pty Ltd [1978] VR 669 Frazer v Walker [1967] 1 AC 569 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Idoport Pty Limited v National Bank Ltd [2000] NSWSC 1215 Integral Home Loans Pty Ltd & Anor v Interstar Wholesale Finance Pty Ltd & Anor [2006] NSWSC 1464 Permanent Custodians v Yazgi [2007] NSWSC 279 Permanent Trustees Company v Frazis [1999] NSWSC 319 CASES CITED : Perpetual Limited v Costa [2007] NSWSC 1093 Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745 Perpetual Trustees Victoria Ltd v Van Den Heuvel [2008] NSWSC 350 Perre v Apand Pty Limited (1999) 198 CLR 180 Printy v Provident Capital Ltd [2007] NSWSC 287 Provident Capital Ltd v Printy [2008] NSWCA 131 PT Ltd v Maradona Pty Ltd (1991) 25 NSWLR 643 Small v Gray [2004] NSWSC 97 Small v Tomassetti [2001] NSWSC 1112 State of New South Wales v Lepore (2003) 212 CLR 511 Tepko Pty Limited v Water Board (2001) 206 CLR 1 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 Yazgi v Permanent Custodian Ltd [2007] NSWCA 240

Perpetual Trustees Australia Limited (Plaintiff) Warren Austin Richards (First Defendant) Joseph & Carmen Azzopardi (Fourth Defendants) PARTIES : John Graham (Fifth Defendant) Shane Moran (First Cross Defendant) Pacific Partners Pty Limited (Second Cross Defendant) Registrar General of New South Wales ( Sixth Cross Defendant)

A Leopold SC/D Thomas (Plaintiff) B Zipser (First Defendant) COUNSEL : J Marshall SC/J Darvall (Fourth Defendants) T Blyth (First & Second Cross Defendants) P Walsh (Sixth Cross Defendant)

Yeldham Price O'Brien Lusk (Plaintiff) Frank Nolan & Associates (First Defendant) SOLICITORS : Blackshaw Lindsay (Fourth Defendants) Middletons (First & Second Defendants) Registrar General (Sixth Cross Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

15807/2005 - PERPETUAL TRUSTEES AUSTRALIA LIMITED v WARREN AUSTIN RICHARDS

JUDGMENT (Summary judgment - separate determination of issues) 1 HER HONOUR: There are two notices of motion to be decided in this judgment. The fourth defendants, by notice of motion filed 20 November 2007, seek an order that the plaintiff's further amended statement of claim (FASC) be dismissed generally as against them pursuant to rule 13.4 of the Uniform Civil Procedure Rules. 2 By amended notice of motion filed 1 February 2008, the plaintiff seeks firstly, an order pursuant to r 28.2 of the Uniform Civil Procedure Rules that certain questions be decided separately from, and prior to, all other questions and issues in the proceedings; or alternatively, an order that paragraphs 19B, 25D and 43 to 48 inclusive of the first defendant's further amended defence to the FASC be struck out; and thirdly, in the event that the fourth defendant's summary judgment application is successful, then an order that paragraphs 18(c), 19(a), 24(b) and 25(c) be struck out. 3 The plaintiff is Perpetual Trustees Australia Limited (Perpetual Trustees). The first defendant is Warren Austin Richards (Mr Richards). The second and third defendants are no longer active parties in these proceedings. fourth defendants are Joseph and Carmen Azzopardi (the Azzopardis). Mr Richards has filed a cross claim but it is not relevant to the applications currently before the court. 4 Shortly stated, the main issue to be determined is whether, on their proper construction, two mortgages (and a variation of one of them), which have been registered under the Real Property Act 1900, confer upon the respective mortgagees an enforceable indefeasible interest in the land the subject of the mortgage. 5 It is alleged that Mr Richards did not sign any of these documents although he admits that he received $148,000 proceeds from the first mortgage. For the purposes of these applications currently before the court, it does not matter whether the signatures were forgeries or not. Taking Mr Richards's case at its highest, it will be assumed that the signatures were forgeries. 6 The Azzopardis firstly, seek summary judgment and if they fail to vault that high bar, they seek separate determination of the indefeasibility issue. Perpetual Trustees also seeks summary judgment in relation to Mr Richards defences under the Contracts Review Act 1980, the Consumer Credit Code and for unconscionability. If it fails to obtain summary judgment it seeks determination of these issues separately.

Summary judgment 7 Rule 13.1(1) of the Uniform Civil Procedure Rules provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 8 Rule 13.4(1) of the Uniform Civil Procedure Rules provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious; or, if no reasonable cause of action is disclosed; or, if the proceedings are an abuse of the process of the court. 9 Rule 14.28(1) of the Uniform Civil Procedure Rules provides that the court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 10 Rule 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 11 In the well known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ at 129 stated: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'"

The separate issues 12 The questions that Perpetual Trustees seeks to be decided separately are: (a) Whether the mortgage dated 20 July 2003, registered number 9877954Q, given by the first defendants, upon registration created in favour of the fourth defendants an estate or interest in the land the subject of that mortgage which is Folio Identifier x/xxxxxx (Croydon Park property) which estate of interest secured the sum of: (A) $350,000 referred to in annexure "A" to that mortgage; (B) interest, costs and charges in accordance with the terms and conditions set out in that mortgage, [the first mortgage] regardless of: (i) the allegation by the first defendant in, inter alia, paragraphs 35(c) and 38 of his proposed further amended defence to the further amended statement of claim; and also regardless of (ii) the allegations and claims by the first defendant in paragraphs 43 to 46 of his proposed further amended defence to the further amended statement of claim based on the Contracts Review Act 1980 (CRA) and the Consumer Credit (New South Wales) Code (the Code); and also regardless of (iii) all other allegations and claims made by the first defendant in his proposed further amended defence to the further amended statement of claim, including those in paragraphs 47 and 48 of his proposed further amended defence to the further amended statement of claim relating to alleged unconscionable conduct. (b) Whether the variation of mortgage dated 6 May 2004, registered number AA635448J given by the first defendant to the fourth defendants, upon registration created in favour of the fourth defendants an estate or interest in the Croydon Park property which estate of interest secured the sum of: (A) $448,000 referred to in that variation of mortgage; (B) interest, costs and charges in accordance with the terms and conditions set out in the mortgage and/or that variation of mortgage, [the variation of the first mortgage] regardless of: (i) the allegations by the first defendant in, inter alia, paragraphs 35(c) and 38 of his proposed further amended defence to the further amended statement of claim; and also regardless of (ii) the allegations and claims by the first defendant in paragraphs 43 to 46 of his proposed further amended defence to the further amended statement of claim based on the CRA and the Code and any other allegations or claims the first defendant may make based on the CRA and the Code; and also regardless of (iii) all other allegations and claims made by the first defendant in his proposed further amended defence to the further amended statement of claim, including those in paragraphs 47 and 48 of his proposed further amended defence to the further amended statement of claim relating to alleged unconscionable conduct. (c) Whether the mortgage dated 6 May 2004, registered number AA635449G, given by the first defendant to Residential Investments Pty Ltd (Residential Investments), upon registration created in favour of Residential Investments an estate or interest in the Croydon Park property which estate of interest secured the sum of: (A) $96,000 referred to in that mortgage; (B) interest, costs and charges in accordance with the terms and conditions set out in that mortgage [the second mortgage] regardless of: (i) the allegations by the first defendant in, inter alia, paragraph 35(c) and 39 of the first defendant's proposed further amended defence to the further amended statement of claim; and also regardless of (ii) any allegations or claims the first defendant may make, in respect of that mortgage, based on the CRA and the Code, including those in paragraphs 47 and 48 of his proposed further amended defence to the further amended statement of claim relating to alleged unconscionable conduct. 13 The applications for summary judgment and determination of separate issues centre upon two mortgages and one variation of mortgage. These dealings are described in par (a)(A),(B), and par (b)(A),(B) of issues for separate determination reproduced above. 14 The relevant paragraphs in the defence are as follows: "35(c) The Azzopardi Mortgage, the Azzopardi Mortgage (as varied) and the Residential Investment mortgage were i) signed without the knowledge or authorization of the first defendant; and ii) procured by the fraud of the third cross defendant as pleaded in paragraphs 22 to 48 of the Amended first cross claim dated 11 December 2007.

43. If the first defendant is found to be a party to or bound by any of the Loan Contract, the Mortgage or any loan agreement in relation to the Loan, then each of the Loan Contract, the Mortgage and/or the loan agreement in relation to the Loan was unjust (as this term is defined in the Contracts Review Act 1980 (NSW) and/or s 70 of the Consumer Credit Code in force under the Consumer Credit (New South Wales) Act 1995 (NSW) ("the Code")) in the circumstances relating to them at the time they were made.

44. The first defendant seeks relief under s 9 of the Contracts Review Act and/or s 71 of the Code, to avoid an unjust consequence by: a) voiding the Loan Contract, Mortgage or any agreement in relation to the Loan; or b) such other orders as the Court may think fit. 45. If the first defendant is found to be a party to or bound by any of the Azzopardi Mortgage or the Residential Investments Mortgage or any loan agreement associated with these mortgages, then each of the Azzopardi Mortgage, the Residential Investment Mortgage and/or the loan agreements was unjust (as this term is defined in the Contracts Review Act 1980 (NSW) and/or s 70 of the Code) in the circumstances relating to them at the time they were made.

46. The first defendant seeks relief under s 9 of the Contracts Review Act and/or s 71 of the Code to avoid an unjust consequence by: a) voiding the Azzopardi Mortgage and the Residential Investments Mortgage and any associated loan agreement; or

b) such other orders as the Court may think fit. 47. The plaintiffs conduct in seeking the relief it seeks in the FASC against the first defendant is unconscionable within the meaning of ss 51 AB or 51 AC of the Trade Practices Act 1974 (Cth) or ss 12CB or 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act").

48. The first defendant seeks relief under s 87 of the Trade Practices Act or s 12GM of the ASIC Act.

The first defendant seeks a creation or variation of contractual rights so that the first defendant is in the position explained in paragraph 32(a) above."

The pleaded facts 15 In August 2003, the Azzopardis lent money to Mr Richards (FASC 34(a), 36). The loan was made and secured by way of a registered mortgage (FASC 34(b)). The registered mortgage on its face identified the principal (FASC 35) and the Azzopardi mortgage itself dealing 9877954Q, annexure "A" to the Notice to Admit Facts (NTAF). There was a variation in May 2004 which increased the amount of principal (FASC 50(a)) and that increase was noted on the face of the variation: see the Azzopardi mortgage variation dealing AA635448J, (annexure "B" to the NTAF). 16 In November 2004, Perpetual Trustees thought it had made a loan to Mr Richards (FASC 3A-4). It had thought it was going to obtain a valid and enforceable mortgage against Mr Richards (FASC 5-6). It turns out that the security documents were all forged and not signed by Mr Richards (FASC 29). 17 On about 24 November 2004 [NTAF par 3, FASC 11,12(a)] Perpetual Trustees paid out the Azzopardi mortgage and at settlement received a certificate of title and a discharge of the Azzopardi mortgage [NTAF par 4]. Perpetual Trustees registered the discharge of the Azzopardi mortgage and in so doing utilised the certificate of title [NTAF par 5 - Ex B]. 18 Perpetual Trustees brings proceedings to enforce its mortgage as against Mr Richards in a number of ways [FASC 4-28, 59] including subrogation by virtue of having discharged the Azzopardi mortgage (FASC 60e). If that primary case fails against Mr Richards, Perpetual Trustees seeks to recover, via a restitutionary claim, from the Azzopardis the amount paid to them on the basis that their mortgage was "a nullity and not valid or enforceable" (FASC 84). 19 Perpetual Trustees accepts that the registration of the Perpetual mortgage did not confer upon it an enforceable indefeasible interest in the property. This is because the amount of indebtedness secured by the mortgage was contained in the forged Perpetual loan, rather than the mortgage itself, and the mortgage therefore secures a nullity. 20 Nevertheless, Perpetual Trustees submitted that it has a cause of action against Richards. That cause of action is founded on the principle of subrogation. Perpetual Trustees will contend at trial that moneys advanced by Perpetual Trustees pursuant to the purported Perpetual loan were used to discharge the total indebtedness then existing under the first and second Azzopardi loans and Residential Investments loan, resulting in the discharge of the Azzopardi mortgage, Azzopardi variation and Residential Investments mortgage. 21 The entitlement of Perpetual Trustees to rely on the doctrine of subrogation is dependent upon establishing that the Azzopardis and Residential Investments enjoyed an indefeasible interest in the property immediately prior to discharge. It is this preliminary question which is the subject of this motion. The question whether Perpetual Trustees is entitled to relief pursuant to the doctrine of subrogation and, if so what relief, is not the subject of any preliminary question which Perpetual Trustees seeks to have determined. That would need to be pursued against Richards at final hearing. 22 If the Court concludes that the Azzopardis and Residential Investments did enjoy an indefeasible interest, then Perpetual Trustees will pursue its subrogation claim at final hearing against Richards, together with claims against Richards for restitutionary relief (based on benefits allegedly received by Richards as a result of the Perpetual loan, one of which benefits is admitted by Richards). On that basis, the Azzopardis would be entitled to judgment on Perpetual Trustee's claims against them and would no longer remain parties to the litigation. Perpetual Trustees brings no claim in the proceedings against Residential Investments. 23 All parties referred me to PT Ltd v Maradona Pty Ltd (1991) 25 NSWLR 643 (Giles J); Small v Tomassetti [2001] NSWSC 1112 (Campbell J); Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745 (Young CJ in Eq); Printy v Provident Capital Ltd [2007] NSWSC 287 (Studdert J); Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 (Bryson AJ); and Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; and Perpetual Limited v Costa [2007] NSWSC 1093. Since the hearing of these motions took place, decisions have been handed down in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [256]-[328] and Provident Capital Ltd v Printy [2008] NSWCA 131 particularly [39] to [53].

Indefeasibility of title 24 Pursuant to s 42 of the Real Property 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 Real Property 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. 25 As a result, interest under the Real Property Act will be valid even if the transaction underlying it was the result of a forgery (see Frazer v Walker [1967] 1 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 Real Property Act. The pleadings of Mr Richards expressly attempt to defeat the mortgage by alleging fraud. 26 Whether there is a subrogation claim or not does not affect the Azzopardis. What does affect the Azzopardis is firstly, the relief sought against them; secondly, the allegations relating to that relief, namely that the mortgage "was a nullity and not valid or not enforceable"; and thirdly, that they are sought to be made liable, by a series of declarations and accounts, to pay the money to Permanent Trustees. The Azzopardis submitted that as the mortgage identifies the principal sum on its face and it and the variation identities the principal sum on its face and as these documents have been registered they are not nullities. The Azzopardis submitted that the mortgage and variation are valid and enforceable. 27 Senior counsel for Permanent Trustees submitted that, in each of the mortgages, both the sum advanced to the mortgagor and the obligation to repay that sum (together with interest, costs and charges) is stated in the mortgage or a document expressly incorporated into the mortgage. On that view, and on the authorities, each mortgage confers an indefeasible interest in favour of the respective mortgagees as security for the payment of the "principal sum" (as defined). Senior counsel for the Azzopardis submitted that the mortgage, which identifies the principal amount and the obligation to repay it together with interest, has been held and enforceable. 28 Perpetual Trustees submitted that the better view is that, in each of the mortgages, both the sum advanced to the mortgagor and the obligation to repay that sum (together with interests, costs and charges) is stated in the mortgage or a document expressly incorporated into the mortgage. On that view, each mortgage confers an indefeasible interest in favour of the respective mortgagees as security for the payment of the "principal sum" (as defined). Mr Richards does not agree with this view and I shall canvass his submissions a little later in this judgment. 29 The starting point I think is Small v Tomassetti where the mortgage itself identified the amount which the mortgagee had agreed to lend together with the mortgagors covenants in respect of payment. It was assumed, for the purposes of interlocutory relief, that the mortgage was forged. Campbell J explained at [13] to [17]: "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." 30 In Small v Tomassetti, it was clear that the estate or interest in the land which was created by the registration was a charge which secured at least the sum of $325,000 together with interest in relation to the first mortgage and similarly, the sum of $65,000 together with interest in so far as the second mortgage was concerned. However, Campbell J did not decide whether there was indefeasible title in relation to the other covenants in the mortgage such as that which made provision for costs. 31 In Perpetual Trustees Victoria Limited v Tsai, Young CJ in Eq at [19], [20], [23] and [24] stated: "19 The traditional form of mortgage described by Mr Wales SC, who appeared for the appellant, as the "old fashioned form" did not cause the same problems as the forms used by financial institutions at present to enable them to secure all monies lent or monies lent from time to time.

20 Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgment that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type of mortgage because the production of the security document was prima facie evidence of the existence of the debt ( Piccock v Brown (1734) 3 P Wms 288; 24 ER 1069) and that, unless the fact was put in issue by the pleadings, the security itself was sufficient evidence of the payment ( Minot v Eaton (1826) 4 LJ (OS) Ch 134, but see Wansworth Norton Solicitors Nominee Company Limited v Edmonds [1992] 1 NZLR 596). This is set out in the Australian edition of Fisher and Lightwood on Mortgages at par [16.45] and [39.8]. The modern clause, however, does not go that far especially in a facility mortgage requiring drawn downs to be made later. It would thus not seem that any of the traditional protections to mortgagees apply to mortgagees who use this form of loan agreement and mortgage.

[23] … As the secured agreement itself does not bring with it any concept of indefeasibility and as there is an issue between the parties as to whether or not it was ever signed by the appellant or merely signed by a person impersonating the appellant, there is not the material to demonstrate to the required standard that there was a loan to the appellant.

[24] If there was no loan to the appellant he could not be in default not repaying the loan and, therefore, the mortgagee was not entitled to possession." 32 The "old fashioned" form of mortgage is one which nominates the principal sum. The Azzopardi mortgage, the Azzopardi variation and the Residential Investments mortgage are all of the old fashioned variety as they nominate a principal sum. 33 Basten JA in Provident Capital Ltd v Printy, commented upon the reasoning of Young CJ in Eq in Perpetual Trustees Victoria Ltd v Tsai. At [45]-[46] Basten JA in Printy explained: "45 These passages assume, rather than explain, why a covenant in the mortgage to pay the secured moneys created no debt if, under the general law, the loan agreement was ineffective. It was the assumption of that result which was challenged by the appellant in the present case. 34 Basten JA referred to Yazgi v Permanent Custodian Ltd [2007] NSWCA 240 at par [46]-[47] which raised a similar issue in that the mortgage referred to a debt arising under a housing loan contract, which was void as against Mrs Yazgi under the general law. 35 His Honour continued: "46. … However, the precise issue in dispute in Yazgi was not entirely clear. The judgment noted a concession by the mortgagee that the definition of "mortgage debt", so far as it referred to moneys owing under the housing loan contract and interest on such moneys, "did not operate to secure to it an indefeasible title over Sabah Yazgi's interest in the property": at [25]. The submission made by the mortgagor is recorded in terms that it "had an indefeasible title in respect of the whole of the mortgage debt as against the whole of the property" by virtue of the definition of "mortgage debt" in the mortgage: at [25]. The reasoning then proceeded by reference to the language of the mortgage and in particular as to what clause 6 meant in defining "mortgage debt" as a phrase which "means and includes" certain identified moneys. The issue of construction appears to have turned upon the concession and the concession appears to have been that no moneys were owed by Mrs Yazgi under the housing loan contract. Accordingly, it was held there was no debt in relation to Mrs Yazgi's share in the land and hence the mortgagee was obliged to account to Mrs Yazgi for the full amount of her share in the property, except for an amount expressly identified in the mortgage.

47 The approach proposed by the plaintiff, and accepted below, would invite a distinction to be drawn depending on whether the debt arises from a covenant contained in:

(b) a separate deed or agreement expressly incorporated into the mortgage, or

(c) a separate deed or agreement, for which the mortgage is expressed to constitute security.

Those distinctions are not watertight categories. The mortgage itself may contain an express covenant for repayment of a debt under a loan agreement, which will constitute a personal covenant in the mortgage. Similarly, a mortgage may be expressed to secure a particular debt and "all moneys" owing to the mortgagee. Each case may fall into categories (a) and (c). The critical distinction would appear to be between (a) and (b) on the one hand and (c) on the other. Because a mortgage is a charge on land "created merely for securing the payment of a debt", it might be surprising if a mortgage failed in its purpose because the debt arose under an ineffective collateral agreement secured by the mortgage, but that the mortgage would be effective where the debt was identified in the mortgage itself, although that was equally a forgery." 36 His Honour then continued his analysis based upon the construction of s 57(2) of the Real Property Act. 37 In Printy v Provident Capital Ltd, Studdert J referred to the two forms of mortgage. The second mortgage did not contain specific amounts on its face. The second mortgage in Printy v Provident Capital Ltd relevantly reads: "43 This mortgage, again in the approved form, provides that the mortgagor "mortgages to the mortgagee all the mortgagor's estate and interest in the…land and covenants with the mortgagee that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage:

Annexure A hereto; Memorandum No. Q8600000 filed at Land and Property Information New South Wales."

44 Unlike the memorandum incorporated in the first mortgage, the memorandum in this mortgage identifies the principal sum advanced and an obligation to pay it with interest. This is a distinction of fundamental importance:

"The mortgagor acknowledges receipt of the principal sum of fifty thousand dollars ($50,000) (principal sum) and for the consideration of the advance of the principal sum the mortgagor hereby:

(b) covenants with the mortgagee as follows: (i) the mortgagor will pay to the mortgagee the principal sum or so much of the principal sum as shall remain unpaid on the date which is twelve months from the date of this mortgage, being the …….. day of April 2004; (ii) the mortgagor will pay interest on the sum as for principal sum or on so much of the principal the time being shall remain unpaid, and upon any judgment or order in which this or the preceding covenant may become merged at the rate of nineteen (19) percentum per annum in advance calculated monthly and payable on the date of this mortgage…"

45 Having regard to the provisions of the memorandum, expressly incorporated in the mortgage, the plaintiff concedes that the document upon registration provided relevant indefeasibility. Notwithstanding the fact that the plaintiff did not enter into the mortgage or the incorporated memorandum, the fact of registration of the documents conferred indefeasibility to support the first defendant's entitlement to recover the principal sum and interest from the proceeds of sale of the property." 38 The reason was that the particular mortgage described in the judgment as a second mortgage identified the principal sum advanced and an obligation to repay it with interest. Studdert J at [44] said, "This is a distinction of fundamental importance". This is because the forged second mortgage, contained in its own terms acknowledgment of the receipt of the principal and covenants for payment of the principal and the interest; there was no reference to another document or need to identify another document by the identity of the parties to it. This second mortgage was not the subject of challenge in Provident Capital v Printy.

The two mortgages and the variation in these proceedings 39 The terms of the first and second mortgages, together with annexures and the memorandum, are almost identical except that the mortgagees in the first mortgage are Joseph Azzopardi and Carmen Azzopardi and the mortgagee in the second mortgage is Residential Investments Pty Ltd.

The first mortgage 40 The first mortgage between Mr Richards (as mortgagor) and the Azzopardis (as mortgagees) dated 20 July 2003 with registration number 9877954Q. On the page one of the document headed "Mortgage" it reads: "mortgages to the mortgagee all the mortgagor's estate and interest in the above land, and covenants with the mortgagee that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage: · memorandum No Q860000 filed at Land and Property Information New South Wales." 41 The second page is headed Annexure "A". It contains the following, which runs to the last page:

"This is the annexure "A" referred to in the Mortgage made between Warren Austin Richards (as Mortgagor) and Joseph Azzopardi and Carmen Azzopardi (as Mortgage) relating to the land in Folio Identifier x/xxxxxx and dated 11 August 2003. 1. The Principal Sum shall be all monies which the Mortgagor owes to the Mortgagee now or later whether before or after signing this Mortgage for, in respect of or arising out of any transaction or thing done by the Mortgagee in the course of carrying on its business and includes the whole or any part of the following: (a) The sum advanced at the date hereof of $350,000.

(b) All sums of money which may be for the time being owing or unpaid by the Mortgagor to the Mortgagee for or in respect of all loans and advances previously made, created or given by the Mortgagee to, for or on account or at the request of the Mortgagor; (c) … (d) … (e) … 2. For the consideration aforesaid the Mortgagor hereby: (a) irrevocably appoints the Mortgagee the attorney of the Mortgagor immediately on or at any time after any breach or default by the Mortgagor to exercise in the name of the Mortgagor all rights, powers and remedies of the Mortgagee express or implied herein …

(b) covenants with the Mortgagee as follows: Firstly - The Mortgagor will pay to the Mortgagee the principal sum or so much thereof as shall remain unpaid on the 31st day of August 2004. Secondly - The Mortgagor will pay interest on the principal sum … Thirdly - …" 42 Paragraph 6 of the memorandum reads: "6. Upon default being made in payment at the respective times and in the manner shown in the mortgage of the principal sum or any part thereof, or of the interest thereon or any part thereof, upon default being made in the observance or performance of any of the covenants contained herein or in the mortgage or implied therein by the Real Property Act 1900 or the Conveyancing Act 1919 the mortgagee shall (notwithstanding any omission, neglect or waiver of the right to exercise all or any of such powers on any former occasion) be at liberty to exercise all or any of the powers of a mortgagee under the said Acts immediately upon or at any time after default as herein before mentioned, subject however to compliance with any requirements of the said Acts in respect of the exercise of such powers. If at any time default shall be made in the due payment of the interest on any of the days when the same respectively shall become payable or within the time thereafter mentioned in the schedule to the mortgage, or, if the power of sale given to the mortgage under either of the said Acts shall become exercisable, then the principal sum shall immediately become due and the mortgagor will thereafter pay the same on demand."

(ii) Variation of mortgage 43 There is a document titled "variation of mortgage" between Richards (as mortgagor) and the Azzopardis (as mortgagees) dated 6 May 2004 with registration number AA635448J, and reads: "G. 1. … 2. The principal sum is increased to $ 448,000.00 3. The term is extended to 31st August 2005 . 4. The provisions of the mortgage are varied____ as set out in annexure "A"______ hereto."

(iii) The Residential Investments mortgage 44 As previously stated, there is a mortgage between Richards (as mortgagor) and Residential Investments Pty Ltd (as mortgagee) dated 6 May 2004 with registration number AA635449G. Subject to the mortgagee being a different entity and the principal sum being a different amount, the mortgage is identical to the Azzopardi mortgage. 45 The most important feature in each mortgage and the variation is that they contain a principal sum namely $350,000, $448,000 and $96,000 on the face of the document. So far as the Azzopardis are concerned, they made no other loans to the Richards. 46 Mr Richards submitted that the inclusion of the words "and includes" in both the Azzopardi mortgage and the Residential Investments mortgage, contain the words "and includes" within the expression "all monies which the Mortgagor owes to the Mortgagee now or later … for, in respect of or arising out of any transaction … and includes" has the effect of limiting clause 1(a) ("the sum advanced at the date there of … $350,000") to any amount owed by the mortgagor under a transaction between the mortgagor and the mortgagee and therefore the amount of the principal sum may not be $350,000 or $96,000 so far as the Residential Mortgage is concerned. Perpetual Trustees submitted that this view is, on balance, incorrect because the wording of clause 1(a) is intended to refer to a sum deemed to have been actually advanced to the mortgagor. 47 The solicitor for Mr Richards also submitted that firstly, the two mortgages do not charge a debt on the land; secondly, that there is a distinction between a mortgage which seeks to secure on its face a specified amount of money and a mortgage which does not specify on its face the amount sought to be secured; and thirdly, since the mortgage dated 20 July 2003 was a nullity, there is nothing to vary so the registration of the variation of mortgage dated 6 May 2004 is ineffective and upon registration secures nothing. 48 The wording of the second mortgage in Provident Capital v Printy is similar to the wording in the Azzopardi mortgage. 49 The mortgages and variation all state the principal sum on the face of that document. All three documents were registered. It is my view that the principal sum is, on the proper construction of cl 1, the sum of $350,000, plus any other moneys owed to the mortgagee by the mortgagor under any transaction between them. There were no other transactions between the Azzopardis and Mr Richards. All that clause (G)2 achieves is to increase the "principal sum" to $448,000. In relation to the Azzopardi mortgage and variation, the estate or interest in the land which is created by the registrations are charges which secure at least the sum of $350,000 and later $448,000 together with interest which accrues and is unpaid. 50 Applying the same reasoning, the position is the same in relation to the Residential Investments mortgage. The estate or interest in the land, which is created by the registration, is the charge, which secures the sum of $96,000 together with interest which accrues and is unpaid, provided there have not been any other transactions between Richards and Residential Investments. The pleading does not disclose whether any other transaction between Richards and Residential Investments. Residential Investments is in a different position to that of the Azzopardis and it is not a party to the proceedings. Hence, I cannot make any order for summary judgment in relation to the Residential Investments mortgage. 51 In my view, the arguments that the mortgages and variation are nullities, not valid or enforceable are hopeless. So far as the issues for separate determination are concerned, Mr Richards has not cross claimed against the Azzopardis so he cannot seek relief under the Contracts Review Act and Consumer Credit Code or claim unconscionability against them. In my view, the Azzopardis (the fourth defendants) are entitled to summary judgment. I make an order in accordance with paragraph [1] of the fourth defendants' motion filed 20 November 2007.

The remaining questions for separate determination 52 Rule 28.2 of the Uniform Civil Procedure Rules states: "28.2 Order for decision The court may make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings." 53 There are a number of authorities on this topic which include Tepko Pty Limited v Water Board (2001) 206 CLR 1; Perre v Apand Pty Limited (1999) 198 CLR 180 at [436]; State of New South Wales v Lepore (2003) 212 CLR 511 at [187]; Dunstan v Simmie Co Pty Ltd [1978] VR 669 at 671; and ABB Engineering Construction Pty Limited v Freight Rail Corp [1999] NSWSC 1037. In Idoport Pty Limited v National Bank Ltd [2000] NSWSC 1215, Einstein J at [7]-[8] helpfully provides a compendium of cases upon this topic which I need not reproduce here. 54 In Tepko v Water Board, Kirby and Callinan JJ cautioned against the severing of issues by the Court. Their Honours stated (at [168] - [171]): "…we should not leave this case without making four comments. Both Mason P and Fitzgerald JA were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap. The second and related comment is this. A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests. Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question. The fourth of our comments is related to evidence compiled, committed to writing and filed in advance of the hearing. Parties frequently, either together or separately, compile "books of documents". Although most of these have the potential to be admitted in evidence, often they are defective in form. Many of them are often irrelevant, or their significance is either not recognised or adverted to during the hearing. Their status, as in the case of the letter written by Mr Rhodes, can be ambiguous. Discrimination and economy should be exercised by those who prepare cases in which documentary evidence is likely to be extensive and important. Those who conduct such cases should ensure that what is actually in evidence, and its relevance and significance, are clearly identified." [Footnotes omitted] 55 In Pioneer Park Pty Limited v ANZ Banking Group Limited [2005] NSWSC 832 (cited in Admiral I Pty Ltd v Leighton Contractors Pty Ltd [2005] NSWSC 1105 at [19] per Barrett J), Einstein J rejected an application for separation of liability and quantum. His Honour's reasons cited (at [7]) as "far and away the most significant factor" the fact that the evidence of a plaintiff was likely to be critical both as to liability and as to damages/quantum in a number of ways. Additionally, expert evidence which both parties anticipated putting on in relation to liability was also material to any assessment of loss or damage. His Honour stated at [8]: "It is envisaged that the same experts would be used relating to those issues both as to liability and as to quantum. Certainly, the same or very similar expertise is required and there is obviously a substantial overlap in the … [material] … the experts will need to review for the purpose of addressing the liability issues on the one hand, and the quantification issues on the other. It is obviously illogical and inefficient for the experts to engage in that exercise on two different occasions." 56 Since these decisions were handed down the Local, District and Supreme Courts in New South Wales have been affected by the Civil Procedure Act 2005. Sections 56 to 62 are relevant. While I will not reproduce them here, these sections refer to the overriding purpose, objects of case management and proportionality of costs. 57 In Integral Home Loans Pty Ltd & Anor v Interstar Wholesale Finance Pty Ltd & Anor [2006] NSWSC 1464, Brereton J stated at [6]: "While much has been said against the resolution of separate questions in Courts of high authority, nonetheless, since the (NSW) Civil Procedure Act 2005, it is my view that the Court should take a more interventionist role in identifying and separating important issues which can resolve significant parts of the litigation expeditiously."

See also Tyrrell v The Owners Corporation Strata Scheme 40022 [2007] NSWCA 8. 58 So far as Residential Investments is concerned, had the separate question concluded before the word "regardless" I would have answered "Yes" provided there is no other transaction between Richards and Residential Investments. It is unclear whether there was any other transaction. But the balance of the separate questions for determination in relation to the Residential Investments mortgage involves relief being sought under the Contracts Review Act, Consumer Credit Code and unconscionable conduct. As previously stated, Residential Investments mortgage is in a different position to that of the Azzopardis as Residential Investments is not a party to these proceedings. 59 I now turn to consider whether there should be a separate determination of these issues in so far as the Residential Investments mortgage is concerned. Mr Richards has pleaded Contracts Review Act, Consumer Credit Code and unconscionability against Perpetual Trustees.

Contracts Review Act 60 It is clear that the Contracts Review Act does not apply, if the signature on the document is forged - see Permanent Trustees Company v Frazis [1999] NSWSC 319. This approach was followed by McDougall J in Small v Gray [2004] NSWSC 97 at [79]; Chen v Song [2005] NSWSC 19 at [179] per James J; and applied by this Court in Permanent Custodians v Yazgi [2007] NSWSC 279 at [133]-[134]. However, Mr Richards's position so far as claim for relief under the Consumer Credit Code and the claim in relation to unconscionability is not so clear.

Consumer Credit Code 61 Mr Richards contends that the mortgages should be unwound pursuant to ss 70 and 71 of the Consumer Credit Code (Further Amended Defence (FAD) [45, 46]). Perpetual Trustees submitted that this contention is also misconceived and that a complete answer to the Consumer Credit Code defence is s 73. The relevant mortgages were discharged in December 2004 (Ex B). On 9 December 2005, the statement of claim was filed. By this time 12 months of the two year limitation period had already elapsed. In about late 2007, the Code did not appear in any form of the defence. 62 Section 73 of the Code provides: "73 Time limit

(1) An application (other than an application under section 72) may not be brought under this Division more than 2 years after the relevant credit contract is rescinded or discharged or otherwise comes to an end.

(2) An application under section 72 may not be brought more than 2 years after the relevant change takes effect or fee or charge is charged under the credit contract or the credit contract is rescinded or discharged or otherwise comes to an end." 63 Section 70(1) relevantly permits the Court to reopen a transaction giving rise to a "mortgage", where it is satisfied that the "mortgage" was unjust. Section 8(1) provides that the Code only applies to a mortgage if, relevantly, "it secures obligations under a credit contract or a related guarantee". In the present case, there was no credit contract in existence which was secured by the mortgages. 64 Perpetual Trustees submitted that there was no credit contract in existence which was secured by the mortgages. They submitted that any credit contract that was represented by the mortgages themselves was a nullity due to the forgery of Richards' signature: Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156-7; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [193]. 65 According to Perpetual Trustees the reasoning in Permanent Trustees Company v Frazis applies equally to relief under the Consumer Credit Code. Perpetual Trustees further submitted that Mr Richards cannot argue that he is not a party to the underlying loan contracts and simultaneously argue that the mortgages are, for that reason, unjust and should be set aside. 66 It may be arguable that the defence is not statute barred. Like the Contracts Review Act, the relief granted under the Consumer Credit Code is discretionary. Further, s 11(1) of the Code provides that in any proceedings in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established. The facts and circumstances of this matter need to be ascertained at trial before the discretion, if any, are exercised. This issue is also not suitable for separate determination.

Unconscionability 67 In paragraphs [47] and [48] of the FAD Mr Richards seeks "a creation or variation of contractual rights" so that he is required to repay to Perpetual Trustees only the amount of the "Public Trustee Payment" (the amount referred to in paragraph [32(a)] of the FAD). He relies upon the alleged unconscionable conduct of Perpetual Trustees, within the meaning of sections 51AB and 51AC of the Trade Practices Act 1974 (Cth) and ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth (ASIC Act). 68 The impugned conduct, according to paragraph [47] of the FAD, is "The plaintiff's conduct in seeking the relief it seeks in the FASC against the first defendant". Perpetual Trustees submitted that the impugned conduct complained of is specifically excluded from all of the relevant statutory provisions. Each provision provides that the institution of legal proceedings in relation to the relevant supply of services cannot be taken to constitute engaging in unconscionable conduct - see ss 51AB(3) and 51AC(5) of the Trade Practices Act (Cth) and ss 12CB(3) and 12CC(4) of the ASIC Act (Cth). The unconscionable conduct can be related to the loan agreements, not the taking of legal proceedings - see s 51AB(2). Once again, this relief covers discretionary matters and should be determined at trial. So far as the balance of the issues for separate determination, namely the Contracts Review Act, Consumer Credit Code and unconscionability, they are not suitable for separate determination. Each defence relied on the facts and circumstances being ascertained; they are not discrete issues. 69 It is my view that in these circumstances it is not appropriate to have this issue determined separately. In Perpetual Trustees Victoria Ltd v Van Den Heuvel [2008] NSWSC 350, Perpetual Trustees Victoria sought to strike out Mr and Mrs Van Den Heuvel's defences under the Contracts Review Act and Consumer Credit Code. As in the case before me, the application was brought on the basis that the signatures on the loan agreement and mortgage were forged. Associate Justice Malpass refused to grant summary judgment. I agree these are not the type of issues that should lend themselves to separate determination.

70 In my view there is no utility in determining these issues separately. If the facts and circumstances need to be ascertained so far as the loan and mortgage with Perpetual Trustees, then the factual matrix should be determined at the one time, namely at trial. There is no bright line between the discharging of the Residential Investments' mortgage and the loan with Perpetual Trustees.

Costs 71 The Azzopardis seek their costs on an indemnity basis as from 28 September 2007. It was on that day that their solicitors wrote to Permanent Trustees' solicitors seeking that it discontinue against them and they set out detailed reasons (similar to the submissions made at the hearing) as to why this should occur. At par [25] of that letter they requested that Permanent Trustees discontinue proceedings as against them and if that was not done within the next 28 days that they would seek to rely upon that letter to seek an order for indemnity costs. 72 Perpetual Trustees submitted that costs as between Perpetual Trustees and the Azzopardis should be decided in the following way. If there is to be judgment for the Azzopardis as against Perpetual Trustees, then Perpetual Trustees should pay the Azzopardis' costs. However, Perpetual Trustees says that the questions are not so clear-cut as to justify an indemnity costs order. The questions raised by Perpetual Trustees are not suitable for separate determination. They remain a matter for determination at trial. Perpetual Trustees notice of motion filed 1 February 2008 is dismissed. 73 The Azzopardis were successful. Costs are discretionary. Costs follow the event. Perpetual Trustees is to pay the Azzopardis' costs of the motion. As to whether costs should be awarded on an indemnity basis, the Azzopardis' in their letter, dated 15 January 2008, stated that if Perpetual Trustees would not let them out, would it please reconsider the need for a separate question. Perpetual Trustees acceded to the latter suggestion. In the circumstances, it is my view that the Azzopardis' costs should be paid on a party/party basis. Perpetual Trustees were unsuccessful in their motion for separate determination of issues. As the motions were heard together and Perpetual Trustees was unsuccessful in both, it should pay the costs of both motions.

(1) Perpetual Trustees Australia Limited's pleading against the Azzopardis' in the FASC dated 11 October 2007 is summarily dismissed.

(2) Perpetual Trustees Australia Limited's notice of motion seeking separate determination of issues filed 1 February 2008 is dismissed.

(3) Perpetual Trustees Australia Limited is to pay the Azzopardis' and Mr Richards's costs of both motions. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.