Defences raised by Mr Cipri
(1) A personal equity
95 Mr Tregenza of counsel submitted on Mr Cipri's behalf that the conduct of Perpetual, in producing the relevant certificate of title to the Registrar-General and otherwise using it without Mr Cipri's authority, gave rise to a personal equity in his favour to have the mortgage set aside: see Statement of First Cross-Claim, dated 23 January 2007, at [5]-[7].
96 Mr Cipri's particulars in the Amended Defence as to the circumstances anterior to the registration of the Mortgage are limited. In his defence as well as his cross-claim, Mr Cipri pleaded that "on or about 28 August 2003, the cross-defendant [Perpetual] received a document purporting to be a mortgage approved for registration … in which the cross-claimant [Mr Cipri] and Sandria Cipri purported to be the mortgagors" and that "the cross-defendant [Perpetual] registered the Mortgage" and "produced to the Registrar-General … the certificate of title": Statement of First Cross-Claim, dated 23 January 2007, at [2]-[5].
97 Notwithstanding the provisions of the Real Property Act, especially s.41 and s.42, and the concept of indefeasibility which those provisions establish, the proprietor of a registered interest is not immune from claims founded on personal equities: Frazer v Walker [1967] 1 AC 569; Bahr v Nicolay (No 2) (1988) 164 CLR 604; Mercantile Mutual Life Insurance Co Limited v Gosper (1991) 25 NSWLR 32. Such rights in personam may be enforced against the registered proprietor whether they arose before or after the registered interest was acquired: see Gosper (supra) at 42 per Mahoney JA.
98 In this case, the personal equity is claimed to arise from conduct of the registered mortgagee preceding registration of its interest.
99 It is well-established that the mere fact of forgery does not make it unconscientious for the registered mortgagee to enforce its security and that no personal equity (in favour of the defrauded mortgagor) to have the mortgage set aside arises from that fact alone: Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 per Gleeson CJ at 736. Something more is needed: Gosper (supra) at 47 per Mahoney JA.
100 In Vassos v State Bank of South Australia [1992] V Conv R ¶54-443 Hayne J stated:-
"… it may well be that the bank did not act without neglect but there is in my view no material which would show that the bank acted unconscionably. There was no misrepresentation by it, no misuse of power, no improper attempt to rely upon its legal rights, no knowledge of wrongdoing by any other party. It obtained a mortgage apparently regular on its face but which was in fact forged. Even if by making reasonable enquiries the bank could have discovered the fact of the forgery I do not consider that that fact alone renders its conduct unconscionable. I do not consider that the plaintiffs have any in personam right against the bank …"
101 The first cross-claim does not plead and the evidence in these proceedings fails to establish considerations such as those referred to by Hayne J in Vassos (supra). The only fact before this Court, upon which Mr Cipri placed emphasis, was Perpetual's use of the certificate of title without his authority. But the mortgage being a forgery, it is necessarily inherent that production of the Certificate of Title occurred without Mr Cipri's authority.
102 Mr Tregenza relied, amongst other authorities, upon the judgment of Mahoney JA in Gosper (supra) to support the claim of a personal equity in his client's favour. There, the mortgagee had used the certificate to obtain registration of its variation of mortgage (increasing the debt) in circumstances said to have breached its obligations to the registered proprietor of the premises and supposed mortgagor, Mrs Gosper (the variation of mortgage was, in fact, a forgery). Whilst Mahoney JA referred to the mortgagee producing the certificate to the Registrar-General without the authority of the registered proprietor of the land, his Honour's finding of a personal equity in favour of Mrs Gosper at pp.47-48 of the judgment was founded upon the circumstances that had led to the mortgagee having had custody of the certificate and the obligations arising in that respect. The personal equity arose not simply by virtue of an unauthorised use of the certificate but by reason of its use by the mortgagee "in breach of its obligations in relation to the possession and custody of the certificate of title": Gosper (supra) at 48-49 per Mahoney JA.
103 In the present case, Mr Tregenza acknowledged that the Certificate of Title lay, originally, in the joint possession of Mr and Mrs Cipri and that Mrs Cipri, as a joint tenant of the property, was entitled to possession of the certificate which she gave to Perpetual.
104 In this present case, the evidence does not establish any custodial obligations owed by Perpetual to Mr Cipri in contrast to the position that existed in Gosper (supra).
105 Mr Leopold, in his submissions, emphasised that there was no pleaded case raising material facts as to circumstances in which Perpetual had held the Certificate of Title. The only fact pleaded was the act of producing it to the Registrar-General. Further, no obligations of any kind in Perpetual, vis a vis Mr Cipri, were pleaded to support any contention of breach.
106 Mr Leopold also contended that no different principle applied in the case of co-owners in a forged mortgage case to that in a single owner case. In particular, he contended there was no obligation on the part of a mortgagee to inquire by virtue of the fact that the property is held in co-ownership. Further, in this case, he emphasised there was no allegation of actual or constructive notice in Perpetual in support of the "personal equity" alleged.
107 Mr Leopold relied upon a number of authorities including Vassos (supra), Story (supra) and more recently Vella v Permanent Mortgages Pty Limited [2008] NSWSC 505 (Young CJ in Eq) at [365], [366], [371], [372], [375] and [379] and Spina v Conran Associates Pty Limited [2008] NSWSC 326 (Austin J).
108 Mr Leopold and Mr Tregenza also referred to extracts from the Law of Torts by R P Balkan and J L R Davis, Lexis Nexis Butterworths [2004] at [4.18] and [4.19], the latter entitled "Acts of conversion". At [4.18], reference was made to the distinction between exercising dominion over another's goods and "a mistaken belief as to that identity or ownership". Mr Leopold contended that this distinction is an important one in mortgage forgery cases where, in the nature of such cases, someone has been duped and has acted under a mistaken belief as to identity or ownership. Conversion, he contended, requires "something higher" - an intention to exercise dominion over them and denial of the rights to a person over immediate possession.
109 In the course of this submissions, Mr Tregenza referred to Atwood v Ernest (1853) 138 ER 1449; Re Gillie, ex parte Cornell (1996) 150 ALR 110 and Kitano v Commonwealth (1974) 129 CLR 151.
110 In Atwood (supra), a declaration was sought that the defendant had detained from the plaintiff certain books, papers and other records, these items being the property of a number of persons who also had a right to possession jointly with the plaintiff. The defendant denied the plaintiff's right to claim against him in detinue. It was held in that case that where two or more who are jointly interested in a chattel, deposit it with a stranger, a demand by one in his own name only, and not on behalf of all, will not entitle such one person to maintain detinue for it: see Maule J at 1453.
111 In Kitano (supra) at 172, the High Court adverted to the principles relating to a claim in conversion and, in particular, that conversion may be brought at the instance of a co-owner of a chattel.
112 Mr Tregenza also relied upon the dicta of McMurdo J in White v Tomasel [2004] 2 QdR 438 at 455. In that case involving the sale of real property by auction, it was contended that the auctioneer had sold the property to the respondent at a figure which was below the reserve price and therefore without the authority of the appellant. On an application before a District Court Judge, an order was made that the appellant comply with obligations pursuant to the relevant contract of sale and proceed to settlement in accordance with the specific conditions of the contract within a specified period.
113 On appeal, a question arose as to whether or not the appellant had established as "equity" within s.185(1)(a) of the Land Title Act 1994 (Qld). McMurdo J stated at 455:-
"72. Accordingly, to constitute an 'equity' within s.185(1)(a), the interest must arrive from a recognised right of action, at law or in equity, which arises from the acts of the registered proprietor and which is not inconsistent with the policy of a Torrens system of title. In some cases, fine questions can arise as to whether a proprietary right, which would be recognised under the general law and which arises at least partly from the registered proprietor's acts, can be enforced against a registered interest consistently with the policy of Torrens title …
73. But in the present case, the restitutionary obligation on the respondents does not derive from any knowledge or notice of another person's unregistered interest in the land. Instead, it derives from the respondents' actions in acquiring their title by the orders of a court which should not have been made. There is no tension here between the enforcement of the restitutionary obligation and the policy and objectives of a Torrens system of title. To exempt the respondents from the performance of their obligations simply because they have reached the high ground of a registered interest would not advance the purposes of the Torrens system, but it would undermine the administration of justice by significantly limiting the powers of courts to correct erroneous judgments and to reverse their consequences. To hold that the registered interest of a proprietor in these circumstances is the subject of an obligation enforceable against the proprietor is not to derogate from that interest; it is simply to say that the interest itself, like other property, can be the subject of rights as a result of circumstances of the proprietor's making."
114 McMurdo J went on to refer to examples including those in Vassos (supra), Story (supra) and other cases and continued:-
" 74 … In each of these cases, because the mortgagee's title was derived from its registration and not from the mortgage instrument itself, a personal obligation was sought to be established by reference to what was known or should have been known by the mortgagee, and which was said to affect its conscience when seeking to enforce its mortgage. Each of those claims failed, not because a recognised cause of action under the general law was defeated by the registration of the mortgage, but because the facts did not give rise to any recognised cause of action. In the circumstances of those cases, the establishment of the cause of action depended upon proof of some knowledge of the forgery or other invalidity of the instrument which would have made it unconscientious or unconscionable to have enforced the mortgage. A mere failure to make careful inquiries as to the validity of the mortgage instrument was not sufficient to provide an obligation under the general law, irrespective of the impact of registration. The alleged cause of action in each case was equitable, and the claim was rejected because the established facts should not have affected the mortgagee's conscience. Thus, in Vassos , Hayne J said that 'it may well be that the bank did not act without neglect but there is [in] my view no material which would show that the bank acted unconscionably'. In Mercantile Mutual Life Insurance Co Limited v Gosper … the mortgagee was held to be subject to an equity enforceable under the general law, because it facilitated the registration of a forged mortgage by its own breach of certain obligations to the registered proprietor relating to possession and custody of the certificate of title. In my view, the use of the criterion of unconscionability in these cases should not be understood as meaning that, in every case, the registered proprietor's interest is susceptible to the performance of obligations arising from his own actions only where there is some element of unconscientious or unconscionable conduct. When Hayne J remarked in Vassos that there was no misrepresentation, misuse of power, improper attempt to rely upon legal rights or knowledge or wrong-doing by the other party, his Honour was excluding the grounds for the obligation sought to be imposed upon that registered proprietor in the facts and circumstances of that case, rather than attempting to comprehensively list the circumstances in which a registered proprietor might be bound by his own actions in relation to his registered interest …"
115 Mr Tregenza's submission based on the above authorities was that the use of the Certificate of Title in the present case by Perpetual where Mr Cipri was a co-owner with a right to possession of the Certificate of Title was unauthorised. Such unauthorised use by it so as to deny Mr Cipri's possessionary rights in respect of it was said to amount to a conversion and went to support the personal equity asserted by him. These submissions, however, are to be evaluated in light of established principles including, in particular, the dicta of Hayne J in Vassos (supra) set out in paragraph [100] above.
116 There was, in the present case, apart from the allegation of the production of the Certificate of Title, in my opinion, neither particularisation of a case nor evidence sought to be relied upon to establish a claim founded on a personal equity as discussed in Frazer (supra) and Gosper (supra). Mr Tregenza properly conceded that, in the present case, Mrs Cipri was entitled to put the Certificate of Title in the hands of the plaintiff, although he added not such as to authorise it to produce it, she only being one of two co-owners.
117 I have, accordingly, concluded that the circumstances of the present case do not establish the claimed personal equity. In particular, there is no evidence of actual or constructive knowledge in Perpetual of any wrongdoing or impropriety or of any misuse of power by it and no evidence of any breach of an obligation by Perpetual.
(2) Relief under the Contracts Review Act
118 The second defence was based upon the Contracts Review Act. Section 7 of the Act provides:-
"(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:-
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract,
(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:-
(i) varies, or has the effect of varying, the provisions of the land instrument, or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument."
119 A foundational issue in the present case is whether there existed a contract for the purposes of the Contracts Review Act to which the first defendant and Perpetual were parties.
120 Mr Tregenza sought to argue that the forged Mortgage was a contract to which they were parties for the purposes of the Act. He submitted that by registration of the Mortgage under the Real Property Act, it was deemed to be a contract thus enabling the first defendant to seek relief under the Contracts Review Act.
121 As Mr Tregenza observed, the term "contract" is not defined by that Act. He noted that statutes may operate so as to produce results departing from those otherwise arising at general law. Accordingly, he contended, by virtue of statutory provisions a contract may be deemed to exist despite the absence of a meeting of the minds. Mr Tregenza pointed in that respect to s.55 of the Sydney Water Act 1994, which provides for an owner of land connected to one of the Corporation's water mains to be taken as having entered into a contract with the Corporation. He then submitted that the same outcome (as that provided for explicitly in s.55 of the Sydney Water Act) had occurred in respect of the forged mortgage owing to the operation of the Real Property Act. In aid of this submission, he drew attention to s.36(11) of the latter Act providing that:-
" Upon registration, a dealing shall have the effect of a deed duly executed by the parties who signed it. "
122 In Permanent Trustee Company Limited v Frazis [1999] NSWSC 319, Dunford J dismissed a notice of motion by the applicants to set aside a default judgment which had given the respondent a right to possession of their premises. The applicants argued that their signatures on the Loan Agreement and Mortgage were forgeries yet also sought to argue that the contract was unjust. As explained by Dunford J at [17]:-
" 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."
123 In Khan v Hadid [2003] NSWSC 1191 at [24], Cripps AJ upheld a mortgagee's application for summary judgment, noting that counsel for the mortgagors had failed to provide any authority in support of the contention that s.42 of the Real Property Act operates to deem the existence of a contract notwithstanding the forgery (the decision of the primary judge being overturned on appeal for different reasons).
124 More recently, in the decision of Chen v Song [2005] NSWSC 19, James J at [179] stated:-
"It would seem that what is validated by the registration of a forged instrument does not amount to a contract to which the Contracts Review Act can apply."
125 His Honour did not advert to the possible impact of s. 36(11) of the Real Property Act but cited the decisions of Khan (supra) and Frazis (supra) in support.
126 The first defendant sought to place reliance on the decision in Small v Gray [2004] NSWSC 97. In that case, McDougall J found the existence of a contract for the purposes of a grant of relief under the Contracts Review Act, reasoning that the registration of the mortgage, by virtue of s.36(11) of the Real Property Act, gave the mortgage the effect of a deed between the plaintiffs and the defendant in question: Small v Gray (supra) at [74]. Whilst in that case the mortgage in question contained a forgery (one of the signatures of the two mortgagors having been forged), it was the mortgagor whose signature had not been forged who sought relief under the Contracts Review Act. Accordingly, so far as that mortgagor's interest was concerned, s. 36(11) of the Real Property Act could operate to give the mortgage effect as a deed "duly executed by the parties who signed it": see Small v Gray (supra) at [79]-[80].
127 However, McDougall J in referring to the facts of Frazis (supra) observed:-
"… It is at least arguable that that subsection would have no application to the facts before his Honour, because neither of the applicants could be described as 'parties who signed' the relevant mortgage. Had Rodney pursued his defence under the Act, then the reasons of Dunford J in Frazis would have been a substantial barrier in his path" (Rodney's signature in Small was forged).
128 The result in Small v Gray (supra), accordingly, does not assist Mr Cipri on the facts of the present case. He was not a person "who signed it" (the Mortgage) and, as such s.36 (11) of the Act, in my opinion, can have no operation.
129 I find no reason to depart from the line of authority commencing with Frazis (supra). As there is no contract between Mr Cipri and Perpetual, the basis required for the grant of relief under the Contracts Review Act is absent. Accordingly, the defence raised in reliance on the Act and the first cross-claim seeking relief under it must fail.