Perpetual Trustees Victoria Limited v Peter Van den Heuvel & Anor

Supreme Court of NSW|2008-10-08|Before: Price J

CITATION : Perpetual Trustees Victoria Limited v Peter Van den Heuvel & Anor [2009] NSWSC 57 This decision has been amended. Please see the end of the judgment for a list of the amendments.

8 October 2008 HEARING DATE(S) : 9 October 2008 13 November 2008 written submissions for Registrar General 4 December 2008 Plaintiff's submissions in reply

DECISION : (1) That there be judgment for the plaintiff, as against the second defendant, for possession of the whole of the land in Certificate of Title folio identifier 24/12658 and known as 18 McIntosh Street Queanbeyan NSW. (2) That a writ of possession issue, such writ not to issue before 8 weeks from the making of final orders. (3) That the first cross-claim be dismissed. (4) That the second defendant/cross-claimant is entitled to payment of compensation from the Torrens Assurance Fund in respect of loss as a consequence of the fraud of Peter Harry Van den Heuvel (the first defendant) as specified in s 129(1)(e) of the Real Property Act 1900. (5) That the amount of such payment is to be agreed between the second defendant/cross-claimant and the Registrar General and in default of agreement to be assessed by the Court. (6) That there is to be judgment for the second defendant/cross-claimant on the second cross-claim against the Registrar General in the amount agreed or assessed by the Court in accordance with proposed order (5). (7) That the second defendant/cross claimant pay the plaintiff's costs (including the costs of the first cross-claim). (8) That the Registrar General pay the second defendant/cross claimant's costs of the second cross-claim.

CATCHWORDS : Mortgage - signatures of one joint tenant forged by the other joint tenant on loan agreement and mortgage - whether money was advanced pursuant to the mortgage and loan agreement - service of s 57(2)(b) notice on innocent party - real property - effect of registration of forged mortgage - extent of the mortgagee's interest in the property - whether relief under Contracts Review Act and Consumer Credit Code - entitlement of innocent party to compensation from the Torrens Assurance Fund

Consumer Credit Code s 5, s 6, s 70, s 70(1), s 71(d) Contracts Review Act s 7 LEGISLATION CITED : Conveyancing Act 1919 s 170 Real Property Act 1900 s 42, s 57(2), s 57(2)(b), s 58, s 129, s 129(1)(e), s 170

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326G Bartlett v Freeman (NSW Supreme Court,27 March 1986, unreported) Breskvar v Wall (1971) 126 CLR 376 Chandra v Perpetual Trustees Victoria Ltd [2007] NSW Conv R 56-187 Chen v Song [2005] NSWSC 19 Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 James Graham and Co (Timber) Ltd v Southgate Sands and Ors [1985] 2 All ER 344 Khan v Hadid [2003] NSWSC 1191 CASES CITED : Permanent Trustee Co Ltd v Frazis [1999] NSWSC 319 Perpetual Trustees Victoria Ltd & Anor v Tsai (2004) 12 BPR 22, 281; [2004] NSWSC 745 Provident Capital Ltd v Printy [2008] NSWCA 131 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Riz v Perpetual Trustees Australia Ltd (2008) NSW Conv R 56-198; [2007] NSWSC 1153 Rogers v Resi-Statewide Corporation Limited and others (No 2) (1991) 32 FCR 344 Yazgi v Permanent Custodians Limited (2007) NSW Conv R 56-195; [2007] NSWCA 240 Vassos v State Bank of South Australia (1993) 2 VR 316 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505

Perpetual Trustees Victoria Limited PARTIES : Peter Van den Heuvel Elizabeth Van den Heuvel Registrar General

A Leopold SC and D Thomas (plaintiff) COUNSEL : G Rich (second defendant) P Walsh (cross-defendant)

33 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

14905 of 2005 Perpetual Trustees Victoria Ltd v Peter Van den Heuvel & Anor

JUDGMENT 1 HIS HONOUR: Elizabeth Van den Heuvel (the second defendant) is the registered proprietor as joint tenant with her husband Peter Harry Van den Heuvel (the first defendant) of their family home at 18 McIntosh Street, Queanbeyan being the whole of the land in Certificate of Title folio Identifier 24/12658 (the property). 2 A mortgage (the mortgage) was registered on the title to the property on about 24 November 2004 which identifies the first and second defendants as mortgagors and Perpetual Trustees Victoria Ltd (the plaintiff) as mortgagee. The mortgage was allocated dealing no AB 122447W. 3 It is not in dispute that the second defendant's signature on the mortgage was forged as was her signature which appears on the document entitled "Loan Agreement" dated 16 November 2004 (the Loan Agreement) which purports to have been made between the plaintiff and the first and second defendants. Although named in the Loan Agreement, Mrs Van den Heuvel was not a party to that contract as she had not in any way participated in its formation: Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326G. 4 By a Statement of Claim filed on 21 October 2005, the plaintiff claimed against the first and second defendants an order for possession of the property. The plaintiff also sought an order for judgment for the sum of $203,337.61 together with interest on that sum calculated pursuant to the Loan agreement and mortgage from 29 September 2005 until the date of judgment at a rate of $65.46 per day. 5 In a defence filed on 16 May 2007 the second defendant pleaded that she did not execute or participate in the Loan agreement and/or the mortgage. She denied that the plaintiff had made advances to the defendants. Furthermore, she said that she was not served with a notice pursuant to s 57(2)(b) of the Real Property Act 1900. 6 The plaintiff no longer makes an in personam claim for a monetary amount as against the second defendant. Mr Leopold SC who appears for the plaintiff informed the Court that the second defendant "has no obligation under the Loan Agreement because she was not a party." An order for possession of the second defendant's interest in the property is, however, sought. 7 The first defendant has neither filed a defence nor appeared. There is no dispute that the first defendant had signed both the Loan Agreement and the mortgage. A default judgment was entered against him for possession of his interest in the property on 1 September 2006. On 8 October 2008 the plaintiff obtained a default judgment against the first defendant in the sum of $325,035.11. 8 The second defendant in a first cross-claim seeks against the plaintiff the following declaratory relief:

a declaration that the agreement for loan dated 16 November 2004 and the mortgage registered AB 122447 are unjust contracts within the meaning of section 7 of the Contracts Review Act 1980 and/or unjust credit contracts pursuant to Consumer Credit (New South Wales) Act 1995.

a declaration that Loan Agreement and mortgage AB 122447W are void ab initio 9 The second defendant, other than an order for costs, seeks orders that she is not liable for any payment to the plaintiff pursuant to the mortgage or Loan Agreement and that all steps necessary be taken by the plaintiff to discharge the mortgage. 10 In a second cross-claim against the Registrar General the second defendant claims compensation pursuant to s 129 of the Real Property Act. The second defendant repeats in the pleading that the mortgage and Loan Agreement were fraudulently executed without her knowledge or consent. In a defence to the second cross-claim the Registrar General states that if the mortgage and Loan Agreement were fraudulently executed, the mortgage did not secure any obligation between the plaintiff and Mrs Van den Heuvel and accordingly she has suffered no loss or damage within the meaning of s 129 of the Real Property Act. 11 A copy of the Loan Agreement and the mortgage are annexed to the affidavit of Joe Mercieca sworn on 3 October 2008 (exhibit A 48 to 78). Also annexed is what was said to be "the statement of account prepared by the plaintiff for the loan for the period 16 November 2004 to 31 August 2008": see para 19 of the affidavit. These documents are part of exhibit A (tab 27-215 to 220). Mr Mercieca is the manager recoveries of Challenger Mortgage Management Pty Ltd (Challenger). He explained during oral evidence that Challenger is a mortgage manager for the plaintiff.

Was money advanced pursuant to the mortgage and the Loan Agreement? 12 Mr Rich, counsel for the second defendant, contended that the plaintiff had not established that money was in fact advanced pursuant to the mortgage and the Loan Agreement to the first defendant. He argued that Mr Mercieca could not demonstrate that the money was paid or how it was said to be paid. 13 Mr Mercieca testified that his knowledge of the money being advanced to the defendants was confined to the entries in the statements of account. 14 In the statements of account under the heading "Details of Transaction" appear the words "Settlement Amount". The amount debited is "$185,250.00." The adjacent date is "16-Nov-04". The debited amount is identical to the "Loan Amount" in the Interstar Preliminary Loan Approval documentation (exhibit A 86, 88, 89), the loan declaration (exhibit A 84), the "facility limit" in the Loan Agreement (exhibit A 68) and the Office of State Revenue duty assessment impress upon the mortgage (exhibit A 77). 15 The debit date is the same as that which appears on the Loan Agreement (exhibit A 64) and the annexure to the mortgage (exhibit A 78). In a document entitled "Settlement Confirmation" (exhibit A 79) the "Loan Amount" is specified as being $185,250.00 and "Settlement" as "Tuesday, 16 November, 2004". 16 The second defendant during her oral testimony said that when she came home from work on about 28 September 2006 she found a note from her husband. This was when she first became aware of a loan. The note is exhibit 1. Relevantly the following appears on the note: " I'm very sorry what I have done but I have had a very bad gambling problem and I have borrowed money on the house and I can't repay it. Now the (sic) are taking the house…" 17 The second defendant identified her husband's signature on the Loan Agreement (exhibit A 70). In an affidavit sworn on 20 September 2007, she stated that at no time prior to the commencement of the present proceedings had she seen the mortgage or the Loan Agreement and the signatures purporting to be her signatures on these documents were not hers. 18 I am satisfied on the probabilities from this material considered in combination that the plaintiff advanced to the first defendant the sum of $185,250 on 16 November 2004 pursuant to the Loan Agreement and the mortgage. He had signed both documents and had forged his wife's signatures which appear on them. It seems that he had a serious gambling problem. He failed to make the monthly repayment in May 2005 and defaulted under the Loan Agreement. At a later stage in these reasons, I will consider the matters raised on this issue for the Registrar General. 19 I am further satisfied that the second defendant was unaware that her husband had borrowed money until she found the note from him. She did not receive any of the loan monies advanced by the plaintiff. 20 At the time of the advance, the plaintiff did not know that the second defendant's signatures on the Loan Agreement and mortgage were forged. The plaintiff understood that the money was being advanced to both of the defendants.

Was the s 57(2)(b) notice served? 21 The plaintiff pleads that on 4 August 2005 the plaintiff caused notices pursuant to s 57(2)(b) of the Real Property Act to be served on the defendants for the payment of the amount outstanding under the Loan Agreement and secured by the mortgage which the defendants neglected to comply with. In her defence, the second defendant denies these allegations and says she was not served with a s 57(2)(b) notice. It is uncontroversial that service of a s 57(2)(b) notice on the second defendant was required before the plaintiff could exercise its rights under the mortgage. 22 As I have re-counted at [17] the second defendant deposed that at no time prior to the commencement of the present proceedings was she aware of the mortgage. I accept this evidence from which it follows that she did not see a s 57(2)(b) notice at any time before the present proceedings were instigated. 23 Section 170 of the Conveyancing Act 1919 extends to the service of notices under s 57 of the Real Property Act.

24 Section 58 of the Real Property Act confers the power of sale on a mortgagee where the requirements of s 57(2) of the Act have been satisfied.

25 Section 57(2) of the Real Property Act is relevantly as follows: "(2) A registered mortgagee… may, subject to this Act, exercise the powers conferred by section 58 if: (a) in the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest, … or other money the payment of which is secured by the mortgage… … (b) where: (i) the default relates to that payment, or (ii) in the case of a mortgage, the default does not relate to that payment and notice or lapse of time has not been dispensed with under s 58A, a written notice that complies with subsection (3) has been served on the mortgagor,… in the manner authorised by section 170 of the Conveyancing Act 1919." 26 Section 170 of the Conveyancing Act relevantly provides: " Regulations respecting notices (1) Any notice required or authorised by this Act to be served shall be in writing, and shall be sufficiently served: (a) … (b) if left at or sent by post to the last known residential or business address in or out of New South Wales of the person to be served, (b1) in the case of a mortgagor in possession or a lessee, if left at or sent by post to any occupied house or building comprised in the mortgage or lease, …" 27 In the circumstances of the present case the onus is on the plaintiff to prove on the balance of probabilities that a s 57(2)(b) notice was sent by post to the second defendant at 18 McIntosh Street, Queanbeyan. To establish that fact, the plaintiff relied on the evidence of Jennifer Craig, a legal assistant, whose daily task was to serve what were referred to as "s 57(2)(b) notices". During her oral evidence, Ms Craig testified that she had no independent recollection of serving such a notice on Elizabeth Van den Heuvel but she relied on her usual practice which was "to sign, date and put a time on a [memorandum] when the section notices… were posted". A copy of a "memorandum of record of postal service" is annexure A to Ms Craig's affidavit affirmed 1 April 2008 and a copy of a notice pursuant to s 57(2)(b) notice dated 4 August 2005 addressed to the second defendant at "18 McIntosh Street, Queanbeyan NSW 2620" is annexure B. The memorandum (annexure A) bears the heading Record of Service - Normal Post. The addressee is recorded as being: ELIZABETH VAN DEN HEUVEL 18 MCINTOSH STREET QUEANBEYAN NSW 2620

28 The document served is identified as: "s 57(2)(b) notice." 29 Ms Craig deposed to recording the time posted as being "3.30pm" but not the date of posting. She believed the date of posting was 4 August 2005 or possibly 5 August 2005 because the date of the s 57(2)(b) notice (annexure B) was 4 August 2005. In cross-examination she agreed that in this case she had not followed her usual practice of inserting the date of posting on the memorandum but said she was certain the notice had been posted. She said that the notices were given to her by a solicitor on the day they had been signed and everything on her desk that day was not held over. She would sign the notices which she placed in the postal services area. She agreed that someone else had the role of delivering them to the post box after she had signed off on them. That person would be in the service department. 30 Mr Mercieca during cross-examination said that he had made inquiries on the [computer] system [as to] when the s 57(2)(b) notice was served. When asked by Mr Rich: "Q. When you swore this affidavit did you check that no payments were made within 30 days of the date the statutory notices were delivered?" Mr Mercieca replied: (T 8/10/08 at 54) "When I was signing this, I would have seen - the way it actually works is when a default notice expires and a staff member wants to go to the statement of claim they have to get my authority to do this or the authority of the manager, so at the time the manager would have looked to ensure that default notice wasn't satisfied." 31 Mr Rich submitted that Ms Craig had given evidence that her usual practice had not been followed in this case and even if her usual practice had been followed, it was not evidence that the notice was actually posted. No evidence was given that it was in fact posted or of the records of posting being maintained. Evidence of non-receipt, it was argued, was powerful evidence that it may not have been dispatched. Mr Leopold on the other hand contended that what had been said by Ms Craig was powerful evidence of dispatch by post and referred to Mr Mercieca's evidence. He submitted that the first defendant may have plucked the notice out of the letter box as there were large parts of time he was unemployed and Mrs Van den Heuvel was employed at the University. Mr Rich argued that such a proposition was entirely speculative. 32 I agree that the submission made by counsel for the plaintiff that the first defendant may have removed the s 57(2)(b) notice addressed to the second defendant from the letter box at the family home is without firm foundation. As Mr Rich pointed out the second defendant was not cross-examined as to the likelihood of that occurring. Ms Craig, however, was a strong witness whose evidence was supported by the annexures to her affidavit. I have no doubt that the original of annexure B was placed by her in the postal services area. It is more probable than not that the notice was then posted. On the probabilities I am satisfied that either on 4 or 5 August 2005, the original of annexure B was sent by post to the property and was addressed to the second defendant. The original of that document (and there was no argument to the contrary) complies with s 57(3) of the Real Property Act. 33 As at 4 or 5 August 2005, the monthly instalments due under the Loan Agreement in May and June 2005 had not been paid and the first defendant was in default under the mortgage. The plaintiff contended that s 57(2) of the Real Property Act authorises it to enforce the mortgage by the sale of the property even though the signature of the second defendant on the Loan Agreement and on the mortgage were forged by her husband. This raises for consideration the extent of the indefeasible interest obtained by the plaintiff under the Real Property Act when the mortgage was registered. Because of the forgery, the personal covenants contained in the mortgage are not enforceable against the second defendant: Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202.

What is the extent of the plaintiff's indefeasible interest? 34 It was accepted by the parties that the fact of registration conferred upon the plaintiff an indefeasible interest in the property the subject of the mortgage irrespective of whether the second defendant's signature was forged: Breskvar v Wall (1971) 126 CLR 376; Yazgi v Permanent Custodians Limited (2007) NSW Conv R 56- 195; [2007] NSWCA 240. It was also accepted that the effect of registration does not give to the registered title holder an indefeasible title in general terms. Rather the extent of the indefeasible interest obtained by a mortgagee under a forged mortgage is to be determined by a close examination of the terms of the mortgage and any other document which evidences an obligation which the mortgage secures: Yazgi at [15]-[24]; Chandra v Perpetual Trustees Victoria Ltd [2007] NSW Conv R 56-187 at [37]-[39]. 35 There was, however, no agreement as to the extent of the plaintiff's interest. Mr Leopold contended that the fact of registration conferred an estate or interest on the plaintiff in respect of the whole of the property, which estate or interest secured the entire sum lent under the Loan Agreement. Mr Rich, on the other hand, argued that no moneys owing under the Loan Agreement or mortgage were secured upon the second defendant's interest in the property. He contended that the extent to which the registered mortgage gave to the plaintiff an indefeasible interest was confined to the first defendant's interest in the property. 36 The mortgage is registered on folio identifier 24/12658, the Certificate of Title for the property, so it has the effect given to it by ss 40 and 42 of the Real Property Act. 37 In order to identify the extent of the indefeasibility conferred by the registration of the mortgage, it is necessary to examine the terms of the mortgage and the Loan Agreement.

The Loan Agreement 38 Copies of the Loan Agreement dated 16 November 2004 were annexed to the affidavits of the second defendant and are at pp 48-74 of the tender bundle (exhibit A).

39 Clause 1 of the Loan Agreement is as follows: " LOAN We hereby agree to lend money to you which you agree to borrow and repay. The terms of the Loan are as set forth in this agreement (including the Schedule) and the Terms and Conditions Booklet (Non-Consumer Credit Code) ("Terms and Conditions").

40 The term "You" appears next to the borrowers' names. The borrowers are identified as "Peter Harry Van Den Heuvel" and "Elizabeth Van Den Heuvel". 41 The schedule to the Loan Agreement is found at pp 68-69 of exhibit A. The type of Facility is described as being "Premium Variable Rate Principal and Interest until maturity (220)" The "Facility Limit" is "$185,250.00" with "Notional monthly repayment" of "$1,309.37". The schedule provides for the interest rates to be charged and beside the words "New Security" is the following: "Registered First Mortgage by Peter Harry Van Den Heuvel and Elizabeth Van Den Heuvel over 18 McIntosh Street QUEANBEYAN NSW 2620 being the land more particularly described in Certificate of Title 24/12658." 42 Beside the words "VERSION OF TERMS & CONDITIONS ADOPTED BY THIS AGREEMENT" appears: "Rev. 5 1/04/2004" 43 Rev.5 1/04/2004 is the Loan Terms and Conditions Booklet (Non-Consumer Credit Code Regulated) which is found at pp 150-196 of Exhibit A. The terms and conditions detailed in the booklet apply to the Loan Agreement. 44 Clause 1.2 of the Terms and Conditions defines "You" to mean "the Borrower or Borrowers" (exhibit A 158). 45 Clause 3 of the Terms and Conditions includes: "Before a drawdown of your facility can be made: · you must sign and return the Loan Agreement to our solicitors or settlement agent" (Exhibit A 160) 46 Clause 22.3 of the Terms and Conditions is as follows (exhibit A 180): "Joint and several liability If the Loan is being made to more than one person, then each person will be liable individually, and every 2 or more persons are liable jointly, for all amounts due under the Loan. All of your obligations attach to your successors and permitted assigns." (exhibit A 180)

The mortgage 47 Copies of the mortgage were annexed to the affidavits of the second defendant and Mr Mercieca (exhibit A 75-78). 48 The mortgage identifies both of the defendants as 'Mortgagor'. The Mortgage states that the 'Mortgagor': "mortgages to the mortgagee all the mortgagor's estate and interest in the land specified above…" (exhibit A 75). 49 The mortgage incorporates "the provisions set out in Memorandum No 3161863." A copy of the Memorandum is part of exhibit A (197 to 213). 50 Clause 2 of the Memorandum to the mortgage provides for the obligations under the Mortgage. Clause 2.1 provides: " The Mortgage I acknowledge that by the Mortgage I give you security over: · the Property, and · my right to receive any money or compensation for the Property." (exhibit A 201) 51 Clause 2.2 of the Memorandum to the Mortgage is as follows: " Pay Secured Money The mortgage is security for payment to you of the Secured Money and for the performance of all of my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage." (exhibit A 201) 52 "I" is defined in Clause 1.1 as "the person or persons named and described as the Mortgagor in the Mortgage Form" and "me" and "my" and, if there is more than one of us, "us" has a corresponding meaning. "You" is defined to mean "the person or persons named and described as the Mortgagee in the Mortgage Form" and "your" has a corresponding meaning. 53 Clause 1.1 of the Memorandum relevantly defines "Secured Agreement" to mean "any present or future agreement between me or us, or any one of us, and You". (exhibit A 199) 54 "Secured Money" is defined in the same clause to mean: · "all amounts which are payable at any time or are contingently owing or payable to you under a Secured Agreement; and · Enforcement Expenses." (exhibit A 200) 55 The plaintiff submitted that clause 22.3 of the Terms and Conditions is vital. It was said that the combined operation of clause 1 of the Loan Agreement and clause 22.3 of the Terms and Conditions means that the first defendant (Mr Van den Heuvel) is liable under the Loan Agreement to repay with interest and other costs and expenses the entirety of the amount lent. An alternative way of approaching the matter, the plaintiff suggested, was that the Loan Agreement was to be regarded as one between the plaintiff and the first defendant alone so that there is no need to refer to that part of the definition of "You" which refers to multiple borrowers. As such, the amount owed by the first defendant alone under the Loan Agreement, it was contended, falls squarely within the definition of "Secured Money" in clause 2.2 of the Memorandum to the mortgage. Clause 2.2 was a covenant expressed in the mortgage which had been breached and the sale was authorised under s 57(2)(a) of the Real Property Act. 56 In Provident Captial Ltd v Printy [2008] NSWCA 131, Basten JA (with whom Tobias and McColl JJA agreed) reviewed at [29]-[49] the principles to be applied in considering the effect of registration of a mortgage and analysed the exercise of a power of sale which may be summarised as follows: (i) Upon registration of a mortgage over land, the land becomes charged as security for the debt secured by the mortgage, regardless of any form of invalidity which may afflict the mortgage under the general law. (ii) The mortgagee has a statutory right, as against the land, to recover the debt if not paid in accordance with the requirements of the mortgage by exercising its power of sale under ss 57 and 58 of the Real Property Act . (iii) Where the loan is contained in the mortgage or a document incorporated in the mortgage, registration of the mortgage allows the mortgagee to enforce the debt by sale of land, regardless of the fact that it involves a separate personal covenant and regardless of whether the mortgage or incorporated document are forged. (iv) Where s 57(2) is the provision invoked by the mortgagee in exercising its power of sale, subsection 2 (a) of s 57 requires identification of default in one of two circumstances [relevant to the case before the Court]: first: default occurring "in the observance of any covenant…in the mortgage"; or second "in the payment, in accordance with the terms of the mortgage… of [money] the payment of which is secured by the mortgage". 57 In the present case, the first defendant failed to comply with the obligation found in clause 2.2 of the Memorandum to the mortgage which was to pay "…the secured money as and when the secured money becomes due and payable…" The provisions of the Memorandum are incorporated in the mortgage and clause 2.2 may be identified as a covenant "in the mortgage". The first defendant has accordingly defaulted in the observance of a covenant in the mortgage. 58 The second defendant argued, however, that there is a conflict between the terms of the Memorandum to the mortgage and the terms of the Loan Agreement. Mr Rich submitted that the obligations under the Loan Agreement are "clearly joint" whereas the obligations under the Memorandum "are joint and several": T78 L 49-50. Such a problem arose Mr Rich said in Yazgi. 59 The facts in Yazgi concerned jointly owned property, the appellant's signatures on the mortgage and associated loan contract having been forged by her husband. The Court of Appeal considered the language of the mortgage in that case and in particular the provisions of a schedule and memorandum which were incorporated in the mortgage. The judgment noted [at 25] a concession by the mortgagee that the term "Mortgage Debt" in the schedule "did not operate to secure to it an indefeasible title over [the wife's] interest in the property". The mortgagee submitted, however, that it had an indefeasible title in respect of the whole of the mortgage debt as against the whole of the property, including the wife's interest by virtue of the definition of "Mortgage Debt" contained within the memorandum. Beazley JA (with whom Ipp and Tobias JJA agreed) observed at [33] that the "Mortgage Debt" referred to in the schedule was a joint borrowing by the husband and the wife under the loan contract whereas the "Mortgage Debt" specified in the memorandum referred both to a joint and several borrowing, either under the mortgage, or under any "Secured Agreement". As there was no specification within the mortgage document of any amount owed under the mortgage, it was necessary to refer to the memorandum to ascertain what indebtness was secured. It was held that here was no debt in relation to the wife's share in the land and the mortgagee was obliged to account to the wife for her share in the property. Beazley JA said at [35]: "However, as under the terms of the schedule the liability of the parties under the loan contract was joint, a borrowing under the same loan contract which is said to be joint and several by virtue of the terms of the memorandum, must give rise to an inconsistency." 60 As in Yazgi, in the present case there was no statement of the principal sum lent in the mortgage and it is necessary to consider the memorandum to the mortgage to ascertain the indebtness secured: Perpetual Trustees Victoria Ltd & Anor v Tsai (2004) 12 BPR 22, 281; [2004] NSWSC 745. 61 Unlike the schedule considered in Yazgi, clause 22.3 of the Terms and Conditions in the present case provides for joint and several liability. As a consequence of the combined operation of clause 1 of the Loan Agreement and clause 22.3 of the Terms and Conditions, the first defendant (Mr Van den Heuvel) was liable to repay all amounts due under the loan. The mortgage itself secured the first defendant's liability under the loan which fell within the definition of "Secured Money" in clause 1.1 of the Memorandum to the mortgage. Under clause 2.2 of the Memorandum, the mortgage was "security for payment to you of the Secured Money" which the first defendant had agreed to pay "as and when the secured money becomes due and payable." The money which was payable by the first defendant was money for which he was severally, as well as jointly, liable to the mortgagee. There was, contrary to the submissions made on this issue for the second defendant, no inconsistency between the terms of the Loan Agreement and the Memorandum.

Submission for the Registrar General 62 Before proceeding further, it is necessary to turn to the arguments advanced by Mr Walsh who appeared for the second cross-defendant (the Registrar General). The Registrar General supported the submissions made for the second defendant. Mr Walsh, however, contended that the Loan Agreement on its face contemplated that each of Elizabeth Van den Heuvel and Peter Van den Heuvel would execute it. It was a condition of the joint loan that each of the defendants would sign the agreement before any moneys were advanced. If Mrs Van den Heuvel's evidence was accepted, there was no such Loan Agreement and no money was advanced pursuant to its terms and no money was payable under it. It never came into effect. To support this argument Mr Walsh referred to James Graham and Co (Timber) Ltd v Southgate Sands and Ors [1985] 2 All ER 344 and Bartlett v Freeman (NSW Supreme Court, 27 March 1986, unreported). He submitted that the mortgage did not secure any moneys over the second defendants interest in the property because, as a matter of construction, there were no amounts payable under a "secured agreement" as the moneys were advanced to the first defendant otherwise than in accordance with the terms of the Loan Agreement. The moneys, it was argued,were paid by the plaintiff as a consequence of a fraud perpetrated by Mr Van den Heuvel. 63 In response to these arguments Mr Leopold submitted that the question of the first defendant's liability to the plaintiff under the Loan Agreement was in effect res judicata as a judgment against him had been entered in default on 8 October 2008 and the Registrar General was precluded from making the submissions to which I have referred. 64 He further contended that the Registrar General was not a party to the claim by the plaintiff against the second defendant and was making the submission only against her. This was an argument which was not raised on behalf of the second defendant and the claim was made against her. In any event, the cases which were referred to were guarantee cases which fell into a special category of the law protecting guarantors. 65 In supplementary written submissions, Mr Walsh contended that the Registrar General was not precluded by res judicata or by issue estoppel. In the alternative, an order should be made 'Nunc pro tunc' to relieve the Registrar General from what was said to be no more than a procedural problem. 66 James Graham & Co was a surety case. The facts were that the plaintiff's had supplied timber to a company of which the defendant was a director. When the company was unable to pay the amount owing the plaintiffs agreed to suspend their claim for a year provided that the company's debt was jointly and severally guaranteed by the three directors of the company. A guarantee apparently signed by the defendant and the other directors was duly provided. Subsequently the company went into liquidation and the plaintiffs issued a writ against the three directors for recovery of the sum guaranteed. The signature of one of the directors had been forged. The defendant contended that he was not contractually bound in law by the guarantee because of the failure of one of the co-sureties to sign the guarantee nullified the guarantee. The County Court found for the plaintiffs. On appeal to a two Judge Court of Appeal, O'Connor LJ, who delivered the leading judgment was satisfied that the plaintiffs would not have accepted, nor would the defendant have given a guarantee to which the director whose signature was forged was not a party. Neither the plaintiffs nor the defendant knew that he was not, in fact, a party to the guarantee until the plaintiffs tried to enforce it. His Lordship observed that the plaintiffs and defendants mutually contemplated a joint and several guarantee document. The document needed all signatures before it was effective and it made no difference in law that the plaintiff did not know that the signature was forged. His Lordship said (at 354): "The fact is that they are seeking to charge the defendant with a contract into which he did not enter. He is not liable in law." 67 Browne-Wilkinson LJ said (at 354): "During the course of argument I was not satisfied that, at law, there was no contract where a co-surety failed to sign. I could see no reason why the equitable doctrine of relief from liability had ever developed if the signing surety was not liable at law. However, the researches of O'Connor LJ reflected in his judgment satisfy me that the equitable doctrine was established in Evans v Bremridge purely because of a pleading problem in the common law courts which might have led to the signing surety being held liable at law. The cases referred to in the judgment of O'Connor LJ satisfy me that, at law, there is no contract at law unless all the anticipated parties to the contact in fact become bound." 68 In Bartlett v Freeman Rogers J at 15 cited what was said in James Graham & Co. Bartlett was also a surety case. 69 No authority was put to me by Mr Walsh whereby the reasoning in James Graham & Co was applied to a mortgage where a co-mortgagor's signature was forged. 70 In any event, the decision in James Graham & Co was based on the finding that the defendant, a surety, had agreed to be bound on the condition that there were two co-sureties with him. It was a matter of the intention of the parties. The defendant had not entered into the contract. 71 There is a deal of difference between that case and the present case where the first defendant has entered into the Loan Agreement with the knowledge that he had forged his wife's signature. He had agreed to be bound by the terms of the contract. The definition of "You" in clause 1.2 of the Terms and Conditions embraced the singular as well as the plural and as explained at [60] the first defendant was liable to repay all amounts due under the loan. It was not contemplated that the Loan Agreement was not binding until both Mr and Mrs Van Den Huevel had signed it. Mr Van den Huevel had signed the Loan Agreement and as I have found at [18] $185,250 was advanced to him on 16 November 2004. There existed between the plaintiff and the first defendant all of the essentials of a binding contract and the monies were advanced to him in accordance with its terms. I do not accept the Registrar General's submission. 72 Accordingly, it is unnecessary to consider the further contentions for the plaintiff.

Conclusion 73 I conclude that registration of the mortgage conferred on the plaintiff an indefeasible interest over the whole of the property, which interest secured the entire amount lent under the Loan Agreement. 74 The issues raised in the first cross-claim remain to be considered.

The first cross-claim 75 The relief sought by the second defendant is founded upon the Contracts Review Act 1980 and the Consumer Credit Code. 76 Mr Rich put to me that the plaintiff by its manager, Interstar Securities (Australia) Pty Ltd (Interstar), now known as Challenger, approved the loan recklessly in that it certified that full and complete enquiries in relation to the loan application had been made which was clearly not the case. Counsel referred to the Preferred Lender Certification which appears at p 92 of exhibit A of the Interstar Preliminary Loan Approval (exhibit A pp 86-92) and to the second defendant's evidence (which I accept) that she had not been contacted by any entity associated with the plaintiff and had not been contacted by Brad Donaldson or ay other party in relation to the loan seeking to identify her as a borrower and guarantor associated with the loan application. The signature of a "Brad Donaldson' appears as the authorised signatory of the Preferred Lender Certification which includes the following statements: "(a) We have made full and complete inquiries in relation to this loan application and the purpose of the loan. (b) We have positively verified the existence and identity of each borrower and guarantor associated with this loan application." 77 It is difficult to understand how such a certificate could have been provided if Mrs Van den Heuvel was not contacted. Mr Donaldson, it appears, was not in the employ of Interstar but was a director of Centra Home Loans Pty Ltd (Centra): see exhibit A 37, 86. Centra was a mortgage originator whose task, Mr Mercieca testified, was to find the best loans for a particular client. 78 The second defendant pleads in the first cross-claim that Centra was the "authorised agent" for the plaintiff for the purpose of sourcing loan applications on its behalf. There is no evidence to support that contention. It appears on the other hand, from the Loan Origination and Management Agreement that Centra was an independent contractor: see exhibit A 139 cl 19.1; A 36 cl 22.6. 79 Interstar, however, did not discover that much of the information which had been supplied to them was false. This is not a matter which weighs significantly in favour of a finding that the Loan Agreement and mortgage were unjust. In Riz v Perpetual Trustees Australia Ltd (2008) NSW Conv R 56-198; [2007] NSWSC 1153 at [78] Brereton J said: " To hold that the undetected provision of false information by or on behalf of a borrower to a lender in an attempt to obtain a loan resulted in the loan contract being unjust against the lender would be to invert commonsense, logic and justice, by protecting the wrongdoer against the victim. To grant remedies under the Contracts Review Act on such grounds would be to convert an Act, intended to achieve just results, into an instrument of injustice." 80 In the first cross-claim, the second defendant in addition to the matters which Mr Walsh specifically raised in oral argument pleaded (at paragraph 15) that the acknowledgments in clause 5 of the Loan Agreement (exhibit A 67) had not been obtained from her. 81 This is plainly correct as the second defendant had not signed the agreement and was unaware of the loan. The plaintiff, however, was unaware of that fact because of the first defendant's subterfuge. 82 Mrs Van den Heuvel asks for a declaration that the Loan Agreement and mortgage are unjust contracts within the meaning of s 7 of the Contracts Review Act and for a declaration that they are void ab initio. 83 Section 7(1) of the Contracts Review Act is as follows: "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." 84 The principal submission for the plaintiff (first cross-defendant) in response was founded on the proposition that the Loan Agreement was a contract between Mr Van den Heuvel and the plaintiff to which the second defendant was not a party. The plaintiff relied on what was said by Dunford J in Permanent Trustee Co Ltd v Frazis [1999] NSWSC 319 at [17]: "…, the defendants seek to rely on the provisions of the Contracts Review Act 1980 and they allege that the contract was unfair both in the manner in which it was made and its terms…, but the applicant's complaint in this case is not that a contract they entered into with the plaintiff was unjust, their case is they never entered into such a contract at all; and I fail to see how parties who deny that they entered into a contract can at the same time argue that such contract was unjust. The Contracts Review Act 1980 is an Act designed to review unfair contracts, not an Act to set aside relationships or obligations constituted by forged documents. The applicant's present predicament is not due to them having entered into a contract which was "unjust" within the meaning of that Act, but to the operation of the relevant provisions of the Real Property Act 1900 and in particular to the force and effect which that Act gives, on registration, to forged instruments. I am not aware of, and was not referred to, any case where relief has been granted under the Contracts Review Act 1980 to set aside a contract where the documents evidencing such alleged contract have been forged." 85 Mr Rich argued that Frazis was distinguishable on its facts as in that case there was no binding contract at all because the signatures of both mortgagors had been forged whereas in the present case there was at general law at least a contract between the first defendant and the plaintiff. Whilst that might be so, the second defendant in the present case did not enter into the Loan Agreement. As in Frazis, Mrs Van den Heuvel's predicament is not due to her entering into a contract which was 'unjust' within the meaning of the Contracts Review Act but to the indefeasible interest in the property which was conferred upon the plaintiff upon registration of the mortgage on which her signature had been forged. 86 Frazis, Mr Rich put, was a case that was narrowly decided. He contended that the Contracts Review Act was beneficial legislation and that the second defendant had standing to seek relief under the Act as she had been unjustly affected by the contract. Mr Rich next referred to a submission made in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [357] that the mortgage is by force of the Real Property Act deemed to be a contract and as such is subject to the Contracts Review Act. As was acknowledged by Mr Rich, whilst such a submission was recorded in Vella it was not considered in the judgment. The argument advanced in Vella was not further developed before me nor was any authority provided in support of the contention that the mortgage is deemed to be a contract. 87 In Chen v Song [2005] NSWSC 19 James J observed at [179]: "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. Khan v Hadid ; Permanent Trustee Co Limited v Frazis ." 88 Cripps AJ in Khan v Hadid [2003] NSWSC 1191 upheld a mortgagee's application for summary judgment, noting that no authority had been provided by the mortgagors in support of the submission that s 42 of the Real Property Act operates to deem the existence of a contract notwithstanding the forgery. 89 The plaintiff submitted that although there are occasional references in the authorities to the proposition that registration of the mortgage "validates" some parts of the mortgage (see for example PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679B per Giles J) strictly there is no "validation" as such, but rather there is a statutory scheme provided by the Real Property Act which scheme has the effect of conferring an estate or interest in land on the mortgagee. The plaintiff cited what was said by Barwick CJ in Breskvar v Wall at 385.9 that: " The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration."

Mr Leopold contended that while the plaintiff has an enforceable estate or interest in the property deriving from the registration of the mortgage, the mortgage which is at common law "null and void for all purposes" did not become a contract upon registration. 90 In my opinion, this submission should be accepted. As was said by Barwick CJ in Breskvar v Wall at 386: "It is the title which registration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or reason for which the instrument is void." 91 I am neither persuaded that the mortgage upon registration is deemed to be a contract nor that the second defendant has standing to seek relief under the Contracts Review Act. The existence of a contract between the plaintiff and second defendant is fundamental to the claim for declaratory relief under the Contracts Review Act and the claim for relief under that Act must fail. 92 Further and in the alternative to the Contracts Review Act case, Mr Rich contended that the Loan Agreement and the mortgage are credit contracts within ss 5 and 6 of the Consumer Credit Code (the Code) and are unjust transactions falling within s 70 of the Code. He asked for an order under s 71(d) of the Code that the mortgagee take such steps as are necessary to discharge the mortgage. 93 Submissions were made as to whether the Code applies in view of the 'declaration of purpose' (exhibit A 84) and the 'acknowledgement' in clause 5 of the Loan Agreement which is headed (Non Consumer Credit Code Regulated) that "the Loan is to be applied by you wholly or predominantly for business or investment purposes (or for both purposes)" 94 Furthermore, there was argument which focussed on s 70(1) of the Code and as to whether the reasoning in Frazis applied. 95 Section 70 (1) of the Code provides: " Power to re open unjust transactions The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract, mortgage, or guarantee at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or change was unjust, reopen the transaction that gave rise to the contract, mortgage or guarantee or change." 96 Section 71 of the Code relevantly provides: "The Court may, if it reopens a transaction under this Division, do any one or more of the following, despite any settlement of accounts or any agreement purporting to close previous dealings and create a new obligation - … (c) set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction; (d) order that the mortgagee take such steps as are necessary to discharge the mortgage; …" 97 Where a forged mortgage has been registered under the Real Property Act it seems to me that the Consumer Credit Code does not enable the relief sought to be granted. 98 Before a Court may re-open the transaction that, relevantly gave rise to the mortgage s 70(1) requires the Court to be satisfied "on the application of a mortgagor … that, in the circumstances relating to the relevant …mortgage…at the time it was entered into …the mortgage ..was unjust." (my underlining) 99 Subsection 2 of s 70 provides for the matters to be considered in "determining whether a term of a particular …mortgage…is unjust in the circumstances relating to it at the time it was entered into…". (my underlining) 100 As Mrs Van den Heuvel's signatures were forged, she neither entered into the Loan Agreement nor the mortgage. Although named in the mortgage, she was not a party to the mortgage nor was she "a mortgagor." The mortgage by reason of the forgery is "null and void for all purposes": Rogers v Resi-Statewide Corporation Limited and others (no 2) (1991) 32 FCR 344 per von Doussa J at 350. The plaintiff has no enforceable interest against the second defendant arising from the mortgage or the Loan Agreement. The injustice which arises to Mrs Van den Heuvel from the forgery of her signature by the first defendant at the time he entered into the mortgage has been overcome by the operation of the common law and there is no work to be done in reopening the transaction that gave rise to the mortgage. 101 The injustice of which the second defendant complains arises not from the mortgage or a term of a mortgage but from its registration. The claim for relief does not, in my opinion, fall within s 70(1) of the Code. 102 There is a further reason why the relief should not be granted. Subsection 2 of s 70 requires the Court "to have regard to the public interest and to all the circumstances of the case". There is a strong public interest in the conclusiveness of the register in the Torrens System of registered title. 103 In Vassos v State Bank of South Australia (1993) 2 V R 316 Hayne J at 332 explained (not in the context of the Code but on the question of a personal equity): "If, as the plaintiff's contended, the fact of lack of assent of the mortgagor gives an in personam right to a discharge, then every mortgagor whose signature was forged would be entitled to compel the mortgagee to discharge the mortgage on the basis that the mortgagee was not entitled to demand anymore than had been agreed. That flies in the face of indefeasibility of title for without any fault of any kind on the part of the mortgagee he could always be compelled to discharge his security and his title obtained by registration could always be set aside at the suit of the defrauded party. Such a conclusion appears to hark back to the views expressed by Dixon J in Clements v Ellis - views which, as I have said, have been rejected by the High Court in Breskvar v Wall and later cases." 104 What was said by Hayne J applies, it seems to me, to the claim for relief under the Code. 105 In light of my view that the claim for relief under the Consumer Credit Code must fail, I do not propose to consider the submissions concerning the 'declaration of purpose' and the 'acknowledgement'. 106 The plaintiff has established its claim against the second defendant.

The second cross-claim 107 Counsel for the Registrar General conceded during submissions that should Mrs Van den Heuvel be liable to the plaintiff under the mortgage then she fell within the provisions of s 129 of the Real Property Act. It was proposed by both parties that in the event of such a finding that agreement be reached in relation to the appropriate form of order indemnifying the second defendant. 108 Section 129(1)(e) of the Real Property Act relevantly provides: "(1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from: ... (e) the person having been deprived of the land, or any estate or interest in the land, as a consequence of fraud

is entitled to payment of compensation from the Torrens Assurance Fund." 109 The second defendant/cross-claimant has suffered loss as a result of the operation of the Real Property Act in respect of the property, which loss arose from her being deprived of her interest as joint tenant in the property as a consequence of her husband's fraud.

Orders 110 For the foregoing reasons, I propose the following orders: (1) That there be judgment for the plaintiff, as against the second defendant, for possession of the whole of the land in Certificate of Title folio identifier 24/12658 and known as 18 McIntosh Street Queanbeyan NSW. (2) That a writ of possession issue, such writ not to issue before 8 weeks from the making of final orders. (3) That the first cross-claim be dismissed. (4) That the second defendant/cross-claimant is entitled to payment of compensation from the Torrens Assurance Fund in respect of loss as a consequence of the fraud of Peter Harry Van den Heuvel (the first defendant) as specified in s 129(1)(e) of the Real Property Act 1900. (5) That the amount of such payment is to be agreed between the second defendant/cross-claimant and the Registrar General and in default of agreement to be assessed by the Court. (6) That there is to be judgment for the second defendant/cross-claimant on the second cross-claim against the Registrar General in the amount agreed or assessed by the Court in accordance with proposed order (5). (7) That the second defendant/cross claimant pay the plaintiff's costs (including the costs of the first cross-claim). (8) That the Registrar General pay the second defendant/cross claimants costs of the second cross-claim. 111 Should the parties wish to be heard further in respect of proposed orders 2, 5, 6, 7 and 8, the proceedings may be re-listed for hearing of submissions. 112 I ask that the parties bring in short minutes of order within 10 days of today to give effect to these reasons. The proceedings may be re-listed on a suitable date by arrangement with my associate. **********

23/02/2009 - typo graphical error - Paragraph(s) 62

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Judgment (32 paragraphs)

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Cases Cited (15)