Plaintiff v Defendants

1 On 1 August 2003, the plaintiff, HG & R Finance Limited (now Balanced Securities Limited) ("HGR") provided $5.2 million to International Investments and Development Pty Ltd ("IID") secured by mortgages given by IID over 18 units in a residential development in High Street, Prahran.

2 IID is in default of the loan and HGR seeks possession of one of the units currently occupied by the first defendant, Mr Antonio Bianco, and his sub-tenant Ms Nicole Joakim, the third defendant. [1]

3 Although HGR's mortgage was executed in August 2003, it was not registered until December 2003 after Mr Bianco entered into a residential tenancy agreement with IID and occupied the unit.

4 The defendants' primary contention is that as Mr Bianco was a tenant in possession of the unit prior to the registration of the mortgage then such tenancy is protected by s. 42(2)(e) of the Transfer of Land Act 1958 ("TLA") against HGR's claim.

5 In December 2001, Allmart Properties Pty Ltd ("Allmart") commenced the development of the property. 24 residential units varying in size were constructed.

6 On 20 June 2003, consequential upon the plan of subdivision being approved, Allmart became the registered proprietor of each of the units.[2]

7 In 2003 Mr Roman Gomez and his wife Morgina investigated the possibility of purchasing the development through their company IID (Mrs Gomez is a director and Mr Gomez is the secretary of IID).

8 Mr Joakim, the second defendant, has been involved in residential real estate for many years[3]. He does not hold a real estate agent's licence, but knows the industry well. His stepdaughter is the sole director of Asset Equity Pty Ltd ("Asset Equity") and he has acted as a special project manager for that company.[4] He has, for many years, been friendly with Mr and Mrs Gomez.

9 Mr Bianco and Mr Joakim have been friends and business associates for a long time. Mr Bianco has been very successful commercially, operating for many years a women's footwear business.[5]

10 In June 2003, HGR was approached by Mr Gomez on behalf of IID for finance to enable it to complete a contract with Allmart for acquisition of 18 of the 24 units, the other six having been sold by Allmart.[6] Earlier that year Mr Joakim had been asked by Mr and Mrs Gomez to help with the sale of the units and in mid-July Mrs Gomez contacted Mr Joakim to help with additional funding of the purchase.[7]

11 On 24 July 2003, HGR gave approval for the provision of funds of up to $5.2 million to be secured by a first mortgage over the 18 units. Mr Gomez appears to have accepted the offer of finance on 25 July and agreed to execute a form of registrable mortgage.[8] Both Mr and Mrs Gomez were guarantors of the loan.

12 At around the same time, Mr Joakim agreed to lend $210,000 to Mr and Mrs Gomez. By a deed dated 31 July 2003 ("the deed"), IID purported to borrow $210,000 from Mr Bianco. I shall refer in a little more detail to the provisions of the deed, but it suffices to note that it purported, in the event of default by IID in making payments, to give Mr Bianco the right to lease Unit 9 (and to then sub-lease) and to purchase it for $400,000. $10,000 in cash was provided by Mr Joakim to Mr Bianco,[9] who, in turn, provided it to Mr Gomez. The balance of $200,000 was forwarded to IID either late in the afternoon of 31 July or early the next morning by direct debit from an account controlled by Mr Joakim.[10]

13 On 1 August 2003, the purchase by IID from Allmart of the 18 units was settled. Allmart's interest in each of the units, including Unit 9,[11] was transferred to IID. The consideration for Unit 9 was $567,755. The HGR loan funds were applied to the purchase as, I infer, were Mr Joakim's funds. IID executed mortgages in favour of HGR over each of the units on 1 August 2003.[12] The Memorandum of Common Provisions of the Mortgage provided as follows:-

2.e.ii. The moneys hereby secured shall, if not otherwise due and payable, at the option of the Mortgagee become immediately due and payable if the Mortgagor without the prior consent in writing of the mortgagee leases, grants any tenancy of or parts with the possession of or grants any licence affecting the land or any part thereof;

(15) If the mortgagor defaults in performing or observing any covenant or agreement to be performed:

(3) Upon giving seven days notice ... of its intention to exercise the power given by this sub-clause ... the mortgagee may ... enter upon and take possession of the land ... and may in addition thereto ... if it thinks fit

(b.i.C.) appoint a receiver appoint a receiver and the receiver may grant a lease of the land.

(c.i.) with or without entering into possession ... the mortgagee may accept the surrender of any lease ... and make such arrangements with any lessee or occupier of the land ... on such conditions as the mortgagee thinks proper.

14 Neither the transfer of the unit nor the mortgage to HGR was registered pursuant to the provisions of the TLA at that time.

15 Also on 1 August, as part of securitisation documentation provided to HGR, Mrs Gomez, in her capacity as a director of IID, completed a statutory declaration which declared that IID had "not sold, offered for sale nor granted any option over the property or any part thereof and will not do so prior to any advance under the mortgage loan from HG & R Finance Limited".[13]

16 Subsequent to settlement, HGR took possession of the instruments of transfer and duplicate Certificates of Title for each of the units; it already held the mortgages executed by IID.[14]

17 On 19 October 2003, one day after the due date for the payment of interest on the loan, Mr Bianco signed a letter, prepared by Mr Joakim, addressed to the directors of IID, demanding payment of the sum of $210,000 plus interest on the basis of IID's default in repayment of interest on the loan.[15]

18 Consistent with the terms of the deed, a contract of sale was entered into on 20 October 2003, by which IID sold Unit 9 to Mr Bianco for $400,000. The deposit of $105,000 was, pursuant to the deed, taken to have been paid out of the loan of $210,000.[16]

19 On the following day, 21 October 2003, a caveat[17] was lodged over Unit 9 by Ms Andriana Agrotis, solicitor, on behalf of Mr Bianco claiming that he had an equitable estate and fee simple in the property with the grounds "As purchaser of a property pursuant to contract of sale 20 October 2003 between International Investment Developments Pty Ltd (ABN 098 873 995) and Tony Bianco".

20 By a residential tenancy agreement of 27 October 2003, IID let Unit 9 to Mr Bianco.[18] The lease stipulated a commencement date of 27 October 2003 with rental payable at $1,950 per calendar month. Its termination date was as follows:

The term of the lease shall expire upon the settlement being effected in relation to the purchase of the property herein or such time as the principal and interest outstanding on the agreement dated 1 July 2003 is paid in full to the lender.

21 On 1 November 2003, Mr Bianco sub-let the unit to Susan Youssef for a period of two years at a rental of $2,145 per month.[19]

22 Both the retail tenancy agreement and the sub-lease were prepared by Mr Joakim and signed by Mr Bianco.

23 On 5 November 2003, Messrs Herbert Geer & Rundle, solicitors acting on behalf of HGR, wrote to Mr Gomez in relation to IID's failure to pay the interest due on 1 November 2003.[20]

24 On 10 December 2003, HGR lodged with the Office of Titles the transfer of Unit 9 from Allmart to IID and the mortgage executed by IID in favour of HGR.[21] The delay in effecting registration was explained, to some extent, by Ms Gray, a law clerk employed by Mr David Geer. She said that there were problems with the levying of stamp duty fees and it was necessary for discussions to be had with the State Revenue Office to resolve that issue.[22]

25 On 12 December 2003, Land Victoria sent a notice to Mr Bianco, care of Ms Agrotis, pursuant to s 90(1) of the TLA in relation to the 21 October 2003 caveat. No action was taken and the caveat lapsed in January 2004.

26 On 19 January 2004, Herbert Geer & Rundle gave a notice to pay to IID pursuant to s 76 of the TLA.[23] There was no compliance by IID within the statutory period of one month and, by virtue of s 77 of the TLA, HGR acquired a power of sale over the units.

27 Mr Trevor Wilson, the credit manager for HGR, inspected the units on 26 February 2004. To his surprise, and presumably chagrin, he became aware that a number of the units were occupied.[24] He instructed Herbert Geer & Rundle to write to the occupiers of the units advising of HGR's rights as mortgagee in possession.[25]

28 At some time in February/March 2004, Mr Wilson received a phone call from Mr Bianco. His record of the conversation confirms his evidence[26] that Mr Bianco told him that the unit had been sold for $400,000 pursuant to a contract of sale and that $230,000 had been lent by Mr Bianco to "Roman", presumably Mr Gomez. It also notes that "Tony [Bianco] has leased the unit (takes possession). Put tenants in ... rent offsets interest".[27]

29 On 29 March 2004, Ms Agrotis wrote to Herbert Geer & Rundle advising that she acted for Susan Youssef, the sub-tenant.[28]

30 On 19 May 2004, Mr Wilson responded to Ms Agrotis' letter, re-affirming HGR's position that as mortgagee in possession the rent should be paid to it and, absent the payment of the rent, it proposed to take action under the Residential Tenancies Act.[29] On the same day, Mr Wilson wrote to Mr Bianco, re-affirming the intention to sell the property and asking that rental payments be forwarded to Bennison McKinnon, the agent appointed by HGR.[30]

31 On 29 April 2005, Bennison McKinnon initiated proceedings at the Victorian Civil and Administrative Tribunal on behalf of HGR pursuant to s 344 of the Residential Tenancies Act, seeking possession of the premises. That application was dismissed on 6 May 2005.[31]

32 On 15 June 2006, Herbert Geer & Rundle wrote to the occupant of Unit 9 advising that it intended to take steps to obtain vacant possession of the unit. A copy of the letter was sent to Mr Bianco care of his solicitors.[32] A more detailed letter was sent to Mr Bianco reiterating HGR's position that it was entitled to possession as the mortgagee.

33 On 12 July 2006, an email[33] was sent by Mr Kuperholz, the solicitor for Mr Bianco, setting out in detail his client's contention that his equitable rights, and particularly his right as a tenant in possession, trumped the mortgagee's right to possession under s 78 of the TLA.

34 On 12 May 2007, a sub-lease of the unit was entered into between Mr Bianco and Ms Joakim for a period of five years - to 12 May 2012.

35 IID has now been deregistered. The contract of sale of 20 October 2003 has not been completed.

36 On 10 July 2008, HGR issued proceedings seeking possession and damages in the form of mesne profits. It subsequently amended its claim to include a claim for "Hungerfords" damages.[34]

The circumstances surrounding the advance of $210,000 to IID

37 The deed, which bears the date 31 July 2003, describes Mr Bianco as the lender, and the borrowers IID, as the registered proprietor of the units; it was drawn up by Mr Joakim with assistance from friends with legal experience.[35]

38 The deed provides for a loan of $210,000 with interest at a rate of 15% per annum. It contains the following clauses in relation to default on the part of IID:

3. The Borrower agrees that if the Borrower default in payment of the Principal Sum or the Agreed Interest, then in addition to any other remedies available to the Lender, the Borrower shall sell Unit 9/300-302 High Street, Prahran to the Lender for the sum of $400,000.00 inclusive of GST payable as follows:-

(a) The deposit will be in the sum of $105,000.00 which amount will be deducted from the principal sum owed by the Borrower to the Lender. The principal sum of the loan will, therefore, be reduced to $105,000.00.

(b) The interest payable on the principal sum owed by the Borrower to the Lender will be offset by the Borrower granting to the Lender a lease of Unit 9/300-302 High Street, Prahran and also the right to sublet the premises. The rental will be set at $1,950.00 per calendar month commencing on the date of sale of Unit 9/300-302 High Street, Prahran.

4. The amount of $1,950.00 per calendar month will be offset against the interest payable to the Lender by the Borrower up to and including the date of settlement for the purchase of Unit 9/300-302 High Street, Prahran.

5. The term of the Lease shall expire upon the settlement of the sale of Unit 9/300-302 High Street, Prahran or such time as the principal and interest pursuant this Deed is paid in full.

6. Any amount owing by the Borrower to the Lender as at the date of settlement will be deducted from the sale price for the purchase of Unit 9/300-302 High Street, Prahran.

39 It is necessary to mention one other paragraph: clause 9(a):

The Borrower acknowledges and agrees that in the event that it commits any breach of its obligations pursuant to its borrowings with the First Mortgagee, shall be deemed to constitute a breach of the Borrower's obligations under this Deed.

40 In closing submissions counsel for HGR contended that the date of execution of the deed was false and that the circumstances surrounding its execution were highly suspicious. However there was no cross-examination directed to either Mr Bianco or Mr Joakim on this issue and whilst I accept that one may be sceptical, to an extent, about the date of execution of the deed, there is no reason not to accept the evidence of Mr Bianco and Mr Joakim that the deed was in fact entered into on the date it bears - 31 July 2003.

41 The defendants filed a joint defence. In it, they asserted, consistent with the terms of the deed, that there was a loan from Mr Bianco to IID and pleaded the terms of the deed. They also pleaded that on 1 August, Mr Bianco advanced the amount of $210,000 to IID as borrower pursuant to the terms of the deed.[36]

42 The evidence-in-chief of both Mr Joakim and Mr Bianco was given by adoption of documents referred to as "substance of evidence". In effect, they were witness statements. This procedure was not satisfactory. Mr Bianco's statement simply adopted that of Mr Joakim which contained a detailed version of his account of the various transactions. Mr Bianco swore to those matters as being true and correct as far as he could attest to them. In a case such as this, the use of witness statements or an epitome of the evidence to be given by the witness is fraught with hazards, as I should have appreciated.

43 In any event, Mr Bianco, in his outline of evidence, simply adopted what had been said by Mr Joakim; counsel for the defendants then chose to call Mr Bianco first, notwithstanding that it was clear, particularly given Mr Joakim's statement, that he was the prime mover behind the transactions. It is necessary to now refer to parts of Mr Joakim's outline of evidence adopted in evidence-in-chief by Mr Bianco.

I decided that I would lend money to the Directors of IID but that I would do this through Tony. I prepared a deed to protect our position which gave an option to purchase Unit 9 and to rent it out and sublease it if anything went wrong with the repayment of the loan made to the Directors of IID.

The deed provides that the money to be lent to IID would come from Tony. In fact it came from me (for reasons explained below). I lent that sum to Tony so he could lend it to IID. That loan from me to Tony is described in the amended defence and counterclaim in this proceeding as "the Joakim-Bianco loan".

Tony had lent the amount of $210,000 to IID which was paid as to $10,000 in cash on 31 July and $200,000 by bank transfer on 1 August 2003.

The loan Tony made to IID under the deed was intended to be short term financing only. The money had to be paid back by 18 October 2003.

45 For reasons which I hope will become clear, I do not accept that there were two separate loans. The evidence of Mr Joakim that there was a loan by him to Mr Bianco and then a further loan to IID cannot be accepted. The money was provided by Mr Joakim via Mr Bianco to IID. The idea that there were separate loans fell apart once Mr Bianco was cross-examined. I also reject the submission that Mr Joakim can be characterised as an undisclosed principal with Mr Bianco as his agent.

46 Mr Bianco said that, as a result of a call from Mr Joakim, he went with him at some time in 2003 to inspect the units, which, at that time, had been completed.[37] He said that he was interested in purchasing Unit 9, although this seems something of red herring if, indeed, it be correct. He initially described the arrangement in relation to the provision of funds as follows:

Well, we - Nick lent me Mr Gomez - there was something, he needed some money, right, and Nick wanted to give me the money to lend to Mr Gomez right, and at that time he wanted - Nick told me that he wanted $210,000 and I said okay.[38]

Mr Bianco could not remember when he signed the deed.[39] He thought that the deed was drafted so that Mr Joakim would get his $210,000 back.[40] The reality of the arrangement was described by Mr Bianco in an answer as to his understanding of the deed:

That I - Nick gave me the $200 - the $210 I gave him the - Mr Gomez $210,000 he was supposed to pay in a certain date at 15% and that was it.[41]

47 Mr Bianco's evidence was that the negotiations for the provision of the funds were solely between Mr Gomez and Mr Joakim, as was the fixing of the figure of $400,000 as the value of the unit in the event of default.[42]

48 The $10,000 cash was given to Mr Bianco by Mr Joakim in denominations of hundreds and fifties. Both Mr Bianco and Mr Joakim gave evidence, which I accept, that the funds were provided by Mr Joakim.[43] The balance was paid to IID from a Joakim account.

49 Mr Bianco did not receive any payments of interest from IID.[44] Once the lease and sublease had been entered into, he did not receive any payment of rent; it went to Mr Joakim.[45] He gave this evidence in relation to a question concerning the charging of rent to Ms Joakim:

No. In my mind the money wasn't mine. In my mind I was used as a front bloke, but I had no rights to the rent because the rent was his. I had no rights to any rent or anything else, really.

So when you signed the contract to purchase the property at $400,000 - - -?

---Yes.

They weren't your rights either?---Well at the time he gave me the contract we signed the contract I knew the money wasn't mine right he lent them the $210,000 so really I was acting on his behalf.

So when you carried it through into a contract to purchase and a lease, that was really his benefit as well?---No that wasn't, there was no benefit to me. It was only whatever he's done and the dealing he's done with Gomez. I have nothing to do with it.[46]

50 Mr Bianco correctly described himself as a "front bloke" for Mr Joakim. On his evidence, there was never a loan by Mr Joakim to him. Rather, he was asked to be a party to the various contractual arrangements as a cipher for Mr Joakim. The thrust of his evidence was that he simply did what he was asked by Mr Joakim. There was no loan agreement, either oral or written, as between Mr Joakim and Mr Bianco. No demand has ever been made by Mr Joakim for the return of funds from Mr Bianco - none is owed. The rental from the sub-lease of the unit has all been paid to Mr Joakim.[47] Mr Joakim has been responsible for the maintenance and the leasing of the unit. All this is inconsistent with a loan by Mr Bianco to IID but consistent with the use of Mr Bianco as Mr Joakim's puppet.

51 Indeed when Mr Joakim came to be cross-examined he abandoned any reliance upon the purported loan arrangement:

When do you intend to ask Mr Bianco to pay you $210,000?---Mr Bianco did not borrow directly the money, I used Mr Bianco as the person to represent me. So it was my money

Do you accept that if the money does not come back you will bear the loss and you will not seek to recover $210,000 from Mr Bianco?---Mr Bianco never owed me the money, the Gomez' and ID (sic) owed me the money[48]

and finally after the contents of the defence were put to him

Did Mr Bianco seek to borrow from you the sum of $210,000?---I used Mr Bianco to be the front person, me lending the money so- [49]

52 The description of a loan by Mr Bianco in the deed is a sham, as is the reference in the pleading of the "Joakim-Bianco loan" in the defence filed on behalf of the Defendants.

53 Although it is not critical to my determination of this case, I have real reservations about the explanation provided by Mr Joakim for using Mr Bianco as his cipher. He said that he did so because he had a personal relationship with Mr and Mrs Gomez and that on a previous occasion he had difficulty obtaining repayment of a loan to them. He said that Mr Bianco was deployed in case it was necessary to put pressure on Mr and Mrs Gomez.[50]

54 I turn now to the question of Mr Bianco and Mr Joakim's knowledge of HGR's involvement in the provision of finance (and its mortgage to IID).

55 In general, I accept Mr Bianco's statement that he did not know of HGR's role, nor of the motive of the funding of the purchase by IID, other than the provision of $210,000 - for good reason - he was simply doing a favour for Mr Joakim by putting his name to the various contractual documents.

56 Mr Joakim swore that he did not know of HGR's involvement as a mortgagee until February/March 2004 when Mr Wilson took steps to alert the occupiers of Unit 9, amongst others, to HGR's rights under its mortgage.[51] I reject this account and, for the following reasons, conclude that Mr Joakim was aware of HGR's role at the time that he had Mr Bianco enter into the deed.

57 First, he was an experienced residential real estate agent who worked with his stepdaughter as well as being involved in his own property dealings. The 18 units were purchased for a sum in excess of $7 million. The Gomezs were friends, and it is inconceivable, in my view, that he did not discuss with them the financing of the units, particularly when they were seeking additional funds from him. He was, as his evidence demonstrated, loquacious and prepared to state his mind, and it affronts commonsense to think that a man with his experience being asked to provide a sum of around $200,000 would not inquire as to the other source of funds to finance the purchase. This is particularly so when on his account he had difficulty extracting a loan repayment from them previously.[52] Such an inference is consistent with Mr Bianco's evidence that Mr Joakim told him that $210,000 was needed to "settle" the development.[53]

58 Second, the deed was drawn up by him with the assistance of several of his colleagues in the real estate business.[54] Clause 9(a) which I have set out at [39] not only refers to IID as the registered proprietor but also to the existence of "the first mortgagee". The first mortgagee was HGR and, as I have said, the deed was drawn up under the instructions of Mr Joakim. I regard it as highly likely that the reference to the first mortgagee was, contrary to Mr Joakim's evidence, a reference to HGR and reflects his knowledge of its involvement at that time.

59 Third, on 19 November 2003, Mr Joakim wrote a letter on Australian Asset Realty letterhead to Mr Somasandaram, a solicitor at Wantrup & Associations, the solicitors for IID. In it, he advised that a number of units had been sold, including Unit 9, and a number reserved. He also advised that "There are several other parties interested and I am awaiting to make a suitable time for them to inspect the property". He went on to write: "Thank you for your assistance in this matter and I am sure that you will convey the good news to Herbert Geer & Rundle". I infer that the only reason for him to mention Herbert Geer & Rundle was that he was aware that the solicitors (or any associated company, such as HGR), had a direct financial interest in the prospective sales of the units and had been involved in arranging finance for the purchase. Such finance, as he must have known given his experience, could only have been secured by a mortgage over the property. His explanation for referring to the role of Herbert Geer and Rundle was unsatisfactory.[55]

60 Fourth, and in my view significantly, there is the evidence given by him on oath at VCAT in May 2005.[56] At the hearing before Member Phillips, Mr Joakim and Mr Bianco appeared on the application brought by HGR to obtain possession of Unit 9. Although Mr Bianco was the nominated tenant and the principal of the sub-tenancy, Mr Joakim conducted the case on Mr Bianco's behalf and on behalf of the sub-tenant. He made the following statements on oath, which I will set out in some detail:[57]

MS NADDAF [Bennison McKinnon Carmichael representative]: Part of it have. I think there's 24 units or something in the block.

MR JOAKIM: There's 24 in the block and at the time when Mr Bianco was there it was only - apparently he'd sold all of them and then that's when we went to Herbert Geer and Rundle to try and get a loan, my understanding, in the early piece prior to July or something, some marketing group had sold all - when they came to settlement, Mr Chairman, apparently there was only six so there was 18 still available.[58]

...

MR JOAKIM: If I can go through - yes there is. There is a caveat. Unfortunately because of the notice that was given their solicitor couldn't appear for Mr Bianco but because I know the whole story I'm here with your permission to be able to explain the whole story from start to finish so you can see where this gentleman's position is and its been jeopardized.

Prior to July when the 24 weren't able to be settled and there was only six, I got a phone call from Mr Gomez to say, 'Since you know me, would you be able to help me. I need to settle this urgently and I'm short of 200 odd thousand dollars', and I said, yes, and 'Will you be able to sell the units for me or try to. I've given it to other agents and they weren't able to.' I said, Roman, I don't want to. I'm not really doing that but I will get as much as I can for you. I'll help you whatever I can, speak to my network, and see how many we can get rid of for you.

I spoke to Mr Bianco because he was a client of mine. I sold a major property for him, and he decided that he would lend them the $200,000 plus $10,000 in cash so a total of $210,000 for a period of three months and they were supposed to pay him interest because they couldn't settle apparently, obviously. Herbert Geer and Rundle were going to pay the original owners who were the builders. So the 210 that Mr Bianco was giving was going to be able to be combined with Herbert Geer Rundle Mortgages to pay - let's say you're the builder and you owned it before and International then becomes the registered owner.

That happened on the 31st of July. An agreement was drafted then indicating that Mr Tony Bianco will lend them money on the basis of that they will pay him in three months' time or he had the right to lease and sub-lease the property until they paid him the money, one of the two and it was agreed that he could buy the property at a nominated price and he wasn't going to pay the nominated - the price that was marketed at the time because doing him a favour he wanted a favour back, Mr Chairman, so for example, I'll buy that at $400,000 less the money that I've paid you and that was agreed and the documentation is here. (Indistinct) and McKinnon would have got down the track the documents from all the kafuffle went on so did Herbert Geer and Rundle.(emphasis added)

61 Those parts of the evidence given by Mr Joakim that the funds were provided by Mr Bianco were, to put it neutrally, incorrect. His description of Herbert Geer and Rundle's involvement from the outset was completely at odds with his stated position in this Court: that he did not know of HGR's involvement until February/March 2004. His explanation that his account,[59] in May 2005 at VCAT, was a reconstruction based upon facts which were then known to him is, in my view, a convenient and unacceptable explanation for the matters he described in his evidence. That version, on its face, was chronological and was not qualified by any mention of acquired information. Moreover, it sits comfortably with what commonsense would indicate that he knew from discussion with Mr and Mrs Gomez - namely, that extra funds were needed to "top up" the amount obtained from HGR.

62 Finally, there is the general question of Mr Joakim's credit. He referred throughout the portion I have extracted, as well in other parts of his evidence which I have mentioned, to Mr Bianco lending the money to the Gomezs. That was the artifice that he created. In truth, the loan moneys came from him and no-one else.

63 In summary, I reject Mr Joakim's evidence that the first he knew of the HGR loan and mortgage was in February/March 2004. I infer from the account given at VCAT by Mr Joakim as well as the other matters I have referred to that at the time immediately leading up to the execution of the deed in July 2003, he was aware of HGR's role in providing finance for the acquisition of the units by IID. I conclude on the basis of that evidence (and particularly the reference in the deed itself to the first mortgagee) that he also knew that such an arrangement necessarily involved the Gomez' through IID providing security in the form of a mortgage over the property to HGR.

The residential tenancy agreement between IID and Mr Bianco

64 I have set out the relevant parts of the residential tenancy agreement at [20]. I was urged by counsel for HGR (as was the case with the deed), to conclude that it was not executed on 27 October 2003. Neither Mr Joakim or Mr Bianco were challenged on this point. The purpose of the deed, as I follow it, was to provide Mr Joakim with the ability to occupy the unit until IID was in a position to settle on the purchase. There can be little doubt that the contract of sale was entered into on 20 October 2003, given the lodging of the caveat on the following day.

65 The signing of the lease on 27 October 2003 is consistent with Mr Joakim attempting to take steps to follow through on the terms of the deed. I accept that the lease was executed on the date it bears.

66 That takes me to the next point - the tenure of the tenancy of the unit of Mr Bianco. It was common ground that IID is, in a practical sense, defunct; it is now and has been for some time deregistered. In a practical sense there is no prospect of it either paying out the loan and thus terminating the tenancy or, alternatively, being in a position to complete the settlement by accepting the balance of the purchase price from Mr Bianco.[60]

67 No argument was addressed to me by HGR that the lease itself was void for uncertainty.[61] Accordingly it is highly likely (particularly as IID has been deregistered now for some three years) that the Joakim/Bianco occupation of the unit is indefinite, absent an order of this court.

68 In the Amended Statement of Claim HGR seeks possession of the unit and damages.

69 In Commonwealth Bank of Australia v Jackson and Anor[62] Tadgell J, in dealing with a mortgagee's claim to possession (against mortgagors in possession) under section 78 of the TLA, said:[63]

The circumstances being as they have been proved, that is to say default having been made in the way I have indicated, and no demand being necessary under the mortgages as a prerequisite to the mortgagee's entitlement to possession, s.78 of the Transfer of Land Act made the mortgagee's task a comparatively simple one. It merely needed to allege in the statement of claim and prove upon an application for summary judgment the execution of the mortgages, the advances, default by the failure of the mortgagors to pay anything under the mortgages, and that the defendants as mortgagors were in possession.

70 There was no issue as to the efficacy of the mortgage or the default of IID under the terms of the loan by HGR. Nor was it an issue that Ms Joakim is presently occupying the unit pursuant to a sub-lease from Mr Bianco.

71 I am satisfied that Mr Bianco as the nominal tenant and Ms Joakim have been and are currently in possession of the unit. I am also satisfied, given my findings as to Mr Joakim's role in this enterprise, that he has exercised a real degree of control over the premises, since its occupation by Ms Youssef in late 2003. If such occupation is unlawful, then Mr Joakim is, as submitted by HGR, a joint-tortfeasor in the occupation of the unit.

72 If HGR is successful in establishing that its rights prevail over those of the Defendants then it is entitled to possession of the unit and the ejectment of Ms Joakim pursuant to s 78 of the TLA.

Does the existence of the tenancy agreement prior to the registration of the mortgage, but after its creation, give the tenant the ability to resist the mortgagee's claim for possession?

73 It may be of assistance if I summarise what are either uncontested facts or my findings of fact relevant to the determination of this issue:

(a) The deed was entered into on 31 July 2003[64].

(b) The IID mortgage to HGR was entered into on 1 August 2003;[65]

(c) At no time did HGR, after the execution of the mortgage, consent to the IID lease of the premises to Mr Bianco;[66]

(d) The residential tenancy agreement between IID and Mr Bianco was entered into on or about 27 October 2003;[67]

(e) By 5 November 2003 IID was in default in repayment of interest to HGR;[68]

(f) The IID mortgage to HGR was registered on 11 December 2003;[69]

(g) On 19 January 2004 HGR gave notice to pay to IID pursuant to s 76 of the TLA;[70]

(h) On or about 19 February 2004 IID by virtue of the TLA acquired a power of sale over the unit.[71]

(i) The unit has been occupied by Mr Bianco as the nominal tenant and sub-tenants since November 2003.

74 Unlike a general law mortgage a TLA mortgage involves no transfer of the legal estate, rather it creates a charge over the land.[72]

75 It is also settled under the general law that absent the consent of the mortgagee the granting of a lease by a mortgagor after the creation of a mortgage gives the lessee no right to resist a claim for possession as against the mortgagee. In Corbett v Plowden[73] the Earl of Selborne LC said:

If a mortgagor left in possession grants a lease without the concurrence of the mortgagees (and for this purpose it makes no difference whether it is an equitable lease by an agreement under which possession is taken, or a legal lease by actual demise) the lessee has a precarious title, inasmuch as, although the lease is good as between himself and the mortgagor who granted it, the paramount title of the mortgagees may be asserted against both of them.[74]

76 This principle was referred to by Sheppard J in Commonwealth v Orr[75]

Under the general law a mortgagor may lease - in the case of leasehold land, sub-lease - the land the subject of the mortgage. The lease may not bind the mortgagee but it is effective to bind the lessor and the lessee.

77 But here, the parties rights are determined by the TLA, and the defendants argue that this distinguishes the position under the general law from that under the TLA. Mr Bianco took his tenancy whilst the mortgage remained unregistered and this, it is contended, makes all the difference. It is said that the indefeasibility provisions of s 42 of the TLA mean that a mortgagee only takes paramount title upon the registration of the mortgage and subject then, and only then, to any existing tenancy. In other words, the defendants' contention is that HGR's interest as a mortgagee ranks behind that of Mr Bianco as tenant (and consequently Ms Joakim as sub-tenant). If this is correct, the end result is that absent an argument that the lease is void for uncertainty (which, as I have noted, was not mounted) then Mr Bianco and Mr Joakim will remain, in a practical sense, indefinitely in possession of the unit.

78 Section 42, the key provision, provides for indefeasibility of title, save in the case of fraud, upon registration of an interest - "absolutely free from all other encumbrances whatsoever". There are, however, other exceptions set out both in s 42(1) and (2). In particular s 42(2)(e) provides as follows:

Notwithstanding anything in the foregoing the land which is included in any folio of the register or registered instrument shall be subject to-

(e) the interest (but excluding any option to purchase) of a tenant in possession of the land.

79 A "tenancy" protected by s 42(2)(e) has been given wide interpretation in this State. Any person in actual occupation of the land falls within its scope.[76] It was not in issue that the occupation by Mr Bianco and Ms Joakim constituted a tenancy within the meaning of the sub-section.

80 An examination of the TLA should not be confined to the indefeasibility provisions. S 77(4) provides that:-

Upon the registration of any transfer under this section all the estate and interest of the mortgagor..... shall vest in the purchaser as proprietor by transfer, freed and discharged from all liability on account of such mortgage..... and (except where such a mortgagor ... the purchaser) of any mortgage charge or encumbrance recorded in the Register subsequent thereto except -

(a) a lease....to which the mortgagee...has consented in writing or to which he is a party;

81 Section 78 is also relevant and provides:-

(1) The mortgagee...upon default in payment of the principal sum or interest or any part thereof respectively at the due time-

(a) may enter into possession of the mortgaged or charged land by receiving the rents and profits thereof; or

(b) may bring an action of ejectment to recover the land, either before or after entering into the receipt of the rents and profits and either before or after any sale of the land as aforesaid.

(2) A mortgagee of leasehold land after entering into possession of the land or the receipt of the rents and profits thereof shall, during such possession or receipt and to the extent of any benefit rents and profits which are received, be subject to and liable for the payment of the rent reserved and the performance and observance of the covenants contained or implied in the lease on the part of the lessee.

82 Implicit in the submission of the defendants is, I think, the contention that HGR acquired no interest in the unit until registration of the mortgage at which time its rights "sprung up" subject to the provisions of the TLA, in particular s 42(2)(e).

83 This proposition cannot be accepted. In Barry v Heider & anor[77] Griffith CJ said of an argument that an unregistered dealing was incapable of creating any right in relation to land under the Torrens system (in that case a transfer of land):

It is now more than half a century since the Australian colonies and New Zealand adopted, in substantially the same form but with some important variations, the system sometimes called the 'Torrens' system which is now in New South Wales embodied in the Real Property Act 1900. With the exception of one decision in South Australia, soon after overruled, the contention of the appellant has never been accepted in any of them...[78]

In my opinion equitable claims and interests in land are recognised by the Real Property Acts.

It follows that the transfer of 19 October, if valid as between the appellant and Schmidt, would have conferred upon the latter an equitable claim or right to the land in question recognised by the law. I think that also follows that this claim or right was in its nature assignable by any means appropriate to the assignment of such an interest[79]

84 In endeavouring to make good their argument as to the priority of the interests of the tenant and sub-tenant over the mortgagee, the defendants referred to a number of authorities dealing with the application of s 42(2)(e) and the protected rights of a tenant in possession under that provision.

85 Counsel for the defendants described the decision of the High Court in Burke as a "convenient starting point" and referred to the following passage in the judgment of Dixon J:

In Victoria these words have received an interpretation and an application as a result of which any person in actual occupation of the land obtains as against any inconsistent registered dealing protection and priority for any equitable interest to which his occupation is incident, provided that at law his occupation is referable to a tenancy of some sort, whether at will or for years. Thus, a purchaser under a contract of sale, who at law is in possession as tenant at will of the vendor, has been held protected in respect of his equitable ownership as purchaser (Robertson v Keith); Sandhurst Mutual Permanent Investment Building Society v Gissing; a lessee in respect of an option of purchase contained in his lease (McMahon v Swan) and a wife in respect of an equitable life interest claimed under an unsigned separation agreement made with her husband (Black v Poole) a'Beckett J decided the last named case in deference to previous decisions and against his own opinion, which he stated to be that 'those words were intended to refer to a tenancy as ordinarily understood arising out of an agreement under which the person in possession was allowed to occupy in consideration of some kind of rent or service of which the proprietor was to have the benefit.' The cases are collected and criticised by the late Dr.Donald Kerr in his work The Australian Lands Titles (Torrens) System (1927), at pp.75 et seq. But the interpretation has stood for nearly seventy years, and it would, I think, be most undesirable now to undertake the re-examination of its correctness.

For the purposes of our decision, I accept the view that under sec.72 the respondent's occupation of the land confers upon her equitable life estate a protection against the paramount effect otherwise produced by an inconsistent dealing under the registration system.[80] (Emphasis added)

86 This extract, however, needs to be considered in context. The case involved a contest between the interests of a mortgagee and that of a beneficiary under a will who had been in possession of the property since the death of the deceased. Importantly, the beneficiary was in possession of the land at the time when the mortgage was given[81] and had exclusive occupation of the land.[82] The question of priority, as identified by Dixon J was as between the equitable tenant for life in possession under the will and the registered proprietor of the mortgage given by the executor of the will.[83] His Honour said as follows:

Her claim [to retain possession of the land] rests primarily upon the fact that at the time when the appellants took their mortgage from Dawes she was in actual possession of the land.[84]

It can, therefore, be readily seen that Burke did not involve consideration of the issues that arise in this case. Indeed it would seem implicit that his Honour and the parties regarded the relevant time to assess the competing interests under the TLA as between tenant and mortgagee to be the time of creation of the mortgage, not its registration.

87 Downie v Lockwood[85] was decided by Smith J of this court who said as follows:

As appears from the cases the exception in s 42(2)(e) is to be widely construed; and it is to be treated as producing the result that 'any person in actual occupation of the land obtains as against any inconsistent registered dealing protection and priority for any equitable interest to which his occupation is incident, provided that at law his occupation is referable to a tenancy of some sort, whether at will or for years'

Here it is clear that immediately before the defendants became registered the plaintiff's occupation was at law referable to a tenancy[86] (citations omitted)

88 The case turned on a determination of the status of the asserted tenant and the priority of his interest as against that of the registered proprietor; the question of the competing interests of a mortgagee and subsequent tenant was not considered.

89 The decision of Mayer v Coe[87], (cited with approval by the Court of Appeal in Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd[88] and also by the High Court in Farah Construction Pty Ltd v Say-dee Pty Ltd.[89]) was also relied upon by the defendants. In that case Street J said as follows:

These would be true proceedings in personam. But once the memorandum had been registered its efficacy as a mere forged document became translated to a statutory operation as a registered instrument. Mr Coe's statutory rights under the Real Property Act derived from the fact of registration and not from an event antecedent thereto. Consistently with the Privy Council's decision in Frazer v Walker, supra, it became immaterial that the instrument which had led to his being registered was void. That of itself would not give rise to any personal equity against Mr Coe.[90]

90 It will be observed that his Honour's statement of principle was directed to the efficacy of a forged mortgage upon registration and not the question of the intersecting rights of the holder of an unregistered mortgage and a subsequent tenant. Clearly Mayer is authority for the proposition that a mortgagee is unable to exercise any of the powers available under the TLA until registration when the statutory rights spring up. However it says nothing about the competing rights of an unregistered mortgagee and a subsequent tenant in the period prior to registration.

91 Finally, I should mention what is said in the most recent edition of Voumard "The Sale of Land" in relation to s. 42(2)(e)[91]:

(e) The interest (but excluding any option to purchase) of a tenant in possession of the land.

Certain English decisions prompt an enquiry as to the point of time at which a 'tenant' must take possession in order to become entitled to the benefit of this provision.

...

Although these decisions afford some assistance as to the effect of s 42(2) of the Transfer of Land Act, any similar question arising in this State will depend upon the construction of this provision having regard to the context in which it is found. The reference in this subsection to land included in any registered instrument suggests that, in order to obtain protection, it is sufficient if the 'tenant' is already in possession at the time of the lodging for registration of the instrument under which a claim adverse to the tenant is made.

The defendants rely upon the observations contained in the last sentence. However it is to be noted that there is no reference to a number of recent decisions on this issue which I will turn to in a moment. Moreover I was told by counsel for HGR that this extract from Voumard had not been altered since the third edition published in 1978.[92]

92 The specific question of the competing rights under the TLA of a mortgagee as against that of a tenant in possession has been considered on a number of occasions by judges of this Court and the Federal Court. In each case the Court recognised (implicitly or explicitly) that the rights of the mortgagee as against the tenant, contrary to the argument of the defendants, arise at the time of the creation of the mortgage and that a tenant taking possession subsequently does so subject to the mortgagee's rights. Such rights, however, in the context of the TLA, can only be exercised upon registration of the mortgage.

93 In Independent Order of Oddfellows Victoria Friendly Society v Telford[93] the registered mortgagee sought possession. Subsequent to the registration of the mortgage the mortgagor executed a lease to the defendant Mr Telford. He argued that s 42(2)(e) of the TLA was unqualified in effect, and that the interest of a tenant-in-possession was paramount in all cases, notwithstanding the time at which the tenant went into possession.

94 Having considered the terms of s 42(2) Gobbo J said as follows:

The remaining sections of the Transfer of Land Act, in my view, do not support that reading of the provision. In the first place, s 66 has a limited reference to leases, but by analogy the reference in s 66(1) and (2), which provides for power to lease any land, for any term exceeding three years, and provides further that such lease shall not be varied against the mortgagee unless he has consented in writing, lends no support for the view that a lease made without the mortgagee's consent in writing may still be effective to amount to a paramount interest. But the most relevant and particular provision is s 77, which controls the effect of the exercise of powers of sale by a mortgagee. In that section, in particular in sub-s (4), it is clear, in my view, that, upon the registration of any transfer, all the stated interest is freed and discharged from all liability on account of such mortgage or charge and in respect of any mortgage, charge or any encumbrance, registered or notified in the register book except a lease to which the mortgagee has consented in writing. The plain intent of that section, in my view, is to enable the mortgagee to effect a sale that is free from subsequent dealings; that is, dealings subsequent to the creation of the mortgagee's interest, in this case the mortgage, unless he has consented in writing to the creation of such lease, easement or restrictive covenant. In my view, those provisions in s 77, combined with the indirect assistance given by the presence of s 66, lead one to the conclusion that s 42(2) is referring to an interest of a tenant in possession of the land at the time of the creation of the original interest of the mortgagee, and not at any point subsequent to that, such as the time when the power of sale is exercised. (emphasis added)

95 In Baranyay the Bank sought to exercise its power of sale as mortgagee. Subsequent to the registration of the mortgage but prior to its execution of a contract of sale with a purchaser, the mortgagor agreed to lease the property to Mr Baranyay. He argued that his interest as tenant in possession was protected by s. 42(2)(e). The mortgagee having not consented to the lease contended that its interest prevailed. Hayne J concluded that the mortgagee's interest had priority and after referring to s 77(4) of the TLA said:-

I consider that it is clear that the intent of the section is to enable a mortgagee exercising a power of sale to pass an unencumbered title to the purchaser. That being so, it follows, as Gobbo J noted in the Independent Order of Oddfellows Case, that the reference in s 42(2) to an interest of a tenant in possession of the land preserves (as against the mortgagee) interests of tenants in possession of the land at the time of the creation of the original interest of that mortgagee - not any interest of a tenant in possession at the time when the mortgagee exercises his power of sale. (emphasis added)[94]

96 Pausing for a moment here, counsel for the defendants made the point that the decisions in Telford and Baranyay did not deal specifically with the precise issue, here, namely the creation of a tenancy between the time of the execution of the mortgage and its registration and contended that therefore those decisions could be put to one side. I beg to differ. Gobbo J was, I think, clearly giving consideration to an argument concerning the effect of a lease whenever it may have been entered into (albeit that the subject lease in that case was entered into after the registration). Given that the central plank of Mr Telford's argument turned upon s.42(2)(e) and the effect of registration, if his Honour had regarded the time of registration as being the time at which the mortgagee's interest was created then his Honour would, I think, have said so in terms. His Honour's reference to the creation of the original interest of the mortgagee must be taken as a reference to the execution of the mortgage and the creation of the accompanying equitable interest. There is nothing, I suggest, in Hayne J's remarks, which endorse those of Gobbo J, to suggest that his Honour was confining his remarks to the facts before him. It was, as I read it, a statement of general principle concerning the rights of a mortgagee under the TLA once the mortgage had been created. I do not accept the contention that reference to the creation of the mortgagee's interest is, in some way, to be equated with the creation of an interest upon registration.

97 I should also mention the recent decision of Emerton J in Apollo 169 Management Pty Ltd v Pinefield Nominees Pty Ltd[95] in which her Honour said as follows in relation to a mortgage executed in October 2006:[96]

The effect of the provisions of the Transfer of Land Act relied upon is that a mortgagee exercising a power of sale can pass title to a purchaser unencumbered by interests that did not exist at the time the mortgage interest was created. The lease or "a" lease in relation to Lot 15 did not exist when the mortgage was created in October 2006. The plaintiff was not incorporated until October 2007. Section 42(2) does not assist the plaintiff. (emphasis added)

98 Decisions of the Federal Court accord with those of this Court.

99 In Orr Sheppard J, having stated the general principle which I extracted earlier, went on to say:

These principles of the general law apply not only to land under common law title but also to land under Torrens title: see Baalman's Torrens System in New South Wales (2nd ed, 1974) p 265 and s 53(4) of the Real Property Act 1900 (NSW) which acknowledges that a mortgagor may grant a lease. All it is concerned to do is provide that no such lease will be valid and binding against the mortgagee unless it is consented to by him. A similar provision is contained in s 84 of the Real Property Ordinances 1925 (ACT). The provision applies in terms to leases but I would construe it so as to apply to sub-leases as well.[97]

100 In Maher v Commonwealth Bank of Australia[98] Mr Maher claimed possession of a property under a lease from the registered proprietor, Mr Taylor. The bank held a mortgage from Mr Taylor and had not consented to the lease. Although the case involved consideration of matters other than that of possession of the property (e.g. the lease was executed during the course of the mortgagor's bankruptcy) Finkelstein J said as follows in relation to Mr Maher's rights as against the bank:

Following Mr Taylor's default and the service of the requisite notice under s 76 of the Transfer of Land Act the bank was entitled to eject Mr Taylor, and any person claiming through him, without any further notice to quit or demand for possession. The reason for this is that after default Mr Taylor was at most a tenant at sufferance to the bank who could be treated, at the bank's election, as either a tenant or as a trespasser.

Moreover while a mortgagee may be bound by a tenant of the mortgagor holding a lease granted before the mortgage (see s 42(2)(e) of the Transfer of Land Act, t_he mortgagee may recover in ejectment, without giving notice to quit, against a tenant who claims under a lease from the mortgagor granted after the mortgage and without the consent of the mortgagee._ The reason is obvious. A tenant to the mortgagor whose tenancy does not predate the mortgage cannot be in a better position than the mortgagor himself. (references and citations omitted, emphasis added)[99]

101 I do not accept the defendants' submission that his Honour, in referring to a tenancy, which pre-dated the mortgage, was implicitly referring to the registration of the mortgage rather than the date of creation of the mortgage. The point that his Honour makes in the last sentence militates against such an implication being drawn.

102 Finally, there is the recent decision of Middleton J in Haslam v Money for Living Aust (Pty Ltd)[100]. This case was one of a number involving retirement plans under which the retirees having sold the family home to an organisation known as Money for Living received, in addition to a payment of cash and the promise of ongoing payments, the right to occupy their property for the remainder of his or her life pursuant to a lease. Each retiree continued to occupy his or her property; Money for Living became the registered proprietor and mortgaged the properties to a financier, Perpetual, which after default by the mortgagor sought to take possession of the retirees' properties.

103 Two of the retirees rights were governed by s 42(2)(e) of the TLA and two others by a similar provision of the Land Titles Act 1980 (Tas).

104 Middleton J specifically addressed the question of the priority of the mortgagee's interest over that of a tenant after the creation of the mortgage. Relevantly the issue of priority where a lease was entered into subsequent to the execution of the mortgage but prior to its registration was dealt with under the heading "Creation of leases after the creation of mortgages":-

I accept Perpetual's argument that MFLPH was unable to grant a future lease, whether registered or not registered, after the creation of the mortgage without Perpetual's consent. The time of the creation of the mortgage is the time the mortgages are entered into, not registered. Once the mortgage is registered, it would take priority over any tenancy, but necessarily only a tenancy entered into after the mortgage was created.

Therefore, in this proceeding, if the leases came into existence after the creation of the mortgages, Perpetual would be entitled to priority because the title of the mortgage would prevail over the interests of the retirees, Perpetual not consenting to the leases. If the leases were created prior to the creation of the mortgages, then only if they fell within the exceptions to the indefeasibility principles would the leases be able to take priority in circumstances where the mortgage was subsequently registered.

I should say something more about this conclusion I have reached as to the relevant time for considering the competing claims and the creation of the mortgage. It is important to keep in mind that in this proceeding we are concerned with a competition between a lease and a mortgage, which necessarily brings into operation the principles discussed in Baranyay, cl 8 of the common provisions of the mortgage, and the provisions of the TLA and LTA dealing with mortgages and leases. If one were dealing with a competition between a lease and, say, a registered proprietor of the property, the relevant time to consider may be the time of lodgement or registration of the relevant interest. This is because the registered proprietor would not be able to rely upon cl 8 of the common provisions, and the statutory provisions relating to mortgages and leases and their priority, and the focus would be only upon the operation of s 42(2)(e) of the TLA and s 40(3)(d) of the LTA.[101] (emphasis added, references and citations omitted)

105 I adopt the analysis of his Honour on this issue which, it seems to me, conforms with statements of principle (implicitly and explicitly stated) in a number of the other authorities to which I have adverted.

106 As I have said, counsel for the defendants relied upon many statements of principle concerning indefeasibility of title, and the primacy of s 42, particularly in the context of the competing interests of a registered proprietor and a tenant. The correctness of those authorities could not be doubted. I repeat that here however the question is different and involves the determination of the rights of the mortgagee and subsequent tenant not confined solely to the terms of s 42 but also taking into account the other provisions of the TLA, as was recognised I suggest in Telford, Baranyay and Haslam.

107 This analysis of the interaction of s 42 and other provisions, particularly s 77, of the TLA accords, I suggest, with modern principles of statutory construction. In Project Blue Sky v Australian Broadcasting Authority[102] by the High Court (McHugh, Gummow, Kirby and Hayne JJ) said:-

The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.

A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. [103]

108 So when the question of a mortgagee's interest arises, a provision, such as s 42 is not to be viewed in isolation; rather it is to be looked at in the wider context of the whole of the TLA, particularly those relevant to the mortgagee's right to possession and the exercise of a power of sale by a mortgagee (s. 78 and s. 77).

109 The interpretation of s 42 and s 77 in the manner described by Gobbo J in Telford, Hayne J in Baranyay, and Middleton J in Haslam, is consistent, I respectfully suggest, with this approach. It promotes the harmonious operation of the provisions of the Act, and advances the overall objectives of the TLA. Any other result would lead to a capricious outcome, as I think the facts in this case demonstrates. First as Finkelstein J noted in Maher the tenant would be placed in a stronger position than the mortgagor in resisting the exercise of the power of sale or a claim for possession. This is particularly relevant here as the tenant, Mr Bianco, effectively insists that he has a tenancy which in practical terms may never be terminated. In other words, the mortgagee's statutory power of possession and sale will, for the foreseeable future, be frustrated.

110 Second, there is commercial reality. A mortgagee may for a variety of reasons delay registering a mortgage. If the defendants' argument be correct then notwithstanding the common provisions,[104] a mortgagor may (as has happened here), subsequent to executing the mortgage, let the premises and in doing so delay or frustrate the rights of a mortgagee upon registration of the mortgage. It would be an affront to mercantile practice in this State to place an unregistered mortgagee, with an equitable interest in the property from the date of creation of the mortgage, at the mercy of a subsequent tenant of the mortgagor whose actions place that tenant in a preferential position to that of the mortgagee.

111 Third, to give a tenant priority over the mortgagee's interest would be in contradiction of the longstanding position under the general law and, I think as intended, the TLA - a position that makes abundant good commercial sense and does not turn upon the timing of the registration but rather permits a mortgagee to consent to a lease and then, and only then, be liable to the exercise of the rights of the tenant. The converse, of course applies and makes equal good sense - at the time that the mortgagee enters into the mortgage he or she does so subject to any existing tenancy.

112 Accordingly, I am of the view that absent consent of the mortgagee the tenant's interest was, to use the words of the Earl of Selborne "precarious"[105] and able to be defeated by the mortgagee upon the exercise of its rights under either s 77 or s 78.

113 It follows that once IID defaulted on its repayments to HGR then it was entitled to possession pursuant to s 78 of the TLA, and once the statutory period had elapsed, it was also capable of exercising its power of sale under s 77 of the Act. No priority was by virtue of s 42(2)(e) conferred on Mr Bianco and/or the sub-tenants by reason of s 42(2)(e).

114 If I am wrong and Mr Bianco and Ms Joakim's interests fall within the protection of s 42(2)(e) as against HGR, the question then arises as to the effect of such protection.

115 Counsel for HGR essentially relied upon his submissions concerning the application of s 42(2)(e) and did not deal with this issue specifically. In any event I adopt what was said by Middleton J in Haslam :

My view is that if the retirees come within the terms of s 42(2)(e)...then no comparison of the competing interests is required of the type suggested by Perpetual.[106]

116 Accordingly, if, (contrary to my conclusion) Mr Bianco is afforded protection against HGR's interest pursuant to s. 42(2)(e) it is not necessary to examine the question of competing interests further.

117 If however the case does turn on the question of competing equities, I think that the interest of HGR prevails over that of Mr Bianco for the following reasons which I shall briefly state.

118 The defendants rely upon an asserted equitable interest created by the deed which pre-dated by one day the execution of the mortgage.[107] I am prepared to accept that the deed did in fact provide Mr Bianco with an equitable interest at the time that it was entered into and therefore is first in time.[108] However I am satisfied for reasons that I have set out earlier that Mr Joakim was aware both that HGR was a lender to IID and that the security provided to HGR was a mortgage from IID over the property (including the unit). I am also satisfied that by the time that the residential tenancy agreement with IID was entered into with Mr Bianco as the nominal tenant it was known to Mr Joakim that HGR had a mortgagee's interest in the property, (Unit 9).

119 In other words, Mr Joakim, the moving force of the arrangement was aware of HGR's interest in the unit prior to the deed being entered into and during the period of time that the mortgage remained unregistered.

120 In these circumstances fairness and justice requires that the earlier equitable interest be postponed.[109] This is particularly so given that Mr Bianco's interest as evidenced by the deed is a sham designed to disguise the true interest of Mr Joakim in the provision of funds to IID and the occupation of the unit.

121 Section 42(2)(e) does not provide Mr Bianco or Ms Joakim with any right over that of HGR. Rather, HGR's interest as mortgagee prevails.

122 HGR is entitled to an order for possession of the property and if necessary an order for the ejectment of Ms Joakim.

123 As agreed between the parties, the question of damages flowing from the unlawful occupation of the unit (as I have concluded exists) was to be deferred until I delivered my judgment on the question of possession. The parties will now have the opportunity to consider these reasons, and then make any further submissions they wish on the question of damages.

[1] The second defendant is Ms Joakim's father, Mr Nicos Joakim. The defendants were jointly represented at the trial. Where applicable I have referred to Mr Bianco, Mr Joakim and Ms Bianco collectively as "the defendants".

[6] Trevor John Wilson witness statement [4].

[34] Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125.

[36] [23], [24], [27] of the defence

[57] Ms Naddaf was from Benison McKinnon Carmichael and had instructions on behalf of HGR.

[58] I accept that the reference to "we" was either a transcription error or a mistake. In all likelihood, it refers to Mr Gomez - "he".

[60] As Mr Joakim said "IID cannot settle for various legal reasons" Exhibit D3 [10].

[61] See the discussion in Greco v Swinburne Ltd [1991] VicRp 23; (1991) 1 VR 304.

[66] This was accepted by each of the parties. See also the evidence of Mr Wilson T84.

[71] Section 77(1) of the TLA.

[72] Commonwealth Bank of Australia v Baranyay [1993] VicRp 43; (1993) 1 VR 589,598 ("Baranyay").

[73] (1884) 25 Ch D 678, 681; see also Taylor v Ellis [1960] 1 Ch D 368, Dudley and District Building Society v Emerson [1949] 1Ch D 714.

[74] The argument in Corbett was the opposite of that in this case. The mortgagor held a 25 year lease with the tenant. The mortgagee endeavoured to hold the tenant to a lease he had entered into with the mortgagor. The mortgagee had insisted upon payments being made directly to him. It was held that such notice did away with the agreement between the mortgagor and the tenant, who then became a year to year tenant, of the mortgagee and was entitled to give notice of termination of the lease on the basis of that tenancy - not the 25 year lease with the mortgagor.

[75] [1981] FCA 161; (1981) 37 ALR 653, 661 ("Orr"). See also Wilson v Kelly [1957] VicRp 19; [1957] VR 147.

[76] Burke v Dawes [1938] HCA 6; (1938) 59 CLR 1, 17-18 ("Burke"); McMahon v Swan [1924] VicLawRp 62; (1924) VLR 397; Black v Poole. (1895) 16 ALT 155. See also Bradbrook "The Scope of Protection for Leases under the Victorian Transfer of Land Act" [1988] MelbULawRw 21; (1988) 16 MULR 837.

[77] [1914] HCA 79; (1914) 19 CLR 197.

[79] Ibid 208. See also Great West Permanent Loan Co v Freeman [1925] AC 208.

[85] [1965] VicRp 38; [1965] VR 257.

[87] (1968) 2 NSWR 747.

[89] [2007] HCA 22; (2007) 230 CLR 89, 170.

[92] Indeed it is in the same form, as a footnote, in the 4th edition published in 1986.

[93] (1991) V ConvR 54-419.("Telford").

[95] (2010) VSC 40.

[97] [1981] FCA 161; (1981) 37 ALR 653, 661.

[98] [2004] FCA 248.

[100] [2008] FCA 1536; [2008] 250 ALR 419 ("Haslam").

[102] [1998] HCA 28; (1998) 194 CLR 355.

[103] Ibid [69] and [70]; See also [93] Federal Commissioner of Taxation v Futuris Corp [2008] HCA 32; (2008) 237 CLR 146 [23], Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409 [28], BHP v National Competition Council [2008] HCA 45; [2008] 236 CLR 145.

[107] I do not need to decide whether HGR's interest arose at the time of execution of the mortgage or at the time of default as submitted by counsel for the defendants.

[108] See Avco Financial Services Ltd v White [1977] VicRp 62; (1977) VR 561.

[109] See Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; (1983) 154 CLR 326, 341 (1929), Lapin v Abigail [1930] HCA 6; 44 CLR 166, 204.