Printy v Provident Capital Limited & Anor

Almeida v Universal Dye Works Pty Limited & Ors [2001] NSWCA 156 Bullock v London General Omnibus Co. (1907) 1 KB 264 Challenger Managed Investments Limited & Anor v Direct Money Corporation Pty Limited & Ors (2003) 59 NSWLR 452 Gould v Vaggelas (1983-85) 157 CLR 215 CASES CITED : Perpetual Trustees Victoria Limited & Anor v Tsai (2004) 12 BPR 22,281 PT Limited v Maradona (1992) 25 NSWLR 643 Roads and Traffic Authority & Ors v Palmer [2005] NSWCA 140 Small v Tomassetti (2001) 12 BPR 22,253 Steppke v National Capital Development Commission (1978) 21 ACTR 23

James Richard Printy (Plaintiff) PARTIES : Provident Capital Limited (1st Defendant) Registrar General of New South Wales (2nd Defendant)

I. Wales SC (Plaintiff) COUNSEL : P. Taylor SC (1st Defendant) P. Walsh (2nd Defendant)

Lyndon Sayer-Jones & Associates (Plaintiff) SOLICITORS : Bersten Pain Pty Limited (1st Defendant) K. Hall (2nd Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20430/05 JAMES RICHARD PRINTY v PROVIDENT CAPITAL LIMITED & ANOR

JUDGMENT 1 HIS HONOUR: The plaintiff, James Richard Printy, sues the first defendant, Provident Capital Limited, and the second defendant, the Registrar General, seeking the recovery of money after the sale of property he claimed to have owned at 33 Canoelands Road, Canoelands. The first defendant recovered a judgment for possession of that property in proceedings in this court following default under a mortgage, and it exercised its power of sale. The plaintiff disputes any indebtedness to the first defendant under what will hereafter be described as the first of two mortgages, and hence claims from the first defendant the recovery of the proceeds of sale less what he acknowledges the first defendant was entitled to recover under the second mortgage, and less certain agreed costs associated with the sale. As against the second defendant, the plaintiff looks to it for compensation from the Torrens Assurance Fund pursuant to the statutory scheme provided for in the Real Property Act: see in particular s 129 of that statute. The plaintiff looks to the second defendant for compensation from the fund for what the first defendant was entitled to recover against him under its second mortgage, and he also pursues a claim in the alternative against the second defendant for what he seeks to recover from the first defendant, in the event that that claim should fail.

The factual background 2 The evidence in this case consists of the following:

(i) affidavits of James Richard Printy sworn 16 June 2006 and 4 September 2006;

(ii) affidavit of Stanley Edward Roots sworn 11 August 2006;

(iii) affidavit of Eamon Mooney sworn 3 August 2006. 3 The plaintiff was cross examined on his affidavit but the essential evidence which he gave was not challenged and the factual background which I will now record was not the subject of dispute. 4 The plaintiff was born in Missouri in the United States of America on 21 August 1947. According to his birth certificate, his name was James Richard Shull. His parents later divorced and when his mother remarried, the plaintiff, at the age of twenty, changed his surname to Printy, which was the family name of his stepfather. The court order exhibited to the plaintiff's earlier affidavit evidences that name change on 22 July 1968. 5 Between 1986 and 1987 the plaintiff visited Australia nine times. His passport during that time was still in the name of James Richard Shull. In March 1986 on one of his visits to this country, the plaintiff purchased the property at 33 Canoelands Road, Canoelands in the name James Richard Shull. At the time of purchase the plaintiff intended eventually to settle in Australia, but his plans changed. 6 After purchase he allowed a friend, Mia Sorous, and her partner to stay at his property rent free, provided the property was maintained and the rates were paid. This loose arrangement was left in place over the years, and the plaintiff kept in contact with Mia Sorous by mail and Ms Sorous also visited the plaintiff from time to time in New York. To the best of his recollection, the plaintiff last received a communication from Ms Sorous in 2002. He said that friends visited Australia, and the property, and reported back to him. He said that after he purchased the property, the plaintiff left the original certificate of title somewhere in his bedroom in that house. 7 Eventually, the plaintiff returned to Australia in June 2005 with the intention of selling his property. The plaintiff visited Canoelands and found the property unoccupied. He then discovered that the property had been sold following a default judgment for possession obtained by the first defendant. 8 The affidavit of Eamon Mooney, legal officer employed by the Department of Lands, evidences the dealings affecting 33 Canoelands Road, Canoelands whilst the plaintiff was absent from Australia. On 10 November 1999 application was made for a replacement certificate of title, it being contended in the supporting statutory declaration that the certificate of title had been lost. The person making the declaration claimed to be James Richard Shull. I am satisfied this person was not the plaintiff. The Registrar General duly cancelled the certificate of title claimed to have been lost, and issued a fresh one. There then followed a series of mortgage dealings, the earliest of which was in December 1999. It is unnecessary to record the details of all the transactions evidenced in Mr Mooney's affidavit. Suffice it to focus upon the two mortgages with which the present claim is concerned. Firstly, there was the mortgage to the first defendant purporting to have been entered into by the plaintiff as "James Richard Shull" on 8 April 2004. This was a mortgage stamped for the purposes of the Office of State Revenue for an amount of $550,000 (the "first mortgage"). Secondly, there was an earlier mortgage in favour of Bruce Jones and Robert McDonagh for $50,000, but this was later postponed on 7 April 2004 when the mortgage in favour of the first defendant was registered. Then later, on 16 September 2005, that mortgage was transferred from Jones and McDonagh to the first defendant (the "second mortgage"). 9 There followed, in January 2006, the transfer under power of sale following the sale by the first defendant after the judgment for possession. 10 I accept the plaintiff's assertion that none of the documents relevant to the dealings from November 1999 onwards bore his signature and that no money was borrowed by him from the first defendant. I am satisfied that the various dealings with his property thereafter were done without the plaintiff's knowledge or authority, and that such of those documents as purported to bear his signature were signed by the fraudster who applied for the new title deed in 1999 and who thereafter represented himself as James Richard Shull in order to borrow money under mortgage secured on the property. 11 Police investigations referred to in the affidavit of Stanley Roots and in Exhibit A revealed that a man therein named was arrested and charged with nineteen offences in relation to the plaintiff's property at Canoelands. That person is now deceased. 12 The evidence satisfies me that the two mortgages in question owe their existence to the conduct of the fraudster. There is no suggestion that the first defendant was a party to the fraud. The issue that arises is as to the significance of registration of the mortgages under the Real Property Act. Section 42(1) of the Act provides: "(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:" (and the sub-section goes on to refer to a number of exceptions of no present relevance.) 13 The effect of s 42 is to confer indefeasibility on a mortgagee but this present case calls for consideration as to what this means in relation to these two mortgage transactions. 14 In the course of argument I was referred to the decision of Campbell J in Small v Tomassetti (2001) 12 BPR 22,253 where his Honour succinctly expressed the principle of indefeasibility and then posed the question to be addressed in the present case (at [8]-[9]): "8 It is clearly established that, personal equities aside, registration of a mortgage gives to the mortgagee an indefeasible title (see Mayer v Coe [1968] 2 NSW R 747, especially at 754; Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSW LR 32; PT Limited v Maradona Pty Limited (1992) 25 NSW LR 643; Garofano v Reliance Finance Corporation Pty Ltd (1992) NSW ConvR 55-640; Pyramid Building Society (In Liquidation) v Scorpion Hotels Pty Ltd (1998) 1 VR 188, especially at 196 per Hayne JA (with whom Brooking and Tadgell JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313. 9 Notwithstanding that registration confers indefeasibility on a mortgagee, there is still a question 'indefeasibility for what?'." 15 The effect of these two registered mortgages in favour of the first defendant depends upon their construction, and each mortgage calls for discrete consideration.

The first mortgage 16 This mortgage document bears date 7 April 2004. Consistently with the findings previously expressed, I am satisfied that the signature purporting to be that of the mortgagor is not the signature of the plaintiff. The mortgage document is in the approved form (Form 05M). It does not express the principal sum lent and on this single page document it is recited that the mortgagor "mortgages to the mortgagee all the mortgagor's estate and interest in the…land, and covenants with the mortgagee that the provisions set out in the…memorandum specified below are incorporated in this mortgage: Memorandum No. 8775251 filed at Land and Property Information, New South Wales." 17 Clause 2 of the memorandum so incorporated makes provision for the payment of "the secured money", providing as follows: "2.1 The Mortgagor must pay the secured money to the Mortgagee as provided in any related agreement . 2.2 If: 2.2.1. the secured money is not owing under a related agreement ; or 2.2.2 for any reason a related agreement does not specify when the Mortgagor must pay any secured money to the Mortgagee; then the Mortgagor must pay that secured money to the Mortgagee within 14 days after the Mortgagee demands payment." 18 Clause 1 of the memorandum defines for the purposes of the memorandum "secured money" as meaning "all money which the Mortgagor owes the Mortgagee now or in the future for any reason and whether alone or with another person; examples of which include: · money which the Mortgagor owes the Mortgagee under any related agreement; · money which the Mortgagee lends to the Mortgagor; · money which the Mortgagee pays to another person with the authority of the Mortgagor (eg. a loan, payment of the Mortgagor's expenses); · money which the Mortgagee may become liable to pay to another person in connection with the Mortgagor for any reason (eg. under a cheque or if the Mortgagor becomes insolvent); · expenses and losses which the Mortgagee incurs: s in connection with or as a result of any default event; or s if the Mortgagee exercises any of its rights or powers under this mortgage or any related agreement; or s concerning the making or perfecting of this mortgage (eg. stamp duty, registration fees, legal fees); · interest on any money owing under this provision." 19 The same clause defines "related agreement" (a term used in the above definition and in cl 2) as meaning: "any agreement or arrangement under which: · the Mortgagee lends money or incurs any obligation or liability; or · the Mortgagee has any security interest; and which relates to the Mortgagor " 20 The definition of "secured money" refers to "default event", and this is addressed in cl 23 of the memorandum: "23.1 The following events are ' default events' : 23.1.1 the Mortgagee does not receive on time any payment required under this mortgage or any related agreement whether by or for the Mortgagor or another person; 23.1.2 the Mortgagor: 23.1.2.1. does not do anything it is required to do; or 23.1.2.2. does anything which it must not do; 23.1.2.3. under this mortgage or any related agreement ; 23.1.3. the Mortgagor: 23.1.3.1. does not do anything it is required to do; or 23.1.3.2. does anything which it must not do; 23.1.4. an event of default occurs under any related agreement , whether by the Mortgagor or any other person other than the Mortgagee; 23.1.5. the Mortgagee determines that the Mortgagor has made any statement to the Mortgagee about the Mortgagor or the property which is not true or is misleading; 23.1.6. if the Mortgagor is a corporation: 23.1.6.1. the Mortgagor becomes an externally-administered body-corporate under the Corporations Act; or 23.1.6.2. there is a change in share ownership or share rights which results in a change in the control of the Mortgagor whether in the directors or in voting rights of members; 23.1.7.if the Mortgagor is an individual, the Mortgagor: 23.1.7.1. dies; 23.1.7.2. is declared bankrupt; 23.1.7.3. enters into any arrangement with creditors; or 23.1.7.4. becomes incapable of managing his or her own affairs; 23.1.8. any related agreement or security interest in favour of the Mortgagee: 23.1.8.1. is not executed or does not come into effect so as to bind all parties for any reason, or 23.1.8.2. is varied or fully or partially discharged; or 23.1.8.3. is set aside or avoided by any person or is found to be unenforceable in any way for any reason; 23.1.9. any event occurs which the Mortgagee determines has or is likely to have a material adverse affect on the value of the property." 21 Clause 25 provides for "Mortgagee Action Following Default": "If a default event occurs the Mortgagee may do any one or more of the following: 25.0.1. demand immediate payment of the secured money;

25.0.3. collect the rent and any other money from the property;

25.0.4. remove the Mortgagor and any other occupant from the property;

25.0.5. sell all or any part of the property on terms which are reasonable in the circumstances prevailing at the time;

25.0.8. deal with the property in any way, including developing or subdividing the property or consolidating it with any other property;

25.0.9. lease or allow any person to use any part of the property on any terms, at any rent, and for any period; 25.0.10. vary, terminate or accept a surrender of any lease or other occupation arrangement for any part of the property; 25.0.11. do any building work on the property; 25.0.12. complete, vary or terminate any agreement relating to the property or enter any new agreement relating to the property; 25.0.13. create any easement or grant rights to another person relating to the property; 25.0.14. appoint a receiver of the property or any money from the property or both; 25.0.15. do anything or pay any amount which the Mortgagor is obliged to do or pay under this mortgage or any related agreement or any third party security; 25.0.16. exercise any rights or powers of the Mortgagor incidental to owning the property or to any permit licence or other benefit held by the Mortgagor and incidental to owning the property; 25.0.17. do anything which the Mortgagee considers necessary or desirable in connection with the protection or preservation of the property (or the value of the property) or the Mortgagee's exercise of any of its rights or powers under this mortgage or any related agreement." (Emphasis added in the recital of the above clauses.) 22 On the same date as the mortgage document bears, a Deed of Loan was executed by "James Richard Shull" as borrower. This document provided for an advance of $550,000 and additional moneys "being all money which the Borrower owes the Lender in connection with this deed," and the deed made provision for the payment of interest and for the repayment of principal. It required the provision of security, being a mortgage over 33 Canoelands Road, Canoelands. The deed of loan was not expressly incorporated into the mortgage. 23 I am satisfied, having regard to the plaintiff's evidence, that the signature appearing on the deed of loan, which purports to be his signature, was not in fact his signature.

The submissions as to the first mortgage The submissions of the plaintiff and the second defendant 24 Mr Wales of Senior Counsel submitted on the plaintiff's behalf that the deed of loan did not form part of the mortgage as far as the plaintiff was concerned and the mortgage did not purport to incorporate this deed. Considering the language of the mortgage memorandum, secured money meant "all money which the mortgagor owes the mortgagee now or in the future for any reason whether alone or with another person" (cl 1 above). It was submitted that the only possible source of any obligation was not to be found in the registered mortgage and the incorporated memorandum, but in the deed of loan of the same date and the plaintiff was not a party to that deed of loan, so that that document imposed no obligation on the plaintiff. 25 Mr Wales referred to the decision of Young CJ in Eq. in Perpetual Trustees Victoria Limited & Anor v Tsai (2004) 12 BPR 22,281 and to the decision in Small. 26 Tsai was a decision in an interlocutory application on appeal from Master Harrison, as she then was. The Chief Judge determined that Master Harrison erred in granting summary judgment in proceedings for possession by a mortgagee. The plaintiff was a registered mortgagee. The mortgage document included a clause: "The mortgage is security for payment to you of the secured money and for the performance of all 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."

The document appeared to have been forged. There was no statement of the principal sum or its payment in the mortgage but there was a separate loan agreement. 27 In the course of his judgment allowing the appeal, Young CJ in Eq. said, at p 22,283 [13]: "There is no doubt at all that under the Torrens system a forged mortgage which might be a nullity under the old system title when registered without fraud is fully efficacious as conferring on the mortgagee the interest in land described in the mortgage. It is often said in a shorthand way that the mortgagee gets an indefeasible interest. However, as Campbell J said in Small v Tomasetti [2002] NSW Conv R 56,011 at page 58,306 [9]: 'Notwithstanding that registration confers indefeasibility on a mortgagee there is still a question, 'Indefeasibility for what?'". 28 Later, at 22,284: "20 Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgment that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type of mortgage because the production of the security document was prima facie evidence of the existence of the debt ( Piccock v Brown (1734) 3 P Wms 288; 24 ER 1069) and that, unless the fact was put in issue by the pleadings, the security itself was sufficient evidence of the payment ( Minot v Eaton (1826) 4 LJ (OS) Ch 134, but see Wansworth Norton Solicitors Nominee Company Limited v Edmonds [1992] 1 NZLR 596). This is set out in the Australian edition of Fisher and Lightwood on Mortgages at par [16.45] and [39.8]. The modern clause, however, does not go that far especially in a facility mortgage requiring drawn downs to be made later. It would thus not seem that any of the traditional protections to mortgagees apply to mortgagees who use this form of loan agreement and mortgage. 21 It is clear that if no monies are lent under a mortgage then the mortgage is just completely void: see Re GM Industries Pty Ltd and the Companies Act (1980) ACLC 40-665 per Needham J. His Honour was there dealing with a company charge rather than a registered mortgage so that the GM decision has to be read subject to the effect of indefeasibility of a registered mortgage. However, as Mr Walsh, who appeared for the Registrar General, so eloquently put it, there may be a registered mortgage, but it may be a registered mortgage which secures nothing. 22 I have already set out the principal part of clause 2.2. [His Honour was here referring to the clause I set out above at [26].) 23 It is, to my mind, a rather ambiguous clause. Mr Donaldson SC said as sweetly as he could that any sensible commercial lawyer looking at it would know what it meant but unfortunately I do not appear to be in that category. However, whatever it means, it refers back to whatever is owing under the secured agreement. As the secured agreement itself does not bring with it any concept of indefeasibility and as there is an issue between the parties as to whether or not it was ever signed by the appellant or merely signed by a person impersonating the appellant, there is not the material to demonstrate to the required standard that there was a loan to the appellant. 24 If there was no loan to the appellant he could not be in default not repaying the loan and, therefore, the mortgagee was not entitled to possession." 29 Tsai, whilst a judgment on an interlocutory application, stands as authority for the proposition that the indefeasibility provisions of the Real Property Act do not entitle a mortgagee to recover under a registered mortgage where the obligation to make payment does not arise under the mortgage but under a separate loan agreement, and where that document was forged. Mr Wales submitted this decision is directly in point. 30 In Small, the signature of the second defendant to a mortgage was forged. The mortgage was registered under the Real Property Act. The second defendant sought the continuation of an injunction restraining the disbursement of proceeds of sale after the registered proprietors of the mortgages had exercised their power of sale. Campbell J declined to continue the injunction. However, in Small the relevant mortgage itself contained this provision: "The mortgagee has agreed to lend to the mortgagor and the mortgagor has agreed to borrow from the mortgagee the sum of $325,000 (hereinafter called the principal sum)... (3) The mortgagor covenants to pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the 12th day of May 2001. (4) The mortgagor will pay interest on the principal sum or on so much of it for the time being as shall remain unpaid...at the rate of $11.75 (Eleven dollars seventy five cents) percentage per annum as follows". 31 Having referred to the above provision, his Honour continued: "15 In these circumstances, it is, in my view, clear that the estate or interest in the land which is created by the registration is a charge which secures at the least (so far as the first mortgage is concerned) the sum of $325,000, together with interest which accrues on it and is unpaid, and (so far as the second mortgage is concerned) the sum of $65,000, together with interest which accrues on it and is unpaid." 32 Reference was also made in the course of submissions to PT Limited v Maradona (1992) 25 NSWLR 643. This case, considered by Campbell J in Small, concerned, inter alia, a registered mortgage and a guarantee given by a seventy-five year old woman who, following a stroke, had available a defence of non est factum. Hence, the guarantee was unenforceable, but it was necessary for Giles J to consider the extent of indefeasibility of the mortgage through its registration. What his Honour said was this (at 679): "That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the instrument which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor." 33 The conclusion reached in PT Limited was that the mortgage secured nothing as against the disabled guarantor because consideration of the mortgage led to consideration of other documents which were not registered, in order to determine the mortgagee's estate, and as against the guarantor, these other unregistered documents were ineffective because of her lack of capacity. 34 What consideration of Tsai, Small and PT Limited illustrates is the importance of considering the terms of the particular mortgage in order to determine the effect of its registration, and what indefeasibility is thereby conferred. 35 Returning to the present case, Mr Wales submitted that the construction of the mortgage, and in particular the definition of "secured money" in the memorandum, takes one to the deed of loan as the only possible source of indebtedness. However, that document is not the document of the plaintiff. Neither is it "a related agreement" under the mortgage when the definition of "related agreement" is considered. This is because the document does not relate to the mortgagor but to the fraudster. 36 Mr Walsh adopted the submissions advanced by Mr Wales, supporting the ultimate submission, that this particular mortgage, even though registered, secured nothing.

The submissions of the first defendant 37 Mr Taylor acknowledged at the outset that if it was necessary to resort to the deed of loan to find the first defendant's obligation to make payments to the plaintiff, Tsai stood as authority in his path. Where, as in Tsai, the mortgage obliged the mortgagor to pay the secured money but where there was a need to look to a collateral agreement, which was forged, in order to determine the mortgagor's obligations, that forged document could not found any relevant security entitlement. 38 Having made that concession however, Mr Taylor sought to distinguish Tsai in the circumstances of the present case. Mr Taylor submitted that there was not here a need to look to the deed of loan to find obligations on the plaintiff under the mortgage. They were to be found in the memorandum which, by the expression of the mortgage, was incorporated in the mortgage. Mr Taylor pointed to these features of the memorandum:

(i) Clause 2 not only contemplates the payment of secured money "as provided in any related agreement". Mr Taylor drew attention to the provisions of cl 2.2 set out earlier. Clause 2.2.1 expressly permitted the mortgagee to demand payment of secured money even though it was not owing under a related agreement.

(ii) Mr Taylor pointed to the width of the term "secured money" as defined in cl 1. It encompassed "all money which the mortgagor owes the mortgagee…for any reason". He submitted that the definition invited the conclusion that the mortgage itself formed the source of payment obligations.

(iii) Mr Taylor turned to cl 23 dealing with related events, an expression found in the definition of "secured money". One of the default events contemplated by cl 23 was the failure of a "related agreement" in any of the circumstances identified in 23.1.8.1 or 23.1.8.2 or 23.1.8.3. He submitted that the effect of such a "default event" was to render money owing under the "secured money" definition for expenses and losses incurred by the mortgage.

(v) Mr Taylor drew attention to cl 25, describing those steps that could be taken by the mortgagee if a "default event" occurred. Those steps included entitlement to demand immediate payment of the secured money and entitlement to take possession of the premises.

(vi) If the deed of loan was forged, then the first defendant never acquired any contractual payment obligation under that deed. Consequently, there was a loss in connection with a default event coming within the "secured money" expression as defined. 39 I have endeavoured to summarise briefly the competing submissions concerning the first mortgage, and I will now proceed to state my conclusions as to its effect.

The effect of the first mortgage 40 In my opinion, the outcome here should be that for which Mr Wales and Mr Walsh contend for the following reasons:

(i) The deed of loan is not incorporated in the mortgage, and hence the concept of indefeasibility does not extend to it. It is not open to the first defendant to look to its provisions to determine the plaintiff's obligations under the mortgage. The deed itself is a document under which the plaintiff has no obligations because he did not sign it.

(ii) Any obligations of the plaintiff must be found in the memorandum incorporated in the mortgage.

(iii) Clause 2 of the memorandum imposes an obligation on the mortgagor to pay "the secured money to the mortgagee as provided in any related agreement", and "secured money" is defined in cl 1. It means "all money which the mortgagor owes the mortgagee now or in the future for any reason". What follows in the bullet points of the definition of "secured money" is the statement of examples of possible means of indebtedness. (iv) There is no expression in the mortgage or the memorandum quantifying any debt owed by the plaintiff to the first defendant, and the memorandum does not expressly impose an indebtedness on the plaintiff for money paid to a fraudster, nor should the language employed be construed so as to impose such indebtedness. The examples in the definition of "secured money" which the mortgagor owes include: (i) money which the mortgagor owes the mortgagee; (ii) money which the mortgagee lends to the mortgagor; (iii) money which the mortgagee pays to another person with the authority of the mortgagor; (iv) money which the mortgagee may become liable to pay to another person in connection with the mortgagor; (v) expenses and losses which the mortgagee incurs in certain circumstances' (vi) interest on any money owing.

None of these listed examples assumes relevance here. The memorandum does not record, nor does the evidence disclose, any indebtedness arising in the plaintiff fitting any of the above examples.

(v) What the memorandum contemplates is the execution of a "related agreement" which makes provision for the payment of money secured, and the definition of "related agreement" contemplates an agreement or arrangement " which relates to the mortgagor ". There is no such agreement. I am satisfied that the only agreement here was the deed of loan entered into by the fraudster and this cannot be regarded as an agreement "which relates to" the plaintiff. It is not sufficient that the first defendant may have believed, mistakenly, that it was the plaintiff who was executing the deed.

(vi) The absence of a related agreement impacts not only on cl 2 but on cl 23. If there is no related agreement - and here there is not, in the relevant sense - then cl 2.2 ought not to be construed as having the effect of expanding the definition of "secured money" which is limited to money which the mortgagor owes the mortgagee. So far as cl 23.1.8 is concerned, there is no related agreement enlivening this provision for the fundamental reason that the plaintiff was not a party to the deed of loan, so that document did not relate to him at all.

(vii) I have given close attention to Mr Taylor's submissions earlier summarised, and as more fully expressed in writing. It would have been open to the first defendant to fashion the mortgage obligations so as to make the mortgagor liable not only for his own conduct but for the dishonest conduct of others over whom the mortgagor had no control. However, I accept, as both Mr Wales and Mr Walsh submitted, that the clearest possible expression would have been needed to achieve that effect. In my opinion, such expression is not to be found in the subject memorandum, which makes provision fundamentally for the obligations of the mortgagor arising from his borrowings and his conduct.

(viii) Accordingly, I conclude that the plaintiff did not become indebted to the first defendant under the mortgage, and it follows that he is entitled to an order to give effect to the relief sought in para 1 of the relief claimed in the statement of claim.

The alternative claim of the plaintiff as to the first mortgage 41 Turning to the claim brought by the plaintiff against the second defendant for compensation from the Torrens Assurance Fund, since the plaintiff has succeeded against the first defendant, it follows that the claim against the second defendant, being a claim in the alternative, must fail. It will be necessary to consider the statutory scheme for the purposes of the claim concerning the second mortgage and it is appropriate to record that the defence pleaded in para 15 of the defence filed by the second defendant was not pursued. On the findings of fact that I have made, the second defendant conceded that the plaintiff would have been entitled to succeed in the claim brought against the second defendant as to the first mortgage had the plaintiff's claim been unsuccessful as against the first defendant concerning that claim.

The second mortgage 42 I referred earlier ([8]) to this mortgage, the benefit of which was transferred by the transferors, Bruce Jones and Robert McDonagh, to the first defendant. This mortgage was duly registered. 43 This mortgage, again in the approved form, provides that the mortgagor "mortgages to the mortgagee all the mortgagor's estate and interest in the…land and covenants with the mortgagee that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage: · Annexure A hereto; · Memorandum No. Q8600000 filed at Land and Property Information New South Wales." 44 Unlike the memorandum incorporated in the first mortgage, the memorandum in this mortgage identifies the principal sum advanced and an obligation to pay it with interest. This is a distinction of fundamental importance: "The mortgagor acknowledges receipt of the principal sum of fifty thousand dollars ($50,000) (principal sum) and for the consideration of the advance of the principal sum the mortgagor hereby: (a) …. (b) covenants with the mortgagee as follows: (i) the mortgagor will pay to the mortgagee the principal sum or so much of the principal sum as shall remain unpaid on the date which is twelve months from the date of this mortgage, being the …….. day of April 2004; (ii) the mortgagor will pay interest on the principal sum or on so much of the principal sum as for the time being shall remain unpaid, and upon any judgment or order in which this or the preceding covenant may become merged at the rate of nineteen (19) percentum per annum in advance calculated monthly and payable on the date of this mortgage…" 45 Having regard to the provisions of the memorandum, expressly incorporated in the mortgage, the plaintiff concedes that the document upon registration provided relevant indefeasibility. Notwithstanding the fact that the plaintiff did not enter into the mortgage or the incorporated memorandum, the fact of registration of the documents conferred indefeasibility to support the first defendant's entitlement to recover the principal sum and interest from the proceeds of sale of the property. 46 It is in these circumstances that the claim is pursued against the second defendant in relation to this second mortgage. 47 The claim directs attention to s 129 of the Real Property Act, which provides, so far as is relevant: "(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: (a) any act or omission of the Registrar-General in the execution or performance of his or her functions or duties under this Act in relation to the land, or (b) the registration (otherwise than under section 45E) of some other person as proprietor of the land, or of any estate or interest in the land, or (c) any error, misdescription or omission in the Register in relation to the land, or (d) the land having been brought under the provisions of this Act, or (e) the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud, or (f) an error or omission in an official search in relation to the land, is entitled to payment of compensation from the Torrens Assurance Fund. (2) Compensation is not payable in relation to any loss or damage suffered by any person: (a) to the extent to which the loss or damage is a consequence of any act or omission by that person,…" 48 The second defendant pleaded at para 15 of the defence that the loss suffered by the plaintiff was a loss being "a consequence of an act or omission of the plaintiff within the meaning of s 129(2)(a) of the Real Property Act 1900." That defence was abandoned at the hearing. 49 Section 129 of the Real Property Act was considered by Bryson J in Challenger Managed Investments Limited & Anor v Direct Money Corporation Pty Limited & Ors (2003) 59 NSWLR 452. However, having regard to the withdrawal of reliance upon s 15 of the defence, the present case does not require detailed consideration of the workings of the statutory scheme. Mr Walsh conceded in the event that I made the factual findings which I have made that the plaintiff was entitled to payment of compensation from the fund, and I am satisfied that the entitlement has been established. Accordingly, I find that the plaintiff is entitled to an order to give effect to the claim for relief sought in para 2 of the statement of claim. 50 No claim was advanced by the plaintiff against the first defendant in relation to the second mortgage.

Costs 51 For the reasons stated, the plaintiff has succeeded in his claim against the first defendant concerning the first mortgage and has failed in his claim against the second defendant in relation to that mortgage. The plaintiff has succeeded in his claim against the second defendant concerning the second mortgage. 52 In these circumstances, what costs orders are appropriate? 53 The general rule is that costs should follow the event, and this is now expressed in Pt 42 r 42.1 of the Uniform Civil Procedure Rules. Any departure from that general rule involves the exercise of the Court's discretion. 54 Here the plaintiff having succeeded against the first defendant on the claim brought in relation to the first mortgage, is entitled to an order for costs against the first defendant in relation to that claim if the general rule is followed. The plaintiff would, however, be required to pay the second defendant's costs in successfully resisting the claim in relation to the first mortgage. Then, in relation to the second mortgage, the plaintiff has succeeded against the second defendant and under the general rule would be entitled to a costs order against the second defendant concerning the second mortgage. No claim was pursued against the first defendant as to that mortgage, and no costs were incurred by it in relation to that claim. 55 I invited submissions from counsel on the question of costs and Mr Wales submitted that it would be appropriate for the plaintiff to be given the benefit of a Bullock order (see Bullock v London General Omnibus Co. (1907) 1 KB 264) for any costs liability the plaintiff might otherwise have to the second defendant in relation to the claim as to the first mortgage. 56 It would not be appropriate to make an order in the plaintiff's favour, the effect of which was to render the first defendant liable for the second defendant's costs in successfully resisting the claim concerning the first mortgage simply because it was reasonable for the plaintiff to have pursued the alternative claim. The authorities make it plain that more is required: see Steppke v National Capital Development Commission (1978) 21 ACTR 23 and in particular the dicta of Blackburn CJ at 30-31; Gould v Vaggelas (1983-85) 157 CLR 215; Almeida v Universal Dye Works Pty Limited & Ors [2001] NSWCA 156; and Roads and Traffic Authority & Ors v Palmer [2005] NSWCA 140. 57 What the plaintiff would be required to show in order to obtain the benefit of a Bullock order is that there was some conduct by the unsuccessful defendant making it reasonable as between the plaintiff and the unsuccessful defendant that the latter should pay the costs of the successful defendant. 58 The appropriate approach has been expressed in various ways. I refer in particular to dicta from Gould v Vaggelas. In this case, Gibbs CJ said (at 229-230): "The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v. Blyth Theatre Co. [1903] 2 K.B. 533, at p. 539, which was cited with approval in Bullock v. London General Omnibus Co. ([1907] 1 K.B. 264, at p. 272) and Hong v. A. & R. Brown ([1948] 1 K.B. 515, at p. 522), viz., that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed 'are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant'. In Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation, ((1948) 77 C.L.R., at pp. 572-573), Williams J. stated the principle in a similar way and Starke and Dixon JJ., in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant ((1948) 77 C.L.R., at pp. 559-560, 566). In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission ((1978) 39 L.G.R.A. 94, at p. 100; 21 A.C.T.R. 23, at pp. 30-31), when he said that 'there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant'". 59 Wilson J said in Gould (at 246-247): "A Bullock order is a term - derived from the decision of the Court of Appeal in Bullock v. London General Omnibus Co. ([1907] 1 K.B. 264) - used to describe an order requiring an unsuccessful defendant to pay the costs which have been awarded in favour of a successful defendant. Such an order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant: Bullock ([1907] 1 K.B., at p. 269); Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation ((1948) 77 C.L.R. 544, at p. 572); Altamura v. Victorian Railways Commissioners ([1974] V.R. 33). The making of such an order is a matter for the discretion of the trial judge." 60 In the same case, Brennan J said this (at 260): "Although the making of a Bullock order is in the discretion of a trial judge, the mere joinder of two causes of action against separate defendants in the one action is insufficient to support the making of an order against an unsuccessful defendant when the other defendant is exonerated. A judicial discretion can be exercised to make a Bullock order against an unsuccessful defendant in an action brought against two or more defendants for substantially the same damages only if the conduct of the unsuccessful defendant in relation to the plaintiffs' claim against him showed that the joinder of the successful defendant was reasonable and proper to ensure recovery of the damages sought: cf. Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation ((1948) 77 C.L.R. 544, at p. 566)." 61 Giles JA adverted to the differing expressions of the test in his judgment in RTA & Ors v Palmer, and observed (at [30]): "The difference in formulations is probably more apparent than real, as reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant…" 62 Here, Mr Wales submits that it was reasonable for the plaintiff to sue both defendants in relation to the first mortgage, even though the claims were brought in the alternative and he could not succeed against both. However, that it was reasonable to sue both defendants is not enough to warrant a Bullock order, as the authorities establish, and, indeed, Mr Wales properly recognised. 63 What Mr Wales asserted warranted a Bullock order was that these proceedings were a dispute between the first and second defendants in which the presence of the plaintiff was unnecessary. 64 Mr Wales submitted that the plaintiff was obviously who he claimed to be, and he was obviously the purchaser of the land at Canoelands. Moreover, there was no evidence to suggest that he was involved in the fraud which was committed. So it is, Mr Wales contends, the defendants should have paid out the plaintiff and then fought the construction issue concerning the first mortgage between themselves. 65 I am not persuaded by Mr Wales that this is an appropriate case in which to make a Bullock order. I am not persuaded that it would be just to make an order, the effect of which was to render the first defendant liable to pay the second defendant's costs concerning the dispute over the first mortgage. The defences presented by the defendants differed in substance. The second defendant raised defences under s 129 of the Real Property Act whilst the first defendant relied upon the issue of construction of the mortgage and the incorporated memorandum. 66 The first defendant's resistance to the plaintiff's claim against it as to the first mortgage was not unreasonable, even though that resistance proved ultimately to be unsuccessful. I do not consider, in the spirit of the authorities to which I have referred, that it could properly be said there was some conduct by the first defendant making it fair to impose upon it liability for the costs of the second defendant. 67 Mr Wales complains that it ought not to have been necessary for the plaintiff to come to Australia to give evidence having regard to the lack of challenge to the evidence which he gave, but I do not consider that the requirement for his attendance bears upon whether or not a Bullock order should be made. In the first place, I do not consider it was unreasonable for the second defendant to put the plaintiff to proof on the matters concerning which he gave evidence. These were matters the plaintiff had to prove in any event. Moreover, the plaintiff will recover proper costs associated with his attendance in Australia under one or other of the costs orders that will be made in his favour. 68 In my view a departure from the general rule expressed in r 42.1 is not warranted in this case. However, I intend in the costs orders which I make to recognise that there were discrete issues arising under each of the mortgages, so that there were in effect two claims against the second defendant, one of which was successful and one of which was not. 69 Mr Walsh submitted that the claim against the second defendant on the second mortgage was not really controversial and that there should be no order as to costs in relation to it. He submitted that an administrative claim could have been made under s 131 of the Real Property Act. The second defendant consented to the claim being brought pursuant to s 132(2) of the Act, and Mr Walsh explained this in his written submissions in this way: that this was to allow both the second defendant and the plaintiff to agitate the major issue in the proceedings which concerned the proper construction of the first defendant's mortgage. Whether that be so or not, the plaintiff's claim against the second defendant was properly before this Court and until the date of the hearing, reliance was expressed upon a defence arising under s 129(2)(a) of the Act. I consider it proper therefore that costs should follow the event in respect of the plaintiff's two claims.

Formal orders 70 The claim in relation to the first mortgage

Order as sought against the first defendant in para 1 of the relief claimed in the statement of claim filed on 12 December 2005.

Order that the first defendant pay the plaintiff's costs of the proceedings in respect of this claim.

Order refusing the relief claimed in the alternative against the second defendant as to the first mortgage.

Order that the plaintiff pay the second defendant's costs of the proceedings in respect of this alternative claim.

I direct that the parties prepare short minutes expressing the sum payable pursuant to order 1.

Order as sought against the second defendant in para 2 of the relief claimed in the statement of claim filed 12 December 2005.

Order that the second defendant pay the plaintiff's costs of the proceedings in respect of this claim.

I direct that the parties prepare short minutes expressing the sum payable pursuant to order 6.

The matter is to be relisted on 5 April 2007 to receive the required short minutes and to make appropriate orders to give effect to them. **********

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