REGISTRAR GENERAL v GILL and ANOR [1994] NSWCA 261

Gleeson CJ and Priestley JA This appeal, which is brought from a decision of Young J in the Equity Division, raises questions as to the meaning and effect of s127 of the Real Property Act 1900, and s61 of the Legal Practitioners Act 1898. (Following the decision of Young J, s128 of the Real Property Act was amended in such a way as to reverse the effect of that decision in relation to actions commenced on or after 19 March 1992. However, the amendment is irrelevant to this appeal.)

The facts of the case were not in dispute. The first respondent, Mrs Gill, was a client of a solicitor, Mr Hawkins. Mrs Gill was the registered proprietor of certain real estate. She left her Certificate of Title in the possession of Mr Hawkins, who, in fraud of his client, borrowed money from Fairstar Deposit and Securities Pty Ltd ('"Fairstar") upon the security of the land, and forged and uttered a mortgage purportedly signed by Mrs Gill. Fairstar lodged the mortgage for registration, and it was duly registered, thereby attracting the benefit of the indefeasibility provisions of the Real Property Act. In due course, when the solicitor's dishonesty was discovered, Mrs Gill found that there was a registered mortgage over her land, and that the mortgage secured a debt which, by that time, amounted to approximately $199,000. Mrs Gill made a claim against the Solicitors' Fidelity Fund, pursuant to s57 of the Legal Practitioners Act 1898. The claim was accepted, and the Law Society of New South Wales, the second respondent, paid out the debt that was owing to Fairstar. Fairstar gave a discharge of mortgage which was duly registered. Thereafter, the Law Society commenced the present action against the Registrar General in the name of Mrs Gill, and in its own name, relying upon s61 of the Legal Practitioners Act. The action was successful, and the Registrar General now brings this appeal.

It was common ground before Young J, and in this Court, that, at least until the time the Law Society paid out Fairstar, Mrs Gill had a claim for damages against the appellant pursuant to s127 of the Real Property Act. That section is, so far as material, in the following terms:

"127. (1) Any person sustaining loss or damages through any omission, mistake, or misfeasance of the Registrar-General or any of his officers or clerks in the execution of their respective duties under the provisions of this Act, or by the registration otherwise than under s45E of any other person as proprietor of land, or by any error, omission, or misdescription in the Register, and who by the provisions of this Act is barred from bringing proceedings in the Supreme Court or the District Court for possession of that land, or other proceedings or action for the recovery of such land, estate, or interest or to whose claim every such proceedings or action would be inapplicable may, in any case in which the remedy by action for recovery of damages as hereinbefore provided is inapplicable, bring an action against the Registrar-General as nominal defendant for recovery of damages".

The agreed basis of Mrs Gill's claim was that, as things stood before she made her successful claim on the Fidelity Fund, she was a person who had sustained loss or damage by the registration of Fairstar as proprietor (which includes mortgagee) of land, and the disqualifying provisions of s127 were not applicable (Registrar of Titles (WA) v Franzon (1976) 132 CLR 611).

The issue that was litigated before Young J, and which his Honour resolved in favour of the Law Society and against the Registrar General, was whether, having paid out Mrs Gill's claim against the Fidelity Fund the Law Society was, by right of subrogation, entitled to recover from the Registrar General the damages which Mrs Gill would have been entitled to recover had she by-passed the fund and sued the Registrar General under s127 of the Real Property Act. The resolution of that issue required consideration of two questions.

The first question arises because by the time the present action was commenced, Mrs Gill, as a result of the success of her claim against the Fidelity Fund, and the discharge of the Fairstar mortgage, was in no worse position than she had been before her solicitor's dishonesty. The Registrar General argued that, in those circumstances, she was not, at the time of the commencement of the action against him, a person who had sustained loss or damage within the meaning of the opening words of s127.

The second question is whether s61 of the Legal Practitioners Act 1898, on its true construction, gave the Law Society, by way of subrogation, a right to enforce against the Registrar General Mrs Gill's putative claim under s127. This, in turn, requires consideration of the nature of the right of subrogation conferred by s61.

S61 of the Legal Practitioners Act 1898 provides as follows:

"61. (1) Subject to subs(3), on payment out of the fund of any moneys in settlement in whole or in part of any claim under this Part arising from the act or omission of a solicitor or of his partner, servant or agent, the Society shall be subrogated, to the extent of the payment, to all the rights and remedies of the claimant against the solicitor, or the partner, servant or agent, or any other person (including any person entitled to administer the estate of any such solicitor, partner, servant or agent who is insolvent or dies) in respect of the act or omission.

(2) Where the Society is subrogated under subs(1) to the rights and remedies of a claimant

(a) the Society shall be at liberty to exercise those rights and remedies in its own name or the name of the claimant; and

(b) any moneys recovered by the Society in the exercise of those rights and remedies shall be paid into the fund.

URJ REGISTRAR GENERAL v GILL (Gleeson CJ and Priestley JA) 3

(3) In the case of a claim under s57 (5) the Society shall not be subrogated to any right or remedy against a solicitor who is a partner of the claimant and who has in the opinion of the council acted honestly and reasonably in all the circumstances of the case.

(4) The Society shall indemnify a claimant against any costs awarded against the claimant in any proceedings brought by the Society in the name of the claimant to enforce the rights and remedies of the claimant to which the Society is subrogated under subs(2)".

We note that, as the present proceedings were constituted, the Law Society sought to exercise the rights and remedies in question both in its own name and in the name of Mrs Gill (cf s61(2)(a)). No point has been made of this on the appeal, and it is accepted that, if the appeal fails, the judgment of Young J, which was in one amount of $199,378.58, should stand. No question of double recovery arises.

Young J resolved the questions set out above adversely to the Registrar General. We agree with his Honour's conclusions.

Putting to one side for the moment the question whether the Registrar General falls within the phrase "any other person" in s61(1), and whether the rights and remedies of Mrs Gill under s127 were rights and remedies in respect of an act of a solicitor within the meaning of the concluding words of s61, the first matter to be addressed is the way in which s127 and s61 interact.

As was noted above, it is common ground that, at the time she made her claim against the Fidelity Fund under s57 of the Legal Practitioners Act, Mrs Gill had an unanswerable claim for damages against the Registrar General by reason of s127 of the Real Property Act. By virtue of s61 of the Legal Practitioners Act, on payment out of the fund in settlement of her claim, the Law Society was subrogated to Mrs Gill's rights and remedies against certain classes of person including (let it be assumed) the Registrar General.

In his reasons for judgment, Young J discussed at some length the protean nature of subrogation, and the various contexts in which it can operate. In our view, the essential question in the present case concerns the meaning and effect of the language of the statute. S61 begins with the hypothesis that a client who makes a claim against the fund may have certain rights and remedies in respect of the act or omission of a solicitor. Those rights and remedies may lie against the solicitor, or against the solicitor's partner, servant or agent, or against any other person. Upon that hypothesis, the section provides that, when monies are paid out of the fund in settlement of the client's claim, the Law Society shall be subrogated to all such rights and remedies. The statute does not treat the payment as destroying the rights and remedies, or discharging the obligation of the person against whom they might have existed. On the contrary, s61(2) spells out the consequences of the subrogation which is effected by s61(1). The Law Society is then able to exercise those rights and remedies in its own name, or the name of the claimant, and monies recovered in the exercise of those rights and remedies are to be used to replenish the Fidelity Fund. What is effected is, in substance, a statutory assignment to the Law Society of the rights and remedies which the client had at the time of payment out of the fund.

The circumstance that, in the present case, the monies paid out of the fund were applied for the purpose of obtaining a discharge of the Fairstar mortgage does not mean that the rights which the statute vested in the Law Society were thereupon extinguished. Suppose, for example, that Mrs Gill had obtained the money to pay out Fairstar from a third party such as a bank. The bank might have

insisted, as a condition of a loan to Mrs Gill, that she assign to it her rights against the Registrar General under s127 of the Real Property Act. If she had given such an assignment, the fact that she applied the monies borrowed from the bank to pay out Fairstar and obtain a discharge of the Fairstar mortgage would not mean that the assignment to the bank of the claim under s127 was rendered valueless.

It might be otherwise if, before making any claim against the Fidelity Fund, Mrs Gill had, by one means or another, managed to obtain a discharge of the Fairstar mortgage. It is possible to imagine circumstances in which she might have lost her rights against the Registrar General before the provisions of s61 took effect. In the present case, however, it is agreed that she had rights against the Registrar General at the time she made her claim upon the fund. The appellant does not suggest there was any material alteration in that situation between the time of her claim, and the time of the payment out of the fund, and the statute provides that, upon the making of the payment out of the Fidelity Fund, the Law Society was subrogated to her rights and remedies, and at liberty to exercise those rights and remedies in its own name, or in the name of Mrs Gill.

The conclusion reached by Young J, which was that, subrogation having occurred, the rights to which the Law Society was subrogated did not disappear upon the payment out of Fairstar but subsisted for the benefit of the fund, gives effect to what we regard as the manifest intention of the legislature. There is nothing unusual about such a result. In the field of insurance, for example, the fact that an insurer indemnifies the insured against loss does not destroy the insured's rights against a third party who may have caused the loss. On the contrary, by virtue of subrogation, the insurer may then enforce those rights against the third party. This is an analogy which the legislature would have had well in mind when s61 was enacted.

This is not a case where some person voluntarily made a payment to Mrs Gill, or for her benefit, which relieved her of the loss she had suffered through her solicitor's conduct, and which meant that, in the ultimate result, she suffered no loss or damage by reason of that conduct. She pursued her legal rights against the Law Society which, by force of statute, then became entitled to enforce her rights against the Registrar General.

The equitable principles relating to subrogation aim to adjust the interests of three parties, such as a creditor, a debtor and an insurer or surety, in such a way as to avoid the unconscionable result of double recovery by the creditor or inequitable discharge of the liability of the debtor. (Meagher Gummow and Lehane, Equity Doctrines and Remedies, 3rd Ed para951.) Here what is involved is a question of the meaning and effect of a statutory provision, but the statute ought to be construed so as to achieve the same end.

It was argued on behalf of the appellant that the Registrar General does not fall within the expression "any other person" in s61. This is a somewhat ambitious argument, amounting, in effect, to the proposition that the words "any other person" should be read as meaning "some other persons". The words are obviously words of wide import (Phelps v Western Mining Corp Ltd (1978) 20 ALR 183 at 187, 189). The Registrar General is a person and is referred to in that way by s127.

It was submitted that the words should be read ejusdem generis with the preceding words and, in particular, the words which refer to the partner, servant or agent of a solicitor. They should be taken, it was said, to be confined to people who were in one way or another implicated in the solicitor's misconduct, even if only as the innocent recipients of misappropriated money.

This submission has a number of difficulties, not the least of which is that, as a matter of legislative history, the reference to partners, servants or agents came into the section later than the reference to any other person. The reference to subrogation to the rights and remedies of a claimant against the solicitor in relation to whom the claim arose, or any other person, came into the legislation in 1935. The reference to partners, servants or agents was introduced years later. It seems unlikely that the legislature intended that this should result in a narrowing of the scope of the reference to "any other person". Furthermore, the width of the expression "any other person" makes it an unlikely candidate for interpretative treatment of the kind advocated on behalf of the appellant.

Finally, it was submitted that Mrs Gill's rights and remedies under s127 of the Real Property Act were not rights and remedies in respect of the act of her solicitor but were, rather, rights and remedies in respect of the acts of Fairstar and the Registrar General.

The rights given by s127 are an integral aspect of the scheme of indefeasibility of title established by the Real Property Act. As part of that scheme, when the fraudulent solicitor forged a mortgage over Mrs Gill's title and delivered it to the mortgagee, and thereupon obtained registration of the mortgage, the title of the mortgagee attracted the benefit of indefeasibility. As a further aspect of this statutory scheme of title by registration, the Act conferred upon Mrs Gill the right to recover damages against the Registrar General. Mrs Gill, Fairstar and the Registrar General were all innocent parties, but Mrs Gill was given an entitlement to damages which could be enforced against the Registrar General, and which would be paid out of a statutory fund.

It was the fraudulent act of the solicitor which initiated the chain of events giving rise to that entitlement. Mrs Gill suffered her damages by reason of the solicitor's fraudulent act in forging a mortgage in registrable form. Her claim against the Registrar General arose by reason of the registration of the forged instrument. Her right to sue under s127 was a right which she had in respect of the act of her solicitor.

By reason of the combined operation of s127 of the Real Property Act and s61 of the Legal Practitioners Act the Law Society was entitled to recover from the Registrar General the amount that was paid out of the Fidelity Fund.

Mahoney JA I have had the benefit of reading the judgment of Gleeson CJ and Priestley JA.

My mind has wavered as to what is the correct solution of the present problem. My doubts have centred upon the question whether Mrs Gill is a "person sustaining loss or damages" for the purposes of s127(1) of the Real Property Act 1900. At the time when the forged mortgage was registered, she undoubtedly suffered loss: the value of her land was depreciated by the indefeasible mortgage to "Fairstar" registered on it. I shall assume that, for the purpose of the section, that is the point at which loss is to be determined if a cause of action is to exist. But, by reason of the payment made by the Law Society, she ceased to suffer that loss. It is the effect of that which gives rise to the doubt which I have felt.

The use of examples to test propositions in law is legitimate but the conclusions to be drawn must be scrutinised carefully. But if the example be taken of payment to Mrs Gill by the defaulting solicitor Mr Hawkins, the nature of the difficulty is made clear. If Mr Hawkins had, after registration, repented of his wrong and had arranged mortgage - or had given Mrs Gill the money with which to discharge the mortgage - she could not, I think have recovered again

from the Registrar General the loss which, at the time of registration of the mortgage, she had suffered. It is not necessary to pursue the principle upon which that result would be arrived at: it is sufficient that, if that occurred, she could recover from the Registrar General either nothing at all or, alternatively, only nominal damages.

In the Present case, the money was provided to her - or the mortgage discharge was obtained - as the result of the action of the Law Society pursuant to s57 et seq of Act 1898. If that payment be treated as equivalent to a payment by Mr Hawkins, then, in my opinion, Mrs Gill may not recover from the Registrar General. The problem is to characterise the payment made by the Law Society.

If the payment made by Mr Hawkins had been made on his behalf by, eg, an insurer of him under a policy of insurance against professional malpractice, the result would, I think, be again that Mrs Gill could not recover from the Registrar General. It is at least arguable that a payment by the Law Society out of the Solicitors' Fidelity Fund is of this nature. Having regard to the judgment of Gleeson CJ and Priestley JA, it is not necessary for me to pursue the provisions of the Act or the nature of such a payment. The provisions are such that they do not compel a conclusion one way or the other. But, as the argument has suggested in the present case, the provision for subrogation of the Law Society to the rights of the claimant against "any other person" suggests that it was the intention that the loss should be borne by such "other person" and that the Law Society should not bear the ultimate burden of what had taken place. The judgment of Young J and, in this Court, of Gleeson CJ and Priestley JA support this view of the operation of s61 of the Legal Practitioners Act. On balance, I accept that that is the effect to be given to the legislation. I therefore agree with the orders proposed.

Counsel for the Appellant: BA Coles QC/JE Stuckey-Clarke Instructed by: KC Hall

Counsel for the Respondent: ML Einfield QC/M Sainsbury