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[2008] QSC 64
Supreme Court of Queensland
2008-04-07
Daubney J
Original judgment source is linked above.
CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - CERTIFICATES OF TITLE AND CROWN GRANTS GENERALLY - CANCELLATION AND RECTIFICATION - where a mortgage was registered over the second defendant's property to secure a loan fraudulently obtained by the second third party - where the second defendant cross-applied for rectification of the register under s187 of the Land Titles Act 1994 (Qld) ("LTA") - whether the agents of the plaintiff were guilty of fraud within the meaning of s184 of the LTA
CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - MORTGAGES, CHARGES AND ENCUMBRANCES - RIGHTS, LIABILITIES AND REMEDIES OF MORTGAGOR - Redemption and generally - where the second defendant seeks to be indemnified by the first third party for such amounts as may be required to be paid to obtain redemption of the mortgage - where the 'charging clause' of the mortgage was inadvertently ruled through prior to registration - whether the release of mortgage could therefore be obtained without the repayment of the loan
CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - MORTGAGES, CHARGES AND ENCUMBRANCES - RIGHTS, LIABILITIES AND REMEDIES OF MORTGAGOR - Redemption and generally - where the amount of interest to be paid in redeeming the mortgage is contested - where the mortgage did not make provision for the payment of interest in case of default - whether the court should fix interest on the sum outstanding under the mortgage
English, Scottish & Australian Bank Ltd v Phillips [1937] HCA 6; (1937) 57 CLR 302 at 321
Hilton v Gray [2007] QSC 401
Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1988] 1 VR 188
Young v Hoger [2001] QCA 453
Land Title Act 1994 (Qld)
B Clarke SC with D Pyle for the first defendant and first third party
Crown law for the first defendant and first third party
[1] The second defendant, Mrs Mistilis, is the registered proprietor of the land situated at 119 Cotterill Avenue, Bongaree, described as Lot 180 on RP 99151 County of Canning Parish of Woorim ('Lot 180').
[2] The plaintiff, Royalene Pty Ltd ('Royalene') is the mortgagee under registered mortgage no. 707740417. The mortgage was registered over Lot 180 on 21 May 2004. The primary amount secured by the mortgage is $60,000. This sum is comprised of a $50,000 advance for a term of two months together with interest of $10,000, being calculated at the rate of ten per cent per month. This money was not, however, advanced to Mrs Mistilis. The second third party, Mr Cleland, who is Mrs Mistilis' son-in-law, obtained the loan by forging Mrs Mistilis' signature on the mortgage. There is no doubt about the fraud perpetrated by Mr Cleland - he admitted to it in these proceedings, and has served a term of imprisonment after having been dealt with in respect of this fraud in the criminal courts.
[3] On 13 July 2004, after having been notified of the fraud, the Registrar of Titles, who is the first defendant, lodged a caveat over Lot 180 pursuant to the powers conferred on the Registrar by s 17(1) and s 17(2)(e)(ii) of the Land Title Act 1994 (Qld) ('LTA').
[4] The present proceeding was instituted as an application by Royalene for removal of that caveat. Mrs Mistilis counter-claimed for an order for removal of the mortgage pursuant to s 187 of the LTA, or alternatively for relief to enable her to redeem the mortgage. Mrs Mistilis issued third party proceedings against the first third party, the State of Queensland, for compensation pursuant to s 188 and s 188A of the LTA - the practical effect of this was for Mrs Mistilis to seek to be indemnified by the State for such amounts as might be required to be paid in order to obtain redemption of the mortgage. The State, in turn, made a claim against Mr Cleland to be indemnified in respect of any amounts which it might be ordered to pay by way of compensation to Mrs Mistilis.
[5] At trial, Mrs Mistilis was formally separately represented, but the State tacitly accepted the role of acting effectively as the insurer for, and in the interests of, Mrs Mistilis. Mr Cleland gave evidence, but otherwise did not take part in the trial.
[6] In light of Mr Cleland's undisputed fraudulent conduct, the main issues for trial, which were principally contested between those representing Royalene and the State, were:
(a) Whether an order removing the mortgage ought be made under s 187 of the LTA;
(b) If not, what amount (if any) needs to be paid to Royalene in order to redeem the mortgage?
[7] The claim for an order under s 187 rectifying the Register is founded on a contention that Royalene's otherwise indefeasible title as registered proprietor of the mortgage over Lot 180 was fatally impugned by reason of the fraud of Royalene's agents, Mr Martin White (a mortgage broker) and Mr Andrew Hewlett (a solicitor).
[8] To understand the relevant background, it is necessary to descend into the realm recently described by Douglas J as 'the demimonde of low finance, of high interest [and] short term loans granted by demanding lenders to desperate borrowers'.[1]
In early May 2004, Mr Cleland approached Mr Syd Worts, who carried on a business called 'Cash Counters' at Woodridge. Mr Cleland called himself 'Steven Mistilis', and made representations to Mr Worts to the effect that he was seeking to borrow money urgently and was prepared to offer Lot 180 as security. Mr Worts referred Mr Cleland to Mr White.
In evidence before me, Mr Cleland said that he had a number of conversations with Mr White, but was extremely vague as to the detail. He said that he told Mr White that he wished to obtain a loan of around $40,000, but Mr White told him that he would need security on a property, and Mr White asked to be provided with certain documents. Mr Cleland specifically referred in evidence to Mr White asking for a rates notice and an electricity account in respect of the property being offered as security. Mr Cleland told Mr White that his name was Steven Mistilis, and that he was the husband of Julie Mistilis. Mr Cleland said, under cross-examination, that he had been told by Mr White to say that the loan was for business purposes, and that he told Mr White that he had no property in his name but there was an unencumbered property in his wife's name. When shown the mortgage which was registered over Lot 180, Mr Cleland confirmed that he had written in the signature 'J Mistilis' (i.e. the purported signature of the mortgagor) and also the signature which purported to be that of the witness to the mortgagor's signature. Mr Cleland denied, however, that he had collected the mortgage documentation from the mortgagee's solicitor's office. He said that the documents 'would have been' sent to him by email, that he would not have gone to the solicitor's office to pick them up, and that he couriered the executed documents back to the solicitors.
Mr Cleland also identified a number of documents, specifically a copy of the 2003 Suncorp Metway Certificate of Insurance for the property on which Mr Cleland had written 'Att. Syd' (from which I infer that he faxed it to Mr Worts), and a document faxed by Mr Cleland to Mr Worts, which Mr Worts then faxed with other documents to Mr White, on which Mr Cleland, purporting to be and signing as Julie Mistilis, stated:
We require $50,000 to $80,000 for business perpes [sic].'
[12] Mr Cleland denied, however, knowledge of or connection with a document which came to Mr White via Mr Worts and purported to be a copy of Mrs Mistilis' driver's licence. The copies of the licence in evidence are barely legible but whatever the licence purported to be, it bore only scant resemblance to a Queensland driver's licence. Mr Cleland said that he did not have anything to do with bringing this document into existence, and did not know where it came from. I reject
Mr Cleland's evidence on this point. As at 5 May 2004, Mr Cleland and his wife were staying at, and communicating by fax from, the Pacific Horizons Apartment Complex at the Sunshine Coast. Twice on that day, namely at 11.43 am and 1.03 pm, Mr Cleland sent multi-page faxes to Mr Worts. The first of those comprised a copy of the Suncorp Metway certificate of insurance, a solicitor's account addressed to Mrs Mistilis in connection with the acquisition of the property, a copy of the 'licence', a copy of an insurance account addressed to Mrs Mistilis in relation to the property, a copy of a rates notice and another local authority notice for the property addressed to Mrs Mistilis. The second faxed bundle comprised the 'To who it may concern' letter penned by Mr Cleland, and copies of the solicitor's account on acquisition, the 'licence', the insurance account and a document purporting to be an 'estimate of selling price' prepared for Mrs Mistilis by a local real estate agent, disclosing an estimated selling price for Lot 180 of $330,000 to $340,000. I find that Mr Cleland passed these documents, including the 'licence', to Mr Worts, who in turn passed them to Mr White, for the purpose of effectuating the fraud in the name of Julie Mistilis. Part of the effectuation of that fraud was delivery by Cleland of the copy of the 'licence' for the purposes of representing the identity of the proposed mortgagor as Julie Mistilis.
[13] Mr Peter Nicholson, the sole director of Royalene, confirmed in evidence that Mr White was Royalene's agent. Mr White approached Mr Nicholson and asked if Royalene could make a short-term loan. Mr White agreed that Royalene would only do it on the basis that the loan was fully secured by a first mortgage. Mr White also confirmed that Mr Hewlett was Royalene's solicitor. Mr White had introduced Mr Hewlett to Mr Nicholson. When asked what Mr White and Mr Hewlett were engaged to do, Mr Nicholson said:
'They were supposed to make all the arrangements and set the documentation up and I would - you know, a first mortgage, and I signed it off, and it became registered and I thought that was the end of it.'
[14] When cross-examined on that, he confirmed that he intended that Mr White and
Mr Hewlett should make sure that Royalene had a good enforceable security. This was the first of a number of transactions which Mr White introduced to Mr Nicholson, but it seems that this was the only one taken up by Mr Nicholson for Royalene. Mr Nicholson agreed with the description of the transactions as 'short-term, high rate of interest loans'. He also confirmed the source of the monies which were advanced by Royalene on the strength of the mortgage security offered.
[15] Mr White said that this transaction was referred to him by Cash Counters at Woodridge (i.e. Mr Worts). He contacted the person who gave his name as Steven Mistilis (obviously Mr Cleland), and was told that 'Mistilis' required between $60,000 and $80,000. Mr White asked him what security
'Mistilis' had, and 'Mistilis' responded that he did not have any in his own name but he had a house at Bribie Island in his wife's name. Mr White said that
'Mistilis' told him that he and his wife needed the loan to set up a business. In this initial conversation, Mr White told 'Mistilis' that he could not lend him the money because he did not have any assets in his own name, but the money could be lent to 'Mistilis'' wife because she was a business partner and could offer security. Mr White recalled that the loan being discussed was for $60,000, with two months interest being prepaid and legal costs being taken out of the advance. He said that the loan was to be extended if the borrower paid interest in advance month by month with the interest rate at ten per cent per month. When asked how long this agreement was supposed to last, he said that the agreement was for repayment in two months, but the loan could be extended provided the borrowers paid the interest. Mr White described approaching Mr Nicholson, the director of Royalene, who was one of his clients in the 'short-term lending [of] private money'.
[16] Mr White said that he asked 'Mistilis' to fax him a rates notice of the property, the property description and a copy of his wife's driver's licence. He said that
'Mistilis' faxed these documents to him, including a 'driver's licence' for
Mrs Mistilis. After receiving those documents, Mr White contacted Mr Hewlett's firm. He said in evidence in chief that he 'faxed up a copy of the driver's licence, the rates notice and rang them and gave them instructions to prepare searches and mortgages etc. on behalf of Royalene'. Mr White said that after giving those instructions, the documents were prepared by the lawyer and he had no further involvement. He said that he understood the normal procedure then to be that the documents were prepared by the lawyers and either they were mailed to the client, given to a third party to deliver to the client or the client came in to pick them up in person.
[17] Mr White confirmed being paid $5,500 commission for acting as Royalene's broker on the loan.
[18] Under cross-examination, Mr Cleland's version of the initial contact between him and Mr White was put to Mr White. In particular, it was put to Mr White that
Mr Cleland did not ask for a business loan, but that Mr White told him that he was going to write it as a business loan because Mr White did not want this transaction covered by the Consumer Credit Code. Mr White vehemently denied that version.
[19] Mr White was also cross-examined as to whether he should have been alerted that there may have been something suspicious about the arrangements because
Mr 'Mistilis' did not have any assets in his name but had told Mr White that he kept his assets in his wife's name. Mr White responded that he knew it to be a common practice for people in business to have assets either in trust or in their spouse's name.
[20] In relation to the 'licence', Mr White said this could have been either sent to him by fax directly from Pacific Horizons or given to him by Mr Worts. Despite the fact that it was largely illegible, Mr White said that, at that point in time, he was satisfied with the document as a 'copy of some kind of licence' as identification of the borrower. He was cross-examined closely on the legibility and appearance of the 'licence', but maintained that given that it was provided to him in conjunction with a rates notices in Mrs Mistilis' name, he was satisfied with it for identification purposes. He identified the document of instructions he sent to Mr Hewlett. I find that this was sent to Mr Hewlett by email on 7 May 2005. The instructions were as follows:
Can you please prepare the 1st Mortgage over Lot 180 RP 99151
Vicky has done the search could you please fax to Peter Nicholson so he can confirm that the property is free of encumbrances. FAX 07 55045509 and email me the Mortgages with your account made out to Martin Charles White A/T for The White Investment Trust for legals, stamp duty, registration fee, search sect this will be paid by me and I will arrange for the borrower to sign and deliver them back to your office Monday morning so you can advise it is in order for Peter to advance the funds
Term 2 Months This can be extended month by month upon payment of $6000 for Interest monthly in advance
Prepaid Interest 2 Months = $10000 (this is 10% of $50,000 per Month)
Please put in a disbursement authority for the $60,000
1 $10,000 to Royalene Pty Ltd account 2 Months prepaid interest
3 Balance to __________________ by Bank Cheque
Also can you ask for a certified copy of her licence
[21] Two matters raised in this letter of instruction assumed particular significance in the trial:
(a) The instruction to Mr Hewlett to email the mortgages to Mr White for Mr White to arrange for the borrower to sign and deliver them back to Mr Hewlett's office, and
(b) The instruction for Mr Hewlett to ask for a certified copy of Mrs Mistilis' licence.
[22] When cross-examined about this, Mr White said:
'Yes, okay. Now, what was your intention in respect of getting certified copies of licences at that stage? - Well, if the documents were e-mailed to me - - - -
Yes? - I would have expected to meet Mrs Mistilis at that particular point in time and one of two things. I would have either got another copy of the licence or in the alternative I would have been quite happy if this looked close to her identity.
But the most likely thing is you would have wanted a fresh copy of the driver's licence that she had produced the original to you that you could have a look at and you'd have a look at her; isn't that right? - Well, I can't answer that on a yes because it may well be that after meeting her she's got other identification with her or she looked quite like the picture.
Now, it was important to you to get identification evidence from Mrs Mistilis, wasn't it? - I wanted to know who I was dealing with, yes.
Exactly. And you wanted to know who you were dealing with because impersonation is not unknown in transactions of this sort, is it? - I've never, ever had it happen to me. This is the first case.
All right. But it's not unknown in transactions of this sort, is it? - Well, I haven't heard of any before this particular thing happened to us.
It's a risk you were alive to? - I'd say I wouldn't have really thought about that to a great extent because I'd never heard of it in all the time that I'd been around.'
[23] Mr White said that he probably did not receive an email from Mr Hewlett's firm attaching the mortgage documents because the instructions from 'Mistilis' changed. He said he received a telephone call from a female person who identified herself as Mrs Mistilis. This female person asked whether there was any possibility of her picking up the documents from the solicitor's office in Brisbane rather than from Mr White at the Gold Coast. Mr White says that he agreed to this and then notified Mr Hewlett's office that he had received a call from 'Mrs Mistilis' saying that she would be going to the solicitor's office to pick the documents up.
[24] Mr White thought he had passed this advice to Mr Hewlett's firm by email or telephone call. He had no accurate recollection, but thought he remembered sending an email.
[25] Mr White firmly denied receiving the mortgage documents from Mr Hewlett by email, and further denied sending those documents to Pacific Horizons by email to be signed by the mortgagor. He said that he had no reason to follow up on the requirement that a certified copy of the 'licence' be obtained, because that task had been given to Mr Hewlett. He said:
'Once I gave the instructions to Hewletts that Mistilis was picking up the documents from his office, until the settlement, I had no further involvement'.
[26] Mr White also identified a handwritten letter of instructions concerning disbursement of the monies to be advanced in the transaction. He says that he had a telephone conversation with the woman whom he thought to be Mrs Mistilis, in which she asked when the money would be available. He told her that she would need to give instructions as to where the money was to be put. Mr White said that a handwritten disbursement authority was faxed to him, and he forwarded it to Mr Hewlett's office.
[27] I think it fair to make the observation that Mr White's evidence was vague and inconsistent in numerous respects, particularly when he was being questioned about email communications between him and the other participants in this saga. In fairness to him, however, it should be noted that the computer on which his email correspondence concerning this transaction was stored had been stolen, and he therefore had no contemporaneous documents from his own computer files available to him in respect of the transaction.
[28] I note here that the following formal admission was made in this proceeding:
'To act on behalf of Royalene to effect the transaction evidence by registered mortgage 7077404417 Royalene Pty Ltd retained the services of:
(a) A broker, namely Martin Charles White atf the White Investment Trust; and
(b) A solicitor, namely Andrew Oliver Hewlett, practising as Hewlett & Company Lawyers.'
[29] It was also not in issue that no certified copy of the borrower's driver's licence was produced to Royalene, to Mr White, to Mr Hewlett, or to any other person acting on behalf of Royalene at any time.
[30] Mr Andrew Hewlett, who was then the principal of Hewlett & Company Lawyers also gave evidence. Mr Hewlett confirmed that he had carriage of the transaction on behalf of Royalene, having received instructions initially by telephone from Mr White and subsequently by email. In his evidence-in-chief, Mr Hewlett said that his instructions were to prepare the documents, and then email them to Mr White, who was then either to take the documents to Mrs Mistilis for execution or make them available in hardcopy for collection and execution by her. He initially said that 'in the end' he did not email the documents to Mr White because Mr White telephoned him and said that there had been a change of plans, that someone was coming to pick the documents for Mrs Mistilis up from Mr Hewlett's office, and that rather than Mr Hewlett sending them to Mr White, could they be held for collection. He recalled receiving copies of some documents from Mr White, making particular reference to the rates notice. Under cross-examination, however, Hewlett's version of what had occurred changed slightly with him saying that he believed the mortgages were, in fact, emailed to White, but then the arrangements changed, and he was told to produce copies of the documents for collection from Hewlett's office.
[31] It was also clear on Mr Hewlett's evidence that, despite the fact that he had been specifically instructed to obtain a certified copy of the borrower's 'licence', he omitted to do so. His evidence under cross-examination was:
'And you're asking us to believe that you just forgot? - - Well, I'm sorry, I've overlooked it.'
[32] Mr Hewlett was cross-examined closely on the sequence of events from the time his firm first received instructions from White, through the 'change of plan' in relation to the borrower collecting the mortgage documents from Mr Hewlett's office and subsequent events leading up to the registration of the mortgage. Mr Hewlett's evidence was unsatisfactory in many respects, not least because he had a poor recollection of the precise details of the transaction, and appears not to have kept any diary notes about instructions that were received or attendances on him or his staff members concerning the transaction. The pragmatic reality is that a busy professional will not, and cannot be expected to, remember the minutiae of such details as whether a particular document was sent by email, sent by regular mail, sent by courier, or collected from the solicitor's office. Nor, in the real world, could a solicitor with a busy securities or conveyancing practise be expected to recall, several years after the event, whether particular instructions of an administrative nature were received by the solicitor personally or whether they came through the solicitor's personal assistant or paralegal. Many of the difficulties which Mr Hewlett had in giving his evidence arose from the fact that he simply had no records from which to confirm the sequence of events and communications. The fact that such mundane details as whether documents were sent by email or collected in person from Mr Hewlett's office have assumed such significance in the present case highlights the importance for solicitors to ensure that proper diary notes of attendances on clients and parties to transactions are kept, that proper correspondence logs of communications in and out of the solicitor's office are maintained, that email and other electronic records are properly filed and backed up, and that the integrity of solicitors' files are preserved, even when the contents of the file become important documents in litigation. For example, it was simply not possible for any of the parties before me to identify which of the numerous copies of the 'Mistilis licence' was the one which had been provided to Mr White, and then to Mr Hewlett. There were a number of copies, and copies of copies, with varying degrees of illegibility, but because Mr Hewlett's file had been pulled apart for the purposes of this litigation at the time when his firm was acting in this proceeding for Royalene (that is, until only a number of days before the trial commenced), it was impossible to identify which of many documents were 'originals' and which were copies, or copies of copies. The impact, and persuasiveness, of Mr Hewlett's evidence was certainly greatly diminished by his inability to give accurate evidence about the transactions and communications in which he had acted as solicitor for Royalene.
[33] Mr Hewlett acknowledged the desirability of avoiding the possibility of his client being handed a forged mortgage, but did not agree with the proposition put to him that in a transaction involving a lender such as Royalene, there would be a 'heightened awareness of the prospect of forgery'. It was put to him that Royalene was a lender of last resort, and that the people who went to such lenders were 'desperate'. Mr Hewlett responded (realistically, I think) that not all borrowers from such lenders are 'desperate'; whilst some may be 'desperate', others, including well-respected developers, occasionally find themselves in need of short-term funding to cover, for example, an hiatus caused by a delay in a development approval.
[34] Mr Hewlett said that he realised that it was important to Mr White that there be evidence of identification of the borrower, but said that this came about because
Mr White had told him that he had a copy of Mrs Mistilis' licence, 'but it was a poor quality copy and for his file he'd like a clean copy'. Mr Hewlett could not, however, recall the conversation in which he was told this by Mr White, and again, there was no diary note of it. In any event, Mr Hewlett denied being concerned about the risk of impersonation and forgery in this case. He accepted that he should have checked to see whether there was a certified copy of the driver's licence when the executed mortgage documents were returned to his firm, but that his failure to do so was an 'oversight'.
[35] It seems to me that, on the documentary evidence, it is much more likely than not that Hewlett's firm did, on 7 May 2004, send an email to Mr White attaching a number of documents, including the relevant mortgage. Another document attached to that email sent to Mr White was a letter on the letterhead of Hewlett & Co addressed simply to Ms J D Mistilis, with no mailing address. That letter stated:
We refer to the above matter and advise we act for Royalene Pty Ltd.
Could you please arrange for execution of the mortgage. You will need to sign the document in the presence of a Justice of the Peace of Solicitor.
At the time you sign the mortgage, can you please get the witnessing officer to certify a copy of your Driver's Licence for identification purposes.
The amount of our costs for acting for the mortgagee is included in the mortgage debt and secured by the mortgage.
[36] I think that Mr White is simply in error in his recollection that he did not receive this email and its attachments from Hewlett.
[37] Section 184 of the LTA relevantly provides:
'(1) A registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests.
(3) However, subsections (1) and (2) do not apply -
(b) If there has been fraud by the registered proprietor, whether or not there has been fraud by a person from or through whom the registered proprietor has derived the registered interest.'
[38] There is no suggestion of any fraud on the part of Royalene. Indeed, it is clear that Royalene itself was an innocent participant in the fraud perpetrated by Mr Cleland on his mother-in-law.
[39] The question, however, is whether either or both of Mr White and Mr Andrew Hewlett, as Royalene's agents, were guilty of fraud in their dealings on behalf of Royalene such as to impugn Royalene's otherwise indefeasible interest as mortgagee. In this regard:
(a) fraud by a registered mortgagee includes fraud by its agent, and
(b) fraud in this context includes wilful blindness, an abstention from inquiry for fear of learning the truth, and possibly reckless indifference in other respects but, in either case, it must amount to actual dishonesty.[2]
'In Assets Co., Ltd. v Mere Roihi, the Privy Council said, at 210:
... by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud - an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further ... the fraud which must be proved in order to invalidate the title of a registered purchaser for value ... must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making enquiries for fear of learning the truth, the case is very different, and fraud may be properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon.
The decision in Assets Co., Ltd. has stood for many years and it is clear that for the purposes of s. 42 "fraud" means actual dishonesty or moral turpitude: see, e.g., Butler v Fairclough [1917] HCA 9; (1917) 23 C.L.R. 78 at 90 and 97; Stuart v Kingston [1923] HCA 17; (1923) 32 C.L.R. 309 at 329 and 356; Bahr v Nicolay (No. 2) at 614 per Mason C.J. and Dawson J. and at 631-2 per Wilson and Toohey JJ.; Grgic v Australian and New Zealand Banking Group Ltd at 221 per Powell J.A. Further, although it is clear that what was said in the Assets Co., Ltd. case is not to be read as saying that all kinds of equitable fraud stand outside the statutory concept of fraud, proof of dishonesty is essential. In Latec Investments Ltd. v Hotel Terrigal Pty. Ltd. [1965] HCA 17; (1965) 113 C.L.R. 265 Kitto J. held that a collusive and colourable sale by a mortgage company to its subsidiary was a plain case of fraud there being "pretence and collusion in the conscious misuse of a power" - a "dishonest course": see 113 C.L.R. at 274. But in that, as in other cases in which fraud has been found, there was actual dishonesty and it is that which Scorpion sought to demonstrate in this case.
Of course, fraud may take various forms. Registering an instrument which the registering party knows is forged is an obvious example. But that was not the case which Scorpion sought to make on the trial of this action or on the hearing of the appeal before us. Rather, the fraud alleged against Pyramid was said to be a reckless indifference to the truth of the document which it tendered for registration.
In support of this contention, counsel for Scorpion placed particular emphasis upon the decisions of Tadgell J. in Australian Guarantee Corp. Ltd. v De Jager [1984] VicRp 40; [1984] V.R. 483 and Mandie J. in Beatty v Australia and New Zealand Banking Group Ltd. [1995] VicRp 57; [1995] 2 V.R. 301. In both cases it was found as a fact that a person employed by the mortgagee had signed an instrument of mortgage as a witness to the affixing of the signature by one of the mortgagors when in fact that witness had not seen the mortgagor sign the document. Thus in both cases the employee of the mortgagee knew that the document contained a false statement - that it had been executed by the mortgagor in the presence of the person who had signed as witness. In each case it was held that the mortgagee was guilty of fraud within s. 42 of the Transfer of Land Act.
In my view no such case was made out here. There was, in this case, no evidence that Pyramid, or anyone acting on its behalf, knew that the witness to the affixing of the mortgagor's company seal was not a director of the company (if in fact that was so). There was no evidence that Pyramid, or anyone acting on its behalf, knew that the execution of the mortgage had not been authorised by Scorpion (if that was so). It was not suggested to Carr (the solicitor who had acted for Pyramid in the mortgage transaction) that he had chosen not to make enquiries about these (or any other) matters because he feared what he might find out. Again, no such case was made out.
The expressions "reckless indifference" and "wilful blindness" are useful shorthand expressions to describe some kinds of cases of fraud. As the classical exposition by Lord Herschell in Derry v Peek [1889] UKHL 1; (1889) 14 App. Cas. 337 at 374 shows, fraud can be proved by showing that a false statement has been made without belief in its truth or, "recklessly, careless whether it be true or false". But as was said in the Assets Co., Ltd. case, the mere fact that a person might have found out fraud if further enquiries had been made does not of itself prove fraud. The enquiry is an enquiry for actual dishonesty not for want of due care.'
[41] Mr Clarke SC, who appeared with Mr Pyle for the State of Queensland, submitted that:
(a) having regard to Mr Cleland's history of having been convicted of multiple charges of serious dishonesty, I should not accept
Mr Cleland's evidence unless it is corroborated in contemporaneous documentation;
(b) I should not accept Mr Hewlett's evidence on critical events unless it is corroborated by persons other than White. Counsel submitted that
Mr Hewlett has a major personal stake in the outcome of the case - if the mortgage is removed, he (and his son, who is now the principal of the law firm) may be exposed to claims by Royalene;
(c) I should not accept Mr White's evidence on critical events unless corroborated by persons other than Mr Hewlett, as Mr White also has a major personal stake in the outcome because of the potential for a claim against him if Royalene's mortgage is removed.
[42] It was submitted by for the state that I should make the following findings of fact:
(a) that the mortgage documents were forwarded for execution by email to the Pacific Horizon Apartments;
(b) that the 'covering letter' being the letter dated 7 May 2004 from Hewlett & Co addressed simply to 'Ms J D Mistilis' was not on-sent with the mortgage documents;
(c) that the requirement for the certified driver's licence was abandoned by White out of reckless indifference to the genuineness of the signed documentation to be sent back;
(d) that the version of events that the documents were collected by 'persons unknown' and of Hewlett's omission to follow up on the certified copy of the driver's licence was a fabrication.
[43] Counsel for the State provided me with detailed written submissions in which they performed a close and comprehensive analysis particularly of the evidence of
Mr White and Mr Hewlett, pointing out the many contradictions and inconsistencies between their respective versions and contemporaneous documents. Central to
their contentions was the submission that the crucial issue of fact to be determined in this case is how the mortgage documents were sent to Cleland for execution, i.e. whether they were on-forwarded by email by White to Cleland, as originally planned, or whether there was a change of plan and the documents were collected from Hewlett's office by some person (either Mr Cleland or his wife). In that context, it was pointed out, inter alia, that Mr Hewlett said in evidence that, after the alleged change of plan, it would have been his personal assistant, Vicky Johnson, who would have printed out a fresh set of mortgage documents, and that she would have left them at reception for collection. It was submitted that, in this context, testimony which Ms Johnson could have given on this matter was 'crucial', but there was an unexplained failure on the part of Royalene to call her to give evidence.
[44] It is clear from the evidence of both Mr White and Mr Hewlett that Ms Johnson did play a part in the transaction. For example, she was the person with whom Mr White initially had contact for the purposes of obtaining a real property search of Lot 180. It is also realistic to expect that, as Hewlett's personal assistant, she would most likely have been responsible for such administrative matters as sending documents or arranging for their collection. There was no explanation for not calling her to give evidence for Royalene. It is, in those circumstances, appropriate that I infer that any evidence which she could have given would not have assisted Royalene's case.
[45] Moreover, and in any event, it seems to me that, despite the obvious difficulties which might otherwise attach to his credibility, Mr Cleland's version of having received the documents by email from White and having printed them, executed them, and returned them by courier is a much more credible and likely scenario. I have already noted that, contrary to his evidence, Mr White did, in fact, receive the mortgage and other documents by email from Mr Hewlett's firm. As his computer has been stolen, it is now not possible for him to confirm for himself, more than three years after the events in question, whether he in fact sent Mr Hewlett's email on to Mr Cleland. But, at an even more basic level, Mr Cleland simply had no reason to lie to me about the way in which he received the documents.
[46] Therefore, it seems to me that the true course of events was that:
(a) Mr Hewlett sent the mortgage and other documents to Mr White by email on 7 May 2004;
(b) Mr White forwarded that email, or at least the documents attached to the email, by email to the person he knew as 'Steve Mistilis';
(c) Mr Cleland printed the mortgage documents from the email he received, forged the signatures on the mortgage documents, and then returned them as purportedly executed documents by courier to Mr Hewlett's office in Brisbane;
(d) Mr Hewlett did not pick up on the fact that a certified copy of the 'driver's licence' had not been provided with the executed documents.
[47] Counsel for the State would have me go further to make a finding that there was a deliberate 'abandonment' by Mr White or Mr Hewlett of their initial requirement that a certified copy of the 'licence' be supplied. The evidence does not, in my view, allow for such a finding to be made. I think it much more likely that Mr Hewlett's state of administrative disorganisation was such that the requirement for the provision of the certified copy was, as he said, 'overlooked'.
[48] The real question, however, is whether, even in the circumstances as I have found them to have been, the conduct of Mr White and Mr Hewlett amounted to 'fraud' which would be visited on Royalene for the purposes of s 184. In my view, despite the obvious shortcomings in the conduct of Mr Hewlett as Royalene's solicitor and
Mr White's faulty recollection in relation to the delivery of the documents, it cannot be said, on the evidence before me, that their conduct was infected by the 'actual dishonesty' or 'moral turpitude' necessary to found a finding of fraud. To reiterate the observation by Hayne JA in the Pyramid Building Society case, the relevant inquiry for present purposes is an inquiry into whether there was actual dishonesty, not merely a want of due care. A court should not lightly make a finding that a person is guilty of fraudulent conduct[5]5 The fact that Mr White or Mr Hewlett might have found out about the fraud if they had been more vigilant in obtaining the certified copy of the driver's licence is not, of itself, sufficient to satisfy the required test. Each of Mr White and Mr Hewlett denied that their suspicions about the identity of the mortgagor were aroused. But even if I were to accept that their suspicions had been aroused, there is no evidence that either Mr White or
Mr Hewlett 'abstained from making inquiries for fear of learning the truth̵[6]6 (emphasis added).
Accordingly, notwithstanding the significant criticisms which might be levelled particularly against Mr Hewlett for the way in which the transaction was conducted on behalf of Royalene, I am not able to, and therefore do not, make a finding of 'fraud', in the sense necessary for vitiation of the indefeasible title of Royalene as registered mortgagee of Lot 180.
[50] A preliminary issue raised by the State was whether the registered mortgage operated to charge the land with the payment of any monies. The State submitted that it did not, and, accordingly, contended that no monies were required to be paid to Royalene in order to obtain a release of the registered mortgage over the property. This argument was founded in the fact that the 'charging clause' on the face of the mortgage was ruled through prior to it being registered.
[51] The registered mortgage was in the appropriate form for registration under the Land Titles Act. Item 6 of the mortgage was in the following form:
'6. Covenant/Execution. The Mortgagor covenants with the Mortgagee in terms of:- *the attached schedule; *attached schedule and standard terms document no ...............; standard terms document no ................... and charges the estate or interest described in item 1 with the repayment/payment to the Mortgagee of all sums of money referred to in item 5. (*delete inapplicable words)'
[52] Mr Lucas Hewlett, the son of Mr Andrew Hewlett and also a partner in the firm Hewlett & Co at the time in question, was involved in the lodgement of the mortgage document for registration. It would seem from his evidence that the charging clause on the face of the mortgage was ruled through by accident.
[53] Counsel for the State submitted that the consequence of those words being struck through prior to the mortgage being presented for registration was that the instrument was not effective to create an interest in the lot. It was said that the instrument did not create a charge over the land which calls for redemption by repayment of monies to the mortgagor.
[54] It seems to me, however, that this submission cannot be maintained for at least two reasons.
[55] First, it is clear that the assumption implicit in this submission that a mortgage registered under the LTA needs to contain an express covenant for repayment to underpin a charge arising from the mortgage, is incorrect. Section 78(1) of the Property Law Act 1974 implies into every instrument of mortgage an obligation on the part of the mortgagor to pay the principal money and interest secured according to the rate and at the times mentioned in the mortgage without any deduction. Thus, an obligation to repay is implied in the present mortgage.
[56] Secondly, it is clear that this mortgage, as a Torrens System mortgage, took effect upon registration as a statutory charge. Section 73 of the LTA enumerates the minimum requirements for a mortgage sought to be registered under the LTA. Section 73(1) provides:
(ii) include a description sufficient to identify the lot to be mortgaged;
(iii) include a description of the debt or liability secured by the mortgage; and
(iv) include a description sufficient to identify the interest to be mortgaged.'
[57] This mortgage, on its face, fulfilled those requirements. It is notable that s73 does not require that the mortgage contain an express charging clause.
[58] Section 74 of the LTA then provides:
'A registered mortgage of a lot or an interest in a lot operates only as a charge on the lot or interest for the debt or liability secured by the mortgage.'
[59] Upon registration of the mortgage, a statutory charge comes into existence. As was explained by the majority of the High Court in English, Scottish & Australian Bank Ltd v Phillips[7]:
'The statutory charge described as a mortgage is a distinct interest. It involves no ownership of the land the subject of the security. Like a lease, it is a separate interest in land which may be dealt with apart altogether from the fee simple or other estate or interest mortgaged. But, like a lease, it involves, or usually includes, personal obligations.'
[60] Accordingly, I consider that the registered mortgage in this case operates as a charge to secure repayment of the monies secured by the mortgage.
[61] That leads, then, to the question of what monies need to be paid to Royalene, as mortgagee, in order to obtain a discharge of the mortgage.
[62] The debt secured on the face of the mortgage is $60,000, described as 'the monies hereby secured'.
[64] The requirement to pay the primary sum secured of $60,000 to Royalene is self-evident. This is constituted by the loan of $50,000 plus $10,000 for 'interest at the rate of 10% per month for the first two months of the term of this loan'.
[65] It should be recorded that the monies secured by the mortgage were not repaid to Royalene within two months of the date of the mortgage, nor have any monies since been paid to Royalene. Royalene submitted that interest has continued to accrue on the sum secured under the mortgage at the rate of ten per cent per month since the date in July 2004 when the monies secured should have been, but were not, repaid. That is, Royalene seeks to be paid, in addition to the $60,000 expressly secured by the mortgage, further interest at a rate of $6,000 per month since July 2004.
[66] The only express covenant to pay interest contained in this mortgage is that set out in cl 2, by which it is agreed that $10,000 of the $60,000 secured comprises interest at the rate of ten per cent per month 'for the first two months of the term of this loan'.
[67] Royalene sought to draw support from cl 3 of the mortgage which was in the following terms:
'In the event that the mortgage is not in default in payment of the monies hereby secured, at the absolute discretion of the mortgagee, the mortgagee may extend the final date for repayment of the monies hereby secured and all amounts for interest for a further period after the expiration of the first two (2) months of the term, provided that the mortgagor pays interest to the mortgagee on the outstanding balance of the monies hereby secured at the rate of 10% per month.'
It is clear, however, that this clause has no application in the circumstances of the present case, in which there was default in payment of the monies secured under the mortgage, and there was no extension of the final date for repayment of the monies.
[68] Otherwise, the mortgage is silent as to interest payable to the mortgagee after the initial term of two months.
[69] However, as counsel for the State quite rightly and properly submitted, a party seeking the assistance of the Court to redeem a mortgage after the passing of the redemption date must do equity, and even though there may be no covenant in a mortgage for payment after the passing of the redemption date, the Court should only order redemption on the basis that interest on the sum outstanding under the mortgage be allowed at a rate fixed by the Court as an appropriate rate.
[70] I consider, for the purposes of doing equity between the parties, that a rate of ten per cent per month is completely inappropriate. Instead, I accept the State's submission that the appropriate rate of interest to be paid on the secured debt from the redemption date for the purposes of obtaining redemption would be ten per cent per annum.
[71] In view of my findings on the first question concerning rectification of the register, it follows that it should be ordered that the caveat lodged by the Registrar of Titles over Lot 180 be removed. That order for removal should, however, be stayed for a sufficient time to enable Mrs Mistilis to redeem the mortgage.
[72] There is no issue that appropriate orders and declarations should be made to enable the redemption to be effected, with the State compensating Mrs Mistilis for such amounts as are required to be paid to Royalene to obtain a discharge of the mortgage.
[73] Mrs Mistilis would also, of course, have rights of recovery and compensation against Mr Cleland as a consequence of the fraud he perpetrated in respect of her property. It is appropriate to confirm that the State, upon payment of the amounts required to obtain a discharge of the mortgage, is entitled to be subrogated to those rights of Mrs Mistilis against Mr Cleland - see LTA s190(1).
[74] Accordingly, there will be orders and declarations in the following terms:-
1. Order that caveat no. 707888525 registered over the land described as Lot 180 on RP 99151 County of Canning Parish of Woorim be removed.
2. Order that Order 1 be stayed for 60 Days from today.
3. Declare that the Second Defendant as registered proprietor of the estate in fee simple of the said land is entitled to redeem registered mortgage
no. 707740417 and to receive a duly executed instrument of release thereof upon transfer to the Plaintiff of a sum consisting of:-
(a) the sum of $60,000 plus simple interest on the sum of $60,000 calculated at the rate of 10% per annum from 21 July 2004 to the date of redemption; and
(b) the Plaintiff's recoverable costs of release of the said mortgage.
(a) an amount equal to the sums required to be paid under Order 3 by the Second Defendant to redeem the said mortgage; and
(b) her reasonable legal costs and expenses incurred in consequence of the registration of the said mortgage.
[5] See Young v Hoger (supre) at [17]
[6] Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1988] 1 VR 188 at [192-194].
Royalene Pty Ltd
Registrar of Titles & Ors
(1937) 57 CLR 302