Smart v Australia and New Zealand Banking Group Limited [2002] VSCA 111

Court of Appeal (Vic)|2002-07-19|Before: CHARLES, BATT and EAMES, JJ.A.

MORTGAGES - Real loan by bank, not mere "credit creation" - Mortgagee's claim for possession - Jury not required by Magna Carta - Evidence of practice admissible to prove execution - Whether insertion of date of memorial an unauthorised material alteration of mortgage - Registration as a charge not necessary - Whether denotation by Comptroller of Stamps as primary security warranted - Presumption of regularity - Mortgagor company dissolved - Whether ASIC a necessary party - Stamps Act 1958, s.137AI - Magna Carta, c. 29.

This is an appeal from a judgment given in the Trial Division on 25 November 1999 in favour of the respondent/plaintiff for the recovery as mortgagee against the appellant/first defendant, Mr Smart, of possession of 510 acres of land that was owned by him and of land known as "Moorundie" that had been owned by a company controlled by him which had been dissolved before trial, of both of which pieces of land Mr Smart was in possession.

Mr Smart was made bankrupt by a sequestration order made on 30 July 1999 and is, from what he told this Court, still bankrupt. The trial judge nevertheless held that he was entitled to appear to resist the claim for possession, though a counterclaim by him was, in the circumstances his Honour described, stayed, discontinued or abandoned. Otherwise his Honour would have dismissed it on the merits. Although it is far from clear, the appeal does seem to relate to the counterclaim also, to some extent.

The Court allowed Mr Smart, although a bankrupt, to appear in support of the appeal as a person affected by the judgment for possession and costs. During argument the Court refused an application by Mr Smart to amend the grounds of appeal to include the matters raised in his outline of submissions. He was therefore restricted to the grounds in the notice of appeal, 12 in number, most, but not all, of which he argued. Some latitude was allowed in argument with regard to the content of the grounds.

The facts are fully and clearly set out in the reasons for judgment of the trial judge and, except so far as they may be challenged or raised by the grounds of appeal, it is unnecessary to repeat them.

At trial Mr Smart put the whole of the respondent's case in issue and denied specifically that he had executed mortgages over the three parcels making up the 510 acres of land on 1 July 1987 as the respondent alleged. The judge was satisfied that the respondent had proved its case, that is, the execution of the mortgages, guarantees and cross-collateralisation documents alleged, the granting of financial facilities and accommodation as alleged, and the various demands and defaults and the indebtedness pleaded, as well as Mr Smart's possession of the lands in question. Subject to the consideration of the substantive defences raised by Mr Smart, his Honour was satisfied of the respondent's entitlement to possession. His Honour then considered those substantive defences one by one and rejected them. Those defences included the invocation of the principle enunciated by the High Court in Commercial Bank of Australia Ltd. v. Amadio[1]; that the mortgages of the 510 acres were forgeries; that the old law mortgage of the part of that land not under the Transfer of Land Act 1958 had been materially altered after execution; that the mortgages should have been, but were not, lodged with Australian Securities and Investments Commission ("ASIC"); that the discharge of an earlier mortgage discharged two later ones relied on by the respondent; that those two mortgages were "void" for want of proper stamping; that the conveyance to Mr Smart of the old law land was ineffective for want of execution by him; and that the respondent did not have title to sue on the mortgage over Moorundie, which had been granted to Australian and New Zealand Savings Bank Ltd. It will be necessary to refer in more detail to some of those defences when considering certain of the grounds of appeal.

I now pass to the grounds that were argued, taking them in the order in which they appear in the notice of appeal rather than the order in which they were argued.

Ground 1 asserts: "The Learned Trial Judge does not have the authority alone to make a judgment for possession, therefore the Writ was ill conceived and should have been dismissed".

Mr Smart said little in support of this ground. On its face the ground seems to mean that the trial should have been by judge and jury under the Rules. As to that, R.47.02(2) authorised trial by judge alone. There is no suggestion that Mr Smart sought trial by jury, so that might be the end of this ground. Mr Smart stated, however, that he relied upon chapter 29 of Magna Carta[2], to be found, so far as Victoria is concerned, in s.8 of the Imperial Acts Application Act 1980 as a transcribed enactment, the effect of which is stated in s.3 of that Act. But "iudicium parium" or, as it appears in the Imperial Acts Application Act, "judgement of his peers" does not refer to trial by jury, in the view of Sir William Holdsworth[3], Sir Victor Windeyer[4] or Deane, J.[5]amongst others[6]. At most the clause requires due process of the common law[7]. In any case, the validity of the Rules of Court as to the mode of trial, derived from Rules ratified, validated and approved by Act of Parliament, cannot be doubted, as is explained more fully by this Court in Fyffe v. State of Victoria[8].

Ground 2 reads: "The Learned Trial Judge erroneously accepted evidence of Mr Tabram that his usual procedure would have been followed, even though, in cross- examination, he could not remember whether this indeed was done".

As argued, the complaint was that, although the respondent relied heavily on practice and procedure, no manuals of the bank's practice or procedure were produced; and Commonwealth Bank of Australia v. Quade[9] was relied on. That was a case where the Full Court of the Federal Court had ordered a new trial after failure to make full discovery had been found out after trial and where, having regard to the particular way in which the case was argued, that order remained after the High Court had dealt with the matter of principle. But there is no non-discovery shown to have occurred here nor any question of fresh evidence. Moreover, as is clear from pp.102-3, 111 and especially 118-9 of the transcript, Mr Tabram was speaking of his own practice, not the respondent's ordained practice.

As worded, the ground rather complains of the reception of Mr Tabram's evidence as to his usual practice. But his Honour was entitled to accept it and to rely on it in circumstances where Mr Tabram had no recollection of Mr Smart's having executed the mortgage or of his having witnessed Mr Smart's execution. In order to prove an act has been done it is admissible to prove any general course of business or office, whether public or private, according to which it would ordinarily have been done, there being a probability that the general course will be followed in the particular case: Cross on Evidence, Australian loose leaf edition, paragraph [1130]. See also Olga Investments Pty Ltd v. Citipower Ltd[10] and Dimos v. Willetts[11] and cases there respectively cited. Quite apart from that principle of admissibility, the evidence was not objected to and Mr Tabram was indeed cross-examined about the same matters.

Mr Smart said that he did not "push" ground 3. Nor did he argue ground 4.

Ground 5 reads: "The Learned Trial Judge has made a ruling on what constitutes a 'material alteration', on an 'inference' and a 'probability'." .

As this ground was argued, Mr Smart's complaint was that the old law mortgage had, according to the respondent and his Honour's finding, been executed on 1 June 1987 and yet the date of receipt in the Office of the Registrar- General of a memorial of the deed referred to in the description of the land mortgaged that is contained in the first schedule to the mortgage, being the date 16 July 1987, had been inserted at least six weeks later. Mr Smart argued that that was a material alteration of a deed after its execution without the consent of the party bound, namely himself, which thereby avoided the mortgage. It was fraud and was serious, he said. His Honour held that this subsequent alteration of the document was not material and, in any event, was authorised by clause 7 of the mortgage, which authorised the respondent to "do every such thing so as to perfect or attempt to perfect the security intended to be hereby given".

I agree with both of his Honour's reasons. I add only that the addition did not vary the legal position of the parties or the legal effect of the mortgage or alter its operation or purportedly save it from an invalidity which would otherwise exist: see, for example, Birrell v Stafford[12] and cases there cited; Halsbury's Laws of England, 4th edn, Vol. 12, paras 1378 and 1383.

With regard to the ground as worded, his Honour was entitled to draw the inference and to decide on probabilities.

Ground 7 reads: "The Learned Trial Judge was wrong in law in holding that there were monies lent to the First Defendant by the Plaintiff".

Mr Smart placed this ground at the forefront of his case. But the argument was not entirely easy to grasp. Mr Smart referred to various of the security documents in the pleadings and to Mr Wilkie's evidence that "it's a paper transaction. Actual money doesn't change hands, cash money". The argument thus seemed to be that no moneys were lent, but only credit was created by book entry, which, it was said, was unlawful because the only lawful mode of payment was by legal tender, that is, Australian coinage and bank notes under the Currency Act 1965 (Clth) and the Reserve Bank Act 1959 (Clth). Reliance was placed on Watson v. Lee[13] and Leask v. Commonwealth of Australia[14].

It is unnecessary to pause to consider whether Mr Smart's reading of the consideration stated in certain of the security documents failed to take the participle "created" with the correct noun. I do, however, point out that the provisions of the Currency Act cited in Leask relevantly require every transaction involving the payment of, or a liability to pay, money to be entered into "according to" the "currency" of Australia. That simply specifies the currency of account and, together with a later section, of payment. The words "according to" are not narrow and, moreover, the yardstick is "currency", which is much wider than "legal tender": Watson v. Lee. Moreover, it is to be noted that the two cases cited are concerned with s.51(xii) of the Commonwealth Constitution concerning Commonwealth legislative power with respect to "currency, coinage and legal tender", whereas, as Gummow, J. in Leask[15] points out, another relevant head of power is s.51(xiii) concerning, amongst other things, banking and paper money. Mr Smart's argument overlooks banking and credit altogether. Indeed, it seems to take no regard even of an undoubted fact of commercial life, the use of cheques and bills of exchange.

It may be that, in economic terms, the respondent bank "lends" its credit by way of "fractional reserve" banking but it cannot be doubted that in point of juristic analysis money was lent. That is so even in the case of the housing loan: some funds advanced to Mr Smart pursuant to it were by his direction paid to the solicitors for the vendors to Deepwedge Pty Ltd of Moorundie and thus were used by Deepwedge Pty Ltd. Moreover, there can be no doubt that Mr Smart received value in this and the other funding transactions. A legal liability in Mr Smart sounding in money was created for good consideration. What was done was not unlawful, was real and was not devoid of legal effect: Arnold v. State Bank of South Australia[16].

Ground 8 reads: "The Learned Trial Judge was wrong in law in holding that section 200(7) of the Companies Act, in ruling that a charge was not required to be lodged with the A.S.I.C.".

Mr Smart said that the reference should be to s.201(1) of the Companies (Victoria) Code. Clearly, the burden of this ground is that his Honour erred in holding that s.200(7) meant that the mortgages were not required to be lodged with the Commission, the predecessor of ASIC under s.201(1). The word "charge" is defined in s.5(1) of the Code as including a mortgage. Section 200(7) provides:

"The provisions of this Division mentioned in sub-section (1) do not apply to or in relation to a charge on land."

The provisions that are mentioned descriptively in s.200(1) include those relating to the registration of charges. Section 200(7) clearly means that s.201(1), found in the same Division, does not apply to mortgages of land. Indeed, s.200(1) itself seems to have this effect when it goes on to say that the provisions it mentions do not apply to or in relation to any other charges than those it then enumerates, because a mortgage of land is not amongst the enumerated charges. This ground fails.

Ground 9 reads: "The Learned Trial Judge was wrong in law in holding that section 137IA of the Stamps Act means 'that the original security (the mortgage over the Moyston land) could not reasonably be produced' ".

This ground is most easily understood by setting out paragraphs 92, 93 and 94 from his Honour's reasons"

"92 It would seem that the TLA mortgage and the old law mortgage were at the outset stamped as collateral to the mortgage over the Moyston land. When the latter mortgage was discharged, the Bank began to upstamp the TLA mortgage instead. The first upstamping occurred on 15 August 1989 when the Stamps Office treated the TLA mortgage as 'a primary security and to be duly stamped pursuant to section 137IA of the Stamps Act 1958 ...' 93 Section 137IA of the Stamps Act provides: 'A counterpart of an original security or an instrument of collateral security for moneys secured by a primary security is deemed to be the original or primary security and to be duly stamped to the amount of duty denoted on it if - (a) upon application by or on behalf of a person who is a party to the original or primary security, the Comptroller of Stamps is satisfied that the original or primary security has been lost, destroyed or cannot reasonably be produced; and (b) The Comptroller denotes the counterpart or collateral security in the prescribed manner.' 94 I would infer that the Bank must have applied in August 1989 to the Comptroller of Stamps for the TLA mortgage, then a collateral security for stamping purposes, to be deemed to be the primary security for stamping purposes upon the ground that the original security (the mortgage over the Moyston land) could not reasonably be produced. There was no evidence of what occurred because such an application or a copy thereof could not be found. However, it would seem to me that the discharged Moyston mortgage might bona fide have been considered to fall within the category of a security which 'cannot reasonably be produced'. In any event, there is no evidence of fraud (or evasion) by the Bank and I do not think that the TLA mortgage (or the old law mortgage) is rendered unenforceable thereby. This defence is also rejected."

The complaint really is that the TLA mortgage, as it was called, over the Torrens title part of the 510 acres began life as a collateral mortgage, requiring a primary security to support it, and that his Honour was wrong in holding or finding that the Comptroller of Stamps was entitled to proceed under s.137IA to deem it a primary security and to be duly stamped with the result, it was said, that the so-called upstamping of the TLA mortgage was bad and that it and the other mortgage or mortgages (which depended upon its stamping) were void. The reason his Honour was said to be wrong was that he was not entitled to find or infer that the Moyston mortgage might bona fide have been considered to be, i.e. that the Comptroller might properly have been satisfied that it was, a security which "cannot reasonably be produced", especially when the respondent had failed to produce any application or statutory declaration[17] at the trial in response to a notice to produce.

There are a number of answers to this ground. First, the inference was open to his Honour, especially when regard is had to the antiquity of the inferred events. Next, the presumption of regularity in the acts of a public official applied to support, if not to require, the validity of the challenged denoting of the mortgage under s.137IA: Comptroller of Stamps (Vic) v. Bromp Nominees Pty Ltd[18] and Backstop Nominees Pty Ltd v. Goscor Pty Ltd[19]. In any event, it is difficult to see how the mortgages could be void. More particularly, even if the original $50,000 of advances for which they were originally collateral security and the denoting under s.137IA be disregarded, they were available, in the one case, as a primary security and, in the case of the old law mortgage, as a collateral security for advances of up to $150,000 by virtue of the stamp duty paid on 15 August 1989, 4 January 1990 and 15 March 1990 for amounts totalling $150,000 as denoted on the TLA mortgage: Commercial Banking Co. of Sydney Ltd. V. Love[20]. That amount of $150,000 is sufficient for the purpose of the respondent's proceeding, as I understand it.

Ground 10 reads: "The Learned Trial Judge erred in allowing the Plaintiff to amend its Statement of Claim without the approval of A.S.I.C. And I.T.S.A.".

The amendments in question allowed during the trial are the addition of paragraph 48 and of prayer EE in the statement of claim, namely, an allegation (in paragraph 48) that Mr Smart was in possession of the Moorundie land and a claim against Mr Smart (in claiming clause EE) for possession of the land known as Moorundie. It was argued, as I understood it, that the respondent could not claim against Mr Smart possession of property not owned by him, Moorundie being clearly recorded on the Certificate of Title as being owned by Seven MZ Pty Ltd, which was formerly Deepwedge Pty Ltd. But that company had been deregistered on 1 August 1997 and so was dissolved and had ceased to exist. The interest of that company in Moorundie had, by the time of trial, become vested in ASIC, though ASIC had not become the registered proprietor under the Transfer of Land Act, so that what was vested in it was only an equitable interest. Moreover, that was subject to the security holder's rights: Corporations Law, ss.601AD and 601AE.

The letter from the respondent's solicitors to ASIC, which was before his Honour, being the letter dated 15 September 1999, includes a paragraph reading:

"The Judge has enquired as to whether ASIC should be involved in the proceedings as a defendant or otherwise. We would appreciate written confirmation of our previous discussions, namely that ASIC takes only the rights of the company subject to the mortgage and that it is not interested in defending the claim (or prosecution of the counterclaim) and will abide by any orders made by the Court."

In reply, by letter dated 16 September 1999, which was also before his Honour and indeed is referred to in his reasons, it was said, amongst other things:

"ASIC takes the view that where property vesting in it is subject to a security, provided that the pre-requisites for the exercise of powers under the security instrument have been complied with, it is proper for the holder of a registered security to proceed to exercise its powers under the security and the relevant legislation and in particular to proceed with a sale of the property if deemed appropriate. Any remaining proceeds of the sale [should] Then be forwarded to ASIC to be dealt with under Part 9.7 of the Corporations Law. I confirm that ASIC does not propose to defend the claim nor prosecute a counterclaim and it will abide by any orders made by the Court."

(I have placed the word "should" in square brackets because it is an emendation since the relevant word is obscured in the copy of the exhibit made available to the Court.

His Honour clearly paid regard to the interests of ASIC and, in the light of that letter, was entitled to permit to stand the amendment, no doubt provisionally allowed on 14 September 1999, which I understand to be the date of the amendment, and he was entitled to do so without joining ASIC as a defendant as it was not in possession and was not asserting a right to possession, unlike Mr Smart, and did not wish to take any part in the proceeding. So, in short, ASIC did not mind what the course of the proceeding was and would abide by the result.

As regards ITSA, that is, Insolvency and Trustee Services Australia, its role was limited to determining whether or not it would proceed with the defence and counterclaim, which it declined to do. Therefore his Honour was entitled to proceed without it and to allow the amendments.

Ground 11 reads: "The Learned Trial Judge erred in ruling on the First Defendant's Counterclaim, when he ruled that the First Defendant only had the right to defend the Claim for Possession".

The argument here was that, in response to the respondent's change of tack in adding by leave the claim for possession of Moorundie against Mr Smart, he had added to his counterclaim prayer CC for "unliquidated damages for personal distress, pain and suffering and loss of esteem, and damages for loss of ability to earn" but the trial judge had denied him that, which was grossly unfair when the bank was allowed to amend to try to plug the hole in its case. Mr Smart said that he should have been accorded the same treatment.

It is true that the respondent was granted the relief it sought in its amendment and that Mr Smart was not, but his Honour did consider claim CC of the counterclaim and, indeed, the whole counterclaim because it might have operated as a defence and some or all of the allegations in it were raised as defences to the claims for possession. But his Honour did not make any order on the counterclaim, even an order dismissing it, because, as explained earlier, his Honour considered that it was stayed, discontinued or abandoned.

38 With regard to prayer CC, his Honour recorded that Mr Smart submitted that he was entitled to continue the counterclaim in his own name because it was an action in respect of "personal injury or wrong done" to the bankrupt within s.60(4) of the Bankruptcy Act 1966 (Clth). But his Honour found, "There was however no evidence of personal injury or wrong done to Mr Smart" and went on that he would revoke Mr Smart's leave to amend insofar as he added that paragraph to the prayer for relief, he having reserved that question. That having been done notionally meant, as his Honour went on to say, "that Mr Smart had standing to appear only to resist the claims for possession". In any event, his Honour would have dismissed the counterclaim. Thus, his Honour considered the particular prayer for relief but found no evidence to support it and, accordingly, revoked the leave given subject to reservation of the possibility of revocation.

No argument was addressed to us that there was evidence before his Honour of personal injury or wrong and, accordingly, that ground fails

I would simply add, in case I have not made it clear, that his Honour did need to rule on the counterclaim in its character as a defence and did need to rule on prayer CC because it made a claim that Mr Smart was entitled himself to prosecute.

I did not take ground 12 to be argued independently.

Mr Smart also argued that the respondent had resiled from and thereby repudiated its contracts by desisting from its money claims at the commencement of the trial. That is not within the grounds of appeal but was in fact a proposed ground which was not allowed. I therefore have no need to deal with it, though I may say I consider it misconceived.

In his summing up, Mr Smart asserted that the guarantees were given for past consideration. No ground covers this. In any case, I do not consider the assertion correct.

For the foregoing reasons I would dismiss this appeal

I agree that the appeal should be dismissed for the reasons given by Batt, J.A.

The order of the Court is that the appeal is dismissed.

The order of the Court is that the appeal is dismissed with costs.

[2] 25 Edw I. In the original Charter of John (1215) this clause was numbered 39: Stephenson & Marcham, Sources of English Constitutional History, 121 and Evans & Jack, Sources of English Legal and Constitutional History, 57. It is so cited by Sir William Holdsworth.

[3] Holdsworth, History of English Law (7th ed., 1966 reprint), Vol. 1, 59.

[4] Lectures on Legal History, 2nd edn, 89.

[5] Kingswell v. The Queen [1985] HCA 72; (1985) 159 C.L.R. 264 at 299..

[6] D. Clark, "The Icon of Liberty: The Status and Role of Magna Carta in Australian and New Zealand Law" [2000] MelbULawRw 34; (2000) 24 M.U.L.R. 866 at 882-4.

[7] Holdsworth, op. cit., 63; Windeyer, op. cit., 90. Cf. Clark, op. cit., 884-5.

[10] [1998] 3 V.R. 485 at 486-7 and 497-8.

[17] See s.34 of the Stamps Act.

Acts Application Act 1980

At a glance

Court

Decision date

Before

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Judgment (72 paragraphs)

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Legislation Cited (2)