Solak v Registrar of Titles & Ors [2011] VSCA 279

REAL PROPERTY - Torrens system - Registration of forged mortgage - Indefeasibility of title - Entitlement to indemnity under Transfer of Land Act 1958 s 110 - Circumstances in which Registrar of Titles can challenge enforceability of registered instrument as defence to claim for indemnity under s 110 - Transfer of Land Act 1958 ss 110(1)(b), 110(1)(c), 110(3)(a).

CONSUMER CREDIT - Consumer Credit Code - Whether Consumer Credit Code s 38 makes fraudulent mortgage unenforceable even if mortgage is registered under Transfer of Land Act 1958 - Consumer Credit Code ss 4(1), 5, 6, 8(1), 11, 38(1), 38(4).

1 The appellant, Mr Solak, alleges that in 2006 an impostor fraudulently obtained a loan in Mr Solak's name from the third-named third party, Bank of Western Australia Ltd ('BankWest'). The loan was secured by a registered mortgage over Mr Solak's land. In 2008 Mr Solak commenced a proceeding against BankWest seeking to discharge the mortgage ('first proceeding'). Mr Solak's claim was dismissed on the basis that the mortgage and the loan agreement, although obtained through forgery, were effective due to the indefeasibility provisions of the Transfer of Land Act 1958 ('TLA'). Having failed in its claim against BankWest, Mr Solak then instituted the proceeding below ('second proceeding') against the respondent, the Registrar of Titles ('Registrar'). In the second proceeding Mr Solak was seeking an indemnity under TLA s 110 for the loss he suffered by reason of the registration of the mortgage. The Registrar applied for summary dismissal of the second proceeding on the basis of Anshun estoppel.[1] The learned Trial Judge granted the application and dismissed the second proceeding. Mr Solak now appeals that decision.

2 The circumstances of the alleged forgery are set out in the judgment of Justice Pagone in the first proceeding.[2] The transaction began when a person purporting to be Mr Solak approached Mr Kheir, the principal of a financial intermediary called Kheir Financial Services Pty Ltd ('Kheirs'). Kheirs was a representative of Aussie Home Loans Ltd ('Aussie') and had a contract with Aussie to introduce prospective borrowers to Aussie. Aussie in turn had a contract with BankWest to introduce prospective borrowers to BankWest.[3]

3 The false Mr Solak contacted Mr Kheir by telephone and said that he required a loan to finance some developments in Turkey. The impostor said that he had several unencumbered properties he could offer as security. Mr Kheir agreed to arrange finance.[4]

4 Mr Kheir and Kheirs are based in NSW while the false Mr Solak claimed to be in Melbourne. Accordingly, Mr Kheir did not conduct a 'face to face' interview with the false Mr Solak. Instead, Mr Kheir got the impostor to fax him the signed loan application form and copies of the relevant documents, including Mr Solak's passport, driver licence, and tax returns. It appears that the impostor gained access to the originals of these documents, as well as to the duplicate certificate of title for the mortgaged property, by breaking into Mr Solak's house while Mr Solak was overseas.

5 Mr Kheir attempted to fill out the '100 point' signatory identification form in the loan application but did not do so correctly. He then sent the completed application to BankWest.[5]

6 BankWest did not fully follow its own internal procedures of undertaking personal identification before opening an account. Further, BankWest did not notice that Mr Kheir had failed to correctly compete the '100 point' identification form. Instead, BankWest acted on the application form and, in due course, disbursed the loan amount of $560,000 and registered the mortgage.[6]

7 In the first proceeding Mr Solak was seeking declarations to the effect that the mortgage was void and an order that the registered mortgage be discharged.[7]

8 BankWest denied Mr Solak's allegation of forgery in its defence but, it appears, did not seriously dispute it at trial.[8] Mr Solak's evidence with regards to the forgery was not contradicted.[9] Instead, BankWest relied on the indefeasibility of the registered mortgage under the TLA to resist Mr Solak's claim.[10]

9 Mr Solak accepted that the registered mortgage was indefeasible. However, Mr Solak claimed that the mortgage merely secured moneys owing under the loan agreement, which was not itself incorporated into the registered mortgage ('incorporation point'). Mr Solak's signature on the loan agreement was forged. The loan agreement was therefore void. Accordingly, the registered mortgage, while indefeasible, secured nothing as no moneys were actually owing under the void loan agreement.[11]

10 Pagone J rejected Mr Solak's argument. His Honour held that the loan agreement was incorporated into the registered mortgage and therefore indefeasible and effective.[12] Accordingly, his Honour dismissed the proceeding.

11 The other parties to the first proceeding were Aussie, AHL Investments Pty Ltd ('AHL'), Kheirs and Mr Kheir. Aussie and AHL were joined as third parties by BankWest. BankWest claimed that Aussie breached its contractual obligations to BankWest by sending BankWest the loan application form without having sighted the original identification documents. AHL had assumed the obligations of Aussie pursuant to a novation deed and accordingly was a party liable to BankWest for Aussie's default, if any. BankWest claimed that in the event that Mr Solak succeeds in having the mortgage set aside, BankWest will be entitled to be indemnified by Aussie and AHL.[13]

12 Aussie (and AHL) in turn joined Kheirs and Mr Kheir as fourth parties. Aussie claimed that Kheirs breached its contractual obligations to Aussie by failing to conduct a face-to-face interview with the borrower.[14]

13 As Pagone J dismissed Mr Solak's claim, it was not necessary for his Honour to rule on the issue of liability of third and fourth parties. However, his Honour chose to state his findings 'in case it becomes relevant hereafter'.[15] Pagone J held that the third party claim was apportionable and apportioned liability as follows: 70 per cent to Mr Kheir and Kheirs, 30 per cent to BankWest and 0 per cent to Aussie.[16]

14 In the second proceeding Mr Solak claimed that he was entitled to be indemnified by the Registrar for the loss that he suffered through the registration of the mortgage.[17] Mr Solak relied on TLA ss 110(1)(b) and 110(1)(c) which provide:

(1) Subject to this Act any person sustaining loss or damage (whether by deprivation of land or otherwise) by reason of

(b) any amendment of the Register;

(c) any error omission or misdescription in the Register or the registration of any other person as proprietor;

...

shall be entitled to be indemnified.

15 Mr Solak repeated his allegations of forgery and relied on the judgment in the first proceeding to establish his loss.[18]

16 In its defence, the Registrar initially denied the plaintiff's factual case, ie the allegations of forgery.[19] The Registrar later substituted a non-admission for the denial[20] and this remained the Registrar's position on appeal.[21] In the alternative, the Registrar claimed that if the plaintiff's signature on the mortgage was forged, the mortgage was rendered unenforceable by the Consumer Credit Code ('the Credit Code point').[22]

17 The Registrar also relied on Anshun estoppel. The Registrar claimed that it was unreasonable for Mr Solak not to have joined the Registrar in the first proceeding. Accordingly, Mr Solak was now estopped from bringing the second proceeding against the Registrar.

18 The Registrar joined Kheirs, Mr Kheir and BankWest as third parties. He claimed that in the event that Mr Solak's claim against the Registrar succeeds, the Registrar will be entitled to recover any amount paid to Mr Solak from the third parties under TLA s 109.[23]

19 The Registrar later sought leave to amend its defence to raise the incorporation point. Justice Davies refused leave, holding that 'the Registrar is obliged to accept the decision and orders of Pagone J ... [and] cannot, in this proceeding, re-litigate the matters that Pagone J determined as between' Mr Solak and BankWest.[24]

20 The Registrar then applied for summary dismissal of the appellant's claim on the basis of Anshun estoppel. Davies J granted the application. Her Honour held that:

1. Mr Solak's claim against the Registrar could have been made in the first proceeding.[25]
2. By not joining the Registrar in the first proceeding Mr Solak deprived him of an opportunity to argue the incorporation point.[26]
3. Mr Solak's appeal against the decision in the first proceeding poses a risk of inconsistent judgments if the second proceeding is allowed to continue. Mr Solak's claim in the second proceeding is contingent upon the mortgage being enforceable. If Mr Solak succeeds in the second proceeding and later succeeds in the appeal against the first proceeding, the two judgments will conflict.[27]
4. The Credit Code point is arguable and gives rise to a possibility of inconsistent judgments.[28]
5. If Mr Solak were to succeed against the Registrar and the Registrar were then to succeed against the third parties, there is a risk that liability will be apportioned differently to how it was apportioned by Justice Pagone in the first proceeding.[29]
6. For these reasons, Mr Solak's claim gives rise to a possibility of inconsistent judgments.
7. Joining the Registrar in the first proceeding may have exposed Mr Solak to costs if his primary claim against BankWest succeeded but 'that is a risk of any litigation'.[30]
8. In all the circumstances, it was unreasonable for Mr Solak not to join the Registrar in the first proceeding. Accordingly Mr Solak is Anshun-estopped from bringing his claim.[31]

The decision below is vitiated by an error of fact

21 As I have explained, her Honour attached some weight to the possible consequences of Mr Solak's purported appeal against the decision in the first proceeding. There was in fact no such appeal.

22 It is unclear how this error came about. Mr Solak suggests that her Honour may have been mislead by seeing notices of appeal on the Court file. The notices related to an appeal by Kheirs, Aussie and AHL against costs orders made by Pagone J.[32] In any event, neither party submits that the other was responsible for the error. It appears that the error was never communicated to her Honour.

23 It follows that her Honour's decision is vitiated by an error of fact. However, there is no reason to remit the matter; rather, this Court is able to make its own decision on the Registrar's application for summary dismissal.

The scheme of TLA does not exclude Anshun estoppel

24 Mr Solak submits that the structure of the statutory scheme set up by s 110 precludes Anshun estoppel from arising in a situation such as the present case.[33] Alternatively, he refers to the 'special circumstances' exception to Anshun estoppel,[34] and submits that:[35]

the special position of the Registrar as the nominal defendant for a claim against a beneficial fund ... is a special circumstance which ought to preclude the operation of an Anshun estoppel, if the Anshun estoppel otherwise exists.

25 In support of these submissions, Mr Solak points out that TLA s 110 sets up a beneficial scheme to compensate persons who suffer loss due to the indefeasible character of registration of title under the Torrens system.[36]

26 He also points out that the compensation scheme under s 110 is different from the compensation scheme that existed under the Transfer of Land Act 1928. Section 246 of the 1928 Act gave a person 'deprived of land or of any estate or interest in land' a statutory cause of action for damages against the person who acquired 'title to the estate or interest through ... fraud error or misdescription'. It is only if damages could not be recovered from the private defendant (eg because the defendant was deceased or insolvent) that compensation could be recovered from the Registrar. In contrast, under the current Act a plaintiff can always bring a claim directly against the Registrar and does not need to pursue a private defendant. Mr Solak submits that the new compensation scheme in current Act was intended to be more liberal and more beneficial than the old scheme.[37]

27 Mr Solak also submits that s 110 offers persons seeking compensation from the Registrar a number of choices. One of the possible choices is to bring a claim against the Registrar under s 110 without first challenging the enforceability of the registered interest said to give rise to the person's loss. It would be anomalous, he submits, if a person who does challenge the registered interest and litigate the issue, albeit unsuccessfully, would be worse off in relation to his or her claim under s 110 than a person than who brings a s 110 claim without first challenging the interest.[38]

28 To the extent that Mr Solak's submission suggests that the scheme of s 110 excludes the application of Anshun estoppel altogether, I reject that submission. First, TLA was enacted many decades after the cases of Henderson v Henderson[39] and Reichel v Magrath[40] - the precursors to the modern doctrine of Anshun estoppel - were decided. It can be assumed that the legislature was aware of these decisions when enacting the TLA. Secondly, the purpose of Anshun is not merely to protect defendants. It also seeks to maintain the integrity of and public confidence in the justice system by preventing inconsistent judgments and to conserve scarce court resources by minimising re-litigation of the same issues in multiple proceedings. Thirdly, Anshun considerations can arise in a great variety of circumstances that are difficult to foresee. It follows that the consequences of a blanket exclusion of Anshun estoppel would be difficult to predict.

29 These considerations suggest that an intention to altogether exclude the application of Anshun estoppel cannot be lightly imputed to the legislature. The beneficial nature of the scheme and the choice it offers to persons seeking compensation from the Registrar are insufficient to demonstrate such an intention.

30 In my view, Anshun estoppel may arise in a suitable case to prevent a plaintiff from bringing a claim under s 110. However, for reasons that will follow, certain aspects of the scheme of s 110, in particular, the choice it offers to plaintiffs and the restrictions on recovery of costs that it imposes,[41] are highly relevant to determining whether Anshun estoppel arises in this case.

The Credit Code point is inconsistent with the judgment in the first proceeding

31 Mr Solak submits that the Credit Code point, if successful, would not result in a judgment inconsistent with the judgment in the first proceeding. He submits that the first proceeding 'did not determine effectively the enforceability of the mortgage'. Rather, Mr Solak contends, the first proceeding did no more than determine the question whether 'indefeasibility conferred by registration under the TLA extend[s] to secure obligations arising from a forged instrument where the covenant to pay is not registered or found on the title'.[42]

32 I reject this submission. As the High Court pointed out in Anshun, for two judgments to conflict in the relevant sense '[i]t is enough that they appear to declare rights which are inconsistent in respect of the same transaction'.[43] In the first proceeding Mr Solak was seeking declarations to the effect that the mortgage is void and of no effect and an order that the mortgage be discharged.[44] Pagone J refused to grant that relief and dismissed the proceeding, holding that 'the mortgage, albeit forged, is effective as security'.[45] While Mr Solak did not raise the Credit Code point in the first proceeding, two judgments may conflict even where the inconsistent rights declared in the second judgment derive from a legal basis that was not raised in the first proceeding.[46] The Credit Code point is an argument in support of the proposition that the mortgage is unenforceable. To uphold that argument would be to declare rights 'in respect to the same transaction' that are plainly inconsistent with the outcome of the first proceeding.

33 It follows that if the Credit Code point were to succeed, the resulting judgment would be inconsistent with the judgment in the first proceeding.

34 The Registrar's Credit Code point relies on s 38 of the Consumer Credit Code. The section provides:

38 Form of mortgage

(1) A mortgage must be in the form of a written mortgage document that is signed by the mortgagor.

...

(4) A mortgage is not enforceable unless it complies with this section.

35 The Registrar submits that if the Consumer Credit Code applies to a mortgage and the mortgage is not signed by the mortgagor, s 38 makes the mortgage unenforceable, even if the mortgage is registered under the TLA.[47] The Registrar submits that the Consumer Credit Code applies to the mortgage in this case. He further submits that if, as Mr Solak claims, the mortgage was signed by a rogue rather than by Mr Solak himself, the mortgage does not comply with s 38(1) and is therefore unenforceable.[48]

36 The question of whether the Consumer Credit Code applies to the mortgage in this case is governed by ss 4, 5, 6 and 11. These sections provide as follows:

8 Mortgages to which this Code applies

(1) This Code applies to a mortgage if--

(a) it secures obligations under a credit contract or a related guarantee; and

(b) the mortgagor is a natural person or a strata corporation.

5 Meaning of credit contract

For the purposes of this Code, a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies.

4 Meaning of credit and amount of credit

(1) For the purposes of this Code, credit is provided if under a contract--

(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or

(b) one person (the debtor) incurs a deferred debt to another (the credit provider).

6 Provision of credit to which this Code applies

(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into--

(a) the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and

(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and

(c) a charge is or may be made for providing the credit; and

(d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.

...

(4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.

(5) For the purposes of this section, the predominant purpose for which credit is provided is--

(a) the purpose for which more than half of the credit is intended to be used; or

(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

11 Presumptions relating to application of Code

(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.

(2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).

...

(4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not.

37 The loan documentation in this case did include a declaration of the kind referred to in s 11(2). However, the Registrar submits that the declaration was ineffective because it was signed by the rogue rather than by Mr Solak.[49] In the absence of a s 11(2) declaration, the Registrar submits s 11(1) creates a rebuttable presumption that the Consumer Credit Code applies to the mortgage.

38 There are a number of very serious difficulties with the Registrar's submissions in relation to Credit Code point.

39 First, given the importance and the long standing of the doctrine of indefeasibility, it seems doubtful that the legislature would abrogate infeasibility of fraudulently obtained mortgages without making that intention clear. Provisions protecting the title of those who innocently purchase and register an interest in land benefit the whole community by making land transactions cheaper and more efficient. Acceptance of the Credit Code point would undermine that protection. It is particularly doubtful that indefeasibility would be abrogated by an Act that is obviously designed to deal with mischief of a completely different kind, namely, less than scrupulous conduct by lenders in relation to genuine borrowers.

40 In an attempt to overcome this difficulty, the Registrar submits that s 38 is compatible with the TLA because s 38(4) does not render a registered mortgage void but merely makes it unenforceable.[50] To my mind, this submission does not assist the Registrar because the practical effect of making a registered mortgage unenforceable is to abrogate indefeasibility.

41 The Registrar also submits that s 38 must have been intended to apply to registered mortgages because most mortgages are registered mortgages over land.[51] This submission overlooks the fact that the purpose of s 38 is to introduce a writing requirement for mortgages. Torrens legislation already imposes writing requirements for all registered dealings with land. It is therefore perfectly logical to suppose that s 38 was intended to apply only to unregistered mortgages.

42 Secondly, very strange anomalies would arise if the Consumer Credit Code were to apply to fraudulent credit contracts. The applicability of the code depends on the intended use of the credit. If the credit contract is fraudulent, the question arises: whose intention is to be assessed? It cannot be the intention of the person named as the borrower in the contract since that person, ex hypothesi, did not intend to obtain the credit. The Registrar seemed to imply that the relevant intention is that of the fraudster.[52] Yet it is difficult to see why the intention of a fraudster should be of any consequence in an act designed to protect borrowers. Further, if the relevant intention is that of the fraudster, s 11(1) would operate as an irrebuttable presumption if the fraudster and the credit funds cannot be located.

43 As I have mentioned, the learned Trial Judge found that the Credit Code point is arguable. In oral argument Mr Solak's counsel stated that although Mr Solak 'take[s] issue' with that finding, he does not 'appeal that particular aspect of her Honour's ruling'.[53] Further, Mr Solak's counsel stated that the Credit Code point was a 'triable issue'.[54] In effect, Mr Solak's counsel conceded that, for the purposes of the appeal, this Court should regard the Credit Code point as arguable.

44 In light of the discussion above, I am not convinced that this concession was rightly made. However, as Mr Solak is not appealing her Honour's finding, it would be inappropriate for this Court to review it. I will therefore assume, without deciding, that the Credit Code point is arguable.

45 Once it is assumed that the Credit Code point is arguable, it would be inappropriate for this Court to rule on it. If the Credit Code point is arguable, embarking on a final determination of the point necessarily creates a risk that the point may be upheld. Yet as I have already explained, upholding the Credit Code point would be inconsistent with the judgment in the first proceeding. It follows that if this Court were to finally rule on the point, it would be creating a risk of inconsistent judgments - the very risk that Anshun estoppel is designed to avoid.

46 However, for reasons that will follow, it is useful to express a preliminary view concluding that the Credit Code point, even if not unarguable, is at least tenuous.

The incorporation point and the Credit Code point are not relevant to the loss element of Mr Solak's claim against the Registrar

47 The Registrar's case below proceeded on the assumption that the Registrar would have a complete defence to Mr Solak's claim for compensation if the Registrar could establish, in the second proceeding, that the mortgage is unenforceable. A necessary element of Mr Solak's claim against the Registrar is that he has suffered loss or damage by reason of registration of the mortgage. The Registrar appears to have assumed that by showing that the mortgage is unenforceable, the Registrar could establish that Mr Solak did not suffer any loss.[55] Accordingly, during the hearing of the appeal the Registrar's counsel described the Registrar's case in relation to the incorporation point as follows:[56]

[W]e dispute your basic premise that you have suffered loss and damage because we don't think that the mortgage extends to the home loan agreement...

48 Presumably the Credit Code point was similarly seen as going to Mr Solak's loss or damage.

49 It is true that if the Registrar had been a party to the first proceeding, he could have joined with Mr Solak in challenging the enforceability of the mortgage. If that challenge had succeeded, Mr Solak would have suffered no loss by reason of the registration of the mortgage and his claim against the Registrar would have failed.

50 However, the situation in the second proceeding is very different. The first proceeding has already finally determined the enforceability of the mortgage as between Mr Solak and BankWest. Once the first proceeding was dismissed, Ms Solak could no longer resist the enforcement of the mortgage by BankWest. At that point, Mr Solak has suffered loss. The Registrar cannot undo that loss by showing in a subsequent proceeding that, as between the Registrar and Mr Solak, the mortgage is unenforceable.

51 In my view, it follows that the incorporation point and the Credit Code point are not relevant to the loss element of Mr Solak's claim against the Registrar.

The Credit Code point and the incorporation point could not provide the Registrar with a valid defence

52 What then was the relevance in the second proceeding of the incorporation point and the Credit Code point raised by the Registrar? Although not relevant to loss, they may have been relevant to causation and to disentitling conduct under s 110(3)(a).

53 Let it be supposed that Mr Solak's failure to establish in the first proceeding that the mortgage is unenforceable was due to some defect in the manner in which Mr Solak conducted the proceeding. It is arguable that such defect, if sufficiently serious, could constitute a new intervening act that severs the chain of causation between the registration of the mortgage and Mr Solak's loss.[57] Alternatively, the defect could arguably constitute 'neglect' within the meaning of s 110(3)(a).

(3) No indemnity shall be payable under this Act -

(a) where the claimant his legal practitioner, conveyancer or agent caused or substantially contributed to the loss by fraud neglect or wilful default or derives title (otherwise than under a disposition for valuable consideration which is registered in the Register) from a person who or whose legal practitioner, conveyancer or agent has been guilty of such fraud neglect or wilful default (and the onus shall rest upon the applicant of negativing any such fraud, neglect or wilful default);

55 The possibility that defective conduct of the first proceeding could sever the chain of causation or constitute disqualifying 'neglect' under s 110(3)(a) makes the incorporation point and the Credit Code point relevant in the second proceeding. These points provide the Registrar with a possible basis for an argument that Mr Solak's conduct of the first litigation was defective.

56 In Registrar of Titles v Fairless[58] the Victorian Court of Appeal accepted that neglect within the meaning of s 110(3)(a) 'includes a failure to take reasonable care for one's own interests'.[59] In that case, Phillips JA, with whom Tadgell JA agreed, expressed the view that s 110(3)(a) is concerned with events that make a causal contribution to the registration itself rather than to the loss consequent upon registration.

57 It is unnecessary in this case to re-ventilate whether s 110(3)(a) should be so confined. Nor is it necessary to comment on the distinction between neglect of the claimant that will constitute a new intervening act for the purposes of s 110(1) and neglect that will disqualify the claimant under s 110(3)(a). Without deciding the point, I will assume in the Registrar's favour that a defect in the conduct of the first proceeding could constitute neglect of both kinds. I observe that, subject to an evidentiary burden on the Registrar, Mr Solak carries the legal burden of disproving the neglect under s 110(3)(a).[60]

58 In this case, the Credit Code point and the incorporation point, if successful, would not be capable of substantiating the proposition that Mr Solak was guilty of neglect of either kind. The Credit Code point was tenuous and Mr Solak was entitled, in exercising forensic judgment, not to raise it in the first proceeding.[61] Mr Solak did raise and fully present the incorporation point. The Registrar did not point to any defect in the way in which Mr Solak presented this point or suggest any additional arguments that Mr Solak could have raised to support it.[62] In my view, it follows that any argument that Mr Solak committed neglect of either kind by failing to raise the Credit Code point and by failing to properly present the incorporation point in the first proceeding is doomed to fail.

59 The Registrar accepts that in assessing whether an argument poses a risk of inconsistent judgments the Court can have regard to the strength of the argument.[63] As I say, in this case the neglect argument is doomed to fail, even if the Credit Code point and the incorporation points were to succeed. As the points are not relevant in any other way, it will not be necessary to decide either point in the second proceeding. Accordingly, the points do not pose a risk of inconsistent judgments.

60 As I have already explained, if the Registrar had been a party to the first proceeding, he would have been able to argue that Mr Solak did not suffer any loss because the mortgage is unenforceable. The Registrar would have been able to use the Credit Code point to attempt to establish that proposition. In contrast, in the second proceeding the Credit Code point could only be used to mount a difficult argument about causation or 'neglect' under s 110(3)(a). It follows that Mr Solak's failure to join the Registrar in the first proceeding prejudiced the Registrar's defence. The Registrar lost the opportunity to use the Credit Code point as going to Mr Solak's loss.

61 The Respondent suffered similar prejudice in relation to the incorporation point. As I have mentioned, the learned Trial Judge held that the Registrar could not plead the incorporation point at all. In light of the reasoning above, it seems that the Registrar should have been permitted to rely on the incorporation point as going to causation or neglect. However, neither party appealed her Honour's ruling on this issue. Accordingly, for the purposes of this appeal I will proceed on the basis that the Registrar was deprived of an opportunity to rely on the incorporation point altogether.

62 The Registrar also submits that Mr Solak's failure to join him in the first proceeding denied the Registrar an opportunity to appeal the decision of Pagone J.[64] In his written submissions, Mr Solak contended that the Registrar, being a non-party affected by the decision of Pagone J, could have applied for leave to appeal the decision.[65] Even if that is the case, the Registrar's ability to appeal was still prejudiced because he lost the ability to appeal the decision as of right.

63 In assessing the prejudice suffered by the Registrar it is important to bear in mind that a person in Mr Solak's position may have a valid claim under s 110 even without any judicial determination of the validity of the mortgage. Such a person can resolve his or her dispute with the mortgagee by reaching a private settlement at some point prior to judgment. Indeed, the person can simply form the view that the mortgage is likely to be enforceable and accept the mortgagee's demand for repayment of the amount secured by the mortgage without commencing any proceedings.

64 A person in Mr Solak's position is under no obligation to consult the Registrar when considering a possible settlement. If a settlement is reached, the person can then can rely on that settlement to demonstrate loss in any subsequent claim for compensation from the Registrar.[66] If the settlement was unreasonable, there may be an argument about causation or disqualifying 'neglect' under s 110(3)(a).[67] Aside from this possibility, however, the effect of the settlement would be to deprive the Registrar of any opportunity to make submissions about enforceability of the mortgage.

65 The availability of settlement as a means of resolving a dispute about the enforceability of the mortgage provides important context for assessing the prejudice suffered by the Registrar in this case. Assessed in that context, the prejudice can only be described as modest.

66 As I have already explained, the Credit Code point was tenuous. The incorporation point, while reasonably arguable, was fully argued by Mr Solak in the first proceeding. The Registrar could not point to any defect in the way in which Mr Solak presented that point. Hence, the prejudice to the Registrar from being deprived of an opportunity to argue the incorporation point and the Credit Code point before Pagone J was theoretical rather than real. The prejudice to the Registrar's appeal rights was somewhat more significant. Nevertheless, assessed in the context described, the overall prejudice to the Registrar was modest.

It is not necessary to decide if special principles are applicable in a case where the party asserting Anshun estoppel was not a party to the first proceeding

67 This case is one of the relatively few cases where the party asserting Anshun estoppel in the second proceeding was not a party to the first proceeding. The High Court is yet to consider the principles applicable in this situation. However, in Redowood Pty Ltd v Link Market Services Pty Ltd[68] Hodgson JA of the NSW Court of Appeal (with whom Mason P and Bryson AJA agreed) suggested that a stricter test should be applied:[69]

In cases where the earlier proceedings and the later proceedings are between the same parties, as in Anshun itself, a finding of unreasonableness in not raising a matter in the earlier proceedings would almost inevitably mean that the later proceedings were oppressive and an abuse of process. Where the parties are different, the test of unreasonableness is still relevant; but in my opinion it must either be considered not conclusive, or else must be understood as involving unreasonableness of such a nature that the later proceedings against different parties are an abuse of process.

68 The Court cautioned against applying Anshun estoppel too readily where the party asserting the estoppel was not a party to the first proceeding:[70]

[W]here a plaintiff may have alternative remedies against different parties, to suggest that a plaintiff should generally sue all of them, barring exceptional circumstances, would be to encourage complex and lengthy litigation, and promote the incurring of costs where there is no certainty that a Bullock or Sanderson order would be obtained. ... [P]laintiffs should be permitted reasonable latitude in deciding whether to sue just one defendant, or to join a number of defendants in alternative claims.

69 The English Court of Appeal has expressed a similar sentiment. In Aldi Stores Ltd v WSP Group Plc[71] Thomas LJ stated:[72]

[T]here is a real public interest in allowing parties a measure of freedom to chose whom they sue in a complex commercial matter and not to give encouragement to bringing a single set of proceedings against a wide range of defendants or to complicate proceedings by cross-claims against parties to the proceedings. That freedom can and should be restricted by appropriate case management.

70 All of the Australian cases to which the Court was referred where a defendant who was not a party to the first proceeding was able to successfully rely on Anshun estoppel in the second proceeding involved the estopped plaintiff attempting to assert in the second proceeding some proposition inconsistent with the judgment in the first proceeding.[73] Even if such a collateral attack by the plaintiff is not a necessary precondition for Anshun estoppel, its absence is a significant factor militating against a finding that Anshun estoppel has arisen.[74]

71 It is not necessary in this case to decide whether special principles or a different test applies where the person asserting Anshun was not a party to the first proceeding. It is clear that the test is at least as strict as the test applicable in a case where the parties are the same. Applying that test, I am satisfied that no Anshun estoppel arises in this case.

72 Anshun estoppel will not arise unless Mr Solak's claim against the Registrar was so relevant to the subject matter of the first proceeding that it was unreasonable for Mr Solak not to raise in that proceeding.[75] The question is not whether it would have been reasonable for Mr Solak to have joined the Registrar but whether it was unreasonable for Mr Solak not to do so.[76]

73 Authorities establish that a finding of Anshun estoppel should not be made lightly. 'The invocation of the Anshun principle is a serious step and a power which should not be exercised without a scrupulous examination of all the circumstances. It is to be applied only in the clearest of cases as it ends a litigant's right to have the merits of a claim adjudicated and may result in a serious injustice if applied too readily.'[77]

74 Risk of inconsistent judgments is the most important factor going to the existence of Anshun estoppel. In Gibbs v Kinna,[78] Kenny JA (with whom Ormiston and Phillips JJA agreed) held that:[79]

[I]f any judgment or order which might be made on the cause of action in the subsequent proceeding would conflict with a judgment or order in the earlier proceeding, then it will ordinarily be unreasonable to refrain from raising the cause of action in the first proceeding.

75 Here, for the reasons already elaborated, the Credit Code point and the incorporation point do not need to be decided and therefore do not pose a risk of inconsistent judgments. The other matter the Registrar relies upon as allegedly posing a risk of inconsistent judgments is the apportionment of liability between BankWest, Aussie and Kheirs. The Registrar claims that there is a risk that in the second proceeding liability may be apportioned differently to the way it was apportioned by Pagone J in the first proceeding. I consider that this matter is of minimal significance for three reasons.

76 First, the apportionment opinion in the first proceeding was strictly obiter. Secondly, the causes of action on which liability is to be apportioned in the second proceeding are different from the cause of action in the first proceeding. Thirdly, an inconsistent apportionment is more akin to an inconsistent finding of fact than a declaration of an inconsistent right in respect of the same transaction. The possibility of inconsistent factual findings does not provide a basis for Anshun estoppel.[80]

77 In Gibbs v Kinna,[81] Kenny JA was prepared to assume (without deciding) that Anshun estoppel can arise even where there is no risk of inconsistent judgments. Her Honour held that:

[I]n cases where there is no risk of inconsistent judgments, to decide whether or not it was unreasonable for a plaintiff not to litigate closely related issues in the one proceeding requires consideration of all the relevant facts, including the character of the previous proceeding, the scope of any pleadings, the length and complexity of any trial, any real or reasonably perceived difficulties in raising the relevant claim earlier, and any other explanation for the failure to raise the claim previously.

78 Her Honour then referred to the Anshun case where the majority stated that:[82]

[T]here are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.

79 In the same case, Ormiston JA held that the purported unreasonableness of not joining the defendant in the first proceeding should be assessed by concentrating on the 'practicalities' of the situation.[83]

80 In this case, leaving aside the issue of inconsistent judgments discussed above, a number of matters are relevant to the question whether it was unreasonable for Mr Solak not to join the Registrar in the first proceeding.

81 First, the failure to join the Registrar prejudiced his defence. However, for reasons given earlier, this prejudice was only modest. Secondly, joining the Registrar would have avoided a multiplicity of proceedings if, as it has transpired, the claim against BankWest failed. However, it would have also increased the complexity and duration of the first proceeding. Thirdly, joining the Registrar would have had significant costs repercussions for Mr Solak. The claim against BankWest and the claim against the Registrar could not both have succeeded. If the former succeeded, the latter would have had to fail. Hence, subject to a possibility of a Bullock or Sanderson order, Mr Solak would have been liable for costs of another party irrespective of the outcome of the proceeding.

82 Balancing these considerations, I consider that, far from being a clear case, the arguments in support of Anshun estoppel are unpersuasive. Accordingly, I find that Anshun estoppel is not made out.

83 As the sole basis for the Registrar's Order 23 application has fallen away, no question of discretion under that order arises.

84 I would allow the appeal, set aside the order of the learned trial judge and substitute an order that the Registrar's application be dismissed.

The Registrar did not comply with its obligations to act as a model litigant

85 As has been observed many times, the State of Victoria is 'a model litigant'.[84] It 'must maintain a standard of fair play and must act reasonably, fairly and in accordance with good conscience'.[85] As the State's own Model Litigant Guidelines[86] recognise, the model litigant obligations extend to the state's agencies,[87] such as the Registrar of Titles. The Model Litigant Guidelines explain that:

1. In essence, being a model litigant requires that the State and its agencies, as parties to litigation, act with complete propriety, fairly and in accordance with the highest professional standards. ...
2. The obligation to act as a model litigant may require more than merely acting honestly and in accordance with the law and court rules. It also goes beyond the requirement for lawyers to act in accordance with their ethical obligations.
3. The obligation does not prevent the State and its agencies from acting firmly and properly to protect their interests. It does not therefore preclude all legitimate steps being taken to pursue claims by the State and its agencies and testing or defending claims against them. ...

86 In my view, the Registrar's conduct in the second proceeding and in this appeal fell short of these high standards. As I have explained, the Credit Code point was so tenuous that this alone suggests that the Registrar should not have attempted to rely on it.

87 However, what makes the Registrar's reliance on the Credit Code point even more unacceptable is the fact that, if successful, the Credit Code point would significantly undermine indefeasibility of registered mortgages. It would cut across the policy of the TLA. It would increase the risk to lenders, who may pass on the cost to borrowers.

88 It is puzzling that the government agency entrusted with administering the Torrens system would advance the Credit Code point. Furthermore, the Registrar appears to have forgotten that he is administering a beneficial fund. The purpose of the fund is not to accumulate money but to provide compensation to persons who are deprived of an interest in land by the operation of the indefeasibility provisions. The Registrar's primary role is to ensure that persons who are entitled to compensation receive it. The responsibility to protect the fund from unmeritorious claims is not paramount. The Registrar 'has no legitimate private interest of the kind which often arises in civil litigation. [He] acts, and acts only, in the public interest'.[88]

89 Finally, this case illustrates what appears to be a defect in the current scheme of s 110. The section places a plaintiff who wishes to challenge the enforceability of a registered interest in an unhappy dilemma. If the plaintiff joins the Registrar in the proceeding challenging the enforceability of the interest, he or she will suffer the costs implications described above. If the plaintiff chooses not to join the Registrar, he or she runs the risk that if the registered interest is found to be enforceable in the first proceeding, Anshun estoppel may, in some circumstances, prevent the plaintiff from bringing a subsequent proceeding against the Registrar.

90 Further, the current scheme also disadvantages the Registrar where, as in this case, Anshun estoppel does not arise. The plaintiff's decision not to join the Registrar in the first proceeding may deprive the Registrar of an opportunity to raise additional arguments challenging the enforceability of the registered interest.

91 The Real Property Act 1900 (NSW), in its present form, appears to offer a better model for a Torrens compensation scheme. One of the features of the NSW scheme is that it grants the Registrar a right to intervene in proceedings if the Registrar is 'of the opinion that the court's decision in the proceedings could result in compensation becoming payable' out of the assurance fund.[89] That aspect of the scheme could be further improved by requiring that the Registrar be given notice of the relevant proceedings.

93 I have had the advantage of reading the draft reasons for judgment of the Chief Justice. I agree that the appeal should be allowed. I add the following.

94 First, the Chief Justice has stopped short of concluding that the Credit Code point could not succeed, because Mr Solak's counsel acknowledged that the point was at least arguable. The Chief Justice has concluded that, if not unarguable, the Credit Code point was tenuous. For my part, I would take the next step. The issue was fully argued. In my opinion, the Credit Code point is wholly without merit. In addition to what the Chief Justice has written on the subject, the Registrar has no factual basis to claim that the credit provided by BankWest to the impostor was provided wholly or predominantly for personal, domestic or household purposes. Indeed, the only evidence is to the contrary. The impostor signed a declaration that the credit was to be applied wholly or predominantly for business or investment purposes. Accordingly, the Credit Code point was incapable of giving rise to a risk of conflicting judgments.

95 Second, the issue which has troubled me most is the multiplicity of proceedings resulting from the second proceeding. For reasons which were not explained to this Court, the incorporation point was not tried as a separate question under r 47.04.[90] Given that this was a point of law argued on agreed facts, and the proceeding was managed in the Commercial Court, it was surprising and regrettable that this did not occur. The lengthy trial of the apportionment issues raised by third and fourth party claims in the first proceeding could thus have been avoided; as could the inconvenience, time and expense of the appeal concerning the costs consequences of those aspects of the first proceeding.

96 In any event, the position has been reached where similar apportionment issues between BankWest, Kheirs and Mr Kheir must be determined in the second proceeding. That is an unfortunate result. However, I do not accept that these possible consequences made the failure to join the Registrar as a defendant in the first proceeding unreasonable on the facts of this particular case. BankWest, and not Mr Solak, joined the third parties. They in turn joined the fourth parties, Kheirs and Mr Kheir. Mr Solak did not join any of these subsequent parties as defendants. Further, the joinder of the Registrar would have increased the costs of the first proceeding and exposed Mr Solak to the risk of an order that he pay the Registrar's costs if he succeeded against BankWest.

97 Third, I accept that the Act requires amendment to avoid or limit disputes of this kind in the future. A notice requirement would assist, so that the Registrar can choose whether or not to intervene in relevant proceedings. In the absence of such notice, a claimant could be barred from commencing proceedings against the Registrar except with leave of the Court.

[1] See Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589.

[2] Solak v Bank of Western Australia Ltd [2009] VSC 82.

[8] Defence (28 April 2008), [5], [8], [10].

[9] Solak v Bank of Western Australia Ltd [2009] VSC 82, [25]; Transcript 84.

[10] Solak v Bank of Western Australia Ltd [2009] VSC 82, [2].

[12] Solak v Bank of Western Australia Ltd [2009] VSC 82, [16].

[17] Amended Statement of Claim (16 February 2010).

[19] Amended Defence (21 August 2009) [6]-[7].

[20] Further Amended Defence (5 February 2010) [6]-[7].

[21] Outline of Submissions on Behalf of the Respondent (16 November 2010) [4]. The Registrar's non-admission on this issue means that the Registrar cannot advance a positive case at trial that there was no forgery as alleged by Mr Solak. But the Registrar's pleading would require Mr Solak to formally prove the forgery at any trial of the second proceeding. At the trial of the first proceeding Mr Solak gave unchallenged evidence that the forgery occurred.

[22] Amended Defence (21 August 2009) [11].

[23] Defendant's Amended Statement of Claim (21 August 2009).

[24] Solak v Registrar of Titles [2009] VSC 614, [1].

[25] Solak v Registrar of Titles (No 2) [2010] VSC 146, [13]-[14].

[34] See, eg, Wong v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 242; (2004) 146 FCR 10.

[39] [1843] EngR 917; [1843-60] All ER Rep 378; (1843) 3 Hare 100; (1843) 67 ER 313.

[40] (1889) 14 App Cas 665.

[42] Outline of Submissions on Behalf of the Appellant (25 October 2010) 2.

[43] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 604 (Gibbs CJ, Mason and Aickin JJ).

[44] Solak v Bank of Western Australia Ltd [2009] VSC 82, [2].

[45] Solak v Bank of Western Australia Ltd [2009] VSC 82, [16].

[46] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 603-604 (Gibbs CJ, Mason and Aickin JJ).

[49] Transcript 89-90. Consumer Credit Regulation 1995 (Qld) s 10(3) provides that the declaration must contain 'the signature of each person making the declaration'.

[57] Cf Kirkland v Quinross Pty Ltd [2008] NSWSC 286, [70]-[71], holding that the corresponding provision of the NSW act import the common law test of causation.

[58] [1997] 1 VR 404.

[59] Ibid, 418 (Phillips JA, Tadgell JA agreeing); see also 426 (Callaway JA).

[60] Cf ibid, 416 (Phillips JA, Tadgell JA agreeing).

[61] Cf The Victorian Bar Inc, Practice Rules (effective 22 September 2009) rr 16, 17; Civil Procedure Act 2010 pt 2.3.

[63] Transcript 78. See also Redowood Pty Ltd v Link Market Services Pty Ltd [2007] NSWCA 286, [49] (Hodgson JA, Mason P and Bryson AJA agreeing).

[65] Outline of Submissions on Behalf of the Appellant (25 October 2010) 4. Cf Transcript 55-56.

[66] Cf Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, [3] (Brennan CJ), [23] (McHugh J), [121]-[122] (Hayne J).

[69] Ibid, [45] (Hodgson JA, Mason P and Bryson AJA agreeing).

[70] Ibid, [50] (Hodgson JA, Mason P and Bryson AJA agreeing).

[71] [2007] EWCA Civ 1260; [2008] 1 WLR 748.

[73] Rippon v Chilcotin Pty Ltd [2001] NSWCA 142; (2001) 53 NSWLR 198; Haines v Australian Broadcasting Corporation [1995] NSWSC 136; (1995) 43 NSWLR 404;

[74] Cf Johnson v Wood & Co [2002] 2 AC 1, 31.

[75] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 602 (Gibbs CJ, Mason and Aickin JJ).

[76] Gibbs v Kinna [1998] VSCA 52; [1999] 2 VR 19, [1] (Ormiston JA); Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2008] FCA 1027, [7].

[77] Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2008] FCA 1027, [5]. See also Gibbs v Kinna [1998] VSCA 52; [1999] 2 VR 19, [33] (Kenny JA, Ormiston and Phillips JJA agreeing).

[78] [1998] VSCA 52; [1999] 2 VR 19.

[80] Ibid, [27] (Kenny JA, Ormiston and Phillips JJA agreeing).

[81] [1998] VSCA 52; [1999] 2 VR 19.

[82] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 603 (Gibbs CJ, Mason and Aickin JJ).

[83] Gibbs v Kinna [1998] VSCA 52; [1999] 2 VR 19, [1]. See also Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2008] FCA 1027, [5].

[84] Findlay v State of Victoria [2008] VSCA 255, [11]. See also Morgan v State of Victoria [2008] VSCA 267; (2008) 22 VR 237, [157]; Melbourne Steamship Co Ltd v Moorehead [1912] HCA 69; (1912) 15 CLR 333, 342 (Griffith CJ).

[85] Findlay v State of Victoria [2008] VSCA 255, [11].

[86] Department of Justice, Model Litigant Guidelines (March 2011).

[88] Morley v ASIC [2010] NSWCA 331, [716].

[89] Real Property Act 1900 (NSW) s 126(1).

[90] Supreme Court (General Civil Procedure) Rules 2005.