St George Bank - A Division of Westpac Banking Corporation v Zhang

The facts and circumstances surrounding the plaintiff's claim

Dealings between the defendants and the Bank 5In September 2001 Wei Zhang borrowed $108,800 from the Bank which was secured by first registered mortgage over Lot 44. In September 2002 she borrowed a further $69,800, which was secured by the same mortgage. In August 2003 she borrowed $255,000 which was secured by a first registered mortgage over Lot 43. The last payment on any of these loans was made in December 2008. In early 2009 Wei Zhang defaulted on her loans. The Bank declined her hardship application. She did not rectify the default in the time specified in the notice of default served in April 2010. Accordingly the whole of her debt to the Bank became due and the Bank became entitled to an order for possession, which, as referred to above, was made in December 2012. 6Lydia Zhang was also a customer of the Bank but she repaid her loan some years ago in 2004. When she repaid the loan, the Bank returned to her the original certificate of title of Lot 101 and a discharge of mortgage. It is common ground that the discharge document erroneously identified Wei Zhang's mortgages as having been discharged. Lydia Zhang conceded in the proceedings before me that the registered mortgages granted by Wei Zhang over Lots 43 and 44 have not been discharged and that those portions of Lot 101 that were formerly Lots 43 and 44 remain encumbered by mortgages to the Bank. 7Qining Feng remains a customer of the Bank but her loan is in good order. The Bank has a first registered mortgage over that portion of Lot 101 that was formerly Lot 42.

The arrangement to develop Lot 101 8Lydia Zhang's evidence was that in about 2001 her sister-in-law, Wei Zhang, approached her and asked her to buy Lot 9. Lydia Zhang agreed and borrowed money from the Bank for the purchase. The transfer was dated 20 September 2002. She arranged for an easement to be constructed on her lot to drain water from the lots that had street frontage to Norfolk Street. At that time Lydia Zhang, Wei Zhang and Qining Feng intended to consolidate the land into one folio and obtain a development application. 9Consent to the development was granted by Development Consent No. 02-3369 dated 16 August 2002. A subdivision certificate was issued on 28 July 2003. 10A memorandum dated 21 November 2003 which was addressed to the Bank and signed by Wei Zhang, Lydia Zhang and Qining Feng said: "We, the Registered Owners of the abovementioned lots hereby consent to the consolidation and subdivision of the abovementioned lots into Lots 100 & 101 of an Unregistered Deposited plan (registration and DP number to be provided by NSW LPI). We would request that St George Bank stamp the bank's approval to the copies of plans enclosed." 11The Bank's consent to subdivision or consolidation was required by clause 8(e) of the memorandum of mortgage which was incorporated into Wei Zhang's mortgage. The Bank gave its consent. The deposited plan was approved and the subdivision and consolidation were registered on 14 January 2004. 12Lydia Zhang spent money having the plans prepared, obtaining approval from Blacktown City Council (the Council), applying to the Bank and attending the Land Title Office. Lydia Zhang then arranged for two houses on Wei Zhang's property to be demolished. One of the houses was on what was formerly Lot 44 and the second on what was formerly Lot 43. The house on Qining Feng's property was left standing. 13As part of this process, Lydia Zhang also subdivided Lot 9 and sold off the front of the block that contained a house and had frontage to William Street. The transfer of Lot 100 (formerly part of Lot 9) to Feldean Pty Limited dated 29 March 2004 was registered on 22 April 2004. 14The evidence does not permit me to make findings about how much Lydia Zhang, or indeed Qining Feng or Wei Zhang, spent on the subdivision and consolidation. I accept that Lydia Zhang spent a not insubstantial sum.

The development of Lot 101 15The change in the Lots as a result of the consolidation and subdivision is central to the issues in these proceedings. It appears from Figure 1: Figure 1 16As can be seen from Figure 1, one of the effects of the consolidation and subdivision was to reduce the size of that part of Lot 9 that was owned by Lydia Zhang and to deprive her portion of street frontage. 17Lydia Zhang's evidence was that, but for the Bank's consent, she would neither have subdivided Lot 9 nor incurred the costs associated with selling the sub-divided lot, demolishing the houses or registering Lot 101. 18In about 2005 the holders of Lot 101 decided not to pursue the development. According to Lydia Zhang's evidence before Hall J on 3 September 2013, which was relied upon by the Bank, there was no agreement between the holders of portions of Lot 101 as to how any proceeds of sale of Lot 101 would be split up. Nor was there any agreement as to what rights each would have over each other's land or indeed, how the development would proceed. 19In St George Bank - A Division of Westpac Banking Corporation v Zhang [2013] NSWSC 1418 Hall J held that the rights of co-owners to apply for an order for sale under s 66G of the Conveyancing Act were not available because Wei Zhang, Lydia Zhang and Qining Feng were not co-owners, since there was no unity of possession, each proprietor's rights being confined to that portion of Lot 101 that related to the Lot formerly held, or, in the case of Lydia Zhang, that portion of Lot 9 which had not been sold. They hold their respective interests in severalty, and are not co-owners: Aoun Investments Pty Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1394 at [29]-[30] per Gzell J. Accordingly, the Bank was not entitled to an order under s 66G for sale of the whole of Lot 101.

The Bank's claim and Lydia Zhang's defence 20What the Bank seeks, in substance, is the return of Lots 43 and 44 to separate titles and therefore separate CTs so that they can be sold in the exercise of its power of sale as mortgagee in possession. 21The Bank relies on s 138 of the Real Property Act which provides: Court may direct cancellation of folios and other actions related to folios (1) A court may, in proceedings for the recovery of any land, estate or interest from the person registered as proprietor of the land, make ancillary orders of the kind set out in subsection (3), if the court is of the opinion that the circumstances of the case require any such order to be made. (2) A court may, in proceedings for the possession or production of a certificate of title or in proceedings in which the court makes a determination as to an estate or interest in land, make ancillary orders of the kind set out in subsection (3), if the court is of the opinion that the certificate of title has not been, or is not likely to be, produced by a person for the purposes of the registration of a dealing affecting the land concerned. (3) A court may order the Registrar-General to do one or more of the following: (a) cancel or amend a folio of the Register, (b) cancel, amend or make a recording in a folio of the Register, (c) create a new folio of the Register, (c1) create a new edition of a computer folio, (d) issue a new certificate of title. (3A) If a court makes an order under subsection (3) (c), the Registrar-General may require a person to lodge with the Registrar-General a plan (being, where the Registrar-General so specifies, a plan of survey) of the relevant land, together with such number of copies of the plan, if any, as the Registrar-General may specify. (4) The Registrar-General must give effect to any such order. (5) A court that makes an order under this section may order that a person deliver a certificate of title or other instrument to the Registrar-General for the purpose of giving effect to any such order. (6) An action does not lie against the Registrar-General for recovery of damages sustained through deprivation of land, or any estate or interest in land, because of compliance by the Registrar-General with an order under this section. 22The plaintiff accepted, in my view correctly, that there is no juridical basis on which I could grant its principal relief unless I found that Lydia Zhang had made out her defence of promissory estoppel because s 138 does not confer an independent source of power to adjust proprietary interests: see City of Canada Bay Council v F & D Bonaccorso Pty Ltd [2007] NSWCA 351; 71 NSWLR 424 at [94]-[97] per Mason P, Tobias JA and Young CJ in Eq; Sahab Holdings Pty Ltd v Registrar-General [2011] NSWCA 395 at [98]-[132] per Campbell JA and Tobias AJA, the correctness of which was not disturbed on appeal: Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11; 247 CLR 149. 23Ms Zhang resisted the plaintiff's claim for relief on the basis of a promissory estoppel. She alleged that, in reliance on the plaintiff's consent to the consolidation and subdivision, she sold the part of Lot 9 which had a dwelling on it and which had street access. If the plaintiff were granted the relief it seeks, her land would not only be landlocked but it would be less than the minimum block size for the Council. Its value would be much reduced. 24The Bank submitted in response that, if there was, as it ultimately contended I should find, an estoppel, the "minimum equity" to which Lydia Zhang was entitled could be met in either of the following ways: (1)The Court order a further subdivision that: (a)creates a new lot by enlarging the size of her portion of Lot 101 land from its present size of 307.7 m2 to 647.8m2, the minimum permissible size of an individual lot for the Council, by diminishing the area of former Lots 43 and 44 but provides that the Bank holds the land used to enlarge the new lot as a severalty with her; and (b)adds to Lydia Zhang's portion of Lot 101 a corridor of land 3.5 ms in width through what was formerly Lot 43 which creates a battle-axe block with access to Norfolk Street but provides that the Bank holds the extra land as severalty with her; (Case 1); or (2)The Court order that an easement be granted to her through Lot 43 but that her land remain its present size (Case 2). Case 1 and Case 2 are depicted on the following diagrams: 25The effect of Case 1 is that the Bank would hold a severalty in the land added to Lydia Zhang's portion. Lydia Zhang would retain her severalty as per her current portion. The Bank would then be able to sell the balance of Wei Zhang's land and would retain its severalty interests in the land added to the new lot. 26Jonathan Keen, registered surveyor, was instructed to prepare survey plans for Cases 1 and 2. Case 1 complies with the Blacktown Development Control Plan 2006 Part C (DCP) in that it meets the following requirements: (a)Minimum allotment size for residential land of 450 m2 for regular shaped allotments and 500 m2 for regular shaped battle-axed blocks: clause 2.3 of the DCP; (b)Minimum width of 12 ms: clause 2.4 of the DCP; (c)Minimum width of access corridor of 3.5 ms; (d)All lots can be fully serviced with water, sewer, power and communications; (e)There is an existing easement to drain water that benefits the battle-axe block. 27Case 2 does not comply with the requirements of the DCP but, by reason of the grant of an easement, it would, if implemented, have the effect that Lydia Zhang's property is no longer legally land-locked. 28Mr Keen's evidence was that Case 1 would, subject to the issue of severalty, be approved by Council but that Case 2 would not be. He was unable to say whether it was likely that Council would approve Case 1 because it created a new severalty which, unlike the creation of Lot 101, was not referable to previous CTs. Mr Keen agreed that he had never had occasion to apply to any council to have a severalty approved. 29In respect of Case 1, the Bank submitted that Lydia Zhang ought be liable for the cost of the subdivision. In respect of Case 2, the Bank submitted that Lydia Zhang ought be liable for the cost of the grant of the easement and for its value. 30The Bank submitted that, unless it obtained the relief it sought to have Lots 43 and 44 revert to single certificates of title, its security was, if not worthless, much devalued. It contended that, commercially, the only potential purchasers, were it to exercise its power of sale, were Lydia Zhang or Qining Feng, since no one else would purchase a portion of land that was part of a proposed development that had stalled for a decade. It also submitted that there was a risk that, even if it managed to find a third party to buy the portion of which Wei Zhang was registered proprietor, the Registrar-General would decline to register the transfer in the exercise of the discretion under s 23F of the Conveyancing Act 1919. 31Lydia Zhang's primary submission was that the plaintiff's claim ought be dismissed with costs. In the alternative, Lydia Zhang contended that the Bank was estopped from applying for relief under s 138 of the Real Property Act 1900 by reason of the following: (1)The Bank consented to the consolidation and subdivision. (2)As a result of the Bank's consent: (a)Lot 9 was subdivided and that part of it which had a street frontage to William Street on which an existing dwelling was located was sold, leaving Lydia Zhang with a landlocked block which was smaller than the minimum lot size for the area; (b)the four blocks of land, Lots 42, 43 and 44 and part of Lot 9 were consolidated. (3)Since the subdivision Lydia Zhang has used the portion of Lot 101 that was Lot 43 to gain access to Norfolk Street from her portion of Lot 101 that was Lot 9. (4)Lydia Zhang would suffer detriment if the Bank were permitted to undo that part of the consolidation that affects her since her land would not only be landlocked but also no longer part of a greater area which has the potential for subdivision. 32Lydia Zhang submitted that if any order were to be made by the Court it should be on the basis that the minimum equity to which she was entitled by reason of the estoppel was Case 1 and that she should not be required to pay anything for it. She submitted that this would have the effect of putting her back, in so far as was possible, to the position she was in before the Bank consented to the subdivision as the owner of land that was not land-locked and which met the Council's requirements for a minimum sized lot. 33The Bank submitted in reply that Lydia Zhang's secondary submission ought be rejected because it would confer a substantial windfall on her which was not equitable.

Declarations and orders relating to the Bank's legal rights 34I am not disposed to make a declaration in the terms sought in the Further Amended Statement of Claim which I regard as being insufficiently clear. The reference in prayer 3A to an entitlement to "recover the land" is presumably an attempt, albeit unsuccessful one, to bring the claim for relief within s 138 of the Real Property Act. The Bank already has, as referred to above, an order for possession and therefore does not need to "recover the land". 35Furthermore I am not persuaded that s 23F of the Conveyancing Act does not apply to a transfer by the Bank of Wei Zhang's portion of Lot 101 other than to Lydia Zhang or Qining Feng (which would be exempted from the operation of s 23F by s 23G(f). The evidence of Lydia Zhang before Hall J was so vague as to be antithetical to anything that could amount to an agreement within the meaning of s 23F(2). It follows that, in the unlikely event that the Bank were to enter into a contract for sale of Wei Zhang's portion of Lot 101 to a third party, the purchaser would run the risk that the Registrar-General would not register the transfer: s 23F(2) of the Conveyancing Act. 36The Bank's right to exercise its power of sale under mortgages granted by Wei Zhang was contested by Lydia Zhang until the hearing of the proceedings and has not been conceded by Qining Feng, who did not take an active part in the proceedings. I propose to make a declaration to confirm the Bank's entitlement to exercise its power of sale over Wei Zhang's land. 37The Bank has established that the original CT of Lot 101 was returned, erroneously, to Lydia Zhang. The Bank, as mortgagee of the portion that was formerly Lots 43 and 44, is entitled to have the CT of Lot 101 returned to the Registrar-General. Lydia Zhang told me through her counsel that the original CT is with Wei Zhang and that Lydia Zhang herself has a certified copy. It is not clear in whose possession these documents are. Accordingly, I propose to make orders for delivery up against all three defendants.

Whether there is a basis for equitable relief 38As referred to above, in the somewhat unusual circumstances of the present case, the Bank's principal claim for relief depends on Lydia Zhang establishing promissory estoppel. In other words, its claim depends on the second defendant establishing an equitable defence. The significance of the equitable defence is that, if it were established, it would confer jurisdiction on this Court to adjust the property interests of the parties so as to redress any unconscionability caused by the Bank's conduct. For this reason, the Bank ultimately supported Lydia Zhang's allegation of estoppel and contended that I ought order either Case 1 or 2 on equitable principles, using s 138 of the Real Property Act as the legal foundation for the ancillary orders. 39It is questionable whether, in these circumstances, where Lydia Zhang submitted that the Bank's claim ought simply be dismissed and the Bank conceded that it has no juridical basis for its claim for relief unless the defence is established, it is necessary to deal with her defence at all. 40However, in deference to the parties' submissions, which have addressed whether promissory or any other estoppel has been made out, I shall determine the question although I do not consider that it strictly arises. 41Although Ms Zhang did not confine her case to promissory estoppel, this is the estoppel most relevant to the present case. Brennan J identified the elements of such an equitable estoppel in Waltons Stores (Interstate) Limited v Maher [1988] HCA 7; 164 CLR 387 at 428-429: In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs. 42I am not persuaded that any such estoppel arises against the Bank. When the Bank consented to the subdivision and consolidation it, too, presumably expected that the development of Lot 101 would proceed and that Lot 101 would be held, in due course, by a single owner, or co-owners, such that its rights would be protected by s 66G of the Conveyancing Act, which permits co-owners (including mortgagees) to apply to the Court for an order for sale of co-owned property. 43The creation of severalties is a somewhat anomalous, but interim, step along the way to consolidation of lots. The nature of severalties is addressed in Baalman & Wells Land Titles Office Practice, 5th ed (1998), in the following terms at 205.500: As a result of subdivision of land by proprietors of separate parcels, a folio of the Register may occasionally be created in the names of different proprietors of parts of one lot in a Deposited Plan. These folios are commonly referred to as "dual ownership" or "multiple ownership" folios of the Register. The extent of each proprietor's interest in the land in the current folio of the Register is described by reference to the previous folio of the Register of which he or she was registered as proprietor. Eventually the entirely should pass into single ownership but unless this happens or specific delivery instructions are received the dual ownership certificate of title is file in the Delivery Section until such time as transfers are lodged passing the entirety into single ownership. A transfer of part of the land in a dual ownership folio of the Register to a person who is not the registered proprietor or a transferee of another part of the lot may contravene s 23F of the Conveyancing Act 1919. Transfers of part of the land in these folios will normally only be accepted for the purpose of achieving single ownership of the entirety. 44The Bank could not have envisaged that the development of Lot 101 would remain in limbo for a decade. Had it contemplated that Lot 101 would remain as portions of severalty, thereby depriving the Bank both of its power of sale of the former Lots 43 and 44, and its right to obtain an order under s 66G, the Bank would not have given its consent. The expectations that Lydia Zhang and the Bank engendered in each other at the time the Bank gave its consent have not been fulfilled. 45Furthermore, there is nothing that the Bank has done that has damaged the prospects of the development coming to pass. Indeed, the Bank has done the single thing within its power to facilitate it. Both the Bank and Lydia Zhang have suffered detriment through the non-fulfilment of their expectations: the Bank's security has been compromised and the value of Lydia Zhang's portion of Lot 101 is not readily realisable. 46In my view it would not be unconscionable for the Bank to exercise legal rights available to it to enforce its mortgages over Wei Zhang's property. I do not consider that the Bank's conduct amounts to a departure from any expectation or representation it has engendered. It is therefore not necessary to investigate what equitable relief would be required to make good any such expectation or representation engendered by the Bank: Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483 at [3]-[4] per Allsop P and [54]-[84] per Handley JA; Giumelli v Giumelli [1999] HCA 10; 196 CLR 101at [40]-[48] per Gleeson CJ, McHugh, Gummow and Callinan JJ. 47The power to make an order under s 138 of the Real Property Act is ancillary to the grant of a remedy otherwise available at law or in equity. Since I have found that there is no estoppel that would enable equitable relief to be granted, and since it is common ground that there is no other potential juridical basis for making orders that would have the effect of realigning boundaries or granting easements, the plaintiff's principal claim for relief must fail. In these circumstances, and despite the considerable ingenuity involved in their creation, neither Case 1 nor Case 2 can be implemented except by agreement.

Costs 48I have not heard argument on costs. Although the plaintiff has been unsuccessful in obtaining the principal relief sought, it was necessary to bring the proceedings in order to obtain possession and to establish its rights to enforce the mortgage over Wei Zhang's land against all three defendants, although their portions of Lot 101 are not affected. There may be some merit in ordering each of the Bank and Lydia Zhang to pay their own costs of the proceedings but, as I have not heard from the parties on the proposed order, I shall reserve liberty to apply.

Orders 49I make the following declarations and orders: (1)The plaintiff is, subject to s 23F of the Conveyancing Act 1919, entitled to exercise its power of sale over that portion of Certificate of Title Folio Identifier 101/1063092 that was formerly CT 43/B/18856 and CT 44/B/18856. (2)Order the first defendant to deliver up to the fourth defendant any of the following documents in her possession: (a)Original Certificate of Title Folio Identifier 101/1063092 (edn. 1); (b)Original Discharge of Mortgage for mortgage nos. 8144947, 9002490, AA7470 and AA20446. (3)Order the second defendant to deliver up to the fourth defendant any of the following documents in her possession: (a)Original Certificate of Title Folio Identifier 101/1063092 (edn. 1); (b)Original Discharge of Mortgage for mortgage nos. 8144947, 9002490, AA7470 and AA20446. (4)Order the third defendant to deliver up to the fourth defendant any of the following documents in her possession: (a)Original Certificate of Title Folio Identifier 101/1063092 (edn. 1); (b)Original Discharge of Mortgage for mortgage nos. 8144947, 9002490, AA7470 and AA20446. (5)Subject to the right of either the plaintiff or the second defendant to apply in writing to my Associate for a different order, order each party to pay its or her own costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 October 2013