Wright Enterprises P/L v Port Ballidu P/L [2008] QSC 78

Judgment (58 paragraphs)

[1]

[1] The applicant seeks summary judgment under r 292 of the Uniform Civil Procedure Rules in an action for recovery of possession of land that is mortgaged to it.

[2]

[2] The applicant has a registered bill of mortgage over the defendant's land at 17 Manning Street, South Brisbane. The mortgage was created to secure a loan agreement pursuant to which it is alleged the applicant lent the sum of $445,000 for two months with interest at six per cent a month or, in the absence of any default four per cent a month, to the respondent, Trevor James O'Rourke and Mary Denise O'Rourke.

[3]

[3] Assuming, for the moment, the validity of the loan agreement and the enforceability of the mortgage, there is no dispute that the defendant is in default of its obligations under the loan agreement.

[4]

[4] The applicant's case is a simple one: the respondent is in default and it is entitled to exercise its rights under the mortgage.

[5]

[5] The respondent argues that it can successfully defend the claim for possession on the fraud exception to indefeasibility under s 184(3)(b) of the Land Title Act 1994 (Qld) ("LTA").

[6]

[6] June 1988: The respondent was incorporated and Trevor O'Rourke was appointed a director.

[7]

November 1997: A general Power of Attorney from the respondent appointing Trevor O'Rourke as an attorney was executed by the respondent. O'Rourke was one of the signatories.

[8]

February 1988: The respondent purchased the commercial property at 17 Manning Street, South Brisbane.

[9]

August 2001: Paul Burns and Rory Burns were appointed as directors. Both of them reside in the United Kingdom.

[10]

About July 2006: Rory Burns says O'Rourke spoke to him by telephone to discuss a proposal to access equity in the company. Burns says that he told O'Rourke that the respondent was not willing to lend him the sum of approximately $300,000 and that he could try to raise the money against his (O'Rourke's) shareholding in the respondent.

[11]

28 July 2006: A loan agreement in which the applicant was the lender and the respondent, Trevor James O'Rourke and Mary Denise O'Rourke were the borrowers, was executed. It was executed on behalf of the respondent by O'Rourke. On the same day a mortgage over the Manning Street property was executed by O'Rourke for the respondent.

[12]

31 July 2006: The Power of Attorney executed in November 1997 was registered.

[13]

1 August 2006: The mortgage was executed on behalf of the applicant and lodged for registration.

[14]

[7] It is clear, on the material, that after O'Rourke signed the mortgage document on behalf of the respondent, but before it was lodged for registration, some additional words were inserted underneath O'Rourke's signature. The effect of their insertion was that the note under his signature read:

[15]

"By Trevor James O'Rourke - Director its duly constituted attorney under Power of Attorney No 709812208."

[16]

Prior to that alteration only the words "Trevor James O'Rourke - Director" appeared in the relevant signature space on the document.

[17]

[8] It follows that the execution of the mortgage was not in accordance with s 46(3) of the Property Law Act 1974 (Qld).[1]

[18]

[10] Rory Burns deposed to the fact that neither he nor Paul Burns had any knowledge that O'Rourke had entered into the loan agreement or mortgage and that O'Rourke was not authorised to either lend or borrow money on behalf of the respondent. The applicant exhibited to an affidavit a copy of what purports to be an email from Rory Burns to O'Rourke on 27 July 2006. The body of that email reads:

[19]

I refer to our conversations in respect of raising, for a maximum period of 6 weeks, a temporary facility of some $300,000 to pay an urgent Rugby World Cup liability.

[20]

As I explained to you, I discussed this with Paul and he is firmly of the view that raising money against the building for the business is not a good plan in the absence of implementation of the changes to the business as discussed and agreed during our last visit. You and I have agreed to discuss the business plan on Monday.

[21]

In our conversation, you emphasised your confidence in the progress of the sale of the RWC product and that any facility would be purely temporary and that you are prepared to put your interests on the table. Accordingly, I agree that the building may be accessed for a limited 6 week period, on the above conditions, to raise the money referred to and that any such facility will be repaid at the end of that period. Please keep me advised of the progress of the repayment and we will talk at the start of next week in any event.

[22]

[11] Mr Peden, for the applicant, was given limited leave to cross-examine Mr Burns on his affidavit. In his affidavit Burns refers to the discussion he had with O'Rourke in early July 2006. He says that he told O'Rourke that the company was not willing to lend him the money and that he could not use the company's property as security to raise those funds. When questioned on the email he said that he had no recollection of it and that he did not accept that it was likely that he sent it. This was a curious response, but for the purposes of this application, I do not think that much can be made of it.

[23]

Formalities for valid execution of the mortgage

[24]

[12] Section 161 of the LTA provides, so far as is relevant:

[25]

"(1) For a corporation, an instrument is validly executed if--

[26]

(b) the instrument is sealed with the corporation's seal in accordance with the Property Law Act 1974

[27]

, section 46."

[28]

(2) For an individual, an instrument is validly executed if--

[29]

(b) the execution is witnessed by a person mentioned in schedule 1.

[30]

(3) However, the registrar may, in exceptional circumstances, register an instrument executed by an individual even though the execution was not witnessed or was not witnessed by a person mentioned in schedule 1.

[31]

(3A) If an instrument is executed by a lawyer authorised by a transferee or a person in whose favour an interest is created, the execution need not be witnessed.

[32]

(5) This section does not apply to a plan of survey."

[33]

[13] Section 127 of the Corporations Act 2001 (Cth) makes provision for the manner in which a company may execute a document without a company seal. It provides:

[34]

"Execution of documents (including deeds) by the company itself

[35]

may execute a document without using a common seal if the document is signed by:

[36]

executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings

[37]

with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

[38]

executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings

[39]

if the document is expressed to be executed as a deed

[40]

and is executed in accordance with subsection (1) or (2).

[41]

(4) This section does not limit the ways in which a company

[42]

[14] Section 128 of the Corporations Act provides that persons dealing with companies are entitled to make certain assumptions as set out in s 129. One of the assumptions is that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1).[2] That assumption was not open to the applicant as the mortgage was executed by one director only.

[43]

[15] Section 127(4) of the Corporations Act was considered by Young CJ in Eq in Prime Constructions Pty Ltd v Westbridge Constructions Pty Ltd [3] in which his Honour said that s 127(4) "makes it clear that the section does not limit the ways in which a company may execute a document, including a deed. It is not particularly clear what this covers. However, it would seem that it covers the common law method of executing a deed, or the method of executing a deed that is binding on the company, which is prescribed by the company's constitution."

[44]

The respondent's constitution was not in evidence. There was nothing else to suggest that the manner of execution by O'Rourke was binding on the respondent or that the applicant was entitled to assume that it was binding.

[45]

The applicant submitted that the alterations to include reference to the power of Attorney were permissible pursuant to an "Authority to Complete". That document was signed by O'Rourke for the respondent but there is no reference to doing so pursuant to a Power of Attorney. The relevant clauses of that authority were:

[46]

"1. Authorise you to complete the security documents herein which have been executed by me by inserting therein the appropriate dates of payment of the instalments of principal and/or interest and all or any other appropriate dates and details which may remain to be inserted or completed in such documents on settlement of this advance.

[47]

Authorise you to amend such documents in any manner which may be necessary to complete them and to give effect to the agreed terms and conditions of this advance.

[48]

This is not a case of "filling in the blanks" whereby a mortgagor can insert settlement figures or payment dates which are consistent with the agreement reached between the parties.[4] As with the execution of the mortgage, the execution of this document was inadequate and insufficient to confer the necessary authority upon the mortgagor to make any changes to the document. Further, the words used in the authority do not extend to alterations which purport to change the manner in which a party has executed the document or to alter the status of the party after the party has executed the document.

[49]

[18] The fraud exception to indefeasibility appears in s 184(3) of the LTA. It provides:

[50]

"(3) However, subsections (1) and (2) do not apply--

[51]

(a) to an interest mentioned in section 185; or

[52]

(b) if there has been fraud by the registered proprietor, whether or not there has been fraud by a person from or through whom the registered proprietor has derived the registered interest."

[53]

[19] The respondent contends that the insertion of the reference to a power of attorney and then its presentation for lodgement amounts to a false representation of regular execution to the Registrar of Titles and therefore is fraud for the purposes of s 184(3).

[54]

[20] In Beatty v Australia & New Zealand Banking Group Limited[5] the attestation of the mortgagor's signature was found to be a matter material to the registration of a mortgage because the relevant provision of the Victorian legislation required the instrument of mortgage to be in the approved form and required the attestation of the witness to the signature of the mortgagor. The instrument was also altered after execution by insertion of the words "nee Susan Elizabeth Beatty" under a signature.

[55]

Justice Mandie regarded both elements as constituting fraud within the meaning of the Victorian legislation as the mortgagee had falsely represented to the Registrar of Titles that it had an honest belief that the mortgagor had executed the instrument in the presence of the bank officer and that the mortgage was executed by the mortgagors in its altered state. The principles enunciated in that case are consistent with other authorities which have dealt with similar circumstances.[6] Justice Mandie said:[7]

[56]

"In my view, it is a necessary inference that whoever made the alteration could not have been unaware that it would be falsely conveyed to the registrar by the submission of the mortgage that the document had been executed in its altered state by the mortgagors. In my opinion, this was 'fraud' by the bank within the meaning of the relevant sections."

[57]

[22] The principles to be applied with respect to an application of this sort are well known.[8] The circumstances of the alteration of the mortgage document, without any explanation being proffered for that alteration, and the consequent effect that has on the indefeasibility which would otherwise be allowed to the mortgage leads me to conclude that this is not a case in which a finding that there is no real prospect of successfully defending all or part of the plaintiff's claim can be made.

[58]

[1] "46(3) Where a person is authorised under a power of attorney or under any statutory or other power to convey any interest in property in the name or on behalf of a corporation sole or aggregate, the person may as attorney execute the conveyance by signing the person's name in such a way as to show that the person does so as attorney of the corporation in the presence of at least 1 witness, and in the case of a deed by executing the same under section 45, and such execution shall take effect and be valid in like manner as if the corporation had executed the conveyance."
[2] Section 129(5) Corporations Act
[3] [2004] NSWSC 861; (2004) 22 ACLC 1390
[4] See, for example, Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1976) 17 SASR 259
[5] [1995] VicRp 56; [1995] 2 VR 292
[6] National Commercial Banking Corporation of Australia Ltd v Hedley (1984) 3 BPR 9477; Westpac Banking Corporation v Sansom (1994) 6 BPR 13790; and Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40;

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Judgment (58 paragraphs)

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