IN THE FEDERAL COURT OF AUSTRALIA No. 68 of 1977 VICTORIA DISTRICT REGISTRY o GENERAL DIVISION { JUDGMENT No, [28 7 Re YIANGOS ARCADIOU Bankrupt GUARDIAN INVESTMENTS PROPRIETARY LIMITED Applicant Ex parte and ALEX NEVILLE BIRD the Trustee of the property of Yiangos Arcadiou a bankrupt Respondent. REASONS FOR JUDGMENT C. A. Sweeney, J 22 May, 1979. The applicant, Guardian Investments Pty. Ltd., seeks the following declarations and orders :- "1, A declaration that the applicant is a mortgagee of the land described in Certificate of Title Volume 8702 Folio 229 in the Register Book of the Office of Titles at Melbourne and known as Lot 417 San Remo Drive Avondale Heights and having been the property of the bankrupt until his bankruptcy and that the applicant holds such mortgage as security for a debt of $82,322.82 due by the bankrupt to the applicant or as security for such other sum as may be found to be due to the applicant pursuant to such mortgage. A declaration that the applicant 18 a mortgagee of the land described in Certificate of Title Volume 6055 Folio 902 in the said Register Book and known as 127 Anderson Road Sunshine and having been the property of the bankrupt until his bankruptcy and that the applicant holds such mortgage as security for a debt of $147,425.16 due by the bankrupt to the applicant or as security for such other sum as may be found to be due to the applicant pursuant to such mortgage. f2 5A 5B A declaration that the applicant is a mortgagee of the land described in Certificate of Title Volume 9151 Folio 993 and in Certificate of Title Volume 9151 Folio 999 in the said Register Book and known as 1 and 2 Hendry Street Sunshine and having been the property of the bankrupt until his bankruptcy and that the applicant holds such mortgage as security for a debt of $21,152.69 due by the bankrupt to the applicant or as security for such other sum as may be found to be due to the applicant pursuant to such mortgage. A declaration that the applicant at all material times prior to the sale by the respondent of the land described in Certificate of Title Volume 8526 Folio 718 in the said Register Book and known as Lot 111 Sheppards Lane Lilydale and having been the property of the bankrupt until his bankruptcy was a mortgagee of the said land and that the applicant at all material times prior to the said sale held such mortgage as security for a debt of $25,609.31 due by the bankrupt to the applicant or as security for such other sum as may be found to have been due to the applicant pursuant to such mortgage prior to the said sale. A declaration that the applicant is entitled to have paid to it the proceeds of sale of the said land described in Certificate of Title Volume 8526 Folio 718 and known as Lot 111 Sheppards Lane Lilydale and interest thereon now held by the respondent in an interest bearing term deposit with the Commercial Bank of Australia Limited. A declaration that the Applicant at all material times prior to the sale by the respondent of the land described in Certificate of Title Volume 8655 Folio 524 in the said Register Book and known as Lot 14 Ballan Road Werribee and having been the property of the bankrupt until his bankruptcy was a mortgagee of the said land and that the applicant at all material times prior to the said sale held such mortgage as security for a debt of $17,928.00 due by the bankrupt to the applicant or as security for such other sum as may be found to have been due to the applicant pursuant to such mortgage prior to the said sale. A declaration that the applicant is entitled to have paid to it the proceeds of sale of the said land described in Certificate of Title Volume 8655 Folio 524 and known as Lot 14 Ballan Road Werribee and interest thereon now held by the respondent. 6. A declaration as to the amounts of the indebtedness of the bankrupt to the applicant which is secured by the mortgages referred to in paragraphs 1, 2 and 3 hereof and a declaration that such amounts are charged on the land referred to in paragraphs 1, 2 and 3 hereof. 7. Such further or other declarations or orders as to the Court seems fit." The application was served on Alex Neville Bird, the trustee of the property of Yiangos Arcadiou, a bankrupt, whose own petition was accepted by the Registrar in Bankruptcy on 17 March 1977. On 13 June 1978, when the application was first listed for mention, the solicitor for the trustee and counsel for the applicant agreed that there should be a period of eight weeks for the filing by the trustee of an affadavit by the bankrupt, who was being independently advised by Messrs. Sotos, Vertes & Co., solicitors, who were aware of the proceedings. After giving agreed directions in respect of interlocutory matters, including mutual discovery, the application was fixed for hearing in September, 1978. On 18 September, Mr. Vertes made application that the bankrupt be granted leave to intervene in the application and for an adjournment of the hearing. The solicitor for the trustee supported the grant of leave but opposed the adjournment. Leave to intervene was granted, and directions were given for the filing of further affidavits, including a further affidavit of documents on behalf of the applicant. The further hearing of the application was adjourned to 23 October for the purpose of taking the evidence of James Sherar, manager of the branch of the A.N.Z, Bank at which the bankrupt had his account, and to 10 November for the general hearing. On 23 October Mr. P. A. Wilson and Mr. A. D. Vassie of Counsel appeared for the applicant, as they continued to do throughout the further hearings. Mr. F. G. Beaumont of Counsel appeared for the trustee and Mr. T. N. Vertes, solicitor, appeared for the bankrupt. Leave was granted to amend the application by inserting paragraphs 5A and 5B, which have been set out above. Mr. Sherar was called on behalf of the applicant, and commenced to give evidence. After a short time 1t became clear that 1t would be preferable to have his evidence on affidavit. The hearing was adjourned to permit this to be done, and certain other interlocutory directions were given. The case was adjourned to 5 February, 1979, as was the further hearing of an application by the bankrupt, dated 13 October, 1978, seeking extension of the time earlier fixed in which the bankrupt was to file and serve further material and other interlocutory orders. When the hearing commenced on 5 February 1979, Mr. Vertes announced that he sought leaye to withdraw this application by his client, which leave was granted. Mr. Vertes made 1t plain that his client did not seek to remain as a party to the application. The bankrupt has taken no further part an the hearing other than as a witness. The respondent had given notice of his intention to oppose the making of the orders sought by the applicant on the following grounds :- "1. That no agreement was entered into by the bankrupt that the applicant be granted an equitable mortgage over the properties referred to in the application or any of then. 2. That no Titles of the properties referred to in the said application came into possession of the applicant, or alternatively no such Titles came into possession of the applicant at the time of the advancement of any sums of money with respect to which a claim is being made by the applicant as having been secured by equitable mortgages. 3. That alternatively to paragraph 2, if any Title of the said property came into possession of the applicant which is not admitted, but specifically denied, none came into its possession at the request of or at the direction of the bankrupt. 2/5 5. 4. That further or alternatively to paragraphs 1, 2 and 3 the Respondent says that if any agreement to grant equitable mortgages to the applicant was entered into by the bankrupt and the applicant (which 1s not admitted, but expressly denied,) then no note or memorandum in writing of such an Agreement within the meaning of Section 126 of the Instruments Act or at all was signed by the bankrupt, and consequently the applicant's rights (1f any) are rendered unenforcible by the said Section. 5. That the bankrupt did not authorise anyone to deposit the Title Deeds to the properties, the subject matter of the application with the applicant." Noel Geoffrey Tregent gave evidence that at all material times he was a member of the firm of Dudley Tregent & Co., solicitors, and a director of the applicant, which carried on the business of lending out monies at interest. He described the company's principal object as being to assist clients of the firm who had small amounts of money to invest and to assist other clients by lending to them. Between 1968 and 1975 Dudley Tregent & Co. acted generally as solicitors for the bankrupt, who carried on business as a builder, It was his practice to purchase vacant blocks of land, and to build a house on each block of land for sale. Mr. Tregent deposed that between 1960 and 1975, in his capacity as a director of the applicant, he used to assist the bankrupt with finance for the completion of the contracts into which he had entered for the purchase of the vacant blocks and for the costs of building houses on them. The firm of Dudley Tregent & Co, attended to the conveyancing work involved and Mr. Tregent frequently handled this work himself. He stated that between 1969 and 1974 there were about 60 transactions in which the applicant acted as financier for the bankrupt. Mr. Tregent described the system that was followed in relation to the advances made by the applicant to the bankrupt. He went to an employee of the firm, Mrs. Grant, who attended to the files of the applicant, or someone in her place, and told her that he had agreed to make the loan on the property specified. He then said "I would give her Arcadiou's name and his address and the address of the property which we are lending on and I would ask her to make out a cheque" for .-/6 6. the amount required. "I would say whatever the rate would be and she would mark it on the side of the ledger sheet or on the top of the ledger sheet." He then described how, by using the Kalamazoo peg board system, there would be produced in the one operation a cheque by the applicant to the bankrupt, on the butt of whrch the particulars of the property and the rate of interest were shown, together with the entry of those particulars on the ledger sheet maintained for the bankrupt and the daily bank sheet kept for the applicant. The cheque with the butt attached was handed to the bankrupt. He would have the particulars on the cheque butt as a record, and the applicant would have the same particulars on its records. The procedure so described was followed at the time of each advance made to the bankrupt, with two exceptions. The first exception 1s that of an amount of $2000 which is listed as an advance against the San Remo Drive property on 22 April 1974. In relation to that amount Mr. Tregent gave evidence that there had been an earlier advance on a property at Lot 45 Queensville Street, and said - "Queensville Street was sold, I cannot remember whether it was sold or the title handed over to the ANZ Bank. It has an amount of $2000 in it and when Arcadiou came in I said 'We have giyen up the security for 45 Queensville Street and there is $2000 owzrng on that property and I have got no security for it' and I said, 'Is it all right if I put this $2000 on to San Remo Drive', because at that time it had sufficient security, and he agreed and so we did a cross entry from the sheet described as Lot 45 Queensville Street to the sheet marked Lot 417 San Remo Drive." The second exception related to a credit entered on the ledger card for Lot 14 Ballan Road, Werribee in the amount of $15,780.57 which Mr. Tregent explained was an error, as 1t should have been credited against a property at Lot 1216 Derrimut Road. The error was, he said, corrected by altering the heading of the Derrimut Road property card to "14 Ballan Road" and by writing the following letter to the bankrupt :- -f7 " 11 October 1976 Dear Mr. Arcadiou, re Lot 14 Ballan Road Werribee from Borella re Lot 1216 Derrimut Road We refer you to our letter of 27 November 1975 1n which we advised that we had paid off the amount owing on 1216 Derrimut Road, namely $15,780.57. Actually this amount was put on the wrong card - namely the amount owing on 14 Ballan Road, Werribee, which was thus finalised, as per copy of Ledger Card enclosed. As we hold a clear Certificate of Title to the property at Lot 14 Ballan Road, Werribee, we are now transferring to that property the amount of $17,047.53 owing as at 4th October 1976 on the property at Lot 1216 Derrimut Road, as shown on copy of our Ledger Card herewith, Yours faithfully, DUDLEY TREGENT & CO." The applicant's records relating to each of the properties the subject of the present application were tendered in evidence, Mr. Tregent gave evidence that quarterly statements were posted regularly to the bankrupt, showing details of the properties concerned, and stating in respect of each of the properties, the amount of principal, the period involved, whether 1t was the whole of the quarter or a specified portion of it, and the amount of interest being charged in respect of each advance due to Guardian Investments Pty. Ltd. Mr. Tregent's evidence was that copies of these statements were inspected on behalf of the trustee and by the solicitor for the bankrupt after they were disclosed in the applicant's affidavit of documents, Except for the amount of $2000 transferred to the San Remo Drive property, no challenge was made to the evidence that the amounts specified in the agreed chronology and in the application were in fact received by the bankrupt. Copies of the statements which ran from 1 May 1973 to 15 February 1977 were tendered in evidence, Mr. Tregent described the practice in the office of Dudley Tregent & Co. in relation to the keeping of deed cards. The deed card section of the office had two sections, the current section and the documents removed section. While a decd card remained in the current section, 1t indicated that Dudley Tregent & Co. should have a title for the client concerned,who was entitled to call for it to be delivered to him. If a property was sold the card would be moved from the current section to the document removed section. If money had been lent on the property, either ../8 by Guardian Investments Pty. Ltd. or by another lender, the card would be taken out of the current section and put in the documents removed section, indicating that the owner of the property was not entitled to call for it to be delivered to him. An entry in the deed card would show the particulars of any loan made upon the property. In addition to this Dudley Tregent & Co. system, a collection of cards was kept by the applicant in respect of properties on which it had lent monies. Deed cards were kept in respect of all properties that are the subject of these proceedings and were tendered in evidence. When the certificates of title of these properties were received, Mr. Tregent stated that he placed them in the envelope in the Guardian Investments Pty. Ltd. section of the safe. His evidence in relation to the system followed was broadly corroborated by Mrs. Grant, whose evidence I accept. She also gave evidence of the part she played inside the office in relation to some of the transactions in question. In his oral evidence Mr. Tregent said that when he deposited documents in relation to any of the properties which are the subject of this application among the documents of the applicant in the deed safe of Dudley Tregent & Co., he asked the bankrupt on each occasion "if he wanted money from that particular property and that he would have to have security for 1t. He would say 'of course', and he would firstly give me the contract of sale. I would ask him to sign a transfer. I said 'I will have the authority to get the title when 1t becomes due', He said 'of course' and that happened in every case" that the applicant lent money to the bankrupt. In answer to the question "Did he know that Guardian was holding the certificate of title?" he replied, "Yes he was well aware of that fact, 1t was repeated over and over again, by me." Mr. Tregent said that he told the bankrupt that the applicant was holding "these securities for monies advanced, and you cannot take them away, they are the same as a mortgage" and he replied that he understood perfectly. In respect of the properties referred to in the application, the parties agreed on a chronological table in the following form:- --/9 t 24. 22. 13. 13. 9. 22, 10. 30. 28. 30. ll. ll. 21. 17. 22. 7. 7. 19. 29. 12. 22. 9. CHRONOLOGY LOT 417 SAN REMO DRIVE AVONDALE HEIGHTS 8.73 1.74 3.74 3.74 4.74 4.74 5.74 5.74 4.75 4.75 9.75 11.75 9.76 3.77 6.77 6.74 12.74 12.74 -12.74 16. 20. 6. 7. 12.74 12.74 2.75 2.75 2.75 2.75 2.75 3.75 4.75 Certificate of Title Volume 8702 Folio 229 received at conveyancing settlement. Certificate of Title showing registered proprietor issues Office. Request for loan made. First advance - $6,000.00 Second advance - $3,000.00 Third advance - $2,000.00 Fourth advance - $3,000.00 Fifth advance - $3,000.00 Sixth advance - $10,000.00 Seventh advance- $10,000.00 Eighth advance - $9,000.00 Ninth advance - $10,000.00 Caveat lodged Bankruptcy Arcadiou as from Titles 11% 11% 11% - 11% 134% 14% 144% 144% 145% Payment to J. Smolic pursuant to agreement with respondent - $10,000.00. 127 ANDERSON ROAD SUNSHINE Date of Contract of Sale. Contract of Sale received by N, Tregent. Request for loan made. First advance - $10,000.00 Second advance - $10,000.00 Third advance - $10,000.00 Settlement letter. Fourth advance (for purposes of settlement) - $25,175.33 144% 145% 144% 144% Certificate of Title Volume 6055 Folio received at conveyancing settlement. Fifth advance - $10,000.00 Sixth advance - $10,000.00 Seventh advance - $10,000.00 Eighth advance - $10,000.00 14%145% 145% -/10 10. 127 ANDERSON ROAD SUNSHINE (Cont.) 14. 5.75 Ninth advance - $10,000.00 - 14% 2. 6.75 Tenth advance - $10,000.00 -— 144% "mid" 75 Alleged conversation relating to execution of a mortgage (see paragraph 42 of Affidavit of N. G. Tregent sworn 24.5.1978). 5. 3.76 First receipt of rentals from flats. 29. 7.76 Final receipt of rentals from flats. 21. 9.76 Caveat lodged. 15.11.76 Mortgages executed. 17. 3.77 Bankruptcy. 12. 8.77 Mortgages stamped and lodged. 1 and 2 HENDRY STREET SUNSHINE 18. 7.74 Contract of Sale exchanged. 8.74 Request for loan made. 30. 8.74 First advance - $12,000.00 - 14% 22. 1.75 Settlement letter. 31. 1.75 Second advance (for purposes of settlement) - $22,779.21 - 14% 31. 1.75 Certificate of Title Volume 8465 Folios 063 and 064 received at conveyancing settlement. 12, 2.75 Third advance - $16,000.00 - 14% 7. 3.75 Fourth advance - $20,000.00 - 14% 23. 3.75 Fifth advance - $10,000.00 - 14% 16. 4,75 Certificate of Title showing Arcadiou as registered proprietor issued from Titles Office. 24. 4.75 Sixth advance ~ $10,000.00 - 14% 8. 5.75 Seventh advance - $20,000.00 - 14% 23. 5.75 Mortgage executed. 23. 5.75 Account rendered for mortgage costs. 26. 5.75 Eighth advance (for mortgage costs) - $1,621.00 - 14% 11. 9.75 Payment received - $20,000.00 17. 9.75 Payment received - $1,639.50 - balance of deposit from sale of Unit 5. 17. 9.75 Settlement letter as to the sum of $1,639.50 ll. 2.76 Nanth advance (for surveyors' fees) - $731.00 - 14% --/ll 30. 6.76 15. 7.76 8.76 25. 8.76 2. 9.76 7. 9.76 6.10.76 9.12.76 17, 3.77 24.10.73 2.74 2.74 13. 2,74 27. 6.74 14. 7.75 14. 7.75 14. 7.75 22. 8.75 8.76 9.76 10.76 5.10.76 17. 3.77 ll. 1 and 2 HENDRY STREET SUNSHINE (Cont) Plan of Strata Subdivision lodged, following which new Certificates of Title issue for each flat, including Certificate of Title Volume 9151 Folios 993 and 999 relating to Unit 6. Payment received - $4,589.50 - from sale of Unit 5. Settlement letter as to sale of Unit 2 Tenth advance (for land tax) - $38.43 - 14% Settlement letter as to sale of Unit 5. Settlement letter as to sale of Unit 4. Settlement letter as to sale of Unit l. Settlement letter as to sale of Unit 3. Bankruptcy. LOT 111 SHEPPARDS LANE LILYDALE Date of Contract of Sale to Y. Arcadiou of 541 Bambara Court Sunshine. Contract of Sale received by N. Tregent. Request for loan made. First advance - $8,000.00 - 10%% Second advance - $6,000.00 - 13% Third advance (for purposes of settlement) - $6,923.82 - 1442 Fourth advance (for purposes of settlement) $25.00 - 144% Certificate of Title Volume 8940 Folio 430 (to 541 Bambara Court Sunshine) received at conveyancing settlement). Certificate of Title to 541 Bambara Court Sunshine showing Y. Arcadiou as registered proprietor issues from Titles Office. Alleged agreement to substitute Certificate of Title to Lot 111 Sheppards Lane Lilydale in place of Certificate of Title to 541 Bambara Court Sunshine. Certificate of Title Volume 8526 Folio 718 (to Lot 111 Sheppards Lane Lilydale) received by N. Tregent. Certificate of Title to 541 Bambara Court Sunshine delivered up at a conveyancing settlement. Settlement letter. Bankruptcy. -/12 8,74 8.74 9. 9.74 9, 9.74 9. 9.74 8.75 22. 8,75 11. 9.75 20,10.75 27.11.75 27.11.75 11.10.76 22.10.76 17. 3.77 12. LOT 14 BALLAN ROAD WERRIBEE Certificate of Title Volume 8655 Folio 524 received by N. Tregent from J. Borella. Request for loan made. First advance (for purposes of settlement) - $6,054.40 - 14%% Letter to Y. Arcadiou re settlement. Second advance (for purposes of settlement : stamp duty and legal costs) - $232.00 - 14% Request for further advances. Second advance - $10,000.00 - 14% Third advance - $8,000.00 - 148% Fourth advance - $5,000.00 - 14% Conveyancing settlement for sale of Lot 1216 Derrimut Road Werribee - Dudley Tregent & Co. received $19,245.00. Letter to ¥. Arcadiou as to disbursement of proceeds including cheque to him for $3,464.43. Letter to Y¥. Arcadiou notifying him of erroneous disbursement. Caveat lodged. Bankruptcy. --/13 13. this table the following list of advances 1s compiled :- 14 Ballan Road Werribee. 13. 3.74 $6,000 9. 4.74 $3,000 22. 4.74 $2,000 10. 5.74 $3,000 30. 5.74 $3,000 30.8.74 $12,000.00 9.12.74 $10,000. 16.12.74 $10,000. 20.12.74 $10,000. 31.1.75 $22,779.21 7. 2.75 $25,175. 12.2.75 $16,000.00 19.2.75 $10,000. 29,2.75 $10,000. 7.3.75 $20,000.00 12.3.75 $10,000. 23.3.75 $10,000.00 22.4.75 $10,000.00 24.4.75 $10,000.00 28.4.75 $10,000 30.4.75 $10,000 8.5.75 $20,000.00 14.5.75 $10,000,00 26.5.75 $1,621.00 2.6.75 $10,000.00 | ~ ll. 9.75 $9,000 11.11.75 $10,000 11.2.76 25.8.76 $731.00 $38.43 13.2.74 $8,000.00 27.6.74 $6,000.00 14.7.75 $6,923.82 14.7.75 $25.00 9.9.74 $6,054.4 9.9.74 $232.0 22.8.75 $10,000.0 11.9.75 $8,000.0 20.10.75 $5,000.0! 14. The applicant prepared in relation to each of the properties referred to in the application a document headed "Statement of Account between the Applicant and the Bankrupt". This Statement of Account was verified on oath by Mr. Tregent and was prepared as the result of a suggestion made by me at an earlier hearing that all parties concerned should see if agreement could be reached as to the state of the accounts between the applicant and the bankrupt, rather than requiring evidence of every debit and credit. It became common ground between the parties that, with the exception of the sum of $2000 in respect of the Queensville Street property, the payments which the applicant alleged that it made to or on behalf of the bankrupt at his request were in fact so made. I am satisfied that this sum of $2000 was money owed by the bankrupt to the applicant in respect of the Queensville Street property. The earliest transaction between the applicant and the bankrupt of those which are the subject of this case began as a dealing in relation to a vacant block of land at 541 Bambara Court, Sunshine. Mr. Tregent set out his account of this transaction in his affidavit, as follows :- " In February 1974 the bankrupt brought into my office a terms contract of sale into which he had entered for the purchase of a vacant block of land at 541 Bambara Court Sunshine. He told me that he had paid the deposit for the purchase from his own funds. He said that he wanted to build a dwelling house on the vacant land and asked me whether I could arrange for Guardian to lend him the necessary money to pay for the cost of construction. I told him that subject to satisfactory results from the usual investigations Guardian would be prepared to lend him the cost of constructing a dwelling house and that Guardian was to hold the contract of sale as security until the Certificate of Title became available to be held as further security following settlement of the purchase. He agreed. -/15 15. On 13th February 1974 Guardian made a first advance to the bankrupt in relation to 541 Bambara Court Sunshine by a cheque for $8,000. I handed the cheque to the bankrupt and also handed to him at the same time a cheque butt on which was recorded the date of the cheque the amount of the loan the land in respect of which the loan was made and the interest rate which was payable in respect of the sum so lent. The interest rate shown on the cheque butt was 10% per annum. The contents of the cheque were recorded on a ledger card kept by Guardian for the purposes of the transaction. Now produced and shown to me and marked 'J' 1s the said ledger card relating to 541 Bambara Court Sunshine. On 27th June 1974 Guardian made a further advance of $6,000 to the bankrupt by means of a cheque for that sum in relation to the building work at 541 Bambara Court Sunshine. I handed the said cheque to the bankrupt together with a cheque butt on which the appropriate interest rate was stated to be 134% per annum. I informed the bankrupt that the interest rate of 134% per annum would be appropriate from 15th May 1974 but from 15th August 1974 the appropriate interest rate would be 144% per annum. On 14th July 1975 Guardian paid to Dudley Tregent & Co. Trust Account a bank cheque made payable to R, C. Henderson Pty. Ltd. which was the vendor from which the bankrupt had purchased the land at 541 Bambara Court Sunshine. The bank cheque was for $6,923.82. The said cheque was recorded on the said ledger card marked 'J'. I on behalf of Dudley Tregent & Co. at the conveyancing settlement on 14th July 1975 delivered the said cheque and received in return Certificate of Title Volume 8940 Folio 430 and a registerable transfer of the land to the bankrupt. I lodged the said Certificate of Title and the said transfer at the Office of Titles. In due course the Office of Titles 1ssued to Dudley Tregent & Co. Certificate of Title Volume 8940 Folio 430 upon which the bankrupt was shown as registered proprietor. I placed the said Certificate of Title in an envelope in the name of Guardian and placed the envelope in the section of the deed safe which held documents over which Guardian had security. The bankrupt had entered into a terms contract of sale of the land at 541 Bambara Court Sunshine to a Mrs. Avgoulis in March 1974. In about September 1976 the bankrupt informed me that his terms of sale to Mrs. Avgoulis was due to be completed shortly. He informed me that Mrs. Avgoulis had been making payments to him in reduction of the purchase money which she had contracted to pay. ../16 16. After making enquiries from the solicitors for Mrs. Avgoulis I ascertained that the balance of purchase money which she would be obliged to pay at settlement was only about $3,500 whereas the balance of principal and interest owing by the bankrupt to Guardian as at 15th August 1976 appears on the said ledger card marked 'J' at $26,728.59. I therefore informed the bankrupt that if he wished Guardian to release the Certificate of Title to the land at 541 Bambara Court Sunshine to Mrs. Avgoulis at her conveyancing settlement Guardian would need to be given additional security for the continuance of the loans which had been made in relation to 541 Bambara Court Sunshine. The bankrupt then informed me that Mrs. Aygoulis had agreed to transfer to him by way of satisfaction of part of the balance of purchase money a block of land which she had owned at 111 Sheppards Lane Lilydale. The bankrupt said that he was prepared to offer this land as security for the continuance of the loans in substitution for the Certificate of Title to the land at 541 Bambara Court Sunshine. I agreed to this. The conveyancing settlement of the sale by the bankrupt to Mrs. Avgoulis of the land at 541 Bambara Court Sunshine occurred on 4th October 1976. At the settlement I delivered a transfer from the bankrupt to Mrs. Avgoulis and also certificate of Title Volume 8940 Folio 430. In return I took delivery of a cheque for $3,500 Certificate of Title Volume 8526 Folio 718 (which more particularly described the land at 111 Sheppards Lane, Lilydale) and a registerable transfer from Mrs. Avgoulis to the bankrupt of the land at 111 Sheppards Lane Lilydale. I lodged the said transfer and said Certificate of Title Volume 8526 Folio 718 at the Office of Titles. In due course the Office of Titles issued to Dudley Tregent & Co. Certificate of Title Volume 9526 Folio 718 which then described the bankrupt as registered proprietor. I placed the said Certificate of Title in an envelope in the name of Guardian and placed the envelope in that section of the deed safe of Dudley Tregent & Co. which held documents over which Guardian had security. From the said sum of $3,500 the amount available to be credited to the bankrupt was $2,707. On 5th October 1976 Dudley Tregent & Co. wrote a settlement letter to the bankrupt setting out how the said sum of $2,707 was calculated and informing him that the amount had been transferred to Guardian in reduction of the loans which had been made to him in respect of 541 Bambara Court Sunshine. Now produced and shown to me and marked 'L' 1s a copy of the said letter dated 5th October 1976." --/17 17. Exhibit "L" was in the following terms, re Sale Lot 541 Bambara Court Sunshine to Avgoulis Settlement of the above matter was completed yesterday and we now set out hereunder a statement of your account thereon - Balance of Purchase moneys paid $3,500.00 LESS: Our costs re sale as per S.R.0. 1976 $244.00 Stamp Duty on Transfer into your name in 1975 $96.00 Registration Fee 22.00 118.00 Our costs re Purchase of Lot 111 Sheppards Lane Lilydale as per enclosed account 431.00 793.00 AMOUNT TRANSFERRED TO GUARDIAN INVESTMENTS PTY. LTD. in reduction of your loan on 541 Bambara Court $2,707.00 Please note that the balance of the loan on Lot 541 Bambara Court has now been transferred in Guardian Investments Pty. Ltd. to Lot 111 Sheppards Lane, Lilydale, in the sum of $24,021.59 with interest commencing 4th October, 1976. Would you please advise us what you are doing about the sale of the property at Lilydale, also please call at our office to sign the transfcr into your name so that we may register this." In his oral evidence Mr. Tregent stated that at no time between the receipt of the letter of 5 October 1976 and the institution of these proceedings did the bankrupt dispute what was set out in the letter. Mr. Tregent's account of the facts in his affidavit continued as follows :- .-/18 18. " On 6th October 1976 Dudley Tregent & Co. paid to Guardian the said sum of $2,707. The balance of principal and interest due by the bankrupt under loans made in respect of 541 Bambara Court Sunshine was $26,728.59 as at 4th October 1976. After deduction of the said sum of $2,707 there remained an amount outstanding of $24,021.59 which represented an advance made by Guardian to the bankrupt in respect of and upon the security of the land at 111 Sheppards Lane Lilydale. As at 17th March 1977 the amount owing by the bankrupt to Guardian under the said loan made in respect of 111 Sheppards Lane Lilydale was $25,609.31." Mr. Tregent gave his account of the transactions in relation to the Lot 417 San Remo Drive property in his affidavit sworn 24 May 1978, in these terms :- " In 1973 I acted as solicitor for the bankrupt in relation to a purchase by him of a block of vacant land described as Lot 417 San Remo Drive Avondale Heights which land was more particularly described in Certificate of Tatle Volume 8702 Folio 229. The bankrupt had bought the land under a cash contract of sale and paid the balance of purchase moneys from his own funds. Settlement of the purchase occurred on 4th September 1973 and I received the said Certificate of Title on that date in my capacity as solicitor for the bankrupt. On the same day I received at settlement a registerable transfer of the land to the bankrupt. I then lodged for registration the said transfer of the said Certificate of Title. In due course the Office of Titles issued the said Certificate of Tatle to Dudley Tregent & Co. which then showed the bankrupt as being registered proprietor. Dudley Tregent continued to hold the said Certificate of Title on behalf of the bankrupt. On 13th March 1974 the bankrupt anformed me that he wanted to build upon the land at Lot 417 San Remo Drive Avondale Heights and asked me whether I could arrange for Guardian to lend him the money necessary to pay for the building works. He said that he wanted a short term loan for long enough for him to be able to build a house upon the land and to sell it. He told me that I was holding the Certificate of Title to the land at Lot 417 San Remo Drive and that if Guardian were to lend him the moneys Guardian could use the Certificate of Title as security for the loan. --/19 19. I then told the bankrupt that Guardian would be prepared to lend him moneys for a short term loan for the purpose which he had specified and would want to use the Certificate of Title to the land at Lot 417 San Remo Drive as security. The bankrupt agreed to this. On 13th March 1974 Guardian prepared and I signed a cheque for $6,000.00 made payable to the bankrupt. I handed the cheque to the bankrupt and I also handed to him at the same time a cheque butt upon which was identified the description of the land the date of the cheque the sum advanced and the interest rate which was 11% per annum. A copy of the contents of the cheque was written on a ledger card kept by Guardian for the purpose of the transaction. Now produced and shown to me and marked 'A' is the said ledger card relating to Lot 417 San Remo Drive Avondale Heights. On or shortly after 13th March 1974 I removed Certificate of Title Volume 8702 Volume 229 being Lot 417 San Remo Drive from the deed safe of Dudley Tregent & Co. and placed it in an envelope bearing the name of Guardian and deposited it in the section of the deed safe which related to documents over which Guardian held security. Guardian paid to the bankrupt further cheques for $3,000,00 on 9th April 1974, $2,000.00 on 22nd April 1974 and $3,000.00 on 10th May 1974 in relation to Lot 417 San Remo Drive. Each of these sums was a further advance for the building being carried on by the bankrupt upon the said land and were instalments of the moneys agreed to be lent on the property referred to in paragraph 13 hereof. Each of the payments was recorded on the said ledger card marked 'A' and the bankrupt was given the corresponding cheque butt. On 30th May 1974 Guardian made an advance to the bankrupt at his request of $3,000.00 by cheque upon the security of Lot 417 San Remo Drive. on this occasion I anformed the bankrupt that the interest rate had been increased to 134% per annum. The cheque butt which I handed to the bankrupt together with the cheque stated that the interest rate was 134% per annum. On 28th April 1975 Guardian paid by way of advance to the bankrupt at his request a cheque for $10,000 in relation to the building work at Lot 417 San Remo Drive. When delivering this cheque to the bankrupt I informed him that the interest rate had again been increased to 14;% per annum. The cheque butt which I handed to the bankrupt on that day recorded the interest rate as being 144% per annum. Further advances were made to the bankrupt in the same manner in the sums of $10,000 on 30th April .-/20 20. 1975, $9,000 on llth September 1975 and $10,000 on 11th November 1975 on the security of Lot 417 San Remo Drive, On each of these occasions the bankrupt informed me that he required additional advances to meet the continuing costs of the building work. On 17th February 1975 and on each succeeding quarter date Guardian posted to the bankrupt a statement setting out the interest which had been charged in relation to the sums advanced to that date. These statements reflected the amounts of unterest which are recorded on the said ledger card marked 'A'. By about September 1975 I was becoming worried about the apparently slow progress of the building works. I informed the bankrupt that the loan had been extended for well beyond the short term which I had originally contemplated. The bankrupt said to me that he did not know why I was worried because Guardian had adequate security for the money 1t had advanced and that the property would be worth more than $80,000 when it was completed. By the date of his bankruptcy the bankrupt had still not completed the building works at Lot 417 San Remo Drive Avondale Heights. The total sums advanced by Guardian in relation to that property amounted to $56,000 and interest which had accrued to that date totalled $16,322.82. On 2list September 1976 Guardian lodged a caveat in relation to the interest which it claimed to have in the land at Lot 417 San Remo Drive Avondale Heights. Now produced and shown to me and marked 'B' is a copy of the said caveat. By reason of the matters set out above the applicant claims that 1t 1s cquitable mortgagee of the land described in Certificate of Title Volume 8702 Folio 229. However the respondent does not admit the fact that the applicant became or 1s equitable mortgagee of the said land. After the said date of bankruptcy I had a telephone conversation with the respondent. In that telephone conversation we agreed that the applicant could employ a builder to complete the house which the bankrupt had left uncompleted on the land at Lot 417 San Remo Drive Avondale Heights and that if the applicant established that 1t was equitable mortgagee of the land in question the moneys paid out by the applicant to such builder could be added to the principal and interest secured by such equitable mortgage. It was further agreed that any deficiency between the amount paid by the applicant to such builder and the amount recoverable by the applicant pursuant to its equitable mortgage (after discharge of the indebtedness of the bankrupt to the applicant secured by the equitable mortgage) should be borne and paid to the applicant in full out of the assets of the estate of the bankrupt. --f/21 21. It was further agreed that if the applicant was unable to establish its equitable mortgage the moneys paid out by the applicant to such builder as aforesaid for the benefit of the estate of the bankrupt would be reimbursed to the applicant if he could prove the amount spent was reasonable. Pursuant to the agreements referred to in paragraph 23 hereof the applicant engaged a firm of builders J. & S. Smolic to complete the house on the land at Lot 417 San Remo Drive. The applicant has paid to J. & S. Smolic the sum of $10,000 being the cost of completion of the house. As appears on the said ledger card marked 'A' the said sum of $10,000 was recorded by Guardian on its ledger card as a further advance to the bankrupt. The total amount which the applicant therefore claims to be secured by an equitable mortgage over the land at Lot 417 San Remo Drive as $82,322.82." In his affidavit sworn 13 June 1978, Mr. Tregent referred to his earlier statement that the applicant had paid Smolic $10,000 and said that "the amount so far spent by Smolic on the property would not exceed $8,000. The amount unpaid will be settled when the air-conditioning unit is installed." In his affidavit sworn 24 May 1978, Mr. Tregent gave his account of the transaction relating to the property at Nos. 1 and 2 Hendry Street, Sunshine, in these terms :- " During August 1974 the bankrupt brought into the offices of Dudley Tregent & Co. a terms contract of sale which he had signed and in respect of which he had paid the deposit. The contract was for the purchase of vacant land which was then described in Certificate of Title Volume 8465 Folio 063 and Volume 8465 Folio 064 and which was situated at Nos. 1 and 2 Hendry Street Sunshine. The bankrupt informed me that he wanted to build upon the land and asked me whether I could arrange for Guardian to lend him the money necessary to pay out the balance owing under the terms contract of sale and necessary to pay for the building works. He said that he wanted to build six units upon the land and thought that 1t would take about six months for them to be completed. 22/22 22. After making whatever investigations of title and planning requirements were necessary I decided that Guardian would lend to the bankrupt the amounts which he was seeking. On 30th August 1974 Guardian prepared and I signed a cheque for $12,000 made payable to the bankrupt. This was the amount which he informed me would be the costs of the first stage of erection of the proposed buildings on the land at 1 and 2 Hendry Street Sunshine. I told the bankrupt that Guardian would retain the contract of sale which he had left in my possession as security and that I would retain 1t untzl such time as I obtained better security by paying out the amount due and obtaining the Certificate of Title. I handed the cheque to the bankrupt and I also handed to him at the same time a cheque butt upon which was identified the description of the land the date of the cheque the sum advanced and the interest rate which was 14% per annum. A copy of the contents of the cheque was written on a ledger card kept by Guardian for the purpose of the transaction. Now produced and shown to me and marked 'C'' is the said ledger card relating to 1 and 2 Hendry Street, Sunshine. On 3lst January 1975 the conveyancing settlement took place for the completion of the purchase by the bankrupt of the land at 1 and 2 Hendry Street Sunshine. Guardian paid to Dudley Tregent & Co. Trust Account on that day a cheque for $22,779.21 being the amount necessary to effect settlement and to pay the stamp duty registration fees and legal costs involved in the registration of the transfer of the land to the bankrupt. At settlement I received the said Certificates of Title to the land at 1 and 2 Hendry Street and a registerable transfer of the land to the bankrupt. On the same day Dudley Tregent & Co. sent to the bankrupt a settlement letter in which the total sum paid by Guardian to Dudley Tregent & Co. upon trust for him for the purposes of effecting settlement and paying costs was set out. Now produced and shown to me and marked 'D' is a copy of the settlement letter sent in relation to 1 and 2 Hendry Street Sunshine." This letter, omitting formal parts, was as follows :- ./23 23. re: Purchase from Zafiropoulos P'Ppty: Lots 1 & 2 Hendry Street, Sunshine West Settlement of the above matter has been arranged for Friday 31st January next and the amount we require from you for such settlement 1s $22,779.21, details of which are as set out hereunder - Purchase Price $24,000.00 Less Deposit 2,400.00 $21,600.00 Less Adjustments of Rates as per attached statement 161.19 $21,438.81 PLUS: Interest due from 30/11/74 to 31/1/1975 $539.90 Our costs herein 251.00 Search fees & certificates 16.50 Stamp Duty on Transfer 480.00 Registration on Transfer 42.00 Registration on Discharge of Mortgage 11.00 1,340.40 AMOUNT REQUIRED $22,779.21 Please note that you are liable for both the current M.M.B.W. and Sunshine Rates, the Vendor having allowed his share in the adjustments." In his affidavit, Mr. Tregent's narrative resumes as follows :- " I then lodged for registration the said transfer and the said Certificates of Title. In due course the Office of Titles issued to Dudley Tregent & Co. Certificates of Title Volume 8465 Folio 063 and Volume 8465 Folio 064 upon which the bankrupt was registered as proprietor. I then placed them in an envelope bearing the name of Guardian and deposited the envelope in the section of the deed safe which related to documents over which Guardian held security. »/24 24, Thereafter the bankrupt came into my office on several occasions and on each of these occasions informed me that the bu1lding works upon the land at 1 and 2 Hendry Street Sunshine had reached a further stage and that he needed more money to continue. AS appears from the said ledger card marked 'C' Guardian made further advances to the bankrupt pursuant to the said requests between 12th February 1975 and 8th May 1975 totalling $76,000. By 8th May 1975 the total amounts of principal advanced by Guardian to the bankrupt were $110,779.51. As also appears from the said ledger card marked 'C' the amount of interest charged by Guardian and due by the bankrupt to 15th May 1975 totalled $3,731.06. Guardian sent to Arcadiou on each quarter date a statement as to the amount of interest then due. By 15th May 1975 I was becamlng concerned about the delay 1n the construction of the building. I enquired from the bankrupt as to the reasons for the delay and he informed me that the delay was occurring because the local council was delaying its approval of his building works. I informed the bankrupt that because the building works were taking longer than he had originally informed me they would take Guardian would require him to execute a first mortgage over the land at 1 and 2 Hendry Street Sunshine to secure advances totalling $120,000. The bankrupt stated that he was prepared to sign such a mortgage document whenever I required him to do so. However, such mortgage was never in fact prepared or signed." In his affidavit sworn 13 June, 1978, Mr. Tregent referred to this statement that "such mortgage was never in fact prepared or signed" as erroneous and deposed as follows :- " On 23rd May 1975, I prepared a mortgage for $120,000.00. The mortgage was however never executed by Arcadiou. Marked with the letter 'M' 1s a copy of the account we sent Mr. Arcadiou and the amount was added on to the next Guardian Investments account quarterly statement, and thereafter sent to the bankrupt.The stamp duty and registration fee are held in Dudley Tregent & Co. trust account." --/25 25. Exhibit "M" read as follows :- re Mortgage over Lots 1 & 2 Hendry Street, Sunshine to Guardian Investments Pty. Ltd. 1975 To our Costs on Mortgage as per S§.R.O. 1974 $559.00 May Procuration fee on $120,000.00 @ 5% 600.00 Stamp Duty on Mortgage $451.00 and counterpart -50 Registration fee on Mortgage 11.00 462.50 $1,621.50." Mr. Tregent resumed his narrative in his affidavit sworn 24 May 1978, as follows :- " Early in 1976 the bankrupt instructed me to arrange for a surveyor to prepare a plan of strata subdivision in relation to the six villa units which he was building upon the land at 1 and 2 Hendry Street Sunshine so that he could sell each unit separately. He asked me to arrange for Guardian to lend him whatever amount was necessary to pay the surveyor's fee and to add the amount to the total sums which had been advanced to him. I engaged a firm of surveyors Meudell Gillespie & Co. to prepare the plan of strata subdivision. The fee of the said firm was $731. Guardian paid the said sum as appears from the said ledger card marked 'C' recorded on llth February 1976 as an advance to the bankrupt. Similarly in August 1976 the bankrupt requested me to arrange for Guardian to advance the amount necessary to pay land tax on the land at 1 and 2 Hendry Street, Sunshine. Guardian did so. The amount of land tax paid was $38.43 and as appears from the said ledger card marked 'C' Guardian recorded this amount on 28th August 1976 as an advance to the bankrupt. On 3rd June 1976 I lodged at the Office of Titles the plan of strata subdivision which had been prepared in respect of the land at l and 2 Hendry Street Sunshine and lodged together with the said plan Certificate of Title Volume 8465 Folios 063 and 064. The plan of strata subdivision was registered and in due course the --/26 26. Office of Titles issued to Dudley Tregent & Co. fresh certificates of title in relation to the six individual villa units and the common property. The Certificates of Title in relation to the six individual villa units were Volume 9151 Folios 993, 994, 995, 996, 997 and 998. The Certificate of Title in relation to the common property was Volume 9151 Folio 999. The villa units were completed in about August 1976. As each villa unit was sold Dudley Tregent & Co. would receive at the conveyancing settlement the balance of purchase moneys from each purchaser. Dudley Tregent & Co. would then pay such balance of purchase moneys to Guardian by way of reduction of the principal and interest then owing by the bankrupt. As appears from the said ledger card marked 'C' Guardian received on 11 September 1975 an amount of $20,000 in reduction of the principal and interest and between 15th July 1976 and 9th December 1976 received sums totalling $95,977.30 in reduction of principal and interest. By December 1976 five of the six villa units had been sold and the balance of purchase moneys in respect of them paid.The only villa unit not sold was Unit 6 which was described in Certificate of Title Volure 9151 Folio 993 which Guardian still retained. Guardian also retained Certificate of Title Volume 9151 Folio 999 which related to the common property. At the date of his said bankruptcy the bankrupt was still registered proprietor of Unit 6. " In his affidavit sworn 13 June 1976 Mr. Tregent referred to this statement - "Guardian also retained a Certificate of Title Volume 9151 lolio 999 which related to the common property" and deposed as follows :- "3. On page 34, paragraph 14 of my affidavit, I refer to the fact that Guardian Investments Pty. Ltd. hold Certificate of Title Volume 9151 Folio 999 as security for the common property. This should have been as security for the accessory unit, that is car space, to Lot 6 and known as Lot 12." ./27 27. In his affidavit sworn 16 August 1978 Mr. Tregent deposed that since swearing his affidavit of 13 June 1978 he had made a further search among the files relating to the bankrupt and had located a mortgage signed in duplicate by the bankrupt over the property in question. The said mortgage was exhibited to the affidavit and Mr. Tregent went on to depose that it was, he believed, signed by the bankrupt on or about 15 May 1975. His belief was based upon the fact that he sent to the bankrupt an account for its preparation on or about that day, and on the fact that the commencing date of the mortgage was 15 May, 1975. In his affidavit sworn 14 May 1978, Mr. Tregent stated that, as appeared from the ledger card marked "C", the balance of principal and interest owed by the bankrupt to the applicant in respect of advances made relating to the land at 1 and 2 Hendry Street was $21,152.69. In his affidavit sworn 16 August 1978 Mr. Tregent referred to the Ballan Road property, as follows :- In the initral stages of this matter I did not believe that I had any means of establishing that the property at 14 Ballan Road Werribee was held by the Applicant as security. Accordingly I delivered up the duplicate Certificate of Title to the Respondent. The property was however one which the Applicant did hold by way of security. The ledger card held by the Applicant did not have recorded on it 14 Ballan Road but in error was headed Derrimut Road. The monies advanced had in fact been advanced on 14 Ballan Road not Derrimut Road. Now produced and shown to me and marked with the letter 'N' 1s a copy letter dated llth October 1976 wherein I notified the bankrupt of the error. I now believe from the evidence which I believe can be given bythe said James Sherar (the bankrupt's bank manager) that the bankrupt was at all material times aware of the true position." The letter of 11 October 1976 has been set out above. In his affidavit sworn 7 September 1978, Mr. Tregent deposed as follows :- --/28 28. In August 1974 the bankrupt brought into the offices of Dudley Tregent & Co., a Certificate of Tatle of a vacant block of land at Lot 14 Ballan Road, Werribee. He told me that he was buying from a friend. He said that he wanted to build a dwelling house on the vacant land and asked me whether I could arrange for Guardian to pay out the purchase money to the vendor and also later to lend him the necessary money to pay for the cost of construction of the dwelling house. I told him that subject to satisfactory results from the usual investigations Guardian would be prepared to pay out the balance of purchase money and lend him the construction costs and that Guardian was to hold the Title as security. The bankrupt agreed. The vendor did not have a solicitor and there was no contract of sale. The vendor wanted cash immediately. It was agreed he could not get cash immediately as the searching would take a few weeks. Arcadiou agreed to pay the vendor interest at 14% until I had completed my searching and Guardian paid over the balance of purchase money. On 9th September 1974 Guardian paid to Dudley Tregent & Co. trust account a bank cheque made payable to J. N. & J. M. Borella who were the vendors from which the bankrupt had purchased the land at Lot 14 Ballan Road, Werribee. The bank cheque was for $6,054.40. The said cheque was recorded on a ledger card kept by Guardian for the purposes of the transaction. Now produced and shown to me and marked 'O' 1s the said ledger card relating to Lot 14 Ballan Road Werribee. A conveyancing settlement took place on 9th September 1974 at which I on behalf of Dudley Tregent & Co. delivered the said cheque to the solicitors for the said vendors and received in return a Certificate of Title Volume 8655 Folio 524 and a registerable transfer of the land to the bankrupt. I lodged the said Certificate of Title and the said transfer at the Office of Titles. In due course the Office of Titles issued to Dudley Tregent & Co. Certificate of Title Volume 8655 Folio 524 upon which the bankrupt was shown as registered proprietor. I placed the said Certificate of Title in an envelope in the name of Guardian and placed the envelope in the section of the deed safe which held documents over which Guardian had security. On 9th September 1974 as appears from the said ledger card marked '0O' Guardian also paid at the request of the bankrupt to Dudley Tregent & Co. legal costs of $232 being the costs of acting for the bankrupt in the conveyancing settlement together with stamp duty on the said transfer and its registration fee. The said sum of $232 was recorded on the said ledger card marked '0' as an advance by Guardian to the bankrupt. When I agreed to make advances to the bankrupt as aforesaid I informed him that Guardian would charge interest at the rate of 14.5% per annum calculated quarterly. -/29 29. As appears from the said ledger card marked 'O' the balance of the principal sum advanced together with interest to 15th August 1975 totalled $7,234.69. In about August 1975, the bankrupt came to my office and told me that he was building a house on land at Lot 1216 Derrimut Road Werribee which was owned by a Mr, Srnec. He asked me whether I could arrange for a loan of $23,000 upon the security of a building agreement into which he had entered with the said Srnec. I said that Guardian would not lend upon the mere security of a building agreement. The bankrupt then said that the said Srnec had mortgaged the land to him for $23,500 and that the mortgage had been prepared by and was held by a Mr. Sotis a solicitor in Sunshine. He asked me whether Guardian would lend upon the security of this mortgage and the Certificate of Title in the name of Srnec if he were to bring the mortgage and the Certificate of Title to me. I said that Guardian would not because I did not know the owner and the fact that a building agreement was involved might mean that the loan would be more than a short term loan. The bankrupt then reminded me that Guardian had lent only a small amount in respect of the land at Lot 14 Ballan Road Werribee in respect of which Guardian was holding the Certificate of Title. He said that the land at Lot 14 Ballan Road, Werribee was worth $15,000 and that the holding by Guardian of the Certificate of Title in respect of it would secure an advance of a further $8,000. He requested me to arrange for Guardian to lend a further $8,000 upon the security of the Certificate of Title in relation to Lot 14 Ballan Road Werribee and to lend $15,000 upon the Certificate of Title in the name of Srnec in relation to Lot 1216 Derrimut Road, Werribee and the mortgage to the bankrupt over that land. I agreed that Guardian would make advances of $23,000 in the manner requested and upon the securities so offered. Pursuant to the requests described in paragraph 13 hereof on 22nd August 1975 Guardian prepared and I signed a cheque for $10,000 made payable to the bankrupt. I handed the cheque to the bankrupt and I also handed to him at the same time a cheque butt upon which was identified the description of the land (that 1s to say Lot 1216 Derrimut Road Werribee) the date of the cheque the sum advanced and the interest rate which was 14% per annum. A copy of the contents of the cheque was written on a ledger card kept by Guardian for the purposes of the transaction. Now produced and shown to me and marked 'P' is the said ledger card relating to Lot 1216 Derrimut Road Werribee. .-/30 30. On llth September 1975 pursuant to the requests described in paragraph 13 hereof Guardian paid to the bankrupt a further cheque for $8,000 upon the security of Certificate of Title Volume 8655 Folio 524 relating to the land at Lot 14 Ballan Road Werribee. The said cheque was recorded upon the said ledger card marked '0O' as an advance made to the bankrupt in respect of Lot 14 Ballan Road, Werribee, As appears from the said ledger card marked 'O' the balance of principal sums advanced together with interest as at 27th November 1975 was $15,780.57. On 20th October 1975 as appears from the said ledger card marked ''P' and in accordance with the requests described 1n paragraph 13 hereof Guardian paid by way of advance to the bankrupt a cheque for $5,000 in relation to the land at Lot 1216 Derrimut Road, Werribee. As also appears from the said ledger card marked 'P' the balance of principal sums advanced together with interest in relation to the land at Lot 1216 Derrimut Road Werribee as at 15th November was $15,375.88. When agreeing to the requests described in paragraph 13 hereof I had informed the bankrupt that interest in relation to the advances of $15,000 would be charged at the rate of 14% per annum calculated quarterly. On 27th November 1975 the Commonwealth Bank paid into the trust account of Dudley Tregent & Co. on behalf of Mr. Srnec $19,245 by way of discharge of the mortgage by him to the bankrupt. On the same day I handed over to the Commonwealth Bank a discharge of the mortgage signed by the bankrupt, the duplicate mortgage, and the Certificate of Title in relation to Lot 1216 Derrimut Road, Werribee, I had intended that the said amount of $19,245 should be applied first to satisfy the amount of $15,375.88 owed to Guardian by the bankrupt in respect of Lot 1216 Derrimut Road Werribee and that the balance should be applied in part satisfaction of amounts owed by the bankrupt to Guardian in relation to Lot 14 Ballan Road Werribee. However, what happened was that on 27th November 1975 Guardian erroneously applied the said sum of $19,245 first 1n purported satisfaction of the whole of the amount owed by the bankrupt to Guardian in respect of Lot 14 Ballan Road Werribee (which purported application 18s shown on the said ledger card marked 'P') and instructed Dudley Tregent & Co. to pay the balance namely $3,464.43 to the bankrupt. Now produced and shown to me and marked 'Q' is a copy of a letter dated 27th November 1975 sent by Dudley Tregent & Co. to the bankrupt and which enclosed a chegue for $3,464.43, 31, On llth October 1976 Dudley Tregent & Co. sent a letter to the bankrupt pointing out the error referred to in paragraph 18 and notifying him that the two ledger cards involved would be amended accordingly. Now produced and shown to me and marked 'N' is a true copy of the said letter dated 11th October 1976. On 22nd October 1976 Guardian lodged at the Office of Titles a caveat in relation to the interest which it claimed to have in the land at Lot 14 Ballan Road Werribee described an Certificate of Title Volume 8655 Folio 524. Now produced and shown to me and marked 'S' 1s a copy of the said caveat. A few days after 22nd October 1976 I had a conversation with the bankrupt in which I informed him that Guardian had lodged the said caveat and explained the reason. As appears from the ledger card marked 'O' the balance of principal sums advanced together with interest to 17th March 1977 in relation to the land at Lot 14 Ballan Road Werribee totalled $17,928. By reason of the foregoing the applicant claims to have become equitable mortgagee of the land described in Certificate of Title Volume 8655 Folio 524 situated at Lot 14 Ballan Road Werribee and to have held such equitable mortgage as security for the repayment of $17,928. In August 1977 after having attended the public examination of the bankrupt and having given evidence thereat I formed the view that because of the said error Guardian would not be able to maintain the existence of any equitable mortgage in respect of Certificate of Title 8655 Folio 524 and I therefore at the request of the respondent handed the said Certificate of Title to his solicitors. I have recently been informed by the solicitors for the respondent that the respondent has sold the land at Lot 14 Ballan Road, Werribee and no longer possesses Certificate of Title Volume 8655 Folio 524 but that the respondent holds proceeds of sale of the said land in excess of $17,928." The applicant has demanded of the respondent payment of the said sum of $17,928 but the respondent refuses to pay the said sum and denies that the applicant is a secured creditor in respect of the said sum. --/32 32. The evidence relating to the Ballan Road property was the subject of submissions by Mr. R. Gillard, counsel for the bankrupt, in addition to those made by him in relation to the properties generally. He referred to the fact that, in about August 1977, after being requested to do so by the respondent, Mr. Tregent had delivered the certificate of title to the property to the respondent, who later sold the property without reference to the applicant or to Mr. Tregent. He was asked by Mr.Gillard :- "You gave it over because you thought at the time that the monies you had advanced to the bankrupt were secured by another property, is that the situation?" to which he replied :- "Yes, that 1s correct but I made a mistake." Prior to the delivery of the certificate of title to the respondent, Mr. Tregent, in the course of a public examination under s.81 of the Bankruptcy Act 1966, expressed a doubt that the applicant had a mortgage over this property. In answer to Mr. Gillard, Mr. Tregent said that he was very confused at that stage of his examination, adding "I thought we had security or we had lent on 1t but when I was asked this question I became very confused. I dropped my glasses, I could not collect my thoughts and I did not want to waste the court's time in finding out from the records exactly what did take place." Later he told Mr. Gillard :- "After the case, after the examination, I was still in a very highly nervous state and I have been asked by Neville Bird to hand over that title, that I had no right to hold on to 1t, and I handed it over in error." - /33 33. In re-examination, Mr. Tregent said that he handed over the certificate of title because the letter he had written to the bankrupt on 11 October 1976 had been within six months of his becoming bankrupt on 17th March 1977, when his own petition was accepted. Mr. Tregent was asked - "What effect did you think your notification therefore had?" to which he replied "I thought that I could not prove that he had knowledge of the error. There was no way that I could prove that he had knowledge of the mistake." In his affidavit sworn 24 May 1978 Mr. Tregent gave the following account of the Anderson Road transaction :- In December 1974 the bankrupt brought unto my office a contract of sale into which he had entered for the purchase of a vacant block of land at 127 Anderson Road Sunshine. It was a cash contract of sale under which the balance of the purchase moneys was payable in 90 to 120 days. The bankrupt had paid the deposit from his own funds. The bankrupt informed me that he proposed to build seven flats upon the said block and asked me whether Guardian could lend him money for the purpose. I told him that subject to satisfactory results from the usual investigations Guardian could lend him the moneys but that Guardian would need to have the security of holding the Contract of Sale and Certificate of Title as it usually did: The bankrupt 'said that of course Guardian could do this. The bankrupt then left the Contract of Sale in my possession." ~-/34 34. Mr. Tregent, in his affidavit, later also said :- " On 9th December 1974 Guardian made its first advance to the bankrupt by a cheque bearing that date for $10,000 pursuant to his said request in relation to the land at 127 Anderson Road Sunshine. On 16th December 1974 and 20th December 1974 Guardian paid two further cheques for $10,000 each to the bankrupt by way of advance on the proposed building works in relation to the land at 127 Anderson Road Sunshine. I handed each of these cheques to the bankrupt. At the same time as I handed the cheques to him I also handed to him the cheque butts upon which was identified the description of the land the date of the cheque the sum advanced and the interest rate which was 145% per annum. I had informed the bankrupt that the interest rate was to be 144% because the loan was to be for a short term and on a temporary basis only. A copy of the contents of each cheque was written on a ledger card kept by Guardian for the purpose of this transaction. Now produced and shown to me and marked 'F' is the said ledger card relating to 127 Anderson Road Sunshine. On 7th February 1975 Guardian paid unto the trust account of Dudley Tregent & Co. $25,175.33 which was the balance of purchase money necessary to be paid at the conveyancing settlement of the purchase of 127 Anderson Road Sunshine together with anticipated stamp duty and legal costs. The said sum was recorded on the said ledger card marked 'F' as an advance by Guardian to the bankrupt. At the conveyancing settlement Dudley Tregent & Co. received the Certificate of Title Volume 6055 Folio 902 which more particularly described the land at 127 Anderson Road Sunshine and also received a registerable transfer of the land to the bankrupt. Dudley Tregent & Co. lodged the transfer and certificate of title for registration and in due course the Office of Titles issued to ../35 35. Dudley Tregent & Co. the said Certificate of Title Volume 6055 Folio 902 upon which the bankrupt was then described as registered proprietor. I then placed the Certificate of Title in an envelope in the name of Guardian and placed the envelope in the section of the deed safe which held documents over which Guardian held security. As appears from the said ledger card marked 'F' Guardian between 7th February 1975 and 2nd June 1975 made further advances by way of cheques to the bankrupt totalling $60,000. As each amount of interest accrued due on the relevant quarter day the amount was recorded on the said ledger card marked 'F' and Guardian sent to the bankrupt a statement on each quarter date as to the amount of interest which had by then accrued due. By about the middle of 1975 the bankruot stopped work on the construction of the flats at 127 Anderson Road Sunshine. I informed the bankrupt that I was concerned that the construction of the flats was taking longer than he had first led me to believe. I told the bankrupt that Guardian might require him to execute a registerable first mortgage over the land at 127 Anderson Road Sunshine for better security of the principal and interest then outstanding. The bankrupt stated that he was prepared to execute such a mortgage if and when required to do so. By March 1976 the flats at 127 Anderson Road Sunshine were completed and were let to tenants. The bankrupt informed me that he had instructed his estate agents John Kontek & Son Pty. Ltd. to pay to Guardian the net balance of rentals received from time to time and informed me that Guardian could apply these rentals in reduction of the balance of principal and interest due. As appears from the said ledger card marked 'F' Guardian received various sums from John Kontek & Son Pty. Ltd. and applied them in reduction of the indebtedness of the bankrupt. On 21st September 1976 Guardian lodged at the office of Titles a caveat in relation to the iunterest which 1t claimed to have in the land at 127 Anderson Road Sunshine described in Certificate of Title Volume 6055 Folio 902. Now produced and shown to me and marked 'G' is a copy of the said caveat. ../36 36. In about November 1976 I prepared on behalf of Guardian a first mortgage over the land at 127 Anderson Road Sunshine to secure $100,000 and a second mortgage over the said land to secure $41,000. At that time the total indebtedness of the bankrupt to Guardian for advances made in respect of 127 Anderson Road Sunshine was $143,100.16. The bankrupt executed each of these mortgages. Now produced and shown to me and marked 'H' and 'I' respectively are true copies of the first mortgage and the said second mortgage. Each of the said mortgages has been lodged at the Office of Titles but was lodged after the said date of bankruptcy. As at 17th March 1977 the total indebtedness of the bankrupt for principal and anterest in relation to moneys advanced to him for building works at 127 Anderson Road Sunshine was $147,425.16. The applicant claims to be equitable mortgagee over the land at 127 Anderson Road Sunshine described in Certificate of Title Volure 6055 Folio 902 and to hold such mortgage as security for repayment of the said sum of $147,425.16. The respondent does not admit that the applicant 1s equitable mortgagee of the said land." In each of these mortgages, the higher rate of interest was stated to be 15% and the acceptable rate to be 14%. James Sherar, as the manager of the branch of the A.N.Z. Bank at which the bankrupt had an account between 1971 and 1977 had frequent discussions with the bankrupt concerning his account and the securities available from time to time to secure his overdrafts. During that time he said that he also had numerous telephone conversations with Mr. Tregent. In his affidavit he gave the following account of his discussions with the bankrupt :- "The bankrupt's financial position was frequently being reviewed by me and it was necessary for me to inform myself about the measures taken by the bankrupt to finance his business ventures through Guardian Investments Proprietary Limited and other sources of finance. I also needed to know from time to time what moneys would be paid to the credit of the bankrupt's account in order to ensure that the account was kept in order. --/37 37. I diarized my discussions with the bankrupt or other people concerning his financial position whenever I considered it was desirable to keep a note of a discussion. My diary notes do not, however, purport to be a record of all conversations. My discussions with the bankrupt were in the context that on the 18th October, 1974, his overdraft limit was fixed at $5,000.00 but that this was increased to $10,000 on the 22nd November, 1974, such limit to apply to the 18th October, 1975. On the 25th September, 1974, the bankrupt's account was overdrawn to $8,324.00. On the 30th September, 1974, the bankrupt called and discussed his account. Five cheques totalling $15,000.00 which had been lodged to his account were returned "present again". These cheques had been drawn by Guardian Investments Proprietary Limited. Mr. Noel Tregent had telephoned me in the previous week concerning the bankrupt. When I saw the bankrupt on the 30th September, according to my diary note he confirmed that there was approximately $200,000.00 owing to his solicitors and that this borrowing was covered by good tangible security. He requested further assistance from the Bank. I explained to him that at this time there was nothing we could do except offer the facilities of Esanda. The bankrupt indicated to me that Esanda's rates of ianterest would be too high and also that because of the nature of his business fresh security was frequently being obtained and that they would be consistently up for 2.1% Victorian Government Stamp Duty. On the 29th May, 1975, the bankrupt was overdrawn to the extent of $30,062.00. I telephoned Mr. Noel Tregent and as a result of what I was told, I spoke to the bankrupt and informed him that there were funds available through his solicitor but that his solicitor required him to call at the office before further funds could be issued. I was at that time instructed by the Bank's lending department that the bankrupt's account had to be reduced to within his limit of $10,000.00. On the 30th May, 1975 I telephoned Mr. Noel Tregent and offered to meet the bankrupt and Mr. Tregent in the latter's office. On the 10th and the llth June, 1975, the account of the bankrupt was such that cheques had to be returned and it was not possible at that time to obtain further funds from Mr. Tregent. On the lith June, 1975 I did however agree to release the Certificate of Title to two blocks of land and also a mortgage worth $22,000.00 from I. & M. Srnec over a property at 1216 Derrimut Road, in order to enable the bankrupt to increase the margin of security for his borrowings through Mr. Tregent. 38. On the Ist July, 1975 the bankrupt requested accommodation up to $25,000.00 from the Bank. I told him that there was no hope of this, but that 1f he oould provide satisfactory security I would seek $20,000.00 to $25,000.00 from Esanda on special advance for six months. In the presence of the bankrupt I telephoned Mr. Noel Tregent who advised that there was to his knowledge no satisfactory security available. I informed the bankrupt of this but his response was that he would have little alternative but to seek accommodation from another bank and he left my office. On the 17th September, 1976 the bankrupt and his son Phillip called at my office. His son's home had been completed and I was informed that in order to assist his father Phillip would obtain a loan of $40,000.00 from Beneficial Finance Company. I was further informed that there was also $26,000.00 to come from Beneficial Finance as the progress payment for work done on the Werribee Estate. These moneys were expected the following week and also a settlement for $12,000.00. The bankrupt's account had been reduced to $32,000.00 and I agreed to pay a few cheques which could cause the overdraft to rise to between $35,000.00 to $40,000.00. On 28th September, 1976, the bankrupt called and he lodged three cheques totalling $100,000.00 to his account. These cheques were drawn by Guardian Investments Proprietary Limited. $50,000.00 had been obtained on the security of the home of the bankrupt's son, Phillip, and a further $10,000.00 was to be obtained upon this security the following week. I was informed by the bankrupt that $25,000.00 had been obtained on the security of the home of his son George and $25,000.00 from flats. On this occasion the bankrupt also gave me details of other substantial amounts of money which he expected to get from various sources including finance companies. I further have put in the file relating to the bankrupt a letter dated the 7th February, 1975, written to him by Guardian Investments Proprietary Limited enclosing a list showing the indebtedness of the bankrupt to Guardian Investments Proprietary Limited in respect of properties listed. Now produced and shown to me and marked with the letter 'A' 1s a photocopy of the said letter, and now produced and shown to me and marked with the letter 'B' is a photocopy of the said list which was enclosed with the said letter. Now produced and shown to me and marked with the letter 'C' is a photocopy summary of the bankrupt's financial position as at the 19th February, 1975. The originals of exhibits 'A', 'B' and 'C' have already been tendered as Court exhibits. This summary is --/39 39. signed by the bankrupt. The summary was prepared by me based on the information supplied to me by the bankrupt. The summary refers to mortgages - loans owing to Guardian Investments Proprietary Limited and states a figure of $247,399.00. The summary notes in respect of Guardian Investments Proprietary Limited that a list 1s held. The bankrupt discussed the list exhibit 'B' with me and he also discussed with me his assets. These assets are referred to in the summary of the bankrupt's financial position and a value of $684,000.00 appears therein in respect of properties. Between the 19th February, 1975 and the date on which the list exhibit 'B' has been prepared as a result of settlements the debt of the bankrupt to Guardian Investments Proprietary Limited had been reduced. The type of review of his affairs evidenced by exhibits 'B' and 'C' hereto was repeated between myself and the bankrupt from time to time over the years when reviewing his account and requests by him for further accommodation. The bankrupt used to bring similar lists to Exhibit 'B' but after I had sighted such lists he took them away except for exhibit 'B'. The bankrupt, in my experience was able to discuss his business affairs and financial position with me quite adequately and at ali material times he was able to explain to me and knew which properties were held by Guardian Investments Proprietary Limited as security for advances ....... ser eenvoes My discussions with the bankrupt were always conducted in English apart from very few occasions without the aid of an interpreter or any other person to assist me to communicate with him and although he does not have a perfect command of the English language this did not create any practical obstacle to my communicating with him or his communicating with me." Mr. Sherar agreed tnat the bankrupt did not use the words "good tangible security". Those words were, he said, his interpretation of what the bankrupt had said, by which Mr. Sherar meant "properties and not, say, a guarantec". From time to time he asked the bankrupt for additional security in favour of the bank and there was none available. The case for the bankrupt was supported by an affidavit in which he stated that the affidavits of Mr. Tregent were "untrue and incorrect in several respects as hereinafter appears". He went on to say ~ -»/40 40. The procedure which was followed by the said Noel Geoffrey Tregent was that whenever I required moneys for short term, I would Simply ask him whether he could assist me and he invariably said he could. For instance, I would go to his office and tell him that I wanted to buy ten blocks of land, but that I only had deposit to purchase same. He would invariably say that he would arrange for money for payment out of the balance. There never arose any question of security or retention of Title Deed, nor was there any question of Guirdian Investments Pty. Ltd. However, occasionally I required mortgages for a lengthy period of time. In those circumstances, the said Noel Geoffrey Tregent arranged long term mortgages with Guardian Investments Pty. Ltd. these were ordinary mortgages which were in writing. As I required money for progress payments, I would simply go and see the said Noel Geoffrey Tregent, and would ask him for further advances. I would normally tell him with respect to which particular property I wanted additional moneys. However, never any question of securities arose, and he would advance me immediately additional moneys as requested by me. Frequently moneys had been lent to me without any references to any property, with respect to which they were to be used. Whenever I required Titles I would go to the office of the said Noel Geoffrey Tregent, and ask him for same. I specifically deny that there was any suggestion that some Titles could or would be available to me, and that others would not. (Other of course, than the Title with respect to which I had signed mortgages, which obviously would not be available to me). In my belief, the Titles were held by the said Noel Geoffrey Tregent in his capacity of my Solicitor, but not as mortgagee or on behalf of mortgagees." The bankrupt stated in this affidavil that "in so far as I was concerned, all Titles that had been issued over which no specific mortaage had been granted were free Titles and were available to me. He specifically denied Mr. Tregent's statement that he was told by the bankrupt that if the applicant were to lend him the monies necessary to meet his costs of building on the San Remo Prive land, 1t couli use the Certificate of Title of that land as security for the loan. »/4) 41. He admitted borrowing the monies to which Mr. Tregent had deposed in paragraphs 12, 13, 15, 16 and 17 of his affidavit in relation to the San Remo Drive property, but denied that he had indicated to Mr, Tregent that he had any security over it. He did not admit that he had received advances in relation to this property totalling $56,000.00, stating "I intend to comment more fully in relation to that allegation, after the solicitor for the trustee obtains for me photocopies of cheque butts of the advances which are alleged by the applicant to have been made with respect to the said property." He admitted borrowing monies from what he described as "the respondent", meaning, no doubt, "the applicant", in relation to the property at Lots 1 and 2 Hendry Street, Sunshine, and stated :- "I did not at any time agree that the applicant should have security over the said property, and in any event, I believe that the full amount of the debt in relation to advances made with respect to that property, has now been paid in full." He also deposed — "At the time I originally borrowed the money in relation to 127 Anderson Road, Sunshine I made no agreement that the applicant could hold the titles as security for the amount advanced." However, he said, that subsequently at Mr. Tregent's request, he did sign mortgages in relation to that property. He denied the conversation alleged by Mr. Tregent in which he was said to have agreed that the applicant was to hold the contract of sale in reference to 451 Bambara Court, Sunshine as security for advances until the Certificate of Title became available to be held as further security. He also denied the conversation alleged by Mr. Tregent in which he was said to have agreed to give the applicant security over 111 Sheppards Lane, Lilydale and stated that he gave Mr. Tregent the title 1n respect of that property for the purpose of having it transferred to his name. ~/42 42. The bankrupt agreed that he attended a conference on or about 25 February 1977 in the offices of Dudley Tregent ¢ Co., but denied that he then said that the applicant had security over his properties. He was supported un this denial by affidavits of members of his family. [In affidavits by members of the Tregent family it was alleged that the bankrupt had at this conference admitted that the applicant held security over certain titles in respect of the bankrupt's properties. Neither party sought to cross-examine any of these deponents and I have not felt able to reach any conclusion in respect of what took place at the conference. The respondent made an affidavit in which he stated that after sighting all the necessary original documents, which had been made available to him by the applicant, he was satisfied as to the fact that, with the exception of the sum of $2000 in respect of 45 Queensville Street, Footscray, the advances which are claimed to have been made have in fact been made and that the calculations are correct. The respondent referred to the fact that the applicant was claiming interest upon interest and stated that 1f 1t were held that the applicant was otherwise entitled to the amounts claimed, but is not entitled to charge interest on a compounding basis, the following would be the correct figures for the amounts owing :- "4 Glengala Road 46,712.79 anstead of $47,796.53 Lot 417 San Remo Drive, 69,958.29 " " 71,471.04 Lot 1216 Derrimut Road, 17,702.73 " " 17,928.44 Lot 585 Douglas Street, 9,246.89 " " 9,338.08 127 Anderson Street, 139,601.64 " " 148,601.64" The respondent also stated that after he sold Lot 14 Ballan Road he paid the proceeds of the sale into his account as trustee of the estate of the bankrupt "and thereby intermingled the proceeds of that sale with other monies belonging to the bankrupt estate." --/43 43. Mr. Tregent made an affidavit in reply in which he denied that loans were made to the bankrupt by him personally rather than by the applicant. He gave further details of the dealings with the bankrupt and his properties and denied the statements made by the bankrupt in his affidavit which contradicted his own earlier affidavits. In answer to questions by his counsel, Mr. R. Gillard, the bankrupt stated that he was of Greek origin and was born in Cyprus on 21 August 1921. He came to Australia in 1949 and first met Mr, Tregent when he consulted him after a motor car accident in 1963 or 1964 and later consulted him when he started operations as a builder for advice and for help in financing his building work, which increased in scale to the point where he had completed work to the value of $3,000.000. He was questioned by Mr. Gillard in relation to the affidavit verifying his Statement of Affairs which had been tendered as one of the applicant's exhibits, in which the applicant was shown as an unsecured creditor in the amount of $122,628.61 1n respect of the years 1975-1976 for advances made. The applicant was also shown as a secured creditor in Part III of the Statement, which set out the particulars of the secured debts owed to the applicant as follows :- ../44 44. Amount Year when Particulars of Estimated | Estimated Estimated of debt ; contracted security value of surplus deficiency, security at present $ $ $ $ 71,471 1976 Equitable mortgage 75,000 3,529 House 412 San Remo Drive, Avondale Heights. 19,757 " Equitable mortgage 28,000 8,243 Villa Units Lots 1 & 2 Hendry St, West Sunshine. 13,448 " Equitable mortgage 41,500 28,052 House lot 72 Glenmoyne Square, Werribee. 47,797 " Fquitable mortgage 65,000 17,203 House, 4 Glengala Road, West Sunshine. 9,338 " Equitable mortgage 15,500 6,162 Land, 585 Douglas Street, Sunshine. 17,928 " Equitable mortgage 11,500 6,428 Land, 14 Ballan Rd, Werribee. 145,689 " Equitable mortgage 140,000 5,689 Units, 127 Anderson St, Sunshine. 25,308 " Equitable mortgage | 14,000 11,308 Lot 111 Sheppards Lane, Lilydale. ../23 45. The bankrupt pointed out that in his affidavit verifying the Statement of Affairs the words "subject to all accounts being investigated" had been inserted and initialled by him. He stated in evidence that he did not borrow money from the applicant but from Mr. Tregent. In cross-examination the bankrupt, who had the assistance of an interpreter, who translated into Greek the questions put to him, was asked in respect of the title to 127 Anderson Roa d, Sunshine, which was in Mr. Tregent's offica, "why did you not take that title away and try to borrow some'_ .._ money, using that as security? Why did you not ask Mc.Tregent?" His answer was "Is Mr. Tregent give me some money and I not going to pick the title just like that, you know, just not going to pick it up." To the next question "Why not?" he replied, "It 1S my personal thing, it 1s no good to me to go and pick it up after borrowed to me some money as security, I am not going to pick it up, I feel to leave it here, there is nothing ......" Later he said "I cannot make to go and pick it up after lend to me some money these properties." The bankrupt agreed that he had been lent money to enable him to build flats at Hendry Street, Sunshine and to the question "Why did you not take the title to Hendry Street Sunshine away so you could borrow money?" replied, "I can not take 1t, 1t 1s the same thing, 1f you lent me say $10 and the property 1s worth $200 as my personal - I cannot sell the property before I pay to you the $10 just as I am not interested to go to pick something up if I know I have to borrow money." He agreed that he had a feeling that before picking up any of the titles he had to pay any money that had been advanced. The bankrupt said that his wife was making a claim to be an unsecured creditor of his estate in an amount which he did not know exactly but which he thought was approximately $40,000 to $55,000. His daughter was claiming to be an unsecured creditor, as was his son-in-law for a sum believed to be $60,000. The object of this part of the cross- examination was to show that the bankrupt had an interest in defeating the applicant's claim to be a secured creditor. --/46 46. He agreed that when he borrowed money through Mr. Tregent on a particular property, that money was not paid by him all at once, but by progress payments made after Mr. Keith Tregent had inspected the property, so as to be able to say what value it had reached at that particular stage. When shown two mortgages over the Anderson Road property, he agreed that the signature on each of them was his, but denied that he had signed them as completed mortgages, Saying that he had signed blank mortgage forms which Mr. Tregent was free to complete on his behalf. He was then referred to his affidavit of 23 August 1978, in which he had sworn that at the request of Mr. Tregent he did sign mortgages in relation to that property. He again said that he had never signed any mortgage over that property and that he did not remember signing the paragraph in the affidavit. When shown a mortgage over l and 2 Hendry Street he agreed that 1t bore his signature but denied that he had signed it as a completed mortgage. Later he repeated that he signed many mortgage forms like that, "empty all the time". When re-examined on this question, he said that he was asked by Mr. Tregent to sign blank forms and he did not realize that they were mortgage forms until later. Mr.Tregent, he said, did not tell him that they were mortgage forms. These allegations were made for the first time in the course of the bankrupt's re-examination at a very late stage in the long history of these transactions. During the course of the cross-examination of Mr. Tregent it had not been put to him that 1t was, or would be, alleged by the bankrupt that he had, as his solicitor, asked him to sign mortgage forms in blank. Leave was given for Mr. Tregent to return to the witness box, and in answer to counsel for the applicant, he denied the allegations which the bankrupt had made and stated that he did not have any conveyancing documents signed in blank by the applicant. + -/47 47. There is plainly a direct conflict between the account of the facts in question in the case given by Mr. Tregent and that given by the bankrupt. Mr. Gillard nade detailed criticisms of Mr. Tregent's evidence, which I have considered, but I am satisfied that he was a truthful and reliable witness, Where the accounts given by Mr. Tregent and the bankrupt differ, I have no hesitation in preferring that of Mr. Tregent. The bankrupt, on the other hand, when one makes full allowance for the imperfections of his English, was a most unimpressive witness. I am satisfied that the mortgages in respect of the Hendry Street and Anderson Road properties were executed by the bankrupt. I reject as false his eleventh hour allegations that his signatures on these documents had been placed by him on blank forms. Counsel for the applicant described the Anderson Road mortgage as being unenforceable because of the bankruptcy of the bankrupt, but relied upon its execution as corroborative of Mr. Tregent's evidence. He contended that the unregistered Mortgage over the Hendry Street properties "evidenced in a more solemn form the existing equitable mortgage subject to the qualification that the due date was extended to 15 May, 1977." In addition, he submitted that the unregistered instrument constituted a further equitable mortgage. The bankmpt continued to assert on oath that his borrowings were from Mr. Tregent personally and not from the applicant, when there was massive evidence establishing that this was not so. I could not regard him as being a truthful or reliable witness. The general picture which he sought to draw of Mr.Tregent being willing to make repeated and substantial advances to him, without seeking any security in respect of them, was inherently improbable. The interest rates charged were appropriate to secured loans but not to unsecured advances. There is authority for the Court taking judicial notice of what are, and what are not, excessive rates - see Wilson v. Moss (1910) 8 C.L.R. 146 where the High Court rejected the view of A'Beckett J., in the Court below that evidence should have been given as to the current rate of interest charged ../48 48. in respect of similar loans (8 C.L.R. at pp. 154, 164, 167). In that case Griffith C.J. and Isaacs J., referred to Samuel v. Newbold (1906) A.C. 461 where at p.475 Lord James saia - "The word 'excessive' applied to interest is, of course, a relative and elastic term, impossible of absolute definition. But we know the general rate of interest 1n commercial transactions and in loans on perfect secur?ty. '''e know the rate of interest juries are in the habit of giving in cases of adjudging damages. But in respect of ordinary loans deviation from these guides dependent upon the facts of each case, must doubtless be expected and ought to be allowed. But such deviation must be reasonable in relation to facts." Mr. Sherar's account of the bankrupt's dealings with his bank, which I accept, was quite inconsistent with the bankrupt's evidence. It was clear that the bankrupt was hard pressed for funds and if he had been free to lodge additional titles with his bank, he would undoubtedly have done so. Dudley Tregent & Co. acted as solicitors for the bankrupt and Mr. Tregent frequently attended to conveyancing work in respect of his properties. As ir the course of that relationship, it would be natural to expect thatthe certificates of title would at some stage have been in the offices of Dudley Tregent & Co., 1t is necessary to look carefully at the evidence relating to the deposit of the relevant certificate or certificate of title in each case. In relation to each of the properties, I am satisfied that the bankrupt expressly authorised Mr. Tregent to deposit the relevant certificate or certificates with the applicant as security for advances made and to be made by the applicant to the bankrupt in respect of each property. Accepting, as I do, the evidence of Mr. Tregent and Mrs. Grant, I am satisfied that all the relevant certificates were so deposited. The conclusion that this was done with the authority of the bankrupt is supported by the fact that, despite his urgent need for security to obtain loans elsewhere, he at no time called upon the applicant to make any of these certificates available to him. of 49 49. I am satisfied that the advances alleged to have been made were in fact made and that the interest upon them has been correctly calculated. Except for the amount of $2000, 1n respect of which I.accept Mr. Tregent's evidence, the respondent has conceded the arithmetical accuracy of the claims and the calculation of interest, if it were established that the applicant was entitled to claim compound interest. The evidence amply justifies a finding, whach I make, that 1t was a term of the agreement between them that compound interest should be paid. A covenant to allow interest to be added to the principal at stated periods and to pay interest on the whole has been held to be implied from the fact that on former occasions the accounts between the parties have been stated and settled on that footing (see Bruce v. Hunter (1913) 3 Camp 467; Newal v. Jones (1830) 1M. and M. 449). In Domaschenz v. Standfield Properties Pty. Ltd. (1977, 17 S.A.S.R. 56 at p.60) the Full Court of the Supreme Court of South Australia approved of the statement of the general rule in Halsbury 3rd Edition Volume 27, p.8, in these terms :- "Compound interest will not be allowed except where there 1s an agreement, express or implied, to pay it, or where the debtor has employed the money in trade and has presumably earned it, or unless its allowance 1S 1n accordance with a usage of a particular trade or business." Quarterly statements and settlement letters sent to the bankrupt were plainly based upon compound interest being charged. Mr. Tregent gave evidence that the bankrupt on frequent occasions inspected copies of the applicant's ledger sheets, and asked for copies of thu, which showed that compound anterest was being charged. The bankrupt accepted the charging of compound interest when the applicant was repaid from settlements made on sales of properties and when interest was Capitalised when mortgages were executed in respect of the Anderson Road and Hendry Street properties. Mr. Tregent gave evidence that compound interest has been charged at least as early as 1969, and that, before the commencement of any of the . -/30 20. transactions involved in this application, the bankrupt had been told that compound interest would be charged and had agreed to this being done. Being satisfied, as I have said, that there was an express agreement between the applicant and the bankrupt, giving rise to an equitable mortgage over each of the properties covered by the application, I have not found it necessary to turn to the further submissions made by the applicant in respect of the Hendry Street properties that the unregistered mortgage signed by the bankrupt constituted a further equitable mortgage. By reason of these equitable mortgages, the applicant would be entitled to the declarations sought without more, but for the fact that the respondent has pleaded the Statute of Frauds, as enacted in s.126 of the Victorian Instruments Act, which provides :- "126. No action shall be brought whereby to charge any executor or administrator upon any special promise to answer damages out of his own estate, or whereby to charge the defendant upon any special promise to answer for the debt default or miscarriages of another person, or to charge any person upon any agreement made upon consideration of marriage or upon any contract of sale of lands tenements or hereditaments or any interest in or concerning them or upon any agreement that 1s not to be performed within the space of one year from the making thereof unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized." To this plea, the applicant has replied that it relies upon the doctrine of part performance. Knox C.J. observed, in his dissenting judgment in Cooney v. Burns (1922) 30 C.L.R. 216 at p.221 that "the rules to be applied in determining whether a given act or series of acts amounts to such part performance as obviates the necessity for a memorandum in writing are reasonably clear, the difficulty lies in applying these rules to a particular state of facts." -/51 51. As was stated in Fry on Specific Performance 6th Edition p.276 - "In order thus to withdraw a contract from the operation of the statute, several circumstances must concur : lst the acts of part performance must be such as not only to be referable to a contract such as that alleged, but to be referable to no other title; 2ndly, they must be such as to render it a fraud in the defendant to take advantage of the contract not being in writing; 3rdly, the contract to which they refer must be such as in 1ts own nature is enforcible by the Court; and 4thly, there must be proper parol evidence of the contract which is let in by the acts of part performance." In Broughton v. Snook, 1938 1 Ch. 505 at 512, Farwell J. quoted this passage, saying "That statement 1s not only a statement by a very learned author but has received judicial approval and undoubtedly it is the law which I have to apply." The general principles governing a case where the doctrine of part performance is relied upon in order to overcome the diffaculty of the Statute of Frauds were set out in the joint judgment of Isaacs & Rich JJ. 1n McBride v. Sandiland (1918) 25 C.L.R. 69 at p.77-9 in these terms :~- n In Maddison v. Alderson (8 App. Cas., at p.469) Lord Selborne L.C., in a passage now classical, stated the result of the authorities to be that in a suit founded on part performance of a parol contract relating to land the defendant is really charged 'upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the Statute) upon the contract itself.' It 1s clear from what the learned Lord Chancellor says, that in such a case the Court is not asked to give a better remedy aun aid of a legal right, based on the contract, but 1s called upon to enforce an equity (andependent of the Statute, as Story observes - Equity Jurisprudence, sec.754) which has arisen by force of circumstances subsequent to the contract itself, namely, by acts of part performance sufficient to attract the equitable jurisdiction of the Court. Lord O'Hagan, in the same case, pursues the principle further by pointing out that the proper course in such proceeding is that of 'seekang to establish primarily such a performance as must necessarily inply the existence of the contract, and then 52. proceeding to ascertain its terms,' and that the Court below had erred in reversing that order. No harm can arise from reversing the order as a matter of convenience in taking evidence, provided the necessary elements of part performance are borne in mind and properly applied to the circumstances when the facts come under consideration. But if the terms of the oral bargain are first ascertained and then the alleged acts of part performance are judged ef merely by their consistency with and applicability to that bargain, grievous error May result. Much of the argument of the respondent ran upon that erroneous line, and to some extent the judgment under appeal is affected by it. It will conduce to precision in dealing with the voluminous and complicated circumstances detailed in the evidence to state, so far as material to the present case, certain elements of part performance essential to raise the equity :- (1) The act relied on must be unequivocally and in its own nature referable to 'some such agreement as that alleged'. That is, it must be such as could be done with no other view than to perform such an agreement (Maddison v. Alderson 8 App. Cas., at p. 479; Gunter v. Halsey Amb. 586; Ex parte Hooper 19 Ves., 477, at p. 479. (2) By 'some such agreement as that alleged' 1s meant some contract of the general nature of that alleged (Maddison v. Alderson 8 App.Cas., at p.485; Savage v. Carroll 1 Pall & B., 265,at p.282; Fry on Specific Performance, 5th ed., at p. 292). (3) The proved circumstances in which the 'act' was done must be considered in order to judge whether it refers unequivocally to such an agreement as is alleged (Savage v. Carroll, 1 Pall & B., 265, at p. 282; Hodson v. Heuland, (1896) 2 Ch., 428.). Expressions are found in some cases which, 1f literally read, are to the effect that mere possession by a stranger is sufficient to let in parol evidence of any contract alleged. Those cases were prior to Maddison v. Alderson, 8 App. Cas., 467, and the expressions, 1f literally read appear to be too wide, because, so read, they would conflict with the requirement that the act must unequivocally refer to some such contract as is alleged, and because bare possession does not necessarily connote trespass, or, alternatively, a contract at all; indeed, some contracts would not justify the act done. Possession may be the result of mere permission. But if the circumstances undcr which the possession was given are proved, then +/53 at pp. 53. then the Court may judge whether the act indicates permission or contract, and, if contract, 1ts general character. For instance, in Frame v. Dawson, 14 Ves., at p.388 the expression 'some agreement' is used, we think, in contradistinction to the specific terms of the agreement, and not in the most general sense of any agreement whatever. (4) It must have been in fact done by the party relying on it on the faith of the agreement, and further the other party must have permitted it to be done on that footing. Otherwise there would not be 'fraud' in refusing to carry out the agree- ment, and fraud, that is moral turpitude, is the ground of jurisdiction (Fry on Specific Performance, 5th ed., par. 588; McCormick v. Grogan L.R. 4 H.L., 82, at p. 97; Whitbread v. Brockhurst, 1 Bro. Ch., 404, at p.417; Phillips v. Alderton, 24 W.R., 8.). (5) It must be done by a party to the agreement (Fry on Specific Performance, par. 589). These requirements must be satisfied before the actual terms of the alleged agreement are allowed to be deposed to. Further, when those terms are established, it still remains to be shown :- (6) That there was a completed agreement (Thynne v. Glengall 2 H.L.C., 131 at p.158.), (7) That the act was done under the terms of that agreement by force of that agreement (Thynne v. Glengall, 2 H.L.C., 131, at p. 158.)" In Cooney v. Burns (cited above) Knox C.J. 24-5 said :- It is well settled that a verbal agreement to give a mortgage is valid, notwithstanding the Statute of Frauds, if the title-deeds are in the possession of the proposed mortgagee. According to Lord Selborne (Maddison v. Alderson, (1883) 8 App. Cas., at p. 480) the law of equitable mortgage by deposit of title-deeds depends on the same principles as the doctrine of part performance regarded as an answer to the defence of the Statute of Frauds. The decisions in cases relating to equitable mortgage establish : (1) that a valid equitable mortgage cannot be created by a mere parol agreement to give a legal mortgage if the deeds remain in the possession of the proposed mortgagor; ~/54 alata 54. (2) that a valid equitable mortgage can be created by a mere parol agreement to give a legal mortgage 1f deeds have been handed over to the proposed mortgagee where his possession of the title deeds cannot be otherwise explained (Russel v. Russel (1783) 1 Bro. C.C., 269; James v. Rice (1854) 5 DeG. M. & G., 461.).The importance of the possession of the title deeds in cases of agreement to give a security over land is therefore apparent." When one turns to the facts of the present case to decide the question whether the applicant has an effective answer to the plea of the Statute of Frauds, it 15s first necessary, in the words of Smith J. in Francis v, Francis (1952 VLR 321 at 340), "to exclude from consideration the evidence of the alleged parol agreement between the parties and to look at the act relied upon in the light of the surrounding circumstances as revealed by the rest of the evidence." While mere deposit of documents of title has been held to be an answer to the plea of the Statute of Frauds, (see ex parte Pegler, No. 17/1964 XII, F.C. of B. 17/12/1968, per Gibbs J.) 1t is not unhelpful to look at the circumstances surrounding the deposit which, in the present case, include the following :- 1. the applicant frequently inspected the progress of the work being carried out on each property; 2. in relation to each property, the applicant made progress payments to the bankrupt, as the work proceeded and as his financial needs increased; 3. the sums advanced by the applicant to the bankrupt grew to very substantial amounts; 4. the applicant accepted rates of interest appropriate to loans made on first mortgage security, but considerably below the rates one would have expected to have been charged in respect of unsecured advances, especially as they reached very substantial totals. --/55 55. In my opinion, the applicant has effectively answered theplea of the Statute of Frauds in respect of each property. It 1s not necessary to consider its further contention that there existed documents constituting notes or memoranda of the equitable mortgages, within the meaning of s.126. In respect of the Ballan Road property the respondent has sought to rely upon the fact that the applicant, after bankruptcy, handed over to him the certificate of title to this property. In this connexion, 1t 1s useful to consider the rules in Ex parte James (1874 L.R. 9 Ch. 609). In that case the Court of Appeal held that a trustee in bankruptcy to whom an execution creditor had paid over the fruits of his execution, under a view of the law shortly afterwards shown to have been erroneous, was bound to refund the money so paid. In Ex parte Simmonds, in re Carnac (1885 16 Q.B.D. 308) the Court of Appeal was hearing an appeal against an order in bankruptcy that the trustee in the liquidation of Sir John Carnac should, out of any assets then in his hands, not disturbing any dividends already declared, or out of the first assets thereafter to come to his hands, repay a sum of money which had been paid to him under a mistake of law. The appeal was dismissed. Cotton L.J. observed (at pp. 313-4): "But the funds applicable to the payment of dividends to the creditors have been erroneously increased by means of that payment to the trustee, and the question 1s whether the sum thus paid in error ought not to be repaid out of those funds. In my opinion Ex parte James, Law Rep. 9 Ch. 609 lays down this proposition, that when the officer of the Court has in his hands a sum of money which has been paid to him erroneously under a mistake of law, the ordinary rule as between adverse litigants does not apply, but he will be ordered to repay it. It has been urged, and rightly urged, that in [Ex parte James, Law Rep. 9 Ch. 609 the money was still in the hands of the trustee, whereas in the present case the money has been distributed among the creditors, and that our decision will be a development of the principle of Ex parte James, Law Rep. 9 Ch. 609. But, in my opinion, we must regard .-/56 56. the funds available for distribution among the creditors under a bankruptcy or liquidation as one entire fund, and, if that fund has erroneously increased, I think it is a just extension of Ex parte James, Law Rep.9 Ch.609 to say that, out of any moneys which may hereafter be in the hands of the trustee and applicable to the payment of dividends to the creditors, the amount which has come into his hand by mistake ought to be repaid. If the trustee desires it the registrar's order may be qualified by saying, that the repayment 1s to be made out of any moneys which may now or hereafter be in the hands of the trustee and applicable to the payment of dividends." In re Rhodes ex parte Rhodes (1899 2 Q,B. 347) the Court of Appeal held, in the first place, that an executrix had a right to retain her debt out of the assets which she had got in, and went on in the words of Lindley, MR. (at p.355) as follows :- . The second question presents no real difficulty. The executrix, not knowing her rights, paid the whole 1100¢. over to the trustee. He, however, has not distributed the assets, and no injustice will be done to him or to any one if he is ordered to repay to her the amount which she was entitled to retain. Ex parte James, (1874) L.R. 9 Ch. 609 and Ex parte Simmonds (1885) 16 Q.B.D. 308 are distinct authorities to shew that mistakes of this kind, although attributable to ignorance of law, can and will be set right by the Court so long as the officer of the Court still has the money in his hands. Still less can the proof by the executrix un the bankruptcy, withdrawn, as 1t was, when she @iscovered her error, deprive her of her right to have her money back. " In the present case, no dividend has been declared and no injustice will be done to the respondent, or to anyone, if the applicant 1s not prevented by its mistake from obtaining the order to which it is entitled, declaring that it was a mortgagee of the Ballan Road property and ordering that the respondent should pay to the applicant a sum equal to the nett proceeds of the sale by him of that property and interest hereon. If the parties are unable to agree upon -f57 57. the amount of interest to be paid, application may be made to the Court pursuant to the general liberty to apply reserved hereunder. The Court declares that - the applicant 1s a mortgagee of the land known as Lot 417 San Remo Drive, Avondale Heights, being the whole of the land more particularly described in Certificate of Title Volume 8702 Folio 229 in the Register Book of the Office of Titles at Melbourne, and having been the property of the bankrupt until his bankruptcy, and holds such mortgage as security for a debt of $82,322.82 due by the bankrupt to the applicant; the applicant 1s a mortgagee of the land known as 127 Anderson Road, Sunshine, being the whole of the land more particularly described in Certificate of Title Volume 6055 Folio 902 in the said Register Book, and having been the property of the bankrupt until his bankruptcy, and holds such mortgage as security for a debt of $147,425.16 due by the bankrupt to the applicant; the applicant 1s a mortgagee of the land known as 1 and 2 Hendry Street, Sunshine, being the whole of the land more particularly described an Certificate of Title Volume 9151 Folio 993 and in Certificate of Title Volume 9151 Folio 999 in the said Register Book, and having been the property of the bankrupt until his bankruptcy, and holds such mortgage as security for a debt of $21,152.69 due by the bankrupt to the applicant; + /58 58. the applicant at all material times prior to the sale by the respondent of the land known as 111 Sheppards Lane, Lilydale, being the whole of the land mre particularly described in Certificate of Title Volume 8526 Folio 718 in the said Register Book, and having been the property of the bankrupt until his bankruptcy, was a mortgagee of the said land, and that the applicant at all material times prior to the said sale held such mortgage as security for a debt of $25,609.31 due by the bankrupt to the applicant, and that the applicant is entitled to have paid to it the proceeds of sale of the said land and interest thereon now held by the respondent in an interest bearing deposit with the Commercial Bank of Australia Limited; the applicant at all material times prior to the sale by the respondent of the land known as Lot 14 Ballan Road, Werribee, being the whole of the land more particularly described in Certificate of Title Volume 8655 Folio 524 an the said Register Book, and having been the property of the bankrupt until his bankruptcy, was a mortgagee of the said land and that the applicant at all material times prior to the said sale held such mortgage as a security for a debt of $17,928.00 due by the bankrupt to the applicant, and that the applicant is entitled to have paid to it the proceeds of sale of the said land now held by the respondent, together with interest thereon in such amount as may be agreed between the applicant and the respondent, and in default of such agreement, as shall be decided by the Court on application made pursuant to liberty to apply hereunder. ~-/59 59, The Court orders that the taxed costs of the applicant of and incidental to the application be paid by the respondent, and that the amount so paid, together with the taxed costs of the respondent of and incidental to the application, be recovered by the respondent from the estate of the bankrupt. General liberty to apply is reserved to the applicant and to the respondent.