New South Wales Supreme Court CITATION : Torre v Jonamill [2002] NSWSC 152 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5207/01 HEARING DATE(S) : 28/02/02 JUDGMENT DATE : 12 March 2002 Julie Torre - Plaintiff PARTIES : Jonamill Pty Limited - First Defendant Neale Marshall - Second Defendant Robert McLaughlin - Third Defendant JUDGMENT OF : Barrett J COUNSEL : Mr J.E. Armfield - Plaintiff Mr P.M. Barham - Defendants SOLICITORS : McLaughlin & Riordan - Plaintiff Wood Marshall Williams - Defendants CATCHWORDS : MORTGAGES - mortgages and charges generally - construction of "all moneys" mortgage - MORTGAGES - variation of unregistered mortgage of Torrens title land by statutory form of variation - significance of lack of registration of both mortgage and variation LEGISLATION CITED : Real Property Act 1900 Conveyancing Act 1919 Anning v Anning (1907) 4 CLR 1049 Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 CASES CITED : Milroy v Lord (1862) 4 DeG F & J 264 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Scarel v City Loan & Credit Corporation Pty Ltd (1986) 4 BPR 9226 DECISION : Refer paragraphs 31 to 34 inclusive - 12 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J TUESDAY, 12 MARCH 2002 5207/01 – TORRE v JONAMILL PTY LIMITED JUDGMENT 1 These proceedings concern competing claims to a fund of $46,888.88 created by agreement between the plaintiff, Julie Torre ("Ms Torre") and the first defendant, Jonamill Pty Limited ("Jonamill"). The fund is held in the form of an interest bearing bank deposit by the second and third defendants. They are the respective solicitors for Ms Torre and Jonamill. 2 It is necessary to describe briefly the background to and nature of the agreement. In December 1993, Ms Torre became one of several co-owners of real property at Summerland Point. She and her two daughters held, as joint tenants, an undivided one half share in that property, the other undivided one half share being held by Jacques Briand ("Mr Briand") and Marie Josephine Briand ("Mrs Briand") as joint tenants. In the latter part of 2001, the property was, by consensus of the five co-owners, sold for a price of $350,000 which was paid in cash on completion which occurred on 24 August 2001. A sum of $185,000 was, on completion, paid to Aussie Home Loans which thereupon delivered a discharge of a registered mortgage held by it. Mr Briand and Mrs Briand were, as among the co-owners, entitled to $82,500 (subject to completion adjustments), being one-half of the balance after payment of the mortgagee. It was from that entitlement that the fund of $45,888.88 was set aside and invested by the solicitors for Ms Torre and Jonamill. 3 Ms Torre had, over a period of several years before the sale, lent money to Mrs Briand and, to a lesser extent, Mr Briand. They, in February 1994, executed in favour of Ms Torre a form of mortgage in respect of their undivided share in the property at Summerland Point the title to which was under the provisions of the Real Property Act 1900. That mortgage remained unregistered, there being, at all material times, the registered mortgage to Aussie Home Loans which no doubt held the certificate of title. Mrs Briand, it appears, encountered particular financial difficulties since, at some time before April 2001, Jonamill obtained judgment against her in the sum of $45,888.88 in the Local Court at Manly. Jonamill, as judgment creditor, then proceeded to levy execution against Mrs Briand's interest in the Summerland Point property and caused a copy of the writ to be served upon the Registrar-General who, in turn, entered particulars of it on the relevant folio of the register on 5 April 2001. This entry was discovered by the purchaser's solicitor in the course of the conveyancing transaction. 4 Competing claims then arose in relation to the interest of Mr Briand and Mrs Briand as between Ms Torre as the holder of the unregistered security granted by them and Jonamill as the judgment creditor of Mrs Briand. In order to ensure that the sale of the property was not lost and completion could occur, the vendors came to an arrangement with Jonamill under which it agreed to have notification of its writ of execution removed from the title to the property on the footing that $45,888.88 would be withheld from the part of the net proceeds of the sale that would otherwise accrue to Mr Briand and Mrs Briand; that that sum would be invested by the solicitors for Ms Torre and Jonmill as already outlined; and that such moneys as were secured by Ms Torre's mortgage immediately before completion would be paid to her out of the fund, with Jonamill receiving the balance, if any. 5 It is probably not entirely correct to say, as I have, that this agreement existed at the time of completion of the sale. At that time, as I understand it, Jonamill asserted a claim in priority to that of Ms Torre as mortgagee and the arrangement was for the retained fund to be disbursed according to the way in which those priorities were eventually resolved. By the time the matter came to trial, it was acknowledged by Jonamill that its position as judgment creditor, even with its writ of execution recorded on the title to the property, was postponed to that of the holder of an equitable mortgage. It was further acknowledged that the effect of the parties' agreement was as I have earlier stated, that is, that Ms Torre should have first call on the fund to the extent of the moneys secured by her mortgage and that the balance, if any, should pass to Jonamill. That being so, the crucial question concerns the extent of Ms Torre's secured debt at the time of completion of the sale of the property on 24 August 2001. 6 The central issue agitated before me was whether the sum that was secured by and owing under Ms Torre's mortgage at the time of completion of the sale is properly regarded as having been $100,000 (as she contends), or whether an inquiry should be ordered to determine the extent of the moneys secured. When the issue is stated in this way, it becomes clear that if Ms Torre does not succeed in showing that the sum secured was $100,000, the appropriate course will be to order an inquiry. 7 It is necessary to look in some detail at the mortgage. It is in the form approved by the Registrar-General. Ms Torre is named as mortgagee. Mr Briand and Mrs Briand are together named as mortgagor and the following words appear after their names and descriptions: "as joint tenants of an undivided half share mortgages to the mortgagee all the mortgagor's estate and interest in the land specified above and covenants with the mortgagee that the provisions set out in Annexure A hereto Memorandum No V179498 filed in the Land Titles Office are incorporated in this mortgage …" 8 There is thus, obviously enough, an intention to incorporate and adopt covenants by the mortgagor in the terms of both provisions in the mortgage's own annexure A and those in filed memorandum V179498. The annexure A is brief. It reads: "The Mortgagor hereby acknowledges receipt of the sum of $26,706.25 and covenants with the Mortgagee to observe the provisions of any lending agreement made between the Mortgagor and the Mortgagee by virtue whereof the sum aforesaid has been advanced." 9 Filed memorandum V179498 begins, in clause 1A, with the words "The principal sum shall be deemed to include" and then goes on to give in its paragraphs (a) to (e) a wide-ranging "all moneys" description referring to present and future advances and other indebtedness of various kinds together with interest. Clause 1B then says: "Such moneys and interest will be paid at such time or times and in such manner as may at any time and from time to time be agreed in writing between the mortgagee and the mortgagor and in default of such agreement on demand which may be made at any time and from time to time." 10 So much for the mortgage itself, its annexure and the filed memorandum referred to in it. It is then necessary to mention a variation of mortgage dated 14 December 1995. The operative part of this document reads: "The principal sum is increased to $53,000.00." 11 A second variation of mortgage is dated 11 August 2000. Its operative part reads: "The principal sum is increased to $100,000.00." 12 With the exception of the filed memorandum (which was lodged by Beswick & Beswick, solicitors, in 1984), none of these documents has been lodged at the Land Titles Office, but each is executed by the parties to it and attested appears to be duly stamped. It is, I think, accepted that both the mortgage and the two variations are in registrable form. 13 This last factor forms the basis for a submission made on behalf of Ms Torre that she was properly to be regarded as the holder of an equitable mortgage of the undivided half share of which Mr Briand and Mrs Briand were registered as proprietor. Mr Armfield of counsel, who appeared for Ms Torre, based that submission on Milroy v Lord (1862) 4 DeG F & J 264 and Anning v Anning (1907) 4 CLR 1049. The evidence shows that advances were made by Ms Torre both before and after the execution of the mortgage and it may be accepted that it was given for valuable consideration with the result that there is implied an enforceable contract that by Mr Briand and Mrs Briand to afford Ms Torre the position of a legal mortgagee, with the result that she became, as she asserts, an equitable mortgagee. 14 The next step in the submissions made on Ms Torre's behalf is, however, not so easy. As I understood Mr Armfield's submissions, it is said that Ms Torre, as equitable mortgagee, was, by virtue of the series of unregistered instruments, to be regarded as enjoying security, in that form, in respect of a fixed and certain debt of $100,000, that being the level to which the second variation of mortgage, according to its terms, increased the "principal sum". On this argument, the "principal sum" most recently described in an executed variation is conclusively presumed to be the debt owing by the mortgagor to the mortgagee and secured by the mortgage. 15 The instrument of variation was obviously prepared by reference to s.91(1)(c) of the Conveyancing Act 1919 but in the form approved for use in varying a mortgage affecting land under the provisions of the Real Property Act. Section 91(2) of the Conveyancing Act says that a memorandum under s.91(1)(c) which increases or decreases "the amount secured by the mortgage", if indorsed on or annexed to the mortgage, signed by the persons to be bound and attested by one witness, operates as a deed. Section 91(6) deals with mortgages under the Real Property Act: "Subject to the memorandum referred to in subsection (1) being in or to the effect of an approved form within the meaning of the Real Property Act 1900, paragraphs (b), (c), (d) and (d1) of that section apply to mortgages under that Act and, upon lodgment of such a memorandum for registration, the Registrar-General shall make such recordings in the Register kept under that Act as may be necessary to give effect to the memorandum." 16 There is a question as to the meaning of "mortgages under that Act" (referring to the Real Property Act) in this provision of the Conveyancing Act and whether the expression includes an unregistered mortgage of the kind involved in this case. 17 The term "mortgage" is defined by the Real Property Act as meaning "any charge on land (other than a covenant charge) created merely for securing the payment of a debt". Section 56(1) provides: "Whenever any land or estate or interest in land under the provisions of this Act is intended to be charged with, or made security for, the payment of debt, the proprietor shall execute a mortgage in the approved form." A legal mortgage does not come into existence until registration: s.41. In light of the words of s.56(1), an unregistered mortgage, while capable of taking effect in equity as already mentioned, is, in terms of the Real Property Act itself, regarded as no more than an intended mortgage and therefore as not within the Conveyancing Act's description "mortgages under that Act", even though it is clearly within the definition of "mortgage" in s.7(1) of the Conveyancing Act (" … includes a charge on any property for securing money or money's worth") and, moreover, a mortgage of land held under the provisions of the Real Property Act . 18 If such an unregistered mortgage of land under the Real Property Act having effect under the general law as an equitable mortgage is not included in the expression "mortgages under that Act", it is, as I have said, nevertheless a "mortgage" as defined by s.7(1) of the Conveyancing Act, so that s.91(2) causes a similarly unregistered instrument of variation satisfying s.91(1) to operate as a deed and that is the end of the inquiry. 19 If, however, the unregistered mortgage is regarded as a mortgage "under" the Real Property Act, the inquiry is more extensive. Such an unregistered instrument of variation may, by force of s.91(2) of the Conveyancing Act , operate as a deed despite the lack of registration unless that lack, viewed in the context of the concluding words of s.91(6) (" … such recordings … as may be necessary to give effect to the memorandum …"), deprives the instrument (or "memorandum") of all effect unless and until the recordings are made. 20 I do not consider such a conclusion to be supportable. In Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32, Kirby P said: "The only way in which the personal covenants contained in the valid original mortgage between the respondent and the appellant could be varied was by deed. That is why s.91(1) of the Conveyancing Act 1919 requires a variation to be signed by the persons to be bound thereby and attested by a witness. Only then will such a variation 'operate as a deed': see s.91(2)." 21 That case concerned a variation of a mortgage where the mortgage had been registered under the Real Property Act. Kirby P's statement indicates that an unregistered variation of such a mortgage takes effect as a deed upon execution and without registration. The significance of registration is, I think, that stated in Professor Lang's "New South Wales Conveyancing Law and Practice" (CCH looseleaf) at para 36-400: "The variation must be registered to secure an indefeasible title to (in the case of Torrens title land) or priority for (in the case of old system land) the rights created by the variation." 22 It seems to me, therefore, that lack of Real Property Act registration of an instrument of variation is relevant only to issues going to indefeasibility of estate or interest as distinct from the content or effect of covenants. The dichotomy, as it exists in the context of a mortgage as such, was described as follows by Giles J in PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643: "That which is attained by registration is, in the words of s.42, an estate or interest in the land. Registration does not validate all the terms and conditions of the instrument which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor." 23 Because of the absence of the element consisting of registration under the Real Property Act in relation to both the mortgage and the variations, no question of indefeasibility arises in this case and, whichever of the above analyses is correct, the conclusion is that each unregistered variation, once executed and attested in the appropriate form, operated as a deed by virtue of s.91(2) of the Conveyancing Act. 24 Once that point is reached, the matter resolves itself into an issue of construction of the mortgage (including its annexure A and filed memorandum V179498) and the instruments of variation which came to constitute a single contract "compounding the terms of the previous mortgage, plus the variations": see Scarel v City Loan & Credit Corporation Pty Ltd (1986) 4 BPR 9226. 25 The mortgage as executed did not state any principal sum or amount secured. There was an acknowledgement by the mortgagor of receipt of $26,706.25 and a covenant by the mortgagor to observe the provisions of any lending agreement between the parties under which that sum was advanced. There was also a covenant to pay, as from time to time agreed but otherwise on demand, all moneys from time to time owing or payable to the mortgagee and within the wide "all moneys" description, all such moneys being moneys which the "principal sum" was "deemed to include". But the "principal sum" deemed to include all such moneys was not otherwise identified, defined or expressed. In particular, the advances of $26,706.25 were not stated to be the "principal sum". Significantly, there was no covenant to pay the "principal sum" as such. 26 In these circumstances, it seems to me that the construction consonant with the parties' intention as it may be gathered from the document (including its annexure A and the filed memorandum) is that the mortgage, as originally created, should stand as security for a potentially fluctuating aggregate of the sums for the time being owing by the mortgagor to the mortgagee including in particular the acknowledged advances of $26,706.25 or so much of them as might for the time being remain outstanding. 27 It is then necessary to consider the effect of the two subsequent variation documents which recorded an agreement to increase the "principal sum" or, as s.91(1)(c) would have it, "the amount secured by the mortgage". By its terms, it seems to me, each such instrument purported to record a new consensus as to the amount for which the mortgage should be available as security – and I stress the word "available". The items within the "all moneys" specification were expressed originally to be moneys that the "principal sum" was "deemed to include", so that the principal sum was thereby recognised as a kind of umbrella under which actual liability for the "all moneys" items existed. There was not, as I have noted, any covenant to pay the "principal sum": the covenant to pay extended to all the items within the "all moneys" categories the aggregate of which the "principal sum" was "deemed to include". The two instruments of variation, on that footing, did not amount to acknowledgement by the mortgagor of actual indebtedness for the increased "principal sum". Rather, there was an acknowledgement of increase in the extent of the umbrella under which actual liability for the "all moneys" items existed. 28 The evidence shows that the relationship between the parties to the mortgage involved periodic advances unattended by formality. Receipts were not taken. The mortgagee did not engage in conventional or detailed bookkeeping. There is evidence of at least one repayment followed by yet further advances. The situation thus has some similarities to a running account, rather than a loan of a fixed sum. The mortgage, as originally created, was stamped in such a way as to be available as a security only to the extent of the initially specified sum of $26,706.25. Each of the two variation instruments – the first purporting to increase the principal sum or amount secured to $53,000 and the second purporting to increase it to $100,000 - was accompanied by an upstamping to ensure that the stamp duties legislation would not impede the mortgage's efficacy as a security for a maximum equal to the larger amount. These circumstances lend weight to the status of the "principal sum" as an umbrella of the kind to which I have referred. 29 On this basis, Ms Torre cannot succeed in her argument that, by virtue of the successive instruments of variation (or, more accurately, the second of them), she was entitled, as against Mr Briand and Mrs Briand, to sue for and recover, as at 24 August 2001, a fixed and certain sum of $100,000. Rather, she was entitled to sue for and recover, and to resort to the mortgage as security for, the balance then actually owing in respect of the various items within the "all moneys" descriptions, to the extent that that balance was included in the "principal sum" as acknowledged by the parties to the mortgage most recently before 24 August 2001. 30 It follows that, in terms of the agreement between Ms Torre and Jonamill as to ownership and disposition of the funds held under the control of the respective solicitors, there must be an inquiry to decide the state of account between Ms Torre on the one hand and Mr Briand and Mrs Briand, on the other, thereby ascertaining the sum actually owing to Ms Torre under the "all moneys" categories at the time of completion of the sale of the property. This inquiry should be undertaken by a Master. 31 The first appropriate order is therefore that there be referred to a Master for inquiry and determination the following matter, namely, the sum, if any, which was, at 24 August 2001, the aggregate of all moneys owing or payable by either or both of Jacques Briand and Marie Josephine Briand to Julie Torre, being moneys within the various descriptions in paragraphs (a) to (e) of clause 1A of the filed memorandum V179498 incorporated into the unregistered instrument of mortgage between those parties dated 19 February 1994. 32 There will also a be a need to deal with the disposition of the funds in the hands of the two solicitors, including such interest as has been generated, in the light of the result of the inquiry. The second appropriate order, therefore, is that there be referred to the same Master the matter of determining the disposition, consistently with these reasons, of the sum of $45,888.88 (plus interest thereon) held by the second and third defendants. 33 Orders are made in the terms stated in paragraphs 31 and 32. In case there are incidental matters to be attended to in relation to those orders, each party is granted liberty to apply on 48 hours notice to the other. 34 As to costs, the result is that Ms Torre has been unsuccessful in making out what was effectively her claim to the whole fund of $45,888.88 on the footing that the debt owed was the fixed and certain sum of $100,000. She is therefore ordered to pay the costs of the first defendant. ********** Last Modified: 03/14/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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