New South Wales Supreme Court CITATION : Abeeda Khan (as Trustee for the Khan Family Trust) v Abdallah Hadid & Anor [2003] NSWSC 1191 HEARING DATE(S) : 02/12/03 JUDGMENT DATE : 18 December 2003 JUDGMENT OF : Cripps AJ DECISION : (i) Plaintiff's appeal is successful; (ii). Judgment made for possession; (iii) The plaintiff has leave to issue a writ of possession 28 days from today; (iv) Defendants are to pay the plaintiff's costs of the motion CATCHWORDS : possession - mortgage - registration indefeasible by title despite alleged fraud Contracts Review Act 1980 (NSW) LEGISLATION CITED : Real Property Act 1900 (NSW) Supreme Court Rules Assets Co v Mere Roihi [1905] AC 176. CASES CITED : Breskvar v Wall (1971) 126 CLR 376 Frazer v Walker [1967] 1 AC 569 J A Westaway & Sons v Registrar General & Ors (NSWSC unreported, 15 August 1996) PARTIES : Abeeda Khan (as Trustee for Khan Family Trust) - Plaintiff Abdallah Hadid & Sanaa Hadid - 1st & 2nd Defendants FILE NUMBER(S) : SC 10537/03 COUNSEL : P Newton - Plaintiff A Rogers - 1st & 2nd Defendants SOLICITORS : Heidtman & Co - Plaintiff Equity Lawyers - 1st & 2nd Defendants IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CRIPPS AJ 18 December 2003 10537/03 - Abeeda Khan as Trustee for the Khan Family Trust v Abdallah Hadid & Anor JUDGMENT 1 HIS HONOUR: This is an application pursuant to Part 13 of the Supreme Court Rules for summary judgment in favour of the plaintiff Abeeda Khan as trustee for the Khan Family Trust against the defendants Abdallah Hadid and Sanaa Hadid in ejectment and for an order for possession and that a writ of possession issue forthwith. The plaintiff also seeks an order that the cross claim of the defendants be summarily dismissed. 2 The defendants are the registered proprietors in fee simple of a property known as 662 Punchbowl Road Punchbowl being the whole of the land comprised in C/T Folio Identifier 17/12834. The plaintiff is the second mortgagee claiming an estate or interest in the land by reason of the registration of a Real Property Mortgage 9253502J over the subject property on 31 December 2002. 3 The statement of claim was filed on 4 March 2003. The plaintiff recited the mortgage dated 25 November 2002 and its registration on 31 December 2002 pursuant to which the plaintiff claimed to have advanced the sum of $130,000 to the defendants. It was alleged that in breach of their obligations the defendants had defaulted in repayment and in consequence thereof the plaintiff was entitled to possession. 4 By their amended defence the defendants deny the plaintiff's right to possession. They assert they never received any monies from the plaintiff and deny they executed any documents in connection with the mortgage. They also pleaded non est factum to all documents relied on by the plaintiff in support of the validity of the mortgage and any loan agreement. The non est factum claim was abandoned during the hearing for the reason, one supposes, that the defendants are not alleging they signed documents in the belief that what they signed was radically different from what the document contained – rather it was that they never signed any documents. The defendants have also pleaded clause 7 of the Contracts Review Act 1980 (NSW). 5 In their amended statement of defence the defendants deny that they personally or through their agents executed, authorised the execution or ratified the execution of the mortgage document or any documents in support of it and deny they received any monies from the mortgagee. They allege the mortgage was procured by the fraud of Anna Maria Palumbo and that at all relevant times prior to registration the plaintiff was on notice by her servants or agents that the mortgage had been procured by fraud. The particulars of defence are included and they refer to conversations between the first named defendant and an unnamed person from the plaintiff's solicitors Heidtman & Co on or about 27 November 2002 and a conversation between the first defendant and the plaintiff's mortgage manager Response Finance Pty Ltd on or about the same day. It is alleged that the plaintiff by her servants and agents (Heidtman & Co and Response Finance Pty Ltd) and after being told that the mortgage had been executed by fraud procured the registration of the mortgage under the provision of the Real Property Act 1900 on 31 December 2002. 6 By their cross-claim the defendants deny any knowledge of the transactions relied on by the plaintiff and allege that the plaintiff's agent Response Finance Pty Ltd was a party to the fraudulent conduct of the forgers and for that reason the mortgage was unenforceable and should be set aside. 7 Although the defence originally appeared to be asserting fraudulent conduct by the plaintiff and her agents with respect to the execution of the mortgage the claim pressed before me was that the plaintiff by her agents (her solicitors Heidtman & Co and mortgage manager Response Finance Pty Ltd) were guilty of fraud by registering the mortgage after they had been told by the first named defendant that the defendants were the victims of fraudulent conduct. 8 Mr Newton on behalf of the plaintiff and Mr Rogers on behalf of the defendants accept that for the purpose of determining whether the defendant's defence should be struck out and summary judgment entered, the party seeking the orders bears the onus of satisfying the court that there is, in effect, no real question to be tried. This means, as I would understand the authorities, that the defendants do not have to affirmatively establish the correctness of their defence - summary judgment is not appropriate if the claim raises a triable issue of fact. 9 For the purpose of dealing with this application I have assumed facts asserted by the defendants and set out below to be arguable questions of fact: - That registered mortgage number 9253502J purporting to secure the repayment of $130,000 advanced by the mortgagee (the defendants) and to be repaid within 60 days is a forgery; - It was not signed by either defendant and, it together with all supporting documents sought by the lender and purporting to be signed by the two defendants were forgeries; and - Neither defendant received the sum of $130,000. 10 For present purposes I accept that the first time either of the defendants became aware of the mortgage over their property was on 27 November 2002 when the first named defendant received a letter from the Land and Property Information Office dated 26 November 2002 advising him that a caveat had been placed on the Title of residential property, 662 Punchbowl Road, Punchbowl owned by the defendants. 11 On or about 27 November 2002 the first named defendant telephoned Heidtman & Co, the lawyers acting on behalf of the mortgagee, asking why a caveat had been placed on the title. He was told that he had taken a loan for $130,000 and that if he had any query about the matter he should contact Response Finance Pty Ltd, the mortgage manager, who had arranged the loan. 12 Shortly after the above conversation the first named defendant spoke to Andrew Littleford from Response Finance Pty Ltd as follows: MR HADID: What right have you got to tell solicitors to place a caveat over my residential home? MR LITTLEFORD: You got $130,000 loan. MR HADID: Where is the money? MR LITTLEFORD: It went to Overseas Travel Services. We have got your ID's MR HADID: Is my ID sufficient to give a loan. I don't know you and you don't know me. MR LITTLEFORD: Go and see you solicitor, John Hancock". 13 At the same time the following conversation also took place: MR LITTLEFORD: I've got you and your wife's photo ID plus both your signatures" Mr HADID: It's a fraud. It wasn't me. Would you like to meet me and my wife? MR LITTLEFORD: No, no I wouldn't like to meet you. I haven't got time". MR HADID: Look mate I haven't signed any paper for a loan, neither has my wife. Whatever papers you have in front of you is a fraud". 14 On 29 November 2002 Mr Theos, a partner in Heidtman & Co having the conduct of the matter for the plaintiff, wrote to the first mortgagee Resimac Ltd seeking its consent to the registration of the second mortgage. In the letter he wrote, "We respectfully request this matter be treated urgently". 15 I have also had regard to allegations in Supreme Court proceedings number 20052 of 2003 in which the present defendants are plaintiffs. They have taken proceedings against Abeeda Khan (the plaintiff in these proceedings), Response Finance Pty Ltd the mortgage manager, Peter Fisher & Co, said to be a mortgage broker, Lorenzo Flammia, a lawyer who claimed to have witnessed the signatures of Mr and Mrs Hadid, John Hancock, solicitor who claimed to be acting for Mr and Mrs Hadid, and Anna Maria Palumbo who, it is alleged, by her misrepresentation and fraudulent conduct, caused the mortgage to be executed in the names of Mr and Mrs Hadid. 16 Although (with exception of the claim against Anna Maria Palumbo) the allegations in Supreme Court proceedings number 20052 of 2003 are claims in negligence and not of fraud, I am prepared to assume for the purpose of these proceedings that the plaintiff has an arguable case against the third, fourth, fifth and sixth defendants in those proceedings that they may be answerable to the present plaintiffs in causes of action other than negligence. 17 On 25 November 2002 and in response to a letter from John Hancock purporting to act for Mr and Mrs Hadid monies were directed to be paid out as follows: (a) Interest to (Response Finance Pty Ltd) $7,800 (b) The legal fees (Heidtman & Co) $1,432.50 (c) Peter Fisher & Co $4,400 (d) Split Cycle International (Mr Hancock) $4,400 (e) Overseas travel (Anna Maria Palumbo) $111,967.50 18 I should here mention, of course, that I am dealing with the allegations of the defendants in the present proceedings. I have not heard from people against whom allegations have been made otherwise than Heidtman & Co and Response Finance Pty Ltd the mortgage manager. 19 In my opinion there is no material capable of leading to an inference that the mortgagee (Abeeda Khan), her mortgage manager (Response Finance Pty Ltd) or her solicitors (Heidtman & Co) had knowledge of the fraudulent conduct. Mr Theos, who had the carriage of the matter, has given evidence that he had no knowledge of the fraud. He said that he asked for the consent of the first mortgagee as a matter of urgency because that was standard practice in view of the fact that priority could be lost if another mortgage was registered. The subject mortgage was for three months only. Mr Theos has conceded that the knowledge he received that the defendants alleged that the transaction was fraudulent increased his anxiety to have the mortgage registered as soon as possible. 20 It is settled law that s 42(1) of the Real Property Act 1900 confers indefeasibility of title on the registered holder of a mortgage. Fraudulent conduct of itself does not establish a personal equity to have the registration set aside. The registration of a void instrument will be set aside only if registration was the result of the registered proprietor's own fraud. Moreover the fraud must be common law fraud and not equitable fraud such as, for example taking with notice: Breskvar v Wall (1971) 126 CLR 376; J A Westaway & Sons v Registrar General & Ors (NSWSC unreported, 15 August 1996 Young J; Frazer v Walker [1967] 1 AC 569; and Assets Co v Mere Roihi [1905] AC 176. 21 I have already referred to the conversations between Mr Hadid and Mr Littleford and Mr Theos. At its highest it could be said to be notice to Mr Littleford that a claim would be made that the mortgage was forged. But that does not establish that Mr Littleford knew or believed that what he was being told was true. The evidence against Mr Theos does not establish that he had reason to suppose the mortgage was a forgery accepting as I do that Mr Theos would have been aware of the allegation made by Mr Hadid and which he said raised his level of anxiety. 22 On behalf of the defendants Mr Rogers has submitted that he is entitled to relief provided he can establish "moral turpitude" associated with the registration of the mortgage and if that is so he therefore has an arguable case for subsequently establishing common law fraud. The moral turpitude alleged is the registering of the mortgage on 31 December 2001 against the background that it was done in order to defeat a claim the defendants might have otherwise had arising from the void instrument. I have already referred to the authorities which establish it is necessary to prove common law fraud. As was pointed out by Young J in Westerway & Sons v Registrar General & Ors fraud was not established merely because being aware of a complaint, the plaintiff "manoeuvred things" to get the benefit of "the system" i.e. indefeasibility. 23 In their cross-claim the defendants have asserted that the contract was obtained by "the fraudulent conduct of a number of parties including the plaintiff's agent Response Finance Pty Ltd and is, in the circumstances unenforceable and liable to be set aside". I have already referred to the allegations being made by the plaintiff in Supreme Court proceedings number 20052 of 2002 and have assumed, in their favour, that they may have an arguable case in fraud against certain persons or corporations referred to in the statement of claim. But there is nothing in the information before me capable of raising an inference that the plaintiff, Heidtman & Co or Response Finance Pty Ltd were guilty of common law fraud in having the mortgage registered. Accordingly, in my opinion, and on the assumptions I have made there is no "personal equity" in the defendants, which would enable their interest to prevail over the interest of the plaintiff conferred by registration. 24 As I have said the defence of non est factum has been abandoned. However the defendants claim that by operation of s 7(1) of the Contracts Review Act 1980 they are entitled to relief being, presumably, an order pursuant to s 7(1)(d). Leaving to one side whether the mortgage was a "business" contract and that on its face it is not self-evidently unjust, it must be borne in mind that the defendants claim that the mortgage was a void instrument because of the forgeries associated with its execution. Mr Rogers on behalf of the defendants has submitted that although it is his clients' claim that no contract was entered into between the plaintiff and them, the effect of s 42 of the Real Property Act 1900 operates to "deem" a contract to be in existence and thus generate an entitlement to relief under the Contracts Review Act 1980. He advanced no authorities supporting that proposition. 25 Pursuant to s 7(1)(a) a court may make an order declaring a contract void or pursuant to s 7(1)(b) make an order varying in whole or in part the provisions of a contract. However by operation of s 19, an order under s 7(1)(a) and/or s 7(1)(b) would have no effect in relation to a contract so far as the contract is a land instrument registered under the Real Property Act. 26 Pursuant to s 7(1)(d) a court may, in relation to a land instrument, make an order requiring execution of another instrument that varies or has the effect of varying the provisions of the land instrument or which terminates or affects the operation of the land instrument. In the present case the court could not make an order in the absence of fraud of the registered proprietor or her agent that would have the effect of rendering defeasible the registered instrument. As I have said, there is no evidence capable of establishing fraud of the mortgagee, her solicitor or her mortgage manager. 27 The defendants took no steps by way of injunction or otherwise to prevent registration of the mortgage after being informed of the caveat on 26 November 2002. They are in the unfortunate position that they face eviction from 662 Punchbowl Road, Punchbowl. They may, of course, have a claim pursuant to s 126 of the Real Property Act and/or be in the position to raise money to pay out the mortgage and make a claim on the funds. However at the present time there is no defence to the claim of the plaintiff in ejectment. 28 I have come to the conclusion that the plaintiff's application must succeed and the defence and the cross-action should be struck out pursuant to Part 13 of the Rules of Court and that judgment should be given for possession and leave to issue a writ of possession 28 days from today. 29 I have postponed the issue of writ for a period of 28 days because I have not overlooked the possibility that the defendants may be able to raise money to pay the mortgage debt within time and avoid the sale of their property. 30 The defendants are to pay the plaintiff's costs of the motion. ********** Last Modified: 12/22/2003 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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