New South Wales Court of Appeal CITATION: PROVIDENT CAPITAL LTD v PRINTY [2008] NSWCA 131 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 22 May 2008 JUDGMENT DATE: 5 June 2008 JUDGMENT OF: Tobias JA at 1; McColl JA at 2; Basten JA at 3 (1) Dismiss the appeal. DECISION: (2) Dismiss the cross-appeal filed by the first respondent. (3) Order the appellant to pay the costs of both respondents of the proceedings in this Court. CATCHWORDS: CONVEYANCING – indefeasibility of title – effect of registration of forged mortgage – whether indefeasibility attaches to payment covenant in deed of loan – Real Property Act 1900 (NSW) ss 41, 42, 57 - CONTRACTS – interaction between principles of contractual interpretation and the Real Property Act 1900 (NSW) – application of doctrine of incorporation to registered mortgage and deed of loan - MORTGAGES – power of sale – whether power of sale activated – identification of default – effect of exercise of power of sale – Real Property Act 1900 (NSW) s 57(2) LEGISLATION CITED: Land Title Act 1994 (Qld), s 62 Real Property Act 1900 (NSW), ss 3, 41, 42, 52, 57, 58, 65, 80A, 120, 134 CATEGORY: Principal judgment Barry v Heider [1914] HCA 79; 19 CLR 197 Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; NSW ConvR 56-187 Consolidated Trust Company Limited v Naylor [1936] HCA 33; 55 CLR 423 English Scottish and Australian Bank Limited v Phillips [1937] HCA 6; 57 CLR 302 French v Queensland Premier Mines Pty Ltd [2006] VSCA 287 Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Groongal Pastoral Company Ltd (In liq) v Falkiner [1924] HCA 54; 35 CLR 157 Grundy v Ley [1984] 2 NSWLR 467 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; 10 BPR 9784 Lansen v Olney [1999] FCA 1745; 100 FCR 7 CASES CITED: Measures v McFadyen [1910] HCA 74; 11 CLR 723 McVeigh (in the matter of Piccolo) v National Australia Bank Ltd [2000] FCA 187 Partridge v McIntosh and Sons Ltd [1933] HCA 38; 49 CLR 453 Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; 12 BPR 22,281 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Pyramid Building Society (In liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 Queensland Premier Mines Ltd v French [2007] HCA 53; 82 ALJR 115 Small v Tomassetti [2001] NSWSC 1112; [2002] NSW ConvR 56-011 Smith v Chadwick (1882) 20 Ch D 27 Travinto Nominees Pty Ltd v Vlattas [1973] HCA 14; 129 CLR 1 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; NSW ConvR 56-195 TEXTS CITED: Lewison, The Interpretation of Contracts (4th ed, 2007) at par 3.03, pp 57-60; par 3.09, pp 78-85 Provident Capital Ltd (Appellant/First Cross-Respondent) PARTIES: James Richard Printy (First Respondent/Cross-Appellant) Registrar-General of New South Wales (Second Respondent/Second Cross-Respondent) FILE NUMBER(S): CA 40255/07 C E Adamson SC/V E Whittaker (Appellant) COUNSEL: M Ashhurst SC/S O'Brien (First Respondent) P Walsh (Second Respondent) Tiernan & Associates, Cronulla (Appellant) SOLICITORS: Lyndon Sayer-Jones & Associates (First Respondent) Department of Lands (Second Respondent) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC 20430/05 LOWER COURT JUDICIAL OFFICER: Studdert J LOWER COURT DATE OF DECISION: 30 March 2007 LOWER COURT MEDIUM NEUTRAL CITATION: Printy v Provident Capital Limited [2007] NSWSC 287 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40255/07 SC 20430/05 TOBIAS JA McCOLL JA BASTEN JA 5 June 2008 PROVIDENT CAPITAL LTD v PRINTY & ANOR Headnote In March 1986, Mr Printy ("the plaintiff") purchased a property at Canoelands, Sydney. For many years thereafter, the plaintiff lived in the United States of America. In November 1999, another person fraudulently obtained a replacement certificate of title for the property. The impersonator used the replacement certificate of title in mortgage dealings. On 7 April 2004, the impersonator entered into a deed of loan with Provident Capital Ltd ("the appellant"). As security for this deed of loan, he gave a mortgage to the appellant over the property, which was registered under the Real Property Act 1900 (NSW). The amount of the loan was identified in a deed of loan, not in the mortgage. Payments due under the deed of loan fell into default. The appellant exercised its power of sale under the mortgage and sold the property. Having discovered the fraudulent dealings of the impersonator, in November 2005 the plaintiff commenced proceedings against the appellant and the Registrar-General. The plaintiff sought an account from the appellant of so much of the proceeds of sale of the property as were appropriated to repayment of the debt secured by the mortgage. In the alternative, the plaintiff sought to recover his loss from the Torrens Assurance Fund, pursuant to ss 120 and 129 of the Real Property Act. On 30 March 2007, Studdert J in the Common Law Division held that the plaintiff was entitled to recover the proceeds of sale of the property on account of the debt secured by the mortgage. The appellant challenged that decision and the plaintiff defensively cross-appealed against the Registrar-General. The Court held, dismissing the appeal: (per Basten JA, Tobias and McColl JJA agreeing) 1. Since the impersonator was not the plaintiff, the plaintiff was not a party to the fraud and obtained no benefits therefrom, and since no document was executed by the plaintiff or with his authority, under the general law the appellant was not entitled to payment of moneys from the plaintiff pursuant to the deed of loan or the mortgage. The appellant's entitlement to payment of moneys under the mortgage was entirely dependent upon the effect of registration under the Real Property Act: [10], [13]–[15]. Small v Tomassetti [2001] NSWSC 1112; [2002] NSW ConvR ¶56-011; Lansen v Olney [1999] FCA 1795; 100 FCR 7, referred to. 2. Upon registration of a mortgage over land, the land becomes charged as security for the debt secured by the mortgage, regardless of any form of invalidity which may afflict the mortgage under general law: [29]. English Scottish and Australian Bank Limited v Phillips [1937] HCA 6; 57 CLR 302. 3. The mortgagee has a statutory right, as against the land, to recover the debt if not paid in accordance with the requirements of the mortgage by exercising its power of sale under ss 57 and 58 of the Real Property Act: [29]. 4. Where the loan is contained in the mortgage or in a document incorporated in the mortgage, registration of the mortgage allows the mortgagee to enforce the debt by sale of land, regardless of the fact that it involves a separate personal covenant and regardless of whether the mortgage or incorporated document are forged: [31]–[32] Consolidated Trust Co Limited v Naylor [1936] HCA 33; 55 CLR 423; Groongal Pastoral Co Ltd (In liq) v Falkiner [1924] HCA 54; 35 CLR 157; Grundy v Ley [1984] 2 NSWLR 467; Queensland Premier Mines Ltd v French [2007] HCA 53; 82 ALJR 115; Small v Tomassetti [2001] NSWSC 1112; [2002] NSW ConvR ¶56-011, considered; Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202; Pyramid Building Society (In liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, referred to. 5. Whether the appellant was entitled to exercise a power of sale in relation to the mortgage depended on the construction of s 57(2), the provision invoked by the appellant in exercising its power of sale: [47]. 6. Section 57(2)(a) required identification of default in one of two circumstances, relevant to the case before the Court: first, default occurring "in the observance of any covenant … in the mortgage", or, secondly, default occurring "in the payment, in accordance with the terms of the mortgage … of [money] the payment of which is secured by mortgage": [48]. 7. There was no express or implied incorporation of the deed of loan into the mortgage. The principle that two instruments should be read as one, if they formed a single transaction, could not be relied on to incorporate the deed of loan into the mortgage. This principle may be relevant to the interpretation of contracts, but did not import relevant parts of the deed of loan into the mortgage for the purposes of s 57(2)(a): [52]. Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, referred to. 8. There was no default in the payment of "secured money" in the mortgage, in accordance with the terms of the mortgage, because the mortgage did not specify the amounts of and times for making payments and because the deed of loan was not a covenant, agreement or condition "expressed … in the mortgage": [49]. Queensland Premier Mines Ltd v French [2007] HCA 53; 82 ALJR 115; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; NSW ConvR ¶56-195; Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; 12 BPR 22,281, considered. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40255/07 SC 20430/05 TOBIAS JA McCOLL JA BASTEN JA 5 June 2008 PROVIDENT CAPITAL LTD v PRINTY & ANOR Judgment 1 TOBIAS JA: I agree with Basten JA. 2 McCOLL JA: I agree with Basten JA. 3 BASTEN JA: In March 1986, Mr Printy, then known as Mr Shull, ("the plaintiff") purchased a property at Canoelands on the north-west outskirts of Sydney ("the property"). For many years thereafter, the plaintiff lived in the United States of America. In November 1999, another person fraudulently obtained a replacement certificate of title with respect to the property. The impersonator used the certificate of title in a series of mortgage dealings. Relevantly for present purposes, the impersonator entered into a deed of loan with Provident Capital Ltd ("the appellant") dated 7 April 2004, in the name of Mr Shull, as security for which he gave a mortgage to the appellant over the property ("the first mortgage"). The first mortgage was registered under the Real Property Act 1900 (NSW). 4 Payments due under the deed of loan having fallen into default, the appellant took steps to exercise its power of sale over the property. By contract dated 20 August 2005, the appellant sold the property for an amount of $810,000. 5 In November 2005, the plaintiff commenced proceedings against the appellant and the Registrar-General seeking, amongst other orders, an account from the appellant of so much of the proceeds of sale of the property as were appropriated to repayment of the debt secured by the first mortgage. On 30 March 2007, Studdert J gave judgment in the Common Law Division with respect to the first mortgage in accordance with the orders sought by the plaintiff: Printy v Provident Capital Ltd [2007] NSWSC 287. 6 The impersonator had also obtained funds from other persons, repayment of which was secured by a registered mortgage over the property ("the second mortgage"), which was later acquired by the appellant. That mortgage was also repaid out of the proceeds of the sale of the property. Because the amount of the loan was identified in the second mortgage, the plaintiff did not seek to recover his loss in respect of that amount from the appellant, but from the Torrens Assurance Fund, provided under the Real Property Act and administered by the Registrar-General: ss 3(1), 134; see also [17] below. The plaintiff obtained a judgment for the amount of that loss, which is not challenged by the Registrar-General. Indeed, the Registrar-General accepted that if the plaintiff failed to retain his judgment against the appellant on the first mortgage, he would be entitled to a payment from the Fund in respect of that loss, pursuant to s 129 of the Real Property Act. 7 By its notice of appeal, the appellant sought to challenge the order with respect to the first mortgage on the basis that the payment obligation under a registered mortgage enjoyed the protection of indefeasibility so that the appellant was entitled to retain from the proceeds of sale the amounts owing and unpaid under the mortgage at the time of sale. In effect it argued that there was no distinction between the first and second mortgages, for the purposes of the provisions of the Real Property Act with respect to the exercise by the mortgagee of its power of sale and the distribution of the proceeds of that sale. 8 The plaintiff filed a notice of cross-appeal, which was entirely defensive. If the appellant were successful, he sought orders against the Registrar-General seeking payments by way of compensation from the Fund of the amount of his loss with respect to the first mortgage, together with interest. That entitlement was conceded by the Registrar-General, in the event that the appeal were allowed. 9 The short point raised by the appeal is whether a mortgagee under a registered mortgage can validly exercise a power of sale, so as to retain sufficient of the proceeds to pay out the debt secured by the mortgage, where the debt is identified in a separate deed of loan, and in circumstances where both the mortgage and the deed of loan were ineffective to impose an obligation on the plaintiff under the general law. The point is one of general importance: if the trial judge were correct in holding that there was no debt secured by the mortgage, the benefits of the indefeasibility conferred by the Real Property Act on registered mortgages would not accrue to mortgagees under common commercial arrangements, colloquially known as 'all moneys' mortgages. The issue involves the application of State law only. Proceedings at trial 10 The trial judge heard oral evidence from the plaintiff and concluded at [10]: "I accept the plaintiff's assertion that none of the documents relevant to the dealings from November 1999 onwards bore his signature and that no money was borrowed by him from the first defendant. I am satisfied that the various dealings with his property thereafter were done without the plaintiff's knowledge or authority, and that such of those documents as purported to bear his signature were signed by the fraudster who applied for the new title deed in 1999 and who thereafter represented himself as James Richard Shull in order to borrow money under mortgage secured on the property." 11 Because the impersonator was not the plaintiff, and as the plaintiff was not a party to the fraud and obtained no benefits therefrom, it was common ground that under the general law the appellant had no entitlement to payment of moneys from the plaintiff under the deed of loan or, indeed, under the covenant contained in the first mortgage. Neither was a document executed by the plaintiff or with his authority. 12 The first mortgage included a covenant on the part of the mortgagor that the provisions set out in an identified memorandum were "incorporated in this mortgage". The operative provision in the memorandum was cl 2, which read as follows: " 2. Payment of Secured Money 2.1 The Mortgagor must pay the secured money to the Mortgagee as provided in any related agreement. 2.2 If: 2.2.1 the secured money is not owing under a related agreement; or 2.2.2 for any reason a related agreement does not specify when the Mortgagor must pay any secured money to the Mortgagee; then the Mortgagor must pay that secured money to the Mortgagee within 14 days after the Mortgagee demands payment." 13 The terms "related agreement" and "secured money" were defined terms in cl 1.1: "' related agreement ' means any agreement or arrangement under which: · the Mortgagee lends money or incurs any obligation or liability; or · the Mortgagee has any security interest; and which relates to the Mortgagor; ' secured money ' means all money which the Mortgagor owes the Mortgagee now or in the future for any reason and whether a loan or with another person …." 14 Because it was ineffective under the general law, the appellant's entitlement under the first mortgage was entirely dependent upon its registration and the effect of s 42 of the Real Property Act. That section should be read with s 41, which provides: " 41 Dealings not effectual until recorded in Register (1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature." 15 Section 42 is subject to exceptions which are not applicable. The exceptions aside, the section relevantly provides: " 42 Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded …." 16 The primary judge noted that the issue raised concerned the precise effect of these provisions in conferring indefeasibility: at [13]-[14], applying Small v Tomassetti [2001] NSWSC 1112; [2002] NSW ConvR ¶56-011 at [9] (Campbell J); see also Lansen v Olney [1999] FCA 1745; 100 FCR 7 at [91] (Sackville J, French and Tamberlin JJ agreeing). 17 The trial judge concluded that the appellant was not entitled to retain any of the proceeds of sale of the property on account of the debt secured by the first mortgage, by a process of reasoning which involved eight steps: at [40]. In substance, the reasoning depended upon three elements. The first was that the deed of loan was not binding on the plaintiff because he did not sign it. The second element was that, if there were a payment obligation, it had to be found in the mortgage. The third element required the interpretation of the mortgage. Although the first mortgage contained a covenant to pay, it referred to "secured money" which was defined to mean "all money which the Mortgagor owes the Mortgagee …". However, because the secured money could only have been owing under the deed of loan and the plaintiff owed no debt under that deed, the first mortgage secured nothing. 18 The distinction adopted by the plaintiff, and accepted by the trial judge, was nicely presented by the separate claim with respect to the second mortgage, which included an express acknowledgment of receipt of the loan moneys and a covenant to repay those moneys with interest. The plaintiff conceded that the payment covenant obtained indefeasibility on the registration of the second mortgage. Accordingly, his claim in relation to the second mortgage was limited to a claim against the Fund administered by the Registrar-General, in which he succeeded. The trial judge noted that the second mortgage involved "a distinction of fundamental importance" in contrast to the first mortgage: [2007] NSWSC 287 at [44]. Submissions on appeal 19 The appellant's argument was based upon the general proposition that where there are two contemporaneously executed instruments, and if "the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed": see Smith v Chadwick (1882) 20 Ch D 27 at 62-63 (Jessel MR). Reference was also made to McVeigh (in the matter of Piccolo) v National Australia Bank Ltd [2000] FCA 187 at [30]-[31] (Finkelstein J) and [68]-[69] (Kenny J). 20 The plaintiff denied that the question was properly addressed by considering physical attachment or incorporation by construction. Rather, he said that it must be demonstrated that a clause in the mortgage "delimits or qualifies the estate or interest or is otherwise necessary to assure that estate or interest" to the mortgagee, adopting the language of Giles J in PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679. 21 The Registrar-General, in submissions in support of the plaintiff, noted that the approach adopted by the primary judge had been followed by Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; NSW ConvR ¶56-187. Both the present case and Chandra were referred to with apparent approval by this Court in Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; NSW ConvR ¶56-195 at [22] (Beazley JA, Ipp and Tobias JJA agreeing). To those references may now be added the decision of Young CJ in Eq in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [256]-[328]. Principles of law 22 The principles to be applied in considering the effect of registration of a mortgage are, in general terms, well-established. As explained in English Scottish and Australian Bank Limited v Phillips [1937] HCA 6; 57 CLR 302, considering the operation of the Real Property Act 1886 (SA), at 321-322 (Dixon, Evatt and McTiernan JJ): "Under the system of registration governing the present case, the statutory charge described as a mortgage is a distinct interest. It involves no ownership of the land the subject of the security. Like a lease, it is a separate interest in land which may be dealt with apart altogether from the fee simple or other estate or interest mortgaged. But, like a lease, it involves, or usually includes, personal obligations. It is impossible to treat the personal obligations in the same way entirely as the interest in land is treated by the registration system. … But, nevertheless, the plan of the legislation is to enable the proprietor to transfer by registration not only the interest in the land, but all the accompanying personal obligations normally incident thereto." 23 It is apparent that s 41 gives effect to a dealing upon registration. It treats dealings as falling within one of two categories; first, those which pass any estate or interest in the land and, secondly, those which render the land liable as security for the payment of money. Nevertheless, because the mortgage attracts a statutory power of sale of the land to which it relates, it also constitutes an interest in that land. A mortgage is defined in s 3(1) as a charge on land created "merely for securing the payment of a debt". (The term "charge" is used to refer to a charge on land created for the purpose of securing some payment other than a debt.) The term "mortgagor" is defined as the "proprietor of land or of any estate or interest in land pledged as security for the payment of a debt" and "mortgagee" as the "proprietor of a mortgage". 24 Section 42 provides that the registered proprietor of any "estate or interest in land" shall hold the estate or interest subject to other estates and interests recorded in that folio, but absolutely free from all other estates and interests that are not so recorded. 25 Although a mortgage has conferred upon it priority over all unregistered interests and also the quality of a limitation on the estate of the registered proprietor of the fee simple, it is nevertheless important that, in contrast to the position under the general law, a mortgage under the Real Property Act does not transfer or pass title but, in the language of s 41, renders the land "liable as security", being security for payment of a debt: see, eg, Partridge v McIntosh and Sons Ltd [1933] HCA 38; 49 CLR 453 at 473 (Dixon J). 26 Being a security for payment of money, an essential element of any mortgage is that it will include a covenant on the part of the mortgagor for the payment of the debt secured by the mortgage. A second essential element as a charge which constitutes an interest in land is that the mortgage allows the mortgagee to recover the debt, in the case of default by the mortgagor, by sale of the land. That the Act considers the obligation to repay an essential element of a mortgage is confirmed by the provision for transfer which, in the case of a mortgage, includes "the right to sue upon any mortgage or other instrument and to recover any debt … and all interest in such debt …": s 52(1). As noted by Dixon and Evatt JJ in Consolidated Trust Company Limited v Naylor [1936] HCA 33; 55 CLR 423 at 434, such language "is not incapable of including among the rights which pass to the transferee the benefit of the covenant by a surety who joins as a party in the instrument of mortgage". Nevertheless, their Honours concluded (as did Starke J) that the language did not extend so far. Their Honours continued: "The statute is concerned with dealings in land and it is because a mortgage involves such a dealing that the statute prescribes how mortgages may be transferred and with what consequences. It is concerned with the mortgage transaction in its entirety as it affects the land, and, therefore, extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction." 27 Naylor and Phillips were concerned with the effect of a registered transfer of a mortgage and thus with the construction of s 52 of the Real Property Act. However, it is clear that provisions relating to transfer will reflect the nature of the underlying interest for which transfer is provided. Similarly, assistance may be obtained from provisions relating to discharge and enforcement. In relation to discharge, s 65(2) provides that, upon registration of a discharge of mortgage, the estate or interest mortgaged "shall, to the extent specified in the discharge, cease to be charged with any moneys secured by the mortgage". Because a mortgage is a form of security, conferring powers against land, it can be discharged without affecting that which it secures, namely a personal covenant to pay: see Groongal Pastoral Company Ltd (In liq) v Falkiner [1924] HCA 54; 35 CLR 157 at 164. Whether a discharge of mortgage has the effect of discharging personal covenants contained in a separate contract or deed is a matter of construction of the instrument of discharge: see also Grundy v Ley [1984] 2 NSWLR 467 (Kearney J). It may be that a mortgagee will retain a personal right of action against the mortgagor, but it will no longer be a right enforceable against the land: see Queensland Premier Mines Ltd v French [2007] HCA 53; 82 ALJR 115. 28 Of greater direct relevance to the present case is the provision made in the Real Property Act for powers of enforcement. Section 58 provides a power of sale; s 57 provides the circumstances in which it may be availed of. Section 57(2) relevantly provides: "A registered mortgagee … may, subject to this Act, exercise the powers conferred by section 58 if: (a) in the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest … or other money the payment of which is secured by the mortgage or charge …." 29 The section also provides for the service of a written notice on the mortgagor: s 57(2)(b) and (3). Where those conditions have been satisfied, the mortgagee is authorised to exercise the powers conferred by s 58, namely that "the mortgagee … may sell the land mortgaged … and all the estate and interest therein of the mortgagor …": s 58(1). Section 58(3) provides for the disposition of proceeds of sale: "(3) The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee …; … and the surplus (if any) shall be paid to the mortgagor …." 30 The language of "indefeasibility" is not entirely apt in relation to an interest which arises by way of security for payment of a debt. The effect of ss 41 and 42 of the Real Property Act may more clearly be expressed as providing that, upon registration, the land becomes charged as security for the debt secured by the mortgage, regardless of any form of invalidity which may afflict the mortgage under the general law. Accordingly, the fact that no debt exists to be secured by the mortgage, because the covenant is ineffective under the general law, is a factor which must be put to one side. The mortgagee has a statutory right, as against the land, to recover the debt if not paid in accordance with the requirements of the mortgage. If upon exercising a statutory power of sale, the mortgagee were not entitled to recoup itself from the proceeds of sale to the extent necessary to extinguish the debt, the power of sale would be rendered nugatory. Similarly, an action to recover the proceeds of sale from the mortgagee by the former registered owner would seem to set at nought the statutory allocation of the proceeds under s 58(3). Nevertheless, that is the effect of the orders made by the primary judge in the present case and it is, accordingly, necessary to consider the justification presented by the plaintiff (with the support of the Registrar-General) and accepted by the trial judge. The transfer provision 31 When a registered mortgage is transferred, the right to sue upon the mortgage and recover any debt "thereunder" is also transferred: see s 52 and, in relation to the equivalent provision (s 62) in the Land Title Act 1994 (Qld), see French in the High Court and in the Victorian Court of Appeal, French v Queensland Premier Mines Pty Ltd [2006] VSCA 287. French demonstrates that the assignment of a registered mortgage may not involve the assignment of rights under a loan agreement secured by the mortgage. One effect of separating ownership of the rights under the mortgage from those arising under the loan agreement may be that the mortgagor (as a borrower) is not indebted to the assignee of the mortgage because the borrower's obligation is to pay pursuant to the loan agreement, which will no longer be an obligation owed to the person who holds the mortgage rights by assignment. Accordingly, in French the assignee of the mortgage was able to discharge the mortgage and clear the land, but the borrowers remained indebted to the assignee of the loan agreement (Mr French), although he held no security over the land. Having sold the mortgage Mr French may have lost the practical possibility of recovering by sale of the land on which the debt was secured, but he retained the right to sue both the mortgagor and its co-borrowers personally. 32 The separation of the personal covenants from the security is significant, not only in relation to transfers and discharges of the registered mortgage, but also in relation to the vesting of rights in the registered mortgagee. Thus, where the loan is contained in the mortgage, although it will involve a separate personal covenant, registration of the mortgage will allow the mortgagee to enforce the debt by sale of the land, despite not being able to sue the mortgagor personally: see Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 at 224. As explained by Dixon and Evatt JJ in Naylor (at 434), (in the passage set out at [25] above), the Act "extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction." 33 Naylor itself was a case concerned with a guarantee contained within a mortgage. The High Court concluded that the Act was concerned with rights as between mortgagee and mortgagor, and not with the rights of a surety, in construing ss 51 and 52 dealing with transfers. The Court did not seek to identify more precisely "the personal liability of the mortgagor for the mortgage debt". Nevertheless in this case it was accepted by the plaintiff and the primary judge that if that liability were set out in full in the mortgage, or in a document incorporated into the mortgage, the fact that the mortgage or the incorporated document (or both) is a forgery will not prevent the mortgagee obtaining the benefit of a right to enforce the debt against the land in the event of default. 34 It may be that ss 57 and 58, together with the definition of "mortgage", should be read down, as s 52 has been in relation to the right to sue "upon any mortgage" and recover "any debt … thereunder". French held that that the language of s 52 identified the source of the debt. As explained by Kiefel J in the High Court at [55]: "The two rights, to sue for and to recover a debt, arise from the same source. The words of the section provide no warrant for a construction which extends it to the right to recovery of a debt merely collaterally secured by the mortgage." 35 In French in the Victorian Court of Appeal, Maxwell P dealt at [39] with a statement of the trial judge in relation to the passage from Naylor set out at [25] above, noting that her Honour had said of that passage: "The crucial circumstance was thus 'the personal liability of the mortgagor for the mortgage debt'. There was no suggestion that the section would not apply if that personal liability arose as a surety or pursuant to a transaction external to the mortgage." Maxwell P continued: "With respect, it is not surprising that no such suggestion was made, since no issue arose in Naylor concerning a liability 'pursuant to a transaction external to the mortgage'. The converse is, I think, rather more significant, namely, that the decision conveys no suggestion that the vesting provision would apply in such a case." 36 Although the definition of "mortgage" does not refer to a debt arising under the mortgage, the transfer provisions do so refer and it might be thought to be anomalous to treat the power of sale as engaged in circumstances which would not arise following a transfer of the mortgage to a third party. On that view, all that is protected is a payment obligation which arises in the mortgage itself. 37 Arguably none of the cases dealing with rights which existed in the mortgage, and therefore rights which arose "under" the mortgage, should be understood as concerning rights which arose under agreements 'extraneous' to the mortgage. The High Court has, in a series of cases, adopted a strict approach to the scope of the "indefeasibility" conferred by the Real Property Act, on the basis that its purpose was to protect registered interests in land, so that it affected the general law and rights arising under common law or equity only to the extent necessary to give effect to the protection of title: Barry v Heider [1914] HCA 79; 19 CLR 197 at 216 (Isaacs J). Thus, the transfer of a registered lease did not confer on the assignee of the lease rights in relation to arrears of rent, which were accrued but unpaid: see Measures v McFadyen [1910] HCA 74; 11 CLR 723 and see Travinto Nominees Pty Ltd v Vlattas [1973] HCA 14; 129 CLR 1 (lease with invalid option to renew) and Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; 10 BPR 9784 at [54]-[60] (Giles JA, Handley and Stein JJA agreeing). Similarly, even a right given by way of guarantee in a mortgage did not confer on an assignee of the mortgage, a right to sue the guarantor: see, eg, Naylor. These cases demonstrate that a statement of a right in the mortgage or other registered document does not necessarily give rise to consequences under the statute. However, these cases do not suggest that a personal covenant in a registered instrument which is rendered effective by the statute will not be affected if contained in a separate document. Thus, referring to Naylor, Kiefel J in French noted at [48]: "A surety's obligation, albeit one arising from a covenant contained within the mortgage, was regarded by their Honours as merely collateral to the mortgage transaction, not directly or indirectly affecting the land, and not part of the dealing contemplated by the legislation." 38 The fact that the provisions relating to transfer may result in certain personal covenants secured by the mortgage being divorced from the mortgage, as occurred in French, does not provide a sound basis for reading down the unqualified term "debt" in the definition of mortgage, when considering the consequences of registration of a mortgage for the purposes of ss 57 and 58. As Kiefel J noted in French, the circumstances of that case were "not usual": at [57]. Thus, the division of ownership following separate transfer of different covenants may have consequences where the debt is owed to 'the mortgagee', or its assignee, which may no longer be the same party as the assignee of the contractual obligation. French involved no consideration of questions of indefeasibility. Application of principles 39 The submissions of the appellant depended primarily on the general law proposition that separate deeds constituting a single transaction should be read together, rather than on the proposition that the Real Property Act, which concededly precludes challenge to the validity of a personal covenant creating a debt, does not distinguish between such covenants contained in the mortgage and those contained in separate agreements or deeds and identified in the mortgage as the secured obligation. McVeigh (above at [18]), on which the appellant relied, provides a valuable synopsis of the principles of construction relevant to determining the scope of an 'all moneys' security. However, there was no issue in the present case that the covenant in the first mortgage covered a debt arising under the deed of loan. 40 The plaintiff and the Registrar-General relied on a line of authority commencing with Small v Tomassetti (above at [15]). The mortgage in that case was assumed, for the purposes of interlocutory relief, to be forged so far as the defendant, Mrs Tomassetti, was concerned. The property was sold, but the proceedings continued as a claim that Mrs Tomassetti was entitled to the one-half share of the proceeds of sale which equated to her share as a joint owner of the property, prior to the sale. The mortgage itself identified the amount which the mortgagee had agreed to lend, together with the mortgagor's covenants in respect of payment. At [15] Campbell J held: "In these circumstances, it is, in my view, clear that the estate or interest in the land which is created by the registration is a charge which secures at the least … the sum of $325,000, together with interest which accrues on it and is unpaid …." 41 Campbell J noted that that conclusion was consistent with remarks of Hayne JA in Pyramid Building Society (In liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 196 (in a judgment with which Brooking and Tadgell JJA agreed): "It has not been contended that indefeasibility of a mortgage does not extend to the covenant for payment and it is plain that it does so extend: Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326 at 343 per Gibbs J; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 681." 42 Nevertheless, there remains a question, where the covenant in the mortgage reflects a covenant in a separate agreement, as to whether indefeasibility extends to the latter covenant or is limited to the former, so that, if the separate agreement is void, there is no debt secured. 43 A number of authorities support the view that the Act does not render enforceable against the land a debt arising under an agreement separate from the mortgage. Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; 12 BPR 22,281 involved a mortgage given to secure payment of moneys due under a separate loan agreement. The mortgage and the loan agreement were forged instruments, which had not been signed by the defendant. At [20], Young CJ in Eq noted (omitting authority): "Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgment that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type of mortgage because the production of the security document was prima facie evidence of the existence of the debt … and that, unless the fact was put in issue by the pleadings, the security itself was sufficient evidence of the payment …. The modern clause, however, does not go that far especially in a facility mortgage requiring [draw] downs to be made later. It would thus not seem that any of the traditional protections to mortgagees apply to mortgagees who use this form of loan agreement and mortgage." 44 In the first part of this extract, his Honour appears to have been concerned with proof of a fact in issue, namely that moneys had been lent. That concern does not however explain the last proposition that "the traditional protections", presumably protections based on indefeasibility of title, do not apply at all. The crux of his Honour's reasoning appears in the following passages at [23]-[24]: "As the secured agreement itself does not bring with it any concept of indefeasibility and as there is an issue between the parties as to whether or not it was ever signed by the appellant or merely signed by a person impersonating the appellant, there is not the material to demonstrate to the required standard that there was a loan to the appellant. If there was no loan to the appellant he could not be in default not repaying the loan and, therefore, the mortgagee was not entitled to possession." 45 These passages assume, rather than explain, why a covenant in the mortgage to pay the secured moneys created no debt if, under the general law, the loan agreement was ineffective. It was the assumption of that result which was challenged by the appellant in the present case. 46 Yazgi (above at [20]) raised a similar issue in that the mortgage referred to a debt arising under a housing loan contract, which was void as against Mrs Yazgi under the general law. However, the precise issue in dispute in Yazgi was not entirely clear. The judgment noted a concession by the mortgagee that the definition of "mortgage debt", so far as it referred to moneys owing under the housing loan contract and interest on such moneys, "did not operate to secure to it an indefeasible title over Sabah Yazgi's interest in the property": at [25]. The submission made by the mortgagor is recorded in terms that it "had an indefeasible title in respect of the whole of the mortgage debt as against the whole of the property" by virtue of the definition of "mortgage debt" in the mortgage: at [25]. The reasoning then proceeded by reference to the language of the mortgage and in particular as to what clause 6 meant in defining "mortgage debt" as a phrase which "means and includes" certain identified moneys. The issue of construction appears to have turned upon the concession and the concession appears to have been that no moneys were owed by Mrs Yazgi under the housing loan contract. Accordingly, it was held there was no debt in relation to Mrs Yazgi's share in the land and hence the mortgagee was obliged to account to Mrs Yazgi for the full amount of her share in the property, except for an amount expressly identified in the mortgage. 47 The approach proposed by the plaintiff, and accepted below, would invite a distinction to be drawn depending on whether the debt arises from a covenant contained in: (a) the mortgage; (b) a separate deed or agreement expressly incorporated into the mortgage, or (c) a separate deed or agreement, for which the mortgage is expressed to constitute security. Those distinctions are not watertight categories. The mortgage itself may contain an express covenant for repayment of a debt under a loan agreement, which will constitute a personal covenant in the mortgage. Similarly, a mortgage may be expressed to secure a particular debt and "all moneys" owing to the mortgagee. Each case may fall into categories (a) and (c). The critical distinction would appear to be between (a) and (b) on the one hand and (c) on the other. Because a mortgage is a charge on land "created merely for securing the payment of a debt", it might be surprising if a mortgage failed in its purpose because the debt arose under an ineffective collateral agreement secured by the mortgage, but that the mortgage would be effective where the debt was identified in the mortgage itself, although that was equally a forgery. 48 The resolution of the issue must turn upon the construction of s 57(2). It was that provision under which the appellant exercised its power of sale and it is therefore proper to consider whether the power was properly invoked. If it were not, it would follow that, in accordance with the orders made by the trial judge, the appellant had no entitlement to retain the proceeds of sale in so far as they were appropriated to repayment of moneys owing under the first mortgage. 49 Section 57(2)(a) requires identification of a "default" in one of two circumstances which, relevantly for present purposes, may be identified as first, "in the observance of any covenant … in the mortgage"; or second, "in the payment, in accordance with the terms of the mortgage … of [money] the payment of which is secured by the mortgage". 50 Dealing with the second alternative first, it is difficult to see that the appellant could properly invoke a default of such a kind in the present case, because there was no payment "in accordance with the terms of the mortgage", in circumstances where the mortgage did not itself contain terms specifying the amounts of and times for making payments. Accordingly, in order to make out its entitlement under that provision, the appellant had to demonstrate a default in the observance of a covenant in the first mortgage. It was not suggested that any relevant covenant was to be implied; accordingly, the covenant must be one expressed in the mortgage. The relevant covenant was to be found in cl 2.1, which required that the mortgagor "must pay the secured money to the Mortgagee as provided in any related agreement" or, if there were no money owing under a related agreement, "must pay that secured money to the Mortgagee within 14 days after the Mortgagee demands payment": see [11] above. Default in that respect can therefore only be identified by reference to the terms of the deed of loan. Unless the terms of that deed are properly described as covenants, agreements or conditions "expressed … in the mortgage", the appellant will have failed to bring itself within s 57(2)(a) and must account for the relevant proceeds of sale to the plaintiff. 51 One consequence of this reading is to limit the debts which, although unenforceable under the general law, will engage the power of sale attracted to a registered mortgage, to those identified in a covenant "in the mortgage" or required to be paid "in accordance with the terms of the mortgage". Such a result achieves a degree of consistency with the rights capable of transfer pursuant to s 52, as explained by the Victorian Court of Appeal and the High Court in French. 52 The remaining question is whether, in the particular circumstances of the case, a default can be identified in the observance of a covenant in the mortgage or in a payment in accordance with the terms of the mortgage because the deed of loan is to be read as part of the mortgage. The appellant did not contend that this had been achieved by express incorporation of the deed into the first mortgage. Indeed, such an argument would have been difficult, if not impossible, to maintain. The first mortgage itself expressly incorporated the provisions of a memorandum lodged with the Registrar-General, which had effect as part of the mortgage, in accordance with s 80A of the Real Property Act. As already noted, the memorandum contained a covenant to pay the secured money, which meant all money owing, amongst other things, under a related agreement. There was no term expressly incorporating the deed of loan (or anything else which might fall within the description of a related agreement) nor was it contended that any such term should be implied. 53 Rather, the appellant relied, as noted above, on the principle that two instruments should be read as one if they formed a single transaction. That, however, is a principle relevant to the interpretation of contracts; it would not, for example, deny the separate existence of concurrent covenants to pay contained in a mortgage and a loan agreement, where the operation of a statute requires identification of the source of an obligation, as illustrated in relation to s 52 of the Real Property Act by French. Similarly, the principle of construction does not import relevant parts of the deed of loan into the first mortgage for the purposes of s 57(2)(a) of the Real Property Act. That is not to say that reading two instruments together as part of one transaction may not have legal consequences as to the validity of the transaction: see examples given by Lewison, The Interpretation of Contracts (4th ed, 2007) at par 3.03, pp 57-60. As Lewison recognises, questions of incorporation raise separate issues: at par 3.09, pp 78-85; see also Vella at [293] ff. The appellant's case based on the application of principles in Smith v Chadwick does not establish incorporation of the deed of loan into the first mortgage, nor was that incorporation demonstrated on any other basis. Accordingly, the terms of the deed of loan should not be treated as part of the first mortgage for the purposes of s 57 of the Real Property Act. Consequential orders 54 The plaintiff's cross-appeal, filed defensively against the possibility of success by the appellant, should also be dismissed. Because the orders sought were not resisted and the written submissions in support of the cross-appeal were largely formal, the plaintiff's costs in that regard will not be large. They constituted part of the plaintiff's response to the appeal and should be met by the appellant. It is sufficient to order that the appellant pay the plaintiff's costs in this Court. 55 There remains a question as to the costs of the Registrar-General. Although counsel sought an order for costs against the appellant in the event that the appeal failed, the issues raised on the appeal were directed solely to the orders favourable to the plaintiff. The Registrar-General undoubtedly had a relevant interest in that, if the appeal succeeded, the Fund would be liable to meet the plaintiff's claim. However, in the event that the appeal failed, the Registrar-General acknowledged that the appellant had foreshadowed a claim against the Fund. No claim had yet been forthcoming and no decision had been made as to whether such a claim would be accepted, declined or compromised. It was by no means clear that the Registrar-General had a consequential liability only if the appeal succeeded. 56 On the other hand, because the plaintiff was assured of an order against either the appellant or the Registrar-General, it may be said that the primary interest in defending the judgment below was that of the Registrar-General. 57 In the circumstances, both respondents should be awarded costs in this Court, payable by the appellant. 58 I propose the following orders: (1) Dismiss the appeal. (2) Dismiss the cross-appeal filed by the first respondent. (3) Order the appellant to pay the costs of both respondents of the proceedings in this Court. ********** 02/07/2010 - Incorrect section cited - changed to 129 - Paragraph(s) 6 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.