New South Wales Supreme Court CITATION : Perpetual Trustees Victoria Limited v Peter Van den Heuvel No 2 [2009] NSWSC 483 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 29 May 2009 JUDGMENT DATE : 4 June 2009 JURISDICTION : Supreme Court JUDGMENT OF : Price J CATCHWORDS : Compensation from the Torrens Assurance Fund - fraudulent execution of mortgage by joint tenant - consideration of loss of other joint tenant - severance - judgment for possession - measure of damage LEGISLATION CITED : Real Property Act 1900 s 57, s 97(5), s 120, s 128(1), s 129(1), s 129(2), s 133 CATEGORY : Consequential orders Lyons v Lyons [1967] VR 169 Perpetual Trustees Victoria Limited v Peter Van den Heuval [2009] NSWSC 57 CASES CITED : Registrar of Titles v Spencer (1909) 9 CLR 641 Trustees of the Property of Cummins (a bankrupt) v Cummins & Anor (2006) 224 ALR 280 Wright v Gibbons (1949) 78 CLR 313 TEXTS CITED : Peter Butt, Land Law, 5th ed, (2006) Lawbook Co at [1458] and [1487] Perpetual Trustees Victoria Limited (Plaintiff) PARTIES : Peter Van den Heuval (First Defendant) Elizabeth Van den Heuval (Second Defendant / Cross-Claimant) Registrar General (Cross-Defendant) FILE NUMBER(S) : SC 14905/2005 COUNSEL : G Rich (Second Defendant / Cross-Claimant) P Walsh (Cross-Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PRICE J 4 June 2009 14905/2005 Perpetual Trustees Victoria Limited v Peter Van den Heuvel & Anor (No 2) JUDGMENT 1 HIS HONOUR: Elizabeth Van den Heuvel (the cross-claimant) is the innocent victim of her husband's fraud. Mr Van den Heuvel had forged her signature on the Loan Agreement and mortgage. The registration of the mortgage under the Real Property Act 1900 conferred on Perpetual Trustees Victoria Pty Ltd (the plaintiff) an indefeasible interest over the whole of the family home (the property), which interest secured the entire amount lent under the Loan Agreement: Perpetual Trustees Victoria Limited v Peter Van den Heuvel & Anor [2009] NSWSC 57 at [73]. The cross-claimant is the registered proprietor as joint tenant with her husband of the property. As has been foreshadowed in the proposed orders, there will be judgment for the plaintiff for possession of the whole of the property. 2 The Registrar General conceded during the hearing that should the cross-claimant be liable to the plaintiff under the mortgage she then fell within s 129 of the Real Property Act and was entitled to payment from the Torrens Assurance Fund. The cross-claimant and Registrar General have been unable to agree as to the orders proposed at [110] of Perpetual Trustees Victoria Limited v Peter Van den Heuvel. 3 The present litigation calls for the resolution of the following question: What is the loss suffered by the cross-claimant, a joint tenant, as a result of the fraudulent execution of the mortgage by the other joint tenant for which she is entitled to payment of compensation from the Torrens Assurance Fund? 4 No evidence has been adduced as to the contributions made by the cross-claimant and her husband to the obtaining of an unencumbered title as joint tenants of the property. I neither know what the value of the property was at the time the fraudulently executed mortgage was registered nor its present value. On 8 October 2008 the plaintiff obtained a default judgment against Mr Van den Heuvel in the sum of $325,035.11. Argument 5 Mr Rich for the cross-claimant observed that, as a result of the conduct of Mr Van den Heuvel, the plaintiff is entitled to an order for possession of the property. He submitted that the cross-claimant is entitled to compensation to put her back into the position she was in prior to the registration of the mortgage. The cross-claimant had before the fraud an unencumbered title as joint tenant but has been deprived of it to the extent that a mortgage has been registered against the title. Mr Rich argued that the measure of damage should be the amount required to discharge the mortgage together with an indemnity in respect of the costs of the proceedings. 6 Mr Walsh for the Registrar General did not dispute the claim for indemnity costs. He contended that in the present case there is a presumption that the cross-claimant and her husband each have a one-half interest in the property. Mr Walsh submitted that there is no evidence to displace that presumption and, in particular, no evidence to justify the intervention of equity to create a tenancy of which the cross-claimant has a larger share than her husband. He cited Trustees of the Property of Cummins (a bankrupt) v Cummins and Anor (2006) 224 ALR 280. Mr Walsh argued that the cross-claimant's loss is the value of the indefeasible mortgage encumbrance on her half share of the property and no more than that. The proper approach, Mr Walsh said, is to charge the whole of the property with payment of the mortgage. To the extent that the husband's interest in the property is not sufficient in value to satisfy the mortgage, then the deficiency falls upon the cross-claimant's interest and she is entitled to compensation from the fund sufficient to remove that encumbrance. Alternatively, the mortgage should be charged against the whole of the property and the surplus distributed equally to the owners. In that case, the cross-claimant's loss would be the difference between the value of one-half of the property and the sum that she actually receives after payment of the mortgage. 7 In response Mr Rich submitted that the Registrar General's argument ignored the distinction between a joint tenancy and a tenancy in common in equal shares. He said that Cummins v Cummins was distinguishable on its facts. In the present case, there has not been a severance of the joint tenancy and the fraudulently executed mortgage itself did not effect a severance. Mr Rich disputed the contention that the cross-claimant and her husband are presumed to have a one-half interest in the property. There was no evidence available to draw such an inference or make such a finding. It was argued that the Torrens system is purely a statutory scheme and the limited system of severance of joint tenancies under the Real Property Act requires registration and notice. Indefeasibility of registered interests and separate interests should not be confused with concepts such as statutory presumptions or implied severance. 8 Mr Rich put to me that the remedy for recovery by the Registrar General is under s 133 of the Real Property Act to proceed against Mr Van den Heuvel. Mr Walsh, on the other hand, said to adopt the approach suggested by the cross-claimant would be erroneous as it seeks more than is necessary to compensate her for her loss; it would compensate her as if she were the owner of the entire beneficial interest in the property. The Torrens Assurance Fund 9 Parts 13 and 14 of the Real Property Act provide for proceedings for compensation and the Torrens Assurance Fund. 10 Section 120 which is found in Pt 13 of the Real Property Act authorises proceedings for the recovery of damages to be brought by any person who suffers loss or damage as a result of the Act in respect of any land, where relevantly the loss or damage arises from fraud. Proceedings against the Registrar General are to be taken in accordance with Pt 14 of the Act. Part 14 includes s 128(1) within which are the definitions of "Compensable loss" and "Compensation": "Compensable loss means loss or damage of the kind referred to in section 129(1), other than loss or damage of the kind referred to in section 129(2). Compensation means compensation from the Torrens Assurance Fund to which a person is entitled under section 129." 11 Part 14 includes s 129 which relevantly provides: " Circumstances in which compensation payable (1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from: … (e) the person having been deprived of the land, or any estate or interest in the land, as a consequence of fraud. ... is entitled to payment of compensation from the Torrens Assurance Fund." 12 Section 133 which concerns subrogation is relevantly as follows: "… (2) If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the Registrar-General is subrogated to the claimant in respect of the claimant's rights and remedies in relation to that loss: (a) against any person against whom the claimant has a cause of action in respect of that loss, and (b) … (3) … (4) The Registrar-General may join any person in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate." Consideration 13 The essential characteristics of a joint tenancy are what are ordinarily called the four unities, unity of possession, unity of title, unity of time, and unity of interest. Unity of interest includes the inability of joint tenants to hold in different proportions, since they are not holders of distinct shares, but each one is entitled to the whole. They hold per my et per tout which has long been understood to mean "each joint tenant holds the whole and holds nothing, that is he holds the whole jointly and nothing separately": Coke upon Littleton 186a, Wright v Gibbons (1949) 78 CLR 313 per Latham CJ at 323. The operation of the Real Property Act "does not alter the law with respect to joint tenancy…But it requires that documents transferring interests in land under the Act should be in a particular form and should be registered": Wright v Gibbons per Latham CJ at 324. 14 The Registrar General relied upon the authority of Cummins v Cummins to support the argument that the cross-claimant and her husband as joint tenants are presumed to have a one-half beneficial interest in the property. The facts of that case which are of present interest involved the transfer of an interest as joint tenant in a property at Hunter Hill in August 1987 by Mr Cummins to his wife. The property had been purchased in 1970 and the title was taken by Mr and Mrs Cummins as joint tenants. The trial judge found that Mrs Cummins had contributed 76.3 per cent of the purchase price. Mr Cummins had become bankrupt on 16 December 2000. The Australian Taxation Office sought a declaration that the transfer was void against the trustees. The Full Court of the High Court (Gleeson CJ, Gummow, Hayne, Heydon and Brennan JJ) said at [71-72]: "[71] The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted: It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labour to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase. To that may be added the statement in the same work: Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them. [footnote omitted] [72] That reasoning applies with added force in the present case where the title was taken in the joint names of the spouses. There is no occasion for equity to fasten upon the registered interest held by the joint tenants a trust obligation representing differently proportionate interests as tenants in common. …" The Full Court held at [75] that the trial Judge correctly concluded that the subject of the disposition in 1987 was Mr Cummins's interest as joint tenant of the Hunters Hill property, without any displacement to allow for a beneficial tenancy in common in shares, of which the larger was that of Mrs Cummins. 15 Severance is the conversion of a joint tenancy into a tenancy in common. Professor Butt observed in his work, Land Law, 5th ed, 2006, p 237 at [1458]: "Strictly speaking, joint tenants do not have proportionate shares in the land. It might therefore be asked how a joint tenant can convert his or her "interest" into a proportionate share in the property as tenant in common. But for the purpose of severance this logical conundrum is ignored, and a joint tenant is regarded as having a potential share in the land commensurate with that of the other joint tenants. Where there are two joint tenants, that potential share is one-half; where there are three joint tenants, it is one-third; and so on. This potential share the joint tenant can deal with unilaterally during his or her lifetime. By so dealing with it, that share may be "severed" from the other shares and converted into an "aliquot" undivided share held in common, not jointly." 16 The cross-claimant's argument that Cummins v Cummins can be distinguished on the facts is to be accepted. A particular distinction is that the August 1987 transaction by Mr Cummins effected a severance. In the present case, as the property was Torrens title land, the fraudulently executed mortgage did not sever the joint tenancy: Lyons v Lyons [1967] VR 169; s 57 of the Real Property Act. The methods by which severance may be effected are well established and no other dealings by Mr Van den Heuvel had been registered which severed the joint tenancy. If such a dealing had been lodged, the Registrar General was required to notify the cross-claimant: s 97(5) of the Real Property Act. There is, in my opinion, no room in the present case for severance by implication. 17 Severance, however, may be effected by court order. The following remarks by Professor Butt in Land Law at [1487] are in point: " A court has no inherent jurisdiction to sever a joint tenancy on the unilateral application of one of the joint tenants, unless the order confirms a severance that has already occurred under one of the grounds already discussed. However, a joint tenancy may be severed as a result of a court order that requires the property to be dealt with in a manner that expressly or by necessary implication is inconsistent with continuance of the joint tenancy." 18 The judgment granting possession to the plaintiff of the whole of the property is an order that requires the property to be dealt with in a manner inconsistent with the continuance of the joint tenancy. As a result of the order, the joint tenancy will be severed. No evidence has been led by the cross-claimant that she and her husband contributed to the purchase in unequal shares. The cross-claimant is to be regarded as having a one-half beneficial interest in the property. 19 The measure of damage under s 129 of the Real Property Act is such as will put the cross-claimant in the same position so far as money can do it, as if the wrongful act had not been done, but not in a better position: Registrar of Titles v Spencer (1909) 9 CLR 641. Her entitlement to payment from the Torrens Assurance Fund is not measured by an interest in the whole of the property. Mrs Van den Heuvel is entitled to an unencumbered one-half share in the property. Her loss is the difference between the value of her unencumbered one-half share and the sum that she will actually receive (if any) after payment of the plaintiff's mortgage. In the result, the cross-claimant will so far as money can do it gain the equivalent of all she has lost as a result of her husband's fraud. 20 It seemed to me from the outset that the argument advanced for the cross-claimant was flawed. The interest of a joint tenant is not the same as a sole registered proprietor. Payment by the Registrar General of the whole amount outstanding on the mortgage would do more than compensate the cross-claimant for her loss. I do not accept that the measure of damage is the amount required to discharge the mortgage. Orders 21 As there is no evidence of the value of the property and the plaintiff has not taken possession, I am unable to make an order for judgment for the cross-claimant against the Registrar General in a specific monetary amount. I intend to confirm orders (1) to (5) of the orders proposed at [110] of Perpetual Trustees Victoria Limited v Peter Van den Heuvel. As to orders (4-6), the cross-claimant's entitlement to compensation is to be determined in accordance with these reasons. The costs orders are to be made in accordance with paragraphs (6-8) of the cross-claimant's proposed short minutes of order. 22 I make the following orders: (1) That there be judgment for the plaintiff, as against the second defendant, for possession of the whole of the land in Certificate of Title folio identifier 24/12658 and known as 18 McIntosh Street Queanbeyan NSW. (2) That a writ of possession issue, such writ not to issue before 8 weeks from today. (3) That the first cross-claim be dismissed. (4) That the second defendant/cross-claimant is entitled to payment of compensation from the Torrens Assurance Fund in respect of loss as a consequence of the fraud of Peter Harry Van den Heuvel (the first defendant) as specified in s 129(1)(e) of the Real Property Act 1900. (5) That the amount of such payment is to be agreed between the second defendant/cross-claimant and the Registrar General and in default of agreement to be assessed by the Court. (6) That there is to be judgment for the second defendant/cross-claimant on the second cross-claim against the Registrar General in the amount agreed or assessed by the Court in accordance with proposed order (5). (7) That the second defendant/cross claimant pay the plaintiff's costs, including the costs of the first cross-claim as agreed or assessed on an ordinary basis. (8) That the Registrar General pay the second defendant/cross claimant's costs of the second cross-claim and the second defendant's costs of the proceedings as a whole on an indemnity basis. (9) That the Registrar General indemnify the second defendant/cross claimant in respect to the costs payable by the second defendant/cross claimant to the plaintiff pursuant to order 7 hereof. ********* 24/11/2009 - Typographical error - Paragraph(s) Heading 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.