New South Wales Supreme Court CITATION : Perpetual Trustees Victoria Limited v Ann-Marie Menzies; Finance Express (Qld) Pty Limited (In liq) v Ann-Marie Menzies [2009] NSWSC 352 HEARING DATE(S) : Heard on written submissions JUDGMENT DATE : 5 May 2009 JURISDICTION : Common Law JUDGMENT OF : McCallum J DECISION : In each of the proceedings numbered 15775/06 and 14635/07, the separate question be answered "no". LEGISLATION CITED : Real Property Act 1900 CATEGORY : Procedural and other rulings Australian Regional Credit v Mula [2009] NSWSC 325 CASES CITED : Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 Provident Capital Ltd v Printy [2008] NSWCA 131 Yazgi v Permanent Custodians Ltd [2007] NSWCA 306; 13 BPR 24,567 In proceedings 14635 of 2007: Ann-Marie Menzies (Defendant/Cross-Claimant) Perpetual Trustees Victoria Limited (Plaintiff/1st Cross-Defendant) Challenger Financial Services Group Limited (2nd Plaintiff/2nd Cross-Defendant) BMC Mortgage Corporation Pty Limited (2nd Defendant/3rd Cross-Defendant) Terrence Reddy (4th Cross-Defendant) Dive Investments (5th Cross-Defendant) PARTIES : Registrar General (6th Cross-Defendant) In proceedings 15775 of 2006: Finance Express (QLD) Pty Ltd (Plaintiff/1st Cross-Defendant) Ann-Marie Menzies (Defendant/Cross-Claimant) Terrence Reddy (2nd Cross-Defendant) Pinnacle Capital Pty Limited (3rd Cross-Defendant) Registrar General (4th Cross-Defendant) FILE NUMBER(S) : SC 14635/07; 15775/06 Mr G A Sirtes (Plaintiff) COUNSEL : Mr B J Skinner/Mr J Baird (Defendant) Mr P Walsh (Registrar-General) SOLICITORS : HWL Ebsworth Lawyers (Plaintiffs) (14635/07) Eakin McCaffery Cox (Defendants) - 8 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION McCALLUM J 5 MAY 2009 14635/07 PERPETUAL TRUSTEES VICTORIA LIMITED v ANN-MARIE MENZIES 15775/06 FINANCE EXPRESS (QLD) PTY LTD (IN LIQUIDATION) v ANN-MARIE MENZIES JUDGMENT 1 HER HONOUR: Ann-Marie Menzies is the registered proprietor of a property in Stanmore. Two mortgages are registered on its title, the first to Perpetual Trustees Victoria Limited and the second to Finance Express (Qld) Pty Limited (in Liquidation). Each mortgage is alleged by Ms Menzies to have been forged. 2 Perpetual and Finance Express have each commenced proceedings against Ms Menzies seeking an order for possession of the property. In each proceeding, I made an order for the separate determination of the following question: "whether, upon the proper construction of [the relevant mortgage] and on the assumption that the mortgage was not entered into by the defendant or by anyone acting with her knowledge or approval and that she obtained no benefit from the moneys advanced on the security of the mortgage, there is any amount owing to the plaintiff by the defendant the payment of which is secured by the mortgage." 3 I made a further order that the separate questions in both proceedings be heard together. It is convenient to publish a single set of reasons in respect of my determination of each question. The claim by Perpetual 4 Perpetual's claim is based on a registered mortgage dated 12 October 2005 which Perpetual alleges is security for a loan of $539,500. The mortgage does not secure the repayment of that sum in terms. Nor does it specify the amounts and dates by which it was to be repaid. The terms and conditions on which the loan amount was advanced were set out in a separate loan agreement (undated) purportedly between Perpetual and Ms Menzies. 5 By her defence, Ms Menzies claims that she did not make any application for a loan from Perpetual nor authorise any other person to do so on her behalf. She says that she did not borrow any money from Perpetual and did not receive any money or the benefit of any money from it. She denies granting or agreeing to grant the mortgage and denies signing or executing it. She further denies that she authorised any person to sign or execute it on her behalf. 6 Ms Menzies has filed a cross-claim in the Perpetual proceedings which repeats the allegations made in the defence. The relief sought in the cross-claim includes a declaration that the mortgage does not secure any obligations under the loan agreement. 7 The fourth respondent to the cross-claim is the Registrar-General, New South Wales Department of Lands. The claim against the Registrar-General is for compensation under s 129 of the Real Property Act 1900 in the event that Perpetual is successful in its claim against Ms Menzies. The claim by Finance Express 8 The claim by Finance Express is based on a registered mortgage dated 4 May 2006. As with the mortgage to Perpetual, the mortgage to Finance Express does not in terms secure the repayment of a specified sum and does not identify the amounts and dates of repayment of the sum advanced. 9 Finance Express alleges that it lent Ms Menzies the sum of $157,014 pursuant to a separate loan agreement. According to the pleadings, that loan agreement was undated. However, the agreed tender bundle provided in respect of the determination of the separate question includes a copy of the relevant agreement which is dated 2 March 2006. The amended defence filed by Ms Menzies in those proceedings makes the same allegations as appear in her defence in respect of the claim by Perpetual summarised above. There is also a cross-claim filed by Ms Menzies in the Finance Express proceedings in which the relief sought includes a declaration that the mortgage does not secure any obligations under the loan agreement and a claim against the Registrar-General for compensation under s 129 of the Real Property Act. 10 In each case, the Registrar-General defends the claim for compensation on the basis that, although the relevant mortgagee has acquired indefeasible title by registration of the mortgage, each mortgage, as a matter of construction, secures nothing and that accordingly Ms Menzies has suffered no loss or damage within the meaning of s 129 of the Real Property Act. Accordingly, the Registrar-General joined with Ms Menzies in arguing in each proceeding that the mortgage secures no debt. 11 The hearing of the separate questions proceeded on written submissions. Finance Express made no submissions. Perpetual, having opposed the separate determination of the question on the basis that it would have no effect on the proceedings whether the question was answered "yes" or "no", ultimately filed written submissions in which it acknowledged that the separate question must be answered "no". Effect of registration of a forged mortgage 12 At common law, a mortgage is not enforceable if it is proved that the signature of the mortgagor has been forged: Yazgi v Permanent Custodians Ltd [2007] NSWCA 306; 13 BPR 24,567 at [13]. However, upon registration of a mortgage, even if it has been forged, the land becomes charged as security for the debt secured by the mortgage: Yazgi at [14]; Provident Capital Ltd v Printy [2008] NSWCA 131 at [30]. As noted in the written submissions of Mr Walsh, who appeared for the Registrar-General, that is a result of the operation of s 42 of the Real Property Act, and does not involve enforcement of the mortgage. 13 In such a case, the threshold question is to determine, upon its proper construction, what debt the mortgage secures: Yazgi at [24]; Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 at [28]. The debt secured by the Perpetual mortgage 14 The Perpetual mortgage provides that Ms Menzies: "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 the Memorandum No. AA832328 filed in the Department of Lands, Land and Property Information Division (LPI) are incorporated in this mortgage." 15 I have elsewhere expressed doubt as to whether a covenant, in a forged mortgage, that purports to incorporate additional provisions in the mortgage can be effective: see Australian Regional Credit v Mula [2009] NSWSC 325 at [18]. However, it is convenient for present purposes to assume that the terms of Memorandum AA832328 are incorporated as terms of the mortgage. 16 Memorandum AA832328 provides: "2.2 Pay Secured Money The mortgage is security for payment to Us of the Secured Money and for the performance of all of your obligations under the Mortgage. You agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage. 1.1 "Secured Agreement" means: any present or future agreement between Us and You, or any of You, and an agreement that varies such an agreement. "Secured Money" means: all moneys that are payable at any time or are contingently owing or payable to Us under a secured Agreement, all amounts that are payable at any time by You, or any of You, to Us on any other account whatsoever, and expenses. "Mortgage" means the Mortgage Form including all schedules and annexures and this document. "You" means the person or persons named in the Mortgage Form as the Mortgagor and "your" has a corresponding meaning"". 17 Memorandum AA832328 is the same standard memorandum that was considered by Bryson AJ in Chandra. As noted by his Honour, the reader seeking to understand covenant 2.2 (set out above) is led back to the need to identify an agreement which falls within the defined expression "Secured Agreement". Bryson AJ concluded at [37]: "Following that definition, unless there is and can be identified an 'agreement between Us and You' there is no Secured Agreement and there is no Secured Money identified by reference to a Secured Agreement." 18 With great respect to Bryson AJ, that reasoning is plainly correct. On the assumption that Ms Menzies' signatures on the mortgage and the loan agreement have been forged, there is no "Secured Agreement" between her and Perpetual. 19 I note that the separate question did not include an assumption as to the forgery of the loan agreement. However, it is clear from her affidavit sworn 8 August 2008 that Ms Menzies denies executing that agreement. 20 On that basis, it follows that the separate question in the Perpetual proceedings must be answered "no". Debt secured by the Finance Express mortgage 21 The Finance Express mortgage provides that Ms Menzies: "mortgages to the mortgagee all the Mortgagor's estate and interest in the above land and covenants with the mortgagee that the provisions set out in the annexure and/or mortgage specified below are incorporated in this mortgage: § annexure "A" hereto; § Memorandum No. Q860000 filed in the Department of Lands, Land and Property Information Division" 22 The annexure to the mortgage provides: "This mortgage is granted in consideration of and pursuant to Deed of Loan between the mortgagor as borrower and the mortgagee as lender dated 2nd day of March 2006 (the Deed) and incorporates the provisions contained therein in their entirety." 23 Memorandum No. Q860000 contains no further relevant provisions. 24 I accept, as submitted by the Registrar-General, that, if it is accepted that Ms Menzies' signature on the loan agreement is a forgery, there is no debt for the mortgage to secure. In that respect I accept, as submitted by Mr Skinner and Mr Baird on behalf of Ms Menzies, that the terms under consideration are not discernibly different from those considered in the judgment of Basten JA in Printy at [12] and [13] and in the judgment of Beazley JA in Yazgi at [428]. Accordingly, the separate question in the Finance Express proceedings must be answered "no". 25 The separate question assumes that the mortgages and loan agreements were forged and that Ms Menzies obtained no benefit from the moneys advanced. The Registrar-General submitted that, if Ms Menzies' evidence on those matters is accepted, there is nothing for either mortgage to secure. If her evidence is not accepted, she has suffered no loss or damage as a result of any forgery and either way she has no claim against the Registrar-General. 26 It would appear to follow from that submission, and it was the basis on which I was persuaded that there was utility in the determination of the separate question, that Ms Menzies' cross-claims against the Registrar-General should be dismissed. However Perpetual has indicated in its written submissions that, alternatively to its contention that Ms Menzies did execute the relevant documents, it will contend that she is liable on the basis that she has received the benefit of all or part of the loan advance; that the loan agreement was executed by her agent; or that she is estopped from denying the full terms and effect of the loan agreement. Accordingly, I will hear the parties further as to the fate of Ms Menzies cross-claims against the Registrar-General. Orders (a) In proceedings 15775/06, that the separate question be answered "no". (b) In proceedings 14635/07, that the separate question be answered "no". ********** 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.