CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2)

1. [1]

   This matter involves a consideration of the extent to which a mortgagee can enforce a mortgage when the signatures of the mortgagors have been forged on powers of attorney.

2. [2]

   The plaintiff is a commercial lender.

3. [3]

   The third and fourth defendants are owners of three properties, being:

   1. (1)

      131/94-116 Culloden Road, Marsfield (being the land in folio identifier 127/SP57169) (“the First Property”)

   2. (2)

      22/94-116 Culloden Road, Marsfield (being the land in folio identifier 20/SP57169) (“the Second Property”); and

   3. (3)

      2 De Milhau Road, Hunters Hill (being the land in folio identifier 1/214616) (“the Third Property”).

4. [4]

   The second defendant is the son of the third and fourth defendants.

5. [5]

   The first defendant, Shining Pty Ltd, is a company of which the second defendant was the sole shareholder and director.

6. [6]

   On 10 May 2017, the plaintiff advanced the sum of $200,000 to the first defendant pursuant to a loan agreement between the plaintiff and the first defendant (“the loan agreement”).

7. [7]

   The repayment of that amount was purportedly guaranteed by the second, third and fourth defendants pursuant to a deed of guarantee and indemnity dated 10 May 2017.

8. [8]

   The First Property was subject to a mortgage granted in favour of the plaintiff, being mortgage registered no. AM488533 dated 10 May 2017 (“the First Mortgage”), to secure the initial sum advanced.

9. [9]

   On 22 June 2017, the plaintiff loaned a further amount to the first defendant, increasing the principal sum advanced under the loan agreement to $381,000, pursuant to a variation agreement dated 22 June 2017 (“the first variation agreement”).

10. [10]

    The second, third and fourth defendant again purportedly guaranteed that loan. The Second and Third Properties were subject to a further mortgage granted in favour of the plaintiff, being Mortgage no. AM607372 dated 20 June 2017 (“the Second Mortgage”), to secure the further amount advanced.

11. [11]

    Then, pursuant to a further variation agreement dated 11 September 2017, the principal sum loaned to the first defendant was again increased, to $575,000.

12. [12]

    The first defendant defaulted on repayment of the loan. The second, third and fourth defendants did not honour their obligations said to arise under the deeds of guarantee and indemnity.

13. [13]

    On 10 February 2018, the plaintiff commenced these proceedings by way of a statement of claim seeking:

    1. (1)

       judgment for possession of the First Property;

    2. (2)

       judgment for possession of the Second Property;

    3. (3)

       judgment for possession of the Third Property;

    4. (4)

       leave to issue a writ of possession forthwith; and

    5. (5)

       an order that the defendants pay to the plaintiff the sum of $727,695.45 together with interest.

14. [14]

    The plaintiff has already obtained judgment against the first defendant.

15. [15]

    The second defendant has not filed a defence.

16. [16]

    The third and fourth defendant filed defences denying that they signed the mortgages and guarantees and suggesting that their purported signatures on powers of attorney, which were relied upon, were forged.

17. [17]

    They also filed a cross-claim joining the Registrar-General of Land Titles (“the Registrar-General”) to the proceedings as a cross-defendant and seeking various orders to the effect that the First and Second mortgages and deed of guarantee and indemnity were void and of no effect. They also seek orders compelling the Registrar-General to correct the record.

18. [18]

    The matter was listed for hearing before me commencing 6 July 2020.

19. [19]

    The plaintiff filed and served affidavits as follows:

    1. (1)

       affidavit of Brooke Payne, a solicitor employed by the solicitor for the plaintiff, affirmed 9 October 2018;

    2. (2)

       affidavit of Luke Kenneth Owens, the solicitor for the plaintiff, affirmed 16 November 2018; and

    3. (3)

       a further affidavit of Luke Kenneth Owens affirmed 12 April 2019.

20. [20]

    Exhibited to those affidavits are the relevant documents.

21. [21]

    In response, the third and fourth defendants relied on:

    1. (1)

       three affidavits of the third defendant affirmed 5 October 2018, 29 October 2018 and 22 May 2019;

    2. (2)

       three affidavits of the fourth defendant affirmed 3 October 2018, 29 October 2018 and 22 May 2019; and

    3. (3)

       an affidavit of David Thomas Rundle affirmed 5 October 2018 (a law clerk in the employ of the solicitor for the third and fourth defendants).

22. [22]

    The Registrar-General relied on an affidavit of Vanessa Jeavons, a solicitor in the office of the Registrar-General, sworn 28 August 2019.

23. [23]

    On 26 May 2020, the matter came before me on application by the third and fourth defendants to serve expert evidence out of time. The third and fourth defendants sought to serve expert handwriting evidence so as to corroborate their assertions as to forgery.

24. [24]

    There is no dispute that each of the First Mortgage and Second Mortgage was executed by the second defendant, purportedly as attorney for the third and fourth defendants pursuant to:

    1. (1)

       Power of Attorney Book 4699, No. 477; and

    2. (2)

       Power of Attorney Book 4699, No. 478 (together, “the purported Powers of Attorney”).

25. [25]

    The third and fourth defendants say that they did not give these powers of attorney. They say that the signatures on the documents are forged. As such, the second defendant, their son, was not authorised to sign the mortgages and the deeds of guarantee and indemnity on their behalf.

26. [26]

    In accordance with the orders I made on 26 May 2020, the third and fourth defendants served an expert report of Steven Dubedat, a forensic document examiner, dated 12 June 2020. Despite being given leave to serve any expert evidence in response, the plaintiff did not serve any evidence in response.

27. [27]

    Rather, on 30 June 2020, the matter came back before me by way of an urgent notice of motion filed by the plaintiff seeking an order pursuant to r 28.4 of the Uniform Civil Procedure Rules 2005 (NSW) for determination of a separate question. I made orders in accordance with that application. [1]

28. [28]

    The plaintiff did not wish to challenge the opinion of the expert. Further, it did not wish to challenge the evidence of the third and fourth defendants.

29. [29]

    Whilst there was no formal concession by the plaintiff as to the findings that should be made concerning whether the third and fourth defendants did execute the powers of attorney, no submissions were made by either the plaintiff or the Registrar-General contrary to the case advanced by the third and fourth defendants on that issue (consistent with what was said on the hearing of the application for a separate question).

30. [30]

    As I identified in CEG Direct Securities (No 1), the reason for the separation of issues is that, on the basis that I would make findings consistent with the third and fourth defendants’ position on the signing of the powers of attorney, the only remaining issue between the plaintiff and the third and fourth defendants would be an issue relating to the construction of the mortgages.

31. [31]

    It was agreed between the parties that, should I make findings in favour of the third and fourth defendants on the construction issue, the third and fourth defendants would succeed entirely, both as against the plaintiff and in terms of the orders they seek against the Registrar-General.

32. [32]

    However, should the plaintiff succeed on the construction issue, then it would become necessary for there to be a lengthy hearing involving significant factual issues relating to equitable fraud and potential fraud of a solicitor.

33. [33]

    Accordingly, the issues for determination on the hearing commencing 6 July 2020 were only those set out in the document that I marked for identification headed “Separate Questions for Determination”, as subsequently revised by mutual agreement of the parties.

34. [34]

    At the commencement of the hearing, the second defendant was called but did not appear. The plaintiff will obtain whatever orders it may be entitled to as against the second defendant through the Registry.

35. [35]

    Mr Baird of counsel appeared for the plaintiff. Mr Smallbone of counsel appeared for the third and fourth defendants and Ms Douglas-Baker of counsel appeared for the Registrar-General. Each counsel provided helpful written and oral submissions.

The Separate Questions

1. [36]

   I set out below the separate questions for determination (“the Questions”):

   1. (1)

      Pursuant to UCPR r. 28.4, the Court Orders that the following questions of fact and law are to be decided separately from and in advance of all other questions in the proceedings:

2. [37]

   The list of separate questions may be divided into two issues as follows:

   1. (1)

      Questions (1)(a), (b), (c), (f), (g) and (h), which all relate to the question of whether the third and fourth defendants’ signatures were forged on the powers of attorney; and

   2. (2)

      Questions (1)(d) and (e), which assume a finding in favour of the third and fourth defendants on the forgery issue and relate to the proper construction of the registered mortgages.

The first issue — were the signatures of the third and fourth defendants forged?

1. [38]

   The answers to Questions (1)(a), (b), (c), (f), (g) and (h) depend upon whether I accept that the powers of attorney were validly executed by the third and fourth defendants or whether, contrary to that position, their signatures were forged.

2. [39]

   At the time of affirmation of his affidavit of 5 October 2018, the third defendant was 66 years of age. He derived his income from two investment units held with his wife, the fourth defendant (being the First and Second Properties). He had lived in Australia for approximately 26 years, residing at the Third Property in Hunters Hill for 10 years. His native language is Chinese Mandarin. His English is poor. He can only communicate in English at a basic level.

3. [40]

   He came to Australia in 1993 and worked selling batteries to car repair shops by way of door-to-door sales.

4. [41]

   In May 2017, he received a letter from NSW Land and Property Information, a division of the Department of Finance and Services, attaching a copy of a caveat, lodged by the plaintiff in respect of the First Property at Marsfield.

5. [42]

   By that time he knew that his son, the second defendant, had been involved in investments because in 2015 he had been asked to guarantee some investments. After receipt of the May 2017 letter, he contacted his son asking whether he knew anything about it and was told “Don’t worry I have resolved it”.

6. [43]

   Then, in February 2018, he was served with a number of documents including the statement of claim. At the time, he initially thought it was a scam.

7. [44]

   In respect of the Power of Attorney alleged to have been given by him, he says in his first affidavit:

8. [45]

   In his first affidavit, he further details the events that have occurred since service of the statement of claim, including attendance at the Police and at his bank on the basis that he believed that he might be the subject of a scam or fraud. It is not necessary to further detail his evidence, except to say that his explanation as to his conduct since being served with the relevant documents is consistent with that of a person who had no understanding of what was happening and had no idea that it was being alleged that he had signed a power of attorney or had granted the mortgages.

9. [46]

   In his subsequent affidavits of 29 October 2018 and 22 May 2019, he makes specific reference to the powers of attorney and then each of the documents which are alleged to have been signed pursuant to the power of attorney. He specifically states that he had no knowledge of these documents or their effect until being shown them as part of these proceedings.

10. [47]

    As at the date of her affidavit of 3 October 2018, the fourth defendant was 64 years of age. She is not a pensioner. She obtains her income from the two investment units held with her husband (being the First and Second Properties). She lives with her husband at their Hunters Hill home.

11. [48]

    Her evidence is similar to that of the fourth defendant. Further, she refers to a strained relationship with her son. She did not know his address in 2018. She believes that the main reason for the strained relationship with her son and daughter-in-law is because she and her husband did not support her son financially. She refers to a conversation in 2012 with her daughter-in-law, at which time her daughter-in-law asked her to invest and support them. She declined on the basis that they were retired and did not have the capacity to do so.

12. [49]

    She says that their son moved back in with them in 2015 for approximately 11 months when their daughter-in-law and grandson returned to China. When the daughter-in-law returned from China, they all lived together at the Third Property for approximately 3 months after which the second defendant, his wife and their child moved to a property in Burwood, although it is not clear why they moved out.

13. [50]

    In respect of the mortgages and power of attorney, she says in her first affidavit:

14. [51]

    Neither the third nor the fourth defendant was required for cross-examination. There is no challenge to any of their evidence.

15. [52]

    Mr Dubedat was retained on behalf of the third and fourth defendants. He was asked to address two questions:

16. [53]

    He was also asked to compare and opine on the signatures set out in a number of documents (the genuine specimen signatures) with the signatures purporting to be those of the third and fourth defendants on:

    1. (1)

       a signed acknowledgment by the third and fourth defendants that they were aware that their son was going to borrow $200,000 from the plaintiff and had given him a power of attorney;

    2. (2)

       a signed direction and authority in respect of the loan agreement; and

    3. (3)

       a profit sharing deed purportedly signed by the third and fourth defendants.

17. [54]

    Mr Dubedat made the following findings:

18. [55]

    There were some limitations in the methodology adopted by Mr Dubedat. As he says, the quality of the documents provided to him does not enable any useful microscopic examinations to be conducted on the signatures. A detailed assessment of the line quality and other finer details in the signatures is thus restricted. There are thus some limitations of the comparison of the signatures.

19. [56]

    However, he concluded that the questioned signatures are probably not genuine when compared collectively, that is, on the assumption that all of the questioned signatures have been written by the same writer.

20. [57]

    Again, there is no challenge to this evidence. Whilst the Registrar-General made some reference to shortcomings in the report in its submissions, having regard to the way in which the hearing was conducted, the shortcomings have been rendered irrelevant.

21. [58]

    The third and fourth defendants say that they did not sign the powers of attorney, did not sign the other documents, such as the authorities that they are alleged to have signed, and have no knowledge of the mortgages. Whilst the absence of any challenge does not necessarily mean that their evidence must be accepted, there is no reason not to accept their evidence in this matter. Further, it is, at least to a certain extent, corroborated by the opinion of Mr Dubedat, even allowing for the shortcomings in methodology.

22. [59]

    I thus accept that the third and fourth defendants did not sign the purported Powers of Attorney. Someone forged their signatures.

23. [60]

    It is not necessary to make any further findings about how or why that occurred or who might have been involved or make any findings about purported witnessing of signatures and the roles of any solicitors in the process.

24. [61]

    I thus determine the Questions on the first issue as follows:

The second issue — the proper construction of the mortgages

1. [62]

   The remaining Questions (1)(d) and (e) relate to the construction of the mortgages.

2. [63]

   The reason that there remain questions as to the entitlement of the plaintiff under the mortgages is that the mortgages were registered. As the High Court emphasised in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2] in relation to s 42 of the Real Property Act 1900 (NSW):

3. [64]

   There is no suggestion of fraud on the part of the registered proprietor of the estate or interest, being the plaintiff.

4. [65]

   The First and Second Mortgages are relevantly identical for the purposes of the construction issue. I will refer to them in the singular for ease of reference.

5. [66]

   The general position was summarised by Giles J in PT Ltd v Maradona Pty Ltd [3] as follows:

6. [67]

   The issue arising in these proceedings is the issue somewhat famously identified by Campbell J in Small v Tomassetti: [4] “Notwithstanding that registration confers indefeasibility on a mortgagee, there is still a question ‘indefeasibility for what?’.”

7. [68]

   Indefeasibility of a mortgage may extend to a covenant for payment. [5] The question that arises is: what is the debt secured by the mortgage? The charge of the debt on the land is part of the interest rendered indefeasible [6] but it is still necessary to identify the debt secured by the mortgage on registration.

8. [69]

   In Perpetual Trustees Victoria Ltd v English, [7] a case involving a forged signature on a mortgage, Sackville AJA summarised the relevant principles by reference to the following eight points:

9. [70]

   This matter involves the application of those principles having regard to the terms of the mortgage. Each party sought to compare and contrast the terms of the mortgage with mortgages in other cases.

10. [71]

    The plaintiff highlighted cases where it was submitted the terms of the mortgages were so similar that the same result should necessarily ensue. The third and fourth defendants highlighted other cases pointing to similarities in the terms of the mortgages where the position adopted by the third and fourth defendants in this matter was accepted by the Court in those other matters.

11. [72]

    The Registrar-General generally adopted the third and fourth defendants’ submissions on the construction issue.

12. [73]

    The plaintiff did not suggest that it could enforce the deed of guarantee and indemnity. It is a separate agreement which, based on my findings in respect of the first issue, is unenforceable.

13. [74]

    The plaintiff summarised the construction issue as follows:

14. [75]

    The plaintiff submits:

15. [76]

    The agreement forming part of Annexure A to the First Mortgage (“the Agreement”) is in the following terms:

16. [77]

    The plaintiff’s alternative submission is that the loan agreements are incorporated into the mortgage as collateral documents. The plaintiff adopts the approach of Kirby J in Caradonna at [214]–[217].

17. [78]

    His Honour accepted that the facility agreement in that matter was a collateral agreement and that, as a matter of construction, the mortgage secured the obligations arising under the facility agreement by its terms. This created an enforceable debt which was secured by the mortgage.

18. [79]

    The plaintiff says that the mortgage secures the obligation to pay in the loan agreement and the first variation agreement.

19. [80]

    The third and fourth defendants and the Registrar-General adopt similar positions.

20. [81]

    They accept the fundamental principle that the effect of registration is that covenants which delimit or qualify the estate or are otherwise necessary to assure the estate or interest of the mortgagee forms part of the registered title that describes the mortgagee’s interest in the land and therefore may be enforced against the land.

21. [82]

    However, they say that on a proper construction of the mortgage, the mortgage secures nothing.

22. [83]

    They say that the mortgage will only secure something if, on its proper construction, it is found that there has been a sum actually advanced, receipt of which is acknowledged in the mortgage.

23. [84]

    They submit:

24. [85]

    They say that the covenants contained in the mortgage do not impose any obligation on the third and fourth defendants to repay the monies sought by the mortgagee and that the covenants should not be construed as an acknowledgment of receipt of any monies.

25. [86]

    They say that as they have not received any amount then they cannot be obliged to repay any amount. [8]

26. [87]

    They rely on the comments of Young CJ in Eq in Perpetual Trustees Victoria Ltd v Tsai [9] to the effect that if no monies are lent under the mortgage, the mortgage is just completely void. As his Honour later said in Vella v Permanent Mortgages Pty Ltd, [10] reflecting on his decision in Tsai:

27. [88]

    Further, they point to the recent decision of Kunc J in Winau Aust Pty Ltd v LCC Property Development Pty Limited (No 2). [11] His Honour did not accept that a clause similar to clause 2 of the Agreement in the present case should be construed as an acknowledgment of receipt.

28. [89]

    The Registrar-General submits that, properly construed, there is no acknowledgment in the mortgage that any money was in fact advanced. The Registrar-General essentially supports the approach of the third and fourth defendants.

29. [90]

    Further, it submits that the Court should find that no money was in fact advanced at the time of the mortgage was purportedly executed. In those circumstances, the Registrar-General submits that there was no secured money within the definition of that term in clause 13.1 of the mortgage common provisions. If there was no secured money, then there was no relevant indebtedness under clause 4 of the Agreement.

30. [91]

    In the circumstances, the extent of the estate or interest of the mortgagee is not identified on the face of the mortgage. The Registrar-General submits that as the mortgages do not operate so as to create any obligation on the purported mortgagors, then the mortgages secure nothing. [12]

31. [92]

    As under s 42 of the Real Property Act, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register (being the mortgagee) holds the estate or interest free from all other estates and interest that are not recorded, then the question remains as to what is the estate or interest which is secured?

32. [93]

    Of course, as noted by Simpson J in Perpetual Trustees Victoria Ltd v English, [13] it might be considered odd that the liability of innocent owners in the position of the third and fourth defendants depends on whether the drafters of the mortgage have included, with sufficient specificity in the mortgage documents, the debt which is the subject of the mortgage.

33. [94]

    However, although there might be some commentary questioning the correctness of such decisions, [14] it remains possible that the mortgage will remain indefeasible as to the estate or interest of the mortgagee in the land (the debt), depending on the construction of the mortgage.

34. [95]

    Whether the registered mortgage does secure the debt is a question of fact depending on a consideration of the terms of the mortgage. Earlier cases are only a guide, although they demonstrate that differing results can ensue depending on the precise words used in the mortgages.

35. [96]

    As identified in English (NSWCA) at [97], a registered mortgage may not secure an invalid antecedent collateral agreement. However, if the debt is expressed in the registered mortgage then the mortgage may be secured. In this matter, the loan agreements are not said to be invalid. They were not infected by fraud.

36. [97]

    The plaintiff thus relies on the covenants contained in the mortgage and the covenants in the loan agreements, which it says are incorporated into the mortgages as collateral agreements.

37. [98]

    There is merit in the plaintiff’s submission that in respect of a third party mortgage such as the mortgages in question in this matter, there could never be an acknowledgment of receipt by the mortgagor. Nor could there be any acknowledgment of the obligation to repay monies that have not been received. In this way, it might be said that the terms of the mortgages in this matter may be distinguished from the mortgages relied upon by the third and fourth defendants in cases such as Cox and Winau (No 2).

38. [99]

    However, in my view, there are a number of difficulties with the plaintiff’s approach to construction.

39. [100]

    Firstly, in my view, clause 2 of the Agreement is not an acknowledgment that the consideration has actually been received. It is merely an acknowledgment that the mortgagors are incurring obligations and giving rights under it for valuable consideration. The words “received from us” must be construed in the context of the provisions as a whole.

40. [101]

    I agree with the approach of Kunc J in Winau (No 2) at [7] and [52] to a similar clause as Clause 2 in the Agreement.

41. [102]

    It is plain that no amount had been received from the plaintiff as at the time of execution of the mortgage. Having regard to the affidavit of Luke Owens affirmed on 12 April 2019 at para 9(e) and paras 10–12, it is apparent that the advances were made subsequent to receipt of the documents.

42. [103]

    Further, having regard to clause 3 of the Agreement, the mortgagor has merely acknowledged that, as at the date of the mortgage, the mortgagee has agreed to lend $200,000 “to you or at your request”.

43. [104]

    I agree with the Registrar-General’s submission that clause 3 is merely an acknowledgment in terms of there being an agreement (prospectively) to lend an amount which forms part of the secured money, together with further advances. It does not record that any specific sum has in fact been advanced.

44. [105]

    Secondly, even adopting the plaintiff’s submissions that it is not necessary that there be an acknowledgment of receipt or agreement to repay, as this is a third party mortgage, it will still be necessary to identify the debt that represents the charge on the land.

45. [106]

    There could not be any dispute that the acknowledgment in clause 4 of the Agreement is only for the secured money. It seems to me that much depends on what is meant by the term “Secured Money”.

46. [107]

    Secured Money is defined in the mortgage common provisions as follows:

47. [108]

    Secured Money is referred to in the mortgage common provisions in the following way:

48. [109]

    The mortgage thus only secures payment of the Secured Money. The liability of the Mortgagor is only to pay the Secured Money.

49. [110]

    I agree with the third and fourth defendants that there are not two definitions of Secured Money. The second sentence in clause 3 of the Agreement, which states, “this amount, together with any further advances and other amounts more fully described in the Mortgage Common Provisions is called the secured money” (emphasis in original) must be read compendiously with that defined in clause 13.1 of the mortgage common provisions.

50. [111]

    In Hepples v Commissioner of Taxation, [15] Gummow J stated:

51. [112]

    So, what is the Secured Money?

52. [113]

    As set out in clause 3 of the Agreement, the plaintiff “agreed to lend $200,000 to you or at your request”. In the next sentence there is a further explanation of what is the “secured money” for the purposes of the mortgages, as follows :

53. [114]

    In circumstances in which no amount had been lent to the third and fourth defendants at the time of the registration of the mortgage and the terms speak prospectively of an agreement to lend, it does not seem to me that the proper construction of clause 3 of the Agreement permits a form of selectivity in the consideration of what is secured by the mortgage. That which is secured is the sum which is to be lent to the third and fourth defendants or at their request. The identification of the proposed amount, i.e. $200,000, does not mean that the remaining words in clause 3 should be ignored for the purposes of determining what is the interest secured by the mortgage.

54. [115]

    As a matter of fact, no money had been or was ever lent to the third and fourth defendants and they did not make any request for money to be lent.

55. [116]

    I reject the plaintiff’s contention that the words “to you or at your request” are merely part of the recitals and do not form part of the personal covenant. I do not consider that the words “this amount” must be taken as a reference only to the specified sum (i.e. $200,000), as if no meaning should be given to all the other words in clause 3.

56. [117]

    Further, clause 4 of the Agreement does not constitute an acknowledgment of indebtedness for a specific amount. It is only an acknowledgment of indebtedness for “the secured money”. To the extent that it is an agreement to pay rather than repay, it is an agreement to pay “the secured money”.

57. [118]

    In my view, the mortgage could hardly be said to secure a specific sum that had been advanced to the mortgagors when in fact no amount had been advanced to the mortgagors at the time of registration. In these circumstances, the identification of a specific sum does not assist the plaintiff.

58. [119]

    Money is only due by the mortgagor pursuant to the mortgage if it is due in accordance with clauses 2, 3 and 4 of the Agreement. For the reasons I have set out, no money is due as no money had been lent to the third or fourth defendant or at their request, or indeed ever was lent to the third or fourth defendant or at their request.

59. [120]

    I reject the plaintiff’s submission that the mortgage under consideration in this matter is consistent with the form of the second mortgage considered by Studdert J in Printy v Provident Capital Ltd. [16] The relevant wording of the second mortgage in Printy is not identical to the mortgage in this matter.

60. [121]

    In Printy, the mortgagor expressly acknowledged receipt of the principal sum of $50,000 and covenanted with the mortgagee to pay that sum to the mortgagee. In my view, the terms of the mortgage in this matter are quite different.

61. [122]

    The alternative argument advanced by the plaintiff is that the loan agreement (or first variation agreement) constitutes a collateral document within the meaning of that term as defined in the mortgage common provisions. That is, the obligation to pay arises not through the covenant in the mortgages but as a result of the incorporation of the loan agreement into the mortgage.

62. [123]

    Collateral Documents are defined in the mortgage common provisions as follows:

63. [124]

    The plaintiff relies on paras (c) and (d). The plaintiff submits that the loan agreement and the first variation agreement are documents agreed to be collateral in the mortgages or as specified as collateral in the mortgages.

64. [125]

    Plainly, the third and fourth defendants were not party to the loan agreements and, thus, paras (a) and (b) of the definition of Collateral Documents would not apply.

65. [126]

    The plaintiff submits that the Court should follow the approach taken by Kirby J in Caradonna at [214]–[217]. In that matter, his Honour found that the mortgage secured the obligations arising under the facility agreement and that the facility agreement created an enforceable debt which was then secured by the mortgage.

66. [127]

    The plaintiff submits:

67. [128]

    Unlike some of the other cases, the loan agreement and the first variation agreement are not void. They were not infected by fraud.

68. [129]

    Monies were lent to the first defendant as the borrower under each of the loan agreement and the first variation agreement. Those agreements are binding on and enforceable against the first defendant who received the loan amounts.

69. [130]

    However, in my view, there are two fundamental difficulties with the plaintiff’s alternative argument.

70. [131]

    Firstly, clause 4 of the Agreement provides:

71. [132]

    The deeming of the covenants contained in the facility agreements (being the loan agreement and first variation agreement) into the mortgages does not overcome the difficulty that the covenants must be in respect of the secured money. It is thus again necessary to have regard to the secured money as that term is understood in the mortgages. The same problems as previously canvassed arise in respect also of the identification of the Secured Money here.

72. [133]

    Secondly, the plaintiff’s reliance on the definition of Secured Money in clause 13.1 of the mortgage common provisions, which refers to money due pursuant to the mortgage or a collateral document, does not assist the plaintiff. The specified amounts would not be money due pursuant to a collateral document.

73. [134]

    The third and fourth defendants were not parties to the loan agreement or the first variation agreement. Neither agreement imposes any obligation on the third and fourth defendants. Any amount payable pursuant to the collateral document could not be Secured Money as that term is defined in clause 13.1 because it is not money (as described in the opening words of the definition) which directly, indirectly, contingently or otherwise at any time is or becomes due by the mortgagors to the mortgagee.

74. [135]

    The difficulty for the plaintiff is that this is a third party mortgage. The mortgagors are not the persons to whom the monies were lent or would be lent.

75. [136]

    As such, no money is due by the third and fourth defendants to the plaintiff under any collateral document.

76. [137]

    In the circumstances, I do not accept the alternative argument advanced by the plaintiff in respect of the collateral documents.

77. [138]

    It is notable that in Caradonna, the mortgagors received the money under the facility agreement, such that as a result of the incorporation of a valid document (as a collateral document) into the mortgage, the estate or interest of the mortgagee was qualified or delimited with reference to the amount payable by the mortgagors under the facility agreement.

78. [139]

    Again, the circumstances are different in this matter. Incorporation of the loan agreement and first variation agreement into the mortgage does not assist in identifying any amount which would fall within the meaning of Secured Money, having regard to clauses 3 and 4 of the Agreement and the definition in clause 13.1 of the mortgage common provisions.

79. [140]

    Nor is any amount payable by the third and fourth defendants under the collateral documents.

80. [141]

    Accordingly, the answer to each of Questions (1)(d) and (e), which are set out above at [36], is $nil.

Orders

1. [142]

   I direct that the parties have liberty to approach on 24 hours’ notice for the purposes of consequential orders and costs.