Thomas v Registrar-General of New South Wales

1. [1]

   BELL P: This is an appeal from a decision of Darke J in the Equity Division of the Supreme Court of New South Wales in which his Honour dismissed the statement of claim with costs: [2018] NSWSC 1517. In the proceedings below, compensation had been sought for alleged loss or damage to be paid from the Torrens Assurance Fund. That is a fund established pursuant to Pt 14 of the Real Property Act 1900 (NSW) (the Act).

2. [2]

   The compensation claim was said in the Statement of Claim to be for:

3. [3]

   The caveat to which reference was made in the Statement of Claim had been lodged by the Appellant and her now deceased partner in February 2005 in respect of their interest as unregistered second mortgagees over certain land at Terrigal (the Terrigal Property). The compensation sought to be recovered in the proceedings below, however, appeared to relate, at least principally, to alleged loss following a mortgagee sale of a property owned by the Appellant and her partner at East Hills (the East Hills Property).

4. [4]

   The compensation order was sought pursuant to s 129(1) of the Act which is entitled ‘Circumstances in which compensation payable’, and which relevantly provides:

5. [5]

   Section 129(2) provides that compensation is not payable in relation to any loss or damage suffered by any person in a number of circumstances including:

6. [6]

   An earlier application for compensation from the Torrens Assurance Fund pursuant to s 131 of the Act had been lodged on 11 November 2011 but was ultimately refused on 7 June 2016 with reasons on 28 June 2016. Section 131 provides for what are styled “administrative proceedings” for compensation. Section 132(2) of the Act provides that court proceedings may only be commenced if administrative proceedings have been commenced and determined in relation to the compensable loss or by leave of the court or with the consent of the Registrar-General.

7. [7]

   It will also be noted that s 130(1) of the Act provides that, despite s 129(2), the Minister may:

8. [8]

   The background to the dispute, insofar as it emerged on the evidence before the primary judge, is largely not in issue and what follows is principally taken from the primary judgment.

Background facts

1. [9]

   The Appellant and her then partner purchased the East Hills Property as joint tenants in 1991.

2. [10]

   In 2003, the East Hills Property was subject to a mortgage in favour of the Bank of Western Australia with approximately $190,000 owing under that mortgage.

3. [11]

   On 20 May 2003 the Appellant and her partner entered into an agreement with Abraham Sengoz and Sam Masri which was in the following terms:

4. [12]

   In June 2003, the Appellant and her partner retained a solicitor, Mr Wehbe, to act for them on the transaction involving the proposed refinancing and investment. The transaction settled on 13 June 2003.

5. [13]

   The Appellant and her partner borrowed a total of $500,000 from First Mortgage Company Home Loans Pty Ltd to be secured by first mortgage over the East Hills Property with the entire Bank of Western Australia mortgage being discharged using part of the proceeds of the new loan. A further $230,000 was paid to Messrs Sengoz and Masri as the investment amount as contemplated by the agreement referred to in [11] above. The remaining proceeds went towards costs or were otherwise applied at the direction of the Appellant and her partner.

6. [14]

   The Appellant and her partner signed a deed on about 13 June 2003 that provided for the sum of $230,000 to be lent to Messrs Sengoz and Masri and for the sum to be secured by way of a registered second mortgage (cl 2) or unregistered second mortgage to be secured by way of caveat (cl 3) in relation to the Terrigal Property.

7. [15]

   The Appellant and her partner also signed a form of mortgage over the Terrigal Property but the instrument was not signed by either Mr Sengoz or Mr Masri. In any event, no mortgage in favour of the Appellant and her partner was ever registered on the title to the Terrigal Property. However, on about 1 July 2003, the Appellant and her partner lodged a caveat (9745672P) against the title to the Terrigal Property, claiming an unspecified interest based on an agreement between them and Messrs Sengoz and Masri.

8. [16]

   Later in 2003 the Appellant and her partner signed a revised version of the deed they (but not Messrs Sengoz and Masri) signed in June 2003. This revised version appears to have been signed by Messrs Sengoz and Masri.

9. [17]

   Interpolating here, the primary judge found and indicated (at [56] of his reasons) that the Appellant accepted that she and her partner were reliant on the promised returns on their investment under the deed to service the loan that was secured over the East Hills Property.

10. [18]

    In October 2003, the Appellant and her partner, as caveators, gave their consent to a variation of a mortgage held by Shakespeare Haney Securities Limited (Shakespeare) over the Terrigal Property, so that the amount secured under the mortgage was increased to $3.43 million, and the term of the mortgage extended to 15 August 2004. It may be noted that the agreement of 20 May 2003 referred to in [11] above asserted that the Terrigal Property has a value of $1.9 million as at that date.

11. [19]

    In November 2004, the Appellant and her partner agreed to withdraw their caveat so as to allow a refinance of the borrowings over the Terrigal Property. The proposed refinance was to be with the National Australia Bank. As part of the transaction which followed, the Appellant and her partner received a repayment of $30,000 of the amount they had invested, leaving a balance of $200,000. The primary judge recorded that it appeared that Messrs Sengoz and Masri may have taken the opportunity to grant a second mortgage in favour of PDB Cap Pty Ltd (PDB), rather than refinance with the National Australia Bank. PDB lodged a caveat over the title to the Terrigal Property claiming an interest under an equitable mortgage dated 22 November 2004.

12. [20]

    The Appellant and her partner lodged their own caveat (AB303816) on about 23 February 2005. The interest claimed in the caveat was again unspecified, but was stated to arise by virtue of an agreement between the caveators and Messrs Sengoz and Masri dated 13 June 2003.

13. [21]

    At the trial, the Appellant gave evidence that she and her partner "were still having hassles" with payments from Messrs Sengoz and Masri and that these hassles had been going on for six months or more. She further deposed that after a period of "dribs and drabs", the payments "just stopped". This appears to have been in about May 2006.

14. [22]

    In August 2005, the Terrigal Property became the subject of a three lot strata plan, namely SP 75435, such that caveat AB303816 affected the three lots in the Strata Plan.

15. [23]

    In November 2005, following the lodgement of a Withdrawal of Caveat form which apparently contained the signatures of the caveators, caveat AB303816 was withdrawn from the title to Lot 1 in SP 75435. The Appellant, however, gave evidence, undisputed by the Registrar-General, that the signatures were not placed upon the form by the Appellant or her partner. The Appellant contended, and the primary judge accepted, that the lodgement of the form was a fraudulent act. This conclusion was supported by evidence from a forensic document examiner to the effect that the signatures on the Withdrawal of Caveat form were forgeries.

16. [24]

    The fraudulently obtained Withdrawal of Caveat AB303816, and a withdrawal of the caveat that had been lodged by PDB, allowed the registration of a transfer of the fee simple in respect of Lot 1 in SP 75435 to a new registered proprietor, Heidelberg Investments Pty Ltd (Heidelberg). The transfer to Heidelberg appears to have been for a consideration of $1.43 million. The mortgage held by Shakespeare was discharged from Lot 1 in SP 75435 at the same time.

17. [25]

    Caveat AB303816 remained against the titles to Lots 2 and 3 in SP 75435. In July 2006, however, the Appellant and her partner agreed to the withdrawal of the caveat from those titles which facilitated the eventual completion of contracts for the sale of those lots in July 2007. Lot 2 appears to have been transferred to Mr Sengoz for $550,000, and Lot 3 to Mr Sengoz for $650,000. The primary judge noted that it appeared that, following these transactions, Lots 2 and 3 became subject to a mortgage in favour of the National Australia Bank to secure an amount of $2.72 million.

18. [26]

    The primary judge referred to evidence that the Appellant and her partner had gone into default under the mortgage over the East Hills Property by September 2006 and that it appeared from a default notice issued at that time that the amount of the loan had been increased to $540,000, and that an amount of about $551,000 was owing. A series of default notices followed and, in 2007, the mortgagee of the East Hills Property commenced proceedings for possession. An order for possession had been obtained by the end of that year. However, it appears that, by agreement with the mortgagee, the Appellant and her partner sold the East Hills Property in early 2008 for the sum of $510,000. Following the sale, an amount of almost $102,000 remained outstanding on the mortgage loan account.

19. [27]

    In the meantime, both Mr Sengoz and Mr Masri had become bankrupt on 1 February 2008 and 12 October 2007, respectively.

20. [28]

    The Appellant's partner died in May 2008.

21. [29]

    In 2009, the Appellant, in her own right and as the person entitled to her deceased partner's estate, commenced proceedings against Mr Wehbe, alleging that he had acted negligently and in breach of fiduciary duties in the course of acting on the refinance and investment transaction in 2003. The allegations made against Mr Wehbe included that he failed to attain:

22. [30]

    It was alleged that, by reason of Mr Wehbe's breaches, the Appellant and her partner suffered loss and damage including:

23. [31]

    The proceedings were defended by Mr Wehbe, with a Defence filed on 19 November 2009, and an Amended Defence on 6 February 2012.

24. [32]

    In 2012, the Appellant and Mr Wehbe entered into a Deed of Settlement and Release. The deed included the following provisions:

25. [33]

    The sum of $450,000 was paid to the Appellant in accordance with the Deed. The Appellant accepted that the receipt of this settlement sum would need to be brought into account in relation to her claim for compensation from the Torrens Assurance Fund.

The primary judgment

1. [34]

   The primary judge accepted the following propositions:

2. [35]

   His Honour then held:

3. [36]

   His Honour’s use of the phrase “capable of falling within s 129(1) of the Act” at the end of [49] of his reasons is significant because it makes plain that the loss of an equitable proprietary interest in Lot 1 in SP75435 arising from either of the two circumstances referred to in s 129(1)(a) and (e) does not mean that loss or damage has in fact been suffered. That is something that still needs to be established as a matter of causation.

4. [37]

   It was here that the Appellant’s case failed at first instance. The theory of the case at first instance appeared to be that, had the fraud not occurred, the Appellant and her partner:

5. [38]

   The primary judge held, for reasons with which, it will be seen, I entirely agree, that the claim for loss, so formulated, required the Court to engage in impermissible speculation. I note that the speculation would have required a conclusion, for the Appellant to be entitled to compensation pursuant to s 129(1) of the Act, that the loss exceeded the $450,000 secured by way of settlement in the professional negligence proceedings against Mr Wehbe: s 129(2)

6. [39]

   What the primary judge said in relation to the speculative nature of the Appellant’s case was succinctly contained in [51], [53] and [54] of his reasons as follows:

7. [40]

   The primary judge also held that the Appellant had not established that, had the value (whatever it was) of the equitable interest in the Terrigal Property (or some part thereof) been able to have been extracted from Messrs Sengoz and Masri in a renegotiation, that would have been adequate to service the debt on the East Hills Property or to have obviated the need for its sale.

8. [41]

   Moreover, as the primary judge observed at [59], there was no satisfactory evidence the East Hills Property was in fact sold for less than its true value, and no submission contrary to this was pointed to on appeal.

9. [42]

   For these reasons, the primary judge dismissed the Statement of Claim and was relieved of the need to deal with the Registrar-General’s contention, repeated on appeal, that the claimed loss of or with respect to the East Hills Property was not recoverable under s 129(1) of the Act because it concerned land that was different from the land the subject of the relevant dealings.

The appeal

1. [43]

   The Appellant advanced submissions which emphasised that the mere difficulty in calculating loss or quantifying damage does not relieve a court from its obligation to do so, and that, in certain circumstances, precision will not be possible and broad estimation may be necessary and sufficient: see, for example, Searle v Commonwealth of Australia [2019] NSWCA 127 at [203]–[204].

2. [44]

   So much may be accepted but there are limits to those principles and they do not avail the Appellant in the present case. The evidentiary deficits in her case were such that, as the primary judge held, there was no basis for even launching upon such an estimation.

3. [45]

   Counsel for the Appellant who came late into the matter and did not appear in the proceedings below was constrained to concede that:

4. [46]

   In my opinion, this was fatal and the primary judge was not only justified but correct in rejecting the Appellant’s claim.

5. [47]

   It should be added that, even if the Appellant had been able to demonstrate that her equitable interest in the Terrigal Property had some economic value, it would also have been necessary to demonstrate that she and her partner would have been able to extract repayment of some or all (and if any, how much) of their loan and any amounts owed to them by Messrs Sengoz and Masri and that this amount would have meant that the East Hills Property would not have needed to be sold and that the consequential loss exceeded the amount recovered on the settlement of proceedings against Mr Wehbe.

6. [48]

   The primary judge held, and I agree with him, that none of this had been demonstrated. The material before his Honour was scant, and an invitation to counsel for the Appellant on the hearing of the appeal did not yield any further elucidation. It was not put that the primary judge had overlooked any evidence. Indeed, it emerged that the Appellant had not ever sought to calculate, or present an estimation of her loss in even rough and ready form to the primary judge. Nor was that done in the submissions made on appeal.

7. [49]

   At one point in oral submissions, it was put that the primary judge should have at least awarded nominal damages but not necessarily in the sum of $1.00. It appeared, as best could be discerned, that it was here being put that because the Appellant had lost her interest in the Terrigal Property, she must have suffered some monetary loss and this should be compensated by virtue of the loss of the equitable interest alone. But, it may be asked, in what amount? It may equally be asked why should such compensation be ordered, if it were the case that the equitable interest had no economic value because there was insufficient value in the Terrigal Property after priority creditors had been paid out? Such a contention may, conceivably, underpin an ex gratia direction for compensation from the Fund in the Minister’s unfettered discretion pursuant to s 130 of the Act (see [7] above) but a Court cannot award compensation on the basis of speculation.

8. [50]

   Counsel for the Appellant also submitted that the Court should remit the matter to the primary judge for assessment of damages. But there was no order for a separate trial, and it was not put that the primary judge had wrongly refused to separate liability and damages. A trial is not a dress rehearsal or preliminary skirmish. Subject to extraordinary exceptions, it is once and for all. That includes the assessment of damages unless there has been an order for their separate assessment: Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113 at [140].

Notice of contention

1. [51]

   In light of the conclusions to which I have come, it is not necessary to deal with the Respondent’s Notice of Contention (see [42] above).

Conclusion

1. [52]

   The appeal should be dismissed with costs.

2. [53]

   LEEMING JA: I agree with Bell P.

3. [54]

   EMMETT AJA: The question in this appeal is whether the appellant, Ms Sharen Thomas, is entitled to compensation under the Torrens Assurance Fund (the Fund) pursuant to s 129 of the Real Property Act 1900 (NSW) (the Real Property Act). Section 129(1) relevantly provides that a person who suffers loss or damage as a result of the operation of the Real Property Act in respect of any land is entitled to payment of compensation from the Fund if the loss or damage arises from that person being deprived of the land, or of any estate or interest in the land, as a consequence of fraud. [1]

4. [55]

   Ms Thomas and her late partner, Mr George Pincham, whom she succeeded upon his death, were the registered proprietors of a property situated at East Hills (the East Hills Property). They borrowed monies on the security of a mortgage of the East Hills Property to invest in the development of a property situated at Terrigal (the Terrigal Property). They intended to service the interest on their borrowing with the income from their investment.

5. [56]

   The investment in the Terrigal Property was secured by an unregistered second mortgage. In addition, Ms Thomas and Mr Pincham lodged a caveat in respect of the Terrigal Property. However, the caveat was removed as a result of fraud on the part of the registered proprietor of the Terrigal property and, as a consequence, Ms Thomas and Mr Pincham were deprived of their interest, as equitable mortgagees, in the Terrigal Property.

6. [57]

   Subsequently, Ms Thomas and Mr Pincham defaulted under the terms of the loan secured by the mortgage of the East Hills Property and, as a consequence, it was necessary for them to sell the East Hills Property in order to repay the loan that they had borrowed to invest in the Terrigal Property. Ms Thomas made a claim on the Fund on the basis that, because she and Mr Pincham had been deprived of their interest in the Terrigal Property, they lost the opportunity of benefitting from the increase in the value of the East Hills Property after it was sold.

7. [58]

   When the claim on the Fund was declined, Ms Thomas commenced proceedings in the Equity Division against the respondent, the Registrar-General of NSW. A judge of the Equity Division concluded that there was no entitlement to compensation from the Fund and dismissed the proceedings brought by Ms Thomas with costs. Ms Thomas then appealed to this Court.

8. [59]

   In the course of argument, counsel for Ms Thomas, accepted that there was no evidence before the primary judge as to the value of the interest of Ms Thomas and Mr Pincham in the Terrigal Property of which they had been deprived. In those circumstances, there was no evidence before the primary judge that Ms Thomas and Mr Pincham suffered any loss as a consequence of the loss of their interest in the Terrigal Property. I have had the advantage of reading in draft form the proposed reasons of the President. I agree with his Honour, for the reasons proposed, that the appeal should be dismissed with costs.