Ippin Textiles Pty Ltd v Winau Aust Pty Ltd

1. [1]

   MACFARLAN JA: In 2016, 183 Eastwood Pty Ltd, the third respondent, purchased three parcels of land at Eastwood in Sydney (the “Lands”). As at 22 January 2018 Mr John Lau and Mr Eric Lin were the directors of the third respondent and Mr Steven Ju was the secretary. On about that date Mr Scott Chan, without the knowledge of Messrs Lau, Lin and Ju, applied in the name of the third respondent, but without its authority, to the present applicants (the “Mortgagees”) for a loan of $4.5 million at an interest rate of 2.5%, to be secured by mortgages over the Lands and by personal guarantees of Messrs Lau and Lin. The loan was approved on or about the same date.

2. [2]

   Also in January 2018, and again without the authority of the third respondent, Mr Chan procured the Australian Securities and Investments Commission (“ASIC”) to record him as the sole director and secretary of the third respondent, procured Westpac Banking Corporation (“WBC”) to open a bank account in the name of the third respondent (with Mr Chan as the only person entitled to operate the account) and procured Land Registry Services (NSW) to issue to Mr Chan replacement Certificates of Title for the Lands.

3. [3]

   On about 29 January 2018, once more without the authority of the third respondent, Mr Chan executed, purportedly on behalf of the third respondent, mortgages over the Lands. Thereafter Mr Chan fraudulently procured the Mortgagees to pay the available loan amount into the WBC account, resulting in $3,791,266.88 being remitted into that account. The Mortgagees subsequently registered the mortgages and the “Mortgage Common Provisions” document (the “MCP”) to which the mortgages referred.

4. [4]

   No repayments of the supposed loan having been made, the Mortgagees served a Notice of Default and sold the Lands in exercise of their powers of sale. All parties concerned agreed to the sale proceeding and to the proceeds of $6.88 million being held in solicitors’ trust accounts. Those proceeds were subsequently paid into court.

5. [5]

   In proceedings between those interested in that fund, including the Registrar General of NSW (the “RG”) (because of the potential for a claim against the RG on the Torrens Assurance Fund established under the Real Property Act 1900 (NSW)), Kunc J of the Equity Division directed that the following question (the “Separate Question”) be determined separately from other issues in the proceedings:

6. [6]

   As the mortgages in question are materially the same, I refer to them below, as did the primary judge, as a single mortgage.

7. [7]

   By judgment of 22 April 2020, his Honour answered the Separate Question “No - the Registered Mortgage does not secure anything in favour of the Mortgagees against the Lands and against the proceeds of sale of the Lands” ([2020] NSWSC 434). His Honour summarised his conclusions as follows:

8. [8]

   For the reasons that appear below, I consider that the Mortgagees should be granted leave to appeal but their appeal should be dismissed, with costs.

Relevant statutory provisions

1. [9]

   The following provisions of the Real Property Act are relevant to the proposed appeal:

The terms of the registered mortgage

1. [10]

   The mortgage, as registered, comprised a three page Mortgage Form (which included in it a “Redacted Schedule A”) and the MCP.

2. [11]

   A question arose during the hearing in this Court as to whether a redacted or an unredacted Schedule A was registered. This was clarified after the hearing by the parties’ confirmation that only the former was registered. Unless otherwise indicated, references below to Schedule A are to its registered, and therefore redacted, form.

3. [12]

   The Mortgage Form names the third respondent as Mortgagor and the present applicants as Mortgagee. It continues:

4. [13]

   It then identifies the MCP as containing the relevant terms and conditions. Schedule A identifies the Principal Amount as $4 million and refers to the interest rate to be charged. It continues:

5. [14]

   The unredacted Schedule A, which was not registered, includes the following definitions:

6. [15]

   In the execution portion of the unredacted Schedule A, the third respondent is referred to as the “Borrower/Debtor/Mortgagor” and Mr Chan is referred to as the “Guarantor/Debtor/Mortgagor”.

7. [16]

   The MCP contains the following definitions in clause 1.1, to be applied “unless the context otherwise requires”:

8. [17]

   The MCP contains the following clauses of present relevance:

The judgment at first instance

1. [18]

   The primary judge answered the Separate Question in the negative. Amongst the issues he addressed were the following.

2. [19]

   The primary judge found that payments by the Mortgagees of the intended advance into the WBC bank account opened by Mr Chan were not payments to the third respondent because there was no banker-customer contract between WBC and the third respondent, nor, because of his absence of authority on behalf of the third respondent, could it be said that to the extent that those payments ultimately came into the possession of Mr Chan that, as a result, they constituted payments to the third respondent. In consequence, his Honour found that for the purposes of the definition of “Principal Amount” in the MCP, there never was an “amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage”.

3. [20]

   His Honour considered that the word “Debtor” in this expression meant the “Borrower”, that is, the third respondent, but even if he were wrong in that conclusion, so that Mr Chan was to be regarded as a “Debtor”, there still had not been an “advance” under the mortgage. His Honour considered that there was no “advance” to Mr Chan because he stole the money rather than receiving it as a loan or “advance”.

4. [21]

   His Honour continued:

5. [22]

   Under this heading the primary judge emphasised that the Mortgage Form refers to the mortgage being “security for the debt or liability described in the terms and conditions set out or referred to in this mortgage”. His Honour then noted that the reference in the definition in cl 1.1 of the MCP of “Secured Money” to a liability to the Lender includes the “Principal Amount” and that the definition of “Principal Amount” refers to the amount “stipulated” in Schedule A as the Principal Amount. His Honour then rejected a submission that the effect of the word “stipulated” in this definition obviated the need for the Mortgagees to prove that any amount had been advanced to the third respondent. Referring to Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328, his Honour stated that the word “repayment” in the definition of “Principal Amount” made it clear that the amount referred to is an amount that had “actually been advanced”, and that “[i]f the amount had not in fact been advanced, then it would make no sense to talk about its ‘repayment’ being secured by the Mortgage” (at [141]).

Consideration of the proposed appeal

1. [23]

   Section 57(1) of the Real Property Act provides that a mortgage registered under the Act “has effect as a security but does not operate as a transfer of the land mortgaged…” (see also s 41 quoted in [9] above). Further, by reason of s 42 of the Act, registration of a forged mortgage, as occurred in the present case, “confers an indefeasible title on the mortgagee, provided that the mortgagee has not been party or privy to the fraud and no other exception to indefeasibility applies” (see Perpetual Trustees Victoria Ltd v English [2010] NSWCA 32 at [68(2)] and the authorities there cited).

2. [24]

   These provisions indicate that the mortgage in the present case conferred on the Mortgagees an indefeasible title by way of security, notwithstanding that execution and registration of the mortgage was brought about by the fraud of Mr Chan without the knowledge or consent of the registered proprietor of the Lands, the third respondent.

3. [25]

   As encapsulated in the Separate Question stated by the primary judge for decision, the question nevertheless remains whether the mortgage “secure[s] anything in favour of the Mortgagees against the Lands” (see [5] above). If it does not, the Mortgagees have no claim to the proceeds of sale now held in court and the appeal (assuming leave be granted) against the primary judge’s negative answer to the Separate Question must be dismissed.

4. [26]

   In support of their proposed appeal the Mortgagees referred to various provisions of the mortgage that they submitted constituted acknowledgments of the receipt by the third respondent of an advance intended to be secured by the mortgage (being $4 million). They submitted that their claim to take the proceeds of sale in payment of the amount allegedly owed to them could thus be proved by tender of the mortgage, which by reason of its registration obtained the protection of the indefeasibility provisions of the Real Property Act. Thus, they submitted that they did not need to rely upon evidence of any extrinsic circumstance or document to enable them to enforce the mortgage.

5. [27]

   The provisions of the mortgage that the Mortgagees relied upon in this respect are to the following effect (see [16]-[17] above for the full text of the provisions relied upon). Principally they relied on cl 2.1 which states that the purpose of the mortgage is to secure payment of the Secured Money, cl 1.1 which includes the Principal Amount within the definition of Secured Money, cl 2.3 which refers to the Mortgagor having received valuable consideration including by the advance of the Principal Amount and cl 3.1 which provides for the “Debtor” to pay the Secured Money to the Mortgagees. The Mortgagees also relied on the definitions of Debtor, Principal Amount and Secured Money. The MCP then related these provisions back to [the redacted] Schedule A which refers to the Principal Amount as $4 million.

6. [28]

   It is convenient to assume, for the purpose of analysis, and in favour of the Mortgagees, that on the proper construction of these provisions, the mortgage identifies the amount intended to be secured as a $4 million advance plus interest and that, at least implicitly, it acknowledges receipt by the Mortgagor, that is the third respondent, of that advance. Such assumed statements nevertheless in my view constitute at best prima facie evidence of what they assert. If, as the primary judge concluded at [117]-[119], no such advance was made to the registered proprietor, because the money paid out by the Mortgagees was stolen by Mr Chan and did not reach the registered proprietor, the prima facie evidence constituted by the registered mortgage must yield to the facts as proved, with the result that the Separate Question was correctly answered by the primary judge in the negative. I note in passing that the Mortgagees did not put any argument on the appeal based on estoppel or that s 36(11) of the Real Property Act, which provides that upon registration a dealing is to have the effect of a deed duly executed by the parties who signed it, conferred any greater status than prima facie evidence on statements made in the mortgage (the latter argument was in any event rejected in Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328 at [86]).

7. [29]

   Contrary to the Mortgagees’ submissions on appeal, the primary judge was correct to find that payment by the Mortgagees to the WBC account fraudulently opened by Mr Chan in the name of the third respondent did not constitute payment to the third respondent. Mr Chan had no authority to act on behalf of the third respondent and therefore had no authority to constitute WBC as the third respondent’s agent to receive money from the Mortgagees.

8. [30]

   Moreover, again contrary to the Mortgagees’ submissions, it does not avail the Mortgagees that WBC was arguably Mr Chan’s agent to receive the money from them or that it can be inferred that, via the bank account, the money was in fact received by Mr Chan. The Mortgagees contended that the mortgage secured not only liabilities of the third respondent, but any liabilities of Mr Chan to the Mortgagees. Although, as they correctly submitted, Mr Chan is liable to reimburse to the Mortgagees the money he obtained from them by fraud, the Mortgagees’ contention cannot be sustained if attention is confined, as it must be, to the registered mortgage and the unredacted, unregistered Schedule A is disregarded. The provisions referred to in [17] above, as expanded by the definitions of various terms used in them, refer variously to liabilities of the “Debtor” and the “Borrower”. The “Debtor” definition refers to the Borrower “and/or” the Mortgagor. Taking into account only the redacted form of Schedule A, which identified the Mortgagor as the third respondent, each of these terms refers to the third respondent, and not to anyone else such as Mr Chan.

9. [31]

   The Mortgagees however relied on the unredacted, unregistered Schedule A to argue for a different result. In that document, “Debtor(s)” is defined to include both the third respondent and Mr Chan. Moreover, the execution clause on that document describes Mr Chan as the “Debtor” and “Mortgagor”, as well as the “Guarantor”.

10. [32]

    The unredacted Schedule A did not however form part of the contract between the Mortgagees and the third respondent which was given efficacy by the mortgage’s registration. Even if the registered mortgage could properly be regarded as embracing an unregistered document incorporated by reference, the Mortgagees’ submissions would still not succeed as the “Special Condition” quoted at [13] above, contained in the registered Schedule A (see [11] above), specifically excludes the unredacted Schedule A from the ambit of the mortgage in circumstances such as occurred. It indicates that the redacted version of Schedule A is to be treated as Schedule A to the mortgage if the unredacted version of Schedule A (referred to simply as “Schedule A”) was for any reason “wholly or partly void, voidable or unenforceable”. Consistently with my conclusions above, the unredacted Schedule A was void because the “Borrower/Debtor/Mortgagor” identified in it and by whom it was purported to be executed (that is, the third respondent), gave no authority to Mr Chan to execute it on its behalf.

11. [33]

    I turn now to refer to authorities that support the view that I have expressed above that any assumed acknowledgments in the registered mortgage of an advance to the third respondent of $4 million constituted at best prima facie evidence of that proposition which must yield in the context of the present case to the proof to the satisfaction of the primary judge that no such advance to the third respondent occurred.

12. [34]

    In Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745, Young CJ in Eq found that a forged registered mortgage was to be treated as valid by reason of its registration whilst an associated document, containing a covenant to repay and allegedly also forged, was void because it was not registered. His Honour said:

13. [35]

    His Honour found that the mortgagee had not proved that its registered mortgage was enforceable because it had not proved that there was any indebtedness secured under it. The mortgage did not contain any acknowledgement of receipt of an advance (which would have constituted prima facie evidence of one having been made) and the loan agreement was unregistered and not shown to be valid.

14. [36]

    In Yazgi v Permanent Custodians Ltd [2007] NSWCA 240, Beazley JA (with whom Ipp and Tobias JJA concurred) referred at [23]-[24] with apparent approval to the approach taken by Young CJ in Eq in Tsai.

15. [37]

    In Perpetual Trustees Victoria v Cox [2014] NSWCA 328, the holder of a registered mortgage sought to enforce it in respect of an unrepaid advance which the mortgagors contended that they had not received. The evidence suggested that the amount had been misappropriated by the mortgagors’ mortgage broker before it reached the mortgagors.

16. [38]

    Leeming JA (with whom Emmett JA and I agreed) referred at [74] to an acknowledgment in the registered mortgage of the receipt by the mortgagors of the sum in question. His Honour did not treat that acknowledgment as conclusive but instead proceeded on the basis, as established by the evidence, that the sum was never received by the mortgagors (see for example at [78]-[80]).

17. [39]

    His Honour then dealt with the mortgagees’ argument that, on its true construction, the mortgage obliged the mortgagors to “repay” a loan even if they had never received it. His Honour rejected that argument for a number of reasons including that payment to a mortgagor of an amount that was intended to be but was never advanced did not fall within the concept of repayment. Likewise in the present case, the definition of “Principal Amount” in the MCP refers to “repayment” of the amount “advanced” by the Mortgagees to the third respondent, being the amount stipulated in the redacted Schedule A as the “Principal Amount” ($4 million). As there was in fact no advance, the defined term was not applicable.

18. [40]

    To these authorities may be added Petersen v Moloney (1951) 84 CLR 91 at 100; [1951] HCA 57 where the High Court said that an acknowledgment of payment in a registered transfer of land did not create an estoppel against the vendor who had not in fact been fully paid, although it was evidence against the vendor, which in the circumstances of that case was not strong evidence.

19. [41]

    Thus a receipt clause “does not deny the mortgagor’s right to go behind the stated amount of principal to show, for example, that no money has in fact been advanced or that some has been repaid” (Brendan Edgeworth, Butt’s Land Law (7th ed, 2017, Lawbook Co) at 839, fn 301) (see also Mark Leeming, “Receipts clauses and ‘contractual estoppel’ revisited” (2018) 134 Law Quarterly Review 171-176).

20. [42]

    In their written submissions, the Mortgagees submitted that Perpetual Trustees v Cox was not relevant to the present case because “[a]lthough fraud was involved, it was only in relation to a drawdown authority; the original transaction was genuine” and that it was “not an indefeasibility case at all”. I reject that submission because, relevantly to the issues in the present case, the acknowledgment of receipt in the registered mortgage in Perpetual Trustees v Cox was not treated as conclusive by reason of the mortgage’s registration and the indefeasibility provisions which therefore applied to it. Instead, the acknowledgment was treated as overborne by the evidence that the sum in question had not in fact been received, in the same way that I have held that the assumed acknowledgement of receipt in the mortgage in the present case does not prevail over proof of the fact that no advance was made to the third respondent.

21. [43]

    The Mortgagees also sought to distinguish Perpetual Trustees v Cox on the basis that the definition of “Secured Money” in that case was “the standard ‘all monies’ definition”, whereas in the present case there is specific reference to the “Principal Amount” in the definition of “Secured Money”. This distinction does not however detract from the point about the decision which I identified in the previous paragraph above.

22. [44]

    In answer to what the Mortgagees described as “[a] string of authorities” cited by the first to third respondents to support the proposition that “the real question” is what was actually advanced to or owed under the mortgage (see for example the authorities referred to at [34] to [39] above), the Mortgagees submitted:

23. [45]

    It is correct, as I have said, that by reason of registration of the mortgage the Mortgagees held an interest by way of security in the Lands, notwithstanding that the mortgage was procured by fraud. The critical question in the present case, as stated in the Separate Question, is however what, if anything, is secured under that mortgage. The advance that it was intended to secure not having been made, and no other liability of the third respondent to the Mortgagees having been proved, it secures nothing.

Conclusion

1. [46]

   As the primary judge’s negative answer to the Separate Question is determinative of the Mortgagees’ claim against the proceeds of sale of the Lands, leave to appeal should be granted. For the reasons I have given, the appeal should however be dismissed with costs.

2. [47]

   I propose the following orders:

   1. (1)

      Grant leave to appeal.

   2. (2)

      Direct the applicants within 14 days to file and serve a Notice of Appeal in the form of the draft Notice of Appeal provided to the Court.

   3. (3)

      Dismiss the appeal with costs.

3. [48]

   LEEMING JA: This appeal from an answer to a separate question on agreed facts raises a pure question of law, concerning whether and the extent to which a registered mortgage secures anything, when the registered dealing was signed by a fraudster impersonating the mortgagor. I agree with Macfarlan JA. The following additional reasons are by way of elaboration, rather than qualification.

4. [49]

   It was common ground, at least on appeal, that the documents signed by Mr Chan, purporting to be sole director and secretary of 183 Eastwood Pty Ltd, were forgeries which gave rise to no indebtedness by that company. Statute aside, that would be an end to the matter. However, as is so often the case, it is necessary to start with statute: see Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29; 94 ALJR 818 at [14] and the (numerous) cases there cited, to which may be added what was said, appositely to the present appeal, by Dixon, Evatt and McTiernan JJ in English Scottish and Australian Bank Ltd v Phillips (1937) 57 CLR 302 at 321; [1937] HCA 6:

5. [50]

   This is because such rights as the Mortgagees enjoyed were enjoyed by dint of statute. The mortgages were registered under the Real Property Act 1900 (NSW). Each took effect as a charge over the land, rather than as a conveyance with a promise to reconvey: s 57. Upon registration, “the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing”: s 41. As registered mortgagees, they enjoyed the “estate or interest in land recorded in a folio of the Register”: s 42. I shall return to the significance of “set forth and specified” and “recorded” below.

6. [51]

   The Mortgagees’ interest was a separate legal interest, distinct from that of the registered proprietor: English Scottish and Australian Bank Ltd v Phillips at 321. Their interest was a statutory charge; there was no transfer of an estate in the land to them: Partridge v McIntosh and Sons Ltd (1933) 49 CLR 453 at 466, 472, 473; [1933] HCA 38. The Mortgagees enjoyed that interest notwithstanding that the registered dealings were forgeries, it not being suggested that the Mortgagees were parties or privies to the fraud: Breskvar v Wall (1971) 126 CLR 376 at 386, 391, 396-397, 405-407, 412-413; [1971] HCA 70. As Barwick CJ put it, “a registration which results from a void instrument is effective according to the terms of the registration”.

7. [52]

   In Perpetual Trustees Victoria Ltd v English [2010] NSWCA 32; 14 BPR 27,339 at [68(5)], Sackville AJA observed that:

8. [53]

   That formulation reflected what Giles J had said in PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679 (and which had been approved in Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; 13 BPR 24,567 at [19]):

9. [54]

   But those decisions were addressing the position where the entirety of the document containing the terms of the mortgage had been registered. Even then, not all of the terms and conditions engage the protection of s 42. Only those terms and conditions which are necessary to delineate the estate or interest of the mortgagee are validated.

10. [55]

    The present case was, in this respect, highly unusual, although it seems not to have been clearly appreciated until raised during the hearing of the appeal. For the two documents signed by Mr Chan purporting to bind 183 Eastwood fell into significantly different categories.

11. [56]

    One was the three page registrable dealing, which was in fact registered, and included a “Special Condition” which dealt expressly with the possibility that “Schedule A is or becomes wholly or partly void, voidable or unenforceable”. The Special Condition provided that, in that event, “this Redacted Schedule A replaces Schedule A”. Immediately preceding the Special Condition was the following:

12. [57]

    The second was “Unredacted Schedule A”, which was a two page document which had not been registered. It referred to but was not part of the memorandum of common provisions. Indeed, it gave different definitions to the central terms.

13. [58]

    Unredacted Schedule A identified the “Debtor(s)” and “Mortgagor(s)” as “183 Eastwood” and “Scott Chan”. “Scott Chan” was also identified as a Guarantor. In contrast, Redacted Schedule A did not identify Mr Chan in any capacity other than as 183 Eastwood’s sole director and secretary. Redacted Schedule A identified a single mortgagor, namely, 183 Eastwood.

14. [59]

    The fact that Unredacted Schedule A had not been registered was not immediately apparent from the appeal books or the reasons of the primary judge. It was a plausible inference, based on the form of the documents reproduced in the appeal books, raised seemingly for the first time in this Court (I say “seemingly” because the full record of what occurred at first instance was not made available, but it is clear that it was not mentioned in oral submissions to the primary judge). All parties confirmed, in submissions provided with leave after judgment was reserved, that Unredacted Schedule A had not been registered. I proceed on that basis. Naturally, this Court may, on appeal, make findings of fact, including on matters not addressed at first instance: Supreme Court Act 1970 (NSW), s 75A.

15. [60]

    The primary submission on appeal was that a forged mortgage could gain indefeasibility under the Real Property Act and as a matter of construction it extended to the money advanced by the Mortgagees. This turns on construction, as is explained in Perpetual Trustees Victoria Ltd v English at [12], Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390; 16 BPR 30,189 at [15]-[16] and Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328; 17 BPR 33,313 at [70]-[72]. In the apt and oft-quoted words of Campbell J in Small v Tomassetti [2001] NSWSC 1112; 12 BPR 22,253 at [9], “Notwithstanding that registration confers indefeasibility on a mortgagee, there is still a question ‘indefeasibility for what?’”

16. [61]

    The Mortgagees submitted that the cases had distinguished a “traditional” mortgage, which stated that it secured a specified sum, and an all monies mortgage which defined the amount secured by reference to obligations outside the mortgage. The Mortgagees submitted that, in cases of forgery, all monies mortgages usually secured nothing, while a “traditional” mortgage could nonetheless secure an entitlement to be repaid from the proceeds of sale of the land, as occurred in Printy v Provident Capital Ltd [2007] NSWSC 287; 13 BPR 24,603 at [42]-[45]. The Mortgagees submitted that “[t]his particular mortgage is a hybrid between the two”. Redacted Schedule A refers to the “Principal Amount” of $4 million and the memorandum of common provisions contains in cl 2.3 an implicit acknowledgement that the Mortgagor or the Borrower has received that amount. But that goes nowhere until and unless the identity of the Mortgagor or the Borrower is established.

17. [62]

    Mr Chan impersonated the company, creating a bank account in its name into which $3.8 million was deposited by the Mortgagees and then withdrawn by him. A separate question of construction is whether the mortgage extended to the repayment by 183 Eastwood of that amount, on the basis that there had been an “advance” by the lenders to 183 Eastwood, within the definition of “Principal amount” in the mortgage common provisions, the repayment of which was secured by the mortgage. The Mortgagees submitted that in circumstances where they had in fact advanced funds into an account in the name of 183 Eastwood and in accordance with, so they believed, that company’s direction, that was sufficient for there to have been an “advance”. They also relied on the definition of “Debtor” in Unredacted Schedule A extending to “Scott Chan” to say that insofar as the money was in fact received by the fraudster, the funds had been received by the “Debtor” and so amounted to an “advance”. During argument in this Court, they embraced a further alternative, which was that Mr Chan’s liability at law and in equity coupled with his being named as a “Debtor” sufficed to fall within an obligation secured by the mortgage.

18. [63]

    However, as Mr Young SC for the Mortgagees candidly and correctly accepted, 183 Eastwood did not receive the funds contended to have been “advanced” by the Mortgagees. Mr Chan obtained money from the Mortgagees by defrauding them and impersonating 183 Eastwood. As the primary judge rightly observed at [119], it would be “nonsense” to regard that as an “advance” by the Mortgagees to 183 Eastwood within the meaning of the defined term “Principal Amount”. An “advance” is, in the present context, a voluntary act causing payment to be made to the intended recipient or at its direction. The fact that the Mortgagees believed that they were advancing money to 183 Eastwood does not turn the provision of funds into an advance to that company. Nor does the fact that the funds were transferred into a bank account in the name of 183 Eastwood. There was never a banker/customer relationship between bank and 183 Eastwood; the bank was deceived no differently from the Mortgagees.

19. [64]

    That did not deny that Mr Chan, personally, was obliged at law and in equity to repay the $3.8 million. He was liable to account as a constructive trustee, in accordance with Black v S Freedman & Company (1910) 12 CLR 105; [1910] HCA 58, and at law, in debt, for monies had and received: see Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [36]-[51]. Whether that obligation of Mr Chan is secured by the mortgage turns on the construction of the mortgage. But, by reason of the registration of Redacted Schedule A and the non-registration of Unredacted Schedule A, there is an anterior question: to echo Campbell J in Small v Tomasetti, “construction of what”?

20. [65]

    The parties’ submissions supplied after judgment was reserved took a different course from the gravamen of what had been advanced prior to and at the hearing. In particular, while agreed as to its being unregistered, the parties were at issue in relation to the effect of Unredacted Schedule A.

21. [66]

    The Registrar-General submitted:

22. [67]

    On the other hand, the Mortgagees contended that unredacted Schedule A had been incorporated by reference:

23. [68]

    I am inclined to accept the Registrar’s submission, but it is not necessary to accept it in full in order to resolve this appeal. I do not accept aspects of the Mortgagees’ submission.

24. [69]

    Insofar as the Mortgagees’ submission contends that regard may be had to the same factual matrix as a contract, it is inconsistent with what was held in Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 and Deguisa v Lynn [2020] HCA 39; 94 ALJR 1020. In the former, the High Court rejected a submission resembling that advanced on behalf of the Mortgagees, in respect of a registered easement, in the following terms at [39]:

25. [70]

    The same points were made in relation to common building schemes in Deguisa v Lynn at [4], [69]-[70] and [88], concluding at the latter passage:

26. [71]

    The High Court’s reference to s 69 was to s 69 of the Real Property Act 1886 (SA), which provides that the title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interests as may be notified on the original certificate of such land, be absolute and indefeasible. Section 69 is thus materially identical to s 42 of the Real Property Act 1900 (NSW). Were there any doubt about this, it is dispelled by the observation at [63] that nothing turned on the use of “recorded in” in s 42 rather than “notified on”. The words “set forth and specified” in s 41 take the matter no further.

27. [72]

    The High Court disapproved the reasoning in Registrar-General of New South Wales v Cihan [2012] NSWCA 297; 16 BPR 30,845, where it had been held, based on what had been said by Windeyer J in Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73; [1971] HCA 9, that an easement was sufficiently “notified” for the purposes of s 42(1) (in the form it then took) “if particulars explicitly stated are such as to engender in the mind of a reasonable reader generally familiar with property and land titles a need for further inquiry by resort to readily available records”. The joint judgment in Deguisa v Lynn suggested at [65] that Windeyer J’s judgment did not provide unequivocal support for that conclusion, but went on to say:

28. [73]

    During argument, members of this Court raised whether unredacted Schedule A would be available to a person who might wish to inspect the register (for example, a bona fide purchaser of the secured debt). In their submissions after the hearing, the Mortgagees contended that a person inspecting the register would see references to Schedule A, and would be entitled to ask for it from the Mortgagees or the registered proprietor. But the question is not notice, but the effect of statute upon an unregistered document purportedly incorporated by reference. This aspect of the Mortgagees’ submission cannot stand with the passages in Westfield Management and Deguisa reproduced above.

29. [74]

    It is to be borne steadily in mind that the Mortgagees’ claim is against the registered proprietor. The registered proprietor’s title is qualified, relevantly, only by the estate or interest recorded in the register in favour of the Mortgagees. The registered document on which the Mortgagees rely was a forgery. That is not necessarily fatal to their claim. But it is no small step to accept the further submission advanced on behalf of the Mortgagees, which is that because the registered dealing incorporates a separate, unregistered, forged document, regard may also be had to it. It is not necessary wholly to reject that large proposition in order to determine this appeal, but I am sceptical of its correctness, particularly having regard to what was said in Deguisa. Even so, I think it is desirable to go no further than is necessary, partly bearing in mind the caution expressed by Dixon J in Gibb v Registrar of Titles (Vic) (1940) 63 CLR 503 at 518; [1940] HCA 15, and partly in light of the absence of full submissions on the possibility of incorporation by reference of unregistered documents, something which was accepted in Westpac Banking Corporation v Clark [2009] 1 NZLR 201; [2008] NZCA 346 at [55] and [2010] 1 NZLR 82; [2009] NZSC 73 at [43]. The decisions of the New Zealand Court of Appeal and Supreme Court, especially the former, consider and apply many of the Australian decisions.

30. [75]

    The reason that it is not necessary to hold that regard may not be had to the separate unregistered document in order to delineate the estate or interest enjoyed by the Mortgagees is the existence of the Special Condition. Let it be assumed, favourably to the Mortgagees, that regard may be had to Unredacted Schedule A, and that the documents are to be construed as if they were a contract. There is much in the documentation which is obscure, at least to my mind. But one is confronted by the fact that the parties adverted to the very problem that has arisen – the voidness of Unredacted Schedule A – and bargained in that event for Redacted Schedule A to replace it. I see no way of construing the entirety of the documents, including Unredacted Schedule A, contrary to the express command in the Special Condition in Redacted Schedule A, which is that where Unredacted Schedule A is void, it is replaced by Redacted Schedule A. What other meaning could be given to the Special Condition? I did not understand one to have been propounded by the Mortgagees.

31. [76]

    That is to say, the terms of the parties’ own bargain prevent the Mortgagees from contending that the unregistered Unredacted Schedule A have been incorporated into the registered mortgage. That conclusion resembles that reached in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; 13 BPR 25,343 at [298].

32. [77]

    I return then to the remaining questions of construction. They resolve to this: does the estate or interest enjoyed by the Mortgagees by reason of statute extend to Mr Chan’s personal liability to repay, at law or in equity, the stolen funds? The “Secured Money” was defined in the memorandum of common provisions to mean “the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever”. Those words prima facie extend to the Debtor’s personal liability at common law and in equity. They were given greater prominence in the Mortgagees’ submissions supplied after the appeal was heard. But the memorandum of common provisions defined the “Debtor” as, relevantly, the “Borrower”, which was “the Person named in schedule A as the Borrower”. The only way in which Mr Chan entered the picture was through Unredacted Schedule A, and that document is not available. Redacted Schedule A named 183 Eastwood as the Borrower, but that company owed nothing to the Mortgagees.

33. [78]

    The Mortgagees sought to address this by saying that Unredacted Schedule A, which provides that Mr Chan was a Borrower as well as 183 Eastwood, was not so far removed as a separate deed. “Schedule A is not in any sense a standalone agreement. It is a schedule that gives meaning to words in the registered mortgage and the registered mortgage refers to that”. But I cannot accept the submission that the Mortgagees’ estate or interest extends to Mr Chan’s personal liability. To reiterate the dispositive issue on appeal, by their Special Condition, the Mortgagees identified the very possibility of Unredacted Schedule A being void, in which case it was replaced by Redacted Schedule A. I am doubtful that the Mortgagees’ estate or interest created by statute by dint of registration can extend to securing the indebtedness of a man whose existence as a debtor is not identified by any document found on the register, and who is only identified in an unregistered document. Even if the unregistered document is capable, in some circumstances, of supplying content to the terms of the mortgage, the parties have expressly provided that is it to be replaced in circumstances such as the present. There is no reason to deny to the parties the ordinary operation of what is, after all, a “Special Condition”, which requires attention to be confined to Redacted Schedule A. That document is recorded on the registered dealing. It identifies the mortgagor as 183 Eastwood. It does not identify Mr Chan in any capacity other than as that company’s sole director and secretary.

34. [79]

    I agree with the orders proposed by Macfarlan JA.

35. [80]

    BRERETON JA: I have had the benefit of reading in draft the judgments to be delivered by Macfarlan JA and Leeming JA. I agree with Macfarlan JA, and with the orders his Honour proposes. I also agree with Leeming JA's additional reasons.