Citation: Abeeda Khan (as Trustee for the Khan Family Trust) v Abdallah Hadid & Anor [2003] NSWSC 1191
Court: Supreme Court of New South Wales (Common Law Division)
Date: 18 December 2003
Judge(s): Cripps AJ
Background
The defendants were the registered proprietors of a residential property at Punchbowl. They alleged that a third party, Anna Maria Palumbo, had forged their signatures on a mortgage in favour of the plaintiff trustee, securing a loan of $130,000. The defendants said they had never signed any documents, never received any funds, and had only learned of the mortgage when notified of a caveat on their title in late November 2002.
When the first defendant contacted both the plaintiff's solicitors and the mortgage manager shortly after discovering the caveat, he told them the mortgage was a fraud. Despite this, the plaintiff's solicitors proceeded to seek urgent consent from the first mortgagee to register the second mortgage, which was registered on 31 December 2002.
The plaintiff subsequently brought proceedings for possession. The defendants filed a defence and cross-claim alleging the mortgage was unenforceable due to fraud, and also sought relief under the Contracts Review Act 1980 (NSW).
Legal Issues
- Whether the plaintiff's registered mortgage was rendered defeasible by the alleged forgery and fraud in its execution.
- Whether the plaintiff or her agents were guilty of fraud in procuring registration of the mortgage after being notified of the alleged forgery, so as to defeat indefeasibility under the Real Property Act 1900 (NSW).
- Whether the Contracts Review Act 1980 (NSW) could provide a basis for setting aside or varying a registered land instrument in the circumstances.
- Whether summary judgment for possession should be entered and the defendants' defence and cross-claim struck out.
Decision
Cripps AJ accepted, for the purposes of the summary judgment application, that the mortgage was forged: that neither defendant signed any documents and neither received the loan funds. However, his Honour held that these assumed facts did not defeat the plaintiff's claim, because the mortgage had been duly registered and therefore attracted indefeasibility of title under the Real Property Act 1900.
The defendants argued that the plaintiff's agents had committed fraud by registering the mortgage after being told it was a forgery. Cripps AJ rejected this. The conversations between the first defendant and the plaintiff's solicitors and mortgage manager did not, in the court's view, constitute evidence capable of establishing fraud on the part of the mortgagee or her agents sufficient to defeat indefeasibility. Mere notice that the defendants disputed the mortgage was not the same as fraud in procuring registration.
On the Contracts Review Act argument, his Honour noted that since the defendants denied any contract existed, there was no contract to review. Further, even if a contract were "deemed" to exist by the operation of s 42 of the Real Property Act, s 19 of the Contracts Review Act prevents orders under s 7(1)(a) or (b) from affecting a registered land instrument. No order under s 7(1)(d) could be made in the absence of established fraud by the registered mortgagee or her agent.
Cripps AJ therefore struck out the defence and cross-claim and entered judgment for possession. The writ of possession was stayed for 28 days to allow the defendants an opportunity to pay out the mortgage debt and avoid sale of their home.
Orders Made
- The plaintiff's appeal for summary judgment was successful.
- Judgment for possession was entered in favour of the plaintiff.
- The plaintiff was granted leave to issue a writ of possession 28 days from the date of judgment.
- The defendants were ordered to pay the plaintiff's costs of the motion.
Key Takeaways
- Registration of a mortgage under the Real Property Act 1900 (NSW) confers indefeasibility of title on the mortgagee, and a claim that the mortgage was a forgery does not, of itself, defeat that title.
- Fraud sufficient to defeat indefeasibility requires more than a mortgagee receiving notice from the alleged victim that the transaction may be fraudulent; there must be evidence capable of establishing actual fraud by the registered proprietor of the interest or their agent.
- Under s 19 of the Contracts Review Act 1980 (NSW), orders declaring a contract void or varying its terms cannot affect a registered land instrument, limiting the reach of that Act where indefeasibility applies.
- Where defendants deny that any contract existed at all, they face a significant obstacle in simultaneously seeking relief under the Contracts Review Act, which requires a contract to be in existence.
- The Supreme Court postponed the writ of possession to afford the defendants a short window to discharge the mortgage debt, reflecting the court's recognition of the significant practical consequences of the orders for the registered proprietors.
Legislation and Cases Referenced
Legislation:
- Real Property Act 1900 (NSW), particularly ss 42 and 126
- Contracts Review Act 1980 (NSW), particularly ss 7 and 19
- Supreme Court Rules (NSW), Part 13
Cases:
- Assets Co v Mere Roihi [1905] AC 176
- Breskvar v Wall (1971) 126 CLR 376
- Frazer v Walker [1967] 1 AC 569
- J A Westaway & Sons v Registrar General & Ors (NSWSC, unreported, 15 August 1996)