Citation: Reading v Commonwealth Bank of Australia [2003] NSWSC 686
Court: Supreme Court of New South Wales, Equity Division
Date: 29 July 2003
Judge(s): Master McLaughlin
Background
The plaintiffs were a husband and wife (the first and second plaintiffs) and their daughter (the third plaintiff). In 1995, the husband and wife transferred their family home at Clyde Street, Rutherford into the name of their son (the third defendant) in order to protect the property from creditors of the husband's failing business. The son subsequently became bankrupt in November 2000.
Without the knowledge of the first and second plaintiffs, the son had granted two mortgages over the Clyde Street property to the Commonwealth Bank of Australia (the first defendant). The son had also taken out a loan secured over a second property at Adams Street, Rutherford, with the first, second, and third plaintiffs all parties to that loan contract.
The plaintiffs commenced proceedings in the Supreme Court's Equity Division alleging, among other things, that the mortgages over Clyde Street were procured by the son's fraud, that the bank had actual or constructive knowledge of that fraud, and that the bank was negligent in granting the mortgages. The bank applied to strike out the amended statement of claim on the ground that it disclosed no cause of action against the bank.
Legal Issues
- Whether the amended statement of claim disclosed a cause of action in fraud against the bank as mortgagee under section 42 of the Real Property Act 1900 (NSW), requiring actual knowledge of the fraud
- Whether the plaintiffs had an in personam (personal equity) claim against the bank sufficient to defeat its registered title
- Whether a cause of action in negligence against the bank could provide the relief sought (namely, setting aside the mortgages), rather than merely damages
- Whether the claim under the Contracts Review Act 1980 was sufficiently particularised
- Whether the plaintiffs were entitled, in Equity Division proceedings, to seek to set aside a judgment entered in separate Common Law Division proceedings
Decision
Master McLaughlin found that the fraud cause of action was fatally defective. To establish fraud against a registered mortgagee under section 42 of the Real Property Act 1900, actual knowledge of the fraud must be established. The amended pleading conflated the son's fraud with the bank's alleged knowledge of surrounding circumstances, but fell short of properly pleading that the bank itself was implicated in, or had actual knowledge of, the fraudulent conduct. Pleading that the bank "had knowledge" of various factual matters about the property and its occupants did not constitute adequate pleading of the bank's actual knowledge of the fraud.
The Master also rejected the contention that the plaintiffs had a viable in personam claim against the bank. An in personam claim requires a personal equity arising from the conduct of the registered proprietor or mortgagee itself. The pleading did not establish conduct on the bank's part that would give rise to such an equity capable of defeating the bank's registered interest.
On the negligence claim, the Master held that even if a duty of care and its breach were established, negligence can only sound in damages. It cannot ground equitable relief such as setting aside a registered mortgage. The pleading therefore could not, on the basis of negligence alone, support the orders the plaintiffs sought.
The Master further found that the Contracts Review Act claim contained no particulars to support an allegation of unjustness, and that the attempt to set aside the Adams Street judgment in these Equity Division proceedings was procedurally inappropriate. The principles of issue estoppel and those from Port of Melbourne Authority v Anshun Pty Limited independently precluded that course. In light of all these deficiencies, the amended statement of claim was struck out in its entirety as against the bank.
Orders Made
- The amended statement of claim was struck out as against the first defendant (Commonwealth Bank of Australia)
- The plaintiffs were ordered to pay the first defendant's costs of the notice of motion filed 27 November 2002 and of the proceedings
- Exhibits were returned
Key Takeaways
- To plead fraud against a registered mortgagee under section 42 of the Real Property Act 1900, a plaintiff must properly allege the mortgagee's actual knowledge of the fraud; knowledge of surrounding circumstances does not suffice
- A cause of action in negligence against a mortgagee can result only in an award of damages and cannot, of itself, support equitable relief such as setting aside a registered mortgage
- Where a plaintiff seeks to rely on an in personam claim to defeat a registered interest, the pleading must identify conduct by the registered mortgagee that personally binds it; mere awareness of the circumstances of the underlying transfer is insufficient
- Claims under the Contracts Review Act 1980 require proper particulars; bare assertions of unjustness without supporting material will not survive a strike-out application
- Proceedings in the Equity Division are not the appropriate vehicle for setting aside a judgment entered in separate Common Law Division proceedings, and doctrines such as issue estoppel and the principles in Anshun may independently bar such attempts
Legislation and Cases Referenced
Legislation:
- Real Property Act 1900 (NSW), s 42
- Contracts Review Act 1980 (NSW)
- Transfer of Land Act 1958 (Vic)
- Bankruptcy Act 1966 (Cth), Pt X
Cases:
- Assets Company Limited v Mere Roihi [1905] AC 176
- Bahr v Nicolay (No 2) (1988) 164 CLR 604
- Barnes v Addy (1874) LR 9 Ch App 244
- Barry v Heider (1914) 19 CLR 197
- Blair v Curran (1939) 62 CLR 464
- Chasfild Pty Limited v Tarranto [1991] 2 VR 316
- Frazer v Walker [1967] 1 AC 569
- Koorootang Nominees Pty Limited v Australia and New Zealand Banking Group Limited [1998] 3 VR 16
- Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589
- Vassos v State Bank of South Australia [1993] 2 VR 316