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Supreme Court 17 August 2011

National Australia Bank Limited v Thirup and Anor

[2011] NSWSC 911

Fraud & dishonesty
MORTGAGES MORTGAGE DEFAULT SUBROGATION SUMMARY DISMISSAL GRANTED PLEADING ISSUES LEAVE TO AMEND DEFENCE AND CROSS

Citation: National Australia Bank Limited v Thirup and Anor [2011] NSWSC 911
Court: Supreme Court of New South Wales
Date: 17 August 2011
Judge: Johnson J

Background

The defendant homeowners were registered proprietors of a residential property at Leppington. In mid-2008, they engaged a mortgage broker to refinance an existing loan. The broker arranged a new loan with the plaintiff bank, and settlement occurred on 8 July 2008, with the prior mortgage discharged and a new mortgage in the bank's favour registered on title.

The defendants fell into default. The bank commenced proceedings seeking possession of the property and a monetary judgment exceeding $1 million. In response, the defendants alleged they never signed the mortgage or loan documents, asserting that their signatures had been forged by the broker. They further alleged that the broker had acted as agent for a third-party lender (Mortgage House) and that officers of the bank had engaged in wrongful conduct.

The defendants also filed a cross-claim against the Registrar General, seeking compensation from the Torrens Assurance Fund, which is a statutory fund available under the Real Property Act 1900 to persons who suffer loss as a result of the operation of the Torrens title system. Three sets of applications were heard together: the bank's application for summary judgment, the Registrar General's application to summarily dismiss the cross-claim, and the defendants' application for leave to file amended pleadings.

  • Whether the bank was entitled to summary judgment for possession and a monetary judgment, given the defendants' fraud allegations under s.42 of the Real Property Act 1900
  • Whether the bank could rely on the doctrine of subrogation (stepping into the shoes of the prior mortgagee) to support a monetary judgment even if the mortgage itself was void for fraud
  • Whether the defendants' cross-claim against the Registrar General disclosed a reasonable cause of action for compensable loss under the Torrens Assurance Fund provisions (ss.128–135 of the Real Property Act 1900)
  • Whether the defendants should be granted leave to file an Amended Defence and Amended Cross-Claim in their current form

Decision

Summary judgment for possession (granted in part). Johnson J granted summary judgment for possession of the Leppington property. While the defendants raised the fraud exception under s.42 of the Real Property Act 1900 (which can defeat indefeasibility of title where a registered interest was obtained by fraud), the court was satisfied that no arguable defence to possession was made out in the pleadings as they stood. The defendants' fraud allegations were characterised as insufficiently particularised and pleaded to ground a triable issue on this point.

Monetary judgment (refused). Summary judgment for the monetary sum was refused. The court accepted that questions around the subrogation claim, namely whether the bank could recover the amount used to discharge the prior PCL mortgage by stepping into PCL's position, raised issues that were not suitable for summary determination. The subrogation doctrine allows a lender who discharges a prior encumbrance to take on the rights of that prior encumbrancer, but the application of that doctrine on the facts required further development at a full hearing.

Cross-claim against the Registrar General (summarily dismissed). Johnson J dismissed the cross-claim against the Registrar General under r.13.4 of the Uniform Civil Procedure Rules 2005. The court found that the defendants had not established a reasonable cause of action for compensable loss under Part 14 of the Real Property Act 1900. Access to the Torrens Assurance Fund requires a claimant to have suffered loss as a result of the operation of the Act in defined circumstances; the defendants' pleaded case did not adequately identify such loss in a way that could sustain the claim.

Leave to amend refused (in current form). The defendants' application for leave to file the Amended Defence and Amended Cross-Claim in their current form was refused. The court identified significant pleading deficiencies. However, the defendants were given a further opportunity to serve a revised proposed Amended Defence and Amended Cross-Claim by 31 August 2011 for consideration at a further directions hearing.

Orders Made

  • The defendants to pay 80% of the bank's costs of the bank's Notice of Motion (filed 29 July 2011).
  • The defendants to pay the bank's costs of the defendants' own Notice of Motion (filed 8 April 2011).
  • The defendants to pay the Registrar General's costs of the Registrar General's Notice of Motion (filed 1 August 2011), the defendants' Notice of Motion (filed 8 April 2011), and the proceedings dismissed against the Registrar General.
  • The defendants to pay Mortgage House's costs of the defendants' Notice of Motion (filed 8 April 2011).
  • The defendants directed to serve any proposed Amended Defence and Amended Cross-Claim on all affected parties by 31 August 2011, with copies to the judge's associate.
  • Matter stood over for further directions on 13 September 2011.
  • Execution of any writ of possession stayed until 4.00 pm on 13 September 2011.

Key Takeaways

  • Summary judgment for possession may be granted even where fraud is alleged, if the fraud allegations are not sufficiently particularised in the pleadings to raise a genuinely triable issue under the s.42 Real Property Act 1900 fraud exception to indefeasibility.
  • A monetary judgment founded on a potentially fraudulent mortgage will not be summarily granted where the bank's subrogation claim, relying on its discharge of a prior encumbrance, requires detailed factual and legal analysis better suited to a full hearing.
  • Under Part 14 of the Real Property Act 1900, a claim on the Torrens Assurance Fund requires clear pleading of actual compensable loss resulting from the operation of the Act; a general allegation of fraud or wrongdoing by a broker is insufficient to ground that cause of action.
  • Courts applying the summary dismissal test under r.13.4 of the Uniform Civil Procedure Rules 2005 must be satisfied that the pleaded case is so clearly untenable that it cannot possibly succeed, a high threshold that the defendants' Assurance Fund claim failed to meet in substance rather than merely in form.
  • Inadequately pleaded defences and cross-claims, even where they raise conceptually arguable issues, may be refused leave to be filed in their existing form, with the court instead directing the filing of a further revised version before reconsidering the question.

Legislation and Cases Referenced

Legislation
- Real Property Act 1900 (NSW), including ss.42, 128–135 (Torrens Assurance Fund)
- Uniform Civil Procedure Rules 2005 (NSW), rr.13.1, 13.4, 14.28, 16.4

Cases
- Dey v Victorian Railway Commissioners [1949] HCA 1; 78 CLR 62
- General Steel Industries Inc v Commissioner of Railways (NSW) [1964] HCA 69; 112 CLR 125
- Webster v Lampard [1993] HCA 57; 177 CLR 598
- Cosmos E-C Commerce Pty Ltd v Bidwell and Associates Pty Ltd [2005] NSWCA 81
- Van Den Heuvel v Perpetual Trustees Victoria Limited [2010] NSWCA 171
- Bofinger v Kingsway Group Ltd [2009] HCA 44; 239 CLR 269
- Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited [1986] HCA 14; 160 CLR 226
- Burston Finance Limited v Speirway Limited [1974] 1 WLR 1649
- Highland v Exception Holdings Pty Limited (In Liq) [2006] NSWCA 318; 60 ACSR 223
- MDN Mortgages Pty Limited v Caradonna [2010] NSWSC 1298
- Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; 126 CLR 161
- Horrobin v Australia and New Zealand Banking Group Limited (1996) 40 NSWLR 89
- Hannon v Afro Pacific Capital Limited [2009] NSWSC 564
- McGuirk v University of New South Wales [2