Citation: Diemasters Pty Ltd v Meadowcorp Pty Ltd; Jain v Registrar General [2001] NSWSC 495 (reported at 52 NSWLR 572)
Court: Supreme Court of New South Wales, Equity Division
Date: 18 June 2001
Judge(s): Windeyer J
Background
A company called Meadowcorp had borrowed $367,000 from a group of mortgagees, secured by a registered mortgage over a rural property at Lakesland. Meadowcorp's sole director, Tooth, was in financial difficulty and procured the discharge of the mortgage using stolen and forged bank cheques. He then sold the property to two purchasers, Chelliah and Jain, for $420,000 under a contract dated 29 February 2000.
Critically, neither the fraudulent discharge of mortgage nor the transfer to the purchasers had been lodged for registration. Before either instrument was lodged, the mortgagees became aware of the fraud and lodged a caveat to protect their interest, effectively blocking registration of the discharge.
The dispute came before the court in two proceedings heard together. In the first, the mortgagees sought to have the fraudulent discharge set aside and their mortgage reinstated with priority over the purchasers. In the second, Jain sought compensation from the Torrens Assurance Fund on the basis that, if the mortgagees succeeded, he had suffered loss through fraud in connection with the operation of the Torrens system.
Legal Issues
- Whether the mortgagees retained priority over the purchasers, given the mortgage had been fraudulently discharged but the discharge had not been registered
- Whether the purchasers were entitled to the protection of section 43A of the Real Property Act 1900, which extends indefeasibility-like protection to holders of unregistered instruments for value without notice
- Whether Chelliah's involvement in the fraud tainted Jain's title, given they were buying as joint tenants
- Whether the transfer's lack of stamping affected the availability of section 43A protection
- Whether Jain was entitled to compensation from the Torrens Assurance Fund under section 129(1) of the Real Property Act 1900
Decision
Mortgagee priority upheld. Windeyer J found that the discharge of mortgage had been obtained by Tooth's fraud on behalf of Meadowcorp. Because the discharge had never been registered, the mortgage remained on the title. The mortgagees lodged their caveat before the transfer was lodged, and accordingly their registered interest continued to take priority over the unregistered transfer held by the purchasers.
Section 43A did not assist the purchasers. Section 43A of the Real Property Act 1900 can, in certain circumstances, give an unregistered purchaser who holds a transfer for value without notice the same protection as if they were registered. However, the court found that the transfer had not been stamped as required under the Duties Act 1997, and section 43A was therefore not available to the purchasers. The court also addressed the question of whether Jain, even if personally innocent of the fraud, could be tainted by Chelliah's participation in it. Because of the unstamped transfer finding, Windeyer J did not need to reach a final conclusion on the taint question, but the analysis of the section 43A point was dispositive.
Chelliah's position. Chelliah filed a submitting appearance and did not contest the proceedings. The court found on the evidence that Chelliah had knowledge of the stolen and forged cheques used to discharge the mortgage, which meant he could not claim protection as a bona fide purchaser without notice.
Torrens Assurance Fund claim dismissed. Jain's claim for compensation under section 129(1) of the Real Property Act 1900 failed. Compensation under that provision is available where a person suffers loss through being deprived of land or an interest in land as a result of the operation of the Act through fraud. The court found that Jain had not been deprived of an interest he would otherwise have held free of the mortgage. Had the land been under Old System Title rather than Torrens Title, Jain would not have taken unencumbered title in any event, because the prior equitable interest of the mortgagees would still have prevailed. The Fund claim therefore failed on its merits.
Orders Made
In proceedings 3238/00 (Diemasters v Meadowcorp):
- Declaration that the mortgagees are entitled to have their registered mortgage remain on the certificate of title with priority from the date of registration
- Order that the fraudulent discharges of the mortgage be delivered up to the mortgagees for cancellation
- Judgment for the mortgagees for possession of the land
- Defendants ordered to pay the mortgagees' costs
In proceedings 1374/01 (Jain v Registrar General):
- Amended statement of claim dismissed
- Plaintiff Jain ordered to pay the Registrar General's costs
- No order as to the costs of Chelliah (second defendant)
Key Takeaways
- A registered mortgage that has been fraudulently discharged but not yet removed from the register retains its priority over a subsequently executed but unregistered transfer, particularly where the mortgagees lodge a caveat before the transfer is lodged.
- Section 43A of the Real Property Act 1900 was not available to the purchasers because their transfer had not been stamped in accordance with the Duties Act 1997; an unstamped transfer cannot attract the protection the provision otherwise affords.
- Where one of two joint tenant purchasers is a party to the fraud that procured a discharge of mortgage, the court examined whether the innocent co-purchaser's position was tainted, though the unstamped transfer point made it unnecessary to decide that question conclusively.
- Compensation from the Torrens Assurance Fund under section 129(1) is not available where the claimant would have been in no better position had the land been under Old System Title. The "operation of the Act" must have caused the deprivation before a claim arises.
- The decision illustrates the significance of prompt caveat lodgment by mortgagees on discovering a fraudulent discharge before any competing instrument is lodged for registration.
Legislation and Cases Referenced
Legislation:
- Real Property Act 1900 (NSW), ss 36(6A), 41, 43A, 74I, 74MA, 126, 129, 132, 133
- Duties Act 1997 (NSW), s 301
- Real Property Amendment (Compensation) Act 2000 (NSW), Part 14
Cases:
- Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265
- Forsyth v Blundell (1973) 129 CLR 477
- Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870
- Heid v Connell Investments Pty Ltd (1987) 9 NSWLR 628
- Guthrie v ANZ Banking Group Ltd [1991] NSW ConvR 55-591
- Penny Nominees Pty Ltd v Fountain No 3 [1991] NSW ConvR 55-56
- Myers v Smith (1992) 5 BPR 11494
- Finlay v R & I Bank of Western Australia [1993] Conv R 55-686
- J & H Just Holdings Pty Ltd v Bank of New South Wales (1960) 90 WN Pt 1 NSW 571
- Jonray (Sydney) Pty Ltd v Partridge Brothers Pty Ltd (1969) 89 WN Pt 1 NSW 568
- Robinson v The Registrar-General [1983] NSW Conv R 55-128
- Phillips v Phillips [1862] 4 De G F & J 245
- Ex parte Adamson; In re Collie [1878] LR 8 ChD 807