Dimitrovski v Australian Executor Trustees [2014] NSWCA 68

A son borrowed money secured by a mortgage over property owned by his grandmother. The mortgage was executed by his father pursuant to a power of attorney. The grandmother died and both the son and father were appointed executors under her will and became owners of the mortgaged properties as her personal representatives.

The son defaulted and the lender obtained possession and a money judgment. The son then sought a declaration that the mortgage executed by his father pursuant to his power of attorney was for his own personal benefit and therefore void as not having been authorised. This application was dismissed on the basis that the judgment for possession prevented challenge in separate proceedings as to the validity of the mortgage and loan on the basis of the principle of res judicata. The son appealed on the basis that res judicata was trumped by public policy against the enforcement of illegal contracts, namely the mortgage executed by the father.

The Court of Appeal held that the case was not one of res judicata but issue estoppel or Anshun estoppel meaning that the issues of law or fact actually necessary to be established to justify the judgment for possession cannot be raised between the same parties again. The Court also noted that those issues must be examined independently of the way the case was pleaded. The lender had incorrectly pleaded that the son and his father were in default under both their guarantees and mortgage, whereas they were only the owners of the properties as personal representatives and their obligations were not secured by the mortgage. Their liability under the mortgage was by reason of probate only.

Despite these pleading oversights, the appeal was refused with Court of Appeal commenting:

It was an essential ingredient of the possession claim that the lender was entitled to enforce the mortgage, which it could only do if the mortgage and guarantee were both valid so as to be bind the grandmother’s personal representatives….. It follows that it was not open to the son to contend that his grandmother’s guarantee or the mortgage was not valid and effective.

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