Hypec Electronics v Registrar-General [2008] NSWSC 18

This case concerned two properties, one of which was owned by Mrs and Mrs Mead, and one of which was owned by Mr and Mrs Mead and Mr and Mrs Yang. Both properties were mortgaged to the Commonwealth Bank as security for a loan of approximately $1.17 million. Mrs Yang then paid the debt due to the Bank and took an assignment of the mortgages, which were registered. Mrs Yang held the mortgages as trustee for a Mrs Tsui. In breach of trust, Mrs Yang transferred the mortgages to her family company, Vinemoon Pty Ltd, for $300,000. Mr To, a friend of Mrs Wen, paid Vinemoon $300,000 and in exchange for a transfer of the mortgages to himself as trustee for Mrs Tsui. Mr To then subsequently transferred the mortgages to Mrs Tsui for no consideration, and then Mrs Tsui became registered as mortgagee of both properties.

Prior to the present judgment by Gzell J, there was a company (in liquidation) known as Hypec Electronics Pty Ltd which claimed to be the beneficial owner of both properties and obtained court orders to support that claim. Hypec’s liquidator then denied the validity of the mortgages, as did Mr Mead, who claimed that the whole process from the payment out of the Bank had been a sham to deprive himself of any part of the two properties, which he was seeking in Family Court proceedings against his wife.

The present judgment of Gzell J deals, in essence, Mrs Tsui’s claim for a declaration that she is the indefeasible registered mortgage of Hypec’s two properties. She was opposed in this by the liquidator, and also by a Mr Mead, who sought declarations of his own that Mrs Tsui’s mortgages were nullities.

The liquidator’s first argument was that Mrs Tsui had only acquired the mortgage but not the underlying debt. Gzell J rejected that argument on the basis of PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 (which held that the indefeasibility of the mortgage also preserved the right to collect the debt secured by the mortgage as that was a key element of the mortgagee’s right), and of sections 51 and 52 of the Real Property Act (which provide that an assignee of a mortgage has the same right as the assignor to recover the debt secured).

Both the liquidator and Mr Mead alleged that the mortgages were nullities as they were the product of a sham transaction, the object of which was to erode the interest of Mrs Mead in the properties so that Mr Mead would be unable to obtain property from her in Family Court proceedings. Gzell J found, however, that even if there was a sham, that did not defeat indefeasibility of title unless it was also a fraud.

His Honour noted that even though Mrs Tsui was a “volunteer” in the sense that the final transfer to her was for no consideration, that absent fraud even a volunteer was entitled to the benefit of indefeasibility.

The liquidator alleged fraud on the basis that Mrs Tsui had not, in fact, contributed the money that allowed the Commonwealth Bank to be paid out. Gzell J found as a matter of fact, however, that Mrs Tsui, together with other Taiwanese women, had raised the money that Mrs Yang used to secure an assignment of the mortgage.

The liquidator also alleged fraud on the basis that Mrs Tsui must have known about the earlier Hypec litigation and the company’s claims in equity prior to taking the transfer from Mr To. Gzell J found that fraud had to be established by the liquidator on the Briginshaw standard and this had not been done, and mere knowledge by Mrs Tsui of the fact that the liquidator was making a claim was not fraud.

Mr Mead argued that s 37A of the Conveyancing Act invalidated the mortgages, as that section makes voidable any conveyance in fraud of creditors. It was said that Mrs Yang’s transfer was in fraud of her creditors. Gzell J found, however, that as mrs Yang was merely the trustee of the property she had no beneficial entitlement to the mortgages, and this the section did not apply.

Mrs Tsui was thus successful in obtaining her declarations to the effect that she was an indefeasible registered mortgagee of the two properties, although she was forced to acknowledge that she was unable to recover interest due to the expiration of the relevant limitation period.

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