Case Note] MERCANTILE MUTUAL LIFE INSURANCE V GOSPER

MERCANTILE MUTUAL LIFE INSURANCE V GOSPER

A         COMPETING ARGUMENTS AND POLICY CONSIDERATIONS

Majority judgment

In Mercantile Mutual Life Insurance v Gosper[1], the majority held that Gosper had an enforceable personal equity against Mercantile Mutual Life Insurance (‘Mercantile’).

Mahoney JA firstly found that personal equity might arise independently of the new owner’s acts.[2] The policy argument behind this statement is to prevent ‘the new owner retaining the registered estate in circumstances in which he should not.’[3] Secondly, after reviewing current state of authorities, Mahoney JA held that a void instrument or a mere fact of forgery of instrument did not establish a ‘personal’ equity.[4] His Honour found that Mercantile’s unauthorised use of certificate of title, thereby breaching its obligations to Gosper, was the necessary ingredient giving rise to personal equity.[5]

Kirby P, delivering the most audacious judgment, held that the respondent had an equity of redemption[6] unaffected by subsequent registration of variation because the variation was not properly executed.[7] The mortgage could have only been properly varied by a deed duly executed by both parties.[8] Kirby P accepted Mahoney JA’s analysis of appellant’s authorised use of certificate of title but viewed that it was not a necessary ingredient to reach the conclusion.[9] Regarding whether there was a sleight of hand in this case, Kirby P stated if it did exist, it would exist in the appellant’s argument that it secures its right as a result of the principle of indefeasibility of the registered title in the land which the law, for reasons of high policy, vigilantly safeguards.           

Dissent judgment

Meagher JA gave a strong dissent and described Gosper’s submission as resting on ‘something like a sleight of hand.’[10] Gosper’s submission was that Gosper had an equity of redemption immediately before registration of the variation and therefore, any subsequent registration did not affect their interests. However, his Honour understood ‘the combined effect of the general law, the Real Property Act and s 91 of the Conveyancing Act 1919 is not that the equity of redemption is a right to discharge the mortgage on tender of the amount contractually due...’ but the right to redeem on payment of ‘whatever amount is due by operation of law...’[11] In reaching this conclusion, it was material to Meagher JA’s approach that registration of instrument confers immediate indefeasibility of title. His Honour cited Mayer v Coe[12] and other cases[13] to support the proposition that the ‘mortgagee on registration of his mortgage [obtains] an indefeasible title...notwithstanding that prior to registration the mortgage was void.’[14]

Meagher JA briefly considered the issue of whether Mr Gosper, the forger, had acted as the mortgagee’s agent to procure the mortgagor’s signature but rejected the argument on the basis that there was no factual basis to infer such an agency.[15]

B         QUEENSLAND’S POSITION

The outcome in Gosper’s Case was described by Griggs as ‘policy motivated relief’.[16] Firstly, Mahoney JA, in direct opposition to Barwick CJ’s view in Breskvar v Wall,[17] stated that “personal” equity might arise from the acts of others.[18] In Queensland, s 185(1)(a) of Land Title Act 1994 (Qld) (‘the Act’) requires “equity” to be one which arises “from the acts of the registered proprietor”. Davies JA in White v Tomasel[19] stated that such provision ‘was not intended to do more than state the existing law’ and supported Barwick CJ’s view that the exception was limited to matters which depend on some act of the registered proprietor.[20] In the same case, McMurdo P shared the same view.

If courts adopt Mahoney JA’s policy-motivated approach, it would effectively allow an aggrieved party to bring an in personam claim against the new owner even in the absence of fraud or knowledge of fraud. If such claim can be brought to avoid ‘the new owner retaining the registered estate in circumstances in which he should not’,[21] this would ‘create an inexplicable exception to the indefeasibility principle’.[22] In Professor Butt’s words, it would ‘cut back the benefits of indefeasibility’.[23] Specifically, it has the potential to undermine the ‘mirror and curtain principle’[24] which states firstly that information that is shown is deemed to be both complete and accurate (the mirror)[25] and secondly that ‘...title is not affected by anything not shown on the register’ (the curtain).[26] Although this principle is not an absolute and superlative concept, it appears that Mahoney JA and Kirby P’s reasoning do not fall within the scope of recognised exceptions to the principle.  

Now in Queensland, after passing of the amendments to the Land Titles Act 1994 (Qld) (‘LTA’), the above Gosper situation can be resolved by applying the ‘careless mortgagee exception’.[27] The exception applies where a mortgagee fails to take reasonable steps to verify the mortgagor’s identity (as defined in s 11A of the Act). If it applies, the mortgagee does not obtain indefeasibility and the Supreme Court may direct the registrar to cancel the mortgage under s 187.

The recent decision by the Queensland Supreme Court in Commonwealth Bank of Australia v Perrin[28] illustrates a straightforward application of the careless mortgagee exception. The facts share an underlying similarity; the husband forged his wife’s signature on various mortgages and guarantees. The bank sought to enforce them when the husband was bankrupt. The wife had no knowledge of the fraud. McMurdo J held that the bank failed to comply with s 11A of the Act by failing to take reasonable steps to ensure the identity of the defendant who executed the mortgages. His Honour also found that the certificate of title was delivered without Perrin’s authority. The bank did not obtain indefeasibility. It is interesting to note that the bank advanced an argument which Meagher JA put forward in Gosper’s Case: the court should only remove mortgages from the titles upon tender of debts owed. This argument was rejected.

As the above example shows, the court will reach the same outcome if Gosper arose in Queensland but on the basis that Mercantile did not take reasonable steps to ensure the identity of the mortgagor’s identity.

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[1] (1991) 25 NSWLR 32 (‘Gosper’).

[2] Ibid, 46.

[3] Ibid.

[4] Ibid.

[5] Ibid, 48.

[6] Pursuant to s 93 of the Conveyancing Act 1919 (NSW)

[7] Gosper (1991) 25 NSWLR 32, 37.

[8] Ibid.

[9] Ibid.

[10] Ibid, 52.

[11] Ibid, 52.

[12][1968] 2 NSWLR 747.

[13] Frazer v Walker [1967] 1 AC 569; Breskvar v Wall (1971) 126 CLR 376.

[14] Mayer v Coe [1968] 2 NSWLR 747, 754.

[15] Gosper (1991) 25 NSWLR 32, 52.

[16] Lynden Griggs, ‘In Personam, Garcia v NAB and the Torrens System – Are They Reconcilable?’ QUTLJJ, 1(1), 76, 80.

[17] Breskvar v Wall (1971) 126 CLR 376, 384-385.

[18] Gosper (1991) 25 NSWLR 32, 46.

[19] [2004] QCA 89.

[20] Ibid, [13].

[21] Gosper (1991) 25 NSWLR 32, 46.

[22] White v Tomasel [2004] QCA 89. [37] (Davies JA).

[23] Peter Butt, ‘Indefeasibility and sleights of hand’ (1992) 66 (9) Australian Law Journal  596.

[24] Theodore B. F. Ruoff, ‘An Englishman Looks at the Torrens System, Vol

[25] Registrar of Titles (Vict.) v Paterson (1876) 2 A.C. 110, 117.

[26] S R Simpson (1976), Land Law and Registration, London, Cambridge University Press, 176.

[27] Land Title Act 1994 (Qld), s 185(1A).

[28] [2011] QSC 274.