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