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Supreme Court of Victoria - Court of Appeal |
Last Updated: 19 December 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No S APCI 2012 0039
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XIAO HUI YING
(also known as HUI YING XIAO) |
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Appellant
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v
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PERPETUAL TRUSTEES VICTORIA LIMITED (ACN 004 027 258)
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First Respondent
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REGISTRAR OF TITLES
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Second Respondent
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BERNHARD ULRICH SEIFERT
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Fourth Respondent
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HARRY SZMERLING
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Fifth Respondent
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ADVANTEDGE FINANCIAL SERVICES PTY LTD (ACN 130 012 930)
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Sixth Respondent |
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CRAIG FITZGERALD
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Seventh Respondent
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---
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JUDGES
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WEINBERG, HARPER and PRIEST JJA
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WHERE HELD
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MELBOURNE
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DATE OF HEARING
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23 November 2012
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DATE OF JUDGMENT
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19 December 2012
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MEDIUM NEUTRAL CITATION
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JUDGMENT APPEALED FROM
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Perpetual Trustees Victoria Limited v Xiao [2012] VSC 65
(Habersberger J)
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PRACTICE AND PROCEDURE –Appeal from order of trial judge refusing application to set aside judgment pursuant to Supreme Court (General Civil Procedure) Rules 2005 r 49.02(2) — Respondent mortgagee sought possession of residential property pursuant to an ‘all moneys’ mortgage — Appellant raised defence that mortgage and loan documents tainted by fraud — Appellant pleaded in defence and counterclaim that her signature forged on relevant documents — Matter set down for hearing in November 2011 — Appellant sought and obtained adjournments until 14 December 2011 — Appellant then sought further adjournment on medical grounds — Trial judge refused adjournment and stated the matter would proceed — Appellant failed to appear and trial continued in her absence — Trial judge gave judgment for respondent and dismissed appellant's counterclaim — Appellant later applied to have judgment set aside — Trial judge refused application — Whether trial judge erred in the exercise of a discretionary power — Whether trial judge failed to give adequate weight to fact that appellant may have a bona fide defence on the merits — Appellant unable to speak English or to present case effectively unrepresented — High degree of prejudice to appellant if orders below stand — Whether appellant entitled to indemnity under Transfer of Land Act 1958 if judgment not set aside — Desirability that allegations of fraud be heard — Appeal allowed — Previous orders set aside and new trial ordered.
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APPEARANCES:
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Counsel
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Solicitors
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For the Appellant
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Mr F Lim
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Francis Lim Barristers & Solicitors
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For the First and Sixth Respondents
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Mr M F Wheelahan SC with
Mr A T Strahan |
Colin Biggers & Paisley
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For the Second Respondent
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No appearance
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Land Victoria Legal
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For the Fourth Respondent
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Mr S A Nixon
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Simon A Nixon
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For the Fifth Respondent
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Mr J B Davis
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Obst Legal Pty Ltd
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For the Seventh Respondent
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No appearance
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Self-represented
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WEINBERG JA
HARPER JA
PRIEST JA:
Introduction
1 On 1 March 2012, a judge of the Trial Division refused an application brought by the appellant pursuant to r 49.02(2) of the Supreme Court (General Civil Procedure) Rules 2005 (‘RSC’),[1] in which she attempted to have a judgment and orders made by the judge on 15 December 2011 set aside. The judgment and orders had been made in a proceeding for possession of residential property brought by a mortgagee, Perpetual Trustees Victoria Limited, as a result of the appellant’s claimed default under a mortgage.
2 The issue in this appeal is whether in refusing the application to have the judgment and orders set aside, the trial judge exercised his discretion under r 49.02(2) of the RSC correctly. Having regard to all of the circumstances, some of them quite special, we are persuaded that the application should have been granted.
3 Accordingly, for reasons that follow, we would allow the appeal and make consequential orders.
4 By Writ filed 7 July 2009, the plaintiff, Perpetual Trustees Victoria Limited (‘Perpetual’), sued the appellant for possession of a residential property situated at 18 Frances Avenue, Vermont (‘the Property’) pursuant to a purported mortgage from the appellant to Perpetual, dated 1 June 2004.
5 The appellant, by counterclaim, alleged that the mortgage and various ancillary documents did not bear her signature, and that her supposed signature was a forgery. That counterclaim was dismissed in the appellant’s absence on 14 December 2011, after the trial judge had refused her an adjournment of the trial.
6 On 15 December 2011, after the trial – which was conducted in the appellant’s absence – judgment was entered against her in favour of Perpetual for possession of the Property.
7 A summons filed by the appellant on 6 January 2012 sought orders that the judgment and orders made on 15 December 2011 be set aside. This application was made, at least implicitly, pursuant to r 49.02(2) RSC which provides:
(2) The Court may set aside or vary any judgment, order or verdict obtained where a party is absent at the trial.
8 The application was, on 7 February 2012, heard by the same judge as heard the trial. He dismissed it on 1 March 2012.
9 On 3 May 2012, this Court granted the appellant leave to appeal the decision of 1 March 2012.[2]
The parties
10 The appellant’s husband had transferred the Property to her on 29 March 2004. Apparently, the transfer had been made to provide security for the appellant in her old age, and in recognition of the care she had given to her husband’s elderly mother and his sister (who had an acquired brain injury).
11 As we have said, the principal proceeding arose out of a claim by Perpetual for possession of the Property. Perpetual’s Statement of Claim alleged that it had advanced moneys to the appellant under a Loan Agreement. It was pleaded that the appellant was the registered proprietor of the Property, and that by an instrument of mortgage[3] dated 1 June 2004 the appellant had mortgaged the Property to Perpetual. The appellant, it was claimed, had mortgaged the Property to secure her obligations under the Loan Agreement. Further, it was alleged that the appellant had defaulted under the Loan Agreement; and, despite a notice being served upon her requiring to pay the arrears, the appellant remained in default. Possession of the Property was sought.
12 Parties in the principal proceeding were:
13 In essence, by her pleadings the appellant claimed that her signature had been forged on a mortgage and other documents used to secure the Loan Agreement. The beneficiary of the funds from the Loan Agreement was a company, Ninety Eighth Betabarb Pty Ltd, in which the appellant had no interest. The forgery had been effected by Seifert, who was the sole director, owner, controlling shareholder and ‘controlling mind’ of Capital. Capital, it was claimed, was the agent of Perpetual. It was alleged that Seifert stood to gain personally from a loan to another company, Brynmar Investment Pty Ltd, by Ninety Eighth Betabarb Pty Ltd, the third party to whom the funds secured by the mortgage were advanced. The appellant pleaded reliance on tendency evidence[12] against Seifert, based on allegations that he had committed fraud and forgery in other identified cases.
14 Szmerling was a solicitor who had acted in the transfer of the Property in 2004, and had been the custodian of the certificate of title for the Property. The appellant’s claim against Szmerling was that, as her legal practitioner, he had released the certificate of title to Capital or Seifert without her authority, and without making reasonable inquiries of her before he did so. His action in doing so, it was claimed, permitted the mortgage containing her forged signature to be registered. The purported authority to hand over the certificate of title was also forged.
15 The Registrar of Titles was joined ‘as nominal defendant to give effect to such orders as the Court deems appropriate in relation to the Mortgage’.[13]
16 Evidence led by Perpetual at trial suggested that Woodland had witnessed the appellant’s signature on the mortgage.
17 The appellant’s husband, Fitzgerald, was also a respondent to the appeal, but the appellant sought no relief against him. He had been joined as seventh defendant to the counterclaim on the application of Szmerling.
18 Quite apart from her central assertion of forgery on the mortgage and key documents, overarching the various claims made by the appellant were the notions that she was a recent immigrant from China, who suffered under particular vulnerability because she neither read nor spoke English.
19 Perpetual issued the principal proceeding against the appellant on 7 July 2009. This proceeding was for possession of the Property in default of the mortgage.
20 Originally, the proceeding came on for hearing before Whelan J on 21 November 2011. On the appellant’s application, Whelan J adjourned the trial to 5 December 2011 so that she could obtain further legal representation and the assistance of an interpreter.
21 On 1 December 2011, the appellant engaged a firm of solicitors to represent her solely for the purposes of obtaining a further adjournment. The solicitors filed a summons seeking the adjournment on 2 December 2011. It was contended in the summons that the appellant required the adjournment due to her ill-health. Since Whelan J was part-heard in another matter on 5 December 2011, the case was listed before another judge.
22 The summons filed on 2 December 2011 was ‘overtaken by events’. On 4 December 2011, the appellant was admitted to hospital. She received a medical certificate from the hospital which stated that she was unfit for work or to attend the trial until 12 December 2011. As a result, the judge before whom the case was listed adjourned the matter until 12 December 2011.
23 On 12 December 2011 the appellant sought a further adjournment to the following year. Her ill-health was again cited as the reason for the adjournment. A medical certificate had been issued by the appellant’s general practitioner, Dr Paul Hancock. The judge thus stood over the hearing until the following day. He made an order that if the appellant ‘were to seek any further adjournment there be evidence on oath from a medical practitioner and that such practitioner be available for cross-examination’.[14]
24 When the hearing resumed on 13 December 2011, as a result of a communication from Dr Hancock it became apparent that he was not available to attend court that day but would be able to do so the following morning.
25 The case resumed the following day, 14 December 2011. Pro bono counsel appeared for the appellant, and Dr Hancock attended to give evidence. We need not set out all of the medical evidence in detail, but Dr Hancock essentially stated that the appellant had been suffering over a long period of time with migraine, chronic tension headache and stress. Dr Hancock further testified that he had seen the appellant on 1 December 2011, and he declared her unfit for work from 15 October 2011 to 15 January 2012. When admitted to hospital on 4 December 2011, the appellant was suffering from hypokalaemia (low blood potassium). Dr Hancock gave evidence that the appellant would have difficulty concentrating and following the proceedings, and might have some difficulty moving. He also said that he had prescribed the appellant potassium pills.
26 The evidence-in-chief and cross-examination of Dr Hancock, and the submissions concerning the application for an adjournment, finished just before the luncheon adjournment. The trial judge immediately indicated to the parties that the application for an adjournment was refused. He did so in order that the appellant could be notified that the matter would be proceeding at 2.15 pm. So as not to delay matters further, at that stage the judge gave a brief indication of his reasons for refusing the adjournment, which he said he would later expand upon.
27 When the case resumed at 2.15 pm, neither the appellant, nor anyone representing her, appeared. Perpetual’s case commenced.
28 Before summarising the evidence led by Perpetual in support of its case, one further matter deserves mention. It seems that at some time after 11.00 pm on 14 December 2011, the trial judge’s associate received an email from the appellant’s husband, Fitzgerald, which read: ‘This should have been made available to his Honour’. Attached was a report from a consultant psychologist, Dr Helen Kalaboukas. For reasons which she adumbrated, Dr Kalaboukas offered the opinion that the appellant ‘is diagnosed with Major Depression Disorder (MDD), severe Anxiety and acute stress’. Dr Kalaboukas also stated that in her opinion, the appellant ‘is currently unable to stand in court as a witness’, and ‘will need long term psychological treatment in order to be able to overcome depression, anxiety and stress’.
29 Furnishing the psychologist’s report in the manner described was irregular. In the circumstances the trial judge could not properly have had regard to its contents. No further application for adjournment based on the psychologist’s report was, however, made.
30 Perpetual’s case continued on 15 December 2011. Without setting out all of the relevant evidence, in summary form it was called to prove that:
31 Based on this evidence, the trial judge concluded that the appellant had entered into a loan agreement with Perpetual which advanced to her, or at her direction, two sums of $507,000 and $117,000.[19] Having so found, the judge turned to the question of the disbursal of the loan funds,[20] a subject which we need not further discuss.
32 The trial judge then turned to the issue of default. He found default proven. Judgment was thus given for Perpetual for possession of the Property.[21]
33 As has earlier been observed, the appellant seeks to agitate issues of forgery in defence of the claim against her by Perpetual. The trial judge made the following observations pertinent to that claim:[22]
I do know by virtue of applications that were made on 5 December that one step that had been taken by the defendant was the obtaining of an expert handwriting report. However, that report was not in evidence before me and no witness was called to give any evidence about those signatures. In the absence of any such evidence and in the absence of any evidence from [the appellant] that this was not her signature on the loan or the transfer or the statutory declarations, it would be a very bold conclusion to reject the evidence of Mr Seifert and Mr Woodland. Each of them would know in giving the evidence that they did that they would be exposing themselves to possible prosecution for perjury if that evidence was false. In addition I bear in mind the statement in Briginshaw v Briginshaw that a court should not lightly make adverse findings about people without proper proofs. Therefore, I am not prepared to make such a finding for the reasons I have given. Indeed, as I have said, I accept their evidence.
34 The judge also considered an alternative route to a finding against the appellant based on ratification.[23] A deal of argument on the hearing of the appeal was directed to this issue. We will return to it below.[24]
The application to set aside judgment
35 The application made by the appellant under r 49.02(2) was, as is the practice, referred back to the trial judge in the principal proceeding.
36 At the risk of repeating some of the history already referred to, the judge noted the following relevant events:
37 On 6 January 2012, the appellant issued a summons to set aside the orders and judgment. In her affidavit in support, the appellant gave an additional reason for terminating the services of her solicitors shortly before the trial. She deposed that she did not have the funds to meet Mr Lim’s demand that she pay money into his trust account to cover the costs of an interpreter, court transcript and handwriting expert. The appellant said that Mr Lim had agreed that he would wait one year for payment of his costs. Later, adequate funds were received to enable Mr Lim again to be instructed to act on her behalf.[34]
38 Submissions were advanced to the trial judge by the appellant that r 49.02(2) of the RSC did not place any restriction on the matters that the Court may take into account when it considered an application to set aside a judgment or order under that rule. It was argued that the judge should set aside the judgment and orders because they ‘were tainted by fraud’. Further, it was argued that the appellant had been denied natural justice in that she ‘was not given the opportunity to properly present her defence and counterclaim because she was sick’. Reliance was placed on ‘her low level of English’; and it was argued that ‘she was unable to obtain legal representation to present her defence and counterclaim which is complex in fact and law’. It was submitted that the appellant ‘was not given the opportunity to place before the Court credible evidence in support of her defence and counterclaim’, and that two witnesses ‘may have perjured themselves’. Finally, it was put that ‘some credible evidence before the Court was not considered’.
Decision on the application to set aside judgment
39 The trial judge correctly identified the principles[35] to be applied in an application under r 49.02(2) as those set out by the Full Court in Rosing v Ben Shemesh (‘Rosing’).[36] In that case, the Full Court, following Grimshaw v Dunbar,[37] held that the relevant considerations on such an application were:
(a) the reason why the party failed to appear when the case was heard;(b) whether there had been any delay by the absent party in launching the application for a new trial;
(c) whether there was a bona fide issue to be tried; and
(d) whether the other party would be prejudiced by a new trial in any respect which could not be adequately compensated by a suitable award of costs and the giving of security.[38]
40 Significantly, the trial judge applied the second and third considerations set out in Rosing in a manner favourable to the appellant. Thus, the trial judge came to the view that there had been no delay by the appellant in commencing her application to set aside the judgment and orders and seek a new trial.[39] Moreover, the trial judge was prepared to proceed on the basis that the appellant had raised bona fide issues which, if accepted, might give her a defence on the merits to Perpetual’s claim or might mean that her counterclaim against one or more of the defendants might succeed.[40]
41 As is clear, however, the trial judge decided that the appellant had not satisfied either the first (the reason why the party failed to appear when the case was heard) or the fourth (whether the other party would be prejudiced by a new trial in any respect which could not be adequately compensated by a suitable award of costs and the giving of security) of the considerations from Rosing.[41]
42 The trial judge was of the view that the most important matter to consider was the reason why the appellant did not appear at trial.[42] As was open to him to do, the trial judge concluded that, despite her absence from court, the appellant knew that her application for adjournment on 14 December 2011 had been refused, and that the trial would proceed that afternoon.[43]
43 He then considered two items of supposedly new evidence. The first was the report of Dr Kalaboukas forwarded via email to the judge’s associate by the appellant’s husband during the evening of 14 December 2011, together with a later letter of Dr Kalaboukas in which she emphasised the appellant’s need to overcome ‘depression, anxiety and stress’. The trial judge concluded — correctly, in our view — that the contents of these documents were not ‘fresh evidence’. The fact of the appellant’s depression was not new, and had been mentioned in Dr Hancock’s oral evidence.[44] In our opinion, there is nothing in the complaint that the trial judge erred in his approach to this supposedly new or fresh evidence.
44 The second item of new evidence relied upon were two reports by a highly qualified handwriting expert, Mr Neil Holland, in which he stated that the appellant ‘did not write’ the signature on the mortgage of the Property, and that it was ‘highly probable’ that she did not write the signatures on other relevant documents. (Mr Holland had examined the original of the mortgage at the Land Titles Archives, Laverton, on 28 November 2011, but had available to him only photocopies of other documents.)
45 The trial judge concluded that although it might be correct to describe Mr Holland’s reports as fresh evidence, they did not add to the evidence concerning the appellant’s reason for failing to appear at trial. Instead, the reports went to the question of a defence on the merits. The judge was prepared to accept in the appellant’s favour that ‘there was an arguable defence’.[45]
46 Given Mr Holland’s qualifications, and the methodology he employed, his opinions are, in our view, worthy of significant weight. In light of those opinions, it could hardly be contended that the available evidence did not raise grave concerns as to the genuineness of the evidence as to appellant’s execution of the mortgage and other key documents. As we have said, however, the trial judge was prepared to assume the existence of an arguable defence.
47 Having considered the supposed fresh evidence the trial judge was satisfied that the appellant had not given an adequate reason for not appearing at trial.[46]
48 Further, the trial judge went on to find ‘that there is no way in which the other parties can be adequately compensated for the costs thrown away if an order is made setting aside the orders and judgment’.[47] He did so because:[48]
49 The trial judge having decided that the appellant had not satisfied the first and fourth considerations in Rosing, held: ‘weighing up the competing considerations, I consider that it would not be in the interests of justice to grant the application’.[49]
50 Since other factors had been argued, the trial judge went on to consider the other matters which the appellant had submitted supported the setting aside of the judgment and orders, and rejected them.
51 Thus, the trial judge rejected a submission that the judgment was ‘tainted by fraud’, since evidence was available to the appellant that she had not signed the relevant documents, but that evidence was not given because she did not appear.[50]
52 Next, the judge rejected a submission that there had not been a fair trial because ‘some credible evidence before the Court [had not been] considered’, that credible evidence being the reports of the handwriting expert. As the judge pointed out, no one had appeared on the trial and sought to tender the reports.[51]
53 A submission that there had not been a fair trial because witnesses had not been ordered out of court was, properly in our view, described as misconceived.[52] We need not further discuss it.
54 Finally, the trial judge rejected a submission that the refusal of the adjournment meant that the appellant ‘did not have an opportunity to present her defence and counterclaim because she was sick, could not speak or understand English, and was unable to obtain legal representation’. His Honour found that the appellant had the opportunity to present her defence, ‘albeit under difficulties’, but she chose not to do so. Language problems could have been overcome by the provision of an interpreter (which the other parties offered to pay for); and at the very least, the appellant could have given evidence denying execution of the documents, and could have called Mr Holland to give evidence about the signatures.[53]
The decision should be set aside
55 Despite the trial judge’s very comprehensive treatment of the application made to set aside the judgment and orders (the essentials of which we have tried to capture), we are persuaded that he fell into error.
56 As we have said, the trial judge correctly identified, and sought to apply, the principles derived from Rosing. Mr Wheelahan SC, who appeared for Perpetual and Advantedge Financial Services Pty Ltd, reminded us of the authorities which lay down the proper approach to review of discretionary judgments.[54] We do not ignore them (nor do we ignore the authorities he cited concerning the desirability of finality in litigation.[55]) Indeed, this case being concerned with matters of practice and procedure, we acknowledge that considerable deference needs be paid to the trial judge’s exercise of discretion.
57 In our opinion, there is no doubt that the judge was entitled to find, as he did, that the appellant had not provided an adequate explanation for her failure to attend, and participate in, the trial. Moreover, he was also entitled to find, as he did, that any decision to set aside the judgment in favour of the plaintiff, and the various respondents to the counterclaim, would be prejudicial to those parties. There was ample evidence to suggest that this prejudice could not be overcome by, for example, an order for costs.
58 Although a degree of cynicism with respect to the appellant’s adjournment applications – and her failure to appear at all on the trial following the refusal of the crucial adjournment application – was accordingly justified, nonetheless we think that the judge, in the circumstances of this case, did not sufficiently weigh the prejudice to the appellant against other relevant considerations. Indeed, save to assume that there was a bona fide issue to be tried, he does not appear to have balanced at all the prejudice to the appellant against the prejudice to the other parties.
59 It must be borne in mind that this is a most unusual case. The appellant cannot read or write English. Had she turned up to attend on the afternoon of 14 December 2011, she would have been unrepresented during the course of the trial. In practical terms, despite the judge’s duty to assist an unrepresented litigant, her attendance would have been pointless.
60 Additionally, there was medical evidence to the effect that she was seriously unwell, and unfit to attend Court between, at least, 5 December 2011 and 12 December 2011. That evidence must have been accepted because the trial was adjourned to 13 December 2011. The appellant sought a further adjournment to February or March 2012, but that was denied. In the context of this entire proceeding, the adjournment sought was not unreasonable. After all, in March 2011, the matter was set down for hearing in November 2011, and there had only been a relatively short delay, largely brought about by the appellant’s medical condition.
61 Moreover, we think that the judge failed to give adequate weight to the fact that the appellant may have a bona fide defence on the merits. As we have said, the judge was prepared to assume that she did. Having made that assumption, however, it appears to us that he did not give sufficient attention to those merits as deposed to in her affidavit in support of the application to set aside judgment. If the contents of her affidavit dealing with the essentials of her defence are truthful and accurate, then it would be a very serious thing to shut her out from a full hearing. We think that this is so despite her antecedent unsatisfactory conduct with respect to some of the procedural steps in the litigation, and the prejudice that will flow to the other parties. In our view, the trial judge gave insufficient weight to the appellant’s defence. It follows that the exercise of his discretion miscarried.
62 We emphasise that the evidence of the handwriting expert, Neil Holland is potentially very powerful. If Mr Holland’s evidence is accepted (as, it seems to us, it very well may be) then the appellant may have been the victim of a substantial and carefully orchestrated fraud. The Property was given to her by her husband in 2004 in return for the care the appellant had given her mother-in-law and sister-in-law, and was meant to be security for her in old age. The appellant asserts that she did not execute the mortgage, and she signed none of the documents connected to the loan. She asserts further that she received no funds from Perpetual. According to the appellant, she knew nothing about any mortgage or any loan. She had nothing to do with the restaurant business set up by her husband and others, and knew nothing about being a director of any company that benefited from any loan.
63 In light of this evidence, we think that the appellant is entitled, at least at this stage, to be considered as an innocent party whose signature may have been forged on a variety of documents. She is in an invidious position. If the judgment and order for possession were permitted to stand, she will lose the Property in circumstances where the evidence available from the handwriting expert, Mr Holland, raises a serious question of forgery with respect to the crucial documents founding the judgment and order for possession.
64 In ordinary circumstances, the victim of a forgery in relation to Torrens title land will have recourse against the indemnity fund. That consideration tells in favour of the respondents (and of the decision of the trial judge), because even if she otherwise fails in her defence the appellant will have recourse to the fund. In this particular situation, however, that may not be the case. There are several reasons why this may be so. Before coming to them, it will be helpful to examine the factors governing the exercise of the judicial discretion to set aside or vary a judgment.
65 The starting point for any examination of the trial judge’s exercise of discretion must be the terms of the relevant Rule. A reading of r 49.02(2) reveals that it merely recites that the Court ‘may set aside or vary any judgment, order or verdict obtained where a party is absent at the trial’.
66 Mr Lim, the appellant’s solicitor who appeared as counsel on the appeal, in an earnest and competent submission, pointed out that r 49.02(2) does not by its terms fetter the manner in which the discretion enjoyed by the Court is to be exercised. As we understood his submission, although he accepted that the four considerations identified by the Full Court in Rosing were all relevant considerations to be taken into account, he submitted that they should not be regarded as an exclusive or closed list of considerations. He submitted that the words of r 49.02(2) did not fetter the exercise of discretion, and that its exercise should not be regarded as unduly circumscribed by judicially laid down criteria.
67 In our opinion there is force in these submissions.
68 An examination of the reasons of the Full Court in Rosing does not lead to the conclusion that the Court was there laying down inflexible rules, or a complete list of relevant criteria, for the exercise of discretion under the equivalent of r 49.02(2).[56] Rather, the Court merely was recognising that the matters identified by Jenkins LJ in Grimshaw v Dunbar[57] are among those proper to take into account. So much, we think, is clear from the Full Court’s apparent reliance on Atkin LJ’s words in Maxwell v Keun:[58]
I quite agree the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does so; but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the Court has power to review such an order, and it is, to my mind, its duty to do so.
69 Further, we think that support for the proposition that the discretion reposed in the Court under r 49.02(2) is not fettered by the four considerations identified in Rosing may be drawn from the later decision of the Full Court in Kostokanellis v Allen.[59] In that case the Court had under consideration a rule of court that permitted a default judgment to ‘be set aside by a Judge upon such terms as to costs or otherwise as he may think fit’. The judge delivering the decision under appeal had been satisfied that the appellant/defendant had a prima facie defence on the merits to the action brought against him, but was not satisfied by the explanation given for his non-appearance on the application for final judgment.
70 After an examination of authority (including Rosing), the Court said:[60]
What emerges from these authorities is that under a rule such as [Rule 49.02(2)], what the judge is required to do is to determine what, in his opinion, is the just way in which the court's discretion should be exercised. To do this must involve weighing up the extent to which the defendant is prejudiced by allowing the order and judgment to stand and the prejudice to the plaintiff in setting them aside. ... However, it does not necessarily follow that if the explanation does not amount to something which can be categorized as a ‘sufficient reason’ the defendant’s application should fail. It must all depend on the circumstances. In this connexion, reference may be made to passages in the judgment of Smith, J, in Shepperdson v Lewis, [1966] VicRp 59; [1966] VR 418, at pp. 423-4, where, in dealing with the discretion to be exercised on an application to dismiss an action for want of prosecution, it was pointed out that the adoption of a formula created by erecting what are merely relevant factors into arbitrary principles so as to allow the automatic production of a solution in all but the exceptional case, is a quite fallacious approach to the exercise of a discretion.
71 As we have noted, there are several reasons why in the circumstances of this case, the appellant as the victim of a forgery in relation to Torrens title land might not have recourse against the indemnity fund. First, it is possible that the appellant would be caught by a six year limitation period. Secondly, s 110(3)(a) of the Transfer of Land Act 1958 provides that no indemnity is payable under the Act where the claimant’s legal practitioner ‘caused or substantially contributed to the loss by fraud, neglect or wilful default’. The appellant has brought proceedings against Mr Szmerling, but a possible effect of his Honour’s decision to dismiss her counterclaim is that a res judicata may become available to him. Thirdly, the appellant has counterclaimed against the Registrar of Titles, seeking declaratory relief, and ancillary orders. Her claim against the Registrar has, however, been dismissed. It is possible that this will operate as an estoppel (perhaps an Anshun estoppel)[61] to prevent her from now suing the Registrar for compensation under the fund.
72 If any of this be so, the actual level of prejudice suffered by the appellant in having the trial proceed in her absence is so great as to have warranted careful consideration on the application to set aside the earlier decision. It would be rare, indeed, for an entirely innocent victim of a forged mortgage to find herself deprived of the property, and of any prospect of recompense from the fund.
73 Potentially there are many complex issues to be resolved in this case. There is material to suggest that Seifert, arguably an agent of Perpetual, was involved in the forging of her signature; and the tendency evidence upon which the appellant proposes to rely may bear that out.
74 Another complicating factor is that the particular mortgage at issue in this case is what is described as an ‘all moneys’ mortgage. Such mortgages are designed to ensure that lenders have security, not only for a specified sum advanced to a borrower, but for all moneys advanced or due, past or future. That type of mortgage was recently considered by the New South Wales Court of Appeal in Perpetual Trustees Victoria Ltd v English (‘English’).[62]
75 In English a joint registered proprietor of Torrens system land had forged the signature of the other joint registered proprietor, his estranged wife, to a loan and mortgage in return for a loan from Perpetual. The forgery was perpetrated without the knowledge of the wife, who was entirely innocent. Upon default in the repayment of amounts said to be secured by the registered mortgage, Perpetual sought an order for possession against each registered proprietor. Sackville AJA (with whom Allsop P and Campbell JA agreed) discussed the problems associated with indefeasibility of forged mortgages and observed:[63]
The problem has been compounded by the tendency of institutional lenders to rely on ever more complex documentation that is designed to ensure that they have security, not merely for a specified sum advanced to the borrowers, but for any moneys advanced to or due by them, whether in the past or in the future. These “all moneys” clauses require reference not only to the mortgage instrument itself, but to other documents which themselves may be forged. The irony is that as lenders draft ever-wider clauses they make themselves more vulnerable to the effects of forgery. This is because all moneys clauses may depend for their effectiveness on the validity of antecedent instruments that have not been, and indeed cannot be registered under the Torrens system. Since forgery renders such instruments void under the general law, the indefeasibility provisions of the [equivalent of the Transfer of Land Act 1958] may not protect the mortgagee.The authorities have not always been entirely consistent in their approach to the enforceability of forged mortgages against the innocent registered proprietor whose signature has been forged, at least where the forger is a joint registered proprietor: see generally J Stoljar, “Mortgages, Indefeasibility and Personal Covenants to Pay” (2008) 82 ALJ 28. The recent trend, particularly in New South Wales and New Zealand, has been unfavourable to mortgagees in such cases, as courts have tended to hold a forged but registered mortgage, as a matter of construction, does not create a security interest enforceable against the innocent registered proprietor: Westpac New Zealand Ltd v Clark [2009] NZSC 73 (not following Solak v Bank of Western Australia Ltd [2009] VSC 82); Provident Capital Ltd v Printy [2008] NSWCA 31; 13 BPR 25,199; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; 13 BPR 24,567. ...
76 Ultimately, the Court held that, on its proper construction, the mortgage in that case did not provide security for the payment of any moneys secured under the relevant loan offer, and that Perpetual was not entitled to enforce any power of sale under the mortgage against the innocent joint proprietor.[64]
77 By comparison, in Solak v Bank of Western Australia Ltd (‘Solak’),[65] Pagone J held that, upon its proper construction, a forged ‘all moneys’ mortgage was effective as security.[66]
78 If the reasoning of the Court in English is to be accepted, it may be that Perpetual was not entitled to seek possession on the basis of default on its mortgage. That is a vital issue which, at this point, remains to be resolved. The differing results to similar questions in English and Solak emphasise the very real risk that a substantial injustice may well be permitted to go uncorrected if the impugned decision is permitted to stand. This case involves allegations of fraud. It has been said that ‘fraud unravels everything’.[67]
79 In our view, it would be unfair to allow the judgment appealed from to stand. Indeed, it would be an insult to ordinary notions of fairness to allow any respondent who has been involved in forgery to benefit from his actions, even if only by way of an order for costs.
80 There is one final matter which requires attention. In the initial proceeding, the trial judge held that were it necessary to do so, he would find that the appellant had ratified the acts of her agent, Fitzgerald.[68] Ratification was raised for the first time by Perpetual’s counsel orally during the hearing conducted in the appellant’s absence. It had not been raised by Perpetual in the Statement of Claim or any other pleading. Mr Lim, for the appellant, submitted that the trial judge was wrong to have relied on ratification, when this issue had not been raised on the pleadings. We think that there is substance in this submission.
81 It is axiomatic that if the relief claimed by a plaintiff does not arise on the pleadings, a court is not entitled to grant the particular relief unless amendment is sought and notice is first given to the defendant. This is so whether or not the defendant appears at trial. The failure of a defendant to appear at trial does not amount to a representation that the issues that the court must determine are other than those raised by the pleadings.
82 In Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd,[69] the plaintiff sued a bank and another claiming that the bank had been induced by the other defendant to transfer from its ownership shares that it held as trustee for the plaintiff. Both the bank and the other defendant by their defences claimed that the action was statute barred. No reply was filed to the bank’s defence, but with respect to the other defendant the plaintiff claimed a fraudulent breach of trust (which, if established, would have overcome the limitation defence). The defendant bank did not appear at trial. Judgment was given for the defendants on the basis that the plaintiff had not established any beneficial interest in the relevant shares. On appeal (in which the bank was represented), the NSW Court of Appeal found that the bank had been party to a fraudulent breach of trust and gave judgment against both defendants. The High Court, on further appeal by the bank, set aside the judgment made against it by the Court of Appeal. As Brennan J observed:[70]
Non-appearance of a defendant at the trial does not allow the plaintiff a free rein to amend the pleadings to raise issues of which the absent defendant has had no notice or to obtain relief not founded on the pleadings: Stone v. Smith; Barker v. Furlong. The reason why the court does not allow substantive amendments to pleadings so as to allow the plaintiff further or other relief against an absent defendant can be gleaned from analogous cases where the court has not allowed substantive amendments of the writ against a defendant who has failed to enter an appearance unless the writ is re-served: Gee v. Bell; Law v. Philby (No.2); Kingdon v. Kirk. The reason is not that the court has no jurisdiction to amend the writ in the defendant's absence; the reason is that the risk of injustice to the absent defendant must be avoided, as Romer L.J. explained in Jamaica Railway v. Colonial Bank:The Court has always borne in mind that an absent defendant served with the original writ may have acted upon the supposition that he thereby gathers substantially what the case made against him is, and relies upon it that that case and no other substantially different case will be made against him, and on that footing does not choose to appear. Accordingly the Court has refused to act upon a rule, which in terms covered a defendant who had not appeared, in cases in which the Court came to the conclusion that it would not be just to enforce the rule against such a defendant – not that the Court had no jurisdiction to proceed, but that it did not think it right to proceed in such a case.
And, at p 691:
Again, it has been held in favour of a defendant who has not appeared that, if a writ be amended by altering the claim indorsed on it so as substantially to increase the claim against the defendant, the Court, in the exercise of its discretion, will not allow the plaintiff to obtain as against such a defendant the relief sought by the amended indorsement or extended claim unless the defendant be re-served personally with the amended writ.
83 The appellant had been given no notice that Perpetual might seek to found its claim against her for possession of the property on the basis that she had ratified the acts of her agent. As has been observed, the trial judge said: ‘If it were necessary to do so, I would conclude ... that [the appellant] has ratified the acts of her agent, which presumably if this did occur was Mr Fitzgerald, in arranging the loan on her behalf’.[71] Given that ratification was a distinct basis upon which it sought to support its claim, and that it was one about which the appellant had been given no notice by the pleadings, in our opinion the trial judge was wrong to have permitted Perpetual to rely upon it, and to have supported his decision against the appellant on that basis.
84 Despite the trial judge’s careful reasoning on a matter that is essentially discretionary, we think that consideration of the various matters that we have discussed leads to the conclusion that his Honour’s discretion miscarried. The various factors that we have identified dictated, in our view, that the proper exercise of discretion favoured setting aside the judgment and orders made in the appellant’s absence.
85 The appeal must be allowed. The orders of 1 March 2012 dismissing the appellant’s summons filed 6 January 2012 should be set aside. In lieu thereof, the trial judge’s orders of 14 December 2011 and 15 December 2011 will be set aside. We will order that a new trial be had. We will hear the parties as to costs.
- - - - -
[1] The summons did not specifically refer to r 49.02(2) in terms. However, the trial judge treated the application as having been brought, implicitly, under that rule.
[2] Xiao v Perpetual Trustees Victoria Ltd [2012] VSCA 85.
[3] The mortgage was an ‘all moneys’ mortgage, the relevance of which we will discuss below.
[4] First Respondent to the appeal.
[5] Second Respondent to the appeal.
[6] Capital was in liquidation by the time the principal proceeding was heard and is not a party to this appeal.
[7] Fourth Respondent to the appeal.
[8] Fifth Respondent to the appeal.
[9] The appellant’s counterclaim against Woodland was dismissed as a result of a self-executing order of Daly AsJ on 28 October 2011.
[10] Seventh Respondent to the appeal. Fitzgerald was joined on the application of Szmerling so as to take advantage of the proportionate liability scheme under Part IVAA of the Wrongs Act 1958. He became the seventh respondent to the appeal as a result of an order made by Warren CJ and Buchanan JA on 30 August 2012.
[11] It became the sixth respondent as a result of an order made by Warren CJ and Buchanan JA on 30 August 2012.
[12] Evidence Act 2008 s 97.
[13] Second Amended Defence and Second Amended Counterclaim (filed by Defendant Xiao) dated 7 September 2010, [13].
[14] Perpetual Trustees Victoria Ltd v Xiao [2011] VSC 680, [5] (Habersberger J).
[15] Ibid [25].
[16] Ibid.
[17] Ibid [26], [28].
[18] Ibid [27].
[19] Ibid [30].
[20] Ibid [31]–[33].
[21] Ibid [34]–[36].
[22] Ibid [29].
[23] Ibid [37]–[43].
[24] The judge also made a number of apparent criticisms of Fitzgerald, as to which see ibid [44]–[45]. We need not discuss these, since they do not bear on the resolution of the appeal.
[25] Perpetual Trustees Victoria Limited v Xiao [2012] VSC 65, [8].
[26] Ibid [10].
[27] Ibid [10].
[28] Ibid [13].
[29] Ibid [15].
[30] Ibid [16]–[17].
[31] Ibid [22].
[32] Ibid [24]–[28].
[33] Ibid [29].
[34] Ibid [30].
[35] Ibid [35].
[36] [1960] VicRp 28; [1960] VR 173.
[38] [1960] VicRp 28; [1960] VR 173, 176 (Herring CJ, O’Bryan and Dean JJ).
[39] Perpetual Trustees Victoria Limited v Xiao [2012] VSC 65, [39].
[40] Ibid [38].
[41] Ibid [67].
[42] Ibid [40].
[43] Ibid [46]–[48].
[44] Ibid [52]–[56].
[45] Ibid [60].
[46] Ibid [61].
[47] Ibid [66].
[48] Ibid [62]–[66].
[49] Ibid [67]
[50] Ibid [68]–[69].
[51] Ibid [71]–[72].
[52] Ibid [73].
[53] Ibid [74]–[75].
[54] House v The King [1936] HCA 40; (1936) 55 CLR 499, 505 (Dixon, Evatt and McTiernan JJ); Pearlow v Pearlow [1953] HCA 77; (1953) 90 CLR 70, 76–7 (Dixon CJ); Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 519–20 (Mason and Deane JJ).
[55] The Ampthill Peerage Case [1977] AC 547, 575 (Lord Simon); D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1, 14-15 [25], 17-18 [34]–[36] (Gleeson CJ, Gummow, Hayne and Heydon JJ).
[56] [1960] VicRp 28; [1960] VR 173, 176 (Herring CJ, O’Bryan and Dean JJ).
[58] [1928] 1 KB 645, 653; cited in Rosing [1960] VicRp 28; [1960] VR 173, 177 (Herring CJ, O’Bryan and Dean JJ).
[59] [1974] VicRp 71; [1974] VR 596.
[60] Ibid 605 (emphasis added).
[61] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589.
[62] (2010) 14 BPR 27, 339.
[63] Ibid 341-2.
[64] Ibid 355.
[66] Ibid [16].
[67] See, eg, HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6; [2003] 1 All ER (Comm) 349, [15] (Lord Bingham).
[68] Perpetual Trustees Victoria Limited v Xiao [2011] VSC 680, [43].
[69] [1990] HCA 11; (1990) 169 CLR 279.
[70] Ibid 288–9 (citations omitted) (emphasis added). See also 286–7 (Mason CJ and Gaudron J).
[71] Perpetual Trustees Victoria Limited v Xiao [2011] VSC 680, [43].
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