Plaintiff Brings Claim Against Registrar-General for Compensation
Kumar v Registrar-General of New South Wales [2021] NSWSC 1103 (31 August 2021)
The plaintiff held an equitable interest as unpaid vendor or as equitable mortgagee. His agent left the signed withdrawal of the caveat form with the director of registered proprietor who removed the plaintiff’s caveat as part of the refinancing transaction. Thus, the plaintiff brought a claim against the Registrar-General for compensation from the Torrens Assurance Fund. The Court in ruling upon this case, determined whether or not the plaintiff suffered loss or damage as a result of the operation of the Real Property Act and whether he was deprived of land as a consequence of fraud.
Facts:
Mr Mohan Kumar brought a claim against the Registrar-General for compensation from the Torrens Assurance Fund. He claims to have suffered a loss as a result of the operation of Part 14 of the Real Property Act 1900 in respect of a property in Old Northern Road, Dural. He sold the property in May 2016 to Bargo Developments Pty Ltd and thus claims to have an interest in the land in the nature of an unpaid vendor’s lien, or as an equitable mortgagee. It is alleged that the interest ranked first in priority behind a first registered mortgage, at certain times, protected by a caveat, including in the period from 4 December 2017 to 13 March 2018.
During that period, Bargo effected a refinancing transaction which involved the creation of additional interests in the land. One of the interest holders, Kesinda Pty Ltd became registered as a first ranking mortgagee in place of the existing mortgagee, N & M Investments/Properties Pty Ltd. None of the other interest holders achieved registration of their claimed interest. In order to facilitate the refinancing transaction, Bargo, through its director, Mr Craig Adams, made use of a withdrawal of caveat form that had been executed on behalf of the plaintiff by his attorney.
The plaintiff alleges that the use of the withdrawal of caveat form was contrary to instructions, and amounted to fraud. In about June 2018 Kesinda exercise its rights as mortgagee to take possession of the property. The property was later sold pursuant to the exercise by Kesinda of its power of sale. Proceeds of sale of about $2 million remained. Kesinda commenced proceedings in which it paid into Court the remaining funds.
Such proceedings became the vehicle for the resolution of the competing claims of the parties who claimed to have an interest in the Dural property or its proceeds of sale. Through consent orders, remaining proceeds were to be paid out to the competing claimants in certain proportions. The plaintiff received a total of $527,839.22, being 26% of the available funds. The plaintiff alleges that he has suffered loss or damage as a result of the operation of the Act, and that the loss or damage arises from having been deprived of an interest in the Dural property as a consequence of fraud.
Issues:
I. Whether or not the plaintiff suffered loss or damage as a result of the operation of the Real Property Act.
II. Whether or not the plaintiff was deprived of land as a consequence of fraud.
Applicable law:
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 5(2) - provides that in any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9(1)(b) - provides that the damages recoverable in respect of the wrong are to be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.
Real Property Act 1900 (NSW), ss 42, 43, 43A, 120, 129(1)(e), 129(2)(a) -
provides that any person who suffers loss or damage as a result of the operation of the Act in respect of any land, where the loss or damage arises from fraud, may commence proceedings in the Supreme Court for the recovery of damages.
Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd (2017) 18 BPR 36,683; [2017] NSWCA 99 - where the question of priority, which depends upon the ascertainment in accordance with established principles of who has the “better equity”, is primarily focused upon when the competing interests were created, the circumstances in which they were created, and the conduct of the competing claimants.
Challenger Managed Investments Ltd v Direct Money Corporation Pty Ltd (2003) 59 NSWLR 452; [2003] NSWSC 1072 - the requirement that a plaintiff claiming compensation from the Torrens Assurance Fund has suffered loss or damage as a result of the operation of the Act has been described by Bryson J (as his Honour then was) as the “overall control mechanism” of s 129(1).
Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 24,675; [2007] NSWSC 694 - Bryson AJ said that s 129(2)(a) operates where the act or omission to which it refers “arises through fault in some sense”.
Chandra v Perpetual Trustees Victoria Ltd [2008] NSWSC 178 - Bryson AJ said he was inclined to the view that the act of a servant or other agent acting within authority should be regarded as “any act or omission by that person” within the meaning of s 129(2)(a).
Heid Connell Investments Pty Ltd v Registrar-General (1987) 9 NSWLR 628 - where when the plaintiff’s interest in the land was relegated in priority or diminished in its value, such amounts to being deprived of land or an estate or interest in land for the purposes of the legislation.
Lincu v Registrar-General (2019) 19 BPR 39,351; [2019] NSWSC 568 - Kunc J described the approach to a claim for compensation from the Torrens Assurance Fund as a two stage enquiry.
Thomas v Registrar-General of New South Wales [2019] NSWCA 198 - where it was held that it is necessary for the plaintiff to prove that loss or damage of that nature was in fact caused.
Analysis:
It is said that loss was suffered as a consequence of the registration of the Kesinda mortgage which secured an amount $325,000 greater than the amount secured by the N & M mortgage. It is also said that loss was suffered because the plaintiff was placed into a situation where he had to compete with other claimants for priority after the first registered mortgagee. Instead of obtaining all of the remaining proceeds of about $2 million, the plaintiff received only $527,839.22. The Registrar-General alleges that the loss or damage is a consequence of the plaintiff’s own acts or omissions in relation to the withdrawal of caveat form, and to that extent compensation is not payable.
In order to succeed in establishing an entitlement to compensation in relation to the claimed loss or damage, the plaintiff must not only show that any deprivation of land or an estate or interest in the land was a consequence of fraud; the plaintiff must also show that the loss or damage that arose thereby was a result of the operation of the Act. The plaintiff submitted that the equity in the Dural property that remained after the discharge of the Kesinda mortgage was $393,103.86 less than it would have been had the N&M mortgage remained in place and been discharged at the same time. Even though the plaintiff’s interest was created first in time, the plaintiff was unable to obtain the full amount of the proceeds of sale remaining after satisfaction of the first mortgage ($2,030,150.84), but instead received only $527,839.22.
On that basis, a further loss of $1,502,311.62 is claimed. Kesinda as a registered mortgagee obtained priority ahead of the plaintiff to an extent greater than the priority that had previously been enjoyed by N&M as a registered mortgagee. However, it does not follow from the fact that the available equity was reduced that the plaintiff suffered loss or damage to that extent because he was not the only person claiming an equitable interest in the Dural property.
Conclusion:
The Court concluded that it was not shown that plaintiff would have been financially better off had refinancing transaction not occurred. The plaintiff failed to establish that he suffered loss or damage that falls within s 129(1)(e) of the Act. The Court found that Mr Adams acted fraudulently in making use of the withdrawal of caveat form as part of the refinancing transaction that settled on 25 January 2018.
