Williams v Turner[2008] QSC 327

SUPREME COURT OF QUEENSLAND

[1] Wilson J: This is an application for a declaration that a power of attorney is invalid and unenforceable and for an order that it be removed from the register,[1] and for a declaration that a mortgage is invalid and unenforceable and that it be removed from the register.[2]

The facts

[2] The applicants are the administrators of the estate of John Lefric Williams ("Mr Williams"), who died on 7 August 2003.

[3] By July 1989 Mr Williams had held Miners Homestead Lease (“MHL”) No 2563 at Gympie for several years. He had been wanting to subdivide the land, and on 11 December 1987 he had received a Permit to Subdivide from the Widgee Shire Council.  By a contract made on 14 July 1989 he agreed to sell lot 3 on a proposed plan of subdivision to the respondents for $25,000. The contract was conditional on obtaining an exemption under s 19 of the Land Sales Act 1984 within 30 days, and upon the sealing of the plan of subdivision by the Widgee Shire Council and its registration in the Department of Lands within six months. According to the contract document no amount was paid as a deposit.

[4] However, the respondents did pay Mr Williams $15,000 that day. Although Mr Turner described it as a deposit in his affidavit affirmed on 13 November 2008, at the time it was paid as a loan. Mr Williams acknowledged his indebtedness in a document he signed on the same day as the contract, which provided -

“I, the undersigned JOHN LEFRIC WILLIAMS, do hereby acknowledge receipt of the sum of FIFTEEN THOUSAND DOLLARS ($15,000.00) this Fourteenth day of July 1989 as a loan repayable on demand and free of interest on the earlier of:-

(a)Fourteenth day of July 1990; or

(b)the cancellation or termination of a contract for sale bearing evendate herewith and made between me and you relative to Lot 3 on Miners Homestead Lease No. 2563, Parish of Gympie;

and I further agree to grant to you a first mortgage of Miners Homestead Lease No. 2563 to secure repayment of the said loan provided always that the amount of such loan shall be set off against your liability for purchase money under the said contract and should such mortgage not be delivered to Power & Cartwright within seven (7) days from the date hereof with appropriate stamp duty and registration fees then you may on my behalf execute a mortgage to contain such terms as the said solicitors shall set out not being inconsistent with the terms hereof and for valuable consideration I irrevocably appoint you jointly to be my attorney for the purpose of executing such mortgage.

SIGNED by the said JOHN LEFRIC)

WILLIAMS at Gympie this 14th)

day of July 1989 in the )  J.L. Williams

presence of:)

B.M. Cuddihy”[3]

[5] Further on 14 July 1989 Mr Williams' solicitors wrote to the respondents' solicitors in these terms -

“We enclose Contract in duplicate with relation to the above. We further enclose Miners Homestead Lease No. 2563 which we note your clients are to hold as security for the advance of $15,000.00 being made to our client.  We note that the $15,000.00 is to be repaid by our client at the settlement of the contract”.[4]

[6] There was no mortgage delivered to Power & Cartwright within seven days of the acknowledgement of debt. The $15,000 was not repaid. There is no evidence of any demand for repayment having ever been made, or indeed of any proceeding for recovery of the debt having been instituted. In 1992 the respondents commenced an action in the District Court at Gympie claiming specific performance of the contract of sale. That proceeding has not been determined.

[7] In November 1994 Mr Williams made an application under s 8 of the Mining Titles Freeholding Act 1980 for a grant in fee simple in respect of the land in MHL 2563. It was necessary to lodge the original lease with the Department of Lands. Of course, the lease was held by the respondents in accordance with the letter of 14 July 1989. Correspondence between Mr Williams' solicitors and the respondents’ solicitors ensued, in the course of which Mr Williams' solicitors advised that he was willing to repay the $15,000 and that he acknowledged that "the matter of interest [was] yet to be resolved".[5] I infer from the subsequent approval of the application, cancellation of the MHL and issue of new instruments of lease in February 1996 that eventually the respondents produced the original MHL as requested.

[8] Some of this correspondence, including some headed "without prejudice", was exhibited to the affidavit of Brendan Michael Cuddihy, the applicants' solicitor, sworn 31 October 2008.  During the course of the hearing the applicants' counsel told the Court that it had been exhibited by clerical error and sought to remove it from the file. Counsel for the respondents objected to its removal. In my view it had already gone into evidence when the affidavit was read at the commencement of the hearing, and accordingly I decline to allow its removal from the file.

[9] On 11 October 1995 the respondents executed a Memorandum of Mortgage over MHL 2563, in purported reliance on the power of attorney contained in the acknowledgement of debt. The mortgage was prepared by Bergman & Dore, solicitors for Mr Turner, Power & Cartwright having declined to do so.   The consideration was expressed to be $15,000, and Item 9 was in these terms -

“Covenants   9.  The mortgagor for the above consideration covenants with the mortgagee in terms of the Schedule attached and charges the estate or interest specified in the land described in Item 5 with the repayment/payment of all sums of money referred to in Item 8 in the manner expressed”.[6]

The respondents signed the Memorandum of Mortgage in the place for the Mortgagor's signature. The following appears in typescript immediately below their signatures:

"JOHN LEFRIC WILLIAMS by his duly constituted attorneys NOEL HENRY TURNER & HELEN CYNTHIA TURNER under Power of Attorney No. 700903577 who certify they have received no revocation of same”.[7]

This is curious because the power of attorney was not registered until the next day (12 October 1995), and I assume that it was upon registration that it was given the number 700903577.   I infer that this typescript was added after the document had been signed by the respondents.  Both counsel submitted that nothing turns on this anomaly.

[10] The first term in the Schedule was as follows:

“1.    PAYMENT

The Mortgagor shall repay to the Mortgagee the sum of $15,000.00 on or before a) the 14th day of July, 1990; or b) the date of cancellation or termination of a Contract of Sale between John Lefric Williams as Vendor and Noel Henry Turner and Helen Cynthia Turner as Purchasers dated 14th day of July, 1989, in respect of Lot 3 on MHL 2563, Parish of Gympie, whichever is the earlier and should the said sum of $15,000.00 not be repaid in accordance herewith the Mortgagor shall in addition pay interest to the Mortgagee on the sum of $15,000.00 calculated at the rate charged by the Commonwealth Bank of Australia, Gympie, for investment loans in the sum of $15,000.00 from the date of default herein up until and including the date of repayment such interest rate to be reviewed every six (6) months and adjusted accordingly for so long as the principal and unpaid interest (if any) shall remain outstanding on monthly rests due and payable in advance on the monthly anniversary date of each monthly period after the date of default herein PROVIDED HOWEVER should such interest be unpaid when due that interest so in arrears shall without prejudice to the right of the Mortgagee to sue for and recover such interest and to the other rights and powers of the Mortgagee be added to the principal sum hereby secured and shall henceforth bear interest at the rate and in the manner aforesaid.”

[11] The mortgage was registered under the Miners' Homestead Leases Act 1913 on 8 February 1996. Later that month the application to subdivide the MHL and the cancellation of the lease on issue of new instruments of title was approved under      s 28 of that legislation. Through his solicitors, in 1996 Mr Williams obtained the consent of the respondents as mortgagees to an easement over the land.

[12] In June 1998 three freehold deeds of grant were issued. The mortgage was recorded as an encumbrance on each.

[13] After Mr Williams died, the applicants obtained letters of administration of his estate, and were subsequently registered as owners of the land, subject to the mortgage.   

Validity of the power of attorney

[14] Counsel for the applicants submitted that the power of attorney was invalid because it was not executed as a deed.

[15] In July 1989 powers of attorney were regulated by Part IX of the Property Law Act 1974. Relevantly, sections 168 and 169 provided -

“168.Application of Part [cf. N.S.W. s. 158] (1) Except where otherwise provided the provisions of this Part apply only to powers of attorney created after the commencement of this Act.

(2)  This Part shall extend to powers of attorney authorizing, whether expressly or in general terms, dealings with land under the provisions of the Real Property Acts and with land under the provisions of the Land Act. 

169. Execution of powers of attorney [cf. Law Com. No. 30, cl. 1] (1)  An instrument creating a power of attorney shall be signed and sealed by, or by direction and in the presence of, the donor of the power. 

(2)  Subject to subsection (4) such an instrument shall be deemed to be signed and sealed if it is executed by the donor in accordance with section 45.

(3)  The provisions of subsection (1) do not apply to a power of attorney created by and contained in an instrument of mortgage which is signed by or by direction of the donor of the power.

(4)  This section is without prejudice to any requirement in or having effect under any other Act as to witnessing of instruments creating powers of attorney and does not affect the rules relating to the execution of instruments by bodies corporate.”

[16] Thus unless the power of attorney was "created by and contained in an instrument of mortgage" signed by Mr Williams, it was required to be signed and sealed. Section 45 provided –

“45 Formalities of deeds executed by individuals. [cf. N.S.W. s. 38; Eng. s. 73; Vic. s. 73; W.A. s. 9; cf. The Evidence and Discovery Acts, s. 25A]. (1) Where an individual executes a deed, he shall either sign or place his mark upon the same and sealing alone shall not be sufficient.

(2) An instrument expressed:-

(a) to be an indenture or a deed; or

(b) to be sealed

shall, if it is signed and attested by at least one witness not being a party thereto, be deemed to be sealed and, subject to section 47, to have been duly executed. 

(3)  No particular form of words shall be requisite for the attestation.

(4) A deed executed and attested in accordance with this section may in any proceedings be proved in the manner in which it might be proved if no attesting witness were alive.

(5) Nothing in this section shall affect –

(a) the execution of deeds by corporations; or

(b) the requirements as to attestation of instruments provided in section 115 of the Real Property Act 1861-1974; or

(c) the provisions of section 20 of the Bills of Sale and Other Instruments Act 1955-1971; or

(d) any deed executed before the commencement of this Act.”

[17] The power of attorney was contained in the acknowledgement of debt, which was neither sealed and delivered nor declared to be a deed and to be sealed. It was not executed as a deed.

[18] It was, however, contained in an "instrument of mortgage" signed by Mr Williams. The acknowledgement of debt contained an agreement to grant a mortgage to secure repayment of the loan. By s 3 of the Property Law Act 1974 a "mortgage" included "a charge on any property for securing money or money's worth", and the effect of the agreement to grant a mortgage was to give an equitable charge over the land. That equitable charge was created by and contained in the acknowledgement of debt, which was an "instrument" within the usual meaning of that term as a document under which some right or liability exists. Mr Williams' further conduct in providing the lease to the respondents to hold as security may by itself have been sufficient to create an equitable mortgage by deposit of the title deed – but that does not detract from the true effect of the acknowledgement of debt, which (relevantly) was an agreement to grant a mortgage.

[19] Accordingly it was not necessary for the power of attorney to be executed as a deed in order for it to be valid. I reject the submission of counsel for the applicants.

[20] I reject, too, his submission that because the power of attorney was invalid, there was no basis for registration of the mortgage and it must be removed from the register.

Indefeasibility

[21] The acknowledgement of debt provided for repayment of the $15,000 on demand and free of interest on the earlier of 14 July 1990 or the cancellation or termination of the contract of sale. Neither party in submissions attached any significance to the fact that no demand was ever made.

[22] Mr Williams agreed to grant a mortgage "to contain such terms as the said solicitors shall set out not being inconsistent with the terms hereof". Nothing was said about interest being payable on default.

[23] Powers of attorney are strictly construed,[8] and an act of an attorney outside the scope of the authority granted by a power of attorney is ultra vires and void.[9] An attorney's use of a power of attorney contrary to the known wishes and directions of the donor is a breach of trust.[10] In Powell v Thompson, Thomas J said –

"Powers of attorney are specifically directed at the management of the principal's affairs; it is not open to attorneys to either obtain an advantage for themselves or to act in a way which is contrary to the interests of their principals”.[11]

[24] The respondents executed the mortgage more than six years after the acknowledgement of debt had been executed by Mr Williams. There were two respects in which the mortgage did not conform with that contemplated by the power of attorney –

(a)it did not contain such terms as "the said solicitors" (i.e. Power & Cartwright) set out, but rather those set out by Bergman & Dore; and

(b)clause 1 provided for interest on default, a matter about which the acknowledgement of debt was silent.

[25] In granting the power of attorney Mr Williams was quite specific that its terms were to be those set out by a particular firm of solicitors named earlier in the acknowledgement of debt. They were in fact the solicitors then acting for both respondents. He did not refer in a generic sense to the solicitors for the respondents or for either of them. He did not authorise the respondents to execute a mortgage prepared by some other solicitors.

[26] And he provided expressly that those terms were not to be inconsistent with the terms of the acknowledgement of debt. A term for the payment of interest on default was inconsistent with the acknowledgement of debt, which provided that the moneys were repayable free of interest and said nothing about interest on default. Such a term could hardly be described as a fairly standard one. Mr Williams did not authorise the respondents to include it in the mortgage.

[27] The execution of the mortgage was thus outside the scope of the authority granted by the power of attorney. The mortgage is void.

[28] Sections 184, 185(1)(a) and 187 of the Land Title Act 1994 provide –

“184 Quality of registered interests

(1) A registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests.

(2)In particular, the registered proprietor—

(a) is not affected by actual or constructive notice of an unregistered interest affecting the lot; and

(b) is liable to a proceeding for possession of the lot or an interest in the lot only if the proceeding is brought by the registered proprietor of an interest affecting the lot.

(3) However, subsections (1) and (2) do not apply —

(a) to an interest mentioned in section 185; or

(b) if there has been fraud by the registered proprietor, whether or not there has been fraud by a person from or through whom the registered proprietor has derived the registered interest.

185 Exceptions to s 184

(1) A registered proprietor of a lot does not obtain the benefit of section 184 for the following interests in relation to the lot —

(a) an equity arising from the act of the registered proprietor;

…

187 Orders by Supreme Court about fraud and competing interests

(1) If there has been fraud by the registered proprietor or section 185(1)(c), (d), (e), (f) or (g) or (1A) applies, the Supreme Court may make the order it considers just.

(2) Without limiting subsection (1), the Supreme Court may, by order, direct the registrar —

(a) to cancel or correct the indefeasible title or other particulars in the freehold land register; or

(b) to cancel, correct, execute or register an instrument; or

(c) to create a new indefeasible title; or

(d) to issue a new instrument; or

(e) to do anything else.”

[29] The respondents as registered mortgagees are "registered proprietors" within the meaning of these provisions.[12] Counsel for the applicants submitted that this case is within the exception to indefeasibility in s 184(3)(b), and that the Court should make an order for the removal of the mortgage from the register pursuant to s 187.

[30] Was there "fraud" by the respondents within the meaning of s 184(3)(b)?  In Assets Co Ltd v Mere Roihi & Ors, the Privy Council said –

"[B]y fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud... A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon”.[13]

[31] Whether or not the respondents appreciated that their execution of a mortgage prepared by a firm other than Power & Cartwright was beyond their authority, they knew that the default interest provision was not something within the power given to them by Mr Williams. Mr Turner said in paragraph 10 of his affidavit –

"10. ...I say that the rate of interest that was set for the Mortgage has been what we as Mortgagees assess to be an appropriate rate of interest in the absence of agreement to a more specific rate”.[14]

This statement is cute. It was not only in relation to the rate of default interest that the agreement was silent; it was silent on the whole question of default interest, and I infer that the respondents knew this. The respondents deliberately inserted the default interest clause for their own benefit, contrary to Mr Williams' interests. Their conduct involved moral turpitude amounting to fraud within s 184(3)(b).

[32] There should be an order under s 187 directing the registrar to cancel the registration of the mortgage.

[33] Even if I had not concluded that there was fraud by the respondents, I would still have found that the execution of the mortgage was ultra vires and void. In those circumstances the applicants would have been entitled to a declaration to that effect, and the respondents would not have had the benefit of the indefeasibility granted by s 184 because of "an equity" arising from their conduct within s 185(1)(a).[15] Although the Court's powers under s 187 would not have been applicable, relief could have been granted by making a vesting order under s 82 of the Trusts Act 1973, which could be registered under s 110A of the Land Title Act 1994.[16]

[34] I will hear counsel on the form of the order and on costs.

Addendum

[35] Having heard counsel, I determined that the Respondents should pay the Applicants half of their costs of and incidental to the application on the standard basis.

[36] The parties submitted a draft order. In terms of the draft –

The order of the Court is that:

1.Declare that a mortgage entered on the Titles of Lots 1, 2 and 3 Crown Plan MCH810284 County of March Parish of Gympie being Mortgage number 702744944 in favour of the Respondents is void;

2.Pursuant to s 187 of the Land Title Act 1994 the Registrar is directed to cancel and remove from the current particulars of the freehold land register Mortgage number 702744944 on the Titles of Lots 1, 2 and 3 Crown Plan MCH810284 County of March Parish of Gympie;

3.The Respondents pay the Applicants half of their costs of and incidental to the Application on the standard basis.