EFF Lawyers

1 Imaginary Road,
PERTH WA 6000
Phone: 9456 1234
Facsimile: 9456 5678

Our Reference: ANT001

Your Ref: AA001
Contact: Willem Botha

22nd October 2023

Mr Anthony
4 Madeup Ave
PERTH WA 6000

Dear Anthony,

Rights as Mortgagor when loan repayments have not been made

We refer to our meeting with you on the 16th of October 2023.

Executive Summary

This letter of advice is to advise you regarding your rights as mortgagor and whether the sale of the
farm in south-western WA (the property) to M & L Pty Ltd should be set aside.

Your advice to us

You advised us that you have borrowed $500,000 and secured the loan against the property in the
form of a first mortgage in favour of McGoo Finance to carry out capital works.

Since then you have become a successful winemaker where you and the property have produced a
famous 2021 shiraz which proved popular with international tourists.

Sometime later when the necessary aerial spraying needed to be done to your farm’s vines the pilot
of the plane over sprayed some adjoining farming properties causing considerable damage to their
farm crops. You have further advised that you are liable for these damages and as a consequence
have been left you in financial difficulty that caused you to default on your mortgage to McGoo
Finance.

Therefore McGoo Finance have appointed a friend of its managing director, Mal Turnbull, a real
estate agent to conduct the sale. Mr Turnbull specializes in the selling of industrial sites and small
businesses. With the advertising process Mr Turnbull only advertises the property once in the
Australian Financial Times on Good Friday referring to it as ‘a former farm with great potential’.

No further advertising was done, neither locally or in any rural newspapers. This resulted with only
three persons that attended the auction which was sold to M & L Pty Ltd a company which Mr Mal
Turnbull and his wife was the sole shareholders and directors. Ultimately the purchase price is
significantly lower than the market valuation of the property.
You have therefore engaged us to advise you on your rights as mortgagor and whether the sale to M
& L Pty Ltd should be set aside.

The Law Applicable

The Register – S481

The system (Torrens System) is administered by a register where it is maintained to show an up to

date and complete record of all land falling under the Torrens system as well as the persons holding
interests in those lands. Each lot of land is identified by a folio number.

Certificate of Title – S48A and S48B2

A certificate of title (CT) shows the record of whom has an interest in a certain property. The CT is
issued once the interest is registered. A duplicate CT is issued to a registered proprietor under
section 48B2

Registration of Title – S523

Registration happens by the actual entry on the register under s523. Instruments (i.e. conveyances
(incl of mortgages), transfers and leases) are registered in the order of the time they are lodged and
gets priority in this same order under S534. The act of registration of an interest creates the title
under whilst also enjoying the statutory protection under section 585.

Indefeasibility of Title

Indefeasibility of title is best explained in the case of Frazer v Walker6 where indefeasibility is a
convenient description of the immunity from attack by adverse claim to the land or interest of which
he is registered, which a registered proprietor enjoys. It should be noted that there are exceptions
where the entries in the register can be cancelled or corrected however as a rightfully registered
proprietor no adverse claim (with the exceptions such as fraud) may be brought against the
proprietor. S68 of the TLA7 also creates the indefeasibility of title in legislation unless the land was
acquired under fraud. It should also be notes that in Frazer v Walker6 that the Australian courts have
applied the principle of immediate indefeasibility even where there was fraud present however this
will only be the case where that registered proprietor was not involved in the fraud. If the proprietor
was involved then the whole sale can be considered a sham and therefore be set aside.

Frazer V Walker, Mr. and Mrs. Frazer were registered proprietors of a farm in New Zealand where
Mrs. Frazer mortgaged the farm to Radomski by forging Mr. Frazer’s signature. When the mortgage
payments defaulted Radomski exercised his power of sale whom sold the land to Mr. Walker and
became the registered proprietor. Mr. Frazer claimed that the documents were forged and therefore
the sale should be set aside however Mr. Walker was a bona fide purchaser and therefore enjoyed
indefeasibility over the land purchased.
1
Section 48 – Transfer of Land Act 1893 (WA)
2
Section 48A and Section 48B – Transfer of Land Act 1893 (WA)
3
Section 52 – Transfer of Land Act 1893 (WA)
4
Section 53 – Transfer of Land Act 1893 (WA)
5
Section 58 – Transfer of Land Act 1893 (WA)
6
Frazer v Walker [1967] 1 AC 569 at 580
7
Section 68 – Transfer of Land Act 1893 (WA)
What is a mortgage?

A mortgage is a security interest which includes a charge/lien on any property in exchange for
monies borrowed under section 7 of the PLA8. Usually for the use to purchase a property.

What is fraud?

Looking at case Assets Co Ltd v Mere Roihi9 define that Fraud is dishonesty of some sort not what is
called constructive or equitable. Fraud appears which must be proved in order to invalidate the title
of a registered proprietor of a registered proprietor for value where this must be brought home to
the person whose registered title is impeached or to his agents. This act needs to be more than lack
of vigilance.

Rights and obligations of Mortgagor under a Torrens Mortgage

Rights

Under section 11610 it provides the mortgagor the right to enjoy the land in the same way as if the
land was not secured under a mortgage. Section 9111 provides the right to lease the property whilst
Section 12312 gives the right to discharge the mortgage at any time.

Obligations

Section 11313 sets out the obligations that the mortgagor take on when he/she mortgages the
property which includes the duty to pay the principle debt as well as the interest charged whilst
keeping the property in repair and to permit the mortgagee to enter and inspect the property.

Rights and Remedies for the Mortgagee (Limited to this scenario)

Section 10814 gives the mortgagee the right to sell the land/property if you default on the
repayments of the loan. This can be done either by a private contract or a public auction.

Case Pendlebury v Colonial Mutual Life15 had the mortgagor complained that the property was
inadequately advertised by not having it advertised in the local newspaper neither with accurate
descriptions of the property. This resulted in the property being sold for just over the reserve price
which was three times less than the true value of the property. The agent of the mortgagee have
only acted in the best interest of the mortgagee. It was held that the mortgagee must act in good
faith which means without fraud and without recklessly sacrificing the mortgagor’s interest.

8
Section 7 – Property Law Act 1969
9
Assets Co Ltd v Mere Roihi [1905] AC 176 at 210
10
Section 116 – Transfer of Land Act 1893 (WA)
11
Section 91 – Transfer of Land Act 1893 (WA)
12
Section 123 – Transfer of Land Act 1893 (WA)
13
Section 113 – Transfer of Land Act 1893 (WA)
14
Section 108 – Transfer of Land Act 1893 (WA)
15
Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] 13 CLR 676
Case Forsyth v Blundell16 shown where the mortgagor, Blundell complained that the mortgagee
Associated Securities Ltd (ASL) had exercised its power of sale improperly and therefore sought a
declaration as well as an injunction to restrain the completion of the sale to the Shell Oil Co. XL
Petroleum Pty Ltd indicated that it would have paid the mortgage outstanding of $120,000 or bid up
$150,000 at an auction however the property was sold to an agent of Shell by a private treaty for
$120,000 and therefore Blundell sought the injunction to stop the sale from completing. There was
also no chance for Shell and XL to compete for this property. It was held that the mortgagee had
acted improperly and did not act in good faith. The court restrained the sale.

In the case of ANZ v Bangadilly17, the mortgagee and the purchasing company had the same
directors therefore it was considered that the sale between the mortgagee and the purchaser was a
sale between related parties. The court held that the parties must be a truly independent bargain..

In the case of Farrar v Farrars Ltd18 a sale of the mortgagee to a company of which he was a director
and shareholder was held to be a valid sale only due to the sale was negotiated between the
mortgagee and the purchaser at arms’ length. A sale by a mortgagee to a company of which he is the
sole director and shareholder would be invalid and set aside.

In Sewell v Agriculture Bank of WA19 the courts have validated a sale by the mortgagee to an
independent contractor. The court considered that the property had been advertised for 18 months
with no successful sale and that the independent contractor was not directly controlled by the
mortgagee. This is an exception and normally the sale to a servant/agent of the mortgagee would be
set aside.

Applying the Law

As Anthony have failed to make the required repayments as per his obligation under S113 of the
TLA20 to McGoo finance gave McGoo finance the right to sell the land under S108 of the TLA to
recoup their losses.

With Mr Turnbull being the friend of the managing director of McGoo Finance and a real estate
agent that specializes in the selling of industrial sites and small businesses whilst also only
advertising the property once with an inadequate description by not mentioning that the farm is
now being utilized as a vineyard in the Australian Financial Times on Good Friday will suggest that
the agent and therefore the mortgagee by extent (please refer Case Forsyth and Blundell 16) has not
acted in good faith by not adequately advertised the property (please refer to Case Pendlebury v
Colonial Mutual Life21). The lack of advertising in the local or rural newspapers will further contribute
to the fact that the mortgagee has not acted in good faith.

When comparing case Forsyth v Blundell16 and Farrar v Farrars Ltd18 to this scenario the sale to M & L
Pty Ltd where Mal Turnbull and his wife are the sole shareholders and directors will constitute as
fraud and will further indicate that this sale will most likely be set aside by the courts.

With the significantly lower purchase price compared to the market value of the property as well as
the sale between the mortgagee (McGoo Fiance) and its agent will indicate that the transaction was

16
Forsyth v Blundell [1973] HCA 20-129 CLR 477
17
ANZ Banking Group v Bangadilly Pastoral Co Pty Ltd [1978] 139 CLR 195
18
Farrar v Farrars Ltd [1881] 40 Ch D 395
19
Sewell v The Agricultural Bank of Western Australia (1930) 44 CLR 104
20
Section 113 – Transfer of Land Act 1893 (WA)
21
Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] 13 CLR 676
not done at arms’ length and therefore it will not be a truly independent bargain. Please refer to
case Farrar v Farrars Ltd22 and case Sewell v Agriculture Bank of WA23. It will further indicate Fraud as
per case Assets Co Ltd v Mere Roihi24.

Conclusion

Taking all of the above into consideration it is most likely that the courts will decide that the sale to
M & L Pty Ltd is a sham and will be set aside.

Further Action

Please contact me at the above provided details to confirm our appointment to discuss our approach
forward. Also don’t hesitate to contact me if there are any further questions or queries.

Yours sincerely,

EFF Lawyers

References/Bibliography

Cases

Assets Co Ltd v Mere Roihi [1905] AC 176 at 210

22
Farrar v Farrars Ltd [1881] 40 Ch D 395
23
Sewell v The Agricultural Bank of Western Australia (1930) 44 CLR 104
24
Assets Co Ltd v Mere Roihi [1905] AC 176 at 210
Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] 13 CLR 676
Forsyth v Blundell [1973] HCA 20-129 CLR 477
ANZ Banking Group v Bangadilly Pastoral Co Pty Ltd [1978] 139 CLR 195
Farrar v Farrars Ltd [1881] 40 Ch D 395
Sewell v The Agricultural Bank of Western Australia (1930) 44 CLR 104

Legislation

Transfer of Land Act 1893 (WA)

Property Law Act 1969