Background
In 2015, three entities entered a joint venture to purchase Magenta land as tenants-in-common: Tung Chit (51%), Options Funds Management Ltd (39%), and Zhao’s Brothers Investment Pty Ltd (10%). After defaults, Tung Chit appointed receivers over both OFM and Zhao’s Brothers in August 2024. Following a market-testing process, Zhao’s Brothers contracted to sell its 10% interest to Golden Stone on 23 September 2025, with completion and transfer occurring on 16 December 2025. An interlocutory injunction obtained on 23 January 2026 prevented the Registrar-General from registering the Golden Stone transfer.
On the same day as that injunction, the plaintiff (Xiaowen Su) entered a contract purportedly as mortgagee exercising a power of sale under a mortgage allegedly granted by Coco Wang in 2018 (the Wang Mortgage). Su contracted to sell Zhao’s Brothers’ 10% interest to Magenta Shores Management Pty Ltd for $15.5 million. The contract was novated on 27 April 2026 to substitute Su as vendor. On 1 June 2026, Su executed a transfer purporting to exercise the mortgagee power of sale, which was lodged for registration on 2 June 2026.
The Court’s Holding
Justice Richmond found a serious question to be tried regarding the validity of Su’s mortgagee power of sale and her authority to exercise it. Critical issues included whether the Wang Mortgage documents (a loan agreement variation dated 16 July 2018 and an undated mortgage) were genuinely executed in 2018 or signed in 2025 without authority. Documentary anomalies—such as the Wang Mortgage describing originally-acquired joint-venture land rather than just the remaining Magenta Shores parcels, and a margin notation purportedly by Ms Wang when she was not in Australia—supported reasonable doubts about authenticity and dating.
The court determined that Golden Stone, having transferred first in time (16 December 2025), holds priority over Su’s later MSM transfer (1 June 2026) unless MSM can demonstrate the better equity. MSM’s reliance on ss 43A and 58 of the Real Property Act 1900 (NSW) was rejected: MSM had constructive notice of Golden Stone’s prior interest through title searches and correspondence referencing the prior dispute, potentially defeating s 43A protection. The court found a serious question whether an invalid exercise of mortgagee power of sale renders a transfer non-registrable, such that s 43A protection would not apply. Section 58, protecting purchasers from mortgagees, does not extend to protecting a purchaser when the mortgagee’s power of sale was never validly exercised. The balance of convenience favoured preserving the status quo pending final hearing.
Key Takeaways
- In a competition between unregistered equitable interests, the earlier in time prevails unless the later claimant demonstrates superior equity through disentitling conduct by the earlier claimant.
- Section 43A protection (legal estate for notice purposes) is lost where a purchaser has constructive notice of a prior unregistered interest, including through title searches and correspondence alerting the purchaser to prior disputes.
- A transfer executed by a mortgagee without a valid power of sale may not be “registrable” within the meaning of the Real Property Act, potentially depriving even a bona fide purchaser of statutory protections.
- Documentary anomalies in security instruments—such as misdescription of mortgaged land or margin amendments with unclear provenance—can ground reasonable doubt about authenticity and dating sufficient to warrant trial.
Why It Matters
This decision addresses the interplay between Torrens title protections and priority disputes over competing equitable interests in real property. While the Real Property Act ordinarily shields registered proprietors from most prior interests, the court emphasizes that those protections do not automatically rescue a mortgagee’s sale when the validity of the underlying power of sale is genuinely disputed. For practitioners advising purchasers from mortgagees, the judgment clarifies that statutory protection does not eliminate the need for due diligence: actual or constructive notice of prior disputes can strip away the benefit of s 43A, and title searches disclosing prior dealings or caveats can trigger constructive notice sufficient to defeat an otherwise protected status.
The case also highlights the evidential burdens where document authenticity or dating is in dispute. Unexplained documentary gaps—here, a 2018 loan agreement varied to give mortgagee rights, yet no mention in a 2025 assignment of the mortgage itself, combined with margin notations that do not align with available evidence of the purported signatory’s whereabouts—suffice to create a serious question about whether transactions are void ab initio rather than merely voidable.