Clarey v Thomson and Ors [2002] VSC 156

598. Mr North further submitted that there was no evidence from which it could be found that Permanent and/or Morbanc breached such a duty, even if one did exist. Middle East and/or Mr Chalhoub were appointed to act as Mrs Clarey's conveyancing agent, according to both paragraph 9 of the Further Amended Statement of Claim and the evidence. In these circumstances, why should a lender make any inquiries about the agent's authority? The principal is responsible for the conduct of her agent acting within its or his actual or ostensible authority.

601. The third cause of action against Permanent and Morbanc identified by their counsel in their submissions was the allegation that they failed to execute proper care in assessing the loan application. Paragraphs 11C(a) and (b) of the Further Amended Statement of Claim read as follows:

"Morbanc and/or Permanent: (a) ought to have known that the loan application was false and/or fraudulent; (b) failed to exercise any proper care in assessing the loan applications.

PARTICULARS

(i) The documents lodged by Thomson and/or Chalhoub in support of the loan application were patently and obviously false and/or fraudulent. ...; (ii) if Morbanc and/or Permanent had carried out any or any proper reasonable and/or prudent inquiries they or either of them would have discovered that the documents lodged by Thomson and/or Chalhoub in support of the loan application, or some of them, were false and/or made with a fraudulent design; (iii) Morbanc and/or Permanent negligently failed to ascertain and verify the identity and credit-worthiness of Thomson in assessing his loan application, inter alia, by reason of the matters referred to in sub-paragraph (iv)-(xxiii) [sic] hereof; (iv) failing to verify properly or at all signatures on documents submitted to it or them in support of the loan application by Thomson; (v) failing to make any or any proper inquiries of the Credit Reference Association of Australia Ltd; (vi) failing to make any or any proper inquiries of the National Australia Bank as to the account information and bank statements provided by Thomson in support of his loan application ...; (vii) failing to carry out a business name search in respect of 'Koala Manchester' ...; (viii) failing to require disclosure of his tax file number; (ix) failing to require any or any proper credit references, in support of the loan application by Thomson; (x) failing to make any or any proper inquiry from any person in relation to Thomson; (xi) failing to ascertain that Chalhoub and/or [Middle East] who was named as a solicitor or accountant and real estate agent on the loan application by Thomson, was not a solicitor, or an accountant or a real estate agent; (xii) failing to verify properly or at all the financial documents provided by Thomson; (xix)[sic] failing to verify properly or at all the authenticity of the bank statements provided by Thomson ..., in that inter alia, the bank statements do not refer to the branch, and the address of the branch; the banks statements are the 'Managers set', the information or details on the bank statements have been erased; the type face at the top of the statement is irregular; the statement is not in a true and correct form; (xiii) failing to require bank statements for financial years ended 30 June, 1998 and 30 June, 1999 (rather than bank statements from 1 July, 1999 to February, 2000); (xiv) failing to require original bank statements; (xv) failing to require proper financial information including income, expenditure, assets and liabilities; (xvii) Chalhoub and/or [Middle East] who was named as a solicitor or accountant and real estate agent on the loan application by Thomson, was not a solicitor, or an accountant or a real estate agent, or a conveyancer or conveyancing company, but an undischarged bankrupt; (xviii) the signature of Thomson on the loan application ... was obviously different to his signature on many other documents ...; (xix) the signature of the Plaintiff on the purported Chattels Declaration dated 4 September, 2000 is an obvious forgery; (xx) failure to sight or to require provision on [sic] an original contract of sale."

605. I have set out the particulars in full because this is the best way to understand what the plaintiff is saying about the alleged breach of duty by Permanent and Morbanc. No witnesses from either Permanent or Morbanc were called by the plaintiff to give evidence about the assessment of the loan application. This part of the case therefore depends on what inferences I am able to draw from the large number of Permanent and Morbanc documents tendered by the plaintiff.

608. Mr North submitted that on the evidence a number of the particulars were simply incorrect. For example, credit inquiries were made (particulars (v) and (ix)), financial information including income, expenditure, assets and liabilities was provided (particular (xv)) and the identity of Mr Thomson was established by production of copies of his driver's licence, medicare card, the ANZ Access card and another card (part of particular (iii)). The allegations contained in the wrongly numbered particular (xix) were also contradicted by the evidence. The criticisms of the bank statements, in particular the use of the words "Managers set" and the form of the statements, were rejected by Mr O'Mara, the NAB manager called by the plaintiff. Much to Mr Arthur's surprise, he explained what a "Manager's set" was. Other particulars were, Mr North submitted, simply assertions made without any evidence to suggest that such a step should have been taken (particulars (vi), (viii), (x), (xi), (xiii), (xiv) and (xvii). Other particulars relating to the signatures on documents were easy to suggest with the benefit of hindsight but there was no evidence to suggest that the normal prudent lender ever considered or should consider such issues (particulars (iv), (xviii) and (xix)).

611. Nevertheless, it is rather surprising, in my opinion, that Mr Thomson was able to obtain approval for his loan when his application was supported by much false information. Whilst the lender did obtain a valuation of the security property, most prudent lenders, in my opinion, are also concerned with the ability of the borrower to service the loan. If just one of the documents supporting that aspect of the application for the loan had been checked, it would surely have revealed the fraud (see, for example, particular (vii) - "carrying out a business name search in respect of 'Koala Manchester'.") Nevertheless, even if one assumes that Permanent was careless in assessing Mr Thomson's ability to service the loan, normally the only person likely to suffer from that would be Permanent itself. It is difficult to see how Permanent could have foreseen that such conduct by it might cause loss to the vendor.

614. Mr Arthur was particularly critical of the lender's "failure to sight or to require provision on [sic] an original contract of sale" (particular (xx)). Whilst I do not agree, and there was no evidence to suggest, that a lender must sight an original contract of sale, the facts surrounding the attempts to obtain a copy of the contract of the sale do raise some questions. At first, Anderson Rice were only provided with the Particulars of Sale page. Ms Asling properly requested Middle East to provide "copy signed contract". When this was not provided with the other documents requested, Ms Asling sought the assistance of Mr Baxter of Mars Finance. He responded by providing the two pages referred to in paragraph 39 above, which were the only pages he was asked to send. The result was, therefore, that Anderson Rice never sighted a completed copy of the contract of sale, but they did obtain copies of the operative pages. Again, with the benefit of hindsight, it is easy to be critical of this conduct by Anderson Rice, but I do not consider it is relevant to the loss suffered by Mrs Clarey. She did want to sell the Bulleen property, she did sign a contract of sale to Mr Thomson and she did want settlement to go ahead.

617. Mr Arthur was not able to refer me to any case in which it was held that a lender, in assessing a loan application from a potential borrower, owed a duty of care to the vendor of the property which the borrower hoped, or was contracted, to purchase. As stated previously, it would not be in the contemplation of a lender that the vendor might suffer loss from a careless assessment of the loan application. Therefore, the lender and the vendor do not have that special relationship of "proximity" or "neighbourhood" which would bring such a duty of care into existence.[25]

620. Further, even if I assume that a lender owes a duty of care to a vendor when assessing a loan application by a borrower/purchaser, there is no causal connection, in my opinion, between any breach of that duty by Permanent and the loss suffered by Mrs Clarey. The loss pleaded in paragraph 32 of the Further Amended Statement of Claim is limited to the amount of the cheque said to have been handed to Mr Chalhoub at settlement, that is, the sum of $269,970.58. There is simply no connection between a failure to exercise proper care in assessing the loan application and this loss resulting to the plaintiff from an allegedly wrongful payment to her agent. Putting it another way, Permanent could have been as negligent as the plaintiff claims it was, and Mrs Clarey would still not have suffered any loss were it not for the fact that Mrs Clarey's conveyancing agent apparently defrauded her. If Mrs Clarey had engaged a reputable solicitor to act for her in this transaction, she would not have parted with the transfer and the certificate of title (via the NAB) without her or her agent receiving the appropriate amount of the purchase price. It was Mr Chalhoub's intervening act which caused Mrs Clarey to suffer loss.

623. The fourth cause of action against Permanent and Morbanc identified by their counsel in their submissions was one of equitable fraud. Paragraph 15(e) of the Further Amended Statement of Claim, (with the deletion of a superfluous date) reads as follows:

"Wrongfully and without the Plaintiff's agreement or permission, ... (e) on 6 September, 2000 Morbanc and/or Permanent with knowledge of the fraud: (i) lodged at the Office of Titles, as agent for Permanent and Thomson, the following documents ('the dealing'): A discharge of Mortgage by NAB in dealing no. X024760J; B. the transfer in dealing no. X024761F; C. the mortgage in dealing no. X024762C - and/or failed to withdraw the dealing so that it would not be registered; and, further, or in the alternative, (i) paid or cleared, or alternatively, failed to prevent, payment or clearance, of its settlement cheques."

627. Particulars were given of the informing of Permanent and Morbanc of "the fraud". The informing was said to be contained in Mr Adicho's telephone conversations with Mr Archer of Anderson Rice and with "representatives from Morbanc" on 6 September 2000 and in the facsimile from Mrs Clarey to Anderson Rice and the facsimile from Detective Senior Constable Konstantinidis to Morbanc both dated 6 September 2000. It should be remembered that the complaint was limited at that stage to the alleged wrongful receipt by Middle East and/or Mr Chalhoub of the cheque for $269,970.58. It was a dispute between Mrs Clarey and her conveyancing agent. There was no suggestion at that stage that Mrs Clarey had not signed the transfer or that she had not wanted the settlement to go ahead or that she was seeking to set aside the whole transaction, including the sale to Mr Thomson.

630. Mr North submitted that the first of these allegations of equitable or constructive fraud - Permanent and/or Morbanc lodging the dealing "with knowledge of the fraud" - was not established on the evidence. The earliest time at which the informing could have occurred was when Mr Adicho rang Morbanc and Anderson Rice from outside Mr Chalhoub's office. If Mr Adicho's timing was correct, this must have been some time after 10.30 a.m. on 6 September 2000. However, the documents in question were lodged on 6 September 2000 and there was simply no evidence to hold that this took place after the telephone calls from Mr Adicho. In any event, I have held that Permanent acted properly in paying the $269,970.58 to Middle East and that it was therefore entitled to lodge the dealings. The dispute between Mrs Clarey and her conveyancing agent about the cheque for $269,970.58 did not affect that entitlement.

633. The second allegation was that Permanent and/or Morbanc "with knowledge of the fraud ... failed to withdraw the dealing so that it would not be registered." It seems to me that this rather overstates the obligation of a party to a dispute such as this. Why should Permanent have withdrawn the dealing because of the dispute between Mrs Clarey and her conveyancing agent about the cheque for $269,970.58? It was not until after the proceeding was commenced that the question of forgery arose. By then, surely Permanent was entitled to maintain the status quo pending the Court determining its rights? In any event, Permanent has not acted dishonestly by presenting for registration a document which turns out to have been forged, if it honestly believed it to be a genuine document which could be properly acted upon.[26]

636. The next allegation was that Permanent and/or Morbanc "with knowledge of the fraud ... paid or cleared ... its settlement cheques." Despite the pleading referring to "cheques" in the plural, this complaint only related to the cheque in favour of Middle East. As Mr North submitted, the evidence clearly established that the ANZ bank cheque for $269,970.58 was paid into Middle East's account and cleared on 5 September 2000 and part of the proceeds withdrawn on the same day, which was before any informing had taken place. Further, neither Permanent nor Morbanc paid or cleared that cheque.

639. The fourth allegation of equitable or constructive fraud was that Permanent and/or Morbanc "with knowledge of the fraud ... failed to prevent, payment or clearance, of its settlement cheques." The only relevant evidence on this point is, it seems to me, that Morbanc did, as requested, try to stop payment on the bank cheque payable to Middle East and that the attempt was unsuccessful because, as stated above, the bank cheque was paid into Middle East's account and cleared on 5 September 2000, the day before Permanent and/or Morbanc were asked to stop payment. How can I then conclude that Permanent and/or Morbanc were in some way in breach of an obligation to prevent payment or clearance? One criticism made by Mr Arthur was that Mr Skelton erred in his first request to stop payment by referring to the wrong cheque. As previously stated, that error was rectified on 7 September 2000. But this is quite irrelevant when, even if the first request had correctly referred to the cheque, it was already too late because of the special clearance on 5 September 2000.

642. The final way in which the plaintiff pleaded its claim against Permanent is based on the allegation that the transfer was a forgery because it was not her signature on the document and that it was therefore "null and void." Paragraphs 26A and 27 of the Further Amended Statement of Claim read as follows:

"26A. In the premises, Thomson: (a) is not entitled to be registered as proprietor of the property; (b) is not able or entitled to grant a mortgage over the property to Permanent; (c) has not granted a mortgage over the property to Permanent.

PARTICULARS

(i) the contract of sale is not, and/or, was never, binding upon the Plaintiff; (ii) the Plaintiff's signature on the transfer is a forgery. 27. Further, by reason that the transfer is a forgery, the Registrar of Titles is not entitled to register, and is precluded and/or prevented, from registering, the transfer."

646. These allegations were denied by Permanent which also pleaded in its Amended Defence as follows:

"49. By reason of: (a) the Plaintiff's admitted agency of [Middle East] and/or Chalhoub; (b) the settlement instructions the Plaintiff is estopped from denying the contract of sale, the settlement, the discharge of NAB Mortgage and the conveyance, alternatively it would be unconscionable for the Plaintiff to seek in equity by reason of her own conduct to make the claims in this proceeding."

650. Mr Arthur submitted that as the transfer was a forgery it was a nullity[27] and therefore that Mr Thomson was not entitled to be registered as the owner of the Bulleen property and that he was not entitled to, and could not, give a mortgage to Permanent. As far as the plaintiff was concerned, once it was established that her signature on the transfer was a forgery, that was the end of the matter.

653. Mr North submitted that, even assuming that the plaintiff did not sign the transfer, that did not vitiate the consent which she had given to the transaction. Mrs Clarey wanted to sell the Bulleen property and she willingly signed the contract of sale with Mr Thomson. She wanted to receive the proceeds of sale, partly to pay out the NAB and partly to retain the balance for herself. Mrs Clarey appointed Mr Verduci as her agent generally and Middle East and/or Mr Chalhoub as her conveyancing agent. When settlement did not take place as soon as expected, she tried to hurry it up. She was informed that settlement was to take place on several occasions and did not suggest that it should not proceed. Indeed, she complained when settlement failed to occur. So keen was she for settlement to occur that, when she was told that she should not have Middle East and/or Mr Chalhoub acting for her and was advised that it was not a good idea to have the same person acting for both vendor and purchaser, she refused to change for fear of upsetting the settlement. When told that settlement was to take place on 5 September 2000, she sent a facsimile to her conveyancing agent directing how the proceeds of sale were to be paid to her, although the conveyancing agent did not follow her instructions in this regard. But by giving these instructions, Mrs Clarey was representing that Middle East and/or Mr Chalhoub were her agent, with authority to participate in the settlement, even though she knew that she had not signed a transfer. Her agent, Mr Verduci, was told the time and place of settlement, but chose not to attend. When Mrs Clarey heard that settlement had taken place, her initial complaint was not that it had occurred but that she had not received her cheque from Permanent. All of this, Mr North submitted, meant that the forged transfer did not lead to a transaction being carried out "behind the back" of Mrs Clarey. She was clearly prepared to sign the transfer and would have done so had it been presented to her for signing before the settlement. Thus, her real complaint is that her conveyancing agent did not obtain payment of all of the purchase price from Mr Thomson before settling, and what it and/or he did receive was not paid to her. In fact, it was only the second matter that became the subject of complaint.

656. In these circumstances, Mr North submitted that Mrs Clarey should be estopped from alleging that the settlement occurred without her agreement or approval and from claiming that the discharge from the NAB, the transfer from her to Mr Thomson, and the mortgage from Mr Thomson in favour of Permanent should not be registered.

659. Mr North relied on the decision of the Court of Appeal of the Supreme Court of Queensland in Klement v Pencoal Ltd[28] In that case the appellant and one L were registered lessees, as tenants in common, of a mining lease and an associated special lease. For a fee of $10,000 they granted two companies an option to purchase the property for $1 million. The companies assigned their interest to P, which exercised the option and purchased the property, paying the $1 million to L. To effect the transfers to P, L forged the appellant's signature. P later transferred the property to B. The appellant brought proceedings claiming that B held one-half of its interest in the property on trust for the appellant. This was based on a contention that because of the forgery, there had been no effective transfer of the appellant's interest either to P or subsequently to B.

662. At first instance, it was held that the appellant held out L as his agent "to conduct the entire transaction on his behalf." The appellant's own part was to be confined to signing transfers. But the authority with which the appellant clothed L "was to include production of relevant documents purporting to have been executed by the vendors in performance of their obligations." The appellant was therefore bound to the transfers despite the forgery. It was held that the appellant was estopped from denying the validity of his signature on the transfers. It was further held that the appellant's deliberate failure to disavow the forgery for more than three years, despite knowledge of it, amounted to ratification of its effectiveness.

665. The Court of Appeal (de Jersey CJ, McMurdo P, Davies JA) dismissed the appeal. In a joint judgment, their Honours held that a contention, that P's solicitors should have enquired expressly into the validity of the appellant's signature upon the transfers, missed the point. They stated:

"The fact is that the established ostensible agency of Lindner excused Pencoal's solicitors from the need to take those steps ... Further, by the appellant's own approach to the matter, he is in the position of being estopped from denying the validity of his signature. The appellant is not in the position of being able to benefit from any laxity in Pencoal's solicitor's performance, even were that otherwise established. The appellant's own approach, in short, excused Pencoal from any need for further enquiry."[29]

Their Honours referred to another ground of appeal which contended:

"... that the judge wrongly concluded that because Lindner had the appellant's authority to tender documents at settlement, the circumstance of the forgery did not prevent transfer of title. The appellant submitted that a forged transfer was ipso facto 'a pure nullity' which could not give rise to an effective transfer."[30]

"This misconstrues the learned judge's findings. The judge found that the appellant did not authorise Lindner to sign the appellant's own name on the transfers. But otherwise, 'Lindner was plainly held out by the (appellant) as his agent to conduct the entire transaction on his behalf'. The appellant intended that 'Lindner conduct all the necessary dealings with the purchaser ... this was to include production of relevant documents purporting to have been executed by the vendors in performance of their obligations'. Lindner had (ostensible) 'authority to represent that the documents which he presented at the settlement were valid as to their signature'. Pencoal was entitled to rely on that ostensible authority. It did so in the respects covered earlier - dealing exclusively with Lindner, with whom it would not have dealt if alerted by the appellant to the problem. Hence the judge's conclusion as to authority, estoppel and ratification did rightly render the circumstance of the forgery, taken alone, of no abiding consequence in the resolution of the issues." [31]

673. Klement establishes, in my opinion, the important proposition that a party may be estopped from denying the validity of a transaction, notwithstanding that the relevant document may be a forgery. It is a matter of considering all of the circumstances of the case. For the reasons advanced by Mr North, I consider that Mrs Clarey is estopped from denying that she is bound by the contract of sale with Mr Thomson, that the settlement occurred with her knowledge and approval, that the NAB discharged its mortgage over the Bulleen property, that she transferred that property to Mr Thomson and that he mortgaged it to Permanent. Therefore, Mrs Clarey's claim that she is entitled to restrain the registration of the discharge from the NAB, the transfer to Mr Thomson and the mortgage from Mr Thomson to Permanent must fail. The interlocutory injunction will be dissolved.

676. It was never explained to me why the plaintiff was entitled to claim that her contract of sale with Mr Thomson "is not, and/or, was never, binding upon" her. Nor was it explained how I could grant a declaration along those lines in the absence of service of the proceeding on Mr Thomson. Particularly in this case where repudiation of the contract of sale by Mr Thomson is said to have been accepted by the plaintiff "by service of the writ herein."

680. I have, therefore, reached the conclusion that the no case submissions by the NAB and by Permanent and Morbanc should be upheld. In my opinion, Mrs Clarey has no claim against any of these defendants and requiring Permanent and Morbanc to go into evidence will not assist her. This is, of course, a most unhappy result for Mrs Clarey. She may have other claims available to her, such as her rights against Mr Thomson for the unpaid balance of the purchase price and against Middle East and/or Mr Chalhoub for negligently or fraudulently handling the conveyance and for failing to account to her for, at least, the $269,970.58. However, these will probably be of little comfort to her. Nevertheless, acting on Mr Verduci's advice, Mrs Clarey appointed Middle East and/or Mr Chalhoub to act for her on the conveyance and, despite Mr Adicho's warnings, neither she nor Mr Verduci sought to terminate Mr Chalhoub's instructions. Regrettably, she and not Permanent must suffer the consequences of this extraordinary episode.

683. After the parties have had an opportunity to consider these reasons, I will hear submissions concerning what final orders should be made.

[1] Protean (Holdngs) Ltd (Receivers and Managers Appointed) v American Home Assurance Co [1985] VicRp 18; [1985] VR 187 at 239 per Tadgell J

[2] [1985] VicRp 18; [1985] VR 187 at 237 per Tadgell J

[3] [1974] VicRp 54; [1974] VR 457

[4] [1956] VicLawRp 21; [1956] VLR 98

[5] Wickstead v Browne (1992) 30 NSWLR 1 at 12 per Handley and Cripps JJA. See also Menzies v Australian Iron & Steel Ltd (1952) 52 SR (NSW) 62

[6] [1985] VicRp 18; [1985] VR 187 at 238 per Tadgell J

[7] Protean Holdings at 215 per Young CJ

[8] Union Bank of Australia Ltd v Puddy [1949] VicLawRp 46; [1949] VLR 242 at 246; Protean Holdings [1985] VR at 215 per Young CJ; Compaq Computer Australia Pty Ltd v Merry [1998] FCA 968; (1998) 157 ALR 1

[9] Union Bank of Australia Ltd v Puddy [1949] VicLawRp 46; [1949] VLR 242 at 246 per Fullagar J

[10] Protean Holdings at 238 per Tadgell J

[11] J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (1992) 111 ALR 377 at 382 per French J

[12] [1960] AC 732 at 745

[13] [1899] 1 Ch 353

[14] [1910] 2 Ch 277

[15] [1976] Ch 220

[16] [1993] VicRp 74; [1993] 2 VR 316

[17] [1991] FCA 535; (1991) 32 FCR 344

[18] See Vassos v State Bank of South Australia [1993] VicRp 74; [1993] 2 VR 316 at 330 per Hayne J

[19] [1960] AC 732 at 745

[20] Meagher, Gummow and Lehane: "Equity: Doctrines and Remedies" 3rd Ed. at para.913

[21] Voumard: "The Sale of Land" 5th Ed. para.13 150

[22] Bell v Rowe [1901] VicLawRp 84; [1901] 26 VLR 511 at 517

[23] s69 of the Property Law Act 1958

[24] See Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

[25] See Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

[26] See Assets Co Ltd v Mere Roihi [1905] AC 176 at 210; Pyramid Building Society (In Liquidation) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 193-4 per Hayne JA and Russo v Bendigo Bank Ltd [1999] VSCA 108; [1999] 3 VR 376 at 383 per Ormiston JA

[27] See Cousens v Grayridge Pty Ltd [2000] VSCA 96 at para 56 per Batt JA

[28] [2000] Q Conv R 54-546

[29] [2000] Q Conv R 54-546 at 60,464

[30] [2000] Q Conv R 54-546 at 60,464-5

[31] [2000] Q Conv R 54-546 at 60,465