Credit Connect v Carney Credit Connect v Smit

COUNSEL : Mr M Young for plaintiff Mr N Kabilafkas for defendant

SOLICITORS : Bransgroves Lawyers for plaintiff Hunt and Hunt Solicitors for defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/00291732 CREDIT CONNECT PTY LIMITED v MONICA SMIT JUDGMENT 1 His Honour: This is the hearing of a notice of motion filed 9 December 2009 by Credit Connect Pty Limited in matter 2009/00291732 seeking summary judgment for possession of a property of the defendant, Mrs Monica Smit, over which it holds a registered mortgage. It does not proceed on orders 5 and 6 in the notice of motion. Background facts 2 These are usefully set out in the parties' submissions which I will incorporate with some amendment. 3 Mrs Smit was born in 1935 and was 73 years of age at the time of the relevant events. She worked as a physiotherapist but retired in December 2004. Since then, the sole source of her income has been the aged pension. She divorced her husband in 1987 and he subsequently died in June 1996. 4 Mrs Smit's son moved in to live with her in August 2005 after his marriage failed and he had subsequent financial difficulties. From that time onwards he continually asked her for money to support him. Although Mrs Smit gave him small sums from time to time, she continually refused to take a mortgage on her only substantial asset, her property at Frenchs Forest ("the property"). 5 In February 2009, Greg Smit wished to finance a rock concert and required over $300,000 to do so. His mother again refused to provide him with access to her property for the purpose of raising those funds. It was at that point that he embarked upon a scheme to obtain those funds fraudulently. 6 He sought the assistance of a finance broker, Dave Cacciola, who, it appears, attempted to interest a number of lenders and was able to receive only one offer from Credit Connect. The terms of the offer were a loan advance of $425,000 for a term of 120 days with capitalised interest of $136,000 so that the total for repayment would be $561,000. Interest would then accrue at 12 per cent per 30 days thereafter. The equivalent annual rate of interest, assuming default, was 146 per cent. Given that the property was worth approximately $800,000 Mrs Smit's equity in the property would be dissipated in approximately 110 days. 7 Greg Smit received the loan offer on or about 11 March 2009. He spent much of the next month attempting to find a solicitor to witness the loan and mortgage documents, especially the solicitor's certificate. In so doing he contacted three solicitors, Mr Rahme, Mr Dib and Mr Antoniou, and a justice of the peace, Mr Singh. Credit Connect and its solicitors at no stage contacted Mrs Smit personally. 8 Mr Benson, the credit manager of Credit Connect, attended the property with Greg Smit on or about 13 March 2009 whilst Mrs Smit was present but, according to Greg Smit, declined Greg Smit's invitation to meet with her. Although he attended the property the reason why he did not see Mrs Smit is in issue in the proceedings. 9 Greg Smit forged his mother's signature on the loan documentation including the mortgage and prevailed upon Mr Singh, the justice of the peace, to witness her signature to the mortgage without seeing her. 10 On 16 or 17 April 2009, Credit Connect registered the forged mortgage on the property. Of the $338,892 actually placed into Mrs Smit's account without her knowledge, her son took $333,028. On 15 August 2009 when the payment came due under the loan Mrs Smit fell into default and by 7 December 2009 she owed $836,414.36, which was more than the value of her property. 11 Credit Connect commenced proceedings on 8 October 2009.

The other proceedings 12 Mrs Smit has issued a statement of claim in proceedings 5250 of 2009 in the equity division of this Court against a number of parties seeking damages and other remedies, including solicitors that purported to act on her behalf in respect of the mortgage, in the event that Credit Connect is successful in these proceedings. Included in the defendants is the Registrar General for the purposes of a claim on the Torrens Assurance Fund. 13 On 29 January 2010, orders were made by consent that the two proceedings be "joined" and that evidence in one be evidence in the other. I will assume that the effect of this order is that the proceedings are to be heard together, not consolidated. 14 The Registrar General has appeared and taken an active part in opposing Credit Connect's application in these proceedings. It claimed to be entitled to do so as it was a defendant within the expanded definition of that expression in s 19 of the Supreme Court Act 1970 and the provisions of s 22(3)(b) of the Civil Procedure Act 2005. It also referred to what was said in Barclays Bank v Tom (1923) 1 KB 221 at 223 - 224 as follows: "Now I think it is important to keep clearly in mind what the third party procedure is. A plaintiff has a claim against a defendant. The defendant thinks if he is liable he has a claim over against a third party. With that matter between the defendant and the third party the plaintiff has obviously nothing to do. He is not concerned with the question whether the defendant has a remedy against somebody else. His remedy is against the defendant. But the defendant is much interested in getting the third party bound by the result of the trial between the plaintiff and himself, for otherwise he might be at a great disadvantage if, having fought the case against the plaintiff and lost, he had then to fight the case against the third party possibly on different materials, with the risk that a different result might be arrived at. The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant. In the next place it is directed to getting the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait a considerable time before he establishes his right of indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant. And thirdly, it is directed to saving the extra expense which would be involved by two independent actions. With these objects in view the third party order usually provides that the third party may appear at the trial between the plaintiff and the defendant. " 15 I think it is appropriate that the Registrar General be able to make submissions on the defences available to Mrs Smit.

Mrs Smit's defences 16 By paragraph 13 of Mrs Smit's defence, the provisions of her cross-claim are pleaded in bar to Credit Connect's claim. Mrs Smit's cross-claim against Credit Connect states that the mortgage was procured by the fraud of her son, of which she was unaware, and: (a) Is liable to be set aside pursuant to the provisions of the Consumer Credit (New South Wales) Act 1995 ("Code").

(b) Is liable to be set aside under s 12CA or 12CB of the Australian Securities And Investments Commission Act 2001 ("ASIC Act") or other trade practices equivalents.

(c) Is liable to be set aside at general law due to unconscionability. 17 Importantly, it does not suggest that Credit Connect has notice of the fraud such that s 42 of the Real Property Act 1900 no longer applies. I will first deal with the provisions of the Code. 18 The relevant parts of the Code include s 5 which defines "credit contracts" as follows:

Meaning of "credit contract" 5. For the purposes of this Code, a "credit contract" is a contract under which credit is or may be provided, being the provision of credit to which this Code applies.

Form of mortgage 38. (1) A mortgage must be in the form of a written mortgage document that is signed by the mortgagor. (2) It is sufficient compliance with subsection (1) if - (a) the mortgage is contained in a credit contract signed by the mortgagor; or (b) one of the documents comprising the mortgage document is signed by the mortgagor (and the other documents are referred to in the signed document). (3) However, a goods mortgage need not be in the form of a written mortgage document if the credit provider lawfully had possession of the goods that are subject to the mortgage before the mortgage was entered into, otherwise than because the credit provider supplied the goods (for example, the goods were held by way of security). (4) A mortgage is not enforceable unless it complies with this section. 20 Although the mortgage may not be enforceable it is necessary to set it aside. This requires the use of the court's power under s 70 and 71 of the Code. Relevant parts of the sections are:

Court may re-open unjust transactions 70.(1) Power to re-open unjust transactions. The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or change was unjust, re-open the transaction that gave rise to the contract, mortgage or guarantee or change.

… (7) Meaning of unjust. In this section, "unjust" includes unconscionable, harsh or oppressive.

Orders on re-opening of transactions 71. The Court may, if it re-opens a transaction under this Division, do any one or more of the following, despite any settlement of accounts or any agreement purporting to close previous dealings and create a new obligation -

… (b) relieve the debtor and any guarantor from payment of any amount in excess of such amount as the Court, having regard to the risk involved and all other circumstances, considers to be reasonably payable;

(c) set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction;

(d) order that the mortgagee takes such steps as are necessary to discharge the mortgage;

... 21 It is necessary to appreciate the nature of Credit Connect's submissions on this aspect. They were: 9. Paragraphs 14 - 18 of the Cross-Claim plead that the mortgage is a credit contract within the meaning of the Consumer Credit Code ("the Code"), and that s 38 of the Code prevents the enforcement of mortgages governed by the Code which are not signed by the mortgagor. 10. The flaw in this argument is that the Code only applies when a "credit contract" exists. "Credit contract" is defined by s 5 of the Code as follows: "For the purposes of this Code, a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies." 11. In the present case the defendant contends that the mortgage and its related documents were all forgeries. In the circumstances, no contract exists as a matter of law. With there being no contract, there can be no "credit contract", and hence the Code does not apply. 12. This defect is well illustrated by cases on the application of the Contracts Review Act , which also is dependent for its operation on the existence of a contract with the applicant for relief. A mortgage that does not result in the formulation of a contract by reason of forgery or non est factum is not subject to the Contracts Review Act as the necessary precondition of the existence of a contract is not met: see for example Permanent Trustee Company Ltd v Frazis [1999] NSWSC 319 at [17]; Perpetual Trustees Victoria Ltd v Cipri [2008] NSWSC 1128 at [118] - [129]; Ford v Perpetual Trustees Victoria Ltd [2009] NSWCA 186 at [91]. 13. Perpetual Trustees Victoria Ltd v Van den Heuvel [2009] NSWSC 57 was another case in which an applicant unsuccessfully sought relief under the Contracts Review Act in a forgery case by reason of the above principle. In that case, however, relief was also sought under s 70 of the Code, and it was necessary for Price J to determine whether the similar reasoning applied with respect to the application of the Code. 14. At [97], Price J determined as follows: "Where a forged mortgage has been registered under the Real Property Act it seems to me that the Consumer Credit Code does not enable the relief sought to be granted." His Honour went on to explain that the applicant was not a "mortgagor" within the meaning of the Code as she was not a party to the mortgage. 15. It is thus clear that the claim under the Code must fail." 22 The argument in the appeal to the Court of Appeal in Perpetual Trustees Victoria v Van den Heuval [2009] NSWSC 57 was heard on 10 May 2010 and judgment was reserved at the time of hearing.

23 It is clear from the cases referred to in paragraph 12 of Credit Connect's submission that a forged mortgage cannot be the subject of a Contracts Review claim. 24 The Perpetual Trustees Victoria v Van den Heuval case is the only one where there has been consideration of the Code. As is apparent from paragraphs [92] - [101] of that case the application before Price J was concerned with whether under s 70 "the contract, mortgage, guarantee or charge was unjust". Unsurprisingly Price J followed the Contract Review cases and held that there was no mortgage with the person defrauded and thus refused to apply the Code. 25 Since the hearing the Court of Appeal has given judgment: Van den Heuval v The Perpetual Trustees Victoria Ltd [2010] NSWCA 171. Hodgson JA found that the Code could have applied because it was a joint mortgage with Mrs Van den Heuval's husband with which the court was concerned in that case. Unfortunately the same circumstance does not apply in this case as the only mortgagor is Mrs Smit. His Honour declined to consider whether the Code should apply to a statutory mortgagor being a person who in law, by virtue of the Real Property Act, becomes in law a mortgagor. 26 Young JA decided that s 70 only applies where the mortgagor enters into a contract of mortgage (ie not a forgery) and does not apply to a statutory mortgagor. In contrast Basten JA treated Mrs Van den Heuval as a statutory mortgagor and a person who was entitled to make an application under s 70(1). 27 The result of the case is in effect that there is a split decision on the questions of how it effects the present application. One judge has held in relevant circumstances that the Code does apply and one judge has held that it does not. Because there was an implied contract in that case between the husband and the lender there was no focus on the requirement for there to be a "contract" under s 5. There may be no room for such an implied contract in this case. 28 Another matter which arises from the judgment is the extent to which when considering whether to exercise its discretion a court must have regard to the conduct of the mortgagee in order to have regard to the public interest in the conclusiveness of the register in the Torrens System of title. In this case there are substantial elements of conduct which might apply and I will refer to these later in this judgment. 29 It is also, of course, a case where the relevant parties are the original mortgagee and not anyone to whom the mortgage has been transferred. 30 The Register General submits that Credit Connect is incorrect in asserting that the Code can have no operation in relation to a forged mortgage as s 36(11) of the Real Property Act provides that "upon registration, a dealing shall have the effect of a deed duly executed by the parties who signed it". The Register General submits that while on Mrs Smit's case she did not sign the mortgage, the effect of s 36(11) is nevertheless to constitute the mortgage as a deed duly executed by whomsoever forged her signature. That is, as if Mrs Smit had authorised the placing of her signature upon the document by the fraudster and in those circumstances the mortgage, upon registration, became a deed entered into between Mrs Smit and Credit Connect. 31 This argument has been raised in a number of cases but not yet accepted. Given the limited effect of the section I would not base my decision on this argument. 32 Credit Connect does not seek a money judgment, being the claim for relief under paras 5 and 6 of the notice of motion on which it is not proceeding. At a hearing the question of whether there is any default by the defendant under the mortgage will have to be dealt with and determined. The complexity of the issues given the different basis of the Court of Appeal decisions means that this is not a suitable case for the matter to be determined summarily. Is the mortgage liable to be set aside under s 12CA or 12CB of the ASIC Act or other Trade Practices equivalents? 33 It seems that the Trade Practices Act claims would not be relevant as we are really concerned with financial services which is governed by the ASIC Act. 34 Section 12CA of the ASIC Act provides: 12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 35 "Financial services" is defined by s 12BAB, which relevantly provides: 12BAB Meaning of financial service (1) For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they: … (b) deal in a financial product (see subsection (7)); or ...

(a) the circumstances in which persons facilitating the provision of a financial service (for example, by publishing information) are taken also to provide that service; or (b) the circumstances in which persons are taken to provide, or are taken not to provide, a financial service. … (7) For the purposes of this section, the following conduct constitutes dealing in a financial product:

(c) in relation to securities or managed investment interests - underwriting the securities or interests;

(e) disposing of a financial product. 36 "Financial product" is defined by s 12BAA, which relevantly provides:

… (7) Subject to subsection (8), the following are financial products for the purposes of this Division:

(k) a credit facility (within the meaning of the regulations); ...

37 Section 12BAA(8) provides for express exclusions, none of which are presently applicable. Regulation 2B(1) of the Australian Securities and Investments Commission Regulations 2001, however, relevantly provides: (1) For paragraph 12BAA(7)(k) of the Act, each of the following is a credit facility :

(a) the provision of credit: (i) for any period; and (ii) with or without prior agreement between the credit provider and the debtor; and (iii) whether or not both credit and debit facilities are available; … 38 It was submitted that the definition of "financial services" in s 12CA of the ASIC Act therefore includes the providing of credit whether or not there is a prior agreement between the credit provider and debtor. It is said that conduct contravenes this section when it "relates" to the provision of credit; is "in trade or commerce"; and is "unconscionable" in equity. 39 Mrs Smit submitted that the section is meant to be read as a whole and it clearly applies to conduct going beyond transactions where the borrower has given actual assent. In particular, in the circumstances of this case, when the loan funds were placed in Mrs Smit's bank account it is at least arguable that there has been provision of credit and thus there is dealing in a financial product.

40 I will deal later with whether there is conduct which is unconscionable in equity. 41 It was submitted that the case is even stronger with respect to s 12CB. Section 12CB(1) provides:

(1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable.

… 42 There are two critical differences with s 12CA, that is, the definition of "unconscionable" is not limited to that in the "unwritten law"; and it is connection with the "supply or possibly supply" of financial services. 43 Accordingly, Mrs Smit submits that there can be no doubt that the conduct of Credit Connect in the present case was "in connection with ... the possible supply" of credit to Mrs Smit. 44 The relevant sections which give the relief under the ASIC Act is s 12GM. The relevant parts are 12GM(1) and (7) which are as follows: (1) Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage. (7) Without limiting the generality of subsections (1) and (2), the orders referred to in those subsections include the following: (a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after a date before the date on which the order is made;

… (g) an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that: (i) varies, or has the effect of varying, the first mentioned instrument; or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first mentioned instrument.

45 Importantly 12GM(7)(g) would afford appropriate power for the court to order a discharge of the mortgage. 46 As I have indicated above the gateway to both statutory and general law unconscionability is available in this case. The question is whether there is an arguable case on either of these aspects. General law unconscionability 47 In relation to general law unconscionability in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 467 Mason J said: "…if A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same." 48 There are therefore three elements of the cause of action of unconscionable conduct. Firstly, special disadvantage of the plaintiff, such that the plaintiff cannot make a proper judgment as to their own interests; second, actual or constructive knowledge of the plaintiff's disadvantage in the defendant; and third, the defendant takes unfair advantage of his or her superior bargaining power or position by entering into that transaction. 49 Mrs Smit submits that she had an obvious special disadvantage, being unaware of the fraud being committed by her son, that Credit Connect had constructive knowledge of that fraud because of the accumulation of suspicious circumstances which together would have raised the possibility of fraud (at common law or in equity) in the mind of an honest and reasonable person, and its decision to deliberately shut its eyes to such circumstances, as demonstrated by its failure to meet with her personally when it was present on the property and required to do so by the terms of its own offer. That is a difficult argument to accept given the usual basis for what is a special disadvantage. This is normally connected to matters such as intellect or capacity of the party. 50 However, as there needs to be a transaction, that element may be missing in this case. If the transaction is the mortgage or an agreement for loan then there were no such matters with Mrs Smit. It seems unlikely to me that general unconscionability will be established.

Statutory Unconscionability 51 I have already set out above the terms of s 12CB(1) which contains the relevant prescription against unconscionable conduct. The remaining relevant parts of the section to be considered are:

… (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of services to a person (the consumer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the consumer; and (b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the consumer was able to understand any documents relating to the supply or possible supply of the services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and (e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier.

… (4) For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of financial services to another person: (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

(5) A reference in this section to financial services is a reference to financial services of a kind ordinarily acquired for personal, domestic or household use. 52 Paragraph 15 of the cross-claim makes the allegation that would support the qualification in s 12CB(5). 53 In the context of the present case the provision of s 12CB(2)(a),(b),(d) and (e) are unlikely to arise for consideration. Section 12CB(2)(c) is certainly relevant and the qualification in s 12CB(4)(a) would require among other things a consideration of the circumstances of how the forgery occurred and any negligence and non compliance with the lenders own guidelines. Such a consideration appealed to Basten JA in considering the Code provision: see Heuval v The Perpetual Trustees Victoria Ltd at [77]. 54 It was suggested by Credit Connect that these claims relate to unconscionable conduct in connection with the supply of goods or services to a person in circumstances where that person was taken advantage of by the supplier. In the present case there was no supply of services to Mrs Smit but rather to the Mrs Smit's son, and it is not pleaded that Credit Connect sought to take advantage of the son. 55 One answer to this contention is that 12CB(1) includes "possible supply". The loan was arranged for Mrs Smit to be the borrower. Another answer is that in fact credit was supplied to her as the money went into her bank account before being purloined by the son. 56 There are sufficient reasons to find that there is at least an arguable case which means that the proceedings should not be struck out. 57 There is also the possibility that there may be a personal equity to have the forged mortgage after registration set aside. 58 A relevant authority is the decision of the Court of Appeal in Story v Advance Bank Australia Ltd [1993] 31 NSWLR 722. In that case, Gleeson CJ (with whom Cripps JA agreed), stated at 736 - 737: "It is now settled that, subject to certain qualifications, the indefeasibility of title conferred by these provisions, even in the case of registration of a void instrument, takes effect immediately upon registration… Subject to the same qualifications, the mortgagee under a registered mortgage obtains an indefeasible title upon registration even though the signature of the mortgagor has been forged… One of the qualifications mentioned above applies where the mortgagee, the party obtaining registration of the forged instrument, has been guilty of or privy to fraud. There is no suggestion that the present is such a case.

Another qualification concerns the operation against a registered proprietor of personal equities, or what the Privy Council referred to as "the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as the court acting in personam may grant"…

It is the operation of that second qualification that is presently in issue.

The principles relevant to the determination of such an issue are set out in the judgments of Mahoney JA in Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 and Hayne J in Vassos v State Bank of South Australia [1992] V Conv R ¶54-443. In the former case it was held that, on the facts, there was a personal equity enforceable against a registered mortgagee, where the mortgagee, in breach of authority, had assisted, even though not fraudulently, in the conduct of the party responsible for the forgery. The latter case was, on the facts, much closer to the present. There the signature of a mortgagor to an instrument of mortgage had been forged and the mortgagee had accepted the mortgage without knowledge of the forgery. Hayne J said (at 65-180 to 65-181): 'The bare fact that a party has not assented to the transaction recorded in an instrument registered under Torrens System legislation does not, in my opinion, give that person a right enforceable by in personam action to have the transaction reversed. For my part I consider it is clear that more than the bare fact of forgery (and thus an absence of assent) must be shown to found any in personam action of the kind spoken of in Frazer v Walker and subsequent cases … In the present case … it may well be that the bank did not act without neglect but there is in my view no material which would show that the bank acted unconscionably. There was no misrepresentation by it, no misuse of power, no improper attempt to rely upon its legal rights, no knowledge of wrongdoing by any other party. It obtained a mortgage, apparently regular on its face but which was in fact forged. Even if by making reasonable enquiries the bank could have discovered the fact of the forgery I do not consider that that fact alone renders its conduct unconscionable. I do not consider that the plaintiffs have any in personam right against the bank; all that they have shown is the mere fact of forgery of the instrument.'

Those words apply equally to the present case. The most that is said against the respondent Bank is that the nature of the transaction between the Bank, Mr Story, and Fleetwood Star Pty Ltd was such that the Bank was put upon inquiry as to the regularity of the internal company proceedings relating to the transaction. For reasons given above I consider that contention to be at least dubious. The Bank advanced money on the faith of the validity of the mortgage, and a substantial part of that money was applied for the benefit of the mortgagor company. The transaction was entered into at the instigation of the person who was permitted the de facto control and management of the company. It is not unconscientious of the Bank to insist upon its rights as mortgagee or to enforce its security. The relevant personal equity is said to be that of the company, not of Mrs Story. Unless a number of the leading cases concerning registration of forged mortgages were wrongly decided it cannot arise out of the bare fact of the forgery. Even if the Bank had been shown to have failed to make adequate investigation of what was going on within the company, that does not produce the result that it is against conscience for the Bank to rely upon its statutory rights.

Accordingly, the respondent Bank is also protected by the provisions of the Real Property Act ." 59 The reasoning of Mahoney J was essentially identical. His Honour noted at 740 - 741 that it was submitted that the lender had taken the mortgage "negligently" and proceeded to hold: "This submission raises for consideration the extent to which a person taking a mortgage in present circumstances is required to inquire in relation to the matters in respect of which the Bank's inquiries were deficient and whether failure to do so will give rise to a personal equity of the relevant kind. In a general sense, the purpose of the indefeasibility provisions of the Real Property Act is to enable third parties to deal with the registered proprietor without going behind the proprietor's title. But that, of course, is not inconsistent with a duty to take proper steps to ensure that the dealing tendered as executed by the registered proprietor has in fact been executed by it. Such a duty would not, as such, be inconsistent with the policy of the Act that the registered title of a proprietor need not be investigated.

I would not wish to pre-empt the possibility that in a particular case failure to inquire as to the execution or purported execution of a document by the registered proprietor could give rise to a personal equity to have that document, after registration, set aside. But I do not think that the failure to check the execution as such would have that effect. Thus, I do not think that it is consistent with the existing authorities to hold that it is the duty of a purchaser on completion of a purchase to require specific proof that the signature on a transfer of title is in fact the signature of the then registered proprietor." 60 In this case there are many strange circumstances surrounding the execution of the mortgage. Credit Connect knew that the property was both her residence and her postal address and, despite this fact, critical documents were sent to Greg Smit's post office box, not to Mrs Smit's home. 61 Further, PA Legal certified that Mrs Smit was identified by a photocopy of her driver's licence and the "solicitor's certificate" was purportedly signed by Mr Singh, a justice of the peace, who was not a solicitor and did not purport to be. These two matters came after Greg Smit had used four different persons in the span of less than two months to execute documents and act as solicitors on the transaction, in each case known to Credit Connect. 62 Other strange circumstances included Mr Antoniou's solicitor's certificate stated that the loan and mortgage documents he provided to Mr Nash had been executed before him on 9 April 2006 when they had been executed on 25 March 2006, two days before copies of those documents had been provided to Mr Nash by Mr Dib. Even a cursory examination and comparison of the two sets of documents would have revealed Mr Antoniou's misrepresentation regarding the execution. 63 In addition, Mr Nash, for Credit Connect, was in frequent contact with Greg Smit but never with Mrs Smit, despite the fact that it was well known in the finance industry that children often procured loans to them secured by their elderly parents' property by means of undue influence or outright fraud. 64 Furthermore, Mrs Smit was 73 years old, yet the loan application listed her as an "investor", and although she was listed as an "investor" and prepared to take a loan on the terms that she did, she was recorded as having total net assets of only $835,000, comprising a motor vehicle, furnishings and a house. No investments were disclosed as assets. 65 Critically, the declaration of financial position recorded an income of $850,000 per annum, greater than her net assets, yet no investments were disclosed as assets which would produce an income of $850,000. The production of such an income from investments would require a capital base of such investments in the many millions, yet no such assets were disclosed. 66 There is a live question which can only be determined at the final hearing as to whether Mr Benson, a senior credit officer of Credit Connect, refused to meet with Mrs Smit despite the fact that this was a special condition of the loan offer and he was actually present upon the property while she was there. 67 Mrs Smit submitted that in these circumstances, all of which was actually known to Credit Connect, this would have put a reasonable and honest person in its position on enquiry that Mrs Smit was unaware of the transaction or that undue influence or illegitimate pressure had been brought to bear upon her by her son. Whether this conduct will amount to personal equity is debateable and perhaps supports that view that the matter should proceed to trial. The Registrar General's position 68 The Registrar General raises fraud under s 42 of the Real Property Act as a defence even though Mrs Smit does not do so. But what is fraud for the purposes of s 42 of the Real Property Act is a complex question. 69 "Fraud" has a distinct meaning in this legislation and is often referred to as "statutory fraud" to differentiate it. Statutory fraud is wider than the common law concept of fraud because it is not confined to deceit or fraudulent misrepresentation and narrower than equitable fraud because dishonesty in the sense of moral turpitude is an essential element. Bearing in mind that it is impossible to summarise the whole law in this area, the authors of the Conveyancing Practice suggested that the following points should be made about fraud in this section:

(a) fraud means actual fraud, not constructive or equitable fraud: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614, 78 ALR 1, [1988] HCA 16; Assets Co Ltd v Mere Roihi [1905] AC 176 at 210, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 236 ALR 209 at 169, [2007] HCA 22; Butler v Fairclough (1917) 23 CLR 78, [1917] VLR 175, [1917] HCA 9; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, [1966] ALR 775, (1965) 39 ALJR 110;

(b) the fraud must be brought home to the person whose registered title is impeached or to his agents: Bahr v Nicolay (No 2) (1988) 164 CLR 604, 78 ALR 1, [1988] HCA 16; Assets Co Ltd v Mere Roihi [1905] AC 176; (c) fraud by person from whom the registered proprietor claims does not affect him unless knowledge of it is brought home to him or his agents: Assets Co case, above;

(d) the mere fact that the registered proprietor might have found out fraud had he been more vigilant is irrelevant (unless the person's suspicions were aroused and he deliberately abstained from making further inquiries): Assets Co case, above;

(e) ordinarily merely having notice of an unregistered interest does not constitute fraud: Oertel v Hordern (1902) 2 SR (NSW) Eq 37, cf Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 and see also Munro v Stuart (1924) 41 SR (NSW) 203n and Carvita Holdings Pty Ltd v Mitsubishi Bank of Australia Ltd (1993) 6 BPR 13,327;

(f) the fraud must be practised against the plaintiff and not, for instance, on his or her tenants: Munro v Stuart (1924) 41 SR (NSW) 203 at 205; normally the fraud must have operated on the mind of the person said to be defrauded and to have induced detrimental action by that person: Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 at 258; 151 ALR 729 at 734;

(g) wilful blindness or indifference to the truth does not constitute fraud: Pyramid Building Society v Scorpion Hotels Pty Ltd [1998] 1 VR 188; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133. 70 The Registrar General submits that the fraud in this case is what is said to be the fraud of an agent of Credit Connect, namely, Mr Singh, the justice of peace, who witnessed Mrs Smit's signature. In signing as a witness he certified as follows: "I certify that the person(s) signing opposite, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this instrument in my presence." 71 On the evidence before me such statement was plainly false.

72 Permitting a dealing to go forward for registration with a false certificate of attestation amounts to fraud within the meaning of the section: National Commercial Banking Corp of Australia Ltd v Hedley (1984) 3 BPR 9477; Australian Guarantee Corp Ltd v de Jager [1984] VR 483 and see Westpac Banking Corp v Sansom (1994) 6 BPR 13,790; Beatty v ANZ Banking Group Ltd [1995] 2 VR 301, and Pyramid Building Society v Scorpion Hotels Pty Ltd (1996) 136 ALR 166. 73 The position can in some circumstances be otherwise where the person tendering the document for registration was unaware of the problem with the document: Grgic v ANZ Banking Group Ltd [1994] ACL Rep 355 NSW 10, (1994) 33 NSWLR 202; HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368. The law in this area was thoroughly reviewed by the Court of Appeal in Davis v Williams [2003] NSWCA 371. 74 Credit Connect's submission was that it is not fixed with notice of its fraudulent agent. Reference was not made to authority in support of such submission. 75 In this respect Davis v Williams is useful as it refers to the application in this area of discourse of the principle, referred to in Mair v Rio Grande Rubber Estates Ltd [1913] AC 853 that "No person can take advantage of the fraud of his agent". 76 Young CJ in Eq discussed the matter at length in Davis v Williams at [128]-[135]. He said: [128] There is no gainsaying these authorities. However, they can be distinguished because in none of them did the person who was alleged to be the principal receive any benefit from the transaction. Where a person receives a benefit from the fraud of another, that person is not permitted to deny the agency. This is the Mair Principle referred to earlier in these reasons. There are a number of cases which illustrate this proposition.

[129] The Mair Principle has been recognized in equity since at least 1787; see Dixon v Olmius (1787) 1 Cox 414; 29 ER 1227. In summarising the decision of Lord Thurlow in that case, Lord Eldon LC said in Huguenin v Baseley (1807) 14 Ves 273, 290; 33 ER 526, 532, that "Lord Thurlow … had no doubt, that it was against conscience, that one person should hold a benefit, which he derived through the fraud of another."

[130] The principle was taken over in common law at least by 1874. In Swift v Jewsbury (1874) LR 9 QB 301, a decision of the Exchequer Chamber on appeal from the Court of Queen's Bench, Lord Coleridge CJ, giving the judgment of a five man court said at 312-313: Justice points out, and authority supports justice in maintaining, that where a corporation takes advantage of the fraud of their agent, they cannot afterwards repudiate the agency and say that the act which has been done by the agent is not an act for which they are liable.

[131] In Refuge Assurance Co Ltd v Kettlewell [1909] AC 243, the House of Lords dismissed an appeal where an insurance company had retained premiums obtained after representations made without its knowledge or authority. The trial judge had directed the jury that if the agent had been guilty of fraud, the company by retaining the premiums had ratified the representations even if they were made without authority. This was upheld by the Court of Appeal (see Kettlewell v Refuge Assurance Co [1908] 1 KB 545, especially per Buckley LJ at 552) and again in the House of Lords.

[132] In Barrow v Bank of New South Wales [1931] VLR 323, 340, McArthur J as part of a Full Court said that the fraudster: must, apparently be his agent in fact … for some purpose. But it is not necessary … that he should be his agent for the purpose of carrying out the transaction in the course of which the fraud was committed.

[133] The Mair Principle is fully discussed in the note by Handley JA "Exclusion Clauses for Fraud" (2003) 119 LQR 537.

[134] Mr Rayment says that the Mair Principle does not apply for three reasons: (a) Ms Moore was not a fraudster; (b) the Mair Principle does not apply where the alleged benefit is thrust upon the principal; and (c) in any event, no benefit was conferred on Mr Williams by the registration.

[135] (3) It is thus necessary to consider whether (a) Ms Moore's act of altering the transfer was within her authority; and (b) whether that act constituted fraud. 77 After deciding that Ms Moore did not have any fraudulent intent Young CJ went to deal with the question of whether any benefit was conferred. Young CJ said: [143] (4) Mr Rayment took issue with the proposition that his client had obtained a benefit. The transcript shows that I put to him "If someone does an unauthorised act and then you take the benefit of it, you have ratified it anyhow haven't you whether it was authorised or not?"

Rayment - "That's if you know of it. There was no taking of the benefit of it here".

Young CJ in Eq - "You got the benefit of the registration of the forged … "

Rayment - "Yes that was thrust on us rather than assumed by us in our submission."

Young CJ in Eq - "But you got the benefit of it whether it was thrust on you or not."

[144] The argument was developed, but it never reached the stage of demonstrating what was meant by benefit in the Mair Principle or whether it was relevant that the benefit was thrust upon the beneficiary.

[145] I have reread the cases referred to in Handley JA's article which I have listed earlier. None of them seems to deal directly with this issue. However, the synonyms used for "benefit" eg "profit", "takes advantage" indicate that the word is given a wide meaning.

[146] I have also reread the cases on "free acceptance of an incontrovertible benefit" in the law of restitution, but again, can find no guidance from that line of territory.

[147] Mr Rayment put that obtaining registration in the way it was obtained was not a benefit. This is because, the registration was open to attack. If Ms Moore had not have acted as she did, Mr Williams would have obtained an indefeasible title.

[148] The statement of fact made in the last sentence of the previous paragraph is correct. However, in my view Mr Williams did obtain a benefit from the transaction as is witnessed by the fact that his estate is now fighting to retain it.

[149] My conclusion is that the points raised by Mr Rayment do not take this case outside the Mair Principle. Thus, if there was fraud on the part of Ms Moore, the advantage of her fraud in obtaining registration was retained by Mr Williams and he cannot deny her authority. 78 In the present case given the forms of documents which the plaintiff required the witness to complete, there must be a possibility of fraud being found in respect of the actions of the justice of the peace. 79 Although the decision of Young CJ is obiter it is such that it is possible that the plaintiff will be bound by fraud of its agent. 80 The New Zealand Court of Appeal in Dollars & Sense Ltd v Nathan [2007] 2 NZLR 747 discussed the relevant principles in respect of agency. In that case, a son who forged his mother's signature on the registered mortgage which guaranteed a loan to the son was found to be in various respects an agent of the lender and knowledge of his own wrongdoing was imputable to the lender, thereby impugning its registered title: see the conclusion of the majority at [107]. 81 In my view there is some substance to the argument sufficient to lead me to refuse summary judgment. 82 In matter 2009/00291732 I dismiss the notice of motion filed 9 December 2009 by Credit Connect Pty Limited with costs. **********

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