Irons v Calleja & ors

Agar v Hyde [2000] HCA 41; 201 CLR 552 Dey v Victorian Railways Commissioners (1949) 78 CLR 61 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Graham v Hall & Anor [2006] NSWCA 208; 67 NSWLR 135 Walton v Gardiner (1993) 177 CLR 378 Webster v Lampard (1993) 177 CLR 602

Merle Irons (Plaintiff) PARTIES : John Calleja (First Defendant) Royal Guardian Mortgage Corporation Pty Ltd (Second Defendant) Martin Cooper (Third Defendant)

COUNSEL : Mr A Rogers (Plaintiff) Mr M W Young (Second Defendant)

SOLICITORS : Tsolakis Solicitors Bransgroves Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

1 HIS HONOUR: This is an application by the second defendant, Royal Guardian Mortgage Corporation Pty Ltd ("RGMC") for summary dismissal, alternatively striking out, of a statement of claim insofar as it concerns itself. It is alleged in the statement of claim that the first defendant, Mr John Callega, committed fraud in obtaining a loan of $580,000 purportedly on behalf of the plaintiff, Ms Merle Irons; that RGMC, a mortgage originator and manager, breached a duty to make enquiries about the loan application because it knew or ought to have known that the representation by Mr Callega that Ms Irons wanted the loan was false; and that the third defendant, Mr Martin Cooper, was responsible for attesting a signature on a statutory declaration that was purported to be Ms Irons' when he did not see Ms Irons sign that document.

2 The defence filed by RGMC includes denials that Mr Callega made representations to RGMC; that Mr Callega provided loan applications to RGMC; that RGMC owed a duty to Ms Irons and that there was any breach of such a duty; that RGMC caused or contributed to any loss or damage by Ms Irons; and that Ms Irons suffered any loss or damage. It is also claimed that the proceedings against RGMC are barred because of the terms of settlement of a previous matter in which Ms Irons was a party.

3 Mr Callega has not taken any steps in the proceedings. Mr Cooper has filed a defence and a cross-claim against another person but they are irrelevant to the motion by RGMC.

4 It is the plaintiff's case that on about 27 August 2002 Mr Callega fraudulently submitted a loan application to RGMC in which Ms Irons was nominated as the borrower without her knowledge. The allegation concerning RGMC is pleaded as follows: 5 On or about the same day as the Second Defendant received the Loan Application, the Second Defendant received from the First Defendant a separate loan application, purportedly on behalf of the Plaintiff, which contained information materially different from that contained in the Loan Application. In particular, the separate loan application: (a) identified a lower amount which the Plaintiff wished to borrow; (b) identified the Plaintiff and the First Defendant as co-borrowers; (c) valued the Property on a different basis to the basis upon which it was valued in the Loan Application; (d) identified the Plaintiff as having no income where the Loan Application identified the Plaintiff as having a current income of $100,000 per annum and an anticipated income of $150,000 per annum.

6 By reason of the matters referred to in paragraph 5, the Second Defendant knew, or ought to have known, that the Representation was false or likely to be false.

7 By reason of the matters referred to in paragraph 6, the Second Defendant was under a duty: (i) to make due enquiry of the Plaintiff as to whether the Loan Application was one which the Plaintiff had authorised; (ii) not to take any steps to obtain a loan as sought in the Loan Application until making such due enquiry and until reasonably satisfying itself that the Plaintiff had authorised the Loan Application.

8 In breach of its duty the Second Defendant failed to make such due enquiry of the Plaintiff.

9 In consequence of the said Loan Application, the Second Defendant made application to, or arranged with, Permanent Custodians Ltd ("PCL") to advance, purportedly to the Plaintiff, the sum of $580,000 ("the Loan Transaction"), such funds to be secured by mortgage over the Property.

5 It is then pleaded that Mr Callega made a false representation to Permanent Custodians Ltd ("PCL") and forged the signature of Ms Irons on various loan documents and on a mortgage in favour of PCL in respect of Ms Irons' interest in certain property. One of the loan documents was a statutory declaration and it is pleaded that Mr Cooper purported to witness the signature of Ms Irons upon it without having seen her sign it. It is alleged that as a consequence of the frauds by Mr Callega, the breach of duty by RGMC and the false attestation of Ms Irons' signature by Mr Cooper, PCL registered the forged mortgage and advanced funds that were secured by it. It is claimed that Ms Irons suffered loss and damage as a consequence of the frauds, breach of duty and false attestation of the signature.

6 It is not part of the pleadings but it is common ground that defaults occurred in repayments as required under the loan contract which led to PCL instituting proceedings against Ms Irons. A person described as Josefa Hind trading as Josie Hind Mortgages was also a party to those proceedings. The proceedings were ultimately resolved with those three parties entering into a settlement deed. The settlement deed included the following by way of release: 4.3 Irons hereby releases and discharges each of Permanent (including its current and former directors, officers, employees and agents) and Hind from all Claims arising directly or indirectly out of or in connection with the Housing Loan Contract, the Loan, the Hind Mortgage and the Proceedings that she has now or, but for this deed, may at any time hereafter have against Hind or Permanent (including its current and former directors, officers, employees and agents).

7 The Court's discretion to order summary dismissal is one which must be exercised with "exceptional caution": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. It should only be exercised if it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; Dey v Victorian Railways Commissioners (1949) 78 CLR 61 at 91; Webster v Lampard (1993) 177 CLR 602. A party is ordinarily to be permitted the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. There should be a "high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go trial in the ordinary way": Agar v Hyde [2000] HCA 41; 201 CLR 552 at [57].

8 Proceedings which "can clearly be seen to be foredoomed to fail" may constitute an abuse of process: Walton v Gardiner (1993) 177 CLR 378 at 393

Bases of application for summary dismissal or striking out

9 There are two bases upon which RGMC applies for summary dismissal or striking out. One is that no reasonable cause of action is disclosed: Rule 13.4(1)(b) and Rule 14.28(1)(a) Uniform Civil Procedure Rules 2005 ("UCPR"). The submission in respect of this aspect of the application is that there is no reference in the statement of claim as to how the "duty" was said to have arisen or what type of duty it was. Mr Young, counsel for the second defendant, submitted that the only thing pleaded was that there were two loan applications with some inconsistent information contained within them. He submitted that a statement that a duty existed without revelation of the basis for how that duty arose does not reveal a triable issue to be determined.

10 The other basis of the application is concerned with the release granted by Ms Irons in the settlement deed referred to earlier. It was submitted that RGMC was the agent of PCL and was therefore covered by that release. Mr Young acknowledged that an issue of privity of contract arose because RGMC was not a party to the settlement deed but he submitted that PCL has obligations to RGMC as trustee of that release to enforce it. It was submitted that PCL could be brought into the proceedings to enforce the agreement against Ms Irons and that would bring an end to any question of liability of RGMC to her. It was submitted that once that procedural step was taken the action by the plaintiff against the second defendant would be a futility and should therefore be seen as not just a failure to disclose a cause of action but, on this basis of the application, an abuse of process: r 13.4(1)(c) and r 14.28(1)(c) UCPR.

11 On behalf of the plaintiff it was submitted that there are a number of reasons why the settlement deed basis of the application should not be accepted. Mr Rogers, counsel for the plaintiff, referred to there being the need for a number of things to occur or facts to be found before it could be concluded that the release in the settlement deed rendered the proceedings against RGMC futile. Mr Young had referred to PCL having obligations as a trustee of that release for RGMC but Mr Rogers submitted that whether that is indeed the case is not self evident and would need to be a matter determined upon a hearing of the evidence in that connection. Mr Rogers characterised the submission made on behalf of RGMC as an assertion that there was an abuse of process because of the possibility that RGMC could join PCL as a party to the proceedings. Mr Rogers pointed out that RGMC has not done that and the proceedings had been on foot for some twelve months.

12 It was submitted that before it could be concluded that the proceedings against the second defendant were futile it would be necessary to make findings of fact as to the meaning of the release and in particular the precise extent of the reach of the term "agents". There would also need to be a finding of fact that RGMC was indeed an agent of PCL but it was submitted that this is not self evident upon the material before the Court.

13 The short answer to the second basis of the application is that I accept the submissions of Mr Rogers. The material before the court is quite inadequate to enable a finding to be made that RGMC was the agent of PCL. This may well have been the case but the evidence before me is insufficient to permit a definitive finding to be made. All I have is the assertion on behalf of RGMC that it was an agent of PCL. That assertion is in issue.

14 The material before me indicates that an entity related to RGMC, that is Royal Guardian Mortgage Management Pty Limited (RGMM), entered into an arrangement with Australian Mortgage Securities Limited (AMS) whereby RGMM would act as a mortgage originator and manager on behalf of AMS. The Correspondent Deed which established and regulated this relationship contains specific provision that RGMM "is an independent contractor and is not the agent, partner or employee of AMS or the Mortgagee" (emphasis added). RGMC is a party to this deed but in the capacity of guarantor for RGMM. The loan application with which this proceeding is concerned was made to RGMC. It was then submitted by RGMM to AMS for consideration. The loan funds were ultimately provided by PCL.

15 That is the nature of the limited material placed before me in support of the motion. It does not provide a basis to conclude that it is beyond argument that RGMC was an agent of PCL.

16 Mr Rogers also pointed to the possibility that RGMC was acting as the agent of Ms Irons if, when it received the loan application on her behalf, it "shopped around" between lenders to find somebody who was capable and willing to lend money in the given circumstances. He submitted that at least at that stage of the transaction it was more probable that RGMC was Ms Irons' agent. However, it is not apparent from the evidence before me whether RGMC did in fact "shop around" between lenders as opposed to simply processing the application through the chain that ultimately led to PCL. The only view open on this application, with the inherently limited material available, is that it is possible that RGMC was an agent of PCL, and it is also possible that it was an agent of Ms Irons. It is also possible that it might have been an agent for her at one stage and an agent of PCL at another stage. It might be possible to say that one is more likely than the other but the material does not enable a finding beyond possibilities.

17 In submissions in reply, Mr Young submitted that RGMC could not possibly have been an agent for Ms Irons because her case is that she had no involvement in the transaction at all. No authority was cited in support of this submission. Despite the question of whether RGMC was Ms Irons' agent, the critical issue is whether it had a duty to her when, it must be assumed for the purposes of this application, it was on notice that a loan application in her name was made in questionable circumstances. It has been held that a solicitor deceived by the fraud of a co-owner of property had a duty to the other co-owner, notwithstanding the solicitor had no dealing with that other co-owner, and that a justice of the peace who purported to witness that other co-owner's signature where the signature was not made in the presence of the justice of the peace, were both in breach of a duty to the other co-owner: Graham v Hall & Anor [2006] NSWCA 208; 67 NSWLR 135. If there can be liability in those circumstances it does not seem to me to be self evident that RGMC had no duty towards Ms Irons because she was not in reality a participant in the loan transaction.

18 Aside from the question of agency, there are issues as to the correct construction of paragraph 4.3 of the settlement deed which sets out the release upon which the RGMC seeks to rely and whether it could be enforced against the plaintiff for the benefit of RGMC. As none of these matters are self evident on the material placed before me it cannot be "clearly seen" (Walton v Gardiner, supra) that the plaintiff's claim against the second defendant will inevitably fail. I am not satisfied that there is an abuse of process.

19 In relation to the other point relied upon by RGMC, Mr Rogers drew my attention to certain features of the two loan application documents. It is apparent from a comparison of the two that there are some curious inconsistencies. Mr Rogers submitted that those inconsistencies are so apparent that "a reasonable person in the position of the second defendant would not readily allow the loan to go forward without making better enquiries". He submitted that there was a duty that will vary according to the findings of fact that might be made. If the finding was that RGMC was the agent of the purported borrower then it was the duty of an agent not to take steps which would impair the principal's interests. The steps he was referring to were the transmission of the one loan application to the lender without raising an alert as to the possibility of something being amiss because of the inconsistency with the other loan application which was submitted to RGMC on the same day. The security offered in the application was Ms Irons' property and, it was submitted, RGMC had a duty to ensure her interests were protected.

20 Mr Rogers also submitted that even if it be found that RGMC was an agent of the lender then it still had a duty in relation to Ms Irons. This was said to be on the basis that RGMC was on notice that the purported borrower, Ms Irons, would not, or might not, receive the benefit of the loan funds. It followed that because it was her property being offered as security for the loan, RGMC had a duty to refrain from proceeding without further inquiry. Whilst Mr Rogers conceded that this might not be an attractive proposition he maintained that it could not be completely rejected on an application to summarily dismiss or strike out.

21 In my view, determination in favour of RGMC of its application upon this basis at least requires rejection out of hand of the notion that RGMC was an agent for the purported borrower. For reasons given earlier I am not of the view that this is possible upon the materials presently before the Court.

22 The second defendant's notice of motion is dismissed with costs. **********

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