Permanent Custodians Limited v Hoey [2009] NSWSC 1073 | Case summary

JUDGMENT 1 HER HONOUR: These are proceedings for possession of a property at Erskineville. The registered proprietor of the property is Mr Peter Hoey. On 9 June 2006, Permanent Custodians Limited advanced $500,000, ostensibly as directed by Mr Hoey, against the security of a mortgage over the property. Mr Hoey, however, received the benefit of less than half of the funds advanced. An amount of $255,236.91 was paid directly to Mr Geoffrey Ly on the strength of a direction to pay on which Mr Hoey's signature had been forged. 2 The direction to pay and other documents associated with the loan were signed in the name of Mr Hoey by Mr Duc Hong Truong (also known as Johnny Truong), trading as "First Priority Home Loans". Mr Truong was acting in the capacity of a mortgage originator and it appears that the original loan proposal was, in turn, brought to him by Mr Ly in the same capacity. Mr Hoey has brought a cross-claim against Mr Ly, Mr Truong and various other parties. Permanent has brought a cross-claim against Mr Ly, Mr Truong and one other party. 3 The proceedings were listed for hearing commencing on 6 October 2009. At the outset of the hearing, however, the Court was informed that most of the claims had been settled by agreement between the parties. The only outstanding claims are those brought against Mr Ly and Mr Truong. The parties have, however, been unable to locate Mr Ly and he has never been served with either of the cross-claims against him. Accordingly, the only issues to be determined in the proceedings are those raised by the cross-claims against Mr Truong. 4 There was no appearance for Mr Truong at the hearing. It appears that, in addition to his being a defendant to each of the cross-claims, he was the recipient of a subpoena issued at the request of one of the parties. On 2 October 2009, Mr Truong sent an email to the Court alleging that the subpoena had not been validly served and stating: "On the above grounds I do not consider that I have to attend court. I have provided all the information through my defence and affidavit. I do not believe there is any other additional information which I can provide. At this stage, the cost incurred in defending my case is in excess of $50k. This is money which i have borrowed and still repaying (sic). I have also attended the first mediation in hope that this matter can be settled, unfortunately the parties could not reach an agreement. I cannot afford a solicitor and barrister and fear that should I attend without legal representation I will not fully understand the situation and may jeopardise my rights. I sincerely hope that justice will prevail." 5 Until April 2009, Mr Truong was represented in the proceedings by a solicitor from Champion Legal. That firm filed a defence to each cross-claim in December 2008 and served an affidavit sworn by Mr Truong in January 2009. On 23 April 2009, however, Champion Legal filed a Notice of Ceasing to Act. They were informed after that date that the matter had been listed for hearing (see Ex A), but it is clear in any event (from his email to the Court) that Mr Truong was aware of the hearing date. In those circumstances, I was satisfied that it was appropriate to proceed to hear the cross-claims against Mr Truong in his absence. 6 Mr Hoey's cross-claim invokes the provisions of subdivision D of Part 2 of the Australian Securities and Investment Commission Act 2001 (Cth). The cross-claim also alleges that Mr Truong has engaged in conduct that was misleading and deceptive in breach of s 52 of the Trade Practices Act 1974 (Cth), but it is doubtful whether that provision has any application in the present case, having regard to s 51AF of the Act. A separate hurdle to the claim under the Trade Practices Act is the fact that, so far as the evidence before me discloses, "First Priority Home Loans" is a trading name, not a company. 7 The cross-claim brought by Permanent seeks damages under the Fair Trading Act 1987 and sections 12GF and 12GM of the ASIC Act. Permanent alleges that documents and information provided to it and its agents by Mr Truong made representations in trade or commerce and in relation to financial services which were misleading or deceptive or likely to mislead or deceive. Permanent further alleges that, had the representations not been made, Permanent would not have approved the loan and would not have advanced the funds. 8 By his defences to the cross-claims (which are verified), Mr Truong admits that he forwarded certain documents to Permanent's mortgage manager, AFIG Wholesale Pty Limited. However, he denies that, by doing so, he represented that the information contained in those documents was true and correct. 9 The documents which Mr Truong admits forwarding to AFIG include the "DIRFT and Background Report", the loan application form, the Declaration of Affordability, the Record of Interview and Identification, the Fastdoc Declaration of Financial Position and the signed letter of offer. 10 Neither of the cross-claims articulated the representations said to have been made by Mr Truong in forwarding those documents. At the hearing of the cross-claims, Mr Burke, who appeared for Permanent, relied on the following representations made by the documents (in each case, the evidence relied on by Mr Burke is identified in brackets):

(h) that Mr Hoey had signed the letter of offer (Ex C, page 36). 11 Mr Costa, who appeared for Mr Hoey, adopted the same representations in support of Mr Hoey's cross-claim. I have considered the documents relied upon by Mr Burke and am satisfied that each of those representations was made by Mr Truong by his conduct in forwarding the documents to AFIG. I do not accept, as suggested in Mr Truong's defence, that the documents were simply forwarded at the request of other people and that there was no representation that the information contained in them was true and correct. Plainly, in the circumstances in which the information was forwarded to AFIG and having regard to the contents of the documents themselves, the act of forwarding the documents carried the representations contended for by the cross-claimants. 12 Mr Burke submitted that the matter was put beyond doubt by the terms of a deed entered into in 2003 that governed the relationship between Permanent's trust manager and Mr Truong as mortgage originator. By clause 11.1 of that Deed, Mr Truong represented and warranted that certain information would be true and correct in relation to loan applications and loan proposals submitted by him. I do not think, however, that it is necessary to have resort to the contents of that document in order to reach the conclusion that Mr Truong's provision of the relevant documents to AFIG carried the implication that the representations made in those documents were true and correct. 13 In support of the contention that the representations were misleading or deceptive or likely to mislead or deceive, Permanent relied on the evidence of Mr Hoey. Permanent also tendered parts of the affidavit sworn by Mr Truong and served on his behalf while his solicitor was still on the record. 14 The evidence of Mr Hoey established that he had never met Mr Truong and had never provided any information to him in relation to the loan. He further stated that he had never been a mechanic and had never told anyone that he was a mechanic, or that he was self-employed as a mechanic. 15 As to the documents purportedly signed in Mr Hoey's name, Mr Hoey stated that he had never seen any of those documents until they were shown to him by his solicitor in these proceedings. 16 The parts of the affidavit of Mr Truong tendered by Permanent reveal an extraordinary explanation for his participation in the loan to Mr Hoey. Mr Truong states that the loan proposal was originally brought to him by Mr Ly. He read through the documents in Mr Ly's presence (not Mr Hoey's) to ensure that they were filled in correctly. He noted that one section of the loan application had not been completed. He was also aware that a credit check that he had previously performed pre-dated the loan application. He told Mr Ly that AFIG and the mortgage insurer may "have a problem with that" and that the borrower would need to sign a new application. 17 Mr Truong's affidavit states (at paragraphs 85 and 86): "85. The next day Mr Hoey (sic) returned to my mother's house with a completed copy of a new loan application as well as the original loan application. I looked through the new loan application and said words to the effect: "The new one's not signed." 86. Mr Ly said words to the effect: "No. It's okay. Just sign it. We've wasted lots of time already. Do you want this business? Otherwise I will give it to someone else. The borrower, Mr Hoey, wants the loan, otherwise he wouldn't have given me his driver's licence and birth certificate and Medicare card. Just send it in." 18 I am satisfied that the reference to Mr Hoey in paragraph 85 is an error and that it is intended to be a reference to Mr Ly. Mr Truong states that Mr Ly then handed him a copy of the loan application that had been signed by Mr Hoey and the new loan application that had been completed but not signed. Mr Truong then traced Mr Hoey's signatures from the original loan application onto the new loan application. Mr Truong states that he then sent the new application to AFIG and did not keep a copy of the original loan application. 19 In paragraphs 93 and 94 of his affidavit, Mr Truong states that he also completed the "record of interview and identification" and the "DIRFT (Do It Right First Time) and Background Report" and sent all of the documents to AFIG "to make their assessment." 20 Mr Truong states that, after he submitted that material, he received a call from someone at AFIG who said words to the effect: "You've included the old declaration form in the application. We'll need a new Fastdoc declaration signed". Mr Truong provided the relevant form to Mr Ly. When it was returned, he noticed that it had not been signed by Mr Hoey. Mr Truong states that Mr Ly said to him words to the effect: "Just sign it. The client wants the loan." Mr Truong states that he then signed the new Fastdoc declaration form and sent it to AFIG. 21 When the formal approval for Mr Hoey's loan was received by Mr Truong, he signed that in Mr Hoey's name as well. He states that, in the period leading up to the receipt of the formal approval, Mr Ly was calling him initially about three times a week and then about twice a day. He printed out the loan proposal and signed it "on behalf of Mr Hoey". In fact, the loan proposal is signed in the name of Mr Hoey and was forwarded to AFIG under cover of a facsimile sheet signed by Mr Truong (see pp 91-98 of exhibit E, received by Permanent at pp 36-44 of exhibit C). 22 On the strength of that evidence, I am satisfied that each of the representations was misleading or deceptive or likely to mislead or deceive. 23 The evidence of Mr Hamish Blank, Head of Collections for AFIG, established that AFIG would not have approved the loan or the mortgage on behalf of Permanent if it had known that the information provided by Mr Truong was not true and correct in all material respects. Mr Blank's affidavit provided an analysis of each of the documents provided by Mr Truong by reference to the applicable lending guidelines and procedures. The true position represented a significant departure from those guidelines and I am satisfied on the strength of that evidence that, but for the misleading representations made by Mr Truong, the loan would never have been made at all. 24 For the purposes of the cross-claim brought by Permanent, that is a sufficient basis, in my view, for a finding that Permanent has suffered loss or damage by Mr Truong's conduct. In order to quantify the loss, it is necessary to consider the terms on which the proceedings between Permanent and Mr Hoey were settled. 25 Orders were made by consent at the outset of the hearing that provided for Mr Hoey to give possession of the land to Permanent, but that execution of any writ of possession be stayed until 28 November 2009. It is contemplated in a separate agreement between the parties (noted in the consent orders) that Mr Hoey will attempt to sell the property in the meantime and that, upon settlement of any such sale, Permanent will provide Mr Hoey with a discharge of mortgage in exchange for payment by bank cheque of $613,028. However, if Mr Hoey has not exchanged unconditional contracts for the sale of the property on or before 27 November 2009, the agreement requires him to give Permanent vacant possession of the property on 28 November 2009 with the intention that Permanent will then exercise its power of sale. 26 The agreement also provides that a firm of solicitors that acted for Permanent on the loan transaction, who were also cross-defendants to the two cross-claims, will pay $100,000 to Permanent on or before 28 October 2009. 27 As at 2 October 2009, the balance outstanding on the loan was $836,811.16 and interest is presumably accruing on that amount. Accordingly, assuming that the proceeds of sale of the security property exceed $613,028 and depending on when the sale is completed, it appears likely that Permanent's loss or damage will be in the order of $124,000. However, it is not possible to quantify the loss more precisely at this stage. 28 I am satisfied that Permanent is entitled to judgment in the amount of the balance of the loan (including accrued interest) outstanding as at the date on which judgment is entered, taking account of a credit in the amount of $100,000 from the date on which that amount is received by Permanent from the cross-defendant solicitors and a credit for the payment from Mr Hoey (or the proceeds of sale of the security property, if there is a mortgagee sale) from the date on which that amount is received by Permanent upon settlement of the sale. 29 As to the cross-claim brought by Mr Hoey, it was contended at the hearing that the whole of the amount of $613,028 that Mr Hoey has agreed to pay to Permanent represented Mr Hoey's loss or damage suffered by Mr Truong's conduct. However, Mr Costa conceded that Mr Hoey did receive the benefit of part of the funds advanced. Mr Hoey's affidavit did not address that issue. 30 An additional consideration is the fact that the cross-claim served on Mr Truong sought only $255,236.91 against him, being the amount advanced by Permanent to Mr Ly without Mr Hoey's written authority. There was no evidence that Mr Truong is on notice of any additional claim. In my view, in the light of Mr Truong's absence at the hearing, it is appropriate to confine Mr Hoey's claim to the amount sought in the pleadings. 31 It is necessary to give careful consideration to the question whether Mr Hoey has established an entitlement to damages in that sum. There is no suggestion that Mr Hoey relied on any representation made by Mr Truong. Mr Burke observed that the evidence supported the proposition that the loan would never have been made but for the representations made by Mr Truong. He suggested that, on that analysis, Mr Hoey's loss was suffered "by that conduct". It is necessary, however, to consider whether that is sufficient to establish causation for the purposes of sections 12GF and 12GM of the ASIC Act. 32 The relevant principles were considered by the High Court in Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494. In that case, Gaudron J at [19] formulated the test by reference to whether the applicant would have entered into a contract "but for" the misleading and deceptive conduct, but that was in a context quite different from the circumstances of Mr Hoey's claim. 33 In a joint judgment, McHugh, Hayne and Callinan JJ stated that the requirement is to identify a causal link between loss or damage and conduct done in contravention of the Act. Their Honours stated that "a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct", but added that this inquiry may not conclude the question. 34 Gummow J, after referring to the reasoning in Wardley Australia Limited v Western Australia [1992] HCA 55; (1992) 175 CLR 514 as to whether the common sense concept of causation discussed in March v Stramare [1991] HCA 12; (1991) 171 CLR 506 is taken up by s 82 of the Trade Practices Act, stated at [109]: "The "common sense" answer to the question of causation which arises under a provision such as s 82 cannot be given, as Lord Hoffman recently has stated, "without knowing the purpose and scope of the rule" enacted by s 82." (citation omitted) 35 The proposition that the question of causation in the context of a statutory regime is to be determined by reference to the subject, scope and purpose of the statute was reinforced in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568 at [54] per McHugh J (where his Honour cited the same remarks of Lord Hoffman quoted by Gummow J in Marks); see also [99] per Gummow, Hayne and Heydon JJ; and see Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627 at [30] per Gleeson CJ; at [45] per Gummow and Hayne JJ. 36 The objects set out in s 1 of the ASIC Act do not explicitly refer to consumer protection, notwithstanding the fact that that is plainly one of the objects of the Act. The provisions of subdivision D of Part 2 of the Act are calculated to protect consumers of financial services such as Mr Hoey from the very kind of conduct engaged in by Mr Truong. It seems to me to be perfectly in accordance with the purpose and scope of the statutory regime created by the Act that a person in the position of Mr Hoey should be compensated for the liability he now has to Permanent as a result of the payment to Mr Ly which would not have been made if Mr Truong had not engaged in conduct in contravention of the Act. I am satisfied that there is a sufficient causal link between Mr Ly's diversion of part of the funds advanced by Permanent against the security of Mr Hoey's property and the conduct of Mr Truong. 37 The distribution of the funds advanced was set out in paragraph 2 of Permanent's cross-claim against Mr Truong. In particular, it was asserted that the sum of $255,236.91 was paid by Permanent to Mr Ly. In response to that paragraph of the cross-claim, Mr Truong's defence stated: "[Mr Truong] does not plead to paragraphs 1 to 2 of the second cross-claim as those paragraphs do not contain any allegations against him." 38 In the absence of any denial of those allegations, they may be taken to be admitted by Mr Truong. I am satisfied that the amount of $255,236.91 was paid by Permanent to Mr Ly and was not received by Mr Hoey for his benefit. In my view, that sum represents loss suffered by Mr Hoey by conduct of Mr Truong in contravention of subdivision D of Part 2 of the ASIC Act. 39 Accordingly, the orders I propose are:

Permanent Custodians Limited v Hoey

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Judgment (23 paragraphs)

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Cases Cited (10)