HER HONOUR: These proceedings arise out of a forged mortgage provided to Perpetual Trustee Company Limited to secure an advance of $480,000. The loan was proposed to Perpetual by a mortgage originator, CTC Group Pty Limited. The relationship between those two companies was governed by a mortgage origination deed dated 9 August 2004.
Perpetual brought proceedings to enforce the mortgage against the registered proprietor of the property, Mr David El-Bayeh. Mr El-Bayeh defended the claim on the basis that the mortgage was forged by his brother, Youssef Bayeh, and filed a cross-claim against Youssef. Perpetual then joined the mortgage originator, CTC, as second defendant to the proceedings, seeking an indemnity pursuant to the mortgage origination deed.
Those and related claims were determined by me in 2010: see Perpetual Trustee Company Limited v El-Bayeh [2010] NSWSC 1487. I accepted David El-Bayeh's claim that the mortgage was forged. I held, at [156], that Perpetual was entitled to judgment against him only in the amount of $181,000, reflecting an amount paid by Perpetual to his benefit to discharge an earlier mortgage to Westpac.
I dismissed Perpetual's claim against CTC for want of evidence. The representative of CTC who proposed the loan to Perpetual, Mr Naaman, was not called as a witness in the trial. Unsurprisingly, there was no evidence from the fraudster. The evidence as to the documents presented by Mr Naaman on behalf of CTC to Perpetual was summarised at [40] to [43] of my judgment as follows:
[40] Mr Naaman submitted the loan application to Perpetual by facsimile dated 18 August 2004. The facsimile included six documents purportedly signed by David El-Bayeh and dated 5 August 2004 (interestingly, four days before the date of the Mortgage Origination Deed between Perpetual and CTC). As already noted, the facsimile also included a document purportedly signed by David El-Bayeh in the presence of Mr Naaman on 16 August 2004 (the "Lodoc borrower's income declaration").
[41] In the case of each of those documents, the signature and printed name attributed to the applicant were in the surname "El-Bayeh", not "Bayeh". The mortgage originally granted to Westpac in 1989 is in the name Bayeh.
[42] Mr Naaman's facsimile to Perpetual also included a "100 point check" attaching a photocopy of David El-Bayeh's passport and Medicare card and a rates notice from Parramatta City Council relating to the property. As to the rates notice, it was common ground that Youssef El-Bayeh received all documents and paid all out-goings in relation to the property, so it is certainly not impossible that Youssef could have provided that document to CTC without reverting to David. As to the passport and Medicare card, David El-Bayeh said that they were kept in a drawer (or a cupboard: T144.19) at the family home at Winston Hills, which was also the home of Youssef and his wife and children. I am satisfied that Youssef and indeed other members of his family had ready access to those documents.
[43] If those documents were provided to Mr Naaman by someone other than David El-Bayeh, there are many possibilities as to Mr Naaman's position. As submitted on behalf of CTC, one possibility is that a family member with a resemblance to David El-Bayeh impersonated him and gave Mr Naaman no cause to suspect that anything was amiss. It is also possible that, as arguably reflected in a later file note made by David El-Bayeh (considered below), Mr Naaman was given some explanation as to why David El-Bayeh could not present himself in person and that Mr Naaman (negligently) proceeded with the loan on that basis, relying on the identification documents provided to him but never seeing or speaking directly to David El-Bayeh. A third possibility, which is speculative, is that Mr Naaman was a knowing participant in the fraud. It will be necessary to return to an assessment of those possibilities in the context of Perpetual's claim against CTC.
Perpetual Trustee Company Limited v CTC Group Pty Limited [2015] NSWSC 130 | Case summary | Zoe
I summarised Perpetual's case against CTC as follows, at [166] to [170]:
[166] Against that background, Perpetual's claim against CTC was put on the basis of the following material facts. First, in light of the undisputed fact that Mr Naaman obtained a photocopy of David El-Bayeh's passport, it was put that he had the means of identifying David El-Bayeh by reference to the passport photograph. As noted on behalf of CTC, however, the possibility remains that a family member with a resemblance to David El-Bayeh impersonated him in that meeting. In the absence of any reliable account as to what transpired in Mr Naaman's office, it is not possible to reach any firm conclusion on that issue. I suspect what happened was that Mr Naaman was prevailed upon to accept David El-Bayeh's identification documents without ever actually meeting David El-Bayeh, but suspicion is not enough to satisfy Perpetual's onus of proof on this issue.
[167] The second matter relied upon by Perpetual is that Mr Naaman was on notice that the funds were to be raised for the purposes of Youssef El-Bayeh. So much is apparent from Youssef El-Bayeh's affidavit, where he said (at paragraph 23):
"In about August 2004 a friend referred me to a brokerage firm called "CTC" in Parramatta. I attended the offices of CTC and I spoke with a person by the name of Naaman and we had a conversation with words to the following effect:
I said: "I have a property in Parramatta that's in my brother's name that I need to borrow money on. Can you help me?"
He said: "I will need the property details, valuation fees, details of the current loan and some information from your brother"
I said: "ok, good, I will give my brother your details and get him to talk to you. You can get any information that you need about him from him and I will get you some details about the property."
[168] Once again, however, the difficulty remains that it is not known whether Mr Naaman subsequently did speak to a person who did a convincing impersonation of David El-Bayeh.
[169] The final matter relied upon by Perpetual is that it would be normal practice for a mortgage originator to check the passport photograph against the applicant for the loan, as accepted by Mr Saadie in his evidence (at T241.45-T242.15). Perpetual submits that, if Mr Naaman had done that, there must have been a difference between the impersonator and the photograph. That point is in substance the same as the first point.
[170] Perpetual did not seek to place any reliance on the appearance of the signatures themselves. It was noted on behalf of CTC that even David El-Bayeh conceded the appearance of similarity between the signatures attributed to him on the loan application submitted by CTC and his own signature. Mr Gregg noted the pictorial similarity between the two and the fact that it required a microscopic examination of the kind carried out by Mr Anderson to induce the observer to a different conclusion. He submitted that Mr Naaman could not reasonably be expected to have concluded that the signatures were forged.
I concluded, at [173]:
Ultimately, the evidence has not brought me to a state of satisfaction as to any of the breaches of duty or statute alleged. The bare fact of the fraud, without any reliable evidence as to what happened in the meetings that brought it about, is not enough to establish that Mr Naaman did not act with reasonable care. It follows that Perpetual's claims against CTC and Mr Saadie must be dismissed.
Perpetual appealed against that part of the decision. The appeal was allowed. Evidently discounting the first possibility adverted to at [43] of my judgment set out above, the Court made a finding of fact on the balance of probabilities that Mr Naaman was never provided with David El-Bayeh's original passport so as to enable the required comparison to be made between that original photograph and the person presenting to sign the loan application.
The Court of Appeal was fortified in that conclusion by an alleged admission made by the managing director of CTC, Mr Saadie, at a meeting in March 2006. The Court commented that I had not mentioned Mr Saadie's statements in my consideration of Perpetual's claim against CTC. I had in fact set out my consideration of those statements in my recitation of the relevant facts earlier in the judgment from [68], especially at [79] and [80] as follows:
[68] David El-Bayeh said that the first time he ever went to the offices of CTC was in December 2006 when he was telephoned by Mr Saadie. He said that when he arrived at the meeting he shook hands with Mr Saadie and that was the first time he had met him. Present at the meeting at that stage were David's brother Father Simon (a priest), his brother-in-law Assaad, Youssef El-Bayeh and Mr Saadie. David El-Bayeh said (at paragraph 53 of his affidavit sworn 14 July 2008):
"During the meeting I said to Michael Saadie words to the effect, "I can't believe Joe has borrowed all this money in my name. How did he do it? It's fraud". Michael Saadie replied "I thought you were sick and could not get out of bed. I thought that for whatever reason, you did not want to show your face. That's why we proceeded with the loan application without you. We need to resolve this issue and your brother needs time to obtain more finance". Michael Saadie then asked me for my licence which I provided. He took a photocopy of it."
…
[79] The difficulty is to know what to make of the words said. There is no evidence that Mr Saadie was involved in the preparation of the loan application itself. Whatever information he had as to those events had been told to him by others. It was common ground that he was initially approached by Yousseff El-Bayeh in company with Father Simon and Assaad. David El-Bayeh was invited to join the meeting after Youssef had explained to Mr Saadie why they were seeking his assistance.
[80] A possibility is that Mr Saadie was stating his understanding as to why Youssef El-Bayeh had been allowed to attend to the execution of the mortgage and the loan agreement (the signatures on which differ so obviously in appearance from the signatures on the CTC loan application). He may simply have been repeating something he had just been told before David El-Bayeh joined the meeting. Those are all matters of speculation.
In any event, the Court of Appeal held that Perpetual had established its case against CTC on the balance of probabilities and the appeal was allowed on that basis.
The Court held, at [34], that Perpetual had established its case against CTC and that its appeal should be allowed and judgment entered in its favour. Order 3 made by the Court on 13 August 2012 was:
"If the parties are unable to agree on the amount of the judgment that should be entered in favour of Perpetual, direct that they lodge with the registrar within seven days of the date of this judgment an appropriate form of consent order."
In the event that the parties were unable to agree the Court directed Perpetual to lodge within 14 days of the judgment written submissions as to the amount that should be entered in its favour and a timetable for submissions in reply.
As at May 2014, the parties evidently remained unable to agree. On 28 August 2014, in a further application determined on the papers, the Court of Appeal ordered that the proceedings be remitted to the Common Law Division to determine the amount of damages to be awarded to Perpetual and to make any consequential orders as to costs or otherwise: Perpetual Trustee Company Ltd v CTC Group Pty Ltd (No 3) [2014] NSWCA 290. The Court ordered that the costs of "the present application" - that is, the application determined on the papers - be paid by the same party and to the same extent as may be ordered by the Common Law Division in respect of the costs of the hearing on the remittal. This judgment determines the matter remitted by those orders.
As already noted, Perpetual's claim is based on the terms of the mortgage origination deed, clause 14.3 of which provides:
14.3 Originator's indemnity
The Originator [CTC] indemnifies the Trustee [Perpetual] and the Manager [Resimac] against any liability or loss arising from and any costs, charges and expenses incurred in connection with:
(a) the payment, omission to make payment or delay in making payment of an amount referred to in clause 14.1; or
(b) a Termination Event other than those set out in clauses 12.1(k), 12.1(s) and 12.1(t) (unless that event is caused or contributed to by the Originator); or
(c) the Trustee or the Manager acting in connection with this deed in good faith on telex, facsimile or telephone instructions purporting to originate from the offices of the Originator or to be given by an Authorised Officer of the Originator; or
(d) any breach by the Originator of any of its warranties or obligations under or arising from this deed or failure to perform any obligation under this deed,
including, without limitation, liability, loss, costs, charges or expenses on account of funds borrowed, contracted for or used to fund any amount payable or expense incurred under this deed including in each case, without limitation, legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is the higher.
Perpetual seeks the following orders: a declaration that Perpetual Trustee Company Limited is entitled to indemnity for its liability and losses arising from the breach by CTC of the mortgage origination deed dated 9 August 2004; judgment against CTC in a sum representing the balance of the debt outstanding under the loan; and judgment against CTC in the sum of $1,002,078.13 representing Perpetual's costs on an indemnity basis.
The submissions filed on behalf of Perpetual acknowledge that the declaratory relief sought is not strictly necessary. Having regard to the terms of the judgment of the Court of Appeal, I do not think it is appropriate for me to make an order in those terms, since that is an issue that has been determined by that Court.
As to the claim for an amount representing the balance of the debt, the amount initially claimed has been revised by Perpetual in response to submissions from CTC and also to reflect an amount received in September 2014 from Youssef Bayeh's composition payment in his estate in bankruptcy.
The final amount claimed is $437,199.41. The only issue taken by CTC with the sum claimed relates to the fact that an amount in the order of $96,000 was at some point received by Perpetual from a mortgage insurer and the amount calculated by Perpetual does not reduce the interest calculation to reflect its having had the benefit of the receipt of that sum.
In my view, the amount calculated by Perpetual is properly demonstrated in the material before me to be an appropriate sum reflecting Perpetual's loss. On the premise agreed between the parties, that this is a "nil-transaction" claim (that is, that the proper method of calculation is to proceed on the basis that, but for the breach of the deed, the loan would not have been advanced), I am satisfied that it is appropriate to award the sum claimed by Perpetual in respect of the outstanding debt.
As to the claim for legal costs, Perpetual relies in particular on the wording of clause 14.3, which creates an indemnity against "any liability or loss arising from and any costs, charges and expenses incurred in connection with" the matters identified in the clause. The words "arising from" were considered by Brereton J in a decision relied upon by Mr Simpkins of Senior Counsel, who appears for Perpetual: Quintano v B W Rose Pty Ltd [2008] NSWSC 793. His Honour said at [7] to [8]:
The words "arising from" require that there be some causal connection between the claim and the specified matter, but the requisite nexus is satisfied by a less proximate relationship than that required by the phrase "caused by" [GIO (NSW) v R J Green & Lloyd Pty Ltd (1966) 114 CLR 437, 443 (Barwick CJ), 445 (Menzies J), 447 (Windeyer J)]. It is true that in Winspear v The Accidental Insurance Co Limited (1880) 6 QBD 42, a policy covering accidental death other than those "caused by or arising from" a natural disease or weakness was held to cover an accidental death by drowning, even though the insured fell into the water because he was having an epileptic fit - on the basis that the cause of the death was drowning, not the epileptic fit. The short ex tempore judgment of Coleridge LCJ, with whom Baggallay and Brett LJJ concurred, does not give attention to the phrase "arising from". While recognising that that case did involve an exclusion clause - unlike GIO v RJ Green & Lloyd which concerned an insuring clause - nonetheless it would be unreasonable to attribute to the words "claim arising from" a requirement for a more proximate nexus when they appear in an exclusion clause than when they appear in an insuring clause. As, in my view, Winspear is inconsistent in that respect with GIO v RJ Green & Lloyd, I must follow the latter; accordingly, I do not accept Prestige's submission that the relevant exclusions can operate only if their subject matter is the proximate cause of the claim.
It will satisfy the requirement that a claim "arise from" a matter, if it originates in, springs from, or has its foundation in, that matter [cf Walton v National Employers' Mutual General Insurance Association [1973] 2 NSWLR 73, 84]. A cause of action arises from a set of material facts, proof of which found the cause of action. Similarly, a claim arises from the underlying facts that, if established, justify the claim. In my view, a claim can be said to arise from a matter - at least - if it has a foundation in that matter, so that the matter is one of the underlying facts that, if they exist, together justify the claim.
Mr Simpkins submitted that, construed in accordance with those remarks, the deed provides a broad indemnity unqualified by any requirement to establish that the legal costs now claimed were reasonably incurred. He noted (correctly) that there is no express requirement of reasonableness in the terms of the clause and submitted that that could only be the approach if a term to that effect were to be implied. It was not suggested on behalf of CTC that any such implied term should be found.
On the strength of that analysis, Perpetual claims all of its legal costs in fact incurred in a series of proceedings. The evidence in the affidavit of Brooke Spain sworn 11 April 2014 sets out, in table form, "the legal fees incurred by Perpetual." The separate proceedings in respect of which costs are claimed are:
1. the costs of the proceedings at first instance before me in the sum of $644,710.92;
2. the costs of negotiating costs orders payable by Perpetual in favour of David El-Bayeh in the sum of $6,904.70;
3. an amount paid by Perpetual to David El-Bayeh in satisfaction of order 3 entered on 9 September 2011, being $100,000;
4. the costs of the proceedings in the Court of Appeal in the sum of $190,444.48;
5. the costs of seeking to enforce the judgment against the bankrupt estate of Youssef El-Bayeh in the sum of $34,301.18;
6. the costs of a second application for special leave to appeal to the High Court in the sum of $25,716.85;
7. giving a total of $1,002,078.13.
There was a first application for special leave to appeal to the High Court but those costs were settled by agreement between Perpetual and CTC. So far as the material before me reveals that appears to be the only matter on which the parties have been able to agree.
Mr Gregg, who appears for CTC, did not take issue with the contention that, on its proper construction, the deed itself contains no qualification to the indemnity imposing a requirement of reasonableness. He submitted, however, that the question is one of proof. As the remarks of Brereton J set out above explain, in the enforcement of an indemnity for loss arising from an event, there must be some causal connection between the claim and the specified matter. The additional words in clause 14.3, "any costs charges and expenses incurred in connection with those events", appear to me to refer to costs, charges and expenses incurred in connection with the loss "arising from" the specified event, which would give rise to the same requirement.
Mr Gregg submitted that the form of the evidence relied upon by Perpetual in support of the claim for legal costs (as opposed to the outstanding debt) in the present case did not admit of any possibility of the Court being comfortably persuaded that those costs arose from the breach of obligation found by the Court of Appeal.
I should note that the written submissions relied upon by CTC put the matter slightly differently. It was submitted, in effect, that the costs needed to be assessed pursuant to r 42.5 of the Uniform Civil Procedure Rules 2005 (NSW) and that any order of the Court should reflect that. I do not accept that any award to Perpetual in respect of its claim based on legal costs would be amenable to the assessment process provided for under the Rules. Perpetual's is not a claim for legal costs but rather a claim pursuant to the indemnity.
The causation issue, however, is more difficult. Perpetual's claim proceeded on the premise that the only requirement is to establish some causal connection between the breach of obligation found by the Court of Appeal and the commencement of any proceedings. The assumption appears to be that once such a causal connection is established, CTC is liable under the mortgage origination deed for every item listed in the lengthy documents provided in the affidavit of Ms Spain.
Mr Gregg pointed, by way of example, to a number of instances from which he submitted it could be seen that the necessary causal connection on an individual item by item basis is wanting. He identified by way of example page 55 of tab 7 to Ms Spain's affidavit, which includes a claim for costs of "emailing the defendant's brother's solicitor regarding the payout figure", and on page 71 of the same document an entry dated 23 August 2007 for "drafting to Ms Weers to update the MDM website." Mr Gregg did not purport to provide any exhaustive list of complaints in that respect but only to point to the difficulty for this Court concluding that the legal fees set out in the affidavit arise from or have any causal connection with the breach of obligation found by the Court of Appeal.
In my view there, is force in that contention. It seems to me to be one thing to say that the terms of the indemnity are broad but altogether another to proceed on the premise on which Perpetual's claim has proceeded.
Mr Simpkins submitted that in the event that the Court were not satisfied as to the establishment of the claims for legal fees, there should be an opportunity afforded to Perpetual to bring forward further evidence of its claim. He submitted that the position taken today ought to have been identified in response to Ms Spain's affidavit served almost one year ago. The difficulty with that submission is that it seems to me to have been abundantly clear, from the time of the Court of Appeal's orders in 2012 and the failure of the parties to agree in response to the invitation implicit in order 3 that Perpetual would bear the onus of establishing the quantum of its claim, which plainly was not accepted by CTC.
Further, the history I have recited indicates that the proceedings have had a lengthy and expensive history already at risk of incurring legal fees vastly disproportionate to the amount at stake, contrary to the objective of s 60 of the Civil Procedure Act 2005 (NSW). Without wishing to sound jaded, I would remark by way of comparison that I have heard the present application during the course of a week in which I have, on the other two days of the week, sat an average of eight or nine hours a day with a list of about forty bail applications each day. The Court must, in accordance with the provisions of the Civil Procedure Act, be vigilant to ensure that the resources allocated to individual matters not only do not become disproportionate to the interests at stake in the individual proceedings but reflect a fair allocation of resources having regard to all proceedings properly within the jurisdiction of the Court.
In all the circumstances I am not persuaded that it would be appropriate in the present case to afford a further opportunity to Perpetual to adduce further evidence to address the difficulties cogently illustrated by Mr Gregg.
That leaves me with one concern as to the quantification of the present claim. As already noted, the claim includes a claim to recover the costs Perpetual was ordered to pay to David El-Bayeh pursuant to my order. I ordered that Perpetual pay half of the costs incurred by him. The affidavit of Ms Spain establishes that the amount of $100,000 was agreed as between Perpetual and David El-Bayeh. It seems, in the circumstances, reasonable to infer from the reaching of agreement between legal representatives that that sum represents the amount of the costs arising from that claim.
CTC submitted that the decision to commence proceedings against David El-Bayeh was one resulting from a forensic decision by Perpetual. However, upon returning to my original judgment in the proceedings, I have reminded myself that Perpetual initially instituted proceedings against David El-Bayeh and joined CTC as second defendant only after Mr El-Bayeh raised the defence of a forged mortgage. The evidentiary difficulties in relation to the other claims for legal costs do not seem to me to arise in the case of that negotiated agreement, which I think I can safely infer represents the amount of those costs.
For those reasons I would quantify Perpetual's claim as follows:
1. the amount of $437,199.41 for the claim in debt;
2. the amount of $100,000 paid to David El-Bayeh.
As to the balance of the individual amounts claimed by Perpetual, having regard to the fact that Perpetual has the benefit of costs orders against CTC in all of the relevant proceedings, I do not think there should be any further opportunity for it to establish its claims in these proceedings.
I direct the parties to bring short minutes of order within 48 hours reflecting judgment to be entered in accordance with these reasons.
[2]
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Decision last updated: 02 March 2015