Perpetual Trustee Company Ltd v CTC Group Pty Ltd

THE MORTGAGE ORGINATION DEED 8It is unnecessary to refer to the detail of the MO Deed because the parties argued the appeal upon the basis that CTC was in breach of its obligations under the MO Deed if it submitted the loan application without taking reasonable care to identify the prospective borrower and to confirm his authority to submit the loan application.

MR SAADIE'S ALLEGED ADMISSION 9Mr Michael Saadie was CTC's managing director at all relevant times. He said in evidence that throughout the relevant period CTC employed three "loan writers" and three personal assistants, and that his role as managing director involved: "a. attending to the day-to-day management of the business; b. managing staff members, customers, company assets and company resources" (Affidavit 29 May 2009, [9] and [13]). 10In his affidavit of 14 July 2008, Mr David El-Bayeh gave the following evidence concerning a meeting he attended in December 2006 with Mr Saadie, Mr Youssef El-Bayeh, and others: "53. During the meeting I said to Michael Saadie words to the effect, 'I can't believe Joe [referring to Mr Youssef El-Bayeh] 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". 11The conversation was in dispute at the hearing at first instance but the primary judge accepted that at the meeting Mr Saadie said words to the effect of those attributed to him by Mr David El-Bayeh (Judgment [78]). This finding was not challenged on appeal.

THE JUDGMENT AT FIRST INSTANCE 12The hearing at first instance was mainly concerned with Perpetual's primary case that Mr David El-Bayeh had signed the loan application, loan agreement and mortgage and had thus authorised CTC's approach to Resimac. After considering the evidence led during the seven day hearing, the primary judge rejected this case and entered judgment for Mr El-Bayeh. 13On Perpetual's alternative case, against CTC, the primary judge noted that CTC had not called Mr Naaman to give evidence and had not sought to establish that reasonable steps were taken to secure his assistance as a witness (Judgment [39] and [165]). However her Honour did not draw any adverse inference against CTC as she said that Perpetual had not submitted that she should. 14The primary judge referred to a number of bases upon which Perpetual submitted that she should conclude that CTC failed to exercise reasonable care both in identifying Mr David El-Bayeh and in ensuring that he authorised the submission of the loan application to Perpetual. Her Honour dealt with the principal of these bases as follows: "166 ... 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". 15She concluded by saying: "The result is that, although I have my suspicions, I am not satisfied to a state of actual persuasion that Mr Naaman was anything other than the victim of a convincing fraud. It follows that I am not satisfied that there was any breach of duty on the part of CTC ... " (Judgment [172]).

THE ISSUES ON APPEAL 16The arguments on appeal focussed on the effect of CTC not calling Mr Naaman to give evidence and on the narrow question of whether the possibility that someone successfully impersonated Mr David El-Bayeh in a meeting with Mr Naaman precluded a finding that the latter failed to exercise reasonable care in identifying the former. 17CTC submitted that it did preclude such a finding because, inter alia, "passport photos are notoriously bad likenesses ... and ... there was no evidence as to the authenticity, quality or reliability of the photocopy of the passport photograph in this case" (Outline of Submissions dated 22 February 2012 at [11]). 18The latter aspect of this submission proceeded on the erroneous assumption that Mr Naaman neither had, nor needed to have had, Mr El-Bayeh's original passport. However, a "100 Point Check" form that Mr Naaman signed and supplied to Resimac certified that he had identified Mr El-Bayeh by reference, inter alia, to his Australian passport issued on 16 December 1998. The form identified a current passport (clearly in my view a reference to an original) as one of a number of alternative primary documents by which CTC could choose to identify the applicant. CTC chose the current passport alternative. The Guidelines issued by Resimac, with which the MO Deed obliged CTC to comply, required the submission of a completed 100 Point Check form.

Failure to call Mr Naaman 19As noted above ([13]), the primary judge said that Perpetual had not submitted that she should draw an adverse inference against CTC in light of its failure to call Mr Naaman. On appeal Perpetual however contended that it had made an implied submission to her Honour to this effect. 20Mr Saadie gave evidence that Mr Naaman ceased employment with CTC in late 2004, after being denied a salary increase. When Mr Saadie attempted to contact Mr Naaman in 2007, he ascertained that Mr Naaman was in Lebanon and did not intend to return to Australia. 21I do not consider that in these circumstances Mr Naaman can be regarded as in CTC's "camp" at the time of the hearing or on any other basis as someone whom CTC, rather than Perpetual, could have been expected to call as a witness (see ASIC v Hellicar [2012] HCA 17; 86 ALJR 522 at [169] and [254]). Accordingly, assuming that it was open to Perpetual to contend for it, I would not draw any adverse Jones v Dunkel inference against CTC based on its failure to call Mr Naaman or to explain his absence satisfactorily. 22Similarly I do not consider the principle in Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 (see ASIC v Hellicar at [166]) to be of any assistance to Perpetual as it does not appear, absent any Jones v Dunkel inference being available in relation to Mr Naaman and absent one being contended for in relation to Mr Saadie's evidence, that CTC should be regarded as having failed to call evidence that was available to it of what occurred in relation to the submission of the loan application to Resimac.

Lack of care by CTC 23Contrary to the primary judge's view, I consider that the evidence did establish, on the balance of probabilities, that CTC failed to exercise the requisite level of care in identifying the proposed borrower and confirming his authority to submit the loan application. 24As Mr Naaman chose the loan applicant's current passport as the principal means of identifying the applicant and certified to Perpetual that he had identified the applicant by that (and other) means, it was incumbent on Mr Naaman, if he were to exercise due care in preparing and submitting the application, to inspect the original of the passport and use it to identify the applicant. This is commonsense which is reinforced by evidence given by Mr Saadie in cross-examination as follows: "Q. And may we take it, consistently with practices that were followed by CTC in 2004, a passport, if produced for identification purposes as part of this check, would have its opening page photocopied for the records; it that right? A. Yep. ... Q. And as part of the usual practices at CTC you would expect to be followed by its employees and in the industry the photograph would be compared to the person applying for the loan to see if they look like the same person? A. That's correct". 25Accordingly, to fulfil CTC's obligations under the MO Deed, Mr Naaman needed to use the original photograph in the passport to identify the person on whose behalf he was submitting the loan application. Rationally, this could only be done by comparing the photograph in the passport with a person who signed the loan application in Mr Naaman's presence, or who confirmed that he had earlier signed it and confirmed his authority to lodge the application. Mr Saadie's evidence indicated that this is the effect of what occurred as part of usual industry practice. 26However the primary judge's unchallenged findings were that Mr David El-Bayeh did not sign the application, did not authorise it and did not attend on Mr Naaman in relation to it. If Mr Naaman did not make the requisite comparison between the signatory of the application and the original passport photograph, he failed to act with reasonable care in performing CTC's obligations under the MO Deed. The fact that the application was submitted despite Mr David El-Bayeh not having signed it, strongly suggests that he did not. 27As CTC pointed out, identification evidence is in many circumstances potentially unreliable (see for example Festa v The Queen [2001] HCA 72; 208 CLR 593 at [15] - [24], [54] - [64], [160] and [218]; see also Kelleher v R [1974] HCA 48; 131 CLR 534 at 500 - 1 and Trudgett v R [2008] NSWCCA 62; 70 NSWLR 696 at [25]). The risk of error is considerably reduced however where the witness identifies a person that the witness already knows. The risk is similarly diminished where the witness had in front of him or her both a photograph taken for identification purposes, such as an original passport photograph, and the person identified. 28Common experience indicates that identification in the latter circumstances has a high degree of reliability. Indeed immigration authorities throughout the world justifiably proceed upon this basis. Whilst it might be fallible in the unusual circumstances of the person to be identified having an identical twin or a striking resemblance to another individual, the present question for determination is whether Perpetual established on the balance of probabilities that CTC, through Mr Naaman, failed to exercise reasonable care in identifying Mr David El-Bayeh. In my view the strong probabilities are that Mr Naaman did not compare the original passport photograph with anyone who falsely purported to be Mr David El-Bayeh because, if he had, he would have observed that the photograph was not of the person before him and, assuming Mr Naaman's honesty, would not have submitted the loan application. The possibility that someone could have successfully impersonated Mr El-Bayeh whilst Mr Naaman was carefully comparing the passport photograph to him is in my view remote. 29In the words quoted by Dixon CJ in Jones v Dunkel [1959] HCA 8; 101 CLR 298 at 305 from the High Court's unreported judgment in Bradshaw v McEwans Pty Ltd, I am satisfied that this conclusion is "according to the course of common experience the more probable inference" (see also Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 at 361). 30I am fortified in this conclusion by the evidence that the primary judge accepted of statements made by Mr Saadie (see [10] above). Mr Saadie's statements amounted to an admission that CTC submitted the loan application to Perpetual without interviewing the applicant. It is plain from what Mr Saadie said at the meeting of December 2006 that neither Mr David El-Bayeh nor anyone impersonating him was interviewed by CTC in relation to it. Mr Saadie, as the managing director of CTC, had authority to make an admission of fact, such as that embodied in his statements made at the meeting. The fact that Mr Saadie may not have had firsthand knowledge of the facts and may have relied upon what Mr Naaman told him did not prevent Mr Saadie's statements from being admissions (Allen v Roughley [1955] HCA 62; 94 CLR 98 at 142; Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 at [69]). 31CTC contended that at the meeting Mr Saadie may simply have been trying to mollify Mr David El-Bayeh and thus not have spoken the truth. This is no more than speculation in the absence of evidence from Mr Saadie stating that that was the case. Contrary to CTC's submission, I consider that the statements should be given considerable weight. 32Perpetual relied upon Mr Saadie's statements in this context at first instance (Plaintiff's Outline of Submissions dated 23 March 2010, [209] - [211]) but they were not mentioned by the primary judge in her consideration of Perpetual's claim against CTC.

Causation 33CTC contended that Perpetual did not establish that its loss was caused by CTC's lack of care (Outline of Submissions dated 22 February 2012 [28] - [33]). I reject this submission as plainly CTC's identification of Mr David El-Bayeh and confirmation of his authority to submit the loan application was critical to the initiation of the lending process. The fact that there may have been other points in the progression and completion of the lending process at which the fraud could, and perhaps should, have been discovered, and therefore other causative factors does not avail CTC (see for example I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at [58]; Perpetual Trustee v Milanex at [52] - [69]). 34For these reasons, Perpetual established its case against CTC and its appeal should be allowed and judgment entered in its favour.

PROPOSED ORDERS 35I propose the following orders, bearing in mind that the parties' appeal submissions did not address the quantum of the judgment that should be entered in Perpetual's favour. (1) Appeal allowed. (2) Set aside orders 4 and 5 made at first instance on 9 September 2011. (3) If the parties are able 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. (4) If the parties are unable to so agree, direct that Perpetual lodge with the Court within 14 days of the date of this judgment written submissions as to the amount of the judgment that should be entered in its favour, that CTC lodge written submissions in reply within a further seven days and that Perpetual lodge any response within seven days thereafter. (5) Order CTC to pay Perpetual's costs of its claim against CTC incurred at first instance and on appeal. (6) CTC to have a certificate under the Suitors' Fund Act 1951, if qualified. 36MEAGHER JA: I agree, for the reasons given by Macfarlan JA, that the orders his Honour proposes should be made. 37BARRETT JA: I agree with Macfarlan JA.

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