Plaintiff v Defendant

No Appearance (after 1.00 pm on 14 December 2011 and on 15 December 2011)

For the Fourth Defendant by Counterclaim/Second Third Party

1 In this proceeding, the plaintiff, Perpetual Trustees Victoria Limited ("Perpetual Trustees") seeks possession of the land described in Certificate of Title Volume 8053 Folio 180, being the land situated at and known as 18 Frances Avenue, Vermont in the State of Victoria.

2 The plaintiff's case is that on 1 June 2004 it lent the defendant, Xiao Hui Ying, also known as Hui Ying Xiao, the sum of $507,000 on the security of a mortgage dated 1 June 2004 over the property that I have mentioned. The plaintiff alleges that the defendant defaulted in repayment of the loan, that in April 2009 a notice of default was served and that under the relevant contractual provisions, the default not having been remedied, the plaintiff is entitled to possession.

3 The defendant filed a defence and counterclaim, through solicitors who were then acting for her, in which she denied having signed the mortgage or the loan agreement and alleged that her signature on those documents was forged. Numerous parties were added as defendants to her counterclaim including the plaintiff, the Registrar of Titles, a broker, Capital Securities Pty Ltd ("Capital Securities"), which is now in liquidation, its managing director, Bernhard Seifert, a solicitor, Mr Harry Szmerling, an accountant, Mr Leslie Woodland, and her husband, Craig Fitzgerald. No claim was articulated against her husband as he was added for proportionate liability purposes.

4 I have already given two rulings in this matter concerning applications by the defendant/plaintiff by counterclaim for adjournments of the trial - the first on 5 December and the second on 12 December 2011. These rulings followed an order by Whelan J, before whom the trial was listed to commence on 21 November 2011, adjourning the trial to 5 December 2011.

5 In this judgment I refer to but do not repeat much of the earlier history of the various applications by the defendant and her husband to have the commencement of the trial adjourned. The order that I made on 12 December 2011 was that the trial be adjourned to the following day and that if the defendant was to seek any further adjournment there be evidence on oath from a medical practitioner and that such practitioner be available for cross-examination. When the hearing resumed on 13 December reference was made to a communication by the defendant's general practitioner, Dr Paul Hancock, that due to the short notice he was not available to attend court on that day but would be able to do so the following morning. I accordingly adjourned the matter to 14 December.

6 On that date Dr Hancock did attend. Ms Bennett of counsel appeared pro bono under the Victorian Bar Duty Scheme on behalf of the defendant to lead the evidence from Dr Hancock and to seek an adjournment to the New Year. That appearance, and the pro bono appearances on the previous two days had been arranged by the defendant's husband. The evidence-in-chief and cross-examination of Dr Hancock and the submissions concerning the application for an adjournment finished just before one o'clock yesterday. I indicated to the parties straight away that I refused the application for an adjournment. I did so in order that Ms Xiao and/or her husband could be advised that the matter would be proceeding at 2.15 pm. In order not to delay matters further, at that stage I gave a very brief indication of my reasons for refusing the adjournment and indicated that I would expand on those reasons at a later date, and I now do so.

7 Dr Hancock gave evidence that he had been Ms Xiao's general practitioner since either 1998, according to a letter, or I think 2000, according to his oral evidence. He said that she had been suffering for a long time over that period with migraine and stress. Dr Hancock saw Ms Xiao on 18 August 2011 and again on 1 December 2011. On the later date he signed a medical certificate which gave as his diagnosis that Ms Xiao was suffering from migraine/chronic tension headache, and certified that she was unfit for work from 15 October 2011 to 15 January 2012. In addition there was before the court a letter which he had written to Ms Xiao in which he relevantly said:

I confirm that Hui Ying Xiao suffers from debilitating migraine and chronic tension headaches. The condition has been particularly severe in recent times and is being further investigated with CT scan and neurological assessment. ... In my opinion she is not medically fit to present herself and her case before the court. She will be medically reviewed in early January 2012.

8 1 December 2011 was a Thursday. On Sunday 4 December 2011, Ms Xiao was admitted to the emergency department of St Vincent's Hospital where she was, according to a document provided by St Vincent's Hospital, required to stay for observation and investigations including blood tests and neurological imaging. She was discharged from the hospital to return home on the afternoon of 5 December 2011. A medical certificate signed by a hospital medical officer with respect to Ms Xiao certified that she would be unfit to follow her daily occupation from 4 December to 12 December 2011 inclusive, but would be able to resume her daily occupation on 12 December 2011. I read that as meaning that the dates when she was being certified as being unfit for her daily occupation were 4 December to 11 December 2011, and that she was fit to resume on 12 December 2011.

9 Dr Hancock had been provided with a report by St Vincent's Hospital which indicated that she was suffering from hypokalemia or low blood potassium. He told the court that her reading according to the tests performed at the hospital was 2.9, when a normal person's level would be between 3.5 and 5.5. Dr Hancock said that he regarded the reading of 2.9 as a clinically significant evidence of hypokalemia. He gave evidence that in a very severe case, such a condition could lead to paralysis, but agreed that Ms Xiao's case was not in that category. The effects of her condition as he described them was that she would have difficulty concentrating and following the proceedings, and some difficulty in moving. He also gave evidence that Ms Xiao had been treated at the hospital with intravenous fluids in order to replace the potassium deficiency. He told the court that the result of the tests carried out on her discharge from the hospital was that her level had increased to 3.2. The common causes of such a condition were said by Dr Hancock to be vomiting, diarrhoea or use of diuretic pills.

10 Dr Hancock said that he next saw Ms Xiao on 9 December 2011, being Friday of that week, where she, according to his notes, referred to her overnight admission to St Vincent's Hospital. He gave a medical certificate for Ms Xiao which contained as her diagnosis or condition, migraine, vomiting, electrolyte disturbance and dehydration, and certified that she was unfit for work from 9 December to 23 December 2011. Accompanying that medical certificate was another letter from Dr Hancock to Ms Xiao which read as follows:

I understand that Hui Ying Xiao is due to appear in court on 12 December 2011. I write to confirm that Hui Ying Xiao has recently been suffering from debilitating migraine and severe headache and associated vomiting as is often seen in classical migraine.

She has been referred to see a neurologist for further investigation and treatment.

On Sunday 4/12/2011 she became particularly unwell with dizziness, weakness and fatigue, and was admitted overnight in the Emergency Department at St Vincent's Hospital. She was found to be suffering from dehydration and electrolyte disturbances, predominantly hypokalaemia (low blood potassium) probably related to vomiting associated with the migraine. She was treated with intravenous fluid and electrolyte replacement.

She remains debilitated and fatigued and has not yet completely recovered from that episode. Her immediate management consists of monitoring her electrolytes (ongoing blood tests), correction and maintenance of electrolyte imbalance and the neurology assessment. She is in my opinion medically unfit for work or for court attendance for the period 9/12/11 to 23/12/11.

11 Dr Hancock gave evidence that the only treatment that he had prescribed on 9 December 2011 was for Ms Xiao to continue taking potassium pills. Dr Hancock's notes revealed that he also saw Ms Xiao on 11 December 2011, being the Sunday. His notes record that she remained tired, fatigued, stressed and depressed. He saw her again on 13 December 2011, being the Tuesday, where the only note was about a referral to the psychologist.

12 Counsel for the other parties in this proceeding apart from Ms Xiao were strongly critical of Dr Hancock's approach to this matter. Submissions were made that it was clear from his earlier certificate that he was in the habit of just giving a three month off work certificate without giving much thought to the particular situation, and that, perhaps more relevantly, he had not really thought about the issue of whether or not Ms Xiao was able to participate in the court proceeding and give evidence, before giving his certificates.

13 Much of these submissions was based on the answer to a question asked by counsel for the plaintiff which was:

What exactly was it that Ms Xiao would, what were the difficulties that she would experience in her condition if she was to participate in this proceeding?

14 Before going to that answer I should perhaps interpolate that the adjournment granted by Whelan J was because Ms Xiao had recently terminated the services of her solicitors because, as she said, she lacked confidence in them for reasons which I do not need to go into, and she did not have an interpreter and it was said that her English was poor. Whelan J left Ms Xiao in no doubt, as I read from the transcript, that if she wished to oppose the plaintiff's claim, she would be well advised to obtain solicitors and the services of an interpreter. Although, again as I read the transcript, it appeared that the other parties were prepared to meet the cost of the interpreter if it meant that the trial could start.

15 In terms of obtaining legal representation, all that Ms Xiao was, as far as the evidence before the court goes, was that she contacted a solicitor in Sydney on 1 December 2011, instructing him only for the purpose of seeking an adjournment and to make applications for amendments and other interlocutory relief. Counsel who appeared on 5 December 2011 was similarly restricted in his instructions.

16 I return then to the answer that Dr Hancock gave to the above question. He said that she would have difficulty communicating because her English was poor. He referred to the fact that her stress level was very high, that she was suffering from depression, and tension and migraines, and then said that she would have difficulty in her ability to follow what was going on, and that she might struggle to participate properly.

17 Counsel for the other parties emphasised that much of what Dr Hancock was able to bring into that answer were ongoing conditions that Ms Xiao seemed to be suffering from for years and that very little had been said about any particular difficulty that she might have as a result of the episode on 4 December 2011. It was also pointed out that there was no reporting by Ms Xiao of migraines at either consultation on 11 and 13 December 2011.

18 Ms Bennett of counsel vigorously supported Dr Hancock's evidence and submitted that it was sufficient to establish that it would be unfair to start the trial with Ms Xiao in her then condition. I said in my very brief reasons that I did not accept the more extreme criticisms of Dr Hancock. In my opinion he was a general practitioner who was doing his best to convey to the court what his observations had been and what his diagnosis was.

19 Nevertheless, the significant points which led me to refuse the application were two-fold. One was that Ms Xiao's condition of hypokalaemia had improved over the night of 4 December 2011 and, as Dr Hancock accepted, would be continuing to improve with the continued taking of the appropriate medication. The absence of complaint about migraines also supported the fact that what was left of Dr Hancock's concerns were Ms Xiao's ongoing medical difficulties.

20 The second factor that led me to refuse the application for an adjournment was that there was no evidence from Ms Xiao herself as to what difficulties she felt she may experience as to how she was feeling on that day and it seemed, as Mr Strahan of counsel for the plaintiff submitted, that Ms Xiao might not in any event be wanting to take part in this proceeding other than seeking to adjourn it in the hope that a judgment for possession would be avoided or at least delayed.

21 As I indicated during the course of the argument, justice has to be applied to all parties. Again, given the history, which I do not need to recite, there was grave concern that applications for adjournments would continually be made, possibly just on the basis of Ms Xiao's long term condition, which would be quite unfair to the other parties. I therefore refused the adjournment.

22 When the matter resumed at 2.15 pm there was no appearance for Ms Xiao or her husband. Subsequently, this morning I was provided with an email which had been sent to my associate at 23:21 hours last night by Mr Fitzgerald. It read:

This should have been made available to his Honour.

"This" was a document signed by Dr Helen Kalaboukas, a consultant psychologist, which read as follows:

I first saw Ms Xiao briefly in October 2008 with her husband regarding the financial problems they had at that time. Today I saw Ms Xiao again with her husband, Ms Xiao reported that she has been having financial and legal issues since 2006. According to the World Health Organisation's (WHO) International Classification of Diseases (ICD)-10th Edition, Ms Xiao is diagnosed with Major Depression Disorder (MDD), severe Anxiety and acute stress because:

• she has been suffering with severe insomnia,
• she has lost a considerable amount of weight, (more than 5 kilograms),
• she experiences high levels of anxiety and she suffers with severe headaches and dizziness,
• she experiences acute stress and worries about how much her whole life has irreversibly changer for the worst [sic],
• she is unable to go out and do her shopping,
• she is socially withdrawn and lives in isolation,
• she has lost pleasure in most things,
• she feels helplessness and hopelessness and has black and pessimistic views of the future.

In my professional opinion I don't think that Ms Xiao is currently able to stand in court as a witness. I believe that Ms Xiao will need long term psychological treatment in order to be able to overcome depression, anxiety and stress.

23 Just what Mr Fitzgerald thought I should do on receipt of that document was not clear because of course, as I have said in my earlier rulings, he does not see fit to come to court to support his wife's application and the duty barrister appearing pro bono for his wife despite an express request from me that he do so. What Dr Kalaboukas, and indeed Dr Hancock, did not know was that Ms Xiao was apparently able to attend court before Whelan J on 21 November 2011 and to give evidence through an interpreter about why she no longer had a lawyer acting and why she needed an adjournment.

24 Obviously the risk that Ms Xiao may lose the right to live in her home is a matter that would be causing her anxiety, stress and depression. But it is interesting to consider that Dr Kalaboukas, who has diagnosed Ms Xiao as suffering from Major Depression Disorder, had not, prior to yesterday, seen her since October 2008. In the circumstances, no further application having been made on behalf of Ms Xiao that the trial should not proceed, I decided to continue with the hearing.

25 Now I can come to the claim itself. The loan agreement between Perpetual Trustees and Ms Xiao is purportedly signed by Ms Xiao and her signature is witnessed by Dominic Patrick Lamanna. Mr Lamanna was, I know from other evidence that I will refer to shortly, a co-guarantor with Ms Xiao in the purchase of a restaurant business known as Shark Fin Burwood. And, as I will also come to, all, or at least a substantial part, of the proceeds of the loan went to enable that business to be purchased. Mr Lamanna was not called as a witness but as Mr Strahan said to me, he was not in the plaintiff's camp. Whether he was now in the defendant's camp does not matter, it seems to me, but the relationship was there in the past.

26 There was also a second loan agreement pursuant to which a further $117,000 was lent by Perpetual Trustees to Ms Xiao. This document also purported to be signed by Ms Xiao and her signature was witnessed by Bernhard Seifert, the fourth defendant to the counterclaim and the former managing director of Capital Securities. Mr Seifert gave evidence that Ms Xiao signed this loan agreement.

27 Evidence as to the signing of documents by Ms Xiao was also called from Leslie Arthur Woodland, a public accountant, whose office was in the same building as Capital Securities. He gave evidence that he was often asked to witness such documents by employees of Capital Securities. Mr Woodland's evidence was less emphatic than that of Mr Seifert. Whilst he recalled the lady known as Nancy, which is apparently how Ms Xiao was known, he could not specifically recall the circumstances of the signing of two statutory declarations, one on 25 May 2004 and the other on 26 July 2004, the purport of which was that the person known as Hui Ying Xiao was the same person as Xiao Hui Ying, the named registered proprietor on the relevant certificate of title. However, Mr Woodland was adamant that he would not, and had never, witnessed a signature without seeing the document signed by the person in front of him.

28 Mr Seifert's evidence was firm and decisive in that he said he recalled Ms Xiao signing the loan agreement in front of him. Mr Seifert also witnessed the signing of a transfer of land of the property in question from Mr Fitzgerald to his wife, which transfer was dated 26 March 2004. Mr Seifert witnessed both the signature of Mr Fitzgerald and Ms Xiao.

29 I do know by virtue of applications that were made on 5 December that one step that had been taken by the defendant was the obtaining of an expert handwriting report. However, that report was not in evidence before me and no witness was called to give any evidence about those signatures. In the absence of any such evidence and in the absence of any evidence from Ms Xiao that this was not her signature on the loan or the transfer or the statutory declarations, it would be a very bold conclusion to reject the evidence of Mr Seifert and Mr Woodland. Each of them would know in giving the evidence that they did that they would be exposing themselves to possible prosecution for perjury if that evidence was false. In addition I bear in mind the statement in Briginshaw v Briginshaw that a court should not lightly make adverse findings about people without proper proofs. Therefore, I am not prepared to make such a finding for the reasons I have given. Indeed, as I have said, I accept their evidence.

30 The situation is therefore that I find that Ms Xiao entered into a loan agreement with Perpetual Trustees which advanced to her or at her direction the two sums of $507,000 and $117,000. The question then is has default been established such that there can be judgment for possession of the property pursuant to the mortgage? Before going to that question I should go back to the question of the disbursal of the loan funds.

31 There were documents which showed that the directions given to the lender were that, apart from payments of fees and charges, the funds were to be disbursed to a company known as Ninety Eighth Betabarb Pty Ltd ("Betabarb"). Although there was a document before me apparently signed by Ms Xiao as secretary of Betabarb, the company search revealed that she was neither a shareholder nor an officeholder of that company, which has now been deregistered. The former directors were her husband Craig Fitzgerald and two other people, who I assume from their surname and ages were, or are, the parents of Mr Fitzgerald. The same situation applied to the shareholdings. Betabarb then, it would appear, provided money to another company which was set up to purchase the restaurant business, namely, Imperial Shark Fin Enterprises Pty Ltd ("ISF"). The search of that company, which was also deregistered, showed that the former directors were Ms Xiao and Mr Lamanna, and that the shareholders, owning one share each, were Mr Lamanna and Ms Xiao.

32 I say that all, or the bulk, of the funds advanced to Betabarb were passed on to ISF for two reasons. First, there is evidence that when Ms Xiao applied for the second loan there was some concern from the lender, which was only resolved when evidence was produced in the form of the contract of sale of the restaurant business that the purpose of borrowing the funds was for the purchase of this business.

33 Secondly, tendered as an exhibit in this hearing was the transcript of the hearing before Whelan J. Mr Fitzgerald gave evidence on that application and he was asked the following question in cross-examination by Mr Schlicht, counsel for Mr Seifert:

The purpose of the funds was to purchase a business, was it not?

Mr Fitzgerald then sought to object to answering that question, but he was told by his Honour that he should answer it. He was then asked:

You were asked what was the money used for.

Answer: The moneys, some of it was used for a business and some moneys were used for personal domestic use.

Question: What business?

Answer: A restaurant business.

Question: What was it called?

Answer: Shark Fin, Burwood.

Question: Who owned that?

Answer: There was - it is not clear who owned it, but there was a company involved.

Question: What do you mean it is not clear who owned it? Do you say you don't know, or even though you do know, you are not clear about it?

Answer: No, I'm not clear about it.

Question: Did you have any interest in the restaurant?

Answer: I'm not clear about that, Your Honour. But in terms of the legalistic.

Question: Never mind the legal point. What is your view?

Answer: I'm not sure. I would need to take, get legal, further legal advice.

Question: What about your wife, did she have any interest in the restaurant?

Answer: She was a director of a company along with Dominic Lamanna, and she wasn't aware of her capacity because she didn't know. Nobody explained to her, and she didn't know. She didn't understand the implications of a director, and she didn't even know that she had signed a consent to act because she couldn't read the document and nobody explained to her the document.

Question: OK, then some money was used for what you call personal domestic. What are you talking about there?

Answer: Well, for want of a better term I suppose, for company use, and I suppose there would have been some moneys used for personal use.

The claim that there was money used for personal use was no doubt an attempt to seek to be able to rely upon provisions of the Credit Code. But there were documents, declarations of purpose that were signed by, or apparently signed by, Ms Xiao declaring that the money was being borrowed for business purposes.

34 I come then to the question of default. The current loan statement was tendered showing that the debt has now increased to around $900,000. It also shows that prior to April 2009 there were numerous defaults with payment being dishonoured. A letter dated 9 April 2009, being a notice of default, was posted to Ms Xiao at her home address in Vermont. In her affidavit of documents Ms Xiao has discovered the original of that letter. The default at that time was that arrears of just over $11,000 was outstanding. She was given 31 days to comply with the default notice by fixing the breach, but that breach was not remedied.

35 Under the memorandum of common provisions, that default by the borrower entitled the plaintiff to make a claim for possession.

36 There should therefore be judgment for the plaintiff for possession of the property.

37 In case it should be thought that the finding about the signing of the document by Ms Xiao was unwarranted, Mr Strahan submitted an alternative route which would lead to the same outcome.

38 Numerous documents were tendered which had been sent to Ms Xiao at her home address in Vermont by either the mortgage originator, which was variously known as Interstar Securities, Challenger Mortgage Management and now Advantedge Financial Services Pty Ltd. Mr Wort, the national manager of that company, gave evidence in support of the application. In addition, there were numerous documents sent by the mortgage broker Capital Securities to Ms Xiao at her home address. Many of the originals of these documents were discovered by her in her affidavit of documents. There was also correspondence under her name to both the mortgage originator and the broker and there was email communication purporting to be from her using an email address in her name.

39 One particular email I believe has a special importance in this context. It was sent by someone known as Nick (for and on behalf of Xiao Hui Ying) to Mr Geoffrey Grey, who Mr Wort said worked for his company. That email was sent on 8 May 2009, that is following the service of the notice of demand. It read as follows:

Dear Mr Geoffrey Grey,

Hi, please be advised that Ms Xiao is out of the country due to her mother's illness in China. However, I have got a message to her and she has advised that she will transfer moneys which will be available early next week at which time will be delivered to your office by bank cheque. She has asked me to apologise for the inconvenience caused and hoping you can understand and support her at this difficult time.

40 There are also numerous other emails sent from that email address asking for information about the loan and various other requests. I should also point out that some of this correspondence from Ms Xiao to Capital Securities had her signature in Chinese characters above her typed name. Were it not for the sworn evidence of Mr Seifert and Mr Woodland, this might have raised concern in my mind about what I shall call the English version of her signature of Ms Xiao appearing on the documents to which I previously referred. Of course, it is not beyond comprehension that someone signing a formal document might have been advised to sign in an unusual way, as I say using an English signature, whereas with her own private correspondence, she might resort to what might have been her normal practice.

41 Nevertheless, the point of all of this correspondence backwards and forwards between the originator and the broker and Ms Xiao is that it would absolutely beggar belief to find, as apparently Ms Xiao would have the court find, that she was completely unaware of this mortgage and had received no benefit from it and that as she had not signed the mortgage or the loan documentation, she should not be held liable for the debt.

42 The only possible way in which one could reach that conclusion, it seems to me, would be that her husband, over the course of several years, had managed to intercept all of this mail by taking it from the letterbox before it reached her, by using her email account without her knowledge and signing documents using Chinese characters. I do not accept that such a scenario is possible.

43 Mr Strahan drew my attention to paragraphs 5.26 and 5.27 in the text "Law of Agency" by Professor Dal Pont, where under the heading "Evidence of Ratification" the learned author refers to how the unauthorised act of an agent can be ratified by the principal, by language or conduct which is unequivocal, or such ratification can be implied or inferred from the circumstances. If it were necessary to do so, I would conclude from this correspondence and communications that Ms Xiao has ratified the acts of her agent, which presumably if this did occur was Mr Fitzgerald, in arranging the loan on her behalf.

44 I want to say one final thing about the circumstances of this transaction. This application for a loan was apparently supported by a valuation prepared on the letterhead of a company called Hay Property Consultants Pty Ltd and signed by Mr Fitzgerald, who was a valuer. On p.3 of that document, having stated that he certified that the value of the property was $780,000, a few lines below that the following appeared:

I certify that I have no interest in the property, the mortgage or the prospective mortgagor.

Given that Mr Fitzgerald is the husband of the registered proprietor, and apparently living with his wife in that property, it is perhaps not surprising that Mr Fitzgerald was not overly keen to come to court.

45 Whelan J indicated in the hearing before him that if any criminal wrongdoing was disclosed he would take the appropriate action. Whilst I have not heard from Mr Fitzgerald I cannot understand how he could possibly have given such a certification and I am giving consideration as to whether I will refer this matter to the appropriate authorities.