Plaintiff v Defendant

26 Lockley Street, Hadfield, Victoria ("the Property") (with her husband Francesco until his death on 20 August 2010) since about 1964. She has only a "bare understanding of the English language". Her native tongue is Italian.

2 Mrs Perri was registered as a joint proprietor of the property with her husband until his death. She became the sole proprietor by survivorship.

3 Mrs Perri applies by summons, filed on 6 May 2013, to set aside judgment entered against her by the plaintiff on 6 August 2012 in default of delivery of a defence.[1] The application is supported by a short affidavit of the defendant deposing to the matters I have referred to in paragraphs 1 and 2 above and, further:

(a) that in late 2012 she became aware of the judgment obtained by the plaintiff against her;

(b) she then retained Mr Mdu Radebe to represent her and is informed by her solicitor that he engaged in correspondence with the plaintiff's lawyers seeking to resolve the matter but without success;

(c) that after the request by her solicitor, the plaintiff's solicitors forwarded a copy of the loan documents relied upon in securing the judgment against her. She produces those loan documents and states "I have carefully examined my purported signatures appearing on that document and I am able to categorically state that my signatures have been forged. I have not affixed my signature to any part of the loan document and did not authorise any other person to affix my signature on my behalf. Prior to receiving notification of the judgment obtained against me, I was not aware of any loan monies being obtained from the plaintiff. Nor was I aware that my late husband had applied for any loan with the plaintiff.";

(d) She does not recall being served with any Supreme Court writ but says that it is possible that she may have forgotten due to her age and infirmity. She says that she has not been feeling well since the death of her husband and has felt lost ever since.

4 She accordingly seeks an order setting aside the judgment obtained against her in default of defence and adds, "I am not aware of the circumstances in which any funds have been obtained from the plaintiff. I believe that it is unfair and unjust to deprive me of my home in these circumstances as I have nowhere else to live and no one else to support me".

5 The plaintiff commenced this proceeding by writ filed on 30 April 2012. The claim is for possession of the Property on the basis of default under a mortgage given by the defendant and her husband over the Property in 2004 as security for a loan of $155,000. Default under the mortgage is alleged to have begun 'prior to 5 December 2011', on which date notice of the default was given. In fact, the evidence reveals that there were seven Notices of Default beginning in September 2009 and ending on 5 December 2011.

6 The writ was served personally on the defendant on 16 May 2012. On 23 May 2012 the defendant entered an appearance. The appearance is signed by the defendant personally and she gives as her address the address of the Property. It is plain, having regard to the matters the defendant outlines about her ability with the English language, that she must have had assistance in the preparation of the appearance, or at least that is the preliminary inference I draw.

7 On 6 August 2012 the plaintiff entered judgment for possession of the land against the defendant in default of defence and on the same day a writ for possession of the property was issued. On 14 August 2012 the plaintiff's solicitors sent a without prejudice letter to the defendant at the Property concerning the judgment that had been entered.[2] In response to that letter, the plaintiff's solicitors received a letter from a

Mr Scott Stivala who purported to represent the defendant. In that letter, Mr Stivala said "I am only receiving this letter [the letter of 14 August] today after visiting Mrs Perri. Mrs Perri is an elderly person of 75 years of age and is not very well and cannot speak or read English". The letter went on to propose a meeting for Thursday

30 August 2012 to discuss an amicable resolution of the matter. The plaintiff's solicitors responded by a without prejudice email on 27 August 2012 and again on

11 September 2012. Then, on about 2 October 2012 the plaintiff's solicitors received a letter dated that day from the defendant's solicitors, Redebe & Associates, requesting a scanned copy of the writ and judgment together with a copy of any mortgage allegedly signed by the defendant. They also asked that the plaintiff not undertake execution of any judgment until the defendant's solicitors had had an opportunity to examine the mortgage and seek instructions. The plaintiff's solicitors responded by a without prejudice letter on 2 October 2012 and followed with a further letter on 20 November 2012. This elicited a response from the defendant's solicitors, the material substance of which was "we accept your invitation to endeavour to achieve an amicable resolution of this matter and request that the dispute be referred to mediation with an assistance [sic] of an experienced Mediator."

8 The next correspondence referred to is a long letter dated 13 February 2013 from the plaintiff's solicitors. It commenced by referring to the assertion that the defendant had denied executing the mortgage and had asserted that it was therefore void and unenforceable. There is no correspondence which has been produced to that effect so I infer that it arose either in without prejudice correspondence or in discussions between the solicitors. The letter then went on to give a firm response to the allegation of forgery, referring amongst other things to s 44 of the Transfer of Land Act 1958 and the decision of Pagone J in Solak v Bank of Western Australia Ltd [2009] VSC 82 ("Solak"), so as to establish that there was no basis that the plaintiff had notice of the forgery and its mortgage was protected by the doctrine of indefeasibility. Moreover, it was said that because of the terms of the mortgage, it incorporated the personal covenant in the underlying loan agreement, so that even if Mrs Perri established that her signature on the mortgage was a forgery, she still was liable on the personal covenants, in the absence of the fraud being brought home to the plaintiff.

9 In response, the defendant's solicitors requested more time for the making of an application to set aside the judgment. They stated that they had been unable to arrange a meeting with the defendant as she had been in hospital undergoing an operation. The plaintiff's solicitors responded on 4 March 2013 granting an extension of two weeks.

10 I have set out at some length the sequence of events since the commencement of the proceeding and the entry of judgment because of the matters that must be taken into account in the exercise of a discretion to set aside a default judgment, to which I now turn.

11 The usual requirements to be satisfied by a defendant seeking to set aside a default judgment follow those identified by the full court in Rosing v Ben Shemesh [1960] VicRp 28; [1960] VR 173, and in Kostokanellis v Allen [1974] VicRp 71; [1974] VR 596. They are, in summary:

(a) whether the first defendant has a defence on the merits;

(b) the reason for the default of the defendant in consequence of which the judgment was obtained, in this case the failure on the part of the defendant to file a defence;

(c) whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the defendant; and

(d) whether, if the judgment is set aside, the plaintiff would be prejudiced in any respect which could not be adequately compensated for by a suitable award of costs and the giving of security.

12 The defendant relies heavily on the judgment of the Court of Appeal in Xiao Hui Ying v Perpetual Trustees Victoria Ltd & Ors [2012] VSCA 316 ("Ying"). That case concerned a claim to set aside a judgment given at trial (in the absence of the appellant) in favour of the first defendant based on the appellant having a meritorious defence arising from the mortgage and loan documents (on which the plaintiff's case was based) being tainted by fraud, in that the appellant's signatures were claimed to be forgeries. In particular, counsel for the defendant, Mr Selimi, referred me to paragraphs [61] and [62], which are as follows:

[61] Moreover, we think that the judge failed to give adequate weight to the fact that the appellant may have a bona fide defence on the merits. As we have said, the judge was prepared to assume that she did. Having made that assumption, however, it appears to us that he did not give sufficient attention to those merits as deposed to in her affidavit in support of the application to set aside judgment. If the contents of her affidavit dealing with the essentials of her defence are truthful and accurate, then it would be a very serious thing to shut her out from a full hearing. We think that this is so despite her antecedent unsatisfactory conduct with respect to some of the procedural steps in the litigation, and the prejudice that will flow to the other parties. In our view, the trial judge gave insufficient weight to the appellant's defence. It follows that the exercise of his discretion miscarried.

[62] We emphasise that the evidence of the handwriting expert, Neil Holland is potentially very powerful. If Mr Holland's evidence is accepted (as, it seems to us, it very well may be) then the appellant may have been the victim of a substantial and carefully orchestrated fraud. The Property was given to her by her husband in 2004 in return for the care the appellant had given her mother-in-law and sister-in-law, and was meant to be security for her in old age. The appellant asserts that she did not execute the mortgage, and she signed none of the documents connected to the loan. She asserts further that she received no funds from Perpetual. According to the appellant, she knew nothing about any mortgage or any loan. She had nothing to do with the restaurant business set up by her husband and others, and knew nothing about being a director of any company that benefited from any loan. [citations omitted]

13 In this ex tempore judgment, I will not set out all the circumstances that led the Court of Appeal to make these statements. Suffice it to say, Mr Selimi advanced his submissions on the basis that the denial by Mrs Perri that her signature appeared on the loan documentation, and by inference on the mortgage, was a foundation for a submission that the documents had been forged by some unknown person, possibly her husband. Mr Selimi was not in a position to bring the fraud, that must have therefore been involved if Mrs Perri is right, home to the plaintiff.

14 This is where the arguments of the plaintiff and defendant were at odds. Mr Selimi relied on the unchallenged testimony of Mrs Perri that she did not sign the loan documentation, such that there was, accordingly, a serious question to be investigated, and that that justified the setting aside of the judgment so that the defendant had an opportunity both to investigate the matter and have a hearing at trial of the circumstances surrounding the entry into the loan agreement. He referred to the propositions that it was sufficient to bring home fraud to a mortgagee in the position of the plaintiff if either there were wilful blindness on the part of the mortgagee or a reckless disregard of the circumstances in which the loan documentation and mortgage were purportedly signed by the defendant. The question whether any fraud could be brought home to the plaintiff was, he submitted, a matter to be investigated and a matter for trial.

15 In relation to the exercise of the discretion to set aside the judgment, and the factors to be taken into account, Mr Selimi referred me to the observations, once again, of the Court of Appeal in Ying at paragraphs [68] and [69], as follows:

[68] An examination of the reasons of the Full Court in Rosing does not lead to the conclusion that the Court was there laying down inflexible rules, or a complete list of relevant criteria, for the exercise of discretion under the equivalent of r 49.02(2). Rather, the Court merely was recognising that the matters identified by Jenkins LJ in Grimshaw v Dunbar are among those proper to take into account. So much, we think, is clear from the Full Court's apparent reliance on Atkin LJ's words in Maxwell v Keun:

I quite agree the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does so; but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the Court has power to review such an order, and it is, to my mind, its duty to do so.

[69] Further, we think that support for the proposition that the discretion reposed in the Court under r 49.02(2) is not fettered by the four considerations identified in Rosing may be drawn from the later decision of the Full Court in Kostokanellis v Allen. In that case the Court had under consideration a rule of court that permitted a default judgment to 'be set aside by a Judge upon such terms as to costs or otherwise as he may think fit'. The judge delivering the decision under appeal had been satisfied that the appellant/defendant had a prima facie defence on the merits to the action brought against him, but was not satisfied by the explanation given for his non-appearance on the application for final judgment. [citations omitted]

16 Mr Carew, who appeared for the plaintiff, submitted that the defendant had not established a defence on the merits. This, he submitted, followed from the failure of the defendant to identify any facts supporting, or any basis for, the plaintiff knowing of or having any connection with the forgery alleged. That is, there was no basis upon which it could be said that the fraud was brought home to the plaintiff so as to enliven the fraud exception to indefeasibility. In those circumstances, it was his submission that the decision of Pagone J in Solak had the effect that the plaintiff's mortgage was indefeasible and (being an all moneys mortgage) there was therefore no defence to the claim on the merits.

17 In discussion with counsel for the parties, reference was also made to the observation of the Court of Appeal in Ying regarding the difference in approach in New South Wales compared with Victoria. The Court said:

[74] Another complicating factor is that the particular mortgage at issue in this case is what is described as an 'all moneys' mortgage. Such mortgages are designed to ensure that lenders have security, not only for a specified sum advanced to a borrower, but for all moneys advanced or due, past or future. That type of mortgage was recently considered by the New South Wales Court of Appeal in Perpetual Trustees Victoria Ltd v English ('English').

[75] In English a joint registered proprietor of Torrens system land had forged the signature of the other joint registered proprietor, his estranged wife, to a loan and mortgage in return for a loan from Perpetual. The forgery was perpetrated without the knowledge of the wife, who was entirely innocent. Upon default in the repayment of amounts said to be secured by the registered mortgage, Perpetual sought an order for possession against each registered proprietor. Sackville AJA (with whom Allsop P and Campbell JA agreed) discussed the problems associated with indefeasibility of forged mortgages and observed:

The problem has been compounded by the tendency of institutional lenders to rely on ever more complex documentation that is designed to ensure that they have security, not merely for a specified sum advanced to the borrowers, but for any moneys advanced to or due by them, whether in the past or in the future. These "all moneys" clauses require reference not only to the mortgage instrument itself, but to other documents which themselves may be forged. The irony is that as lenders draft ever-wider clauses they make themselves more vulnerable to the effects of forgery. This is because all moneys clauses may depend for their effectiveness on the validity of antecedent instruments that have not been, and indeed cannot be registered under the Torrens system. Since forgery renders such instruments void under the general law, the indefeasibility provisions of the [equivalent of the Transfer of Land Act 1958] may not protect the mortgagee.

The authorities have not always been entirely consistent in their approach to the enforceability of forged mortgages against the innocent registered proprietor whose signature has been forged, at least where the forger is a joint registered proprietor: see generally J Stoljar, "Mortgages, Indefeasibility and Personal Covenants to Pay" (2008) 82 ALJ 28. The recent trend, particularly in New South Wales and New Zealand, has been unfavourable to mortgagees in such cases, as courts have tended to hold a forged but registered mortgage, as a matter of construction, does not create a security interest enforceable against the innocent registered proprietor: Westpac New Zealand Ltd v Clark [2009] NZSC 73 (not following Solak v Bank of Western Australia Ltd [2009] VSC 82); Provident Capital Ltd v Printy [2008] NSWCA 31; 13 BPR 25,199; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; 13 BPR 24,567...

[76] Ultimately, the Court held that, on its proper construction, the mortgage in that case did not provide security for the payment of any moneys secured under the relevant loan offer, and that Perpetual was not entitled to enforce any power of sale under the mortgage against the innocent joint proprietor.

[77] By comparison, in Solak v Bank of Western Australia Ltd ('Solak'), Pagone J held that, upon its proper construction, a forged 'all moneys' mortgage was effective as security.

[78] If the reasoning of the Court in English is to be accepted, it may be that Perpetual was not entitled to seek possession on the basis of default on its mortgage. That is a vital issue which, at this point, remains to be resolved. The differing results to similar questions in English and Solak emphasise the very real risk that a substantial injustice may well be permitted to go uncorrected if the impugned decision is permitted to stand. This case involves allegations of fraud. It has been said that 'fraud unravels everything'. [citations omitted]

18 At this stage, there is no basis to bring home any fraud to the plaintiff so as to give rise to any exception to the indefeasibility of the plaintiff's mortgage, and Mr Selimi for the defendant did not contend that there was. That, in my view, does not preclude the exercise by the Court of its discretion to set aside the judgment. The rules that have been laid down in such cases as Rosing v Ben Shemesh are not inflexible rules, as the Court of Appeal recognised in Ying. The Court is not fettered by the four considerations that I have identified above derived from Rosing v Ben Shemesh. In the end, as the Court of Appeal noted in their quotation at [70] in Ying, what the judge is required to do is to determine what, in his or her opinion, is the just way in which the Court's discretion should be exercised. Mr Selimi emphasised in his submissions the importance of bearing in mind the overarching purpose established by s 7 of the

Civil Procedure Act 2010, which is to much the same effect.

19 It must be remembered that the defendant is an elderly widow, that if the loan agreement was entered into with the plaintiff then it would appear to have been a matter likely to have been under the control of her husband. It is, I think, a matter upon which I can take judicial notice at this stage, that Italian migrants of the generation of the defendant are more likely to follow the guidance of the male head of the house, in this case the defendant's husband. Thus, this is a case where the very matters which might give to the defendant a basis to say that, for example, her husband acted in obtaining the loan from the plaintiff as the plaintiff's agent, as was alleged to be the case in Ying, are unlikely to be within the knowledge of the defendant. This would be a possible factor bringing home the fraud, if it be fraud, to the plaintiff. It is in the circumstances tolerably clear that the defendant is not in a position to know the facts that might establish such an agency, or facts that might affect the rights of the plaintiff to rely on the indefeasibility of its mortgage. In my view it is right to allow her the opportunity to investigate the matter.

20 I also take into account the caution that the Court of Appeal referred to arising from differing results to similar questions in English and Solak, which emphasises the very real risk that a substantial injustice may be permitted to go uncorrected if the default judgment is permitted to stand. This case involves allegations of fraud. As the Court of Appeal noted 'fraud unravels everything'.[3]

21 I have not dealt at length with the relevant factors to be established in order that the default judgment be set aside, other than the requirement for a defendant to show a meritorious defence. I have not done so because, although Mr Carew submitted that there were unexplained delays in the application to set aside the judgment, and no adequate explanation for the failure to file a defence, leading to the entry of default judgment, my review of the correspondence to which I have referred above leads me to the view that the delay in applying to set aside the judgment was not so long, particularly regarding the defendant's age and health. I also take into account that the defendant appears to be confused about what has happened. On the one hand, she signed an Appearance. On the other, she deposes that in late 2012 she became aware of the judgment entered against her, as if she did not know of the proceeding. The explanation may be that she does not remember much, or that she can really only undertake matters of this kind with the assistance of others. In light of the forgery defence, however, these matter fade into the relative background. They are not so serious as to warrant a refusal to set aside the judgment having regard to the weight that should be given to the allegation that her signature was forged.

22 The balance of hardship, or prejudice, is in my view so overwhelmingly in favour of setting aside the judgment that it does not bear closer analysis. Nothing has been put by the plaintiff in relation to this matter and advisedly so.

23 In setting aside the judgment to allow her to investigate the claimed defence, however, it is appropriate to put her on terms which include, as I said in argument, that either she engage an handwriting expert or that she enable the plaintiff's handwriting expert, without delay, to have access to a number of examples of her genuine signature (such as on the Appearance that was apparently filed by her) so as to obtain some evidence for or against her allegation that she did not sign the loan documents.

24 For these reasons, I propose to set aside the judgment and I will hear the parties as to the appropriate orders.

[1] Although it is not stated in the summons, the application proceeded on the footing that Rule 21.07 was the applicable rule.

[2] The affidavit sworn on behalf of the plaintiff by its solicitor Annette Leigh Gaber on 24 May 2013 refers a number of times to without prejudice correspondence but does not, of course, produce it or refer to its contents.

[3] Referring, as an example, to HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6; [2003] 1 All ER (Comm) 349, [15] (Lord Bingham).