Plaintiff v Defendants

1 On 29 September 2008, I heard an appeal from a Master's decision refusing the fifth third party's application for judgment against the fourth defendant, or alternatively, the striking out of paragraphs 29, 30 and 31 of the fourth defendant's statement of claim on third party notice, pursuant to rr 23.01 and 23.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ("Rules") respectively. On 12 May 2008, the Master ordered that certain sub-paragraphs of paragraph 31 be struck out and gave leave to the fourth defendant to file and serve an amended statement of claim. At the end of the hearing before me, I made an order that paragraphs 29, 30 and 31 be struck out, that the fourth defendant have leave to replead within 21 days and that the fourth defendant pay the fifth third party's costs of the application. At that time, I asked the parties whether they required reasons for my order and they responded that they did not require reasons. Subsequently, on 7 October 2008, the fifth third party requested reasons. These are the reasons, in summary form, for my order.

2 Pursuant to the leave granted by the Master, the fourth defendant filed and served an amended statement of claim on third party notice ("statement of claim"). The statement of claim is the pleading that is the subject of my order.

Fourth defendant's claim against the fifth third party

3 The plaintiff, Peter Reichel, has instituted this proceeding against Paulyn Investments Pty Ltd (first defendant), his brother Anthony Reichel (second defendant), Gary Maile (third defendant) and the Registrar of Titles (fourth defendant) ("Registrar") seeking damages and other relief in respect of alleged fraud committed upon him as the registered proprietor as tenant in common of one of two equal undivided shares in two separate properties. In respect of the property that is the subject of the application, the plaintiff alleges that his signature to a transfer to the other registered tenant in common (the second defendant) was forged, that the Bank of Queensland Limited (the fifth third party) ("Bank") obtained a mortgage over the property, that the Bank sold the property as mortgagee and that as the proceeds of sale were insufficient to cover the moneys secured by the mortgage, the plaintiff lost his entire interest in the property. The plaintiff's claim against the Registrar is for indemnity pursuant to s 110 of the Transfer of Land Act 1958 (Vic) ("TLA") for the loss of his interest in the property arising from the registration of the transfer and mortgage.

4 The Registrar joined as third parties to the proceeding Steve Amanatidis (first third party), John Vouranis (second third party), George Vouranis (third third party), Boothby & Boothby (fourth third party) and the Bank and has sought to recover from them pursuant to s 109(3)(a) of the TLA any moneys payable to the plaintiff by the Registrar under s 110 of the TLA. In the statement of claim, the Registrar alleges that the first, second and third third parties and the second defendant perpetrated the fraud on the plaintiff, that the fourth third party was in breach of fiduciary duty in releasing the duplicate certificate of title to the second defendant without the plaintiff's consent and that the Bank was negligent and engaged in misleading and deceptive conduct in lodging the forged transfer and the mortgage with the Registrar.

5 Paragraph 29 of the statement of claim alleges that the Bank, by lodging the allegedly forged transfer, owed a duty of care to the plaintiff to take reasonable care not to cause him economic loss because:

(a) it was reasonably foreseeable that economic loss would be caused to the plaintiff if the Bank failed to take reasonable care to ascertain whether or not the transfer was a "bona fide instrument";

(b) the plaintiff was specifically identifiable to the Bank as a person whom it was reasonably foreseeable would suffer economic harm if the Bank failed to take reasonable care; and

(c) the plaintiff was vulnerable in that, if his purported signature to the transfer had been forged, he would not be able to protect himself from the consequences of the registration of the transfer if he was unaware that such an event was happening or was likely to happen.

6 Paragraph 30 of the statement of claim alleges that, in breach of its duty of care, the Bank was negligent in failing to make any or any sufficient checks or inquiries to ascertain whether the transfer was a "bona fide instrument" or to verify adequately or at all that the plaintiff had transferred his interest to the second defendant. The particulars to paragraph 30 state that the Bank failed to check certain details in the loan application that the second defendant made to the Bank (including that the amount of the loan of $456,000 was insufficient to meet the declared purposes of the loan, namely to pay $600,000 to the plaintiff and use $150,000 for future property investments), that the Bank disbursed the loan funds contrary to the declared purposes (namely payment of $75,000 into an account in the name of Racecourse Betting Agents and payment of $374,408.73 to an account in the name of Stanford Securities), and that the Bank "made no enquiries about the provenance of the Transfer" despite the fact that the second defendant signed the loan documents in the presence of an employee of the Bank. The particulars also state that the Bank's failure to make any checks or inquiries to ascertain whether the transfer was a "bona fide instrument", the purported signature of the plaintiff to the transfer was genuine and the plaintiff had in fact transferred his interest to the second defendant, "are all to be inferred in all the circumstances from the Bank's inaction and neglect in that regard".

7 Paragraph 31 of the statement of claim alleges that, by its conduct in failing to make any or any sufficient checks or inquiries to ascertain whether the transfer was a "bona fide instrument", and thereby in bringing about the amendments to the register by lodging the transfer and mortgage for registration, the Bank, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the Trade Practices Act 1974 (Cth) ("TPA"). The particulars to paragraph 31 state that by lodging the transfer and mortgage for registration, "the Bank represented that it held an honest belief that the [transfer and mortgage] were both genuine instruments and that [the plaintiff] had signed the [transfer] in the presence of the attesting witness - which was not in fact the case - and which, in all the circumstances, the Bank had no basis for so believing".

8 Paragraph 32 of the statement of claim alleges that, by reason of the matters referred to in paragraphs 29 to 31 of the statement of claim, the Bank has caused the plaintiff "to suffer loss and damage, namely the deprivation of the land as a result of the mortgagee's sale".

9 The prayer for relief seeks an order that any amount paid by the Registrar to the plaintiff be recovered by the Registrar from the third parties pursuant to s 109(3)(a) of the TLA. In addition, paragraph AA of the prayer for relief seeks a declaration that the Bank is a person actually responsible for the loss or damage sustained by the plaintiff by reason of the deletion of the plaintiff's joint proprietorship of the land. No other declaration is sought against the Bank.

10 Mr Moore, who appeared for the Bank, submitted that the allegations made by the Registrar against the Bank in paragraphs 29 to 31 of the statement of claim do not disclose a cause of action and no amendment could cure the defects.

11 In relation to the negligence claim, Mr Moore relied on the following grounds:

(a) In order for the plaintiff to succeed in a claim for pure economic loss against the Bank, it is not sufficient for the plaintiff to establish that his loss was reasonably foreseeable. In addition, in a case such as the present, the plaintiff must establish that he was in a vulnerable position, in the sense that he was unable to protect himself from the consequences of the Bank's want of reasonable care, and that the Bank had actual knowledge of this vulnerability. Mr Moore relied on Perre v Apand Pty Ltd[1] and Woolcock Street Investments Pty Ltd v CDG Pty Ltd.[2] He submitted that the plaintiff's vulnerability arose from his inability to protect himself from the second defendant obtaining the certificate of title from the fourth third party (rather than the registration of the mortgage), that the Registrar does not allege that the Bank had actual or constructive notice of the second defendant's misappropriation of the certificate of title and that, without that knowledge, the Bank could not have known the plaintiff was vulnerable. He submitted that paragraphs 29 and 30 of the statement of claim are defective in that the Registrar does not allege that the Bank had actual knowledge of the plaintiff's vulnerability, as required by Perre.[3]

(b) The breach of duty pleaded in paragraph 30 of the statement of claim does not correspond with the duty pleaded in paragraph 29 of the statement of claim. Mr Moore submitted that although there is no allegation that the Bank owed the plaintiff a duty to make sufficient checks or inquiries to ascertain whether the transfer was a "bona fide instrument", it is alleged that the Bank breached such a duty. Likewise, although it is not alleged that the Bank had a duty to verify that the plaintiff had transferred his interest, it is alleged that the Bank breached such a duty. Mr Moore further submitted that although the particulars to paragraph 30 of the statement of claim allege that the Bank failed to check the information in the second defendant's loan application, no duty to make such a check is alleged in paragraph 29 of the statement of claim. He further submitted that the statement of claim does not connect the Bank's alleged failures to the economic consequences suffered by the plaintiff, in that it does not allege that had the Bank made the checks, the transfer would not have been lodged.

(c) The duty alleged by the Registrar against the Bank assumes that a lender ought to have a "high index of suspicion that its borrower is endeavouring to defraud it and is bound in the interests of anyone who may be affected by such a fraud to be vigilant and very alert for such a fraud". Mr Moore submitted that as a matter of public policy, such a duty contended for is unwarranted and too high.

12 In relation to the TPA claim, Mr Moore relied on the following grounds:

(a) For the plaintiff to recover damages against the Bank under s 82 of the TPA, the plaintiff must show that he has suffered loss as a result of being induced to do something or to refrain from doing something by the Bank's conduct which is alleged to be misleading. Mr Moore submitted that the Registrar has not pleaded that the plaintiff or anyone else relied on the Bank's conduct. He relied on Kabwand Pty Ltd v National Australia Bank Ltd,[4] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd,[5] Taco Company of Australia Inc v Taco Bell Pty Ltd[6] and Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd.[7] He submitted that it is impossible to see how the plaintiff could have been misled by the Bank.

(b) The pleading does not make clear what conduct of the Bank was misleading and, in particular, whether it is the failure to make any or any sufficient checks or inquiries to ascertain whether the transfer was a "bona fide instrument" or the conduct set out in the particulars to paragraph 31 of the statement of claim. Insofar as the misleading conduct of the Bank is alleged to convey a representation by the Bank that it held an honest belief that the transfer and mortgage were both genuine instruments and that the plaintiff had signed the transfer in the presence of the attesting witness, the term "genuine instruments" is confusing and ambiguous and requires explanation. Additionally, although the statement of claim refers to s 52 of the TPA, it does not refer to s 82 which creates the cause of action. Furthermore, the prayer for relief does not seek any relief (such as a declaration) in relation to the alleged misleading conduct of the Bank.

(c) Insofar as the Registrar alleges that the Bank represented that the signature of the plaintiff was genuine and had been signed in the presence of the attesting witness, no such representation could be found. Mr Moore submitted that all that the Bank was doing in lodging the transfer for registration was acting as a conduit, as the transfer was not the Bank's document. It was an innocent carriage of a false representation from the Bank to the Land Titles Office. The Bank cannot be liable for this representation unless it adopted the representation. He relied on Gardam v George Wills & Co Ltd,[8] Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd[9] and Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd.[10]

(d) The Bank's conduct in lodging the transfer was not "in trade or commerce", as that expression does not encompass conduct that is undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business. Mr Moore relied on Concrete Constructions (NSW) Pty Ltd v Nelson.[11] He submitted that although the Bank carries on the business of a banker and, as part of that business, lends money to persons secured by a mortgage, the lodging of a transfer and mortgage for registration is in the course of or incidental to that business but is not conduct in itself "in the course of trade or commerce".

13 Mr Fraser, who appeared for the Registrar, submitted that the Bank's application should be dismissed for the following reasons:

(a) An application under r 23.01 of the Rules should only be granted where a cause of action is "obviously unsustainable" or "so obviously untenable that it cannot possibly succeed". Mr Fraser submitted that there is a real question of fact or law to be determined, the rights of the parties depend upon it and the Court ought not dismiss the Registrar's claim against the Bank. He relied on General Steel Industries v Commissioner for Railways (NSW)[12] and Dey v Victorian Railways Commissioners.[13] He also submitted that the statement of claim is not defective.

(b) The fact that at the time the Bank was approached by the second defendant he was not the registered proprietor of the plaintiff's interest but an unregistered transferee of that interest and, as a result, the Bank was not entitled to the benefit of the indefeasibility provisions of the TLA, is sufficient to give rise to a duty of care on the part of the Bank towards the plaintiff not to cause him economic loss.

(c) The vulnerability of the plaintiff as the registered proprietor is his inability to protect himself from the consequences of the Bank's want of reasonable care either entirely or at least in a way which would cast the consequences of loss on the Bank in not dealing with the registered proprietor whose interest, by operation of the TLA, is indefeasible. Mr Fraser relied on a number of cases on indefeasibility and causation. He submitted that the High Court authorities did not require the Registrar to establish that the Bank had actual knowledge of the plaintiff's vulnerability.

(d) The TPA claim is properly pleaded and predicated on the representation by the Bank when it presented the transfer and mortgage to the Registrar for registration as to its honest belief that the transfer and the mortgage had been executed in the presence of witnesses who could be relied on to prove execution. Mr Fraser relied on Australian Guarantee Corporation v De Jager.[14] He submitted that reliance by the plaintiff on the Bank's representation was not necessary in this case. He relied on Janssen-Cilag Pty Ltd v Pfizer.[15] He also submitted that the Bank was not merely a conduit when it lodged the transfer because this lodgement allowed it to lodge its mortgage and therefore the Bank took the benefit of the transaction and put itself in a relationship with the plaintiff as the registered proprietor.

14 I note that some of the matters submitted by Mr Fraser are not reflected in the Registrar's pleading.

15 The Court's function in relation to a pleading summons such as the present is not to decide whether the case pleaded will succeed but rather whether it is so obviously untenable that it cannot possibly succeed. If the case, as pleaded, is arguable, judgment will not be entered for the applicant. On the other hand, if the pleading is defective as a matter of drafting, the Court may strike out the pleading and grant leave to replead.

16 I have decided that the Registrar's claims against the Bank are not so obviously untenable that no amendment to the statement of claim could cure the defects. Accordingly, judgment against the Registrar is not warranted. However, paragraphs 29 to 31 of the Registrar's statement of claim are defective and will need to be repleaded.

17 In relation to the negligence claim, the key issue is whether the "important requirement"[16] of vulnerability has been pleaded properly. In paragraph 29 of the statement of claim, the Registrar has pleaded that the plaintiff was vulnerable but has not pleaded that the Bank had knowledge (actual or constructive) of the plaintiff's vulnerability. Whether this renders the pleading defective depends on a close analysis of Perre.[17] In that case, Gleeson CJ,[18] McHugh J[19] and Gummow J[20] refer to actual knowledge of vulnerability as a matter (among other matters) to be taken into account. However, Gleeson CJ,[21] McHugh J[22] and Gummow J[23] also refer to constructive knowledge. Gaudron J,[24] Hayne J[25] and Callinan J[26] also refer to constructive knowledge of the class of persons who are likely to be affected by a defendant's negligence. Accordingly, in my opinion, there is no clear majority in Perre[27] for the proposition that where vulnerability is pleaded in a claim for pure economic loss, it is necessary to establish (and therefore also plead) that the defendant had actual knowledge of the plaintiff's vulnerability. It is arguable that constructive knowledge suffices.[28] However, the absence of actual or constructive knowledge of the plaintiff's vulnerability would negate vulnerability as a factor in support of a claim for pure economic loss. In this case, although paragraph 29 of the statement of claim pleads that the plaintiff is vulnerable, it does not do so in the terms that this expression was defined in Woolcock[29] in that there is no reference to the Bank's want of care. Furthermore, paragraph 29 does not allege that the Bank had actual or constructive knowledge of the plaintiff's vulnerability. These matters need to be addressed.

18 The drafting issues raised by Mr Moore, which are summarised in paragraph 11(b) of this judgment, also need to be addressed.

19 I express no opinion on the policy issues raised by Mr Moore which are summarised in paragraph 11(c) of this judgment. This is a matter for consideration at the trial.

20 In relation to the TPA claim, what s 82 requires is that the misleading conduct causes the plaintiff's loss. Although s 82 does not refer to reliance, where the alleged misleading conduct is the making of a representation, it is difficult to see how the representation can be misleading and cause loss unless it is communicated to someone and that person relies on it by doing something (or refraining from doing something) which results in the plaintiff suffering loss. Ordinarily, it is the plaintiff who relies on the misleading conduct. However, the cases recognise that the plaintiff can succeed under s 82 where a third party relies on the misleading conduct and acts in such a way that causes loss to the plaintiff.[30] In this case, as the Registrar has pleaded a representation by the Bank in paragraph 31 of the statement of claim, the Registrar must plead reliance or some other sufficient and direct link between the making of the representation and the plaintiff's loss. Furthermore, insofar as the Registrar relies on the misleading and deceptive conduct of someone other than the Bank, the Registrar must plead that the Bank adopted that conduct. The adoption can be by conduct that reasonably conveys the impression that the Bank is adopting someone else's representation as its own.[31] Paragraph 31 of the statement of claim does not adequately address these matters.

21 The drafting issues raised by Mr Moore, which are summarised in paragraph 12(b) of this judgment, also need to be addressed.

22 In relation to whether the Bank's conduct that the Registrar relies upon was conduct "in trade or commerce", this issue is arguable and is adequately pleaded.

23 The AGC case that Mr Fraser relied upon does not affect the above analysis of the TPA claim because that case did not involve a TPA claim and, in any event, the Court held that the actions of the employees of the mortgagee, in allowing the mortgage to be registered knowing that one of the mortgagor's signatures had not actually been witnessed by the purported attesting witness, amounted to fraud within the meaning of s 42 of the TLA. That is not the case the Registrar seeks to plead against the Bank.

24 It is for the above reasons that I made the order referred to in paragraph 1 of this judgment on 29 September 2008. After that date, the Registrar and the Bank informed me that they agreed that the Registrar should have leave to replead within 21 days after publication of these reasons rather than after the date of my order of 29 September 2008. The order, when authenticated, will reflect this agreed timeframe.

[1] [1999] HCA 36; (1999) 198 CLR 180, 192 [4], 194 [12]-[15], 198 [27], 220 [104]-[105], 230-1 [132], 236 [150] ("Perre").

[2] [2004] HCA 16; (2004) 216 CLR 515, 529-31 [19]-[24] ("Woolcock").

[3] [1999] HCA 36; (1999) 198 CLR 180, 194-5 [10]-[15], 220 [104]-[105], 236 [150].

[4] (1989) ATPR 40-950, 50,378.

[5] [1982] HCA 44; (1982) 149 CLR 191.

[6] [1982] FCA 136; (1982) 42 ALR 177.

[7] [1988] FCA 40; (1988) 79 ALR 83, 96.

[8] [1988] FCA 194; (1988) 82 ALR 415, 427.

[9] [2004] FCA 403, [151]-[153].

[10] [2005] FCAFC 271, [81]-[88].

[11] [1990] HCA 17; (1990) 169 CLR 594, 602-4.

[12] [1964] HCA 69; (1964) 112 CLR 125, 129.

[13] [1949] HCA 1; (1948) 78 CLR 62.

[14] [1984] VicRp 40; [1984] VR 483, 498 ("AGC").

[15] [1992] FCA 437; (1992) 37 FCR 526, 530-1.

[16] Woolcock [2004] HCA 16; (2004) 216 CLR 515, 530-1 [23], 548-9 [80], 575-6 [168]-[169], 592 [222].

[17] [1999] HCA 36; (1999) 198 CLR 180.

[18] [1999] HCA 36; (1999) 198 CLR 180, 194-5 [13], [15].

[19] [1999] HCA 36; (1999) 198 CLR 180, 207 [67], 220 [104]-[105], 230-1 [132], 236 [150].

[20] [1999] HCA 36; (1999) 198 CLR 180, 258 [213].

[21] [1999] HCA 36; (1999) 198 CLR 180, 194 [10], [12].

[22] [1999] HCA 36; (1999) 198 CLR 180, 207 [67].

[23] [1999] HCA 36; (1999) 198 CLR 180, 258 [213].

[24] [1999] HCA 36; (1999) 198 CLR 180, 202 [42].

[25] [1999] HCA 36; (1999) 198 CLR 180, 304-5 [341]-[342].

[26] [1999] HCA 36; (1999) 198 CLR 180, 316 [387], 326-7 [409], [413].

[27] [1999] HCA 36; (1999) 198 CLR 180.

[28] McKellar v Container Terminal Management Services Ltd (No 2) [2002] FCA 1608, [50].

[29] [2004] HCA 16; (2004) 216 CLR 515, 530 [23].

[30] Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526, 530-1; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 528-9 [101]-[102]; McCarthy v McIntyre [1999] FCA 784, [48], [50]; Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2002] FCAFC 177, [31].

[31] Gardam v George Wills & Co Ltd [1988] FCA 194; (1988) 82 ALR 415, 427; Charben Haulage Pty Ltd v Environmental Earth Sciences Pty Ltd [2004] FCA 403, [151]-[153]; Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd [2005] FCAFC 271 [81]-[88].