Plaintiff v Defendants

TRUSTS - Transfer of land by husband to wife for love and affection - Resulting trust - Whether presumption of advancement rebutted - Held: presumption rebutted on the facts - Wirth v Wirth [1956] HCA 71; (1956) 98 CLR 228, 235-6; Nelson v Nelson (1995) 184 CLR 538, 600-2; Calverley v Green [1984] HCA 81; (1984) 155 CLR 242, 247; Damberg v Damberg & Ors [2001] NSWCA 87, [44]-[45], applied.

AGENCY - Whether husband authorised to sign wife's name on mortgage and related loan agreements - Agency not established on the facts - Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130, 1137 applied.

RATIFICATION - Whether forged loan agreements capable of ratification by person whose signature has been forged - Held: forged loan agreements were nullities and incapable of ratification - Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146, 199-200; Greenwood v Martins Bank Ltd [1932] 1 KB 371 378-9; Rowe v B & R Nominees Ltd [1964] VicRp 59; [1964] VR 477, 482-3, applied - No ratification established on the facts of the case in any event - Leybourne v Permanent Custodians Limited [2010] NSWCA 78, [131]-[134] applied.

For the First Defendant/Plaintiff by Counterclaim, Hui Ying Xiao

For the Second Defendant by Counterclaim, the Registrar of Titles

1 The first defendant, Hui Ying Xiao, was born in China in 1960. She came to Australia in November 1996. She adopted the first name 'Nancy'. She met the second defendant, Craig Fitzgerald, in March or April 1997, and commenced living with him in his mother's house in Vermont ('the land') in June that year. Following his mother's death in September 2000, Mr Fitzgerald became the registered proprietor of the land.

2 Ms Xiao and Mr Fitzgerald were married in December 2000.

3 In early 2004, Mr Fitzgerald and a lifelong friend, Dominic Lamanna, became interested in purchasing the Shark Fin Inn Chinese restaurant in Burwood ('the restaurant'), with the intention of having Ms Xiao manage the restaurant while the two men continued working as property valuers at the same firm. Mr Fitzgerald needed finance to purchase his share of the investment but he had a poor credit history and was unlikely to get finance in his own name, or credit from suppliers to the restaurant if he was a disclosed proprietor.

4 In this context, Mr Fitzgerald told Mr Lamanna that he intended to transfer the land to Ms Xiao, that Ms Xiao would obtain finance on the security of the land for Mr Fitzgerald's share of the restaurant, and that Ms Xiao would be his nominee shareholder and director in the company to be formed to purchase and run the restaurant business. Mr Lamanna cautioned Mr Fitzgerald to protect his interest in the land, in the event that his marriage to Ms Xiao failed. Mr Fitzgerald's solicitor, Harry Szmerling, gave him similar advice. Mr Szmerling then drew three documents to effect Mr Fitzgerald's instructions to transfer the legal interest in the land to Ms Xiao while retaining his beneficial interest:

(2) a re-transfer of the land to Mr Fitzgerald, to be held in escrow until Mr Fitzgerald required the land to be transferred back to him; and

(3) a deed of trust, under which Ms Xiao declared she held the land on trust for Mr Fitzgerald absolutely and agreed to deal with it in accordance with his directions.

5 Mr Szmerling sent the three documents to Mr Fitzgerald to arrange for execution and return to him. Ms Xiao signed the transfer of land to her and it was duly registered. She denies, however, that she was asked to sign, or signed, the re-transfer to Mr Fitzgerald or the trust deed. No such documents were returned to Mr Szmerling.

6 Following the transfer to Ms Xiao, Mr Fitzgerald arranged for two loans to be made to her by the plaintiff, Perpetual Trustees Victoria Limited, on the security of the land. Perpetual made the loans without any direct dealings with Mr Fitzgerald or Ms Xiao. Perpetual is the trustee of a number of trusts. At relevant times, it invested the trust assets using a business model involving the appointment of Interstar Securities (Australia) Pty Ltd as its 'Trust Manager'. As trust manager, Interstar was solely responsible for the selection of investments by the trusts. These arrangements were recorded in a 'Master Trust Deed'. In turn, Interstar's business model involved it sourcing loan applications from a number of 'originators' and then determining whether or not to approve loan applications and submit them to Perpetual. The relevant originator in this case was Capital Securities (Aust) Pty Ltd. Mr Fitzgerald's direct dealings were all with Capital, particularly its principal, Bernhard Seifert.

7 It is clear that Mr Fitzgerald acted fraudulently in obtaining the loans. He did not tell Ms Xiao he was doing so; he forged her signature on the loan agreements, mortgage and related documents; he provided Capital with a false valuation of the land; and he arranged for the concoction of false information and documents purporting to show that Ms Xiao was employed by an entity associated with Mr Lamanna that paid her regular and substantial wages.

8 The restaurant commenced trading profitably but, after a short while, began making losses. The situation worsened when Mr Fitzgerald lost his valuation work and became involved in managing the restaurant. The loans went into default and Perpetual now claims possession of the land to enable it to sell as mortgagee.

9 Although Ms Xiao's signature on the mortgage is forged, Perpetual was neither a party nor privy to the fraud and no other exception to indefeasibility applies. Accordingly, the effect of registration of the mortgage is that it encumbers the land to the extent of Perpetual's interest.[2] There is an issue, however, as to the extent of that interest, because the mortgage is an 'all moneys' mortgage and does not contain a covenant to pay any particular amount. In these circumstances, Ms Xiao contends that the mortgage secures nothing, because the loan agreements are forged and therefore void. There is a conflict of authority on this threshold issue.

10 To guard against a finding that the mortgage secures nothing, Perpetual raises alternative cases. First, it seeks a declaration that Ms Xiao holds the land on a bare trust for Mr Fitzgerald, and, on the grounds of his fraud, seeks judgment against him for the whole amount of the outstanding loans and interest. Second, if its first alternative case is rejected, Perpetual contends that Ms Xiao authorised Mr Fitzgerald to sign the loan agreements and related documents on her behalf. Third, if that authority is not established, Perpetual contends that Ms Xiao ratified the loans or is estopped from denying that they are valid.

11 Ms Xiao also raises alternative cases, to guard against a finding that the mortgage secures the outstanding loans and interest. She contends that Perpetual, Interstar, Perpetual's agent, and Capital, as an authorised agent of Interstar, each engaged in unconscionable conduct in connection with the loans and mortgage. On this basis, she seeks orders setting aside the mortgage and the loan agreements. Perpetual accepts that Interstar was its agent but denies that Capital or its principal, Bernhard Seifert, was its or Interstar's agent.

12 Finally, should she fail to resist Perpetual's claims, Ms Xiao claims an indemnity under s 110 of the Transfer of Land Act 1958 (Vic) ('the Act') against the Registrar of Titles.

13 In summary, the issues raised by the pleadings are as follows:

(1) Does the mortgage secure repayment of the loans?

(2) Does Ms Xiao hold the land on trust for Mr Fitzgerald?

(3) What orders should be made against Mr Fitzgerald?

(4) Did Ms Xiao authorise Mr Fitzgerald to sign the loan agreements?

(6) Is Ms Xiao estopped from denying that the mortgage secures repayment of the loans?

(7) Are the loans unenforceable because of unconscionable conduct by Capital?

(8) Are the loans unenforceable because of unconscionable conduct by Perpetual?

(9) Are the loans unenforceable because of unconscionable conduct by Interstar?

(10) Is Ms Xiao entitled to be indemnified under s 110 of the Act?

14 Before considering the issues, it is convenient to refer to recount the facts in more detail.

15 Before commencing the factual narrative, it is necessary to make some remarks about Ms Xiao's evidence. She gave evidence through an interpreter, as her English is obviously limited. Viewing her give evidence over about three days, however, I formed the impression that she has a better understanding of spoken English than she was prepared to acknowledge. There were a number of questions which she answered directly without translation, or began answering before the translation had commenced.

16 For example, on the critical issue of what her husband said to her before she became the registered proprietor of the land:

Can you tell His Honour if you can remember the words used by Mr Fitzgerald according to your understanding, in English?---(Direct) He say, Your Honour, 'We marry. This house give it to you' - - -

INTERPRETER: She said that when they were getting married at the register her husband said - - -

WITNESS: (Direct) 'You and me marry. Now after married, this house give it to you, you're happy,' he said.

17 Other examples included questions concerning her understanding of English,[3] Mr Fitzgerald's unwillingness to discuss with her the circumstances surrounding the commencement of this proceeding,[4] and whether her evidence was designed to assist her husband by concealing his fraud.[5]

18 Perpetual called two witnesses who had dealings with Ms Xiao over the years - Mr Lamanna and Peter Hay. They gave evidence to the general effect that Ms Xiao's English comprehension and skills had improved over time and were sufficient to enable her to carry on basic conversations prior to or during the relevant period in 2004.

19 While I accept that Ms Xiao understands more than she was prepared to admit, and can carry on basic conversations in English, I do not think this is a significant factor in determining the outcome of this case. It is quite clear that her English skills were basic at best when the relevant dealings occurred, that she has virtually no comprehension of written English, and that she relied upon her husband to act on her behalf in dealings with third persons when it was necessary to communicate in English. Examples include taking her husband to her general practitioner and dentist for appointments to ensure that her symptoms were properly presented for treatment.

20 Making due allowance for the fact that Ms Xiao gave her evidence through an interpreter, Ms Xiao was, in my opinion, a highly unsatisfactory witness:

(1) She was often argumentative and evasive, and refused to make concessions that were obviously warranted. However, insofar as her refusal to make concessions concerning her husband's obvious fraud, some allowance must be made for her natural desire to protect him.

(2) In November 2011, Ms Xiao affirmed an affidavit, written in English by her husband, without having the affidavit translated to her by him or anyone else.

(3) Ms Xiao also gave inconsistent evidence on numerous occasions. She had a practice of commencing answers in cross-examination with a blanket denial, and only retreating from that position when contemporaneous documents or established facts were put to her.

21 In summary, I found Ms Xiao to be an unreliable witness who was not doing her best to assist the Court. I have treated her evidence with caution whenever there are no contemporaneous documents or other objectively demonstrated facts to corroborate her evidence.

22 The evidence concerning Ms Xiao's employment in China before she emigrated to Australia in 1996 was confusing. I am satisfied, however, that she did not engage in any employment while in China that required her to speak the English language.

23 For the last 10 years of her time in China, Ms Xiao did not work in any paid employment. Notwithstanding this, and her lack of skills in the electronics area, she gave implausible evidence that she was sponsored by an employer to travel to Australia, attend an electronics trade fair, and be employed in Australia. Later, she said that she expected to be employed in a Chinese restaurant in Melbourne, but only worked there for about a month.

24 After a few months, in March or April 1997, Ms Xiao met Mr Fitzgerald in a supermarket in Prahran. It is unnecessary to recount the unusual circumstances in which she says she met him and commenced a relationship with him from that time. Things moved quickly and she commenced living with Mr Fitzgerald, his mother and sister at the land in about June 1997. Until she was involved in the management of the restaurant for a while, commencing in 2004, Ms Xiao did not engage in paid employment. She stayed at home, performed household chores and cooking, and cared for Mr Fitzgerald's elder sister (who had an acquired brain injury) and for his mother (who had a cancerous brain tumour). Mrs Fitzgerald died in September 2000 and, following her death, the land was transferred to Mr Fitzgerald as sole registered proprietor.

25 Prior to moving into the Fitzgerald household, Ms Xiao said that she had some friends in Prahran, but Mr Fitzgerald disapproved of them and directed her to stop seeing them. She complied. As a result, Ms Xiao was socially isolated in the Fitzgerald household. It appears that the only contact she had with persons outside that household were on the occasions she met Mr Fitzgerald's friends or work colleagues, in particular, Mr Lamanna.

26 As appears above, following the death of Mr Fitzgerald's mother, he and Ms Xiao were married in December 2000. Ms Xiao gave evidence that Mr Fitzgerald said to her at the wedding ceremony words to the effect: 'You and me married. After we are married I'll give this house to you. You'll be happy.' There was, however, no transfer of the relevant land to Ms Xiao at that time. Perpetual contends that this evidence should be rejected as recent invention. This issue is resolved below.

27 Both before and after their marriage, Mr Fitzgerald exercised tight control over Ms Xiao's dealings with third parties. He opened all of the mail received at the land, including mail addressed to Ms Xiao, and when she asked him about it told her that correspondence addressed to her comprised largely parking fines. Mr Fitzgerald took responsibility for the payment of all household bills and the family finances generally. He dealt with the outside world on Ms Xiao's behalf. Ms Xiao trusted him to look after her interests when dealing with English speaking people.

28 By late 2003, Mr Fitzgerald and Ms Xiao were regular customers of the restaurant. At about this time, Mr Fitzgerald and Mr Lamanna discussed a plan to purchase the restaurant and to have Ms Xiao perform a management role. The two men agreed to purchase the restaurant as equal partners. Before doing so, they attended the restaurant and other Chinese restaurants in the general area to familiarise themselves with the business and as a form of due diligence. Ms Xiao accompanied the two men on these occasions, and Mr Lamanna said that she was able to participate, to some extent, in the conversations about the merits of purchasing the restaurant and the attributes of the other restaurants. Ms Xiao denied that she participated in these conversations because they were in English and she was unable to understand them. She said she just nodded and smiled. I do not accept that evidence. It is directly inconsistent with Mr Lamanna's evidence, and her denial is also inconsistent with the evidence of Mr Hay, who was the principal of the valuation firm for which both Mr Fitzgerald and Mr Lamanna worked at relevant times. Their evidence of her English speaking and comprehension was credible and objectively reasonable. Ms Xiao's evidence was not, especially given the fact she had been in Australia, living in a solely English speaking household, for about six years at this time, and intended to work in the restaurant in a managerial capacity.

29 Both Mr Fitzgerald and Mr Lamanna needed to borrow money to fund the proposed purchase of the restaurant. They both approached Capital to obtain the necessary finance - about $300,000 each. Their respective loan applications proceeded separately. It is unnecessary to refer to Mr Lamanna's loan application.

30 Mr Fitzgerald approached Capital by no later than 10 February 2004. On that day, he prepared a fraudulent valuation report for the land addressed to Capital. The valuation report was prepared on the letterhead of the valuation firm for which Mr Fitzgerald performed regular work at the time, and is signed by him as a certified practising valuer. The report is fraudulent for the following reasons:

(1) It states that the applicant for finance was Ms Xiao.

(2) It gives false measurements for the land. The true dimensions of the land are 20.12 metres x 51.24 metres, a total area of 1,031 square metres. The report states that the land measures 29.5 metres x 71 metres, with a total area of 2,095 square metres - approximately double the actual size of the land.

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

In fact, at the time, Mr Fitzgerald was the registered proprietor and the purported applicant for the loan, Ms Xiao, was his wife.

(4) On the basis of the false statement as to the size of the land, Mr Fitzgerald valued it at $780,000. This was almost double the true value of the land according to an independent valuation prepared for the purposes of trial, which valued the land at $400,000 at the date of Mr Fitzgerald's valuation.

31 At the time of Mr Fitzgerald's false valuation, he had not made a formal loan application. I infer that he had spoken with Mr Bernhard Seifert on an informal basis before the formal loan application was made. Mr Seifert's name appears on Mr Fitzgerald's valuation as the person who requested it in connection with a loan application by Ms Xiao. As appears below, it is apparent that Mr Seifert knew that the registered owner of the land at the time was Mr Fitzgerald, not Ms Xiao. That must mean that Mr Seifert knew also that Mr Fitzgerald's declaration in his valuation, that he had no interest in the land, was false.

32 As appears above, it was necessary for Mr Fitzgerald to apply for the loan in Ms Xiao's name, because he had a number of unsatisfied Magistrates' Court judgments against him at the time and a bad credit rating. In order to progress the loan application, it was necessary for Mr Fitzgerald to transfer the land into Ms Xiao's name. Mr Fitzgerald contacted Harry Szmerling, a solicitor with offices in the same building as Capital. Mr Fitzgerald met with Mr Szmerling for the first time on 1 March 2004. Mr Fitzgerald instructed Mr Szmerling that he wanted to arrange a transfer of the land to his wife for natural love and affection.

33 Next, Mr Fitzgerald met with Mr Szmerling on 9 March 2004. Mr Szmerling's evidence in chief about this critical conversation was to the effect that Mr Fitzgerald instructed him that he wanted to retain the beneficial interest in the land:

In the first part of the conference, can you recall what was said to you by Mr Fitzgerald?---Mr Fitzgerald said words to me to the effect that he wanted to have a situation where the property would be transferred back to him or under his control or words to that effect.

Did you say anything to him, as you recall, in response?---I said that that would require a transfer of land to be prepared from his wife back to him and supported by a declaration of trust.

Did he say anything in response to that?---He became irritated, didn't seem to be particularly interested in the advice that I was giving, made a critical comment to me along the lines of I was complicating the matter or something like that.

34 After this initial part of the conference, which took only a few minutes, Mr Seifert, whose office was directly next to Mr Szmerling's office, joined the conference. Mr Szmerling's evidence in chief about what then transpired is set out below:

Mr Fitzgerald had no objection to Mr Seifert joining the conference and I had no objection to it as well. Craig Fitzgerald made a comment about he was too busy, I was complicating things and he then went on to say that he wanted me to accept instructions from Bernhard Seifert on his behalf in relation to this matter.

35 Mr Szmerling's evidence is consistent with his contemporaneous file note, in which it is made clear that Mr Fitzgerald authorised Mr Seifert to give instructions to Mr Szmerling on his behalf:

Craig said in front of Bernhard that he was too busy to 'sit down and give me instructions' and he said that Bernhard fully understood the situation and he authorised Bernhard to give me instructions on his behalf.

Craig then left.

36 In cross-examination, it was put to Mr Szmerling that his file note contains an important omission. While the file note commences with a complaint about Mr Fitzgerald's late arrival at the conference - an unnecessary matter to record - it does not record Mr Fitzgerald's instruction that he 'wanted to have a situation where the property would be transferred back to him or under his control'. Mr Szmerling frankly acknowledged that this is an important omission. When it was put to him, however, that Mr Fitzgerald did not instruct him that 'he wanted the wife to hold the property on trust for him', Mr Szmerling responded:

That's absolutely incorrect, and that's the whole reason that Mr Fitzgerald became angry and told me that I was complicating the issue.

...

What did come out of his mouth, what I did record was the fact that he accused me of complicating the matter. I did not put in his reason for saying that. That's a gap. With the benefit of hindsight I agree with you as an experienced solicitor I should have put in the reason for him saying that. But he did say that. He did get angry for a reason, and I'm saying to you that is the reason.

37 I accept Mr Szmerling's evidence. It is consistent with what happened next and it was not put to him that he had any reason to lie about the matter.

38 Mr Szmerling spoke with Mr Seifert later in the day. Mr Seifert gave him instructions, as Mr Fitzgerald had authorised him to do earlier that day. Mr Szmerling's contemporaneous file note is consistent with his recollection as to Mr Fitzgerald's oral instruction that he wanted to retain control over the land:

Bernhard instructed me to do a transfer back from Craig Fitzgerald's wife back to Craig Fitzgerald to be held in escrow.

I said that it would probably be appropriate in those circumstances for Craig's wife to sign a Declaration of Trust in favour of Craig and Bernhard agreed with this.

39 Mr Szmerling complied with these instructions. By letter dated 11 March 2004, addressed to Mr Fitzgerald but endorsed 'C/- Bernhard Seifert BY HAND', he noted Mr Fitzgerald's instruction to accept instructions from Mr Seifert on his behalf and, in accordance with Mr Seifert's instructions, enclosed three documents to be signed by Mr Fitzgerald and Ms Xiao in the presence of independent adult witnesses:

(1) a transfer of land from Mr Fitzgerald to Ms Xiao;

(2) a transfer of land from Ms Xiao back to Mr Fitzgerald, in respect of which Mr Szmerling wrote: 'We understand that that Transfer is to be held in escrow'; and

(3) a declaration of trust 'under which your wife declares that she holds [the land] solely as Trustee for you'.

40 Mr Szmerling concluded his letter with advice to Mr Fitzgerald that: (1) he should 'of course ensure that [Ms Xiao] understands the nature and effect of the documents which she is asked to sign'; (2) because he did not act for Ms Xiao, he would write to her confirming that fact and recommend that she seek independent legal advice; and (3) once the documents were signed, he recommended that a caveat then be lodged to protect Mr Fitzgerald's interests as beneficiary under the declaration of trust.

41 On the same day, Mr Szmerling wrote to Ms Xiao at the land, informing her that he had been instructed to prepare the three documents, noting that he did not act for her in 'this transaction or in any capacity', and recommending that she obtain independent legal advice.

42 I infer that Mr Szmerling handed his letter to Mr Fitzgerald, and the enclosures, to Mr Seifert and that, in turn, Mr Seifert handed the letter and enclosures to Mr Fitzgerald. I base this inference on the fact that the first document, the transfer of land from Mr Fitzgerald to Ms Xiao, was signed by Mr Fitzgerald and Ms Xiao on 26 March 2004 and returned to Mr Szmerling, who then registered it. It was suggested in argument on Ms Xiao's behalf that there was no evidence to support this inference, because the second and third documents, the re-transfer back to Mr Fitzgerald and the declaration of trust, were not returned to Mr Szmerling. I do not accept that argument. There was no reason put forward as to why Mr Seifert would give only one of the three enclosed documents to Mr Fitzgerald, and not give him the letter. Moreover, Mr Szmerling's invoice for his services included reference to his 11 March 2004 letter and to all three documents. There is no evidence of Mr Fitzgerald complaining about being billed for work he was unaware of and the invoiced amount was paid, albeit by Capital on Mr Fitzgerald's behalf. Neither Mr Fitzgerald nor Mr Seifert gave evidence.

43 Ms Xiao gave the following evidence as to the circumstances in which she signed the transfer of land from her husband to her:

Can you tell His Honour who asked you to sign this document?---My husband.

Can you remember when did you sign this document?---In 2004, in March.

Can you remember where did you sign this document?---My husband brought it home and I signed it at home.

When your husband brought this home, when he asked you to sign did he tell you anything before he asked you to sign?---He told me - my husband told me that when we got married he said he'll give me this house, and he then said that when I sign this document the house will be mine, and he then asked me, "Are you happy that I've given you this house?"

What did you say?---I said, "I'm very happy."

44 Perpetual contends that this evidence is also recent invention and false. I accept that is so.

45 I reject Ms Xiao's evidence that her husband told her at the time of their marriage, and again at the time the transfer of land was signed, that he would or had given her the 'house'. These conversations were not referred to in Ms Xiao's pleadings or particulars, or in her outline of evidence to be given at trial. In her pleadings and outline of evidence, the firm impression was given that she would give evidence that Mr Fitzgerald gave her the land in consideration of her looking after Mr Fitzgerald's mother and sister while they were ill, visiting her mother-in-law in hospital and, together with her family, contributing financially to the Fitzgerald household. This position was also adopted by Ms Xiao in an affidavit affirmed by her on 5 January 2012, in support of an application to set aside the judgment entered against her following an undefended trial in December 2011. Ms Xiao deposed in that affidavit, which was translated to her before she swore it:

1. In order to provide security for me in my old age and in particular in recognition of the care I had provided to my husband's sister and his elderly mother in her remaining years, my husband decided to transfer to me the property at 18 Francis Avenue, Vermont on 29 March 2004.

46 Ms Xiao gave some general evidence about looking after Mr Fitzgerald's mother and sister, but did not give evidence of any statement to her by Mr Fitzgerald that he intended to give the land to her in consideration for these services or in order to provide security for her in her old age. Ms Xiao gave no evidence of financial contributions by her or her family to the Fitzgerald household.

47 The failure of Ms Xiao to give any prior notice of the statements by Mr Fitzgerald at the time of their marriage and the signing of the transfer of land supports an inference of recent invention. I so infer.

48 Ms Xiao also gave evidence that she did not recall having seen the form of re-transfer of the land back to her husband or the declaration of trust before she gave evidence. Of course, given her own evidence about her inability to read and understand English, she would not know whether or not she had previously seen these documents. She was, however, emphatic that she had never been asked by her husband to sign documents of that kind.

49 Mr Lamanna gave evidence of discussions with Mr Fitzgerald concerning Mr Fitzgerald's intention to transfer the land into Ms Xiao's name and for her to be Mr Fitzgerald's nominee in the ownership of the restaurant. In summary, Mr Lamanna said as follows:

(1) Both he and Mr Fitzgerald needed to borrow money to fund their respective purchases of a half share in the restaurant.

(2) At the time, Mr Fitzgerald had a number of judgments against him and a few people 'chasing him for money' for unpaid debts.

(3) In this context, Mr Fitzgerald told Mr Lamanna that he would 'put the family home in Nancy's name and use that as the vehicle to borrow the funds'.

(4) He counselled Mr Fitzgerald, 'as a mate', to have a 'Plan B in place in case something goes wrong ... for example, the house was in Nancy's name and then they had a marital bust-up or something along those lines'. Mr Fitzgerald replied that 'he did have a plan in place' and 'he got some papers drawn up ... and they were ready to go in case he needed to take that action'.

(5) They were unable to have Mr Fitzgerald recorded as either a shareholder or director of the company they intended to form as a vehicle to purchase the restaurant. His 'debts' meant they would likely 'have struggled to get trade credit with the suppliers' if his name was associated with the proprietorship of the restaurant.

50 The nominee nature of Ms Xiao's formal position as a director and shareholder of the company was exemplified by the fact that, although an authorised signatory to the company bank account, she never signed any cheques. Instead, either Mr Lamanna would sign or, with his authority, Mr Fitzgerald would sign company cheques using Mr Lamanna's name.

51 On 23 March 2004, Mr Szmerling wrote to Mr Fitzgerald and acknowledged receipt of the transfer of land from him to Ms Xiao, 'duly signed'. Mr Szmerling noted in his letter that he had not received back the re-transfer of land from Ms Xiao to Mr Fitzgerald nor the declaration of trust. Notwithstanding this, Mr Szmerling proceeded to register the transfer to Ms Xiao. In order to do this, it was necessary to obtain a statutory declaration from Mr Fitzgerald, as transferor to his wife, to ensure that the transfer was not subject to stamp duty. Mr Szmerling witnessed Mr Fitzgerald's signature on the statutory declaration on 25 March 2004. Mr Szmerling could not recall any conversation with Mr Fitzgerald on that day. In particular, he did not recall any discussion with Mr Fitzgerald to the effect that his position would not be protected if the transfer to Ms Xiao was registered without the re-transfer and/or declaration of trust being executed and retained in escrow. Nor could Mr Szmerling recall that he turned his mind to whether he had used the correct form of statutory declaration for the situation where a transfer of land was to a trustee, with the transferor retaining the beneficial interest.[6]

52 It is necessary to pause in the narrative at this point and note that both Perpetual and Ms Xiao tendered expert handwriting evidence. Neither expert was cross-examined. The experts agreed that certain documents purportedly bearing Ms Xiao's signature were forgeries. Based on evidence of Mr Fitzgerald's handwriting, which was confirmed by Mr Lamanna and Mr Hay, Perpetual's expert (Mr Holland) opined that the forgeries were probably performed by Mr Fitzgerald. Mr Holland's evidence was unchallenged. Ms Xiao's expert was not asked to express any opinion as to the identity of the forger. I have reviewed the expert evidence, the numerous examples of Mr Fitzgerald's handwriting in evidence and the probabilities arising from the whole of the evidence. I have no hesitation in concluding that Mr Fitzgerald was the forger, including in respect of some documents where Mr Holland has not expressed an opinion. These reasons reflect my conclusions.

53 After he executed the statutory declaration, Mr Fitzgerald moved quickly to implement his plan of borrowing money in Ms Xiao's name on the security of the land. On 28 March 2004, Mr Fitzgerald forged Ms Xiao's signature on a mortgage loan application. Based on his fraudulent valuation of the land in the sum of $780,000, and false statements as to Ms Xiao's superannuation balance and gross income, he sought finance of $624,000 in Ms Xiao's name on the security of the land, which well exceeded the true value of the land at that time - only $400,000. To support the loan application, Mr Fitzgerald submitted the following documents to Capital:

(1) concocted tax returns for Ms Xiao for the years ended 30 June 2002 and 2003, purportedly verifying annual income of about $160,000 in each year from an entity known as the 'Wholesale Unit Lamanna Trust';

(2) a fake payslip from the Wholesale Unit Lamanna Trust purporting to record that Ms Xiao was receiving a gross monthly salary of $15,000 - equating to $180,000 per year as at 31 March 2004;

(3) photocopies of Ms Xiao's passport and her Bank of Melbourne bank card; and

(4) a copy of Mr Fitzgerald's fraudulent valuation of the land as at 10 February 2004.

54 Following registration of the transfer of land to Ms Xiao on 29 March 2004, Mr Fitzgerald forged Ms Xiao's signature on an authority addressed to Mr Szmerling, authorising him to release the certificate of title to the land to Mr Seifert of Capital. Pursuant to that authority, Mr Szmerling provided the certificate of title to Mr Seifert, together with an account for his services on behalf of Mr Fitzgerald. I infer that Mr Fitzgerald and Mr Seifert's intention was for the account to be paid by Capital from the loan funds when disbursed, and Capital in fact paid Mr Szmerling's account addressed to Mr Fitzgerald.

55 Capital submitted the fraudulent loan application and supporting documents to Interstar for approval. Interstar initially approved the loan for the full amount sought. The mortgage insurer, however, was only prepared to insure a loan of $507,000, and a loan for that amount was finally approved on 6 May 2004 (the 'first loan').

56 Interstar then appointed its settlement agents, First Title City West, to arrange for execution of the first loan agreement, the mortgage and other documents to enable settlement of the first loan to proceed. The documents were sent to Ms Xiao at the land and Mr Fitzgerald took control of them. He forged Ms Xiao's signature on the first loan agreement and the mortgage, as well as on the other documents required by First Title. He returned the forged documents to First Title and, at that time, provided a letter signed by him, as a purportedly independent valuer, confirming his earlier fraudulent valuation of the land in the sum of $780,000.

57 Solicitors were then appointed to complete the transaction. They noticed a difference between Ms Xiao's name on the loan application and the name on the certificate of title - the application referred to 'Hui Ying Xiao' while the certificate of title refers to 'Xiao Hui Ying'. Following receipt of a copy of Ms Xiao's passport and bank card, the solicitors were satisfied as to Ms Xiao's identity, provided that a statutory declaration was made by Ms Xiao confirming that Hui Ying Xiao and Xiao Hui Ying were 'one and the same person'. Mr Fitzgerald forged Ms Xiao's signature on the statutory declaration, purportedly in the presence of an accountant, Mr Woodland, whose name also appeared on the fake copy income tax returns accompanying the loan application.

58 The first loan was then ready to be advanced. It was necessary for Ms Xiao, as the named borrower, to sign a Direction and Authority, directing Perpetual to disburse the loan in accordance with her instructions. Again, Mr Fitzgerald forged the document, directing that the net proceeds of the first loan ($502,211.50) be paid into the account of Ninety Eighth Betabarb Pty Ltd, a company owned and controlled by him, with Bendigo Bank. Mr Fitzgerald also forged Ms Xiao's signature on a Direct Debit Request, authorising loan repayments to be debited from Ninety Eighth Betabarb's bank account. That document falsely stated that Ms Xiao was the company secretary. The whole of the document is completed in Mr Fitzgerald's handwriting.

59 The first loan settled on 1 June 2004. Mr Fitzgerald paid $80,000 of the loan proceeds to a company associated with Mr Seifert, Brymar Investments Pty Ltd, and $127,000 to a company associated with Mr Lamanna, Contess Investments Pty Ltd. It is possible that the amount paid to Mr Lamanna's company was related to the proposed purchase of the restaurant, but the evidence does not allow a finding to that effect. The amount paid to Mr Seifert's company would appear to be an unusually large commission for procuring the first loan.

60 At this time, the proposed company to be used as the vehicle for Messrs Fitzgerald and Lamanna's investment in the restaurant, Imperial Shark Fin Enterprises Pty Ltd ('Shark Fin Enterprises'), had not been incorporated. On 8 July 2004, Mr Woodland arranged for its incorporation. On this occasion, Ms Xiao did sign some documents. She recalled being taken to Mr Woodland's office and signing a number of documents which were not explained to, or translated for, her. She signed them at her husband's request and did so out of trust in him. The documents which she signed on this occasion were a consent to act as director form and two share certificates for Shark Fin Enterprises.

61 In the meantime, Mr Fitzgerald set about increasing the amount secured on the land. On 28 June 2004, purportedly on behalf of Ms Xiao, he applied to Capital for a second loan of $117,000. For this purpose, Mr Fitzgerald again acted fraudulently. The loan application was completed and/or concocted by Mr Fitzgerald,[7] contained his forgery of Ms Xiao's signature and attached false information as to her income, including an 'updated' payslip purportedly recording an annualised gross salary of $180,000. Further, upon request, Mr Fitzgerald provided another fraudulent valuation of the land, confirming its value at $780,000.

62 There were difficulties in obtaining the second loan, which are not necessary to detail. For present purposes, it is sufficient to note that there were difficulties in obtaining mortgage insurance, delaying the final approval and settlement of the second loan. Approval was given on 12 July 2004. The second loan documents were sent to Ms Xiao at the land. Mr Fitzgerald took possession of the documents, forged Ms Xiao's signature on them, and returned them to First Title.

63 The second loan was settled on 2 August 2004, and the net proceeds were again paid into the Ninety Eighth Betabarb account with Bendigo Bank.

64 At this time, the land, worth only $400,000, had been encumbered by Mr Fitzgerald to a total amount of $624,000.

65 Prior to settlement of the second loan, Perpetual's solicitors required another statutory declaration by Ms Xiao that Hui Ying Xiao and Xiao Hui Ying were 'one and the same person'. Again, Mr Fitzgerald forged Ms Xiao's signature on the statutory declaration and Mr Woodland purported to witness her signature.

66 Mr Fitzgerald used part of the proceeds of the two loans to pay his one-half share of the purchase of the restaurant in the name of Shark Fin Enterprises, and the remainder for use in the business and his personal purposes.[8] The only evidence of the purchase agreement is an early draft prepared prior to incorporation of Shark Fin Enterprises. An extract of it was provided to Capital and, in turn, to Interstar on 1 July 2004. In that draft, the purchase price is stated as $800,000. Mr Lamanna, however, gave evidence that the final purchase price was $600,000.

67 In order to purchase the restaurant, it was necessary for Shark Fin Enterprises to take an assignment of lease from the vendor of the business, and for Mr Lamanna and Ms Xiao to guarantee due performance of the lease to the vendor. On this occasion, Ms Xiao's genuine signature appears on the assignment and guarantee documents. She signed as both director of Shark Fin Enterprises and in her own right as guarantor. Initially, Ms Xiao recalled that she signed the documents at home, without any explanation or translation, at the request of her husband. Later, she said that she could not recall when or where she signed the documents. She could simply recognise her signature and recall that her husband said he wanted her to sign them.

68 The restaurant purchase was completed in September 2004. In the early days following purchase, the restaurant traded profitably and some capital repayments were made. Mr Fitzgerald, using Mr Lamanna's email account for some unexplained reason, then requested a further drawdown of $30,000 on the loan accounts. Interstar refused to accept the re-draw request without Ms Xiao's signed authority. Mr Fitzgerald handwrote the required authority from Ms Xiao and forged her signature. The re-draw then followed.

69 Soon after, on 17 November 2005, Mr Fitzgerald prepared another letter, purportedly from Ms Xiao to Capital, requesting a further re-draw of $20,000 on the loan accounts. He forged her signature on this request also. The $20,000 was advanced and the amount secured on the land increased.

70 By early 2006, the loan payments were being deducted from the Shark Fin Enterprises bank account. The loans were often in default. Sporadic payments to Perpetual were made. For example, on 20 July 2006, Mr Fitzgerald purchased a bank cheque for $7,500 and paid it to Interstar in an attempt to clear arrears on the loan accounts. For unexplained reasons, Mr Fitzgerald prepared an amended Direct Debit Authority relating to the Shark Fin Enterprises account, altering the frequency of loan repayments by direct debit from monthly to weekly. He forged Ms Xiao's signature on the document.

71 Throughout 2006 and 2007 the loan accounts continued to be in arrears from time to time. There was much related correspondence sent to Ms Xiao at the land by Capital and Interstar. In July and August 2007, Mr Fitzgerald purchased bank cheques from the Bendigo Bank and provided them to Interstar in payment of the outstanding loan debts.

72 For unexplained reasons, on 10 September 2007, Ms Xiao opened a bank account with Westpac and, on the same day, executed two documents concerning the loans. First, a direct debit request authorising Perpetual to deduct loan repayments from her new personal bank account with Westpac. Second, a document designed to alter the frequency of payments made under the loans from weekly to monthly. Ms Xiao's signatures on these documents are written in both English and Chinese characters. Each is genuine, as acknowledged by Ms Xiao.

73 Ms Xiao's Westpac account never had enough credit to enable any loan repayments to be made from it. Instead, payments continued to be made on an occasional basis by Mr Fitzgerald arranging bank cheques. For example, on 29 January 2008 Mr Fitzgerald prepared a letter purportedly from Ms Xiao, enclosing a bank cheque towards payment of the loan accounts, and forged Ms Xiao's signature to the letter.[9]

74 The loan finally went into default by April 2009. On 9 April 2009, the solicitors for Perpetual sent a default notice pursuant to s 76 of the Act to Ms Xiao at the land. The default was never remedied. As at 17 October 2014, the amount owing on the loans was $1,221,953.07.

75 Taking the evidence as a whole, I find that Ms Xiao was a pawn in Mr Fitzgerald's fraud, and her defence of this proceeding is a continuation of that situation. I infer that Mr Fitzgerald exploited Ms Xiao's limited English skills by using her name to raise finance on the land without her knowledge. I infer that Mr Fitzgerald kept Ms Xiao in the dark as to the true situation throughout, while he endeavoured to service the two loan agreements. It was only when he could no longer continue funding repayments, and Perpetual commenced this proceeding in 2009, that Ms Xiao became aware of the circumstances surrounding the loans.

76 This proceeding was first listed for trial on 21 November 2011. On that date and on subsequent occasions, with the assistance of her husband, Mr Fitzgerald, Ms Xiao sought and obtained a series of adjournments until 14 December 2011. On the morning of 14 December 2011, the trial judge refused an application made on behalf of Ms Xiao for a further adjournment of the proceeding on the grounds of her ill-health. His Honour decided that the trial should proceed, commencing in the afternoon of 14 December 2011. The trial then proceeded in the absence of an appearance by or on behalf of Ms Xiao.

77 In the absence of contradicting expert evidence having been called by Ms Xiao, the trial judge accepted the evidence at trial of Mr Seifert that he had witnessed Ms Xiao sign the second loan agreement[10] and the evidence at trial of Mr Woodland (who witnessed the two statutory declarations concerning the confusion in relation to Ms Xiao's identity) that he would not, and had never, witnessed a signature without seeing the document signed by the person in front of him.[11]

78 The trial judge concluded that Ms Xiao had entered into a loan agreement with Perpetual and that default under the loan agreement had been proven. On that basis, his Honour gave judgment for Perpetual for possession of the land. On 6 January 2012, Ms Xiao applied under r 49.02(2) for an order that the judgment obtained in her absence be set aside.[12] That application was rejected.

79 Ms Xiao successfully appealed against the rejection of her application to set aside the judgment against her.[13] The Court of Appeal expressed the view that the trial judge had not given sufficient attention to the merits of Ms Xiao's defence, including the serious question of whether Ms Xiao's signature on key documents had been forged. As my account of the evidence indicates, the Court of Appeal's scepticism of the evidence from Mr Seifert and Mr Woodland at the first trial has been borne out.

80 Perpetual and Ms Xiao then joined other parties to the proceeding, substantially amended pleadings were filed, and other interlocutory steps delayed a new trial. In the meantime, Ms Xiao and her husband continued to reside at the land without making any payments to Perpetual.

81 Against the background of these facts, I proceed to consider the issues for determination.

Does the mortgage secure re-payment of the loans?

82 The fact that Mr Fitzgerald forged Ms Xiao's signature on the mortgage did not, in the absence of fraud by Perpetual, of which there was no suggestion, affect the indefeasibility of the mortgage when registered.[14]

83 Indefeasibility, however, extends only to the covenant for payment contained in the mortgage.[15]

84 Whether any, and if so what, amount is secured by a covenant for payment contained in the mortgage is a matter of contractual interpretation. Where the covenant for payment appears on the face of a forged mortgage, or in a document expressly incorporated by reference in the mortgage, the indefeasibility of the mortgage on registration will extend to the covenant for payment as properly construed.[16]

85 The covenant for payment in this case is one step removed from the mortgage. The forged mortgage expressly incorporated a memorandum of common provisions, which contained a covenant for payment by reference to amounts owing under any other agreement between Ms Xiao and Perpetual - present or future. That drafting device is unexceptional and will be given effect where such an agreement can be identified.[17] However, whether such a covenant is effective in the circumstances of this case - where the agreements to which it refers are forged - requires consideration.

86 In a series of single judge and Court of Appeal decisions in New South Wales, the issue has been resolved by determining whether the payment covenant in the forged collateral agreement is, on a proper construction of the mortgage and incorporated documents, incorporated into the registered mortgage.[18] The approach has been adopted by the Supreme Court of New Zealand[19] and endorsed in Victoria.[20]

87 The mortgage in this case contains the following provisions:

The Mortgagor mortgages to the Mortgagee the estate and interest in the Land ...

The Mortgagor covenants with the Mortgagee that the provisions contained in Memorandum of Common Provisions retained by the Registrar of Titles in No AA591 and any further provisions endorsed on or annexed to this Mortgage are incorporated in this Mortgage.

The Mortgage is given in consideration of and to secure loans, advances or financial accommodation provided by the Mortgagee to the Mortgagor or at the request of the Mortgagor to such other person as the Mortgagor directs.

88 Before turning to the terms of the memorandum of common provisions, I note that, as a matter of fact, no loans, advances or financial accommodation were provided by Perpetual to Ms Xiao or, at Ms Xiao's request, to any other person.[21] The whole of the loan moneys were advanced to Ninety Eighth Betabarb, a company in which Ms Xiao had no interest. The disbursement authorities at settlement of each of the loans were forged by Mr Fitzgerald and do not contain her request or direction.

89 In these circumstances, it is necessary to consider whether the memorandum of common provisions, which was incorporated by reference into the mortgage, includes a covenant by Ms Xiao to repay the loans and interest to Perpetual.

90 Clause 1.1 of the memorandum of common provisions contains a dictionary of defined terms used in the document. Relevantly, the definitions include:

In the Mortgage ...

'I' means the person or persons named and described as the Mortgagor in the Mortgage Form and 'me' and 'my' and, if there is more than of us, 'us' has a corresponding meaning.

'You' means the person or persons named and described as the Mortgagee in the Mortgage Form and 'Your' has a corresponding meaning.

...

'Mortgage' means the Mortgage Form including all schedules and annexures and this document.

'Mortgage Form' means the form of mortgage which I have executed which refers to and incorporates this document.

...

'Secured Agreement' means:

• any present or future agreement between me or us, or any one of us, and You, or
• an agreement which varies such an agreement.

• all amounts which are payable at any time or are contingently owing or payable to You under a Secured Agreement, and
• Enforcement Expenses.

91 Clause 2.2 of the memorandum of common provisions contains the covenant to pay:

The Mortgage is security for payment to You of the Secured Money and for the performance of all of my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage.

92 By these definitions and the covenant to pay, Ms Xiao has agreed to pay the amount due in accordance with 'any present or future agreement between [her] and [Perpetual]'. The thrust of the New South Wales decisions is that, where the loan agreement on which the lender relies is forged and therefore void, there is no 'secured agreement' and therefore no 'secured money' within the meaning of a payment covenant of the kind in this case. Indeed, that result has been reached in a number of cases involving Perpetual where the forged mortgage and memorandum of common provisions are in substantially the same terms as those in this case.

93 In Perpetual Trustees Victoria Ltd v English & Anor,[22] the New South Wales Court of Appeal considered a case like the present. As here, Perpetual was the mortgagee, a husband forged his wife's signature on the mortgage and loan agreement, and the terms of the mortgage and memorandum of common provisions were relevantly in the same form as those in this case.[23] The judgment of the Court of Appeal was given by Sackville AJA (Allsop P, as he then was, and Campbell JA agreeing).

94 The Court in Perpetual v English held that the mortgage secured nothing. That result followed from the proper construction of the mortgage and memorandum of common provisions, and the fact that the wife did not sign either the mortgage or the loan agreement. In these circumstances, Sackville AJA stated:

It follows from what I have said that the first limb of the definition of 'Secured Agreement' in the Mortgage was not satisfied. There was no 'present agreement' between Perpetual and Mr and Ms English, or between Perpetual and Mr English, at the time Mr English executed the Mortgage. There was no money payable under a Secured Agreement and therefore there were no amounts satisfying the definition of 'Secured Moneys' in cl 1.1 of the Memorandum. The Mortgage was not security for the payment of any Secured Money since there was nothing that satisfied that definition. In short, the undertaking in cl 2.2 of the Memorandum to pay the Secured Money as and when it became due had nothing to operate on.[24]

95 This reasoning applies equally to a forged future agreement, such as the second loan and re-draws in this case.

96 The reasoning in Perpetual v English was recently applied by a differently constituted Court of Appeal in New South Wales (Macfarlan, Emmett and Leeming JJA) in Perpetual Trustees Victoria Ltd v Cox,[25] where the mortgage and memorandum of common provisions were in the same terms. It was held that the mortgage secured nothing, even though the mortgage itself was not forged. It was enough that a direction to draw down one of the three facilities under the terms of the mortgage had been forged.[26]

97 I find the reasoning of the New South Wales Court of Appeal in these and other cases to like effect convincing and I would follow it on that ground alone. Moreover, on the question of construing the relevant terms of the mortgage in issue in this case, which do not contain any material difference from the terms considered in those cases, I consider myself required to follow the reasoning of an intermediate appellate court (the matter being one that involves the common law of Australia) unless I am convinced that it is 'plainly wrong'.[27] I am not so convinced.

98 Perpetual relied on the single judge decision in this Court in Solak v Bank of Western Australia Ltd.[28] In Solak, Pagone J reached a contrary conclusion to the New South Wales and New Zealand decisions.[29] That case also concerned a forged mortgage and forged loan agreement. Although the language of the documents was not identical to the New South Wales and New Zealand cases, or to the language in this case, it was materially the same in structure. The mortgage stated that it secured 'the payment of the amount owing' by 'You [ie the mortgagor]'; the mortgage incorporated a memorandum of common provisions, which included an obligation to pay the 'Amount Owing' by the mortgagor 'in accordance with the terms of a Bank Document'; and 'Bank Document' was defined to mean 'an agreement or arrangement under which you incur or owe obligations to the Bank'.[30]

99 Pagone J sought to distinguish the New South Wales and New Zealand cases on the basis that the mortgage, memorandum of common provisions and loan agreement all defined the mortgagor/borrower as 'You', and 'You' was in each case the forger purporting to be Mr Solak.[31] This reasoning was rejected as 'not persuasive' by the Supreme Court of New Zealand in Westpac v Clark.[32] I also decline to follow this aspect of Solak, which is, in my opinion, plainly wrong. I find the reasoning of the New Zealand Supreme Court persuasive and adopt it as my own. Applying the reasoning of the NSW Court of Appeal and the Supreme Court of New Zealand, there was nothing secured by the mortgage in Solak because there could be no 'Amount Owing' under a forged 'Bank Document'.

100 Although the decision in Solak rested primarily upon Pagone J's contractual interpretation, his Honour referred earlier in his reasons to Vassos v State Bank of South Australia,[33] and Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd.[34]

101 In Vassos, Hayne J (as he then was) held that the title obtained on registration of a forged mortgage under the Act cannot be defeated on the grounds of fraud if the mortgagee was not a party or privy to the fraud. In that case, however, the extent of the indebtedness secured by a forged mortgage upon registration does not appear to have been in issue. Hayne J noted that the mortgage in that case was 'an all accounts mortgage which purports to have been executed by [the true owners] as mortgagors',[35] and that:

[t]he bare fact that a party has not assented to the transaction recorded in an instrument registered under Torrens system legislation does not, in my opinion, give that person a right enforceable by in personam action to have the transaction reversed.[36]

The emphasised words indicate that the agreement under which the moneys were owed was, or was assumed to be, contained in the mortgage.

102 Vassos was followed and applied by the Court of Appeal in Pyramid v Scorpion Hotels.[37] In that case also, the covenant to pay was contained in the mortgage instrument.[38] The issue in the case was whether the mortgagee's conduct amounted to actual dishonesty or moral turpitude and thus fraud for the purposes of s 42 of the Act.

103 Perpetual contended that Pagone J's contractual interpretation in Solak was supported by his earlier review of the decisions in Vassos and Pyramid v Scorpion Hotels. It contended that the emphasis in those cases on the importance of the principles of indefeasibility underlying the Torrens system, subject only to limited and identified exceptions, was implicitly taken into account by Pagone J in interpreting the documents in that case in the way he did. Given the structure of Pagone J's reasons, it is difficult to discern whether such an implication should be made. Regardless, it does not affect my conclusion above that his interpretation of the documents in that case was plainly wrong.

104 Next, Perpetual contended that there is a relevant distinction between the legislative regime in New South Wales and the relevant provisions of the Act. In order to address this argument, it is necessary to refer to the relevant provisions of the Act and compare them with the corresponding provisions of the Real Property Act 1900 (NSW) (the 'RPA').

105 The following provisions of the Act are relevant:

(1) Sections 40-43 create indefeasibility for registered interests in land. Sections 41-43 of the RPA are to similar effect.

(2) Section 74(1) provides that the registered proprietor of any land may mortgage it. Section 56(1) of the RPA is to the same effect.

(3) Section 74(2) provides that a registered mortgage shall 'have effect as a security and be an interest in land'. Section 57(1) of the RPA is to similar effect.

(4) Section 75(a) provides that there is an implied covenant in every registered mortgage:

that the mortgagor will pay the principal money therein mentioned on the day therein appointed, and ... pay interest thereon or on so much thereof as for the time being remains unpaid at the rate and on the days and in the manner therein specified.

(5) Section 76(1) provides that if the mortgagor defaults in payment of the principal sum or interest secured by the mortgage, the mortgagee may serve a notice to pay. Sections 57(2)(b) and 57(3) of the RPA are to similar effect.

(6) Section 77(1) provides that, if the mortgagor does not comply with the notice to pay within one month, the mortgagee may sell or concur in a sale of the mortgaged land. Section 58(1) of the RPA is to similar effect.

(7) Section 78(1) provides that, 'upon default in payment of the principal sum or interest', the mortgagee may enter into possession of the mortgaged land or bring an action of ejectment to recover the land from the mortgagor. Section 60 of the RPA is to similar effect.

106 It was submitted on behalf of Perpetual that the position under the RPA is different because, before exercising a power of sale based on default in payment, the default must be of the kind specified in s 57(2)(a), which relevantly provides:

(2) [a] registered mortgagee ... may, subject to this Act, exercise the powers conferred by section 58 if:

(a) in the case of a mortgage ..., default has been made ... in the payment, in accordance with the terms of the mortgage ... of the principal, interest ... or other money the payment of which is secured by the mortgage ...[39]

107 It was contended that there is no specific limitation of this kind in the Act in this State. I do not accept that contention. Read as a whole, the provisions of ss 74-78 of the Act make it plain that the security provided by a registered mortgage in this State is in respect of the principal money and interest payable in accordance with the terms of the mortgage. In my opinion, the reference in s 75(a) of the Act to every mortgage containing an implied covenant that the mortgagor will pay the principal 'therein mentioned', and the interest 'therein specified', informs the references to default in payment of principal and interest in ss 76, 77 and 78. Accordingly, in Victoria just as in New South Wales, in order for a mortgagee to exercise the power of sale, to enter into possession, or to bring an action for ejectment, it is necessary that default has been made in the payment of amounts due in accordance with the terms of the mortgage.

108 Finally, Perpetual contended that, adopting ordinary principles of contractual interpretation, reasonable persons in the position of the parties would have understood that the mortgage secured the amounts owing under the two loan agreements or, at least, under the first loan agreement which was made at the same time as the mortgage. Reference was made to the principle that it may be appropriate to construe one agreement by reference to another agreement executed at the same time and which forms part of the same transaction.[40] In my opinion, these principles cannot assist Perpetual in this case. The fact that registration of the forged mortgage makes it indefeasible does not mean that Ms Xiao should be treated as if she were a reasonable person who entered into the mortgage and first loan agreement on the understanding that the mortgage would secure the moneys due under the agreement. For the reasons given below, I do not accept that Mr Fitzgerald had Ms Xiao's authority to sign the mortgage and loan agreements. Accordingly, Perpetual cannot rely upon these arguments to incorporate the covenants to pay in the forged loan agreements as terms of the mortgage.

Does Ms Xiao hold the land on trust for Mr Fitzgerald?

109 My findings that the mortgage does not secure the two loans and interest, and my rejection (below) of Perpetual's cases based on the authority of Mr Fitzgerald, ratification and estoppel, will not assist Ms Xiao if she holds the land on a resulting trust for her husband. Perpetual is entitled to judgment against Mr Fitzgerald for his frauds in an amount exceeding the present value of the land - which has been assessed by an independent valuer at $900,000. If the land is held on trust for Mr Fitzgerald, then it is available to be seized by Perpetual in execution of its judgment against Mr Fitzgerald for fraud.

110 The legal principles to be applied in determining whether Ms Xiao holds the land on a resulting trust for Mr Fitzgerald are not controversial. They may be summarised as follows:

(1) Where a person transfers land to another without any consideration, equity presumes that the property is held by the transferee on a resulting trust for the transferor.[41]

(2) But where, as here, a husband transfers land to his wife without monetary consideration, there is a rebuttable presumption of advancement that the husband intended to convey both the legal and beneficial interest in the land to his wife.[42]

(3) The presumption of advancement may be rebutted by evidence of a 'definite intention' by the husband to retain the beneficial title in the land.[43] A definite intention may be proved by evidence which satisfies the ordinary standard of proof, the balance of probabilities.[44] Earlier suggestions that a higher standard of proof may apply no longer represent the law.[45] It has been held, however, that a definite intention will not be established where there is no more than a 'nebulous intention to rely upon the relationship [of husband and wife] as a source of control over the property'.[46]

(4) Evidence of the parties' acts and statements before or at the time of the transfer, 'or so immediately after it as to constitute a part of the transaction', are admissible to prove a definite intention to rebut the presumption of advancement.[47] Although 'subsequent declarations are admissible as evidence only against the party who made them, and not in his favour,'[48] this does not exclude the husband giving testimonial evidence as to his intention when transferring property to his wife.[49] In this case, there is no such evidence from Mr Fitzgerald.

111 It was submitted on behalf of Ms Xiao that Perpetual has failed to satisfy its onus of proof that the presumption of advancement should be rebutted in this case, because the evidence fell short of establishing a 'definite intention' on the part of Mr Fitzgerald to retain the beneficial interest in the land at the time he transferred it to Ms Xiao. The following principal matters were relied upon in support of this submission:

(1) On 9 March 2004, when Mr Szmerling first mentioned to Mr Fitzgerald the possibility of a declaration of trust to preserve his control over the land, Mr Fitzgerald became angry and accused Mr Szmerling of over-complicating the matter.

(2) Mr Szmerling's oral evidence as to his instructions should be rejected, because his note of the 9 March 2004 meeting with Mr Fitzgerald does not refer to Mr Fitzgerald's intention to preserve his control over the land, or to Mr Szmerling's advice in response that a declaration of trust would be appropriate in the circumstances. For the reasons given above, however, I accept Mr Szmerling's evidence.

(3) There was no definite proof that Mr Seifert delivered Mr Szmerling's 11 March 2004 letter and the enclosed three documents to Mr Fitzgerald. For the reasons given above, however, I infer that the letter and three documents were delivered to Mr Fitzgerald.

(4) The evidence establishes only that the first document enclosed in Mr Szmerling's letter, the transfer of land from Mr Fitzgerald to Ms Xiao, was executed. It was submitted that no inference should be drawn that the re-transfer to Mr Fitzgerald or the declaration of trust were signed by Ms Xiao and Mr Fitzgerald.

(5) The re-transfer and declaration of trust were not returned by Mr Fitzgerald to Mr Szmerling. Mr Szmerling could not recall any discussion with Mr Fitzgerald about his failure to return those documents, despite acknowledging that he must have spoken with Mr Fitzgerald when witnessing his statutory declaration for stamp duty purposes.

(6) The form of statutory declaration made by Mr Fitzgerald, prepared and witnessed by Mr Szmerling, is consistent with an intention to transfer the legal and beneficial title in the land to Ms Xiao. It was submitted that, if Mr Fitzgerald's intention was to transfer the legal interest only, a different form of statutory declaration should have been completed and, as an experienced solicitor, Mr Szmerling probably knew that this was so.

(7) The re-transfer drafted by Mr Szmerling recorded the consideration to be 'natural love and affection'. Ms Xiao contends that this is consistent with Mr Fitzgerald having no more than a 'nebulous intention to rely upon the matrimonial relationship as a source of control over [the land]', as opposed to a definite intention to retain the beneficial interest.

112 I accept that, to the extent these matters have been established, they are relevant in determining whether, at the time of the transfer to Ms Xiao, Mr Fitzgerald had a definite intention to retain his beneficial interest in the land. For the following reasons, however, the circumstances as a whole establish, on the balance of probabilities, that Mr Fitzgerald had such a definite intention. The presumption of advancement has, accordingly, been rebutted. In these circumstances, Ms Xiao holds the land on a resulting trust for Mr Fitzgerald.

113 First, for the reasons given above, I accept Mr Szmerling's evidence as to his instructions - namely that Mr Fitzgerald instructed him that he 'wanted to have a situation where the property would be transferred back to him or under his control or words to that effect'. Mr Fitzgerald authorised Mr Seifert to carry forward those instructions on his behalf, and Mr Seifert did so with Mr Fitzgerald's authority. The result was Mr Szmerling's 11 March 2004 letter and the three documents enclosed in that letter. I find that, at the time the instructions were given, Mr Fitzgerald had the definite intention of retaining his beneficial interest in the land after transfer of the legal interest to Ms Xiao.

114 Second, Mr Szmerling's evidence, combined with the evidence of Mr Lamanna, establishes that Mr Fitzgerald's principal purpose in transferring the legal interest in the land to Ms Xiao was to enable him to raise finance to purchase his half share in the restaurant. The objective facts support this finding. Mr Fitzgerald had a number of outstanding Magistrates' Court judgments against him at the time and a poor credit history, meaning he was unlikely to obtain finance in his own name.

115 Third, prior to the transfer of the land to Ms Xiao, Mr Fitzgerald had embarked upon his scheme to raise finance on the land for more than it was worth. His fraudulent valuation of the land is dated 10 February 2004 and is addressed to Mr Seifert. His formal loan application in Ms Xiao's name is dated 28 March 2004, only two days after he and Ms Xiao signed the transfer of the land to Ms Xiao and prior to registration of the transfer. In these circumstances, I find that the first loan and mortgage should be properly regarded as occurring immediately after the transfer and constituting the primary purpose for the transfer. In other words, Mr Fitzgerald's actions in fraudulently mortgaging the land for more than it was worth formed part of 'the transaction' and therefore are admissible as evidence in determining whether he had a definite intention to retain the beneficial interest in the land. Such conduct is wholly inconsistent with an intention to give Ms Xiao the beneficial interest in the land so that she may treat it as her own.

116 In my opinion, the above factors are enough to rebut the presumption of advancement. Put simply, Mr Fitzgerald was doing no more than using Ms Xiao's name in his fraudulent design to obtain finance on the land in excess of its true value.

117 Evidence subsequent to the transfer supports, but is not necessary for, this finding. In particular, the use of Ms Xiao as a mere nominee director and shareholder of Shark Fin Inn Enterprises is consistent with Mr Fitzgerald placing the legal title in his assets in Ms Xiao's name, while retaining the beneficial interest. Ms Xiao herself agreed in her evidence at trial that she was a mere nominee director and shareholder and the investment in the restaurant was her husband's business. Moreover, the second loan and the re-draws under the loan facilities were, in my opinion, an integral part of Mr Fitzgerald's fraudulent scheme and reinforce my conclusions regarding Mr Fitzgerald's intention to retain the beneficial interest in the land.

118 Further, although not necessary for my conclusion that the presumption of advancement has been displaced, I infer that the re-transfer of the land to Mr Fitzgerald and the declaration of trust were, on the balance of probabilities, signed by Ms Xiao at Mr Fitzgerald's request. The evidence establishes that Ms Xiao trusted her husband to such an extent that she would sign documents he asked her to sign, without requiring them to be explained or translated. As noted above, her trust in her husband was such that, on 16 November 2011, she affirmed an affidavit drawn by him in support of her application to adjourn the trial of the proceeding. The affidavit was not translated to her before she affirmed it.

119 The rejection of Ms Xiao's evidence that her husband told her on two occasions, at their marriage ceremony and when he asked her to sign the transfer of land, that he was giving her the land does not impact on my conclusion that the presumption of advancement has been displaced. Even if Mr Fitzgerald made those statements to Ms Xiao, I am confident that his definite intention at the time of the transfer was to retain the beneficial interest in the land and to deal with the land as if it was his own.

What orders should be made against Mr Fitzgerald?

120 As will be apparent, these reasons have assumed that Mr Fitzgerald acted fraudulently. Ms Xiao did not deny this, only putting Perpetual to proof by refusing to admit her husband's fraud.

121 Mr Fitzgerald is a defendant. He had an opportunity to attend the trial but chose not to do so. The trial proceeded in his absence as an undefended matter. I have no doubt that Mr Fitzgerald acted fraudulently towards Perpetual. It is enough to refer to his forgery of Ms Xiao's signature on the two loan agreements and the mortgage, and on many other documents including those relating to the re-draws under the loan facilities. Moreover, his fraudulent over-valuation of the land and his involvement in the provision of false information about Ms Xiao's income constituted clear fraud.

122 In these circumstances, I am satisfied that Mr Fitzgerald is liable to Perpetual for his fraud. I assess damages at the full amount outstanding under the two loan agreements plus interest. As at 17 October 2014, this amount was $1,221,953.07. As at 7 October 2014, the land was valued at $900,000. Accordingly, Mr Fitzgerald's beneficial interest in the land will be available to Perpetual in partial execution of the judgment against him.

123 The combined effect of my conclusions that the mortgage secures nothing, that Ms Xiao holds the land on trust for Mr Fitzgerald, and that Mr Fitzgerald is liable to Perpetual for defrauding it, is that Perpetual will succeed in having the value of the land applied to partial repayment of its loans. It is, therefore, unnecessary to determine the remaining issues. I will, however, express my views on some of them and make necessary factual findings.

Did Ms Xiao authorise Mr Fitzgerald to sign the loan agreements?

124 Perpetual contended that Ms Xiao authorised Mr Fitzgerald to sign her name on the mortgage, the two loan agreements and related documents. As the mortgage is registered and thus indefeasible, Perpetual focussed on its contention that Ms Xiao authorised Mr Fitzgerald, as her agent, to sign the loan agreements and thus encumber the land under the mortgage.

125 The relevant principles are summarised by the learned authors of Bowstead & Reynolds on Agency in the following terms:

(1) Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation. The one on whose behalf the act or acts are to be done is called the principal. The one who is to act is called the agent. Any person other than the principal and the agent may be referred to as a third party.

(2) In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties.

(3) Where the agent's authority results from a manifestation of assent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party; such authority is called apparent authority.[50]

126 In Garnac Grain Co Inc v HMF Faure & Fairclough Ltd, Lord Pearson emphasised the core concept of consent in the establishment of an agency relationship:

The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it...[51]

In other words, the conduct of the parties may lead to an inference of an agency relationship.[52]

127 Although control by the principal is an indicia of agency, it is not an essential ingredient in every case.[53]

128 Perpetual's case is that Ms Xiao impliedly consented to Mr Fitzgerald acting on her behalf so as to affect her relations with Perpetual, and that Mr Fitzgerald consented to act pursuant to that authority. In final submissions, counsel for Perpetual summarised Ms Xiao's evidence as involving an acceptance that she placed complete trust in her husband in his dealings with the outside world on her behalf, consenting to him having control of her affairs at a very high level, including signing her name where convenient. In substance, Perpetual asks the Court to infer that, in circumstances where she spoke little English and could not read English, Ms Xiao consented to her husband handling all of her business and financial dealings with third parties, including signing her name on agreements with third parties when he deemed it convenient - such as the loan agreements with Perpetual - regardless of whether he first sought her approval of the agreement's effect. Counsel submitted that an extreme inference of this kind could be drawn from the totality of the evidence relying particularly on the following matters:

(1) Ms Xiao's evidence that she allowed Mr Fitzgerald to control her social life, prohibiting her from continuing contact with her only friends in Australia;

(2) Ms Xiao's evidence that Mr Fitzgerald controlled the family finances and paid all of the household accounts;

(3) Ms Xiao's evidence that Mr Fitzgerald facilitated her interactions with English speakers, including accompanying her when she visited the doctor and the dentist;

(4) Ms Xiao's evidence that she did not open any mail addressed to the land, but would merely bring mail into the house and leave it for Mr Fitzgerald to open, even in respect of mail which she knew was addressed to her;

(5) Ms Xiao's evidence that she did not read mail addressed to her, but relied upon her husband to deal with it. On the few occasions that she asked about the correspondence addressed to her, Mr Fitzgerald rebuffed her with such explanations as the letters being parking fines she had incurred. Ms Xiao accepted what Mr Fitzgerald said without further questioning;

(6) evidence given by Mr Fitzgerald to Whelan J (as he then was) at an interlocutory hearing in this proceeding in November 2011 to the effect that he operated Ms Xiao's email account on her behalf if email correspondence needed to be sent in her name, and her own evidence that she did not write, authorise or send any relevant emails concerning the loan;

(7) the fact that Mr Fitzgerald wrote letters in Ms Xiao's name, and often signed those letters using her name;

(8) Ms Xiao's evidence that she signed many documents at the request of her husband without them being translated. She signed them either on trust or accepted whatever explanation he gave to her as to the effect of the documents; and

(9) Ms Xiao's acquiescence in Mr Fitzgerald assisting her in connection with this proceeding by, for example: dealing with the handwriting expert, Mr Holland, on Ms Xiao's behalf; dealing with the Court's unrepresented litigants scheme on Ms Xiao's behalf; preparing an affidavit for Ms Xiao to swear in November 2011, and asking Ms Xiao to swear that affidavit without it being translated to her; and giving oral evidence in support of Ms Xiao's application to adjourn the trial of the proceeding in November 2011.

129 In addition to these matters, about which there is evidence, Perpetual contended that its implied actual authority case is strengthened by Ms Xiao's failure to call her husband as a witness. It was submitted that Mr Fitzgerald is clearly in Ms Xiao's camp as he continues to reside with her as her husband, and that the Court should infer that he was obviously involved in her defence of this proceeding. Perpetual contended that it was no answer to say that Mr Fitzgerald's absence could be explained on the basis that he was extremely likely to claim privilege against self-incrimination. The Court could have been asked to exercise its powers under s 128 of the Evidence Act 2008 (Vic) and allow, or require, Mr Fitzgerald to give evidence under the protection of a certificate granted under s 128(3). In these circumstances, it was submitted that the Court should infer that Mr Fitzgerald's evidence would not have assisted Ms Xiao's case on this or any other issue in the proceeding, and that this allows the Court to more readily draw inferences which are available from the evidence.

130 I accept that the failure to call Mr Fitzgerald is a matter allowing the Court to more readily draw inferences from the evidence. I do not, however, accept Perpetual's agency case. Notwithstanding the trust which Ms Xiao placed in her husband, the contended scope of the authority is simply too wide. In my opinion, it is implausible that Ms Xiao consented to her husband forging her signature whenever he saw fit, especially on important documents such as a mortgage and related loan agreements which, on completion, would extinguish the equity in the family home.[54] I accept, however, that Ms Xiao and her husband consented to him acting on her behalf in relation to everyday matters involving dealings with the English speaking world - such as controlling the family finances, paying Ms Xiao's fines and bills and otherwise looking after her interests.

131 In the event that the Court rejected its case that Mr Fitzgerald had implied actual authority to sign the mortgage, loan agreements and related documents on behalf of Ms Xiao, Perpetual contended in the alternative that Ms Xiao later ratified Mr Fitzgerald's acts.

132 The better view, however, is that a forged agreement is a nullity and is incapable of ratification.[55] In Northside Developments Pty Ltd v Registrar-General, Dawson J stated that a true forgery, being a counterfeit signature which purports to be that which it is not, is 'truly a nullity'.[56] Dawson J acknowledged that the person whose signature is forged may, however, be estopped from denying its authenticity if he or she makes a representation that the counterfeit signature is genuine.[57]

133 In Greenwood v Martins Bank Ltd, Scrutton LJ said:

I do not think 'ratification' has any applicability to a forged signature. For ratification to be effective the act ratified must purport to be done by an agent for the person who ratifies ... in Brook v Hook, the majority of the Court pointed out that a forgery which does not profess to be executed by a person as agent cannot be ratified by the alleged principal, and in my opinion, this is the correct view of the law.[58]

This statement was expressly approved by Gillard J in this Court in Rowe v B & R Nominees Ltd,[59] a case involving a forged mortgage.

134 Recognising the difficulty caused by these authorities, Perpetual contended that this was not a true case of a forgery but, instead, a case where an agent (Mr Fitzgerald) exceeded his authority to act for the principal (Ms Xiao). Perpetual submitted that the conduct of Mr Fitzgerald in signing Ms Xiao's name was not an attempt to copy her signature because his version of her signature is so materially different from hers. Perpetual contended that this was consistent with the conduct of an agent acting in the belief that he had authority to sign his principal's name. Reliance was placed upon Rowe v R & B Nominees Pty Ltd.[60] I do not accept that the reasoning in the case is to that effect. I also do not accept that the somewhat amateurish nature of Mr Fitzgerald's forgery in this case changes its character from a forgery to that of an agent exceeding his authority.

135 Further, even if Mr Fitzgerald's forgeries were capable of ratification, I do not accept that Ms Xiao's conduct was sufficiently unequivocal, or that she had sufficient knowledge, to ratify the loan agreements at the time it is alleged she did so.

136 The relevant legal principles to be applied in determining whether a principal has ratified an unauthorised act by a purported agent were summarised by the New South Wales Court of Appeal in Leybourne v Permanent Custodians Limited in the following terms:[61]

1. A principal can ratify the making of a contract entered into by a purported agent when the agent did not in truth have authority to make the contract on behalf of the principal. The ratification has retrospective effect, and the agent is treated as having had the requisite authority.[62]
2. Whether the conduct of the principal amounts to ratification is a question of fact, but there should be 'clear adoptive acts';[63] the conduct must be unequivocal.[64] It is well expressed in Dal Pont, Law of Agency -[65]

The positive acts of the alleged principal may, aside from any express words, constitute sufficient evidence of ratification. This may be so where the fair inference to be drawn from a person's conduct, on an objective basis, is that the person consents to a transaction to which he or she might properly have objected. Put another way, ratification 'is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party whether his mind in fact approved or disapproved or wholly disregarded the question'. (citations omitted)

1. Acceptance of the benefit of the unauthorised act of the agent with knowledge that the benefit flows from that act will ordinarily suffice.[66] ...
2. There must be full knowledge of all the material circumstances in which the act was done, unless the principal intends to ratify and take the risk whatever the circumstances.[67] The extent of knowledge necessary depends on the particular facts. It should be enough knowledge to decide whether or not to adopt the unauthorised act.[68]

137 In some circumstances, the principal's acquiescence in the implementation of the unauthorised transaction may constitute unequivocal conduct adopting the transaction.[69]

138 The test for ratification has both objective and subjective elements. The principal's subjective knowledge and understanding is relevant - it must be shown that the principal was aware of the material features of the transaction that they are said to have ratified. On the other hand, a principal cannot give subjective evidence that they did not intend to adopt an unauthorised transaction when, by their conduct, they appear to have adopted it with full knowledge of the material facts.[70]

139 As noted above in Leybourne, there may be circumstances where the principal, without full knowledge, nevertheless intends to ratify and take the risk whatever the circumstances. However, having regard to the need for clear adoptive acts, such circumstances will be rare.[71]

140 Perpetual contends that it was open to the Court to conclude that Ms Xiao knew full well about the mortgage and the loan agreements in her name at the time the documents were signed, because of her relationship with Mr Fitzgerald and her position as one of the managers of the Shark Fin Inn restaurant from the time of its acquisition. I do not accept that contention. Taking the evidence as a whole, it is more probable than not that Mr Fitzgerald kept his wife in the dark, using her as a pawn in his fraudulent scheme to raise money on the security of the land for his own purposes.

141 Next, Perpetual relies upon Ms Xiao's conduct in September 2007, when she opened a new bank account with Westpac and signed documents in connection with payments due under the two loan agreements. Perpetual contends that, by this time, Ms Xiao's spoken English must have improved beyond the extent to which she admits. On 10 September 2007, Ms Xiao signed three documents:

(1) an account opening authority for an account in her name with Westpac. She acknowledged that she signed this document in Chinese characters.

(2) a direct debit request form, under which she authorised Westpac to debit her account monthly, and pay an unspecified amount to Perpetual in connection with the loans. Ms Xiao acknowledged that she had signed this authority in both Chinese characters and in English.

(3) a form prepared by Interstar's successor, Challenger Mortgage Management Pty Ltd, requesting that the repayments under the loan be changed to monthly payments. Ms Xiao acknowledged that she had signed this form in Chinese characters and in English.

142 Ms Xiao recalled her husband taking her to a branch of the Bendigo Bank in 2007, so she could open an account to pay for utilities at the house. She said that her husband accompanied her because she did not know how to fill out bank forms. Ms Xiao said she could not remember anything about the circumstances in which she opened the Westpac account in her name or signed the two documents relating to loan payments being made to Perpetual from that account.

143 Perpetual contends that, by this time, Ms Xiao must have known that the land had been encumbered by loans to acquire and support the restaurant. There was a series of letters addressed to her at the land throughout 2006 and 2007 advising of defaults in payment under the loan account. By September 2007, recovery action by Perpetual was imminent. It was submitted that, in this context, it is more probable than not that Mr Fitzgerald explained to her that it was necessary for her to open a bank account to facilitate repayment of the loans. Accordingly, Perpetual contended that at the time Ms Xiao opened the account and signed the related documents, she had sufficient knowledge to ratify the loan agreements, and her conduct was sufficiently unequivocal to constitute a valid ratification of the loans from their inception. For the following reasons, I do not accept those submissions.

144 First, at the time Ms Xiao signed the three documents, I am not satisfied that she had sufficient knowledge to ratify the loans. Her evidence that she did not open any mail addressed to her, but left it out for her husband to deal with, was not seriously challenged. So, her knowledge must have been limited to what her husband told her about what was going on from time to time. In these circumstances, and given the extent of her husband's fraud, involving mortgaging the land for more than it was worth, I accept her evidence that she did not know about the loans at this time. Even if she was aware that there were loans associated with her husband's purchase of the business, there is no direct evidence that she was aware that those loans had been taken out in her name on the security of the land.

145 Importantly, the execution of the three documents did not lead to any moneys being paid to Perpetual from Ms Xiao's Westpac account. The account was never placed in sufficient funds to enable the authorised debits to occur. Instead, Mr Fitzgerald continued to arrange for lump sum payments by bank cheques to pay loan amounts due or in arrears until May 2009. Given that Ms Xiao had no income to make the payments due under the loans, the purpose of the three documents was unexplained by evidence. Counsel for Perpetual offered a possible explanation: that, with the loan accounts then being in arrears, the better inference was that the charade of providing Perpetual and Challenger with an amended payment request and debit authority was to deflect immediate enforcement action by Perpetual. If that be so, it is in my opinion all the more likely that Mr Fitzgerald would have concealed the true position from his wife at this time, including the fact that the loans were secured on the land and were for more than its true value.

146 Irrespective of the true purpose of the charade constituted by the three documents, it was likely devised by Mr Fitzgerald and I am not satisfied that, by this time, Ms Xiao had sufficient knowledge to ratify the loans. It is more probable than not that she simply attended at the Westpac branch to open the bank account, a fact which she has forgotten, and signed the account opening authority at the request of her husband. I find that the other two documents were also signed at his request.

147 Second, I do not accept that Ms Xiao's conduct in signing the three documents was, on its own, a sufficiently unequivocal act to constitute ratification. The position may have been different if Ms Xiao had in fact placed funds in her Westpac account and payments had been made towards the loans from that account.

Is Ms Xiao estopped from denying that the mortgage secures repayment of the loans?

148 As noted above, while a forged document is a nullity, the person whose signature is forged may be estopped from denying its authenticity if he or she makes a representation that the counterfeit signature is genuine.[72] There is no evidence that Ms Xiao made such a representation. Counsel for Perpetual frankly acknowledged that, if the ratification case did not succeed, the estoppel case would also fail - because it depends on essentially the same facts.

Are the loans unenforceable because of unconscionable conduct by Capital?

149 In the event that, contrary to my conclusions above, Ms Xiao is the beneficial owner of the land and the mortgage secures the amount owing under the loans, Ms Xiao contends that the loans are unenforceable because of unconscionable conduct by Perpetual, and/or unconscionable conduct by Capital and/or Interstar which is attributable to Perpetual. The unconscionable conduct claim is made under s 21 of the Australian Consumer Law.[73] Unconscionable conduct under that and other similar statutory provisions requires the Court to be satisfied that the impugned conduct involves 'moral obloquy' or 'moral taint'[74] deserving the opprobrium of a finding on unconscionability.[75]

Should Capital's knowledge and conduct be attributed to Perpetual?

150 The first question to be considered in relation to the unconscionable conduct case relating to Capital is whether Capital was the agent of Interstar. I will not endeavour to resolve this question because, in addition to being obiter dicta, it would in my opinion be an inefficient use of judicial resources and cause delay in the delivery of reasons for judgment, contrary to the 'overarching purpose' under the Civil Procedure Act 2010 (Vic).

151 The issue is a complex one and its result does not depend on disputed facts. There are decisions concerning similar but not identical arrangements between lenders and various intermediaries - including cases where Perpetual was the lender - which would require detailed consideration and comparison with the facts in this case. As those decisions show, the issue involves a close examination of the structure established by complex agreements between lenders and their intermediaries. In particular, it would be necessary to consider the decision of the Court of Appeal in New South Wales in Tonto Home Loans Australia Pty Ltd v Tavares,[76] where the Court held that similar arrangements to those obtaining in this case did not give rise to an agency relationship between the relevant parties.[77] The reasoning in Tonto was applied in Perpetual Trustee Company v Burniston (No 2),[78] another similar case, by Edelman J in the Supreme Court of Western Australia. However, a contrary conclusion was reached by J Forrest J in a decision pre-dating the Tonto decision, Perpetual Trustees Australia Ltd v Schmidt,[79] which again involved similar arrangements to those in this case. The agency finding by his Honour was not challenged on appeal.[80] Examination of these cases would be a time consuming exercise that, given my earlier findings, is unnecessary to undertake.

152 Further, a finding that Capital was Interstar's agent would not necessarily mean that Capital's knowledge and conduct should also be attributed to Perpetual, as Interstar's principal. In Perpetual v Burniston, Edelman J considered that the first obstacle to the attribution of the acts of a sub-agent (such as Capital) to a principal (such as Perpetual), is the principle expressed by the Court of Appeal of Northern Ireland in O'Keefe v London & Edinburgh Insurance Co Ltd,[81] to the following effect:

It is established by an overwhelming mass of authority that to render a principal liable for the acts of a sub-agent two matters must be established:-

(a) That the agent had either express or implied authority from his principal to delegate his authority and to appoint a sub-agent; and

(b) That the agent had express or implied authority from his principal in making such appointment to constitute the relation of principal and agent between the principal and such sub-agent, or, in other words, to establish privity of contract between them, and that it was the intention of the agent and sub-agent that such relation should be constituted.[82]

153 Edelman J noted that, while this statement of principle was not binding upon him, he was of the opinion that it was persuasive.[83] Edelman J noted, also, that the statement is consistent with the position set out in Art 35 of Bowstead & Reynolds on Agency.[84] So, if the Court were to find that Capital was Interstar's agent, it would then need to consider whether, on the facts of this case, Perpetual was also intended to be liable for Capital's acts or attributed with its knowledge - another unnecessary inquiry concerning undisputed but complex arrangements.

154 If Ms Xiao was in fact the beneficial owner of the land, I would have no hesitation in characterising Capital's conduct as unconscionable in all the circumstances of this case. The following facts establish the requisite moral taint:

(1) Capital did not verify with Ms Xiao that she was in fact the borrower. This was especially important when Capital received all of its instructions from Mr Fitzgerald, and when Capital knew that the loan funds were to be disbursed to Ninety Eighth Betabarb Pty Ltd. There is no evidence that Capital enquired with Mr Fitzgerald as to the extent of Ms Xiao's ownership interest in Ninety Eighth Betabarb Pty Ltd.

(2) Capital did not substantiate the accuracy of Ms Xiao's recorded annual income in the loan application by examining any documents other than the concocted tax returns and fake payslips. This was particularly notable when the Wholesale Unit Lamanna Trust was recorded as Ms Xiao's purported employer, in circumstances where Mr Seifert of Capital knew that Mr Lamanna worked as a property valuer with Mr Fitzgerald at Hay Property Consultants. Capital was also processing Mr Lamanna's loan application at the same time and therefore could easily have enquired with Mr Lamanna as to the nature of the trust and Ms Xiao's employment.

(3) Capital provided Mr Fitzgerald's false land valuations to Interstar knowing, through Mr Seifert, that Mr Fitzgerald was not an independent valuer.

(4) Mr Seifert falsely witnessed Ms Xiao's signature, thereby exposing her to both loss of the land and personal liability under the loan agreements if Mr Fitzgerald did not ensure the loan was serviced.

Are the loans unenforceable because of unconscionable conduct by Perpetual?

155 For the reasons identified above, it is also unnecessary to consider the unconscionable conduct case based on Perpetual's conduct. I will, however, briefly express my view.

156 Ms Xiao contends that Perpetual's business model created a structural risk of fraud, and that the use of such a business model falls within the notion of moral obloquy required for statutory unconscionability. This contention was based on the contractual arrangements between Perpetual, Interstar and originators, such as Capital, which involve the delegation to originators of tasks such as identifying prospective borrowers, collecting relevant information from them, and completing and submitting loan applications.[85] Although originators are, under the contractual arrangements, obliged to comply with a detailed Lending Manual, they are remunerated by commission in respect of submitted loan applications that are approved, which increases the prospects of fraudulent conduct or sloppy lending practices. This risk is increased further by interposing a trust manager (Interstar) between Perpetual and the originator, and the existence of contractual arrangements between Interstar and originators like Capital which entitle Interstar to rely upon the accuracy of the information provided by the originator when determining whether to put a loan application forward for Perpetual's final approval.

157 I do not accept that the creation of structural risk by such a business model constitutes the necessary 'moral obloquy' required for a finding of statutory unconscionability. In Tonto Home Loans Australia Pty Ltd v Tavares,[86] Allsop P (as he then was) considered and rejected a similar argument in circumstances where the lender did not know the relevant facts constituting the unconscionable conduct by the entity in the position of Capital in this case (Streetwise):

There also remains the objective risk that existed by the employment of a company such as Streetwise together with the additional arrangement of not approaching borrowers. Whilst these are facts which all amount to circumstances and conduct which, for the reasons I have already given, are sufficient to justify relief being given against the lenders under the CRA, they do not in my view amount to unconscionability. There is no real suggestion in the argument or the evidence that those at Tonto HL understood the actuality of the trickery and lies that were being undertaken by Streetwise or had any notice of them. I do not think that the structural creation of risk and the heightening of that risk by the arrangements with Streetwise meet the notion of moral obloquy required.[87]

158 I respectfully adopt Allsop P's reasoning in the circumstances of this case.

Are the loans unenforceable because of unconscionable conduct by Interstar?

159 For the reasons already identified, it is also unnecessary to consider the unconscionable conduct case based on Interstar's actions, knowledge and omissions. I will, however, briefly express my view.

160 It was admitted that Interstar was Perpetual's agent. If it acted unconscionably, then its acts and knowledge in that regard would be attributed to Perpetual and Perpetual would be liable for appropriate relief.

161 In summary, Ms Xiao contends that Interstar acted unconscionably for the following reasons:

(1) Interstar had powers under its contractual arrangements with Capital to audit and inspect its files. Those powers were never exercised in connection with the loans in Ms Xiao's name. In my opinion, however, viewing the evidence as a whole, there was no particular event which should have caused Interstar to exercise its audit powers. It cannot be unconscionable for Interstar to fail to choose a particular loan on a random basis as a target suitable for the exercise of its audit powers.

(2) Although the contractual arrangements between Interstar and Capital obliged Capital to provide accurate information, Interstar's conduct in failing to verify any of the information provided, in circumstances where it had no direct dealings with Ms Xiao, was so reckless as to be immoral. I note, however, that under the arrangements with Capital, it was Capital's responsibility to have direct dealings with borrowers, to verify their identity and to substantiate the accuracy of the information they provided before they passed it on to Interstar. This may have created a structural risk of fraud but, for the reasons given above, that was not unconscionable conduct.

(3) Interstar did not inquire into the purpose of the first loan, knowing only that it was for investment purposes. In my view, however, this omission ought to be considered in light of the fact that Ms Xiao's income was represented by Capital, and substantiated by apparently authentic documents, as more than sufficient to service the loan.

(4) At the time of the second loan, there were difficulties with obtaining mortgage insurance. Interstar pressed the insurer to provide cover, suggesting that Capital would be embarrassed if the loan was not provided. In this context, Interstar sought further detail as to the purpose of the loans from Capital, and was satisfied with an excerpt of an unsigned draft contract of sale for the restaurant, which did not include the purchaser's name or description of the business to be sold. Interstar passed this excerpt on to the insurer to support its application for mortgage insurance. At this time, Interstar made no enquiry as to how the initial loan proceeds had been used and, in particular, the extent to which they had been used towards purchasing the restaurant. As noted above, however, pursuant to Interstar's arrangements with Capital, it was Capital's responsibility to substantiate the accuracy of the borrower's submitted documentation before passing it on to Interstar.

(5) After settlement of the first loan, Interstar received copies of the authority to disburse and direct debit request forms. These documents informed Interstar that the loan moneys had been disbursed to Ninety Eighth Betabarb Pty Ltd, and not to Ms Xiao as the borrower. Interstar did not inquire whether the borrower was an owner or director of the company or an authorised signatory to the relevant bank account. Again, however, Interstar's arrangements with Capital meant that it relied on Capital to make such enquiries. Further, there was no apparent reason for Interstar to doubt that Ninety Eighth Betabarb Pty Ltd was a vehicle for Ms Xiao's investments.

(6) Interstar did not enforce the requirement in its agreement with Capital that an original tax invoice be provided for the land valuation. In my opinion, however, the valuation appeared regular on its face and there was no particular reason for this invoice to be sought. A mere oversight to enforce this requirement does not support any finding of unconscionability.

162 It was contended that, taking into account the circumstances set out above, Interstar's conduct satisfied the test for statutory unconscionability, involving moral obloquy or moral taint. For the reasons noted above, I do not accept that submission. As to Interstar's failure to exercise its audit powers or require further information, I accept that it could have acted with greater prudence. But there was not, in my opinion, any particular time at which it was reckless or immoral for Interstar to refrain from making further enquiries.

163 The relationship between the originator (Tonto HL) and suboriginator (Streetwise) in Tonto Home Loans Australia Pty Ltd v Tavares can be compared with the relationship between Interstar and Capital in this case. Allsop P considered conduct by Tonto HL that was similar to Interstar's conduct and rejected the argument that it amounted to unconscionability. He stated:

There remain the breaches of the guidelines and the lack of attention and care to serviceability and suitability based upon primary reliance upon security... There is no real suggestion in the argument or the evidence that those at Tonto HL understood the actuality of the trickery and lies that were being undertaken by Streetwise or had any notice of them... The true facts are now known, but in circumstances where those at Tonto HL were innocent of the conduct at the time it is not unconscionable to be seeking to maintain the transaction.[88]

164 I respectfully adopt Allsop P's reasoning in the circumstances of this case.

Is Ms Xiao entitled to be indemnified under s 110 of the Act?

166 For the above reasons, Perpetual is entitled to the following relief:

(1) Against both Ms Xiao and Mr Fitzgerald, a declaration that Ms Xiao holds the land on trust for Mr Fitzgerald absolutely.

(2) Against Mr Fitzgerald, damages in the amount of the present balance outstanding under the loans, including interest.

167 I will hear the parties as to the precise form of the Court's judgment, any ancillary orders sought, and as to costs.

[1] The Fifth Defendant by Counterclaim, Harry Szmerling, was represented but the case against him was settled on the first day of the trial.

[2] Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, 191 (Hayne JA, Brooking and Tadgell JJA agreeing).

[6] A different form of statutory declaration is required for this situation, but it remains non-dutiable.

[7] The second loan application probably contains photocopies of pages from the first loan application, but in my opinion nothing turns on that.

[9] By this time, Interstar had changed its name to Challenger Mortgage Management Pty Ltd. CB683.

[10] Perpetual Trustees Victoria Ltd v Xiao [2011] VSC 680, [26].

[12] Supreme Court (General Civil Procedure) Rules 2005.

[13] Ying v Perpetual Trustees Victoria Ltd [2012] VSCA 316.

[14] Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, 191 (Hayne JA, Brooking and Tadgell JJA agreeing).

[15] Ibid 196 (Hayne JA, Brooking and Tadgell JJA agreeing).

[18] For example, Chandra & Anor v Perpetual Trustees Victoria Ltd & Ors [2007] NSWSC 694; Provident Capital Ltd v Printy [2008] NSWCA 131; Perpetual Trustees Victoria Ltd v English & Anor [2010] NSWCA 32; Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328.

[19] Westpac v Clark [2009] NZSC 73; [2010] 1 NZLR 82.

[20] Solak v Bank of Western Australia Ltd [2009] VSC 82.

[21] For the reasons given below, I reject Perpetual's case that Mr Fitzgerald was acting with Ms Xiao's authority in arranging and executing the loans, mortgage and disbursement authorities.

[22] [2010] NSWCA 32.

[23] The only relevant difference was the addition of the words 'which I acknowledge in writing to be an agreement secured by the Mortgage' in the definition of 'Secured Agreement'. Those additional words in the definition did not assist Perpetual in that case and do not provide a relevant distinguishing feature.

[24] Perpetual Trustees Victoria Ltd v English & Anor [2010] NSWCA 32, [79].

[25] [2014] NSWCA 328.

[26] Ibid [69]-[87] (Leeming JA, Macfarlan and Emmett JJA agreeing).

[27] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 151-2 [135]; CAL No 14 Pty Ltd & Anor v Motor Accidents Insurance Board [2009] HCA 47; (2009) 239 CLR 390, 411-3 [49]-[51].

[28] [2009] VSC 82.

[29] At the time, the Supreme Court decision in Westpac v Clark [2009] NZSC 73; [2010] 1 NZLR 82 had not been delivered. However, the Court of Appeal decision in that case was to the same effect and was referred to by Pagone J: Westpac v Clark [2008] NZCA 346; [2009] 1 NZLR 201.

[32] [2009] NZSC 73; [2010] NZLR 82, 101-2 [46]-[50].

[33] [1993] VicRp 74; [1993] 2 VR 316.

[34] [1998] 1 VR 188.

[35] [1993] VicRp 74; [1993] 2 VR 316, 319.

[37] Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188.

[40] For example, McVeigh (In the matter of Piccolo) v National Australia Bank Ltd [2000] FCA 187, [68]-[69].

[41] Wirth v Wirth [1956] HCA 71; (1956) 98 CLR 228, 235-6; Nelson v Nelson (1995) 184 CLR 538, 600-2.

[42] Calverley v Green [1984] HCA 81; (1984) 155 CLR 242, 247.

[43] Damberg v Damberg & Ors [2001] NSWCA 87, [44].

[46] Ibid, citing Drever v Drever [1936] ALR 446, 450 (per Dixon J, dissenting but not on this point); Mischel Holdings Pty Ltd (in liq) v Mischel [2013] VSCA 375, [67].

[47] Shephard v Cartwright [1954] UKHL 2; [1955] AC 431, 445-6 and Damberg v Damberg & Ors [2001] NSWCA 87, [45], both citing Snell's Equity, 24th ed, 153.

[49] Damberg v Damberg & Ors [2001] NSWCA 87, [45].

[50] P Watts & F M B Reynolds, Bowstead & Reynolds on Agency (Sweet & Maxwell, 19th ed, 2010), at 1 [1-001] (citations omitted); expressly approved by the Court of Appeal in New South Wales in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [176] (Allsop P, Bathurst CJ and Campbell JA agreeing).

[51] [1968] AC 1130, 1137.

[52] Pollard v Wilson [2010] NSWCA 68, [116].

[53] Ibid [114], citing South Sydney District Rugby League Football Club Ltd v News Limited [2000] FCA 1541; (2000) 177 ALR 611, 646-7 [137].

[54] Cf Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, [41]-[42].

[55] Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146, 199-200.

[58] [1932] 1 KB 371 378-9 (citations omitted).

[59] [1964] VicRp 59; [1964] VR 477, 482-3. See also, Imperial Bank of Canada v Begley [1936] 2 All ER 367, 374 (Privy Council); Commonwealth Bank of Australia v Perrin [2011] QSC 274, [144].

[60] [1964] VicRp 59; [1964] VR 477, 481-3.

[61] [2010] NSWCA 78, [131]-[134] (citations in original).

[62] Union Bank of Australia Ltd v McClintock (1922) 1 AC 240, 248; [2006] NSWSC 1028, [81]; Jones v Peters [1948] VicLawRp 56; (1948) VLR 331, 335.

[63] Eastern Construction Co Ltd v National Trust Co Ltd (1914) AC 197, 213 (per Lord Atkinson).

[64] For example, Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91, 101.

[66] Australian Blue Metal Ltd v Hughes (1961) 79 WN (NSW) 498, 515; Brockway v Pando [2000] WASCA 192, [120].

[67] For example, Bremner v Sinclair NSWCA, 3 November 1998; (2001) ANZ Conv R 29, [32] (Campbell J).

[69] Pollard v Wilson [2010] NSWCA 68, [121].

[71] Cf Learn & Play (Rhodes No 1) Pty Ltd v Lombe [2011] NSWSC 1506.

[72] Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146, 199-200.

[73] The Australian Consumer Law is Schedule 2 to the Competition and Consumer Act 2010 (Cth).

[74] Violet Home Loans Pty Ltd v Schmidt & Anor [2013] VSCA 56, [58]; Director of Consumer Affairs Victoria v Scully & Anor [2013] VSCA 292, [58].

[75] Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [293].

[76] [2011] NSWCA 389.

[78] [2012] WASC 383 ('Perpetual v Burniston').

[79] [2010] VSC 67 [133]-[171].

[80] Violet Homes Loans Pty Ltd v Schmidt & Anor [2013] VSCA 56, [31].

[81] [1928] NI 85, 94.

[82] [2012] WASC 383, [234]-[235].

[83] Ibid [238]-[239], noting that the statement was also approved by Lindgren J in NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558; (2000) 107 FCR 270, 411-2 [637]-[643].

[84] Ibid [239]; P Watts and F M B Reynolds, Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell, 2010), 165 [5-008].

[85] For example, Capital is described in recital C of the 'Loan Origination and Management Agreement', the primary agreement between Interstar and Capital, as conducting 'the business of arranging finance and the ongoing servicing of loans and wishes to submit [loan] applications to Interstar and manage [any resulting loan by Perpetual].

[86] [2011] NSWCA 389.