PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCE
AND COUNTERCLAIM
– where application made to strike out paragraphs of amended defence
Source
Original judgment source is linked above.
Catchwords
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND –PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCEAND COUNTERCLAIM– where application made to strike out paragraphs of amended defence– where applicant seeks to havecaveat removed over secondrespondent’s property – where first and second respondents allegefraud on the part of theagent of the applicant in being recklessly indifferentin ensuring identification requirements were complied with – whether‘fraud’ comprises of actual dishonesty or mere carelessness –whether allegations of fraud are supported by facts– whether impugnedparagraphs disclose a reasonable cause of actionLand Title Act1994 (Qld) s 127, s 184(1), s 184(3), s 187Uniform Civil ProcedureRules r 171(1)(a), r 171 (3)Australian Guarantee Corporation Ltdv De Jager [1984] VicRp 40
[1984] VR 483, considered
Assets Co Ltd v Mere Roihi
[1905] AC 176, considered
Beatty v Australian & New Zealand
Banking Group Ltd [1995] VicRp 57
[1995] 2 VR 301, considered
Dey v Victorian Railways
Commissioners (1949) 78 CLR 62, cited
General Steel Industries Inc v
Commissioner for Railways (NSW) [1964] HCA 69
(1964) 112 CLR 125, cited
Grgic v
Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202,
considered
Koorootang Nominees Pty Ltd v Australian & New Zealand
[1] MACKENZIE J: This is an application to strike out certain paragraphs in a defence. Stripped to the essentials, the facts relevant to the application are as follows. The plaintiff applicant registered a mortgage over land of which the second defendant is the registered proprietor as security for $60,000 lent by the plaintiff. The first defendant, the Registrar of Titles, has caveated on the ground that it has been alleged to him that the mortgage was fraudulently executed. Proceedings were commenced by application to have the caveat removed. Pursuant to an order of Moynihan SJA, a statement of claim was filed. In its amended form it seeks an order under s 127 of the Land Title Act1994 (Qld) ("the Act") removing the caveat or, in the alternative, compensation under s 188 of the Act.
[2]
[2] The first defendant admits in his amended defence that the mortgage was registered in favour of the plaintiff but says that the instrument was fraudulently executed by one Trent Gary Cleland. There is evidence before me that Cleland has been convicted of a number of offences of fraud including one which appears to relate to the present incident and is serving a lengthy period in prison. For reasons detailed in the amended defence, which will be enlarged on later, it is alleged that:
[3]
(a) the plaintiff has not obtained the benefit of s 184 of the Land Title Act;
[4]
(b) there has been fraud within the meaning of s 184(3) of the Act by agents of the plaintiff;
[5]
(c) the mortgage may be ordered to be removed from the registrar under s 187 of the Act.
[6]
The second defendant also admits registration of the mortgage but alleges fraud within the meaning of s 184(3) for identical reasons to those pleaded by the first defendant.
[7]
[3] In its reply, the plaintiff alleges that it and those involved in the transaction on its behalf believed at the date of lodgement of the mortgage that the signature of the mortgagor was genuine and that it was not recklessly indifferent to whether the signature was genuine or whether the instrument was genuine.
(1) A registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests.
(2) ...
(3) However, subsections (1) and (2) do not apply--
[10]
(b) if there has been fraud by the registered proprietor, whether or not there has been fraud by a person from or through whom the registered proprietor has derived the registered interest."
"Orders by Supreme Court about fraud and competing interests
[13]
(1) If there has been fraud by the registered proprietor...the Supreme Court may make the order it considers just.
(2) Without limiting subsection (1), the Supreme Court may, by order, direct the registrar--
[14]
(a) to cancel or correct the indefeasible title or other particulars in the freehold land register; or
[15]
(b) to cancel, correct, execute or register an instrument; or
[16]
[6] The focus of argument was principally on UCPR 171(1)(a) which is concerned with pleadings that disclose no reasonable cause of action or defence. UCPR 171(3) provides that on the hearing of an application to strike out part of a pleading, the court is not limited to receiving evidence about the pleading. Even to the extent that that may involve a relaxation of the approach that applied under the former rules, there is still good reason to regard the applicable principle to be that the discretion to strike out should only be exercised where the defence raised is obviously untenable. Conversely it should not be exercised except in clear cases. (General Steel Industries Inc v Commissioner for Railways (NSW)[1964] HCA 69; (1964) 112 CLR 125, 130; Dey v Victorian Railways Commissioners(1949) 78 CLR 62, 84 and 91). That is especially so where the case is pleaded as a circumstantial one and the inference to be drawn from evidence critical to determining liability is not common ground and the evidence is untested.
[17]
[7] The allegations of fact in the plaintiff's amended statement of claim relevant to the application may be summarised in the following way. The plaintiff agreed to lend money to a person he believed was the second defendant. The mortgage was executed on the same day under the hand of the second defendant. It was registered on 21 May 2004 and became indefeasible.
[18]
[8] The amended defences of the first and second defendants both allege that the purported execution of the instrument by the second defendant and the signature of the purported witness of the "mortgagor's signature" were forgeries by Cleland. One Martin Charles White was an agent of the plaintiff to carry through the transaction evidenced by the mortgage. On or about 6 May 2004 White instructed a solicitor in relation to preparation and execution of the mortgage documents. Instructions included a direction to email the mortgage documents to White who would arrange for the borrower to sign them and deliver them to the solicitor's office. Instructions were also given by White to the solicitor to include, in documentation prepared to be sent to the second defendant, a requirement for identification purposes, namely a requirement that she provide a certified copy of her driver's licence. As evidenced by the identification requirement, White was aware of the risk of impersonation and forgery in relation to the transaction to be evidenced by the mortgage. White was aware that the proposed transaction was in the nature of the third party mortgage and of further facts and circumstances which increased the risk of impersonation and forgery.
[19]
[9] Those further facts and circumstances were alleged to be that on or about 3 May 2004, the owner of Cash Counters Woodridge advised White that he had a client who wished to borrow between $50,000 to $80,000 to set up a new business. The proposed borrower was a person otherwise unknown to White. White contacted the proposed borrower who purported to identify himself as the husband of Julie Mistilis. The proposed borrower stated that the loan would have to be in his wife's name as he kept no assets in his own name. Julie Mistilis was a person otherwise unknown to White. White received no evidence of identification of the male borrower, no evidence of the ability of the male borrower to repay the monies to be borrowed or associated interest and costs, and no evidence that the male borrower was resident at the property. White had not received any information regarding the nature, location or business plans of the proposed new business. Nor had he spoken or attempted to speak to the second defendant or visited or inspected the property.
[20]
[10] It was alleged that on or about 7 May 2004 the solicitor accepted the retainer to act as the plaintiff's solicitor and agent and prepared a letter to accompany the mortgage documents directed to the second defendant containing the identification requirement. At the time of acceptance of the retainer and thereafter, the solicitor was aware of the risk implied in the identification requirement of impersonation and forgery and was aware of further facts and circumstances which increased the risk of impersonation and forgery, namely that the terms of the proposed transaction were typical of a loan by a lender of last resort.
[21]
[11] It was alleged that between 7 and 10 May 2004 a responsible agent of the plaintiff undertook to arrange for the borrower to sign the mortgage documents. It was pleaded that in the event that the arrangement between White and the solicitor remained as originally proposed in the retainer, and in particular that the mortgage documents were emailed to White and White was to arrange for the borrower to have the mortgage documents signed, the responsible agent was White. In the event that White gave further instructions to the solicitor that the solicitor was to arrange for the borrower to have the mortgage documents signed, the solicitor was the responsible agent.
[22]
[12] Finally, it was pleaded that the responsible agent, with reckless indifference whether the signatures on the mortgage were genuine signatures or otherwise, did not obtain compliance with the plaintiff's identification requirement or any identification requirement. Nor did White or the solicitor or any other person acting on behalf of the plaintiff obtain a copy of the second defendant's drivers' licence, either certified in accordance with the plaintiff's identification requirement or at all.
[23]
[13] As previously mentioned, the plaintiff's reply alleged that the plaintiff believed, at the date of lodgement of the instrument, that the signature of the mortgagor on the instrument was genuine and that in consequence the instrument was a genuine instrument. Both White and the solicitor held the same belief. The plaintiff was not recklessly indifferent to whether or not the signature on the instrument was genuine or whether it was a genuine instrument because the plaintiff retained the service of a broker and solicitor who effected the transaction in the normal course of their business and the plaintiff was unaware of any special fact which would have put it on inquiry about the genuine nature of the instrument.
[24]
[14] Particulars given and the affidavits filed on behalf of the applicant are to the effect that the plaintiff did not know of the fraudulent nature of the transaction and that both White and the solicitor honestly believed that the instrument of mortgage was a genuine instrument.
[25]
[15] The first defendant submitted that the amended defence had been filed on 13 October 2006 and the reply on 8 December 2006. The steps in pleading had run their course and there was an issue whether the application had not been made promptly, which was a matter enlivening a discretionary factor to refuse the application. The application was filed on 2 February 2007. In pleadings of this kind of action, development of the issues to be tried inevitably follows the pattern of alleging indefeasibility, alleging fraud, and rebutting that allegation. Having regard to the intervention of the holiday season in the process, I am not persuaded that a delay of the extent that occurred in this case is of sufficient magnitude to be a discretionary factor of any weight.
[26]
[16] The nature of fraud in legislation, in which the concept of fraud in a context like that in s 184 is an element, is summarised in the following passage from the Privy Council in Assets Co Ltd v Mere Roihi[1905] AC 176 at 210:
[27]
"...by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud - an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further ... the fraud which must be proved in order to invalidate the title of a registered purchaser for value ... must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making enquiries for fear of learning the truth, the case is very different, and fraud may be properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon."
[28]
[17] One of the difficulties about the present application is that it would require a decision to be made, on the pleadings and the additional evidence led, that the defence was of such a nature that it had no prospects of success. Reliance was placed on authorities where, after trial, findings were made that fraud had not been established.
[29]
[18] Young v Hoger[2001] QCA 453 provides an example of such a case. It was an appeal against a trial judge's finding of fraud against a solicitor in circumstances where there had been failure to require compliance with safeguards that may have revealed the fraudulent nature of the transaction. The judgment of the Court of Appeal suggests that the features relied on by the trial judge were more likely to have founded an honest, if careless, belief that the mortgage had been duly executed than to have founded wilful abstention from an inquiry for fear of discovering that the document was forged.
[30]
[19] Young v Hoger does not establish a principle of law, since it was merely based on evaluation of the nature of the conduct established by evidence. But it does illustrate the need to take care not to lightly conclude that mere failure to take prudent measures is evidence of wilful blindness or reckless indifference from which fraudulent conduct may be inferred. Having said that, it is always a question of fact whether the inference of fraud may safely be drawn on the balance of probabilities commensurate with the seriousness of the allegation.
[31]
[20] As Hayne J said in Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd[1998] 1 VR 188 at 194, the inquiry is an inquiry for actual dishonesty not for want of due care.
[32]
[21] Cases such as Australian Guarantee Corporation Ltd v De Jager[1984] VicRp 40; [1984] VR 483 and Beatty v Australian & New Zealand Banking Group Ltd[1995] VicRp 57; [1995] 2 VR 301 are in a different category, but illustrate what the defence is relying on. In each of those cases, the mortgagee was held to be guilty of fraud because there was evidence that an employee of the mortgagee knew that the relevant document presented for registration contained a false statement as to witnessing of the signature that purported to be the mortgagor's. See also Koorootang Nominees Pty Ltd v Australian & New Zealand Banking Group Ltd[1998] 3 VR 16 where Hansen J found fraud at first instance in a case where a course of inquiry had not been taken for fear of learning the truth.
[33]
[22] Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 is an example of a case where the facts did not support a finding of fraud in an impersonation case. At 222, it is said that it is:
[34]
"...well-established that a person who presents for registration a document which is forged or had been fraudulently or improperly obtained, is not guilty of 'fraud' if he honestly believes it to be a genuine document which can be properly acted upon (Assets Co Ltd v Mere Roihi (at 210); Mayer v Coe) and that a less than meticulous practice as to the identification of persons purporting to deal with land registered under the provisions of the Act does not constitute a course of conduct so reckless as to be tantamount to fraud..."
[35]
[23] The real thrust of the plaintiff's argument is that the defence can amount to no more than honest carelessness on the part of the plaintiff through those acting for him. Without a determination of the facts after a hearing it is not possible to say with any degree of conviction that that will be the final outcome. As Dixon J said in Dey v Victorian Railways Commissioners at 91, "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury."
[36]
[24] The plaintiff placed great emphasis in its submissions on the notion that the defendants were seeking to fix the plaintiff with liability for fraudulent acts of a third party by alleging a combination of circumstances involving White and the solicitor. It is said that the circumstantial case inherent in what is pleaded in the defence is a combination of irrelevant events. It is said that for the purpose of s 184(3)(b) the fraud must be that of the registered proprietor. The operative and conscious fraud which produced the registration in this case is that of the borrower.
[37]
[25] This argument loses sight of two things. The first is that what the defendants plead is a circumstantial case, the objective of which is to lead to an inference being drawn of fraud on the part of an agent of the plaintiff. The second is that it is irrelevant to that exercise to focus on the fraudulent conduct of the third party as a primary issue. The purpose of seeking to prove fraud on the part of the plaintiff's agent is to fix the plaintiff itself with fraud. The focus on carelessness in the submission begs the question. Whether the actions of White or the solicitor were, on balance, mere carelessness and fall short of fraud, can only be finally resolved on the evidence. Since it is a circumstantial case that is pleaded, it is not a case where one inference can be preferred over the other on the pleadings even if supplemented by the affidavit material, which is untested.
[38]
[26] It was also submitted by the plaintiff that it was not pleaded that the plaintiff was vicariously liable for the acts of the solicitor. To the extent that the solicitor was alleged to be a responsible agent, his actions were not undertaken on behalf of the plaintiff. Therefore any failure by him to act in accordance with the instructions given to him by White was not the act of the registered proprietor. The structure of par 2(c)(a) of the amended defence shows the following. Sub par (i) pleads that White was agent of the plaintiff for the transaction; sub par (iii) pleads instructions by White to the solicitor; sub par (vi) pleads that the solicitor accepted and acted upon the retainer; sub par (viii) pleads that a responsible agent undertook to arrange for the documents to be signed.
[39]
Who that responsible agent is depends on whether the original instructions to the solicitor as to who was to arrange for the documents to be signed remained operative, or, whether they were changed. Sub pars (ix) and (x), in précis, plead that whoever it was acted with reckless indifference. For the sake of completeness, par 2(d)(i)A pleads that in the premises, in the event that the matters in par 2(c)(a) are correct, there was fraud.
[40]
[27] It can be seen from this structure that the case pleaded attempts to establish that the plaintiff is fixed with the fraud of a person acting on his behalf who can be inferred to have engaged in conduct amounting to fraud in the relevant sense. I am not persuaded that it can be said that the pleading, insofar as it concerns the solicitor, must be struck out. That, of course, is not to predict that there will ultimately be any adverse finding in respect of the solicitor's conduct in relation to fraud. Any conclusion to be drawn will depend on the evidence as it turns out after application of the usual forensic processes.
[41]
[28] For the reasons given I am not persuaded that the paragraphs sought to be struck out should be struck out.