Russo v Bendigo Bank Ltd & Reichman [1999] VSCA 108

8. This appeal raises issues as to the nature of "fraud" as a statutory exception to the doctrine of indefeasibility under the Torrens system and as to the categories of people for whose allegedly fraudulent acts a person taking an interest under the Transfer of Land Act 1958 is responsible. The appellant in the present case was sued by the first respondent Bendigo Bank Ltd. ("the bank"), which also brought proceedings against the second respondent, Charles Reichman, who was its solicitor, in relation to a transaction by way of collateral mortgage over the appellant's home at 68 Newell Street, Footscray in favour of the bank, which was challenged by the appellant on a number of grounds including non est factum, forgery, unilateral mistake of fact, special disadvantage and unconscionable conduct. Some of these allegations disappeared in the course of the trial, for the appellant's claims arose essentially out of the fact that what appeared to be her signature on the collateral mortgage securing a business loan to her daughter and son-in-law was, so the latter admitted, a forgery.

11. It was not suggested that the bank was responsible for the forgery but an additional allegation arising out of that act was a claim that the purported signature of Mrs Russo was falsely attested by a clerk employed by Mr Reichman, one Rita Gerada. The mortgage in question bore a conventional signing and attestation clause: "SIGNED SEALED AND DELIVERED by the said BRIGIDA RUSSO in the presence of: ... Witness". In circumstances which will have to be examined in more detail, Miss Gerada said that, although she could not remember the specific occasion which occurred on or about 15 August 1989, she had been under specific instructions from Mr Reichman, which she had always followed, never to attest the signature of any person unless that person had in fact signed in her presence and that she had no reason to believe that Mrs Russo had not signed the document in front of her on that day. In the circumstances, according to the learned trial judge, not only was her recollection faulty but her attesting signature falsely represented that the appellant had signed the mortgage in her presence. The attestation which so occurred was alleged to constitute fraud within the meaning of ss.42 to 44 of the Transfer of Land Act and it was further alleged that the bank was responsible for the solicitor's clerk's fraudulent conduct in that regard.

14. The learned trial judge in the course of a very long and detailed judgment refused to uphold any of the allegations made on behalf of Mrs Russo, other than that she did not sign the mortgage, and thus dismissed her claims that she was not bound by it, resulting in there being judgment for the bank for possession of Mrs Russo's house which was the subject of the mortgage. None of the other matters relied on by Mrs Russo to defeat the bank's claim are the subject of the present appeal which concentrates entirely on whether the bank is responsible for what is said to be the fraudulently false witnessing of Mrs Russo's purported signature to the mortgage, in circumstances where the son-in-law's forgery of her signature is not in dispute.

17. There are a number of complex legal problems which were said to arise out of the appellant's contentions but the facts giving rise to the appeal can now be stated in relatively brief terms. Mrs Russo was born in Italy in 1940 and had only an elementary education before she came to Australia with her husband and two children in 1968. She contended that her understanding of English was limited and the learned judge found that at the time of the transaction, less than three years after her husband's death in 1986, her capacity to read English was negligible and her capacity to understand complex matters such as legal documents was very limited. One of her daughters, Tina, was married to one Sam Halaseh and they were directors of a company 58th Expectation Pty. Ltd. ("58th Expectation") which was apparently used for various investment transactions by the son-in-law and which sought the loan secured by the mortgage here in issue.

20. Mrs Russo and her husband had bought the property at 68 Newell Street, Footscray in 1981 where Mrs Russo still lived at the time of the transaction the subject of this appeal and where she still lives subject to the orders under appeal. She became sole registered proprietor of the land by a survivorship application which was completed on or about the same day as the purported mortgage. Mrs Russo had used the respondent Reichman as her solicitor for various matters arising out of her husband's death but for relevant purposes his firm was engaged as one of a panel of solicitors by the bank. He had employed Rita Gerada for some three years as a law clerk and she had come to have the responsibility for dealing with the majority of conveyancing transactions effected through that firm except when difficulties arose. There was some dispute whether Mrs Russo dealt directly with Mr Reichman for the purposes of this transaction but the learned judge held that it was more likely that she had not.

23. By written application dated 26 June 1989 58th Expectation applied to the bank to borrow the sum of some $130,000 which was to be used to pay amounts due on certain overdue settlements for the purchase of properties in the Werribee area. The securities offered in the application were two vacant allotments, both owned by another company controlled by Mr and Mrs Halaseh, namely Halaseh Holdings Pty. Ltd., and the land on which Mrs Russo's home stood. It was at this time that Mr Reichman was given instructions by the bank to act as its solicitor to attend to all necessary legal and conveyancing requirements relating to the loan. He accepted those instructions by letter dated 13 July 1989. By that time the bank had advised 58th Expectation of its approval of the loan subject to a number of special conditions which included the provision of a collateral mortgage from the owner of the land at 68 Newell Street, Footscray.

26. Some weeks later, on a date which is not precisely known but was most likely to have been in the last week or so of July 1989, the collateral mortgage over Mrs Russo's property was signed with what was purported to be her signature, settlement taking place on or about 15 August 1989. On its face it appeared to have been signed by her in the presence of Miss Gerada and there is no dispute that Miss Gerada signed the attestation clause. Mrs Russo said she knew nothing of it and at the trial denied she had signed the document, her denial being supported by the evidence of an expert witness as to handwriting. More importantly Mr Halaseh admitted that he had forged his mother-in-law's signature on the document, although he sought to place the blame for devising that scheme on Mr Reichman, a claim which the learned judge rejected. It seems that when he first came to Mr Reichman's office Mr Halaseh signed the mortgage in his own name but was told that that was not what was wanted so the document had to be retyped for Mrs Russo to sign. It is not clear whether Mr Halaseh took the new document home or whether he placed the appellant's signature on it close to or in Mr Reichman's office, as he alleged. Certainly, however, he admitted signing his mother-in-law's signature and the judge accepted that he had done so.

29. What Miss Gerada did in order to attest it was somewhat less clear and the judge's findings as to that matter provide one of the principal issues on this appeal. There is no doubt that Miss Gerada had been authorised by Mr Reichman to witness the execution of the mortgage as she had been with many other conveyancing transactions. Although she was only 19 or 20 years of age at the time, she had had some three years' experience in Mr Reichman's office and had responsibility for many conveyancing transactions. At the time she was left to deal with most aspects of conventional transactions subject only to Mr Reichman's directions and supervision. It seems that she was familiar with most steps along the way of a conventional transaction. As to signature and attestation she had been given firm instructions by Mr Reichman never to attest a signature unless that person had signed in her presence. It was her understanding and recollection of the strictness of this instruction that led her later to conclude that Mrs Russo must have signed in front of her notwithstanding she had no recollection of meeting her or seeing her sign. As I have said, the learned judge in the end did not accept, indeed he could not accept, that Miss Gerada had personally attested the signing of the mortgage by Mrs Russo and so was obliged to hold that on this occasion there was a failure to comply with Mr Reichman's strict instructions, an oversight which nevertheless she could not recall.

32. Mr Reichman himself, having delegated the task primarily to Miss Gerada, was not aware of the failure of Miss Gerada properly to attest the signature of Mrs Russo and he otherwise had no knowledge that the appellant's signature was forged. Believing that Mrs Russo had signed the mortgage he was of opinion that all necessary steps had been taken and thus he signed a letter to the bank certifying, amongst other things, that "the borrower" (sic) had executed the mortgage and all other necessary documents.

35. The loan moneys were advanced by the bank to 58th Expectation on about 8 August 1989 but none of those loan moneys were applied for Mrs Russo's benefit. The mortgage, though dated 15 August 1989, was not lodged for some time and was only registered on 4 April 1990. It seems that the requisite documents for the registration of the mortgage were forwarded for lodgement at the Titles Office by Mr Reichman's firm in the usual way, but on a date now unknown, through a commercial company engaged for the purpose of lodging and filing documents at the Titles Office and at similar public offices.

38. By April 1990 payments in relation to the loan were in arrears by some $12,935. On 27 August 1993 the bank issued a notice calling in the mortgage which it addressed to Mrs Russo. Mrs Russo said the first she knew that the bank claimed that it had a mortgage from her on her land was when she received the writ shortly afterwards. Despite an early exchange of pleadings it seems that Mr Halaseh's part in the forgery was not known until 1996, when the defence and counterclaim of Mrs Russo were amended at the start of the trial.

41. After a trial extending for close on three weeks the learned trial judge reserved his judgment. His judgment is lengthy, dealing with almost every issue of fact, but many of the issues are no longer relevant to this appeal. In the end he found in favour of the plaintiff bank and rejected Mrs Russo's defence and counterclaim with the additional consequence that the bank's claim against Mr Reichman was also dismissed as were the contribution proceedings. A brief summary of his findings is necessary. In the first place, he found that Mrs Russo's capacity to read English was negligible and that it was unlikely in 1989 that she would be able to conduct a sensible conversation relating to legal and property matters. As earlier stated he found that Mr Halaseh forged her signature and that she knew nothing of the forgery, neither authorising it nor being willing to put up her property as security. It was Mr Halaseh who devised the plan to use her land as security. He rejected Miss Gerada's evidence, or the firm implication from her evidence, that the appellant had signed in her presence. Mr Halaseh had affixed the "signature" elsewhere than at Reichman's office and had brought the forged instrument into the office. Mr Reichman was not the instigator of the forgery and had no knowledge of it, nor was he present when the mortgage was executed or when Miss Gerada purported to witness the appellant's signature.

44. His Honour made the following findings as to Miss Gerada's attesting the purported signature of the appellant:

"Rita Gerada had her instructions. But she had signed as a witness on another occasion, when the executing party was not present before her. She would have been aware of the impending transaction; it would be easy to believe that everything was all right and that Mrs Russo could not come in. She attested when it was false to do so, she believing that it was a formality.... Whilst Gerada did falsely witness, I do not believe that she thought of it in that way."

48. Mr Reichman in the circumstances was held by his Honour not to have any knowledge of either the forgery or the falsity of Miss Gerada's attestation, so that he assumed due execution and certified the completion of the transaction accordingly. He was, likewise, held to have put the mortgage documents on the path to registration with an honest mind, but the judge made the following additional finding which was the subject of considerable criticism:

"Gerada, a junior law clerk, must have known Mrs Russo did not sign in her presence. But I do not judge the situation to be one where she was in the position of putting the mortgage on the path to registration with knowledge of falsity. Even if she did, I am satisfied that Reichman... honestly believed that the clerk had witnessed the signature. It was Reichman who put the documents on the path to registration, with a honest mind."

52. It also followed that the bank had no knowledge at all, actual or constructive, of the forgery or of the false witnessing of the signature by Miss Gerada. There was, thus, no knowledge of fraud nor "fraud" within the meaning of s.42 of the Act.

55. It was on these materials that the appellant brought this appeal which essentially raised two questions. The first was whether the false witnessing by Gerada of the appellant's signature ought to have given rise to a finding of fraud for the purposes of ss.42 to 44 of the Act. Secondly, it raised the question whether, by reason of the acts of Miss Gerada as a clerk to the bank's solicitor, her false witnessing constituted fraud for which the bank was responsible for the purposes of those sections.

59. The findings set out above (in paras.12-14) led the learned trial judge to the conclusion that no "fraud" of the relevant kind had been committed by the solicitor's clerk, Miss Gerada. It followed that, howsoever the bank's responsibility for that clerk should be analysed, the appellant could not call in aid the exception of fraud in order to protect her title from the consequences of registration, viz. from the indefeasibility of the bank's title. Indeed, unless in some way knowledge of the bank, the solicitor and his clerk could be aggregated to produce fraud, the learned judge's finding of fact about Miss Gerada's role is critical to this appeal. Despite what may appear to have been said by the majority of the High Court in Krakowski v. Eurolynx Properties Ltd. (1995) 183 C.L.R. 563, esp. at 583, that judgment does not go so far as to permit a simple aggregation or accumulation of facts in order to give rise to a conclusion that a corporation or other party is guilty of fraud: see esp. Macquarie Bank Ltd. v. Sixty-Fourth Throne Pty. Ltd. [1998] 3 V.R. 133 at 144-145 per Tadgell, J.A., with whom Winneke, P. in substance agreed (at 135).

62. The learned judge's findings did not, in his opinion, amount to fraud of the requisite kind. Neither the bank, nor for that matter Mr Reichman, knew of the forgery and so, unless the bank were to be responsible for the act of its solicitor through his clerk, those findings did not constitute fraud. For the present it is sufficient to concentrate on Miss Gerada's knowledge, as nothing the bank or Mr Reichman knew (apart from, arguably, his understanding of the law and of conveyancing practice) could throw a different light on Miss Gerada's own limited knowledge of the facts and of the consequences of her false attestation.

65. However, it is clear that she knew well enough that the appellant had not signed the mortgage in her presence and that, to that extent, she had failed to comply with Mr Reichman's instructions on that issue. She did not know, nor, as I would understand it, did she have any other reason to suspect, that the signature was forged. The learned judge was therefore satisfied that she had not acted dishonestly and so was not guilty herself of fraud.

68. On behalf of the appellant, counsel contended on the contrary that the false witnessing and her part in causing or permitting the mortgage to go forward for registration was fraud, in the sense that she allowed a false representation to be made to the Registrar of Titles as to the signing of the mortgage in her presence. If she did not know or understand the falsity of her representation, then, so it was argued in the alternative, she was guilty of recklessness, "want of probity" or "moral obtuseness", as to the consequences of her false representation, such that in these circumstances that should be characterised as fraud on her part.

71. In some senses the learned judge's conclusions were curious inasmuch as, upon the facts, he was prepared to hold that, although Miss Gerada knew that Mrs Russo was not present, nevertheless she signed an attestation clause which she knew contained a false representation that she had been present at the time of the appellant's signature. Even though that would probably not amount to forgery (cf. Brott v. The Queen [1992] HCA 5; (1992) 173 C.L.R. 426), signing the attestation clause amounted to a representation both that the appellant had signed the document and that it had been signed in Miss Gerada's presence. Moreover, she was not ignorant of Mr Reichman's instructions which she expressed as requiring, although apparently she had not fully complied with them either on this occasion or on other occasions, that the attestation clause should be signed only when the signatory was present. A representation to that effect is clearly important and had and still has practical significance in what was not disputed to be the ordinary practice of the Titles Office in receiving documents for registration as a means, however imperfect, of authenticating signatures. The notion that the signing of attestation clauses is a mere formality and that their accuracy could be treated casually was roundly criticised by Tadgell, J. in A.G.C. v. De Jager [1984] VicRp 40; (1984) V.R. 483 at 497 where his Honour stated firmly that the notion ought to be rejected, indeed dispelled, for in his opinion "nothing ... could be more unwarrantable". Nevertheless in the present case the learned judge, while accepting what was said in De Jager, concluded that Miss Gerada's behaviour did not amount to fraud, notwithstanding her knowledge of the error of her representation. The explanation, which I believe is apparent from a reading of the whole of his reasons, is that he was not persuaded that she had acted dishonestly. The issue is whether his Honour was correct and to what extent this Court can overturn his finding on this vital question of fact.

(b) The meaning of "fraud" in the Transfer of Land Act

75. For this purpose it is necessary to say something about what constitutes "fraud" for the purposes of the Transfer of Land Act. The exception in one form or another has appeared in the Torrens system legislation since it was first enacted in South Australia on 27 January 1858 as the Real Property Act 1857-1858 ("the Torrens Act") (cf. s.39 - "the case of frauds") and since the equivalent statute was first enacted in Victoria as the Real Property Act 1862. The exception as to fraud appeared in both Acts but, so far as I have been able to discover, there was little discussion at the time as to the nature of the "fraud" (or "frauds") which was intended to be excepted from the concept of indefeasibility of title. Little was said about the exception by Sir Robert Torrens who, it must be remembered, was not a trained lawyer. It was mentioned in his first reading speech without further elaboration: 1857 S.A. Parliamentary Debates 203 (see also Robinson: Transfer of Land in Victoria p.3). Thus, to attribute to him a sophisticated understanding of the difference between fraud at common law and fraud in equity may be presuming too much. However he knew enough to base much of his complaint against the English land law on the fierce and lengthy disputes as to priority of estates in the courts of Chancery: see Torrens' Printed Speeches at p.7 (and see Robinson at pp.2-4).

78. Moreover from early times it was both assumed and held that the concept of fraud referred to in the legislation derived from the Torrens Act was what was called "actual fraud", from which I understand the courts were excluding equitable fraud of the kind which has come to be called "constructive fraud". Such a limited view of the notion of fraud was no doubt consistent, in the broadest sense, with the purposes intended to be served by the new legislative scheme for registered title. Nevertheless in recent years it might appear that some qualification has been placed upon the original interpretation, in particular by observations of Mason, C.J. and Dawson, J. in Bahr v. Nicolay (No. 2) [1988] HCA 16; (1988) 164 C.L.R. 604: see one recent view in an article entitled "Muddying of the Torrens Waters with the Chancellor's Foot?; Bahr v. Nicolay" by J.G. Tooher (1993) 1 Aust. Property L.J. 1.

81. It is desirable to look at some of the decisions which have dealt with the meaning of the word "fraud", but there are now so many that it is impossible to look at other than a few of the more authoritative.

84. The starting point, according to almost every subsequent authority (cf. Bahr v. Nicolay at 614 and 630), is the decision of the Privy Council in Assets Co. Ltd. v. Mere Roihi [1905] A.C. 176, albeit that it dealt with the transfer of native lands and was decided almost fifty years after the passing of the original Torrens Act. In a passage which was cited in full by the learned trial judge, Lord Lindley on behalf of the Board said (at p.210) that -

"... by fraud ... 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."

His Lordship continued by describing the kind of dishonesty which might satisfy the exception by saying that -

"... 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."

So it was said that it was not merely a matter of showing that the transferee might have been more vigilant and had failed to make further enquiries, for that would not in itself prove fraud,

"... 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 properly be ascribed to him."

Finally the important distinction between persons acting honestly and dishonestly was emphasised by his Lordship's description of the consequences of presenting a forgery for registration, as occurred in the present case (ibid):

"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."

94. The same view seems to have been well entrenched by the time the High Court first considered the issue in Australia, namely in Butler v. Fairclough [1917] HCA 9; (1917) 23 C.L.R. 78. So Griffith, C.J. found it sufficient to say (at 90):

"It is settled that the term 'fraud' as used [in s.72 of the Transfer of Land Act 1915] imports personal dishonesty or moral turpitude."

Likewise Isaacs, J., in whose reasoning Barton, J. agreed, stated (at 97) that "fraud" is "actual fraud, moral turpitude", which had been settled finally by the Assets Co. Case, and he referred also to an earlier Full Court decision to the same effect in this State in Gregory v. Alger (1888) 19 V.L.R. 565. Similar views were expressed by Starke, J. in Stuart v. Kingston [1923] HCA 17; (1923) 32 C.L.R. 309 at 356 where he said that actual fraud "... is 'fraud in the ordinary popular acceptation of the term', i.e. 'dishonesty of some sort', 'fraud carrying with it grave moral blame and not what has sometimes been called legal fraud, or constructive fraud, or fraud in the eye of a court of law or a court of equity'."

99. The principle stated in those cases, indeed the attitude of the courts generally to the interpretation of the word "fraud", seemed consistent for many years and it is only in recent years that some argument has arisen as to whether the term connotes more than was originally thought.

102. What might be seen as a broader approach to defining the term "fraud" arguably goes back to the judgment of Kitto, J. in Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liquidation) [1965] HCA 17; (1965) 113 C.L.R. 265 at 273-274 (with whose judgment on this issue Taylor and Menzies, JJ. agreed), albeit that his Honour referred back in turn to another earlier Privy Council case of Waimiha Sawmilling Co. v. Waione Tin Co. Ltd. [1926] A.C. 101, especially to the observations of Lord Buckmaster at 106. In dealing with an argument that fraud requires some misrepresentation in order that a transaction be set aside Kitto, J. said (at 273-274):

"The whole course of authority on this branch of the law is to the contrary. Moral turpitude there must be; but a designed cheating of a registered proprietor out of his rights by means of a collusive and colourable sale by a mortgagee company to a subsidiary is as clearly a fraud, as clearly a defrauding of the mortgagor, as a cheating by any other means ...".

106. It was those words which were expressly approved by four members of the Court in Bahr v. Nicolay. They were directly cited for that purpose by Wilson and Toohey, JJ. and were referred to by Mason, C.J. and Dawson, J. at 614 for the purpose of establishing that some kinds of equitable fraud come within the concept of "fraud" for the purposes of the Torrens legislation. Indeed, whereas Wilson and Toohey, JJ. had referred to what Lord Buckmaster had said in the Waimiha Sawmilling Case in detail and with approval (see their judgment at 630-631), Mason, C.J. and Dawson, J. appeared to give only qualified approval to what Lord Buckmaster had said: see at 613-614. Although accepting that there can be no fraud by taking a registered estate or interest merely with notice of an existing unregistered interest, they proceeded to say (at 614) of both Lord Buckmaster's discussion and Lord Lindley's earlier description of fraud in the Assets Co. Case (see above at para.24), that -

"These comments do not mean all species of equitable fraud stand outside the statutory concept of fraud. Far from it."

It was at this point that they discussed the observations of Kitto, J. (above) with approval, although, lest it be thought that they were accepting all kinds of equitable fraud as coming within the concept, they then reiterated (ibid):

"According to the decisions of this Court actual fraud, personal dishonesty or moral turpitude lie at the heart of the two sections and their counterparts: see Butler v. Fairclough; Stuart v. Kingston."

112. The opinions expressed by Mason, C.J. and Dawson, J. on this issue may be seen to be a minority view, at least to the extent that they appeared to countenance the possibility of acts subsequent to a transfer of an interest as amounting to fraud for the purposes of the Act. In the complex factual circumstances of that case they were prepared to find fraud on that basis, but the other members of the Court (Wilson, Brennan and Toohey, JJ.) were not and they found for the appellants on the basis that they were enforcing personal rights against persons whose interest was subject to a constructive trust. Brennan, J. dealt only briefly with fraud and expressed no views contrary to accepted lines of authority, but Wilson and Toohey, JJ. examined the matter in greater detail but likewise appeared not to express views contrary to accepted authority, explicitly citing one passage from Lord Buckmaster's speech in the Waimiha Sawmilling Case as a "convenient starting point" for an understanding on the concept of fraud: at 630-631. They reiterated that fraud referred to in the Torrens Acts is "actual fraud, involving some act of dishonesty on the part of the person whose title is sought to be impeached" (at 630) concluding that the transfer in favour of the second respondent was not one "to cheat the appellants of a known existing right": at 636-637.

115. The precise factual circumstances and the conclusion in Bahr are of no present consequence but it is significant to note that in the most recent discussion of the concept of fraud by the High Court in this context, Bank of South Australia Ltd. v. Ferguson [1998] HCA 12; (1998) 192 C.L.R. 248, a brief statement of principle relevant to that case was expressed in these terms (per Brennan, C.J., Gaudron, McHugh, Gummow and Kirby, JJ. at 255):

"Not all species of fraud which attract equitable remedies will amount to fraud in the statutory sense."

Although the Court went on to observe that registration of a transfer is not fraudulent merely because a transferee knows that registration will defeat an antecedent registered interest of which that transferee has notice (ibid), on its face this statement of principle, if it were so intended, seems almost the reverse of the formulation by which Lord Lindley expressed the rule in the Assets Co. Case at 210.

120. Consequently, having regard to the manner in which the interpretation of the concept of fraud has changed over the years both in New Zealand and in Australia, I would respectfully suggest that the most satisfactory definition of the concept of fraud was given in 1923 by Salmond, J. in the Waimiha Sawmilling Case when heard by the New Zealand Court of Appeal: [1923] N.Z.L.R. 1137 at 1173:

"The term 'fraud' is not here used in its most restricted sense as including mere deceit, nor in its wider sense as including the constructive or equitable fraud of the Court of Chancery. It means dishonesty - a wilful and conscious disregard and violation of the rights of other persons."

124. I should add that I do not believe that anything stated above runs counter to any observation of this Court expressed in recent decisions such as Pyramid Building Society v. Scorpion Hotels Pty. Ltd. [1998] 1 V.R. 188 at 191, 193, Macquarie Bank v. Sixty-Fourth Throne at 142-146 and F & F Holdings Pty. Ltd. v. Ridge Lane Pty. Ltd. [1998] VSCA 72 at para.40.

128. It is necessary at this stage to return to the facts upon which the appellant says that there was fraud in the relevant sense committed by Miss Gerada. For the present it should be acknowledged that the enquiry may be artificial in the sense that in certain circumstances an aggregation or accumulation of knowledge may be relevant for the purpose of charging the bank with fraud within the meaning of the statutory exception. Before turning to those arguments, however, two matters should be noted. First, unlike the situation discussed by Tadgell, J. in A.G.C. v. De Jager, there was no relevant knowledge or information on the part of the bank inasmuch as there was no material upon which it could even be suggested that it ought to have known that the appellant's signature was forged or that Miss Gerada had not witnessed Mr Halaseh affixing the appellant's signature in her presence. Secondly, the learned judge found, although it had been contended to the contrary, that Mr Reichman was likewise ignorant both of the forgery and of the false attestation. Nevertheless, the learned judge's fact findings were such that it could not be denied that Miss Gerada was aware or ought to have been aware that her attestation was false in the sense that she must have been aware that, contrary to what she wrote in that clause, she was not present when the appellant purportedly signed the mortgage. Of course, it does not follow that she was aware that Mrs Russo's signature was forged by Mr Halaseh or by anybody else. For all she knew Mrs Russo had signed and the falsity of her statement went essentially to her presence at the time of the purported signature.

131. Whatever be the limitations of the learned judge's findings against Miss Gerada, they undoubtedly involved her being party to a false statement and thus it is said that allowing that false statement to go forward for the purposes of the transaction in question must have been fraudulent, to the extent that it ought now to permit the appellant to go behind the registration of the mortgage and have it set aside as against the bank. Moreover, it was argued that Miss Gerada not merely signed the false statement in the attestation clause but, more importantly, was aware that she ought not to have done so except when she had been present at the signing, for she conceded that she had been clearly and firmly instructed as to how she should witness signatures. Thus it was no mere oversight, nor a casual approach to the attesting of signatures which might be thought to be commonplace in the community as a whole, inasmuch as many people believe that it is sufficient for the purpose that one knows a signature or that one can be assured at the time of witnessing that it is the signature of the person whose name appears on the document. Those beliefs, as Tadgell, J. held in A.G.C. v. De Jager, are unwarrantable, certainly in the case of documents which have to be lodged in the office of Title and certainly where the witnessing of a signature is otherwise of legal significance.

134. So the circumstances which led to his Honour's finding of absence of fraud might be thought surprising, even in themselves "unwarrantable". But in my opinion such criticism, accurate though it may be as to known falsity, overlooks the final and critical element in fraud, namely dishonesty or want of probity, a "wilful and conscious seeking to defeat or disregard another's rights".

137. The weakness in the appellant's case is twofold: first, there was no direct evidence of dishonesty or moral turpitude on the part of Miss Gerada, unless one were able to rely solely on the untruth told by her in the attestation clause; secondly, there is not a scintilla of evidence to show that she was involved in Mr Halaseh's dishonesty or that she would have any reason to do so. To support the first proposition (the second not being denied) it was said on behalf of the respondents that there was no evidence: (i) that Miss Gerada knowingly put the mortgage forward on the path to registration; (ii) that she did not believe that the mortgage was executed in her presence by Mrs Russo and (iii) that she appreciated that the lodging of the mortgage would convey a representation to the contrary. I cannot accept contention (ii) for, according to the learned judge's findings, she had no belief that it was executed by the appellant in her presence, despite her later protestations to the contrary. The facts were unambiguous and Miss Gerada was not so stupid as to have thought at the time that Mrs Russo was present when she had apparently signed. It was found, indeed it was not disputed, that she was not present and Miss Gerada must have been aware of that fact when she added her signature as an attesting witness. Of course this conclusion says nothing to deny that she believed Mrs Russo had signed. The other two matters are far less easily answered and they go, in a significant way, to the issue of how Miss Gerada's behaviour should be characterised.

140. As to the question whether Miss Gerada knew that she was putting the mortgage forward "on the path to registration", there is surprisingly no evidence. One might think that that is a matter which could be inferred. If one was dealing with a person of professional training or long experience as a law clerk, the inference might well be irresistible. But there was no evidence as to Miss Gerada's understanding of conveyancing procedures, nor any attempt to cross-examine her to show what her understanding was. The strongest point against her is her concession that Mr Reichman was adamant that signatures must be attested in the presence of the signatory, from which many would infer that something untoward might occur if that instruction were not followed. What Miss Gerada knew of the process is left to the imagination. Perhaps in most cases documents which she attested were sent directly for lodging in the Titles Office; she may even have been there herself, although there is no evidence to that effect. It may be that most of the work she did was for the bank, in which case the documents would probably have been sent to the bank with a letter from Mr Reichman but would not to her knowledge have been taken further. In the present case one might even infer that the mortgage was sent to the bank to be held as an equitable mortgage pending the need to expend money in registering it. That seems not unlikely inasmuch as the mortgage was not registered until 4 April 1990 which one might assume was the date of lodgment for that purpose. Again there was no evidence as to how or by whom that lodgment was effected (other than the concession that a commercial firm was used, as referred to in para.10) and indeed by that time Miss Gerada had left the employ of Mr Reichman. There was, of course, no evidence that she knew about the significance of attestation clauses so far as the registration of title was concerned. A very careful argument was prepared (for other purposes) on behalf of the appellant to show how significant attestation in the process of registration at the Titles Office was but there was in truth no dispute as to the significance that these clauses play in registering a title. But that is what the trained lawyer knows, not a 19 or 20 year old clerk. Other than that she would be aware that the document might be registered and enforced against the signatory, I do not believe that there is sufficient evidence to show that she was aware of the significance of her attestation in the process of putting forward the mortgage "on the path to registration".

143. Likewise, as to her appreciation that the lodging of the mortgage would convey a representation to the contrary to the Titles Office, I see no basis for concluding that it had been proved that she was aware and appreciated the significance of her role. Certainly she would be aware that what she had said in the attesting clause was not strictly accurate but, bearing in mind that she had no knowledge at the time of the forgery by Mr Halaseh, she could well have been totally unaware of the difference her attestation made in the process leading to registration. It was not shown that she had any reason to doubt the signature and thus putting the mortgage forward might, for all the evidence shows, have been seen by her as no more than a formal step in the requisite legal chain of procedures. That, I believe, is the reason why the learned judge held that in the circumstances she had believed it merely to be a "formality". Here she was mistaken but she was not shown to be a person of the training or sophistication to appreciate the legal consequences of a failure to comply with what may have seemed to her a legal technicality. Certainly, I would not on appeal infer that at the age of 19 or 20, with training effectively only as a clerk over some three years, she had the necessary appreciation of the consequences or significance of her false statement.

146. In short, I believe that Miss Gerada knew that what she had said was false but I do not believe that she has been shown to be dishonest. It was argued that dishonesty could be satisfied by showing objectively that particular behaviour was in all the circumstances dishonest by objective statements. A basis for this contention was said to be found in the judgment of the Privy Council in Royal Brunei Airlines v. Tan [1995] UKPC 4; [1995] 2 A.C. 378. The judgment given by Lord Nicholls has been seen to give countenance to the view that dishonesty may be proved objectively, at least in relation to proving dishonest participation in a breach of trust. As to that I would say only that one should be careful about applying rules as to dishonesty laid down for the purpose of the rules of equity, for one may remember that one of the principle reasons Sir Robert Torrens had for introducing the concept of indefeasibility of title was to overcome the sophisticated use of equitable principles to hold up and defeat claims to title. But even then Lord Nicholls did not assert that a mere concatenation of events might establish dishonesty. As to objectivity he said only that (at 389): "acting dishonestly ... means simply not acting as an honest person would in the circumstances. This is an objective standard". That the standard should be objective is one thing but it is another to say that there is no subjective element. Indeed his Lordship immediately said (ibid):

"Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated ... Thus for the most part dishonesty is to be equated with conscious impropriety."

150. In the present case it is the conscious impropriety of Miss Gerada which the appellant has failed to make out. It is that element of "fraud" under the Act which the courts have consistently over the years maintained as essential, that is "personal dishonesty" or "moral turpitude" that has not been brought home to Miss Gerada in the present case. She had nothing to gain from her false statement, except possibly some saving of time or trouble. She was not involved in Mr Halaseh's dishonest schemes. She had no knowledge that Mrs Russo did not sign and no knowledge that she did not wish to sign the mortgage. In my view it would be a curious consequence that her behaviour should be characterised for this purpose as fraud, for the very essence of that concept is to relieve people from the consequences of indefeasibility only where their behaviour, or the behaviour of those for whom they are responsible, has that element of dishonesty, of conscious moral turpitude or wickedness such as would justify the intervention of a court to set aside the mortgage or other registered estate.

153. Consequently I would reject the appellant's argument that the learned judge was wrong in holding that Miss Gerada was not guilty of "fraud" within the meaning of the Act.

(d) Whether the respondent bank was otherwise guilty of "fraud_"_

157. The issue of objectivity also led to the appellant's contention that, even if Miss Gerada was not personally guilty of fraud, then the respondent bank was guilty of it by reason of its own knowledge and in particular the knowledge and understanding of Mr Reichman for whom it was said that the bank was here responsible. As to the bank itself it was conceded that no specific act carried out by its officers was relevant to the consideration of this question. It was not aware of the forgery and it was not party to any scheme to obtain a mortgage from the appellant contrary to her wishes. If it were to be held responsible for the circumstances under which the appellant lost her interest in the land, then it could only be because the bank itself put the mortgage on the path to registration (a matter for which it could not otherwise be criticised) and because its solicitor, Mr Reichman, both by reason of Miss Gerada's acts and by reason of his own acts, knowledge and understanding should be treated as guilty of fraud for which the bank should be held responsible.

160. It would seem that the only factor additional to those which had been found against Miss Gerada was that Mr Reichman had the knowledge and understanding of conveyancing law and procedures which could have resulted in his knowing that the consequences of allowing the improperly attested document to go forward were so serious as to amount to fraud. So it was said that, if he had known that the document had not been properly attested, then it would have been wrong of him to allow the signed mortgage to go to the bank in the expectation that it would be registered upon the faith of the attestation clause. Mr Reichman, a solicitor (and thus the bank), could not hide behind the misdeeds of his clerk if that clerk knew the statement in the attestation clause to be false. So it was said that the aggregation of these facts were sufficient to justify a finding of fraud against the solicitor (and thus the bank) even though the individual behaviour of each was not such as could be characterised as fraudulent.

163. Again it must be said that, in this context and for these purposes, knowing or known falsity is not the same as fraud, for what the court is required to ascertain is whether there was actual fraud in the sense I have attempted to describe earlier. For the present it may be assumed that some accumulation or aggregation of matters or factors may be permitted for this purpose. Such an aggregation produced, in effect, the outcome in A.G.C. v. De Jager, although most of the matters there relied upon arose out of the acts or understandings of the employees of A.G.C. itself. The complex matters which led to Tadgell, J.'s finding that there was fraud in the circumstances of that case appear in particular from pp.494-499 of the judgment. In that case, however, there was a letter (set out at 491) prepared by A.G.C.'s employees admitting that they knew that the documents were not properly attested and there was other evidence that they knew of the consequences of forwarding the mortgage for registration, there being no doubt that they had so forwarded it, so that the judge held that when forwarded they were aware that the document falsely contained a representation to the effect that the signatures were properly attested. Thus it was critical to his Honour's finding that those responsible for the conduct of the relevant employees in the office of A.G.C. at Preston knew of these circumstances, inasmuch as he held that the document had been wrongfully presented for registration in circumstances where they had no honest belief that it was a genuine document upon which the Registrar could properly act: at 498.

166. The present case is very different. Apart from the fact that the acts here relied upon were not acts of employees but only of persons engaged as solicitors and agents for the purpose, to which I shall briefly return, there was no combination of acts in the present case which could properly be held to amount to actual fraud. Despite attacks made on Mr Reichman in the course of the case, the judge rejected all allegations of impropriety, so that it was held that he was not party to any scheme to defraud the appellant and that he had no knowledge of either the forgery or the falsity of the attestation clause. Moreover, it seems that he, at least, had done as much as he could fairly be asked to do so far as execution was concerned in that he had made it clear to Miss Gerada that conveyancing documents should only be attested in the presence of the parties signing the document. Thus, even taking into account the acts of both Mr Reichman and Miss Gerada, there was no conscious dishonesty or moral turpitude or wickedness which would give a characteristic to the transaction which it did not otherwise have. False statement there may have been, fraudulent it was not.

169. It is therefore strictly unnecessary to deal with the further argument that even if Miss Gerada or Mr Reichman in combination with Miss Gerada had been guilty of "fraud" the bank could not be held responsible for that in the circumstances. The argument was advanced that Mr Reichman was engaged to carry out the conveyancing transaction on behalf of the bank and to give it appropriate advice for that purpose and, insofar as the bank's agent had been engaged to act on behalf of the bank, it must take the consequences of having employed him so that the bank should be fixed with the alleged fraud.

172. It was argued that the knowledge of Mr Reichman and Miss Gerada could not be imputed to the bank as principal unless that were knowledge gained when acting within the scope or course of their authority. To the extent that Mr Reichman's acts were improper, such as would otherwise be characterised as amounting to fraud, then it was said that that of itself took his acts outside the course of his authority. I confess, notwithstanding the authorities cited to the contrary, that I would have found it hard to reach a conclusion that the bank should not be responsible for the acts of its solicitor in circumstances such as the present, if fraud had been established, assuming the fraud in question not to have been for his own benefit. He was engaged to act as the bank's solicitor and to advise it in relation to the very transaction, that is, what was thought to be a mortgage by the appellant in favour of the bank. What he was doing, at least until the critical moment, was precisely that and so, likewise, I would say that he was so acting at and after the time the false attestation clause was appended. If all he knew (on this hypothesis) was that Miss Gerada was not present, there would have been no frolic of his own and no dealing with the subject of the action so as to deprive his principal of the benefits of the transaction. The only error (on the same hypothesis) would have been to acquiesce in his employee's appending her signature as a witness to a document which turned out later not to have been signed by the appellant. If he had consciously gone forward and obtained registration of the mortgage in the knowledge of, or wilfully blind to, the fact only that it was not properly attested, then I doubt that would have involved him doing something outside the scope of his authority. If he had been party to the lodging of the documents (which is not clear), then he would be doing so in order to carry out the instructions of his client, the bank, and it was only by chance that the document was not properly executed or attested. The same reasoning would apply if Miss Gerada were to be held (contrary to my opinion) to have been guilty of fraud on the same limited basis.

175. I would concede that if Mr Reichman had sufficient knowledge for it to be said that he had no real belief in the validity of the document or that he knew that it had not been correctly attested, then the appellant may have been able to rely on what are now the well known authority of Schultz v. Corwill Properties Pty. Ltd. (1969) 90 W.N.(N.S.W.) (Pt 1) 529, as applied by Tadgell, J. in A.G.C. v. De Jager at 495-496. But Schultz's Case should not be taken further than a proper analysis of it will bear out. The relevant act there was forgery carried out by the solicitor himself for his own benefit. As was stated by Street, J., the statement of principle in the Assets Co. Case by Lord Lindley itself directly (and indeed twice) refers to fraud which can be "brought home to the person whose registered title is impeached or to his agents". The extension of the principle by reference to ordinary rules of agency was recognised by Street, J. at p.538, so that he stated:

"It is not enough simply to have a principal, a man who is acting as his agent, and knowledge in that man of the presence of a fraud. There must be the additional circumstance that the agent's knowledge of the fraud is to be imputed to his principal. This approach is necessary in order to give full recognition to (a) the requirement that there must be a real, as distinct from a hypothetical or constructive, involvement in the fraud by the person whose title is impeached and (b) the extension allowed by the Privy Council that the exception of fraud under s.42 can be made out if knowledge of it is brought home to him or his agents."

The kind of fraud based on knowledge here alleged to be imputed to the bank by reason of what is asserted to be Mr Reichman's knowledge of the falsity of the assertion as to Miss Gerada's presence would, in other circumstances, have been the very kind of fraud which ought to have been so imputed in that it did not involve acts which properly understood would have taken him outside the scope of his actual or apparent authority.

180. It is not, however, necessary to reach any final conclusion on this aspect of the appeal. The answer to the case is that there was no such impropriety of a kind which should be characterised as fraud for the purpose of the Act for which the solicitor was either himself responsible or responsible indirectly by reason of the activities of his employee. There were not, in his knowledge or understanding of the transaction, those matters or factors which could fairly characterise his conduct as amounting to actual fraud of the kind coming within the exception to indefeasibility of the bank's title given to it by reason of the provisions of the Transfer of Land Act. In turn, the bank could not be held responsible for any of the acts alleged against it.

183. For these reasons I would also reject the argument that the bank had been guilty of "fraud" within the meaning of the Act.

191. If the notion is abroad that attestation of documents, and in particular documents having effect in law, is a mere formality, it should be eradicated here and now. I cannot bring myself to think that to sign an attestation clause which states that a person executed the document in the presence of the attesting signatory is honest when the attesting signatory knows that the person stated to have executed the document in his or presence did not do so. Nevertheless, the reasons for judgment of Ormiston, J.A., which I have had the benefit of reading, have persuaded me that to constitute fraud for the purpose of s.42(1) of the Transfer of Land Act 1958 more is required: there must be an intention to affect adversely the rights of another person or at least recklessness as regards the affection of such rights. I therefore agree that the trial judge did not err in holding that the conduct on the part of Ms Gerada (who, it should be mentioned, was not represented before the Court, though arguments in her interest were advanced by counsel for both respondents) did not constitute a "case of fraud" within s.42(1). It may, however, be desirable to say, with regard to a question which was debated during argument but which, in the event, does not directly arise, that, in my opinion, Krakowski v. Eurolynx Properties Ltd. (1995) 183 C.L.R. 563 shows that, notwithstanding the statement of Griffith, C.J. in Dearman v. Dearman [1908] HCA 84; (1908) 7 C.L.R. 549 at 553 (applied in JP-A v. DT [1998] VSCA 112), an appellate court can find fraud in favour of an appellant who bore the onus below, at any rate on the basis of the underlying facts found by the trial judge. Eurolynx is a strong case because both the trial judge and the intermediate appellate court had declined to find fraud.

194. I agree also with Ormiston, J.A., for the reasons he gives, that the respondent bank was not otherwise guilty of fraud. In case I am incorrect in not characterising Ms Gerada's conduct as fraud for the purposes of s.42(1), I would add the following on the question whether, if so, there was fraud on the part of the bank or its agent, Mr. Reichman. I would be prepared to hold that it is to be inferred that Ms Gerada put the instrument of mortgage on the path to registration by causing it to come to the notice of Mr. Reichman for transmission to the bank for execution and return to him for lodgment, whether directly or through a lodging company, at the Land Titles Office (or by herself transmitting it to the bank for that purpose). But there was no fraud on the part of the bank itself or Mr. Reichman personally. The question is not one of liability on his part in tort for the acts of his employee Ms Gerada, but whether the case is one of fraud within s.42(1). Now, the statutory word "fraud" was interpreted in Assets Co. Ltd. v. Mere Roihi [1905] A.C. 176 at 210 as extending to fraud of the "agents" of the new registered proprietor. That interpretation has ever since been accepted. However, the Privy Council made it clear that the fraud "must be brought home to" the registered proprietor or his agents. That means that it must be sheeted home to the registered proprietor or his agents, that he or they must be shown to be infected by it or complicit in it. The perceptive analysis, if I may respectfully so describe it, of Mere Roihi by Street, J. in Schultz v. Corwill Properties Ltd. (1969) 90 W.N.(N.S.W.) (Pt.1) 529 at 538-541 shows that there are two categories of case that may require consideration. Counsel for the appellant confirmed to the Court that it was only within the first category that he sought to bring the facts here. As to that category, it is true that the reference by Street, J., when dealing with it, to the principle of respondent superior might , if read widely, support the appellant's argument. But I have concluded that the trial judge was correct in holding that this was not a case of fraud. I have reached that conclusion having regard to the following considerations: the paramountcy (as it seems to me) of the principle of indefeasibility of registered title; the fact that agency is not in terms referred to in the statutory exception; the inability of counsel for the appellant (notwithstanding the existence of Torrens legislation for some 140 years) to point to any case where fraud of an employ of an agent of the registered proprietor was held to be a "case of fraud" within s.42(1) or its cognates when neither the registered proprietor nor the agent himself was either complicit in or aware of the employee's fraud; and the fact that the Act in s.110 provides relief, within limits, to those deprived of their title wrongfully. In essence, the agent's employee's fraud cannot be sheeted home to the agent or his principal for the purposes of s.42(1). I agree with the trial judge that there is an important distinction between the fraud of an authorised employee of the registering party and that of an employee of the solicitor for the registering party. In the latter case, if (as here) the registering party is neither complicit in nor aware of the fraud, it is, I consider, too remote from the registering party to affect that party. No case under the Act or its cognates was cited concerning an employee of a solicitor. In Sargent v. ASL Developments Ltd. [1974] HCA 40; (1974) 131 C.L.R. 634, which was of course not a case of fraud under the Act, the solicitor whose knowledge was imputed to his principals was a sole practitioner, as the report of the case at first instance makes clear: [1973] 1 N.S.W.L.R. 481 at 485 and 486.

197. The bank advanced an alternative argument in support of its contention that, even if there was fraud on the part of Ms Gerada, there was not a "case of fraud" within s.42(1). The argument was that, since the agent-solicitor's retainer was (to use the terms of the bank's letter of 10 July 1989, agreed to by Mr. Reichman's letter of 13 July 1989) to approve all legal requirements and to return to the bank "properly executed Mortgage documents", any act by way of improper execution, such as false attestation, was outside the scope of his authority and therefore unauthorised. For the reasons given by Ormiston, J.A., I would not accept that argument.

200. It is not necessary in this case to decide whether the statutory exception would have applied if the solicitor himself had attested the purported signature of the mortgagor.

203. For the reasons given, as well as those of Ormiston, J.A. to which I have referred, I am of opinion that the appeal should be dismissed.