Australian Regional Credit v Mula

[2009] NSWSC 325

CITATION:	Australian Regional Credit v Mula; Australian Regional Credit v Raphael [2009] NSWSC 325
HEARING DATE(S):	08/09/2008 - 12/09/2008
JUDGMENT DATE :	30 April 2009
JURISDICTION:	Common Law
JUDGMENT OF:	McCallum J
DECISION:	The orders I propose are: In proceedings 13750 of 2004: (1) A declaration that the amount secured by registered mortgage AA911031G is nil. (2) That the plaintiff's claim be dismissed. (3) That the first cross-claim be dismissed. (4) That the second cross-claim be dismissed. In proceedings 20056 of 2008: That there be judgment for the plaintiff in an amount to be assessed.
CATCHWORDS:	MORTGAGES - mortgage taken as part of security for payments due under three lease agreements - mortgage forged - lease agreements partly forged - lease agreements and mortgage executed for the benefit of mortgagor’s de facto son-in-law - mortgagor had no knowledge of transaction - finance company seeking order for possession due to default under lease agreement - whether mortgage charged the land with debts owed under the three leases - MORTGAGES - defences of mortgagor - whether finance company had knowledge of forgery before registration of mortgage - MORTGAGES - defences of mortgagor - whether failure to deal directly with the mortgagor gave rise to a personal equity enforceable against the finance company - MORTGAGES - defences of mortgagor - Yerkey v Jones - whether Yerkey v Jones principles apply to relationships beyond that of husband and wife whether Yerkey v Jones principles apply outside the context of a surety - whether Yerkey v Jones can apply where documents have been forged - NEGLIGENCE - whether solicitor liable for negligent misstatement whether initials and signatures of solicitor were forged whether solicitor signed mortgage and left it in the possession of the probable fraudster - whether solicitor liable for loss suffered by finance company
LEGISLATION CITED:	Real Property Act 1900 Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Alierzai v ANZ [2004] QCA 6; [2004] Q Conv R 54,601 Barclays Bank PLC v O’Brien [1994] 1 AC 180 Breskvar v Wall [1971] HCA 70; (1971) 126 CLR 376 Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; (2007) 13 BPR 24,675 Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 Davis v Williams [2003] NSWCA 371; (2003) 11 BPR 21,313 Eade v Vogiazopoulos (No 2) [1999] 3 VR 889; (1994) 2 APLJ 178 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) ACR 90 Frazer v Walker [1967] AC 568 Garcia v National Australia Bank [1998] HCA 48; (1998) 194 CLR 395 Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202 Kranz v NAB [2003] VSCA 92; [2003] ANZ Conv R 481 Mair v Rio Grande Rubber Estates Ltd [1913] AC 853 Mercantile Mutual Life Co Ltd v Gosper (1991) 25 NSWLR 32 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 Yazgi v Permanent Custodians Ltd [2007] NSWCA 306; 13 BPR 24,567 Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649 Zanzoul v Westpac Banking Corporation (1995) 6 BPR 14,142
PARTIES:	Australian Regional Credit Pty Limited (Pl) (20056/08) Mouna Raphael (Def) (20056/08) Australian Regional Credit Pty Limited (Pl) (13750/04) Charles Mula (Def) (1st, 2nd & 3rd Cross-Claimant) (13750/04) Mouna Raphael (1st Cross-Defendant) (13750/04) Australian Regional Credit Pty Limited (2nd Cross-Defendant) (13750/04) Shane Flynn (3rd Cross-Defendant) (13750/04)
FILE NUMBER(S):	SC 13750/04; 20056/08
COUNSEL:	Mr D H Murr SC/ Mr J B Conomy (Pl) (13750/04; 20056/08) Mr M B Duncan (Def) (13750/04) In Person (Def) (20056/08) In Person (3rd x-Def) (13750/04)
SOLICITORS:	Holman Webb Lawyers (Pl) (13750/04; 20056/08) Agostino & Co (Def) (13750/04) Brett Wiggins Lawyers (3rd x-Def) (13750/04)

- 26 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

McCALLUM J

30 APRIL 2009

13750/04; 20056/08 AUSTRALIAN REGIONAL CREDIT v MULA; AUSTRALIAN REGIONAL CREDIT v RAPHAEL

JUDGMENT

1 HER HONOUR: Australian Regional Credit Pty Limited is a finance company based in Leeton. In early 2002, ARC took a second mortgage over the home of Charles Mula at Fairfield. The mortgage was intended to be part of the security for the payments due under three lease agreements. Those agreements were, in substance, hire purchase agreements in respect of two prime movers and a trailer to be used in a trucking business run by Mr Mula’s de facto son-in-law, David Grimsey.

2 The lessees named in the lease agreements were David Grimsey, Julie Kelly (who was Mr Grimsey’s partner and is Mr Mula’s daughter), Mr Mula and his wife. The sum of the monthly instalments required to be made under the leases over four years was roughly $180,000. Instalments not paid on the due date attracted interest at the rate of 40% per annum.

3 Mr Mula knew nothing of the lease agreements or the mortgage at the time they were obtained. ARC concedes that the signatures attributed to him on those documents were forged, probably by Mr Grimsey. There was no real dispute that the signatures of Mrs Mula were also forged. ARC contends, however, that even if the forged agreements are void as against Mr Mula, the mortgage (which is registered) secures the liability of at least Julie Kelly and David Grimsey, and arguably Mrs Mula, under the leases.

4 The forged mortgage also bears a number of signatures and initials attributed to Mouna Raphael, purportedly as witness to the signatures of Mr Mula and the other lessees, who were named in the mortgage as “borrowers”. Ms Raphael is a solicitor. She alleges that the signatures and initials attributed to her were also forged by Mr Grimsey. There is little doubt that she is right in respect of the initials. However, there was competing evidence as to whether two full signatures in the name of Ms Raphael were placed on the mortgage by her.

5 There are two proceedings before the Court arising out of those circumstances. The proceedings were heard together and evidence in each was ordered to be evidence in the other. In the first proceedings, ARC seeks an order for possession of Mr Mula’s home. The issues to be determined in respect of that claim are:

(a) whether the registration of the mortgage charged the land with amounts due under the three leases;

(b) whether there is any fraud attributable to ARC;

(c) whether Mr Mula has any personal equity enforceable against ARC.

6 Mr Mula has a cross-claim for negligence and misrepresentation against the solicitor, Ms Raphael. Mr Duncan, who appeared for Mr Mula, conceded, perhaps unnecessarily, that the claim in negligence (filed before Mr Duncan was retained to appear in the proceedings) was misconceived. In any event, that claim was pressed only in the event that ARC’s claim for possession is successful.

7 Mr Mula also has a cross-claim against ARC in which he alleges that negotiations between his solicitor and the solicitors for ARC resulted in a binding settlement agreement. A third cross-claim brought by Mr Mula against the mortgage broker, Mr Shane Flynn, was discontinued during the course of the hearing.

8 The second set of proceedings is a claim by ARC against Ms Raphael alleging breach of a duty of care owed by her to ARC and breach of the Trade Practices Act 1974 (Cth). ARC’s claim against Ms Raphael is pressed regardless of the outcome of the claim for possession. If the claim for possession is successful, ARC seeks to recover from Ms Raphael any shortfall after the sale of the property and the additional expenses of enforcing the mortgage that have been incurred as a result of the issues raised in these proceedings. If the claim for possession is unsuccessful ARC claims the whole of its loss.

The effect of registration of the forged mortgage

9 It is well established that registration of title under the Real Property Act 1900 confers upon a registered proprietor a title to the interest in respect of which he is registered which is immune from adverse claims, other than those specifically excepted: Frazer v Walker [1967] AC 568 at 585; Breskvar v Wall [1971] HCA 70; (1971) 126 CLR 376 at 385-6.

10 By registering a forged mortgage (without fraud on its part), a mortgagee thus attains title in respect of the interest in land conferred by the mortgage. However, registration does not validate all of the terms of the mortgage. In determining the extent of the estate or interest registered, it is necessary to distinguish between a personal obligation of the mortgagor created by the instrument (which is not an interest in land) and those terms of the mortgage which “delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor”: PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679B per Giles J; cited in Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; (2007) 13 BPR 24,675 at [28] per Bryson AJ. Accordingly, accepting that the interest attained by registration is indefeasible, the threshold question is to identify, on its proper construction, what debt the mortgage secures: Chandra at [31].

11 A mortgage that secures a specified sum charges the land with that sum. However, where the amount secured by the mortgage is not specified, the existence of a debt that is secured by the mortgage must be established in some other way: Yazgi v Permanent Custodians Ltd [2007] NSWCA 306; 13 BPR 24,567 at [24] per Beazley JA, Ipp and Tobias JJA agreeing.

12 In Chandra, the mortgage was security for the payment of “the Secured Money” which the mortgagors agreed to pay in accordance with the provisions of each “Secured Agreement or the Mortgage”. Since there were no agreements between the mortgagors and Perpetual other than forged agreements which were void, Bryson AJ held that no amount of money was secured by the mortgage: at [39]. Young CJ in Eq (as his Honour then was) reached a similar conclusion in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [262]-[263]; [328].

13 The forged mortgage in the present case does not secure an identified sum, and there is no agreement between ARC and Mr Mula other than agreements in which Mr Mula’s signature was forged. ARC’s case, however, is that although the lease agreements are not binding on Mr Mula, payments remain due under each lease from Ms Kelly and Mr Grimsey. ARC contends that the mortgage, on its proper construction, secures those amounts.

Does the forged mortgage secure any debt?

14 The proposition that payments remain due under each lease from Ms Kelly and Mr Grimsey may be accepted, since it is not traversed by Mr Mula in the pleadings. There was no evidence to cast doubt on the authenticity of the signatures attributed to Ms Kelly and Mr Grimsey in any of the transaction documents. Neither of them was called as a witness by any party.

15 The critical question is whether the mortgage secures those payments. The mortgage itself does not. The primary clause in the mortgage does not identify any debt or money obligation charged on the land. It states that the mortgagor:

“mortgages to the mortgagee all the mortgagor’s estate and interest in the above land, and covenants with the mortgagee that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage”.

16 Accordingly, it is necessary to consider the effect of any relevant provisions incorporated in the mortgage by the annexure and the memorandum specified. The memorandum specified in the mortgage is Memorandum No. 2447323 filed at Land and Property Information New South Wales. The annexure makes certain amendments to that memorandum.

17 A separate question arises as to the effect of the fact that the incorporation of the annexure and the memorandum is itself expressed as a covenant of the mortgagor. The mortgage as registered consists of two pages. The only term on the first page is the one set out above. The second page is the annexure. The provisions set out in the memorandum are not terms of the mortgage, except that they are incorporated in it by the provision that the mortgagor “covenants” with the mortgagee that they are so incorporated.

18 For reasons set out below, I am not satisfied that a copy of the memorandum was in fact included among the documents provided by ARC for acceptance by the borrowers at the relevant time. That may not matter, if the covenant was effective to incorporate its terms in the mortgage. It may be doubted, however, whether the covenant that additional provisions are incorporated in the mortgage is the kind of term that is validated by registration. Adopting the formulation stated by Giles J in Maradona (at 679B), registration validates those terms of the instrument registered which “delimit or qualify the estate or interest or are otherwise necessary to assure it to the registered proprietor”. The covenant that incorporates the provisions of the memorandum in the mortgage only answers that description if it is validated by registration. In any event, having regard to the conclusion I have reached as to the proper construction of the provisions of the memorandum, it is not necessary for me to resolve that difficult question.

19 The memorandum does not state, in terms, that the mortgage secures the payment of any amount or money obligation. Clause 4.1 of the memorandum states that the mortgage is being entered into “to secure to the Mortgagee the due and punctual observance and performance of the Mortgagor’s Covenants.”

20 The term “the Mortgagor’s Covenants” is defined to include every kind of obligation to be observed and performed by the mortgagor under the mortgage or “any Agreement or Collateral Security”. Those, in turn, are defined terms. “Agreement” is defined to include every possible kind of agreement, arrangement or understanding between the mortgagor and the mortgagee. That definition is amended in the Annexure to include any “lease facility”. “Collateral Security” is defined to mean every other security “given by the Mortgagor and/or any other person to secure the observance and performance of the Mortgagor’s Covenants.”

21 What is absent from all of that verbiage is a term that says that the mortgage secures any debt or money obligation other than an obligation of the mortgagor, Mr Mula.

22 Mr Murr of Senior Counsel, who appeared with Mr Conomy for ARC, relied on the fact that the definition of “principal sum” in the memorandum is amended in the annexure to include amounts due from “the Debtor” under each of the three lease agreements. He submitted that the effect of that amendment is that the term “principal sum” includes amounts due from Ms Kelly and Mr Grimsey under those lease agreements. That appears to be correct.

23 Mr Murr also relied on three further provisions:

(a) clause 27 of the memorandum (added by the amendments made in the annexure), which provides:

“This mortgage is collateral to and intended to secure the same moneys as are now owing or to become owing or payable by the Mortgagor to the Mortgagee pursuant to deed of cross collateralisation between the Debtor and the Mortgagee of even date or intended to be of even date”;


(b) clause 11.1(a) of the memorandum, which provides that it is an event of default under the mortgage if the mortgagor fails to pay when due any payment or repayment required to be made under the mortgage or under “any Agreement or Collateral Security”;

(c) clause 12.1 of the memorandum, which provides (inter alia) that upon the occurrence of an event of default under the mortgage, the mortgagee may demand payment or repayment (as the case may be) of the principal sum or enter upon and take possession of the mortgaged land.

24 Mr Murr submitted that the combined effect of those clauses is that the failure of Ms Kelly and Mr Grimsey to meet the payments due under the leases constituted, on each occasion that a due payment was not made, an event of default under the mortgage. So construed, it was submitted, the mortgage secures the indebtedness of Ms Kelly and Mr Grimsey arising under the leases.

25 Mr Murr submitted that the case was accordingly to be distinguished from the facts in Vella where, as a matter of construction, the mortgage only secured liabilities under agreements to which the mortgagor was a party. He submitted that, whilst this may appear a harsh result for Mr Mula, it leaves him with any claim he is entitled to make against the Torrens Assurance Fund under s 129 of the Real Property Act 1900.

26 The difficulty with the construction contended for by ARC is that, although the mortgage is expressed to extend to secure the performance of money obligations under other agreements, the only such obligations to which it extends are those of Mr Mula. I accept that the “principal sum” includes amounts due from Ms Kelly and Mr Grimsey under the lease agreements but the mortgage does not secure the principal sum. It contains no clause charging the land with the repayment of that sum (cf Vella at [261]). What is secured by the mortgage is the performance of “the Mortgagor’s Covenants”. They include a covenant to pay the principal sum but that is a personal obligation, not an estate or interest in the land: Chandra at [29].

27 Clause 27 does not assist ARC. The original executed deed of cross collateralisation was not in evidence. The only copy in evidence was that annexed to the third report of the handwriting expert, Dr Strach (Ex O). He expressed the opinion that the signature attributed to Mr Mula on that document was unlikely to be Mr Mula’s, and ARC conceded in light of that evidence that it is a forgery. In any event, clause 27 secures only the moneys “owing or to become owing or payable by the Mortgagor” pursuant to that deed. Since it is a forgery so far as Mr Mula is concerned, that amount is nil.

28 Further, the event of default specified under clause 11.1(a) is that “the mortgagor fails to pay when due any payment or repayment required to be made” under one of the relevant agreements (which include the lease agreements). ARC’s argument assumes that it is an event of default under that clause if the mortgagor fails to make a payment that is required to be made, not by the mortgagor, but by another person (under the relevant other agreement). I do not think that is what the clause means. In order to read the clause in that way, it is necessary to insert additional words so that it reads “the mortgagor fails to pay when due from another any payment or repayment required to be made”.

29 In my view, on the proper construction of the default clause, an event of default occurs when the mortgagor fails to make a payment due to be made by him. All of the language of the mortgage fixes on the personal obligations of the mortgagor, not those of any other person.

30 It follows, in my view, that the mortgage does not secure the debts of Mr Grimsey and Ms Kelly to ARC and that the amount secured by the registered mortgage is in fact nil. Accordingly, ARC is not entitled to an order for possession.

31 In case that analysis is wrong, it is appropriate to record my findings in respect of the defences raised by Mr Mula. It is also necessary to consider ARC’s claim against Ms Raphael. For that purpose, I turn to consider the evidence as to the execution and registration of the mortgage.

The first set of documents sent to Mr Flynn

32 On about 3 January 2002, ARC instructed the firm Holman Webb to draft the security documentation for the transaction. The detail of those instructions was provided to Richard Lyons, then a solicitor employed by Holman Webb, by facsimile from the broker, Shane Flynn. The transaction was described by Mr Flynn as “a refinance deal which I have engineered on behalf of my clients Mr Grimsey and his good lady, Ms Kelly, and his in-laws, Mr and Mrs Mula”.

33 Mr Flynn stated that the deal was conditional upon a collateral second mortgage being taken over the Mula’s property. In a subsequent facsimile to Mr Lyons, Mr Flynn stated:

“It would be appreciated if you could arrange to have the relevant security documentation prepared, and if that could be either emailed or posted to me, I can arrange to have it sent on to Mr and Mrs Mula. They ae (sic) holidaying on the North Coast and the plan is for Mr Grimsey to physically take it to them for signature, then to deliver it back to us”.

34 On 18 January 2002, Mr Lyons sent an email to Mr Flynn attaching a letter to Mr Grimsey, Ms Kelly and Mr and Mrs Mula. Mr Lyons’ affidavit states that the email enclosed the documents referred to in that letter. The enclosed documents included, relevantly, the two-page mortgage (the front page and the annexure), a copy of Memorandum 2447323, the deed of cross collateralisation and a declaration in respect of independent legal advice to be made by each borrower. The letter stated that the documents “where appropriate should be fully completed and executed by Grimsey, Kelly, Mula and Mula and returned to us prior to completion”.

35 It appears that the completed documents were returned to Mr Lyons by Mr Flynn on 6 February 2002. There is no suggestion that the solicitor who has been sued in these proceedings, Ms Raphael, had any involvement in the execution of the mortgage returned on that date. “Peter Rogers” was the name attributed as witness to the purported signature of the mortgagor. The declarations as to independent legal advice identified him as a Justice of the Peace. However, the authenticity of the signatures on that document must now be doubted.

The second set of documents sent to Mr Flynn

36 After going through the documents he received from Mr Flynn, Mr Lyons realised that the documents had not been executed “appropriately”. He could not recall precisely what was unsatisfactory but he thought it may have been related to the requirement of the office of Land and Property Information to have each signature witnessed and the name and address of the witness specified. The blank documents sent to Mr Flynn by Mr Lyons had no provision for signature by any witness on the annexure, which was the second page of the mortgage.

37 On 8 February 2002, Mr Lyons sent a further email to Mr Flynn attaching “the mortgage, annexure and the memorandum for re-execution”. Mr Lyons said that the attachments were not the documents that had been returned to him by Mr Flynn, but further unexecuted copies of the documents originally sent. The email made the following request of Mr Flynn:

“Would you please ensure the Mr Mula (sic) signs the mortgage on the front page as mortgagor and that his signature is witnessed. All the parties will then need to sign the annexure where indicated and have their signatures witnessed. In relation to the mortgage memorandum, Mr Mula must sign as mortgagor and then all the debtors need to sign the memorandum and have their signatures witnessed.”

38 Mr Lyons’ affidavit discloses that the attachment described as “the memorandum” was not in fact Memorandum No. 2447323, but only a form headed “acknowledgment”. By that form, each of the borrowers was required to acknowledge that “the succeeding pages numbered 1 to 18” comprised Memorandum No. 2447323 and that such memorandum formed part of the mortgage. However, the 18 pages were not included as part of the attachment.

The documents returned to Mr Lyons

39 On 28 February 2002, Mr Lyons received a facsimile directly from Mr Grimsey returning the documents sent to Mr Flynn on 8 February 2002. The copy of the mortgage in that facsimile had been dated 18 February 2002. The mortgage had a signature attributed to Mr Mula, purportedly witnessed and signed by “M Raphael” with the words “Mouna Raphael 125 Castlereagh Street Liverpool” written underneath. On the second page of the mortgage, which is the annexure, there were signatures attributed to each “Debtor” (Mr Grimsey, Ms Kelly and Mr and Mrs Mula). There was a second signature attributed to Mr Mula in his capacity as mortgagor. Each of the debtor signatures had initials scribbled in the space provided for signature by a witness but no name or address was provided in respect of those initials. The signature attributed to Mr Mula in his capacity as mortgagor had not been witnessed.

40 The gist of Mr Mula’s evidence was that he had no knowledge of the mortgage until ARC sought possession of his home in the second half of 2004. It was not suggested to him that he was aware of it at the time it was purportedly entered into. Mr Mula impressed me as an entirely honest man and I have no hesitation in accepting his evidence. I am satisfied that the “signature of mortgagor” on the first page of the mortgage and the two signatures attributed to Mr Mula on the second page of the mortgage are forgeries, as conceded by ARC. I am also satisfied that Mr Mula had no knowledge of the mortgage at the time those signatures were placed on it.

41 Further, notwithstanding the absence of any specific concession to this effect by ARC, I am satisfied that the signature attributed to Mrs Mula is also probably a forgery.

42 I am satisfied that the four sets of initials in the spaces provided for signature by the witness under the signature of each debtor were not placed on the second page of the mortgage by Ms Raphael. So much was effectively conceded in ARC’s case (T289.20). It does not necessarily follow that those signatures are forgeries, since the person who placed them there did not purport to attribute them to Ms Raphael. The four sets of initials are only attributed to her in the registered instrument by the actions of Mr Lyons, who wrote her name and address underneath them at a later time on the assumption that they were initials placed on the page by her.

43 The facsimile from Mr Grimsey also included the form headed “acknowledgement” purportedly signed by each debtor and by Mr Mula as mortgagor. Each of those signatures was purportedly witnessed with scribbled initials similar to those attributed to the purported witness to the signatures on the second page of the mortgage. ARC concedes that the signature attributed to Mr Mula on that document is a forgery.

44 The last page of the facsimile from Mr Grimsey was an unusual letter, purportedly from GJ Byles & Associates addressed “to whom it may concern”. The letter is dated 18 February 2002 and is purportedly signed by Ms Raphael (with initials only). It represented that Ms Raphael had given independent advice to Mr Mula in respect of the mortgage. Ms Raphael was in fact employed by Mr Byles at that time. However, for reasons to which I will return, I think it is clear that Ms Raphael did not write that letter.

45 On 1 March 2002 Mr Lyons received from Mr Flynn the original two-page mortgage, a copy of which he had received by facsimile from Mr Grimsey. It is ARC’s case that those are the two pages that were, in due course, registered at the Office of Land and Property Information (after the addition of some further words and signatures, considered below). No party took issue with that contention.

46 Mr Lyons also received from Mr Flynn the original “acknowledgment”, but only a copy of the unusual letter from GJ Byles & Co. As already noted, the terms of that form required the borrowers to acknowledge that the “succeeding pages numbered 1 to 18” comprised Memorandum 2447323. However, it does not appear that the 18 pages were provided to Mr Flynn in the second round of documents. Those pages were not in fact attached as pages succeeding the acknowledgement when it was returned. They were not annexed to Mr Lyons’ affidavit as having been attached either to Mr Grimsey’s fax (which was five pages) or as part of the enclosures with Mr Flynn’s letter in which he returned the originals (also apparently only five pages, according to Mr Lyons’ affidavit). On that basis, Mr Lyons ought to have appreciated that the “acknowledgement” by the mortgagor was wrong according to its terms, at least insofar as Mr Mula did not acknowledge the 18 “succeeding pages”.

47 ARC’s evidence included an affidavit of another solicitor annexing “a true copy of the Memorandum no. 2447323 filed at Land and Property Information New South Wales and incorporated in mortgage AA911031G relied upon by the plaintiff in these proceedings”. However, that affidavit was sworn by Mr Johnson, who did not become involved in the matter until after the commencement of these proceedings. Mr Johnson did not purport to attest to the provenance of the copy he annexed. It has some scribbled initials on it, which suggests that it may have been included in the first set of documents sent to Mr Grimsey via Mr Flynn and returned to Mr Lyons by Mr Flynn on 6 February 2002. The evidence does not disclose any other occasion on which Memorandum 2447323 was sent to any party for its contents to be acknowledged by the borrowers.

Did Ms Raphael sign the first page of the mortgage?

48 In her evidence in the proceedings, Ms Raphael denied that the signature attributed to her on the first page of the original mortgage received by Mr Lyons on 1 March 2002 is hers (T288.16). Her version of the relevant events is that, in the middle of February 2002, her mother told her that her cousin, Monil Raphael, had called her to say that he wanted to refer some clients to her. She says that, a few days later, she received a package from Holman Webb in the mail at her home address and that she was unable to identify the matter to which the documents related. She says that she spoke to her employer, Mr Byles, and a solicitor from Holman Webb about the package. The issues surrounding the package and those conversations are considered further below.

49 Ms Raphael said that, after she had spoken to the solicitor from Holman Webb about the package, she received a call from Mr Grimsey. She said that their conversation was in the following terms:

“Grimsey: Hi Mouna, this is David Grimsey, your cousin’s neighbour. He gave us your home address to give to Holman Webb because you have been ill and have been working from home and we told him that this matter is urgent and would need your urgent attention. Are you able to assist the people that I will be referring to you with some mortgage documents? The mortgage is for some other people; not for us. Are you able to see them at my house because one of the clients has had an injury and it would be hard for them to attend your office as Mick said your office is on the 2nd level.
Mouna: We don’t normally see clients at their homes. I will have to speak to my principal to see if it is okay. Usually clients have to attend the office.”

50 Curiously, it appears from other evidence in the proceedings that Ms Raphael may have previously witnessed Mr Grimsey’s signature on a mortgage granted by him to ARC. That mortgage is dated 21 December 2001 (apparently by Mr Lyons, who signed it on behalf of the mortgagee). There is a statutory declaration by Mr Grimsey in respect of the mortgaged property which is said to have been made “at Prestons” (the suburb in which Mr Grimsey’s home was located) and declared before Ms Raphael. In that document, Ms Raphael is described as a paralegal, which she was at that time.

51 Ms Raphael denies the authenticity of her signature on the Grimsey mortgage. As to the statutory declaration, Ms Raphael could not recall signing it (T338.39). The handwriting expert who gave evidence in ARC’s case in the proceedings, Dr Strach, expressed the opinion that it was “highly probable” that both signatures were written by the writer of specimens of Ms Raphael’s signature provided to him by ARC.

52 Through no fault of Dr Strach, his evidence must be approached with some caution. One of the specimens of Ms Raphael’s signature provided to him was the signature on the first page of the registered mortgage. ARC was entitled to assume its authenticity at the time it retained Dr Strach as an expert because Ms Raphael appeared to have accepted, in correspondence with Holman Webb, that she had signed that page. However, by the time of the hearing, Ms Raphael was disputing the authenticity of that signature.

53 If Ms Raphael had previously gone to Prestons to witness Mr Grimsey’s signatures on a mortgage and a statutory declaration, it is unlikely that she would have had a conversation with him on 17 February 2002 in the terms alleged by her. However, the evidence before me as to the Grimsey mortgage was scant and I do not think I can be satisfied to a sufficient degree of confidence that events occurred as apparently recorded in those documents. Accordingly, I place no reliance on them.

54 In any event, Ms Raphael says that she discussed Mr Grimsey’s request with Mr Byles and that he said it was “fine” for her to see the clients at their house. Mr Byles denies any such conversation.

55 Ms Raphael says that, following those conversations, on 18 February 2002 at around 6.00pm she went to the home of her cousin and asked him to accompany her to Mr Grimsey’s house for the document signing. She says that they went to the house where they were introduced to a man and woman who appeared to be “in their fifties or sixties” (Mr Mula is almost 80). She said that the man told her that he was Mr Mula and that the woman was his wife.

56 Ms Raphael says that she requested photo identification from each of them and that they provided her with two Medicare cards corresponding with the names on the mortgage. She then informed them that she required photo identification such as a driver’s licence or passport. In the meantime, she says, she explained the legal effect and implications of signing such a document. She says that the man and the woman signed the first page of the mortgage in the place indicated by her. She then paused and again asked for photo identification, which they were unable to provide.

57 Ms Raphael says that, when it became apparent that the people who had signed the document could not provide photo identification, she told them that she could not finalise the documents. She says that Mr Grimsey interjected “in an aggressive tone”, saying that they needed to get the document signed that night. Ms Raphael says that she refused to accede to “his forceful request”. She says that she then ruled a line “right through the page” where Mr and Mrs Mula had signed, stood up from her seat, collected all of the documents including the one through which she had ruled a line and left Mr Grimsey’s home with her cousin.

58 Ms Raphael did not call evidence from her cousin in the proceedings. She explained his absence by reference to a dispute between their respective fathers, which she said had resulted in a falling out within the family. She also submitted that it would have been equally open to ARC to call him and that I should not draw any inference from her decision not to. His absence has not influenced my findings either way.

59 Ms Raphael did not say, in her affidavit, that she had signed the mortgage herself. According to that version of events, it was only the people purporting to be Mr Mula and Mrs Mula who signed. However, in a letter to Holman Webb written in September 2005 (Annexure H to the affidavit of Theresa Baw), Ms Raphael said:

“I met a person who indicated to me that he is Charles Mula and I began to explain the documentation to him and got him to sign the Mortgage, only one page and I witnessed his signature.”

60 Ms Raphael confirmed at the hearing that, in saying she had witnessed the signature, she meant that she also signed the relevant page (T386.6). She explained that the mortgage that became registered in due course was not the document she was referring to in her letter to Ms Baw. She denies that the signature on the front page of the registered mortgage is hers.

61 ARC’s handwriting expert, Dr Strach, did not express an opinion as to the authenticity of that signature. As already noted, that signature was provided to him as an authenticated specimen.

62 According to Ms Raphael, she spoke to Mr Byles the following day about what had happened and he advised her to send the documents back to Holman Webb with a covering letter stating that the documents had not been executed due to the failure of the signatories to produce photo identification. Ms Raphael says that she called Holman Webb and spoke with the person whose name appeared as the reference on the documents, telling him what had happened and saying that she would send the documents back to his office. Mr Byles and Mr Lyons each deny any conversation in those terms.

63 Ms Raphael says that she then sent the documents back to Holman Webb with a covering letter, a copy of which she placed on the file. A search of Holman Webb’s files has not produced the documents allegedly returned and a search of Mr Byles’ file register indicates that his office opened no file in the name of Mula.

64 If there was a meeting at Mr Grimsey’s house of the kind described by Ms Raphael, I am not satisfied that she discussed those events with either Mr Byles or Mr Lyons, as she alleges.

65 In order to accept Ms Raphael’s version completely, I would have to accept that there is a further version of the mortgage that bears Ms Raphael’s genuine signature but which has a line through the whole front page. I would also have to accept that Ms Raphael discussed that version with Mr Byles and Mr Lyons even though they have no recollection of such discussion. I would also have to accept that, separately, there came into existence a version of the mortgage on which the whole signature attributed to Ms Raphael is a very good forgery, bearing substantial similarity to her authenticated signatures, but on which all other signatures attributed to the “witness” are completely different.

66 I do not accept that the meeting occurred exactly as Ms Raphael alleges. I think the most probable path through all the discrepancies in the evidence is that Ms Raphael did sign the first page of the mortgage but did not proceed to witness any further signatures at that time. I do not accept that she then drew a line through the document she had signed and took it with her. Ms Raphael said nothing of that event in her letter to Ms Baw. There, she said that she left the documents with the parties and departed.

67 I do not discount the possibility that those events occurred after a person posing as Mr Mula had signed the document. Having regard to his efforts in other respects, I can accept that Mr Grimsey may have gone to the trouble of prevailing upon someone to act in the role of Mr Mula so as to deceive Ms Raphael. Further, Ms Raphael’s evidence that Mr Grimsey became forceful when she refused to complete the process has a ring of truth about it. It would certainly go some way to providing an explanation for the steps later taken by her.

68 Whether the meeting with Mr Grimsey occurred as Ms Raphael says or in some other way, I am satisfied that the signature attributed to Ms Raphael on the first page of the registered mortgage was placed there by her. I am further satisfied that Ms Raphael permitted that document to remain in the hands of Mr Grimsey. It appears that he or someone else then completed the document (with no witness to the signature of Mr Mula on the second page) and the acknowledgment and prepared the fake letter from GJ Byles & Associates. Those four pages were then sent by facsimile to Mr Lyons and the originals were provided to Mr Flynn to be forwarded to Mr Lyons.

Did Ms Raphael sign the second page of the mortgage?

69 Mr Lyons stated that, upon receipt of the original mortgage dated 18 February 2002 from Mr Flynn, he noticed that there was no signature of a witness to Mr Mula’s signature as mortgagor on the second page. Mr Lyons said that he telephoned a number taken from the letter from GJ Byles & Co and asked to speak to Ms Raphael. In his affidavit, Mr Lyons said that he introduced himself and had a conversation which included the following exchange:

“Lyons: I act for Australian Regional Credit and understand that you witnessed a mortgage of Charles Mula.
Raphael: Yes, I was the witness to the signatures on that mortgage.”

70 Mr Lyons’ evidence was that he told Ms Raphael that Mr Mula’s signature on the second page was not witnessed and that the matter could not proceed until all the signatures were witnessed. He says he arranged with Ms Raphael to have the document sent to her by express post so that she could sign the second page. He says she asked him to send the documents to her home address as she would not be in the office the next day.

71 In his evidence in the proceedings, in response to a question from Ms Raphael, Mr Lyons said (at T102.9):

“Yes, or I made a phone conversation to say I’ve received a letter from you and witnessed documents and could I send them to you and you sent them back to me”.

72 There is no reference in Mr Lyons’ file note of that conversation, nor in his affidavit, to his having expressly referred to the letter from GJ Byles during his conversation with Ms Raphael. When pressed on that issue, Mr Lyons said (at T104.4) that it was possible that he said the words “I’ve received a letter from you” but that he could not “100%” recollect saying that.

73 Ms Raphael denies a conversation with Mr Lyons in the terms alleged by him. As already noted, Ms Raphael’s version begins with a call from her mother in the middle of February 2002 to tell her that her cousin, Monil Raphael, had called wanting to refer some clients to her. She says that, a few days later, she received the package in the mail at her home address and was unable to identify the matter to which the documents related. She says that she spoke to her employer, Mr Byles, the following morning and handed him the package saying:

“Greg, an unusual thing has happened. I received a package in the mail at home from Holman Webb Lawyers referring to some clients in the name of Mula. Are you aware of any clients by that name. Why did they send it to my home address and how did they get my home address?”

74 She says that Mr Byles said he had not heard of any clients of that name and suggested she contact Holman Webb to ask whether they could provide her with details as to who the clients were and how they obtained her home address. Mr Byles denied ever having had a conversation with Ms Raphael in those terms.

75 Ms Raphael’s evidence was that she then contacted Holman Webb on about 17 February 2002 to find out whether the documents had been sent to her in error. She says that she spoke to the person whose name appeared on the covering letter. They had a conversation to the following effect:

“Raphael: Hello this is Mouna Raphael from GJ Byles & Associates. I have received some documents from your office at my home address regarding clients in the name of Mula. I am not sure what this is about but it seems rather odd that you would send documents to my home address and not the office address.
Solicitor: Leave it with me and I will get back to you.”

76 Mr Lyons denies a conversation in those terms.

77 There are two documents annexed to Mr Lyons’ affidavit that confirm his version of events. The first is a file note dated 1 March 2001 in the following terms:

“Mouna Raphael
96016644
- Send documents by express to
[Ms Raphael’s home address]
Express Post . She will
Express Post Back”

78 The second is a letter dated 1 March 2002 which, according to the evidence of Mr Lyons, was the letter under cover of which he returned the original mortgage to Ms Raphael. The letter refers to a phone discussion between Mr Lyons and Ms Raphael on 1 March 2002 and encloses “the original mortgage signed by Charles Mula”. The letter states “I understand that you were witness to the signatures on the mortgage” and asks Ms Raphael to sign as witness under Mr Mula’s signature on the second page “as it appears the signature was missing at the time of signing”. The letter concludes by requesting Ms Raphael to return the document as soon as possible by express post. The content of that letter cannot be reconciled with Ms Raphael’s version that she was unable to identify the matter to which the package received at her home related. It is also inconsistent with Ms Raphael’s evidence as to the conversations she says she had with Mr Byles and Mr Lyons.

79 I am satisfied that Mr Lyons had a conversation with Ms Raphael on 1 March 2002 as alleged in his affidavit. I am not satisfied, however, that he made any reference during that conversation to his having received a letter from Ms Raphael. For reasons set out below, I am satisfied that Ms Raphael did not write that letter and would have questioned any reference to it by Mr Lyons.

80 Mr Lyons says that, on 5 March 2002, he called GJ Byles & Associates and again spoke to Ms Raphael. He says that she told him that she had witnessed the signature on the second page and returned the document to him by express post the previous day. Mr Lyons has a file note that tends to confirm a conversation in those terms. In addition, there is annexed to his affidavit a copy of an express post envelope addressed to Richard Lyons at Holman Webb recording the sender as Mouna Raphael at the home address to which Mr Lyons sent his letter dated 1 March 2002. The handwriting on that envelope is very similar to the handwriting on the front page of the mortgage. Ms Raphael denied that the handwriting on the envelope was hers (T310.8-22). Dr Strach expressed the opinion that it was “almost certain” that the handwriting was written by the writer of the specimens provided to him (as noted, the specimens provided included the signature on the first page of the mortgage, which was subsequently disputed by Ms Raphael).

81 Ms Raphael denies those events altogether. Throughout the hearing, she maintained her denial that the signature attributed to her on the second page of the mortgage is her signature (T288.47; T303.50). She did confirm that the home address identified in Mr Lyons’ letter and on the back of the express post envelope was her home address.

82 I am satisfied that it is more probable than not that the full signature attributed to Ms Raphael on page 2 of the mortgage was placed there by her in the circumstances outlined by Mr Lyons. In particular, I am satisfied that he spoke to Ms Raphael on 1 March 2002, obtained her agreement to receive the mortgage by express post at her home address and sent it to her as agreed.

83 I am further satisfied that Ms Raphael signed the second page as requested by Mr Lyons and returned it to him. There are certainly some unusual aspects to this part of ARC’s case. The handwriting expert was more equivocal as to whether that signature was written by the writer of the specimens provided to him. The appearance of the signature is slightly different from the signature on the first page, and Ms Raphael emphatically denied that it is her signature.

84 However, Mr Lyons’ version of events is corroborated by apparently contemporaneous records, whereas Ms Raphael’s version is to some extent contradicted by those records and is emphatically denied by Mr Lyons and Mr Byles. I do not accept that Mr Lyons was lying about the phone call to Ms Raphael. To make that finding, I would have to be satisfied that his file note and the letter dated 1 March 2002 were fabricated in order to sustain the lie.

85 It is conceivable that someone posing as Ms Raphael duped him, but that would suggest that the conversation on 1 March 2002 arose from a call made to him rather a call made by him to GJ Byles & Associates. There is nothing to explain how the impersonator would have known to make that call. It was prompted by the fact that Mr Lyons had noticed the absence of a witness to the signature of the mortgagor on the second page of the mortgage. A remote possibility is that Mr Lyons called Mr Flynn or Mr Grimsey and an impersonator then rang him posing as Ms Raphael but that is pure speculation on my part and there was no evidence in the proceedings to support it.

86 Accordingly, I am satisfied that Ms Raphael represented to Mr Lyons that she had witnessed Mr Mula’s signature on the first page of the mortgage. I am further satisfied that Ms Raphael signed the second page as witness to Mr Mula’s signature on that page when documents were sent to her home, as stated by Mr Lyons.

The curious letter from GJ Byles & Associates

87 As already indicated, I am satisfied that Ms Raphael did not write the letter sent to Mr Lyons by Mr Grimsey representing that Mr Mula had received independent legal advice in respect of the mortgage. The appearance of the letter is quite unusual. It states (errors included):

“I advise that independent legal advice on the above lease’s was given to Mr Charles Mula and Mr’s Carmen Mula. I also advice that independent legal advice was given to them in regard’s to morgage documentaion for the collatreral of same lease’s over 70 Polding St Fairfield NSW 2165.”

88 Leaving aside its extraordinary composition, what is immediately noticeable about the letter is that the font and size of the print in the text of the letter is completely different from the font and size of the typed part of the signature clause. Further, the margin of the text is not aligned with the margin of the signature clause and there is an unusually large space between the conclusion of the text and the signature clause.

89 The letter is very similar in appearance to a letter sent to ARC, apparently by Mr Grimsey, in 2003 (page 2 of Ex F). That letter has the same font, print size and layout. It purports to be from Mr Grimsey, Ms Kelly and Mr and Mrs Mula but it was sent from Mr Grimsey’s address at Preston, apparently from the same facsimile machine as the five pages sent by Mr Grimsey to Mr Lyons in 2002. The 2003 letter also includes the phrase “in regard’s to” with the same misplaced apostrophe, just as it appears in the supposed letter from Ms Raphael.

90 Mr Lyons never received an original of the supposed letter from Ms Raphael. He said he received it by fax from Mr Grimsey, and that he then received “a copy” of it from Mr Flynn. The letterhead of GJ Byles & Associates was silver and gold (T337.7). There was no evidence that an original on such letterhead ever existed.

91 I am satisfied that the letter from GJ Byles & Associates, purportedly initialled by Ms Raphael, is a forgery and that Ms Raphael had no involvement in its preparation. Ms Raphael had previously acted for Mr Grimsey. The letter appears to have been forged, probably by Mr Grimsey, using another letter from Ms Raphael with different text inserted in place of the contents of the original letter. In my view, the unusual appearance of the letter would have caught the eye of an experienced solicitor taking care to ensure that the transaction documents were in satisfactory order.

Other additions to the mortgage prior to registration

92 One of the many unusual features of the execution of the mortgage is that Mr Lyons took it upon himself to write Ms Raphael’s name and address in five places on the second page, including under four sets of initials already appearing on that page. In his affidavit, he says that he did so “either at the point before I sent Raphael the mortgage by express post or at the point of receiving the returned mortgage from Raphael.” He said the reason that he did so is that “this information is required by Land and Property Information”. Undoubtedly, the reason for such a requirement is to ensure that the identity of the person who witnessed the signature may be readily and reliably ascertained.

93 At the time of swearing the affidavit, Mr Lyons believed that he would have written Ms Raphael’s name and address next to the blank space for signature before posting the documents to her, rather than after their return. His reason for holding that belief was that the signature attributed to Ms Raphael runs through the words written by Mr Lyons. Mr Lyons said that he hates it when that occurs (T96.38) and he did not believe he would have written over part of her signature.

94 Mr Lyons said that he believed he had authority to write those words on the mortgage “after having a conversation with Mouna Raphael that she was the witness to the documents”. In my view, that was insufficient authority for the step he took and it was unwise for him to have done so. As it turns out, he appended Ms Raphael’s name and address to four sets of initials that were plainly not placed on the document by her. The authenticity of the signatures on that document, which is the original registered instrument on which ARC’s claim is based, is a central issue in this case. If, as he believes, he did so before sending the mortgage to Ms Raphael, there was no need for it. He should have asked her to append those details herself under any signature of hers on the mortgage. It would have been even less appropriate for him to do so after receiving the mortgage back from Ms Raphael since, in that circumstance, she would not have had an opportunity to see what he had written.

95 The mortgage had provision for signature by Mr Lyons as the mortgagee’s solicitor, but he did not sign it. It was signed on behalf of the mortgagee over two years later by a different solicitor from Holman Webb, Anthony Chandler, when he received instructions to commence proceedings for possession. Mr Chandler struck out Mr Lyons’ name and inserted his own as solicitor for the mortgagee. Mr Chandler, of course, had no direct knowledge of the circumstances in which the other signatures had come to be placed on the mortgage.

96 None of the present issues as to the execution of the mortgage would have arisen had the solicitors for the mortgagee required the relevant parties to attend a settlement conference at which the transaction documents would be signed by all of them in the presence of known witnesses.

Mr Mula’s defences

97 Mr Duncan raised a threshold legal issue as to whether a second mortgagee can obtain an order for possession but accepted that I am bound by authority that is against him on that issue: Zanzoul v Westpac Banking Corporation (1995) 6 BPR 14,142. He also raised an issue as to whether there is, on the proper construction of ss 57 and 60 of the Real Property Act, an election between taking possession under s 60 and exercising the power of sale under s 57. It is not necessary for me to decide that point.

98 The first matter relied on by way of defence by Mr Mula (at paragraph 9(1) of the Amended Defence) was that the mortgage was not executed in the manner required by law. However, that defence was not pressed at the hearing.

Was there fraud attributable to the mortgagee when the mortgage was registered?

99 The next defence raised (at paragraph 9(2) of the Amended Defence) was that, at the time the mortgage was registered on 27 August 2004, the “mortgagor” (obviously intended to be a reference to the mortgagee) knew it was a forgery.

100 I am not satisfied that any person within ARC had that knowledge before the mortgage was registered. Susan Reid, the collections officer, said that she only knew the signature was forged after there had been a forensic examination of the documents ordered by one of the directors of ARC, Mr Turner. She could not recall when that happened (T57), but it appears to have been well after the registration of the mortgage.

101 Mr Van Werven, ARC’s general manager, gave evidence that he first heard of the allegation that the mortgage was a forgery when Mr Mula called him on 8 December 2004 (T156.38). That is consistent with the evidence of Mr Mula, who said that, after he kept receiving letters from “this credit company”, he rang the company and the following exchange took place:

“And they answered me. I said ‘Listen, I receive these letters and they not belong to me because I got nothing to do with these letters’. They going to put onto a man. I don’t know what his name. Vandeburg or something. I don’t know. He said to me – I said to him ‘Listen’, I said ‘Them letters is not mine’ I said ‘I got nothing to do with that company’. And he said ‘now, listen, you better go and see a solicitor’. And when he said that, I go on ‘Yes, I do’. He said ‘You got a solicitor?’. I said ‘Yes’. He said ‘Who is the solicitor?’. I said ‘Mr Zarb’. And I gone and saw Mr Zarb straight away about it.

102 I am satisfied that Mr Van Werven and Ms Reid first became aware of Mr Mula’s claim that the mortgage was a forgery in early December 2004. There was no evidence to suggest that ARC became aware of the forgery at any earlier time.

103 Mr Duncan submitted, however, that it was not necessary for Mr Mula to establish knowledge of the forgery. He contended that it would be sufficient to establish that the mortgagee was on notice of matters that ought to have put them on inquiry as to the true position, citing Australian Guarantee Corp Ltd v De Jager [1984] VR 483 and Sansom v Westpac Banking Corp (1996) 7 BPR 14,615.

104 In De Jager, a mortgage was registered after an employee of AGC had been told that the purported witness to the mortgagor’s signature had not been present when the mortgagor signed it. Tadgell J held that, in those circumstances, Mrs De Jager had established fraud within the meaning of the Victorian equivalent of s 42 of the Real Property Act. There is no similar circumstance in the present case.

105 Mr Duncan relied on three matters to establish notice attributable to ARC. The first was that he thought Ms Reid had conceded that, as early as April 2004, Mr Mula had told her that he denied executing the mortgage. That submission was made without the benefit of the transcript and is not borne out by an examination of the evidence Ms Reid gave.

106 Secondly, Mr Duncan relied on the contents of a letter sent by ARC in June 2003, when the payments due under the leases were in arrears (page 7 of Ex F). The letter was sent to Mr Craig Player, who had supposedly been identified as a financial advisor to Mr Grimsey (the authenticity of the correspondence from Mr Player is questionable). ARC’s letter states:

“Please note that ARC is prepared to work with your clients where possible. However to do this, ARC must be able to speak with both yourself and your clients”.

107 That remark was made in the context of a complaint that Mr Player had not responded to several messages left for him. Mr Duncan submitted, however, that the letter revealed an appreciation of the need to ensure that Mr Mula understood his obligations in the event that the facility was refinanced at that time by capitalising outstanding interest. That is a long way short of establishing that the letter reveals that ARC was on notice of the risk that the mortgage had been forged.

108 Finally, Mr Duncan relied on the fact that Holman Webb held a copy of Mr Mula’s driving licence which discloses his advanced years. Mr Duncan said that I should infer that the licence had been obtained by ARC at the outset. That may well be the position, but the fact that ARC knew that Mr Mula was elderly does not establish notice of possible fraud.

109 I am not satisfied that the matters relied upon by Mr Duncan are sufficient to establish fraud on the part of ARC within the meaning of s 42 of the Real Property Act.

110 There was no evidence of fraud attributable to any agent of ARC. As to ARC’s solicitors, it was not suggested that Mr Lyons knew that the mortgage was a forgery. The process by which he obtained the executed instrument was perhaps “less than meticulous”, but that does not amount to fraud so as to fall within the statutory exception: Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202 at 222E.

111 By the time the mortgage was registered, Mr Lyons was no longer employed by Holman Webb. The solicitor who had instructions in respect of the enforcement of the mortgage was Mr Chandler. He did not specifically recall giving instructions to have the mortgage registered but was prepared to assume he did (T77.21). There is no evidence to suggest that he knew, at that time, of Mr Mula’s contention that his signatures had been forged. Mr Chandler’s evidence was that he did not recall ever hearing that any signature on the documents had been forged (at T77.12). He had no recollection as to when a handwriting expert was retained in the proceedings (T78.23).

112 The solicitor on the record in these proceedings, Mr Wakefield, only came into the matter after the mortgage had been registered. Another solicitor who had temporary conduct of the proceedings in Mr Wakefield’s absence, Mr Johnson, also came into the proceedings only after the mortgage had been registered. I am not satisfied that the mortgage was registered by fraud engaged in by or on behalf of ARC.

Does Mr Mula have any personal equity enforceable against ARC?

113 It remains to consider whether Mr Mula has any personal equity enforceable against ARC (paragraph 9(3) and following of the Amended Defence). Mr Duncan submitted that the present case falls within the principles stated in Mercantile Mutual Life Co Ltd v Gosper (1991) 25 NSWLR 32. He contended that it was not sufficient for ARC merely to forward the documents for execution by Mr Mula without making any contact with him. Mr Duncan said that detailed advice should have been given to Mr Mula. In this respect he also relied on the authorities of Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 and Garcia v National Australia Bank [1998] HCA 48; (1998) 194 CLR 395.

114 I do not think that Gosper is authority for the proposition that a failure to deal directly with the mortgagor will give rise to a personal equity binding on the mortgagee after registration of a forged mortgage. Mrs Gosper was the sole registered proprietor of the property in question and had mortgaged it to Mercantile Mutual Insurance Ltd to secure the sum of $265,000. Her husband forged a variation of the mortgage, which increased the secured amount by a further $285,000.

115 Kirby P was certainly critical of the fact that the lender “never did [Mrs Gosper] the courtesy of communicating directly with her” (at 35F) but he did not hold that the failure to do so established any personal equity. The basis for his Honour’s decision was the fact that, before the forged variation was registered, Mrs Gosper had an equity of redemption. It was on that premise that his Honour applied the principle (at 37E) that the personal equities which existed prior to registration of the forged variation were unaltered by the registration.

116 In a separate judgment, Mahoney JA held that a personal equity had been created when one of the companies within the Mercantile group produced the certificate of title to another company to which the mortgage had been transferred before the forged variation was made. That conduct, which enabled the forged variation to be registered, was held (at 49B) to have been a breach of the lender’s obligations in relation to the possession and custody of the certificate of title such as to create a personal equity against “the new owner”. Kirby P expressed his agreement with that conclusion. The facts in the present case do not fall within the principles stated by Kirby P and Mahoney JA. Meagher JA dissented, apparently holding (at 52B) that the mortgagee had acquired indefeasible title upon registration of the forged mortgage variation.

117 Mr Murr submitted on behalf of ARC that I could readily dismiss the proposition that the case falls within the principles enunciated in Amadio. That authority is concerned with the situation where a person unconscientiously takes advantage of another who is in a position of special weakness. I accept, as submitted by Mr Murr, that those principles have nothing to do with the facts of this case.

118 As I understand Gosper and Amadio, I do not think that ARC’s failure to deal directly with Mr Mula in respect of the execution of the mortgage is sufficient to establish any personal equity enforceable against it.

Yerkey v Jones

119 The final matter addressed by counsel was the special equity of married women as sureties enunciated in the decision of the High Court in Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649. Mr Murr very fairly acknowledged that this was an issue that would require careful attention in the present case.

120 Mr Murr submitted that, if Yerkey v Jones can apply at all, it can only apply in relation to the second kind of case dealt with by Dixon J in that decision. The first kind of case involves actual undue influence. In cases of that kind, Yerkey v Jones holds that it would be unconscionable to enforce the transaction against the wife as a volunteer when in fact she did not bring a free will to its execution: Garcia at [31] per Gaudron, McHugh, Gummow and Hayne JJ. Mr Murr submitted that, if that principle were held to extend to cases involving forgery, there would never be a case in which a forged transfer was enforceable against the victim of the forgery. He submitted that that is plainly not the law. In my view, there is force in that submission.

121 The second kind of case dealt with by Dixon J in Yerkey v Jones has at its core a failure to explain the transaction adequately and accurately: at 684; reaffirmed in Garcia per Gaudron, McHugh, Gummow and Hayne JJ at [18]-[20] and [23]-[33]. In Garcia, the High Court stated at [31] that what makes it unconscionable to enforce the transaction in that kind of case is:

“the combination of circumstances that:
(a) in fact the surety did not understand the purport and effect of the transaction;
(b) the transaction was voluntary in the sense that the surety obtained no gain from the contract the performance of which was guaranteed;
(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.”

122 Mr Murr noted that the consideration of those principles in the present case requires determination of the extent to which they apply outside the particular context of husband and wife, the extent to which they apply outside the particular situation of a surety and the extent to which they apply in cases of fraud in the form of forgery.

Did ARC reasonably believe that the effect of the mortgage had been explained to Mr Mula?

123 Leaving aside those legal questions, Mr Murr noted that the decision of the majority in Garcia at [31] provides the authoritative statement of the relevant principles. There is no suggestion in the present case that ARC took any steps itself to explain the purport and effect of the mortgage to Mr Mula. The critical factual question is whether ARC reasonably believed that the purport and effect of the mortgage had been explained to Mr Mula by a competent, independent and disinterested stranger.

124 Mr Murr submitted that, in the present case, notwithstanding the errors that “leap out to the eye” when one looks at the transaction closely after the event, Mr Lyons was entitled to rely on the letter that purported to certify that legal advice had been given. With great respect to Mr Murr, I do not accept that submission.

125 There is some suggestion in the evidence that Mr Lyons ought to have entertained a doubt as to whether it was appropriate for Ms Raphael to give the “independent advice” at all. Mr Lyons had, on 21 December 2001, signed a mortgage given by Mr Grimsey to ARC to secure an earlier truck lease. The first page of that mortgage (annexed to the affidavit of Theresa Baw at p51) bears a signature attributed to Mr Lyons in the capacity of mortgagee’s solicitor and a signature attributed to Ms Raphael as witness to the signature of Mr Grimsey. A statutory declaration signed by Mr Grimsey in respect of that transaction also bears the signature of Ms Raphael.

126 If Mr Lyons thought that Ms Raphael had acted for Mr Grimsey in respect of that mortgage, he should have known that she may not be an appropriate person to give independent advice to Mr Mula. However, Mr Lyons was not cross-examined as to his apparent participation in that transaction and I do not think I should place any reliance on it.

127 In any event, I am satisfied that Mr Lyons could not reasonably have supposed that Mr Mula had received advice as to the legal effect of the mortgage from a competent, independent and disinterested stranger. What the letter from GJ Byles & Associates stated in respect of the mortgage was that independent legal advice had been given to Mr and Mrs Mula in respect of “morgage documentaion for the collatreral of same lease’s” (as written). The description of the advice given could hardly have inspired confidence that the author of the letter was competent. The appearance and content of the letter were extremely odd. It was, in my view, plain as a pikestaff that the letter called for inquiry as to its authenticity.

128 I am not satisfied that there was any discussion about the letter when Mr Lyons rang Ms Raphael on 1 March 2002. I accept that Mr Lyons may at that stage have been proceeding on an assumption that Ms Raphael was involved in the transaction on behalf of Mr Mula in some role other than as witness to the execution of the document. If, however, Mr Lyons had paused to give any consideration at all to the basis on which he made that assumption, he ought to have questioned it. His conversations with Ms Raphael may have confirmed the assumption in his mind, but it was not well founded.

129 Further, Mr Lyons had no reasonable basis for assuming that the provisions of Memorandum 2447323 had been explained to Mr Mula. A copy had been enclosed with the first set of documents sent to Mr Flynn, but they had been returned with no reference to Ms Raphael whatsoever. Mr Lyons had not sent a further copy of the memorandum with the second set of documents sent to Mr Flynn. If he thought Ms Raphael had obtained it herself, he should have questioned why it was not attached to the acknowledgement form when that form was returned.

130 Equally, there was no basis for Mr Lyons to assume that the effect of clause 27 had been explained, since the deed of cross collateralisation was also omitted from the second set of documents.

131 Mr Lyons did not send further copies of the statutory declarations of independent advice with the second set of documents. The only declarations of independent advice held by him were those returned after the first set of documents was sent to Mr Flynn. If Mr Lyons relied on those declarations at all, he could not reasonably have been satisfied that they referred to advice provided by Ms Raphael.

132 Mr Lyons did not go so far as to say that he was satisfied that proper advice had been given (see T99.7). I suspect that he did not turn his mind to the issue at all. If he had, the circumstances attending the execution of the mortgage ought to have caused him concern as to the competence of the solicitor he assumed was involved in the transaction on behalf of Mr Mula.

133 Accordingly, I am satisfied that, if the principle in Yerkey v Jones applies in the particular circumstances identified by Mr Murr, the factual basis for its application is established.

Does the principle in Yerkey v Jones apply to relationships other than that of husband and wife?

134 I am greatly indebted to both counsel for their assistance in relation to this issue. The following discussion draws extensively from the written material they provided to me.

135 As noted by Mr Murr, the House of Lords has rejected the doctrine of a special equity in favour of wives in relation to surety transactions, holding that the Yerkey principle is applicable to all co-habitees as well as to other relationships where the creditor was aware that the surety reposed trust and confidence in the principal debtor: Barclays Bank PLC v O’Brien [1994] 1 AC 180. However, when the High Court revisited those principles in Garcia, the decision of the majority left that issue unresolved: at [22] per Gaudron, McHugh, Gummow and Hayne JJ.

136 Kirby J (in dissent) rejected the special equity found by Dixon J in Yerkey v Jones as an unprincipled discriminatory category of special equity: at [66], page 427.4. His Honour favoured a reformulation of the principle expressed by Lord Brown-Wilkinson in O’Brien (at [73]).

137 In Kranz v NAB [2003] VSCA 92; [2003] ANZ Conv R 481, the Court of Appeal in Victoria expressed the view that the application of Garcia is not to be limited to “the most intimate of family relationships”: at [24] per Charles JA; Winneke P and Eames JA agreeing. Charles JA expressed the requirement in terms of awareness on the part of the lender of a relationship of trust and confidence. The Court of Appeal in Queensland has expressed the same view: Alierzai v ANZ [2004] QCA 6; [2004] Q Conv R 54,601: at [39] per McMurdo P; at [82] per Jerrard JA; but cf Wilson at [115].

138 The formulation of the requirement by reference to relationships of trust and confidence does no injury to the reasoning in Garcia. The principle in Garcia is premised on an assumption as to what lenders are “taken to have understood” about the ways in which wives and husbands are disposed to deal with each other. An equally well-founded assumption can be made as to a lender’s understanding of the likely conduct of, at least, elderly parents towards their adult children.

139 I accept, however, that since the issue has not been determined by the Court of Appeal in this state, it is not appropriate for me to determine it in this case.

Does the principle in Yerkey v Jones apply outside the particular situation of a surety?

140 Mr Mula was not a surety. The structure of the transaction was that each of the parties was a lessee under the three leases and a borrower under the mortgage. Mr Murr submitted that there is no legal basis for not giving effect to the legal formality “adopted” by the parties, but that proposition is complicated by the fact that Mr Mula did not in fact adopt the transaction in any form.

141 The discussion of Yerkey v Jones in Garcia focuses not so much on the formal position under the transaction documents as on the question whether the person claiming an equity in fact obtained any benefit from the transaction. That is the proposition expressed in the following statement at [31] which has been repeated on many occasions:

“ Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee.”

142 There is no suggestion in the present case that Mr Mula obtained any benefit from the transaction whatsoever. Mr Murr acknowledged that Mr Mula is a volunteer in that sense.

143 In Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) ACR 90 the Court of Appeal declined to express a view as to whether the principle in Yerkey v Jones extends to a transaction not framed as a guarantee.

144 In that case, the loan funds were applied partly to pay out an existing mortgage (to the benefit of Mrs Elkofairi). A substantial balance was applied to Mr Elkofairi’s business interests with no benefit to her. Mrs Elkofairi argued that she was in part a volunteer and that the principles in Yerkey v Jones applied to protect her in respect of that part of the transaction: at [43].

145 The Court held that, assuming Yerkey v Jones applied to cases that did not involve a guarantee, it would be necessary in such cases to establish that the creditor was on notice of the fact that the person seeking to impugn the transaction was a volunteer: at [47]. The Court found that the lender was not on notice that Mrs Elkofairi was “partially a volunteer”: at [49] per Beazley JA (Santow JA and Campbell AJA agreeing).

146 In a separate judgment in Elkofairi, Santow JA expressed the view that a transaction under which the benefit was intended to go to the husband, though framed in terms rendering both husband and wife jointly liable as co-principals, may in the eye of equity involve a transaction of guarantee or “constructive suretyship”: at [92]; Campbell AJA agreeing at [112].

147 However, in making those remarks, his Honour expressly disavowed any intention to anticipate “what the High Court might, or might not, do in extending the doctrine of Yerkey v Jones to cases outside the conventional guarantee by a wholly volunteer wife”. His Honour stated that it is not for an intermediate appellate court to do that.

148 Unconstrained by those remarks, I would have been inclined to hold that the doctrine in Yerkey v Jones, as explained in Garcia, applies to a transaction such as the present, which is plainly one in which the benefit was intended to go to Mr Grimsey and Ms Kelly, with Mr Mula standing, in substance, in the role of surety and obtaining no benefit from the transaction.

149 As to whether ARC was on notice that Mr Mula was a volunteer, there is material referred to in a chronology provided by ARC to the court that discloses that ARC should have been aware, from information provided to it by Mr Flynn, that Mr Mula would not receive any benefit from the transaction. I note, however, that ARC has not been heard on that issue.

Does Yerkey v Jones have any application in the case of a forgery?

150 The parties were not aware of any authority that expressly considers the applicability of the principle in Yerkey v Jones to a case of forgery. Its extension to such a case would entail an additional assumption as to what lenders are taken to understand about the ways in which wives and husbands or parents and children are disposed to deal with each other. I think it follows from the remarks made by Santow JA in Elkofairi that it is not appropriate for a single judge of this court to anticipate the determination of that question.

Mr Mula’s cross-claim against Ms Raphael

151 In light of the conclusion I have reached as to ARC’s claim for possession of the land, it is not necessary to consider Mr Mula’s cross-claim against Ms Raphael. As indicated by Mr Duncan (at T385.5), the only remaining issue between Mr Mula and Ms Raphael is the question of costs.

Mr Mula’s cross-claim against ARC

152 Mr Mula contends that an offer made by ARC to him by letter dated 7 August 2006 was accepted on his behalf by his solicitor, Mr Zarb. The letter in question was written by Mark Johnson, who had the conduct of the proceedings when the solicitor on the record, Mr Wakefield, was on sabbatical leave. The letter states:

“We confirm that our client has instructed us that it is prepared to resolve the possession proceedings taken by it against your clients on the basis that your clients pay the sum of $50,000 inclusive of costs in full and final settlement.
We note that the matter came before the Court on 21 July 2006 and was adjourned in order that you could obtain instructions in relation to our client’s settlement proposal. The matter comes before the Court again on 10 August 2006 and we have not heard from you.”

153 The letter sought a response as a matter of urgency.

154 Mr Zarb’s evidence was that he received the letter on 10 August 2008. He said that, after receiving instructions from Mr Mula that he could meet the payment of the sum set out in the offer, he called Mr Wakefield (who had just returned from his sabbatical leave) and said words to the effect:

“I have good news. Mr Mula can come up with $50,000”.

155 Mr Zarb recalled saying something like:

“He can pay $30,000 and $20,000 within one month”.

156 Mr Zarb said that it was at that time that Mr Wakefield said, “I’m sorry but the settlement offer is withdrawn”.

157 Mr Wakefield’s evidence was that, upon his return from sabbatical leave in early August 2006, he conducted a review his files. When he saw the offer put on behalf of ARC, he considered that it was “inadequate”.

158 Mr Wakefield said that, during the course of the day, a solicitor employed by him told him that Mr Zarb had called and indicated that he thought his client “might be able to come up with the money” but that he would need another thirty days. Mr Zarb did not recall that conversation.

159 Mr Wakefield said that he telephoned Mr Zarb and said, at the commencement of the conversation:

“I was calling in relation to the offer put on behalf of my client on 7 August 2006. You have indicated to Heather Collins that your client can only accept the offer if payment is to be made in thirty days. My client is not prepared to wait for thirty days. The offer is withdrawn”.

160 Mr Zarb was cross examined and remained steadfast in his recollection that he communicated the fact that his client could come up with $50,000 before Mr Wakefield withdrew the offer. Mr Wakefield was equally steadfast, under cross-examination, in his recollection that he made that statement at the outset of the conversation. I accept that each was giving his honest recollection of events.

161 It is not necessary, however, to resolve that dispute in the evidence. In my view, the words said by Mr Zarb, even if said at the outset of the conversation, did not amount to an acceptance of the offer. They indicated an ability to pay the amount sought, but sought the inclusion of an additional term that had not previously been discussed. It is unfortunate that instructions were sought to withdraw an offer that Mr Johnson had seen fit to recommend while he had the conduct of the proceedings. In any event, I am not satisfied that the offer was accepted before it was withdrawn so as to produce a binding settlement agreement. The second cross-claim must be dismissed.

ARC’s claim against Ms Raphael

162 In the second set of proceedings, ARC claims damages against Ms Raphael in negligence and under the Trade Practices Act. ARC submitted that the claim mirrors one of the claims of the mortgagee in Eade v Vogiazopoulos (No 2) [1999] 3 VR 889; (1994) 2 APLJ 178.

163 The basis of the claim in negligence in the present case is that, by signing the mortgage, Ms Raphael held out that she had witnessed the signature of Mr Mula on the mortgage when in fact she had done no such thing. Further, ARC contends that Ms Raphael repeated that representation in the course of her telephone conversation with Mr Lyons on 1 March 2002 and when she returned the second page of the mortgage, apparently properly witnessed, to Mr Lyons on about 5 March 2002.

164 For the reasons set out above in the discussion of the circumstances in which the mortgage was executed, I am satisfied that Ms Raphael did sign the first page of the mortgage some time before 28 February 2002. I am further satisfied that Ms Raphael signed the second page of the mortgage after it was sent to her by Mr Lyons on 1 March 2002 and that she returned it to him on about 5 March 2002.

165 There can be no doubt that the effect of her doing so was to represent to ARC that she had witnessed the signature of a man who was either personally known to her or identified by her as Charles Mula.

166 Ms Raphael does not contend that she had reasonable grounds upon which to make those representations. According to her version of events, she knew, by the conclusion of the meeting at Mr Grimsey’s house, that she did not have appropriate identification from the gentleman presenting himself as Mr Mula. She maintains that she drew a line through the document on that basis and took it with her when she left the meeting. For the reasons set out above, I do not accept that she took those steps.

167 In those circumstances, I am satisfied that the representations complained of by ARC were made by Ms Raphael and that those representations amounted to negligent misstatement: see Eade at [102].

168 Ms Raphael did not take issue with the proposition that she knew or ought to have known that the representations would be relied upon by ARC or that reliance on those representations was reasonable. She said very little in defence of the claim at all, other than to maintain that she did not in fact leave a copy of the mortgage signed by her in the possession of Mr Grimsey or sign the second page as requested by Mr Lyons.

169 If the only material relied on by Mr Lyons had been the supposed letter from GJ Byles & Associates, I would not have found that it was reasonable to rely on any representation contained in that document. However, that is not the basis of ARC’s claim. The claim is based, rather, on the signatures of Ms Raphael on the two pages of the registered mortgage. The attestation in respect of the signature on the first page states:

“I certify that the person(s) signing opposite, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this instrument in my presence.”

170 Further, it is clear that ARC relied on those representations. A letter dated 5 March 2002 from Mr Lyons to ARC confirmed his receipt of the executed documents. ARC responded by saying that settlement would not be effected until ARC had received the executed mortgage document (among other things) and Mr Lyons had confirmed in writing that he had all necessary documentation to hand and that settlement could proceed.

171 Mr Lyons responded to that letter by sending the documents sought and confirming “ARC may proceed to settlement”. I am satisfied that ARC completed the transaction in reliance on the negligent misstatement of Ms Raphael.

172 For the same reasons, I am satisfied that ARC is entitled to succeed on its alternative claim under s 52 of the Trade Practices Act.

Conclusion

173 In the proceedings commenced by ARC against Mr Mula, the amount secured by registered mortgage AA911031G is nil and it is appropriate to make a declaration to that effect. The proceedings should be dismissed with costs. I note that the first cross-claim brought by Mr Mula against Ms Raphael is not pressed in those circumstances but that Mr Mula seeks to be heard as to costs.

174 In respect of the second cross-claim brought by Mr Mula against ARC, I am not satisfied that the exchanges between Mr Zarb and the solicitors for ARC resulted in a binding agreement to settle the proceedings for $50,000 inclusive of costs. The second cross-claim should be dismissed. Since the evidence in respect of the cross-claim has disclosed that Mr Mula was, as at 10 August 2006, prepared to settle the proceedings on a basis more favourable to ARC than the result it has achieved in the proceedings, I will hear the parties as to the costs implications of that finding.

175 In respect of the proceedings brought by ARC against Ms Raphael, there should be judgment for ARC. Since the amount of ARC’s damages was contingent upon the outcome in the first set of proceedings, the damages were not quantified in the proceedings before me and remain to be assessed.

176 I will hear the parties as to the appropriate form of the orders to be made in each set of proceedings.

**********