Bank of South Australia Limited v Kenneth Edward Ferguson No. SCGRG 94/816 Judgment No. 5521 Number of Pages 37 Mortgages Real Property
[1996] SASC 5521
•29 March 1996
COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA MATHESON(1), BOLLEN(2) AND MILLHOUSE(3) JJ
CWDS
Mortgages - mortgages and charges generally - rights and liabilities of mortgagor and mortgagee - Unsuccessful action for possession by Mortgagee bank where fraud committed by bank employee parties not ad idem when contract made by reason of fraud by Mortgagee bank. Held: Trial Judge's findings of fact upheld - fraud committed by Mortgagee bank - practical justice approach bar to restitution. Appeal from judgment number 5174, Legoe AJ, 18 July 1995 (unreported, available on SCALE).
(per Matheson J) Real property - Action for possession under Part XVII Real Property Act by mortgagee bank - whether bank guilty of fraud - consideration of meaning of fraud in s691 of Act. Zafiropoulos v Recchi and Others (1978) 18 SASR 5; Australian Real Property Law, Bradbrook and Others 1991 pp151-152; Waimiha Sawmilling Co Ltd (In Liq) v Waione Timber Co Ltd (1926) AC 101; Latec Investments Limited and Others v Hotel Terrigal Pty Ltd (In Liq) and Others
(1965) 113 CLR 265; Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and The Registrar General (1986) 45 SASR 247; Adelaide Law Review Vol 11 pp 405 et seq; Arcadi v Whittem (1992)59 SASR 515, considered.
Contracts - general contractual principles - Finance facility agreement - whether contracting parties were ad idem - allegations of misrepresentations and misleading and deceptive conduct - claims for money had and received and for restitution not dealt with. Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259, distinguished. Vadasz v Pioneer Concrete (1995) 130 ALR 570; Krakowski and Anor v Eurolynx Properties Limited and Anor (1995) ATPR para 41-419 (p40,7O3) and on appeal 130 ALR 1; Potts v Miller (1940) 64 CLR 282; Anson's Law of Contract 26th Edn p265; Smith v Hughes (1871) LR 6 QB 597; Solle v Butcher (1950) 1 KB 671; Taylor and Ors v Johnson (1983)151 CLR 422; Bahr v Nicolay (No 2) (1988) 164 CLR 604, considered. Halifax Building Society v Thomas and Another (1995) 4 All ER 673 at 680,681; Berridge v Public Trustee (1914) 33 NZLR 865 at 872, applied.
HRNG ADELAIDE, 6-7 December 1995 #DATE 29:3:1996
Counsel for appellant: Mr J Wells QC with Mr J Cudmore
Solicitors for appellant: Ward and Partners
Counsel for respondent: Mr S Walsh QC with Mr R Sallis
Solicitors for respondent: Digiorgio and Co
ORDER
Appeal dismissed.
JUDGE1 MATHESON J The defendant to the action was born on 10 October 1947 and has been a farmer and grazier all his life. In 1974 he purchased a grazing property being the whole of the land comprised and described in Crown Lease Perpetual Register Book Volume 1150 Folio 12 situated at Robe Road, Penola ("the said land"). Immediately prior to the loans from the plaintiff, the subject of these proceedings, the defendant had a private account with the plaintiff at Penola, but conducted his business banking activities with the Naracoorte branch of the Commonwealth Trading Bank, that bank not having a branch at Penola.
2. In 1990 the defendant heard about a business called SAFRIES which was establishing a factory in the Penola district to produce potato chips for restaurants, hotels and other customers, and which were to be made from locally grown potatoes. In consequence he had discussions with the former manager of the plaintiff bank at Penola, namely, Mr Les McMellon, who was subsequently dismissed, and then with the relieving manager, Mr G R Towner, who arrived in Penola late in July 1990, about borrowing money to grow potatoes on the said land.
3. On 5 September 1990 the defendant executed a mortgage in favour of the plaintiff (exhibit P6) in consideration of -
"(1) The loans advances or banking accommodation provided or
to be provided by the Bank to or at the request of the
mortgagor, and
(2) The Bank forbearing at the mortgagor's request to press
for the immediate payment of such of the moneys herein
defined as the moneys hereby secured as are owing to the
Bank ..."
4. The mortgage was executed in anticipation of loans by the plaintiff to the defendant. I set out hereunder the letter actually offering the loans written by Mr Towner to the defendant dated 10 September 1990 (Exhibit P9). It contains at the foot thereof the defendant's acceptance which seems to have been signed on or about 11 September 1990:
"10th September 1990
Mr K.E. Ferguson
c/- P.O. Box 264
PENOLA SA 5277
Dear Ken
Referring to our recent interview, I am pleased to advise
approval of the following loans:-
Amounts:
FOD (Fluctuating Overdraft) $ 25,000
FT/FI (Fixed Term/Fixed Interest) $250,000
C/Bill (Commercial Bill) $125,000
Total Facilities $400,000
Purpose:
The funds are required for the following:-
FOD - A working margin on your business cheque account.
FT/FI - To repay CTB Working O/D $ 29,000
To repay CTB Term Loans $ 86,000
$115,000
Purchase Potato Seed 35,000
Fertiliser, Chemicals and Labour for
potato production 90,000
Miscellaneous Expenses 10,000
$250,000
C/Bill - Deposit on pivot irrigator $ 7,000
Pivot irrigator balance $ 63,000
Bore $ 5,000
Irrigator pump and motor $ 20,000
1/2 share of plant purchase $ 30,000
$125,000
Repayment:
FOD - Approved as a fluctuating facility and according to
cash flow, should come into credit regularly
FT/FI - Interest to be paid annually in arrears. (Pre
-payment of annual interest to be made in June of each
year).
Principal reductions to be made annually as funds become
available.
C/Bill - To be drawn-down for 180 days then rolled over
(monthly) until repaid in May.
Interest:
FOD - Interest will be charged on the fluctuating overdraft
at Indicator rate of 17.5% plus margin of 1.5% - actual rate
19.0%.
Indicator rate is subject to fluctuation in line with
general market movements.
FT/FI - Interest rate will be set at date of draw-down and
will be fixed for 12 months. A margin of 1.5% will be added
to the interest rate.
C/Bill - Interest rate will be set at date of drawdown, is
payable in arrears and will be fixed for 180 days. A margin
(acceptance fee) will be debited separately.
Review:
All facilities are subject to periodical review with an
annual review being due on or before September 1991. Please
ensure that your 1991 Financial Statements have been
prepared and are available to us to assist with the review.
Fees:
An application fee of $2,400 is applicable for the new
advances. A documentary fee of $800 will also be due.
Normal government charges of stamp duty $1,390 and
registration of $44 will apply.
Security:
Security for the advances will be by 1st Registered Mortgage
over your farm property described as Sec s 113 and 115
Hundred of Short (Crown Lease 1150/12).
Please ensure the property is insured for full market value
during the currency of the loans with a copy (noting the
Bank as an interested party) supplied to this Office for our
files.
Surplus funds not required at draw-down are to be placed in
a Primary Producer Account with a Pledge held over the
account by the Bank as additional security.
Please indicate your acceptance of the facilities under the
terms advised by signing the enclosed duplicate copy of this
letter and returning it to this Office.
I trust the above arrangements will prove to be
satisfactory, and wish you every success in the new venture.
Yours faithfully
(Signed)
G.R. Towner
RELIEVING MANAGER.
I accept the offer of facilities totalling $400,000 on the
terms and conditions advised.
(Signed)
K.E. Ferguson"
5. It is not disputed that the plaintiff made the advances to the defendant as detailed in the documents tendered at trial. The advances enabled the defendant to repay his debt to the Commonwealth Trading Bank and to purchase the equipment and seed he required for growing potatoes. His Honour found that he had a profitable crop for the year ended 30 June 1991, and that he planted and harvested two further crops. His Honour said that there was no evidence that the defendant ever made a loss from his potato growing activities.
6. On 30 March 1994 the plaintiff served upon the defendant a Notice of Demand for the payment to it of the sum of $509,169.79 being the debit balances outstanding, accrued debit interest, accrued bank fees and accrued government charges on three overdraft accounts, together with interest on the said sum until payment. On 13 April 1994, the plaintiff served upon the defendant a Notice of Default, which included, inter alia, notice of the plaintiff's intention to exercise its power of sale over the said land and all other remedies, powers and authorities conferred upon the plaintiff by virtue of the said Memorandum of Mortgage and the Real Property Act 1886 in the event of default of compliance by the defendant. No payments were made by the defendant pursuant to the said Notices, and the plaintiff commenced these proceedings pursuant to Part XVII of the Real Property Act seeking an order for delivery of possession of the said land to the plaintiff.
7. The defendant filed a defence and counterclaim which was substantially amended after discovery, and substantially amended again during the hearing before the learned trial Judge. In summary, the defendant pleaded that he executed the mortgage "after relying upon representations from the plaintiff that were misleading and deceptive and/or likely to mislead or deceive". Further he denied that he was in arrears and alleged that the plaintiff "froze" his account and/or accounts at a time when he was operating within the terms of his facility, and he further alleged that the plaintiff "froze" his account and/or accounts capriciously. He also sought to rely on the provisions of s69(1) of the Real Property Act and alleged that the plaintiff was not entitled to the orders it sought as the mortgage was void. He gave particulars of the fraud alleged and I set them out later in these reasons.
8. In his counterclaim, the defendant sought, inter alia, declarations that the mortgage was void, and claimed damages for breaches of ss54, 56 and 58 of the Fair Trading Act, for innocent and negligent misrepresentation, for innocent and negligent misstatement, for breach of contract, for breach of fiduciary duty and for fraud, sought an extension of time so far as necessary for some of these claims pursuant to s48 of the Limitation of Actions Act, sought orders "for account pursuant to Rule 71.03 of the Supreme Court Rules 1987 as to damages and interest", and costs.
9. The plaintiff counterclaimed to the Further Amended Counterclaim of the defendant. It sought to rely on the finance facility agreement and claimed the sum of $509,169.79 together with interest, either as a debt due by the defendant, or as damages for breaching the said agreement, or as money had and received to the use of the plaintiff for which the defendant is liable to make restitution thereof to the plaintiff. Its counterclaim was summarised thus:
"9 And the plaintiff counterclaims:
9.1 Repayment of $509,169.79;
9.2 Interest on that amount;
9.3 Damages for breach of the finance facility agreement;
9.4 Restitution of moneys had and received to the use of the
plaintiff;
9.5 Interest;
9.6 Such further or other orders or relief as This
Honourable Court deems fit."
10. That amounts to the briefest summary of the various claims and counter claims. After a lengthy trial, the learned trial Judge made the following orders:
"1. That the plaintiff's claim for possession of the land is
dismissed.
2. That the plaintiff's claims in its counter-claim to the
defendant's amended counter-claim are dismissed.
3. That the defendant's claims on his amended counter-claim
are dismissed.
4. That the registration of the mortgage deed does not
create an indefeasible title to the statutory charge in
favour of the plaintiff due to fraud.
5. That the plaintiff shall have the costs of and incidental
to the defendant's application to amend during the trial
which I fix at three full days of the total hearing.
6. That the Defendant have three-quarters of the balance of
the costs of the hearing.
7. That there be one set of costs and the plaintiff (has) a
set-off of its costs against the defendant's costs herein."
11. The plaintiff has appealed and the defendant has cross appealed.
12. The result of his Honour's decision is that the plaintiff does not have the protection of the said mortgage and can not recover the $400,000.00 advanced or any outstanding interest. The defendant has the permanent benefit of the $400,000.00 as if it were a gift, despite proving no loss caused by the plaintiff.
13. It is convenient here to set out the findings of fact made by his Honour. He said:
"I find on the evidence or by reasonable inference to be
drawn from the evidence that:
1. The circumstances of the defendant's background and his
farming activities and experience are as I have set them out
at the beginning of these reasons.
2. Mr McMellon did encourage the defendant to consider
growing potatoes on his land in the light of the new SAFRIES
factory at Penola.
3. The defendant did make some enquiries about potato
growing in the district, including some discussions with Mr
Allen and some enquiries to the Department of Agriculture.
4. Mr McMellon did invite the defendant into his office and
made representations about SAFRIES and the prospects for
local potato growers as given in evidence by the defendant.
5. Mr McMellon did give the defendant bank forms (cash flow
documents) to fill out.
6. The defendant prepared his own 'potato budget' (exhibit
D1) and filled out the forms given to him by Mr McMellon.
He was never given a statement of position document to fill
out (exhibit D3).
7. The defendant, at Mr McMellon's request or suggestion,
handed over the documents that he had prepared to Mr
McMellon at the Bank on an occasion when he was there doing
some banking, probably some time in July 1990. The
defendant was in a hurry. He did not have any discussion
with Mr McMellon about these documents, but simply left them
with Mr McMellon. I am satisfied that, at that stage, the
defendant had no definite plans to grow potatoes on his
land. Clearly he was considering the possibility and had
made calculations as to the possible expenditure and income
involved in such a venture. Clearly from exhibit D1 he had
in mind that if he were to enter upon such a venture, he
would plant some 70 acres down to potatoes and would have to
install a pivot irrigator which could be obtained from Upton
Engineering and would incur various other expenses about
which he had little information.
8. Mr McMellon prepared a statement of position document in
his own handwriting, and forged the defendant's signature on
that document (exhibit D3). He probably placed that on the
file and then prepared, without further discussion with Mr
Ferguson, the application and narrative and cash flow
documents, which were typed, being exhibits P27A, P27B and
P27C. He then submitted those documents to the Regional
Office for consideration of approving the loan.
9. The statement of position was an important document in
the plaintiff Bank's procedures for loan applications as
appears from the evidence of Mr Towner. I find that it was
'operative' (to use counsel's expression) in the case of the
defendant's application, prepared by Mr McMellon and based
in important respects on the defendant's documents and
equally on the details which Mr McMellon had himself
incorporated into the documents, particularly the statement
of position document (exhibit D3).
10. Mr McMellon left the Bank some time in late July and
never returned. He was dismissed by the Bank. It is
unclear on the evidence why he was dismissed, except on the
evidence of Mr Towner and Mr Hutchinson, that he was
dismissed for "irregular practices". The fact that an
extensive audit was conducted in August, September and
thereafter in 1990, means that it is apparent that the Bank
must have known why Mr McMellon was dismissed. However, the
evidence has not clearly disclosed the reason for his
dismissal.
11. The signature of the defendant, which Mr McMellon forged
on D3, defrauded the defendant in that it led to the putting
forward and placing on the Bank file for use in connection
with the loan application prepared by Mr McMellon, an asset
and liability situation which was neither agreed to nor
approved nor supplied by the defendant, a potential customer
of the Bank. I find that the forgery of the defendant's
signature on this document was patently dishonest. This was
a dishonest act by a responsible officer, namely the Branch
Manager of the plaintiff Bank at Penola, in the course of
his duties as a bank officer handling the affairs of a Bank
customer, the defendant, who had had a small account at the
Bank for some time.
12. Mr Towner arrived at the Bank early in August. He
received a message from the Regional Office that the
defendant's application for a loan required further details
(exhibit P28). Mr Towner studied the file and the documents
(exhibits P27A, P27B and P27C) which had been returned from
the Regional Office. He telephoned the defendant, who came
into the Bank and had an interview with Mr Towner about the
application.
13. At the interview Mr Towner had the documents from the
file in the Bank (including D3), as well as the documents
returned from the Regional Office in front of him on the
desk. The defendant sat on the other side of the desk. The
defendant was not shown, nor did he identify, any of the
documents on the desk. The defendant knew from the
questions that Mr Towner asked him that Mr Towner wanted
some further details about the cash flow statements. Mr
Towner made some notes on some of the documents as appear in
pencil on the documents but the defendant was not informed
of those details. The defendant never read any document as
altered by Mr Towner. He was not aware that his forged
signature was on one of the documents in front of Mr Towner.
At the interview, something must have been said by Mr Towner
about water rights on the defendant's property. I have
accepted the defendant's account that the fact that the
defendant's ability to draw water for potatoes on his land
would add to the value of his land was mentioned. The
defendant pointed out however that he would only plant about
70 acres of his land to potatoes. The defendant was amazed
at the suggestion that the ability to draw water would
result in any substantial increase to the value of his land.
14. The defendant received a phone call later from Mr
Towner, who told him that the loan had been approved.
I have rejected Mr Towner's version of that telephone call.
Consequently, I make a finding that the valuation prepared
by Mr Towner and dated 31st August 1990 (being some 6 days
before the mortgage was signed by the defendant) was
prepared on advice or information which did not come from
the defendant. This is exhibit D5.
15. The defendant signed the mortgage (exhibit P6) without
any knowledge of:
(a) his forged signature on D3,
(b) the details of any alterations made by Mr Towner to Mr
McMellon's documents, and
(c) in the belief that he was granting the mortgage as
security for the facility to be made by the Bank in relation
to assets to the value of between $520,000 and $577,000 and
not some $944,000 as stated in Mr Towner's valuation,
exhibit D5.
16. The defendant signed and accepted the facility offer
dated 10th September 1990 on the same understanding as he
had previously signed the mortgage on about the 5th
September 1990.
17. The Bank made the advances to the defendant as detailed
in the documents tendered as exhibits in this case.
18. The further advances as detailed in the documents were
made over the period up to the date of the notice of
default. The plaintiff issued notices of default and demand
in accordance with the statutory requirements. The
defendant purchased the equipment and seed required for his
potato growing activities with the moneys advanced. He had
a profitable crop for the first season, that is the 1990/91
season.
He planted and harvested two further crops of potatoes.
There is no evidence that the defendant ever made a loss
from his potato growing activities.
He had no sheep of his own by September 1990. There were
some sheep on his land on agistment at that time. His
cattle were waiting to be sold. Whether the defendant made
a profit or loss from his cattle is not clear on the
evidence. In any event, I can't see how that is relevant to
any of the issues in the case. Certainly he owed Elders a
large amount of money for the purchase of cattle which he
was still trading in September 1990 and thereafter. There
are no details of the Elders account.
(There was no finding numbered 19.)
20. The defendant first learnt of the fact that his
signature had been forged on document exhibit D3, and of the
alterations made to the cash flow documents, and of the
valuation made by Mr Towner on the 31st August 1990 of his
land in exhibit D5, and of the later valuation dated 10th
July 1992 where the acreage of his land in exhibit D6 is
shown inaccurately as 876.75 hectares, when the defendant
had inspection of documents in about October of 1994.
21. It was after discovery of these facts referred to in the
previous paragraph that the defendant instructed his
solicitors to issue a counter-claim and allege the matters
which he had discovered on inspection of documents."
14. Ground 15 of the appellant's Grounds of Appeal states:
"15 The Learned Trial Judge erred in the findings as to the
credit of the evidence of the defendant;
15.1 which evidence was glaringly improbable;
15.2 by misusing the evidence in explaining the
inconsistencies, and contradiction of, the evidence of the
defendant at trial and his previous evidence by affidavit;
15.3 by forming an unduly favourable impression of the
defendant which coloured conclusions on the facts in dispute
and led to the placing of no weight on the previous
inconsistent affidavit and or facts inconsistent with the
evidence of the defendant and by refusing to admit into
evidence the Affidavit of the defendant sworn on 4th August
1994."
15. The affidavit in question was an affidavit sworn by the respondent on 4 August 1994 and prepared by his solicitors, DiGiorgio and Co. The learned trial Judge did not admit it, or any part of it, as an exhibit, but it was included in the appeal books. Its inclusion may have resulted from a misunderstanding, but I do not think it matters because in view of the argument before us, the members of the Full Court had necessarily to read it.
16. In the first half of his reasons, and before making his findings of fact, this passage appears in his Honour's judgment:
"When asked some further questions on his earlier affidavit
it was suggested that in paragraph 14 of that affidavit the
defendant had stated that he as suggested had prepared
required figures and cashflows for the plaintiff and that
those were Exhibit D2A and D2B. The defendant answered:-
'A. This evidence I gave here, at the time I swore the oath,
that's what I was led to believe, and it wasn't until I
instructed my solicitor to get discovery of the file, seek
discovery of the file, that issues like that were clarified.
They became clear in my mind ...
Q. Are the cashflows and required figures you are referring
to there, the documents D2A and D2B?
A. Yes.
Q. Might you also be referring to the potato budget which is
D1, that's the handwritten potato budget.
A. Yes.'
Later a statement from his affidavit to this effect, "having
said this to me Mr Towner then turned his attention to the
draft cashflows I had provided to the bank and reworked
them" were put to the defendant. The defendant once again
denied that there was any discussion about the cashflows or
that Mr Towner had turned his attention to the draft
cashflows in his presence. When pressed further as to
whether the truth was what he said in his affidavit or what
he is saying on oath in the witness box the defendant
answered:
'A. I'm not saying the story has changed. I'm saying the
picture is a lot clearer ... I'm saying it has changed, yes.
I've found out a lot of information from those bank files.'
When asked whether Mr Towner had transferred a figure of
$231,000 from the 1992 cashflow figures into the 1991 year
the defendant said that that definitely did not happen
during the discussion that he had with Mr Towner."
17. Later in his reasons, his Honour said:
"I was impressed by Mr Ferguson in the witness box. He
displayed real frankness and considerable care in answering
questions over the long period of time he was there. I
consider that his answers to questions, including his
answers to questions about statements that he had made in an
affidavit that he swore in August of 1994, that was before
he saw the forged signature on a document and the other
alterations to valuation in the inspected documents, were
convincing and frank. There was no indication of Mr
Ferguson at any stage trying to be evasive or to make his
answers suit his case. On the contrary, much of his
evidence was frank and consistent. When a number of
suggestions were made to him in cross-examination, which I
have outlined in some detail earlier in these reasons, I
found Mr Ferguson's denials to be direct, precise and
convincing. I accept Mr Ferguson as a witness of truth. I
propose to make findings based largely on the evidence of Mr
Ferguson."
18. Next, it is necessary to quote again a portion of his Honour's Finding numbered 13:
"13. At the interview Mr Towner had the documents from the
file in the Bank (including D3), as well as the documents
returned from the Regional Office in front of him on the
desk. The defendant sat on the other side of the desk. The
defendant was not shown, nor did he identify, any of the
documents on the desk. The defendant knew from the
questions that Mr Towner asked him that Mr Towner wanted
some further details about the cash flow statements. Mr
Towner made some notes on some of the documents as appear in
pencil on the documents but the defendant was not informed
of those details ..."
19. The respondent was cross examined about what he said at three places in the said affidavit by Mr Cudmore, counsel then appearing for the plaintiff. At the outset, the respondent said he was absolutely certain that at no time either at an interview with McMellon or at an interview with Towner did he discuss any cash flow budgets. He said that he could not be mistaken about that. He admitted that the said affidavit was prepared by Mr DiGiorgio on instructions from him and he admitted his execution thereof. As I follow the cross examination, he admitted that he said the following parts of par14:
"14 As requested I prepared the required figures and cash
flows for the plaintiff. At a subsequent interview with
Mr Towner ... he went over the cash flows and indicated to
me that my cash flows were wrong and did not represent what
would be the true financial situation ... Mr Towner then
turned his attention to the draft cash flows I had provided
to the bank and re-worked them ..." (See Appeal Book pp425-
430.)
20. The respondent under cross examination again denied that he had any discussion with Mr Towner about budgets or cash flows, and in explanation he said it was only on discovery that the picture became a lot clearer to him. He said that what he swore to be true on 4 August was not true. He insisted there was no discussion about cash flows. He denied that there was any discussion about the Statement of Position or that he confirmed the figures in the Statement of Position.
21. In the course of other cross examination by Mr Cudmore, the respondent admitted what is contained in pars 8 and 9, and in the first sentence of par11 of the said affidavit, which I now quote:
"8. In early 1990 I became aware that Safries Ltd were to
build a large potato processing plant in the Penola area.
Accordingly I made some general enquiries from colleagues
and a field officer employed by Safries Ltd about planting a
small section of my property down to potatoes. My enquiries
at this stage were directed at ascertaining whether my
property was suitable for potato production and whether I
could obtain a contract with Safries Ltd in the event that a
proportion of my land was suitable for potato growing.
9. Some time during the first half of 1990 I had occasion to
speak casually to the said Les (McMellon). I asked him
whether the plaintiff had money for lending to the rural
industry. I indicated to him that I was considering
planting out a small area of my property to potato
production ...
11. I subsequently made an appointment to meet with Les
(McMellon) at the plaintiff's branch in Penola in about June
or July 1990." (see Appeal Book pp367-372 and 464-465.)
22. The learned trial Judge rejected Mr Cudmore's application to tender parts of the affidavit. The transcript indicates that Mr Cudmore did not actually specify which parts. In my opinion, his Honour's ruling was probably erroneous, (see Evidence Acts29), but I do not think it matters, because the parts that the respondent admitted, and which I have just quoted, were sufficient for the purpose of discrediting the evidence of the respondent at least on those topics covered in the answers.
23. It is obvious from what I have said, and what I have quoted, that there is a problem with his Honour's reasoning on this aspect. On the one hand, his Honour finds that Towner was asking Ferguson for further details about his cash flow statements and that Towner made pencil ticks and notes on some of the relevant documents, notwithstanding the respondent's denials that he had any discussion about cash flow budgets. On the other hand, his Honour accepts the respondent's denials "to be direct, precise and convincing."
24. It is convenient here also to observe that what Ferguson said in pars 8, 9 and 11 of his affidavit does not sit easily with what his Honour regarded, although he did not use the word, as the importunity of McMellon. In my opinion, the evidence indicates that the respondent was clearly very attracted to the growing of potatoes. Even though the potato seed was ordered by Allen and delivered to a cold store at Bacchus Marsh, the respondent must at least have known what was happening in that regard, and was certainly receiving invoices therefor from and after June, even though he did not pay for the seed until 12 September. He must also have known that Allen had ordered the pivot irrigator both on his own behalf and on behalf of the respondent and the respondent in fact paid the 10% deposit thereon on 17 August. Whatever else might be said, the respondent did not need much encouragement.
25. It is necessary to say something about the documentation. His Honour referred to some of it in his findings, supra.
26. At a meeting at the appellant's branch at Penola on a date that the evidence does not enable me to fix, but it must have been prior to 25 July 1990, McMellon gave the respondent some of the bank's blank forms headed "Cash Flow Budget - Agricultural". The respondent subsequently went through the exercise of filling out two of these forms, one became exhibit D2A and purported to be for the year ending 30 June 1991, and contained no reference to potatoes and the other became exhibit D2B and purported to be for the year ending 30 June 1992. It included as one of the anticipated receipts the sum of $231,000 for potatoes. He also prepared what he called "a rough document of what the costing would be to pursue the growing of potatoes". That became exhibit D1. These three documents were later given to McMellon.
27. Subsequently, McMellon filled in a bank form which was headed "Statement of Position (Rural)" and which became exhibit D3. All the information contained therein can be corroborated by and is directly referable to documents supplied to the appellant, with the exception of the plant and equipment etc. on the back, but the respondent agrees he owned all of it and at the value shown, although he did say that the value given for a truck was "a little bit high". It was this document upon which McMellon forged the respondent's signature at the foot thereof. I use the word "forged", but in my opinion it is clear that there is no basis for saying that McMellon had any intent to defraud the respondent which is necessary for the crime of forgery. It is dated "7/90".
28. McMellon subsequently typed or had typed a loan application on a bank form headed "Application for Advance/Review", which became exhibit P27A. It was dated 24 July 1990 and was forwarded to the appellant's regional office with a typewritten document called "Application Narrative" and signed by McMellon, in which he states that the respondent's land has a fair market value of $550,000 and recommends what the narrative calls "accommodation" in the sum of $435,000. It was accompanied by a typewritten Cash Flow Budget for the year ended 30 June 1991, which became exhibit P27C, which McMellon typed or had typed, and which was based on the earlier cash flow budgets exhibits D2A and D2B. Those documents were received by Regional Office on 31 July, and by an internal memorandum dated 1 August, which became exhibit P28, and which was received at Penola on 2 August 1990, the "Regional Lending Officer, Southern Country", requested further information.
29. By then Towner was the Relieving Manager, and it is clear that Towner had a discussion with the respondent some time between 2 and 21 August about the application. It is clear that Towner had in front of him exhibit D3, and that the pencil ticks and annotations thereon were made by Towner.
30. The next document chronologically is exhibit D4 which is a typed Statement of Position dated 21 August 1990. Towner typed it or had it typed as a result of the work that he did with Ferguson on D3. It was not signed. On 21 August 1990 Towner filled in another loan application (exhibit P29A) and another Application Narrative (exhibit P29B). The latter has a number of markings, notes, strikings out etc. The evidence was that they were not put on at the time the document went to the Regional Office for consideration, but during subsequent reviews. Towner also sent on to the Regional Office typewritten Cash Flow Budgets which became exhibit D8 and D9 for the years ended 30 June 1991 and 30 June 1992 respectively. These documents were based on figures and documents provided by the respondent to the appellant, but to which Towner added the effect of the loans that were being proposed.
31. His Honour formulated his finding of fraud against the appellant in the following passage:
"I am satisfied on the facts of this case and make a finding
that the actions of the plaintiff's Bank Manager had the
effect of initial fraud in the first application made by Mr
McMellon with the subsequent actions resulting in the
defendant being defrauded by his execution of the Memorandum
of Mortgage and acceptance (of) the facility offer on a
false premise. As I said earlier, the forgery of the
defendant's signature on the statement of position was
operative and led, after the various alterations to the
original documents and the valuation on the 31st August, to
the plaintiff Bank, accepting the application to grant the
defendant a loan on the security of a mortgage to be granted
by him over his land. It was argued by counsel for the
plaintiff that the forgery of the defendant's signature did
not operate to (e)ffect the acceptance of the defendant's
application for a loan, which was, in any event, a
repetition of the facts which came from the defendant. But
in my opinion, the withholding of very relevant material
facts from the defendant which appear to have been
deliberately withheld by McMellon when he forged the
defendant's signature and were later withheld when the
subsequent alterations and valuations were done, constituted
fraud within section 69 I of the Real Property Act ..."
32. At this stage, I merely observe that his Honour did not identify "the false premise" or "the very relevant facts" which were withheld.
33. Section 69 of the Real Property Act, so far as is relevant, states:
"69. The title of every registered proprietor of land shall,
subject to such encumbrances, liens, estates, or interests
as may be notified on the original certificate of such land,
be absolute and indefeasible, subject only to the following
qualifications:-
I. In the case of fraud, in which case any person defrauded
shall have all rights and remedies that he would have had if
the land were not under the provisions of this Act ..."
34. Counsel for the appellant pointed out that s69.I does not by its terms or by its operation confer any rights or render any instrument or estate registered pursuant to the Real Property Act "void" (compare the language of s69.II). Section 69 merely reserves the general law remedies "in the case of fraud". It does not confer a statutory right.
35. It has been held that the mortgagee under a registered mortgage of land under the Real Property Act has an interest in the land subject to the mortgage, and is a "registered proprietor" within the meaning of s69 of that Act. See Zafiropoulos v Recchi and Others (1978) 18 SASR 5.
36. There is a useful discussion on the meaning of fraud in Bradbrook and Others "Australian Real Property Law" 1991. At pp151-152 the learned authors say:
"How then is 'fraud' defined for the purpose of the Torrens
legislation? The statutes do not contain positive
definitions of fraud and to a large degree the
interpretation of the term fraud has been left to the
courts. The statutes provide some guidance in that they
provide that knowledge of an unregistered interest or trust
is not of itself to be imputed as fraud. In itself such a
provision suggests that a tight, narrow definition of fraud
is intended and that concepts of constructive or equitable
fraud are to be inapplicable. The courts have taken this
view and excluded from the definition of fraud, any conduct
which might be considered equitable fraud. In Wicks v.
Bennet (1921) 30 CLR 80 Knox C.J. and Rich J. stated that
fraud as interpreted under the Torrens system was 'something
more than mere disregard of rights of which the person
sought to be affected had notice. It imports something in
the nature of 'personal dishonesty' or 'moral turpitude'
(1921) 30 CLR 80 at 91. In Assets Co. Ltd v. Mere Roihi the
Privy Council stated that: '(Fraud means) actual fraud, that
is, dishonesty of some sort, not what is called constructive
or equitable fraud. (1905) AC 176 at 210.
Although it is simple to state that on the one hand, fraud
connotes dishonesty, and that, on the other hand, knowledge
of a prior unregistered interest is not of itself fraud, the
dividing line is much more difficult to draw in individual
cases. In Loke Yew v. Port Swettenham Rubber Co. Ltd (1913)
AC 491 the rubber company purchased a large area of land
from the registered proprietor, Eusope. Although not
registered as such, Loke Yew was the owner of part of this
land and Eusope only agreed to sell the whole of the land to
the rubber company when he was given an assurance by the
company that it would not disturb Loke Yew's possession.
Upon becoming the registered proprietor, the rubber company
asserted that it was entitled to the whole of the land and
Loke Yew sought relief. On the evidence,the court was
satisfied that the rubber company had been fraudulent and it
ordered the rubber company to execute a transfer fo the land
in dispute. The court took the view that the rubber company
had more than mere knowledge of Loke Yew's prior
unregistered interest. The statement by Glass (the
representative of the company), that the rights of Loke Yew
would be protected, had been falsely and fraudulently made
to induce Eusope to sign the transfer. In effect, the court
was satisfied that there had been a deliberate plan to
deprive Loke Yew of his land."
37. Commenting on Loke Yew's case in Bahr v Nicolay (No 2) (1988) 164 CLR
604, Mason CJ and Dawson J in a joint judgment said at p6:
"... Lord Moulton (at 504) instanced the case of an agent
who has purchased land on behalf of his principal but has
taken the conveyance in his own name, and in virtue thereof
claims to be the owner of the land, though he is in law a
trustee for his principal. It seems that his Lordship did
not intend to make this illustration as an example of the
statutory concept of fraud. His Lordship had earlier dealt
with the issue of fraud and indefeasibility and was, when
instancing the acquisition of title by an agent, propounding
another answer based on the power and duty of the court to
rectify the register ... Despite this, the example given by
Lord Moulton is in our view an instance of fraud within the
meaning of s68."
38. In Waimiha Sawmilling Co Ltd (In Liq) v Waione Timber Co Ltd (1926) AC
101 it was held that it was not fraud to register an instrument expeditiously in the knowledge that such registration would defeat the claim of a person who is attempting to establish that claim in litigation. In delivering the opinion of the Board, Lord Buckmaster said at pp106-107:
"If the designed object of a transfer be to cheat a man of a
known existing right, that is fraudulent, and so also fraud
may be established by a deliberate and dishonest trick
causing an interest not to be registered and thus
fraudulently keeping the register clear. It is not,
however, necessary or wise to give abstract illustrations of
what may constitute fraud in hypothetical conditions, for
each case must depend upon its own circumstances. The act
must be dishonest, and dishonesty must not be assumed solely
by reason of knowledge of an unregistered interest."
39. I also refer to Latec Investments Limited and Others v Hotel Terrigal Pty Ltd (In Liq) and Others (1965) 113 CLR 265. In that case a mortgagee of land under the Real Property Act (NSW) in purported exercise of its power of sale sold the land to its wholly owned subsidiary at a price slightly higher than the highest bid at an auction sale at which the reserve was substantially in excess of that bid. Subsequently the purchaser gave to a trustee for debenture holders a security by way of charge over, inter alia, the land in question. Five years after the purported sale the mortgagor sought to set aside the contract and transfer of the land to the purchaser upon the ground that the power of sale had been fraudulently exercised. At pp272-274, Kitto J said:
"The amount owing under the mortgage at the time of the sale
was of the order of Pounds 86,000. It may be that by no means
could a purchaser have been found to buy the property at so
high a price, but the course that was followed in respect of
the auction was not calculated to test the question. Vis-a-vis
the mortgagor, the mortgagee was not bound to use its
best endeavour to obtain the highest price procurable; but
what it in fact did points pretty clearly to the conclusion
that its intention was not really to sell the property but
was to ascertain what kind of figure, being put into a
contract of sale to the subsidiary, would look like a
genuine sale price. As between the mortgagee and the
subsidiary it did not matter much what the figure was; but
there was an obvious advantage, in case of a possible
impeachment of the sale, in selecting a price a little
higher than the best bid obtained at an auction. The only
danger in holding the auction was that a bid might be
obtained which exceeded the amount owing under the mortgage.
If that should happen, there could be no excuse for not
accepting it, and the hotel would have to pass into a
stranger's hands; but, by fixing a short date for the
auction and choosing an unpropitious day of the week, as
much was done to obviate this unfortunate result as was
possible consistently with employing an auctioneer who was
no party to the scheme and creating an appearance of a
genuine attempt to sell at a proper price.
The onus clearly lay upon the purchaser, being a subsidiary
of the mortgagee, to satisfy the court that the power of
sale was exercised in good faith, and that reasonable steps
were taken to obtain a fair price: Farrar v. Farrars Ltd.
(1888) 40 ChD 395, at p 398. That onus it signally failed
to discharge. The learned trial judge concluded that there
was a lack of that kind of good faith which in the eyes of a
court of equity is essential to the validity of a
mortgagee's sale on the principles discussed in such cases
as Kennedy v. De Trafford (1897) AC 180; Barns v.
Queensland National Bank Ltd. (1906) 3 CLR 925 and
Pendlebury v. Colonial Mutual Life Assurance Society Ltd.
(1912) 13 CLR 676; and he also concluded that the
collaboration of the mortgagee and the purchaser through
their common directors amounted to fraud in the sense of
ss.42 and 43 of the Real Property Act, 1900 (N.S.W.), so
that the mortgagor's claim to have the sale set aside is not
defeated by the indefeasibility which those sections accord
to a registered title. I have already said enough to show
that in the first of these conclusions I agree. As to the
second, we were invited to hold that nothing is fraud in the
sense which is relevant under the Real Property Act unless
it includes a fraudulent misrepresentation. 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: cf. Waimiha Sawmilling Co. v. Waione Timber Co. Ltd.
(1926) AC 101, at p 106. In the present case it is all
very well to say that the directors had reason to think that
on a genuine sale they would not have got more than Pounds 60,000
for the property. The fact remains - I see no escape from
concluding that it is a fact - that the reason why there was
only a pretence of attempting to get a better price was
simply that the object in view was not really to effect a
sale, but was to destroy the mortgagor's interest and get
the hotel for the mortgagee's group of companies, without
allowing the mortgagor the opportunities to pay off the
mortgage which the procedure for foreclosure would have
afforded. It is impossible to regard the case as only one
of constructive or equitable fraud - there was much more in
it than a mere fraud upon the power, as it is sometimes
called. There was pretence and collusion in the conscious
misuse of a power. It may be that those concerned salved
their consciences by telling themselves that the mortgagor
company, being already in liquidation, was in so parlous a
financial condition that the course they were taking was
unlikely in the long run to do anyone any harm. But it was
a dishonest course none the less, and the proper name for it
is fraud."
40. O'Loughlin J, then a member of the Supreme Court, had to consider s69.I and II in the Real Property Act in Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and The Registrar General (1986) 45 SASR 247. (There is a discussion of the case by Professor A P Moore in Vol ll Adelaide Law Review pp405 et seq.) I do not think it is necessary here to set out the complex facts, but the court was referred to what his Honour said at p255:
"In the transaction whereby credit to the extent of Pounds 35,000
was given to Wicklow, I am totally unable to perceive any
fraudulent device on the part of Mossell in his relationship
with Wicklow. There is nothing in the evidence to suggest
that his use of the names of Hansen and Kramer directly or
substantially induced Wicklow to accept the loan and execute
the security. There is nothing in the evidence to suggest
that, by the use of these names (or at all), he intended to
defraud Wicklow - that he intended any harm of any nature to
Wicklow.
There is no doubt in my mind that Mossell's conduct in using
various names to acquire various properties was a deliberate
course of conduct implemented by him to evade the provisions
of the Income Tax Assessment Act 1935 (Cth). So much is
clear from some of the vitriolic comments that he hurled at
the plaintiff and its legal advisers during the course of
his cross-examination. He undoubtedly holds them
responsible for bringing his activities to the attention of
the Deputy Commissioner of Taxation and for rendering him
liable to an assessment of income tax in excess of $130,000.
No one can have any sympathy for anyone who defrauds the
revenue but conduct constituting a fraud on the revenue does
not, of itself, necessarily mean that the person is engaged
in fraudulent conduct in his business transactions or
dealings with other private individuals."
41. Later in his reasons, his Honour referred to the judgment of Kitto J in Latec Investments Limited (supra), and found on the facts that a man called Smith had been guilty of what he categorised as "a designed cheating of Wicklow". (See also the judgment of Debelle J in Arcadi v Whittem (1992) 59 SASR 515 especially at pp536-537.)
42. The learned authors of Australian Real Property Law (op cit) at p153 state:
"The varied judicial comments on the definition of fraud
cannot all be reconciled satisfactorily. In Australia,
however, the majority of the cases suggest a strict rather
than broad definition of fraud and if there is doubt in a
given instance, it is more likely that there will be a
finding of no fraud."
43. It is convenient here to add a reference to Vadasz v Pioneer Concrete
(1995) 130 ALR 570, especially at p574, where in a joint judgment, the High Court said: "A trial judge should not lightly make a finding that a party to civil litigation has been guilty of fraudulent conduct."
44. The court was also referred to the decision of Brennan CJ, Deane J, and Gaudron and McHugh JJ in Krakowski and Another v Eurolynx Properties Ltd and Another (1995) l30 ALR l. At p8, their Honours in a joint judgment said:
"It has frequently been said that fraud must be pleaded
distinctly and with particularity and clearly proved. (The
respondent) was therefore entitled to hold the purchasers to
the representations pleaded in ... the amended statement of
claim on which the purchasers based their case in fraud."
45. The particulars of the fraud given by the respondent in invoking s69.I of the Real Property Act in his Further Amended Defence and Counterclaim were:
"4.1 By document dated July 1990 (Exhibit D3) the plaintiff
fraudulently prepared and forged the defendant's signature
on a document purporting to be a statement of position of
the defendant.
4.2 Altered cash flow documents prepared by the defendant
and fraudulently used these cash flow documents in support
of an application for facility prepared by the plaintiff on
behalf of the defendant.
4.3 The defendant entered into the loan facility on the
10 September 1990 and executed the said mortgage without
knowledge of the said fraudulent dealings by the plaintiff
referred to in paragraphs 4.1 and 4.2 above.
4.4 The defendant entered into the loan facility and
executed the said mortgage after relying upon the
representations of the plaintiff as set out in paragraphs
4.1, 4.2 and 4.3 above which representations were made
fraudulently."
46. The respondent did not give evidence that he was misled as a consequence of the forging by McMellon of his signature on the Statement of Position (D3), or that he was induced in any way to do anything by his knowledge or lack of knowledge of that forged signature or the preparation of D3. The forging of his signature was clearly dishonest, and is in no way to be condoned, but I am not persuaded that it had any operative effect upon the decision of the respondent to grant the mortgage or to sign the facility agreement. The forgery was probably designed to speed up the process within the bank. I am not persuaded that there was any intention to defraud the respondent. It is simply not correct to say that McMellon forged the respondent's signature on D3 to bind the respondent to obligations to the appellant and to give security over the said land.
47. The evidence of Towner was that Statements of Position often were not signed. Indeed, the retyped Statement of Position (exhibit D4) was not signed. A Statement of Position was an internal record only. It is convenient here to mention also that the actual loan applications were not required to be signed by applicants. No one in the bank, including Towner, apparently knew of the forged signature until it was actually discovered by Towner in the office of the appellant's instructing solicitors shortly before he gave evidence. He said "We were actually talking about Mr McMellon and the problems we had at Penola and I glanced at the signature and compared it to the other two and I suddenly realised it wasn't Mr Ferguson's signature". There can be no suggestion here that the forgery was discovered by the appellant and concealed.
48. I have reached the conclusion that exhibit D3 was not prepared for, and was not used for the purpose of, and did not have the effect of, harming, cheating or otherwise being dishonest to the respondent. Towner said that he had exhibit D3 in front of him, and all aspects were discussed with Ferguson. Towner went through each of the assets and liabilities, and "gave (each of them) a tick or made a narration alongside of it". I do not believe that the preparation of exhibit D3 by McMellon and the subsequent discussion of it by Towner with Ferguson could constitute "a representation". (See par4.4 of the particulars, supra.) The respondent himself did not give evidence that D3 was inaccurate or otherwise adverse to his interests.
49. I agree with the submission of the appellant that the forging of the respondent's signature by McMellon may have been intended to deceive his superiors or may merely have indicated irresponsibility, but it was wholly immaterial to any decision by the respondent to enter into the transaction with the bank. In my opinion, there was no evidence capable of proving that Towner fraudulently altered or used the cash flow budgets. They were not false or misleading.
50. As far as 4.2 is concerned, I did not understand counsel for the respondent before the Full Court to argue that such alterations as were made to cash flow documents were fraudulently made or that the cash flow documents were fraudulently used, nor could such allegations, in my view, be properly sustained.
51. Next, I note that there is no plea that anything said or not said, done or not done by the appellant in relation to the valuation of the respondent's land was so said or so done fraudulently. No expert evidence was led by either party to prove the actual value of the land. Even on the reasoning of the learned trial Judge, the respondent believed that he was seeking the loan, and the bank was making the loan on the basis that his land was worth $520,000 - $577,000. There was no evidence that that belief was incorrect, and in any event the security covered the loans. For fraud to be operative, it must operate on the mind of the person said to have been defrauded, and induce that person to act to his detriment (see Potts v Miller (1940) 64 CLR 282). On the learned trial Judge's own reasoning, the belief which operated on the respondent's mind was correct. The respondent said in evidence in chief that he did not think that Towner's suggested oral valuation "would be right". Moreover, the valuation (exhibit D5) was never communicated to him. It was merely prepared for Towner's superiors. I acknowledge that another valuation which became exhibit D6 and which was dated 10 July 1992 was tendered. It contains a glaring error, inter alia, in relation to the area of the said land, but although its presence reflects no credit on the appellant, it is irrelevant to anything his Honour had to decide.
52. In my opinion, there was here no "designed cheating" of the respondent as was established in the cases of Latec Investments, Wicklow Enterprises and Arcadi v Whittem (supra). In my opinion, his Honour's finding of fraud within the meaning of s69.I of the Real Property Act was erroneous.
53. His Honour's conclusions also included the following passage:
"In my judgment the basis upon which the defendant executed
the mortgage and accepted the facility offer was not the
same basis as that upon which the Bank agreed to make the
advances once the defendant had executed the mortgage,
because (a) the application made by the applicant was
fraudulently made (I refer to my reasons above), (b) the
application had been altered in a material way without the
defendant's knowledge or agreement, particularly in the
valuation of the land (exhibit D5). The parties were not ad
idem when the mortgage was executed and the facility offer
was accepted.
In my opinion this brought the case within the principles of
Armour Coatings (Marketing) Pty. Ltd. v General Credits
(Finance) Pty. Ltd. (1977) 17 SASR 259 at 277 per Bray CJ
where His Honour said:-
'In the second type of case, as in Outer Suburban Properties
Ltd. v Clarke (1933) SASR 221 (F.C.), there may well be no
implied authority to supplement it after one party has
signed it. The signatory may be regarded as offering to
treat on the basis of what he has signed and any additional
particulars subsequently attached may amount to a counter
offer by the other party needing acceptance by the first
before any contract comes into existence.'
In the circumstances of this case, the plaintiff Bank was
making a counter offer to provide the defendant with the
loan if his property was worth $944,000 or thereabouts, but
this counter offer was never made known to the defendant at
any time before he accepted the original offer which he
believed was on the basis that his land was worth no more
than $577,000. I would refer also to the judgment of
Walters J in Armour Coatings supra at pages 283 - 284.
In my opinion the plaintiff cannot recover on a contract
which was signed at a time when the parties were not ad idem
due to the material alteration made by the plaintiff Bank,
see Outer Suburban Properties Ltd. v Clarke supra.
In my judgment the plaintiff has thus failed on the above
findings and in law or equity to establish an entitlement to
the moneys claimed in the plaintiff's counter-claim to the
defendant's counter-claim. Thus, in the language of section
69 placitum I, the plaintiffs counter-claim must be
dismissed."
54. I do not understand why his Honour says "in the language of section 69 placitum I", and I note that his Honour does not really identify why or how, in his view, the parties were not ad idem.
55. In my opinion, his Honour's reliance on the case of Armor Coatings v General Credits (1978) 17 SASR 259 was misconceived. That was a case where insertions in, and alterations to, a mortgage were made after execution, some before and some after the first lodgment for registration. It was held:
"(1) That the solicitor for (General Credits) Ltd. had
implied authority from (Armor Coatings) Ltd. to make the
insertions and alterations made by him before the instrument
was lodged for registration.
(2) That no such authority could be implied in respect of
the alterations made by him after the instrument had been
lodged for registration, namely, the alteration of the
description of the land and the re-dating of the instrument,
but that the mortgage was not thereby rendered void or
voidable, because -
(a) the alteration in the description of the land was not a
material alteration; and
(b) if the alteration to the date was a material alteration,
it was an alteration which in the circumstances could only
have been to the advantage of the mortgagor, and a party to
a written instrument is not entitled to avoid the instrument
merely because of an alteration to the instrument made in
good faith by the other party to it, which alteration is in
the interests of the would-be avoider."
56. In the case at bar, I do not think it can be said that any alteration made by the appellant to any document has increased the liability of the respondent or injuriously affected his legal obligations. Nothing the appellant did imposed on the respondent an obligation which he did not intend to assume.
57. The phrase "consensus ad idem" is explained in the 26th Edition of Anson's Law of Contract at p265:
"It follows from the essential nature of a contract that if
there is no genuine agreement between the parties, or, as is
commonly said, if the parties are not ad idem, there is no
contract. This is only another way of saying that offer and
acceptance must correspond exactly, or no contract will
ensue. Therefore, if the offeree thinks that the offeror is
some person other than he really is, or that the thing
offered is something different, or that the terms proposed
by the offeror are other than those actually proposed, and
if he accepts on that mistaken assumption, it is clear that
there is no genuine agreement, for the offer which he has
accepted is not the offer made by the other party."
58. Mr Wells referred to the leading case of Smith v Hughes (1871) LR 6 QB
597. After seeing a sample, the buyer thought he was buying old oats and promised to pay the appropriate price for old oats when in fact the seller was selling new oats and was unaware of the buyer's mistake. The Court of Queen's Bench was inclined to hold for the seller though the ultimate outcome is unknown because a new trial was ordered. The buyer was certainly in difficulty in asking to be relieved of the contract when he had seen a sample. At p607, Blackburn J said:
"And I agree that even if the vendor was aware that the
purchaser thought that the article possessed that quality,
and would not have entered into the contract unless he had
so thought, still the purchaser is bound, unless the vendor
was guilty of some fraud or deceit upon him, and that a mere
abstinence from disabusing the purchaser of that impression
is not fraud or deceit; for, whatever may be the case in a
court of morals, there is no legal obligation on the vendor
to inform the purchaser that he is under a mistake, not
induced by the act of the vendor."
59. Mr Wells here argued that as both parties were agreed as to the terms of the letter of offer (exhibit P9) and the mortgage (exhibit P6), there was therefore consensus ad idem. He referred to the judgment of Denning LJ (as he then was) in Solle v Butcher (1950) l KB 671. At p691, Denning LJ said:
"All previous decisions on this subject must now be read in
the light of Bell v. Lever Bros. Ld. (1932) AC 161, 222,
224, 225-7, 236. The correct interpretation of that case,
to my mind, is that, once a contract has been made, that is
to say, once the parties, whatever their inmost states of
mind, have to all outward appearances agreed with sufficient
certainty in the same terms on the same subject matter, then
the contract is good unless and until it is set aside for
failure of some condition on which the existence of the
contract depends, or for fraud, or on some equitable ground.
Neither party can rely on his own mistake to say it was a
nullity from the beginning, no matter that it was a mistake
which to his mind was fundamental, and no matter that the
other party knew that he was under a mistake. A fortiori,
if the other party did not know of the mistake, but shared
it."
60. This passage in Denning LJ's judgment was quoted with approval by Mason ACJ, as he then was, Murphy and Deane JJ in their joint judgment in Taylor and Ors v Johnson (1983) 151 CLR 422 at p429. At pp432-433, their Honours said:
"The particular proposition of law which we see as
appropriate and adequate for disposing of the present appeal
may be narrowly stated. It is that a party who has entered
into a written contract under a serious mistake about its
contents in relation to a fundamental term will be entitled
in equity to an order rescinding the contract if the other
party is aware that circumstances exist which indicate that
the first party is entering the contract under some serious
mistake or misapprehension about either the content or
subject matter of that term and deliberately sets out to
ensure that the first party does not become aware of the
existence of his mistake or misapprehension. What we have
said is sufficient to demonstrate the broad basis of support
which the authorities provide for that proposition.
Moreover, and perhaps more importantly, it is a principle
which is best calculated to do justice between the parties
to a contract in the situation which it contemplates. In
such a situation it is unfair that the mistaken party should
be held to the written contract by the other party whose
lack of precise knowledge of the first party's actual
mistake proceeds from wilful ignorance because, knowing or
having reason to know that there is some mistake or
misapprehension, he engages deliberately in a course of
conduct which is designed to inhibit discovery of it."
61. However, here the respondent in executing the mortgage was not "under a serious mistake about its contents in relation to a fundamental term". The value of his land did not form a term of the mortgage. As a result of the valuation of Towner dated 31 August 1990 the appellant was perhaps under the mistaken impression that the land was worth $944,100. Nevertheless, this mistake, if it was a mistake, did not prevent a consensus ad idem.
62. I have no hesitation in deciding that pars 1, 2 and 4 of his Honour's orders should be set aside.
63. His Honour's ultimate conclusion was stated thus:
"In my judgment the defendant has not established any
recognisable loss caused by any of the claims made in his
amended counter-claim, that is including claims under the
Fair Trading Act, fraudulent misrepresentation, negligent
misstatement or the Misrepresentation Act or fraud. As to
the claim for breach of fiduciary duty, I consider no basis
for such a duty has been established on the evidence ...
In my opinion, the defendant has failed to establish any
head of damage under any of those claims ... Consequently, I
have not made any findings on the claims for misleading and
deceptive representation or conduct because it has become
unnecessary having found that the defendant is entitled to
an order under section 69 placitum 1 of the Real Property
Act and consequently has a good defence to the plaintiff's
claim for possession, and further that the defendant has
failed to establish any relevant loss as discussed above."
64. It is convenient here to point that his Honour failed to deal with the plaintiff's claim for money had and received to the use of the plaintiff and for restitution.
65. From what I have already said, it will be apparent that I do not think the respondent succeeded in establishing fraudulent misrepresentations or fraud, and the court was informed that during the trial the respondent abandoned any claim for breach of fiduciary duty. However, I regard all other claims of the respondent as open, subject to any problem that he may have in connection with the Limitation of Actions Act. I acknowledge that his Honour said that the respondent had not proved "any recognisable loss" or "any head of damage", notwithstanding that the respondent's counsel did argue before his Honour that he had proved that his client had suffered loss and damage. However, having regard to my view that pars 1, 2 and 4 of the orders should be set aside, and the necessary consequence that the claims of the appellant should be referred back for further consideration, and the further necessary consequence that the character of the contest between the parties will change, I would also set aside all other orders and refer back the claims of the respondent (subject to what I have underlined above) for further consideration. I do not think this court should go any further, especially having regard to the paucity of the findings as to what representations were made, which, if any, of them were misrepresentations, and which, if any, of them were relied on. Upon the view I have taken, it is unnecessary for me to consider other grounds of appeal and cross appeal.
66. I acknowledge that the learned trial Judge is no longer an acting judge. A comparable problem arose in Krakowski and Anor v Eurolynx Properties Limited and Anor (1995) ATPR para 41-419 (p40,703). There the trial judge was "a reserve judge" and no arrangements had been made for him to sit again. If the trial judge here is not available to sit again, there seems to be no alternative to a retrial, but limited to the issues which, in my view, are outstanding. In ordering a new trial in Krakowski's case I notice that the Victorian Full Court ordered that the subject of the new trial be referred to mediation pursuant to Rule 50.07 of Ch 1 of the Rules of the Supreme Court (see pp40,717-40,719 and 40,723), and that on appeal the High Court did not interfere with the mediation part of the order, (see 130 ALR at pp18-20). I acknowledge that the Victorian rule is wider than our rules (see our Rules 2.08 and 56A), but having regard to the history of this matter and to the orders I am proposing, I would urge the parties to consider mediation.
JUDGE2 BOLLEN J At the conclusion of the hearing of this appeal I thought that the decision of Legoe AJ was right. I thought that the reasoning of His Honour was right. When I had read the draft reasons of Millhouse J I thought his reasoning was, on each issue, right. The reasons of Matheson J, of course, have given me pause. But I cannot see the case as he does. I adhere to my original opinions on the soundness of the reasoning of Legoe AJ and Millhouse J. I differ from Matheson J with respect and diffidence.
2. I think that the finding of fraud on the evidence in this matter is sound. I adopt the remarks of Millhouse J about the arguments of Mr Walsh QC as appears on page 10 of the reasons of His Honour. Fraud can take many forms. Here the servant of the appellant forged the signature of the respondent. He did that to bind the respondent to obligations to the appellant and to give security over the home of the respondent. In the result, as Millhouse J says "... Ferguson's venture into potato growing has ended in disaster". Had there been no forgery and had there been no other shortcomings on the part of the servants of the appellant as mentioned by Millhouse J, the respondent would not have suffered, at least so badly, as he did. No doubt this type of fraud is not the same as "fraudulent misrepresentation" type of fraud. But, in my opinion, fraud it all (especially the forgery) was. I repeat that Legoe AJ was, in my opinion, right.
3. The appellant cannot succeed because it relies on illegality (fraud and forgery). Like Millhouse J, I refer to the remarks of Peter Gibson LJ in Halifax Building Society v Thomas and Another (1995) 4 All ER 673 at 680, 681). The appellant relies on illegality for its claim to money and to possession of the real estate of the respondent.
4. Mr Wells QC made much of the fact that the result of the judgment in this matter is that, amongst other things, the appellant has been denied recovery of money lent. In my opinion, the appellant should be left "to the consequence of (its) iniquity" (Berridge v Public Trustee (1914) 33 NZLR 865 at 872).
5. I would dismiss the appeal. I cannot regard other issues as open. I think that Legoe AJ has probably disposed of all issues. In any event, I would join in the "practical approach" of Millhouse J.
JUDGE3 MILLHOUSE J This sorry tale is an after-math of the 1980s. In those days the banks - some of them anyway - seemed anxious to throw money at anyone who asked for a loan. Looking back now it seems like madness but at the time it must have been the conventional wisdom.
2. In early 1990 Mr Les McMellon was the manager of the State Bank at Penola. Like any bank manager he was after new business. The respondent Mr Kenneth Edward Ferguson had a personal account at the Bank but his business account was with the Commonwealth at Naracoorte.
3. The two were acquaintances. One day they met in the street. They began chatting about foot-ball and things. Mr McMellon brought the conversation round to a new enterprise in the South-east, SAFRIES who took potatoes, processed them and sold them to such people as McDonalds. SAFRIES were setting up a new factory in Penola. They needed potatoes. McMellon asked Ferguson who ran sheep and cattle on his property, whether he had ever thought of going into potatoes. He said he had not. McMellon in that conversation and later set out to persuade Ferguson that he should.
4. When Ferguson went into the Bank the subject was broached again. McMellon gave Ferguson some documents to fill in, shewing his likely cash flow if he went into potatoes.
5. Ferguson took the documents, completed them to the best of his ability and took them into the Bank to McMellon. McMellon promised to get back to him after he had been through the documents, in case Ferguson decided to go ahead with the idea. Ferguson for his part made inquiries about irrigation and other equipment and necessaries for growing potatoes. He had worked out that 70 acres of his land were suitable for potatoes. His total holding is a little over 1,000 acres.
6. Without Ferguson's knowledge, let alone consent, McMellon forged Ferguson's signature on the documents which he prepared from those which Ferguson had filled in and sent them to a higher authority in the Bank as Ferguson's application for a loan.
7. McMellon then disappeared. We now know that he had left the Bank under a cloud because of some of the things he had been doing at the Branch. Mr Graham Ronald Towner was his relief.
8. Towner very soon followed up Ferguson's apparent application. He persuaded Ferguson that he could financially and should go ahead. He said potato growing was most profitable - "almost like printing money." He went through with Ferguson his projected cash flows and made alterations to them. Ferguson did not see what those alterations were. Towner submitted them again. Higher authority in the Bank doubted whether Ferguson had sufficient security for the loan of $250,000 for which he had asked. Ferguson thought his land was worth $420 - $450 per acre - giving a total value of $520,000 to $577,000. No formal valuation had been done. Apparently Ferguson based his estimate on the Council valuation and his own assessment. When Towner asked Ferguson what his land was worth Ferguson told him $420 - $450 per acre. Ferguson also told Towner that the land had "water rights" - I take that to mean the right to sink bores etc and use the water from them. Towner said that the water rights greatly increased the value of the land. To Ferguson's surprise Towner said Ferguson's property would be worth over $900,000. This estimate was not the result of any valuation but came apparently out of Towner's head. Although Towner had held the Bank (presumably in the person of himself) out to Ferguson as having knowledge of potato growing and an ability to support and advise Ferguson this was in fact not so.
9. Having increased the estimate of the value of Ferguson's property, Mr Maddeford, the higher authority, approved the loan of $400,000 (not the $250,000 Ferguson originally asked for) upon the security of Ferguson's property. The paperwork was done. By now it was September 1990.
10. At first the venture prospered. However SASFRIES, about which McMellon and Towner had spoken in glowing terms, changed hands. There was a glut of potatoes. SAFRIES took every point with its suppliers, including Ferguson, to get out of the contracts it had made with them.
11. By 1994 Ferguson's venture into potato growing had ended in disaster. Not only his venture into potato growing but also his sheep and cattle. The Bank saw what was happening. It cut off funds to Ferguson. He was left with nothing. On 30 May 1994 the Bank, now the Bank of South Australia Limited, issued a summons for possession of Ferguson's property. By then Ferguson owed the bank over $500,000.
12. The action proceeded by way of pleadings. It was heard by Legoe AJ (as by then he had become) in the middle of 1995. He found for the defendant, refusing the application for possession. He was not prepared though, to find for the defendant on his counter-claim and he dismissed the counter-claim of the Bank to the defendant's counter-claim. The effect of the judgment was to leave Ferguson in possession of his land and without an obligation to repay any of the debt to the Bank.
13. I may say that it was not until the defendant had discovery, late in 1994, that he and his solicitor found that McMellon had forged the signature on the original documents which Ferguson had prepared or that Ferguson knew that Towner had significantly altered them.
14. During the course of the hearing, Legoe AJ suggested that the Defence and Counter-claim be amended, most significantly to plead s69 of the Real Property Act. Despite the opposition of the plaintiff amendments were made and as a consequence the plaintiff amended its pleadings as well.
15. In his long and careful judgment Legoe AJ found Ferguson to have been a good and credible witness. He preferred his version of what happened to that of Towner, the main witness for the Bank. McMellon was not called: there was a suggestion that he was in Darwin.
16. This is what the learned Judge said:-
" - There has been an attack made on the credibility of the
defendant on the basis that he has reconstructed his whole
case on what he discovered when he inspected the documents.
It was submitted that the defendant had decided to switch to
potato growing before he discussed the matter with Mr
McMellon, and that he actually made the appointment to see
Mr McMellon. Further, it was submitted that even if
representations were made, they were neither false nor had
it been proved that any representation was false or
misleading or deceptive. Further, it was submitted that Mr
Ferguson was not induced to grow potatoes by any
representations made by Bank Officers and that he was not
induced to seek the financial advances from the plaintiff
Bank in consequence of any alleged representations made to
him.
But the plaintiff did not call Mr McMellon. I must make my
decision on the evidence before me. Insofar as the
negotiations between the plaintiff Bank and the defendant
prior to the arrival of the relief Manager, Mr Towner, are
concerned, the evidence is all one way. I was impressed by
Mr Ferguson in the witness box. He displayed real frankness
and considerable care in answering questions over the long
period of time he was there. I consider that his answers to
questions, including his answers to questions about
statements that he had made in an affidavit that he swore in
August of 1994, that was before he saw the forged signature
on a document and the other alterations to valuation in the
inspected documents, were convincing and frank. There was
no indication of Mr Ferguson at any stage trying to be
evasive or to make his answers suit his case. On the
contrary, much of his evidence was frank and consistent.
When a number of suggestions were made to him in
cross-examination, which I have outlined in some detail earlier in
these reasons, I found Mr Ferguson's denials to be direct,
precise and convincing. I accept Mr Ferguson as a witness
of truth. I propose to make findings based largely on the
evidence of Mr Ferguson."
17. Mr Jonathon Wells QC with Mr James Cudmore, appeared for the appellant. He made a strong attack on the Judge's findings of fact, attacking his findings on Ferguson's credibility. In my view the attack was doomed to fail. Mr Wells was quite unable to shew "that the trial Judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts uncontrovertibly established by the evidence' or which was glaringly improbable'". (per Brennan, Gaudron and McHugh JJ in DeVries v Australian National Railways Commission, 177 CLR 472 at 479).
18. Mr Well's attack does fail and with that failure goes a good part of the appellants case.
19. His Honour made 20 findings of fact. I set out those which are relevant:-
" I find on the evidence or by reasonable inference to be
drawn from the evidence that: ...
2. Mr McMellon did encourage the defendant to consider
growing potatoes on his land in the light of the new SAFRIES
factory at Penola.
3. The defendant did make some enquiries about potato
growing in the district, including some discussions with
Mr Allen (another farmer who gave evidence for the
defendant) "and some enquiries to the Department of
Agriculture.
4. Mr McMellon did invite the defendant into his office and
made representations about SAFRIES and the prospects for
local potato growers as given in evidence by the defendant.
5. Mr McMellon did give the defendant bank forms (cash flow
documents) to fill out.
6. The defendant prepared his own 'potato budget' ... and
filled out the forms given to him by Mr McMellon. He was
never given a statement of position document to fill out ...
7. The defendant, at Mr McMellon's request or suggestion,
handed over the documents that he had prepared to
Mr McMellon at the Bank on an occasion when he was there
doing some banking, probably some time in July 1990. The
defendant was in a hurry. He did not have any discussion
with Mr McMellon about these documents, but simply left them
with Mr McMellon. I am satisfied that, at that stage, the
defendant had no definite plans to grow potatoes on his
land. Clearly he was considering the possibility and had
made calculations as to the possible expenditure and income
involved in such a venture. Clearly .. he had in mind that
if he were to enter upon such a venture, he would plant some
70 acres down to potatoes and would have to install a pivot
irrigator which could be obtained from Upton Engineering and
would incur various other expenses about which he had little
information.
8. Mr McMellon prepared a statement of position document in
his own handwriting, and forged the defendant's signature on
that document ... He probably placed that on the file and
then prepared, without further discussion with Mr McMellon,
the application and narrative and cash flow documents, which
were typed ... He then submitted those documents to the
Regional Office for consideration of approving the loan.
9. The statement of position was an important document in
the plaintiff Bank's procedures for loan applications as
appears from the evidence of Mr Towner. I find that it was
'operative' (to use counsel's expression) in the case of the
defendant's application, prepared by Mr McMellon and based
in important respects on the defendant's documents and
equally on the details which Mr McMellon had himself
incorporated into the documents, particularly the statement
of position document ...
10. Mr McMellon left the Bank some time in late July and
never returned. He was dismissed by the Bank. It is
unclear on the evidence why he was dismissed, except on the
evidence of Mr Towner and Mr Hutchinson," (a senior officer
of the Bank who gave evidence on its behalf) "that he was
dismissed for 'irregular practices'. The fact that an
extensive audit was conducted in August, September and
thereafter in 1990, means that it is apparent that the Bank
must have known why Mr McMellon was dismissed. However, the
evidence has not clearly disclosed the reason for his
dismissal.
11. The signature of the defendant, which Mr McMellon forged
Fraud.., defrauded the defendant in that it led to the
putting forward and placing on the Bank file for use in
connection with the loan application prepared by Mr
McMellon, an asset and liability situation which was neither
agreed to nor approved nor supplied by the defendant, a
potential customer of the Bank. I find that the forgery of
the defendant's signature on this document was patently
dishonest. This was a dishonest act by a responsible
officer, namely the Branch Manager of the plaintiff Bank at
Penola, in the course of his duties as a bank officer
handling the affairs of a Bank customer, the defendant, who
had had a small account at the Bank for some time.
12. Mr Towner arrived at the Bank early in August. He
received a message from the Regional Office that the
defendant's application for a loan required further details
...
Mr Towner studied the file and the documents ... which had
been returned from the Regional Office. He telephoned the
defendant, who came into the Bank and had an interview with
Mr Towner about the application.
13. At the interview Mr Towner had the documents from the
file in the Bank ...as well as the documents returned from
the Regional Office in front of him on the desk. The
defendant sat on the other side of the desk. The defendant
was not shown, nor did he identify, any of the documents on
the desk. The defendant knew from the questions that
Mr Towner asked him that Mr Towner wanted some further
details about the cash flow statements. Mr Towner made some
notes on some of the documents as appear in pencil on the
documents but the defendant was not informed of those
details. The defendant never read any document as altered
by Mr Towner. He was not aware that his forged signature
was on one of the documents in front of Mr Towner.
At the interview, something must have been said by Mr Towner
about water rights on the defendant's property. I have
accepted the defendant's account that the fact that the
defendant's ability to draw water for potatoes on his land
would add to the value of his land was mentioned. The
defendant pointed out however that he would only plant about
70 acres of his land to potatoes. The defendant was amazed
at the suggestion that the ability to draw water would
result in any substantial increase to the value of his land.
14. The defendant received a phone call later from Mr
Towner, who told him that the loan had been approved.
I have rejected Mr Towner's version of that telephone call.
Consequently, I make a finding that the valuation prepared
by Mr Towner and dated 31st August 1990 (being some 6 days
before the mortgage was signed by the defendant) was
prepared on advice or information which did not come from
the defendant...
15. The defendant signed the mortgage ... without any
knowledge of:
(a) his forged signature .. ..,
(b) the details of any alterations made by Mr Towner to Mr
McMellon's documents, and
(c) in the belief that he was granting the mortgage as
security for the facility to be made by the Bank in relation
to assets to the value of between $520,000 and $577,000 and
not some $944,000 as stated in Mr Towner's valuation ...
16. The defendant signed and accepted the facility offer
dated 10th September 1990 on the same understanding as he
had previously signed the mortgage on about the 5th
September 1990.
17. The Bank made the advances to the defendant as detailed
in the documents tendered as exhibits in this case.
18. The further advances as detailed in the documents were
made over the period up to the date of the notice of
default. The plaintiff issued notices of default and demand
in accordance with the statutory requirements. The
defendant purchased the equipment and seed required for his
potato growing activities with the moneys advanced. He had
a profitable crop for the first season, that is the 1990/91
season.
He planted and harvested two further crops of potatoes.
There is no evidence that the defendant ever made a loss
from his potato growing activities.
He had no sheep of his own by September 1990. There were
some sheep on his land on agistment at that time. His
cattle were waiting to be sold. Whether the defendant made
a profit or loss from his cattle is not clear on the
evidence ...
(There is no finding numbered 19).
20. The defendant first learnt of the fact that his
signature had been forged ... and of the alterations made to
the cash flow documents, and of the valuation made by Mr
Towner on the 31st August 1990 of his land... and of the
later valuation dated 10th July 1992 where the acreage of
his land ... is shown inaccurately as 876.75 hectares, when
the defendant had inspection of documents in about October
of 1994.
21. It was after discovery of these facts referred to in the
previous paragraph that the defendant instructed his
solicitors to issue a counter-claim and allege the matters
which he had discovered on inspection of documents."
20. The thrust of Mr Wells' case was that there was no fraud on Ferguson, any fraud was within the Bank and affected only it: Ferguson applied for a loan and got what he asked for (more actually): it was nothing to do with the Bank that the potato venture failed.
21. In reply Mr Stephen Walsh QC with Mr Roger Sallis for the respondent referred us rather to the "broad picture" which he said clearly shewed fraud on the part of the Bank - the forged signature, the alteration of documents without the respondent's knowledge, the increase in the estimate of the value of the respondent's property based on what information, if any, we know not and without which the loan would not have been granted.
22. I accept without hesitation Mr Walsh's argument.
What follows? 23. The relevant part of s69 of the Real Property Act is:-
"69. The title of every registered proprietor of land
shall, subject to such encumbrances, liens, estates, or
interests as may be notified on the original certificate of
such land, be absolute and indefeasible, subject only to the
following qualifications:-
Fraud
I. In the case of fraud, in which case any person defrauded
shall have all rights and remedies that he would have had if
the land were not under the provisions of this Act: ..."
24. The learned Judge remarked that, "what amounts to fraud must depend on the particular facts of the case." That is incontestable. He said:-
" ... in my opinion, the withholding of very relevant
material facts from the defendant which appear to have been
deliberately withheld by McMellon when he forged the
defendant's signature and were later withheld when the
subsequent alterations and valuations were done, constituted
fraud within section 69 I of the Real Property Act."
25. I have already expressed my view agreeing with that of the learned Judge.
26. He held that the parties had the same rights at law or in equity as they would have had on an unregistered mortgage, "including any rights or liabilities in contract" and went on:-
"In my judgment the basis upon which the defendant executed
the mortgage and accepted the facility offer was not the
same basis as that upon which the Bank agreed to make the
advances once the defendant had executed the mortgage,
because (a) the application made by the applicant was
fraudulently made ... (b) the application had been altered
in a material way without the defendant's knowledge or
agreement, particularly in the valuation of the land
... The parties were not ad idem when the mortgage was
executed and the facility offer was accepted ...
In the circumstances of this case, the plaintiff Bank was
making a counter offer to provide the defendant with the
loan if his property was worth $944,000 or thereabouts, but
this counter offer was never made known to the defendant at
any time before he accepted the original offer which he
believed was on the basis that his land was worth no more
than $577,000 ...
In my opinion the plaintiff cannot recover on a contract
which was signed at a time when the parties were not ad idem
due to the material alteration made by the plaintiff Bank,
...
In my judgment the plaintiff has thus failed on the above
findings and in law or equity to establish an entitlement to
the moneys claimed in the plaintiff's counter-claim to the
defendant's counter-claim. Thus, in the language of section
69 placitum I, the plaintiff's counter-claim must be
dismissed."
27. His Honour also found that the defendant had not shewn any recognisable loss. (There had been no evidence relating to the defendant's damages, if any.)
28. He concluded:-
"Consequently, I have not made any findings on the claims
for misleading and deceptive representation or conduct
because it has become unnecessary having found that the
defendant is entitled to an order under section 69 placitum
I of the Real Property Act and consequently has a good
defence to the plaintiff's claim for possession, and further
that the defendant has failed to establish any relevant
loss ..."
29. In other words, he refused the Bank the relief it originally sought and left everything else to lie.
30. I think the Judge was quite right to refuse the original application. But is it enough to stop there?
31. I must confess that this has caused me more trouble than what has gone before.
32. The plain fact is that the respondent has had over $500,000 from the appellant and as things stand he is not accountable for it. His case on the other hand is that the actions of the Bank have ruined him. He would never have gone into potato farming if the Bank had not persuaded him, by fraud, to do so. The Bank should not have granted him the loan. He has, he says, a claim for substantial damages.
33. Almost until the end of his submissions Mr Walsh was resigned, even if he were successful, to the action being remitted to the trial Judge or to some other to try the questions of restitution and of his client's damages. The learned President rather talked him out of that by remarking, quite accurately, that his client ran the risk of being awarded lesser damages than the $500,000 odd had from the Bank. Mr Walsh then suggested that his preferred result was the dismissal of the appeal and of all counter claims.
34. From a practical point of view that is easily the most sensible course. It would save time, effort and money which would be expended, probably, for not much change. That is assuming that damages would be not much more or less than $500,000. I have read the Reasons for judgment of the High Court in Vadasz v Pioneer Concrete (SA) Pty Ltd (69 ALJR 678). The situation in that case was not the same as here but I am impressed by the observations of the Court about the need to "observe the requirements of good conscience and practical justice" and so on.
35. Yet, is it the proper course?
36. The Hon. Justice Kevin Lindgren, a member of the Federal Court has written an excellent paper on "Recent Developments in the Law of Restitution". In it he refers to a decision of the Court of Appeal in England, Halifax Building Society v Thomas and Another (1995 4 All ER 673)
37. That was the case of a building society getting an order for possession of a mortgaged property, selling it and getting more than owed by the mortgagor. The mortgagor had obtained the mortgage by fraud. Was the building society entitled to keep the balance? Alternatively should it go to the mortgagor (or rather to the Crown Prosecution Service which had orders against the mortgagor)? The building society failed both at first instance and on appeal.
38. In the course of giving the principal judgment Peter Gibson, LJ, discussing whether, should the mortgagor be allowed the surplus, it "would be an affront to the public conscience" said:- "The correct test is whether a claimant to an interest in property must plead or rely on an illegality. If so, he will not be entitled to recover." (at 680-681)
39. It seems to me that that same principal applies here. To recover the Bank would have to rely on its own fraudulent actions. Such reliance would be fatal to its success.
40. That is a sufficient confirmation, of the 'practical approach' to which I have referred. The appellant could not succeed on a claim for restitution.
41. There three other points argued on appeal. I should say something about them.
42. The first was that the learned Judge should not have allowed the pleadings to have been amended in the course of the trial. I reject that. He had a discretion which he properly exercised. In any case the purpose of pleadings is to define the issues between the parties. Sometimes they do so imperfectly. The issues may become clear during the trial. The learned trial Judge thought the pleadings ought, in this case, to be amended to reflect the issues and they were. So be it. The time has well past when the outcome of proceedings should be determined by the technicalities of the pleadings.
43. The second was that the learned Judge was interventionist, taking too much of a part in the hearing. Nothing I have seen in the transcript or heard supports this.
44. The third point was that because the respondent had pleaded in the alternative that he was entitled to damages because of the fraudulent misrepresentation of the appellant he had affirmed the contract between them for the loan. Especially in view of what I have already said about pleadings I do not think the respondent can possibly be taken to have affirmed the contract simply because he has pleaded, in the alternative, fraudulent misrepresentation.
45. Finally I should say, in case it become necessary because of the views of my brothers, I would grant an extension of time, so far as is necessary, in relation to claims under the Fair Trading Act and the Misrepresentation Act. It was not until Discovery that the respondent became aware of the forgery and the alterations to documents. These were "facts material" as contemplated by s48(3)(b)(i) of the Limitation of Actions Act.
46. I suggest that the appeals be dismissed.
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