C & F Nominees Mortgage Securities Ltd v Karbotli

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2020 0094

C & F NOMINEES MORTGAGE SECURITIES LTD (ACN 089 819 803)	Applicant
v
HEND KARBOTLI (also known as HIND ISSA)	First Respondent
and
REGISTRAR OF TITLES	Second Respondent

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JUDGES:	KYROU, McLEISH and SIFRIS JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	11 March 2021
DATE OF JUDGMENT:	14 May 2021
MEDIUM NEUTRAL CITATION:	[2021] VSCA 134
JUDGMENT APPEALED FROM:	[2020] VCC 987 (Judge Macnamara)

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ENFORCEMENT OF MORTGAGE – Forged mortgage registered under Transfer of Land Act 1958 – Whether judge erred in finding mortgagee did not take reasonable steps to verify authority and identity of mortgagor pursuant to s 87A of Act – Reliance by mortgagee on deficient solicitor’s certificate and 100 point identification check documentation – Reasonable steps not taken – Mortgage void – Transfer of Land Act 1958 s 87A.

ENFORCEMENT OF MORTGAGE – Covenant in registered mortgage by mortgagor to pay principal sum in manner and times specified – Memorandum of Common Provisions incorporated – Whether judge erred in holding mortgage secured nothing because no funds advanced to mortgagor – Reasonable businessperson approach – Covenant to pay principal sum whether advanced to mortgagor or not – Winau Aust Pty Ltd v LCC Property Development Pty Ltd (2020) 19 BPR 40; [2020] NSWSC 434, distinguished.

ENTITLEMENT TO INDEMNITY – Whether judge erred in holding mortgagee not entitled to indemnity from Registrar of Titles pursuant to s 110 of Transfer of Land Act 1958 – No indemnity available as mortgagee in breach of statutory duty and relevantly neglectful – Registrar of Titles v Fairless [1997] 1 VR 404, distinguished – Transfer of Land Act 1958 s 110.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr S Senathirajah QC with Mr R Moore	Wotton + Kearney
For the First Respondent	Mr J A F Twigg QC with Ms E R Tadros	Marino Law
For the Second Respondent	Ms G Costello QC with Mr J McKay	Department of Environment, Land, Water and Planning

KYROU JA
McLEISH JA
SIFRIS JA:

Introduction

The first respondent, Hend Karbotli, also known as Hind Issa (‘Ms Issa’), is the registered proprietor of the property situated at 42 Barak Street, Bulleen in the State of Victoria (‘Property’). The applicant, C & F Nominees Mortgage Securities Limited (‘C & F Nominees’) holds a registered mortgage over the Property (‘C & F Mortgage’). The signature of Ms Issa on the C & F Mortgage is a forgery.

As the holder of a registered instrument and not being a party to the forgery or fraud, as was conceded, C & F Nominees asserted that it had an indefeasible right to enforce the C & F Mortgage. This was the legal position prior to the introduction of s 87A of the Transfer of Land Act 1958 (‘TLA’) in 2014.[1] The section, in its original form, was in the following terms:
[1]Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70; Frazer v Walker [1967] 1 AC 569.

Mortgagee to verify identity of mortgagor for execution of mortgage or variation of mortgage
(1)At the time of execution of a mortgage or a variation of mortgage, a mortgagee must take reasonable steps to verify the authority and identity of a mortgagor to ensure that the person executing the mortgage, or on whose behalf the mortgage is executed, as mortgagor is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt to which the mortgage relates.
(2)For the purposes of subsection (1), the mortgagee is considered to have taken reasonable steps to verify the authority and identity of the mortgagor if the mortgagee has taken steps consistent with any verification of identity and authority requirements—
(a)determined by the Registrar in accordance with section 106A; or
(b)set out in the participation rules (within the meaning of the Electronic Conveyancing National Law (Victoria)).

(3)If, in relation to a mortgage, the Registrar is satisfied that the mortgagee did not take reasonable steps to verify the authority and identity of the mortgagor and the registered proprietor of the land did not grant the mortgage, the Registrar may—
(a)if the mortgage has not been registered, refuse to register the mortgage; or
(b)if the mortgage has been registered, remove the mortgage from the Register.
…

(5)If the Registrar removes a mortgage from the Register under subsection (3)—
(a)the mortgagee no longer has an indefeasible interest in the mortgaged land; and
(b)the mortgage is void.

In 2017, s 87A(1) of the TLA was amended with effect from 20 September 2017, replacing the opening words ‘At the time of execution of a mortgage’ with the words ‘In respect of a mortgage’.

Following reasons for judgment,[2] on 28 August 2020, a judge of the County Court ordered the second respondent, the Registrar of Titles, to remove the C & F Mortgage from the Register of land and to amend the title accordingly. The order was made for two reasons, both of which were expressed as declarations. First, it was declared that C & F Nominees ‘did not, at the time of execution of the mortgage, take reasonable steps to verify the authority and identity of [Ms Issa], to ensure that the person executing the [C & F Mortgage], as mortgagor, was the same person who is the registered proprietor of the land that is security for the payment of the debt to which the [C & F Mortgage] relates’. Secondly, it was declared that the C & F Mortgage was ‘void’ and did not secure any amounts owing by Ms Issa to C & F Nominees.
[2]C & F Nominees Mortgage Securities Ltd v Karbotli [2020] VCC 987 (Judge Macnamara) (‘Reasons’).

C & F Nominees seeks leave to appeal against the judge’s order.

Background
The facts

Ms Issa is aged 82. She was born in Lebanon. In 1969, she migrated to Australia and married Mr Al-Karbutli, also known as Karbotli. During the marriage, she was known as ‘Hend Karbotli’. She and her husband had three children together, including a son, James Karbotli (‘Mr Karbotli’). They operated a number of milk bar and convenience stores around Melbourne, eventually moving to the Gold Coast in Queensland.

In 2006, Ms Issa and her husband divorced and she reverted to her maiden name, identifying herself as ‘Hind Issa’. She registered this change of name in Queensland in 2008.

As part of the divorce settlement, Ms Issa became the sole registered proprietor of the Property. The certificate of title for the Property was at all material times in the name of ‘Hend Karbotli’.

C & F Nominees operates a mortgage investment scheme whereby contributors, generally individuals, invest on their own behalf or in the name of their self-managed superannuation fund. The contributors are offered the opportunity to subscribe to specific mortgages and are entitled to receive a share of the monthly interest payments payable in respect of that particular mortgage.

On 2 February 2017, David Skeels (‘Mr Skeels’), a director of C & F Nominees and partner of the law firm McNab, McNab & Starke, received an email from Chrish Samuel (‘Mr Samuel’) of Windsor Capital Management, a mortgage broker, attaching a loan application. According to the email, the borrower was to be Mazop Pty Ltd (‘Mazop’), with guarantees to be provided by directors Mr Karbotli and Ms Issa,[3] and a mortgage to be given over the Property which was in the name of ‘Hend Issa’. The email also noted an existing loan of $450,000. The email concluded ‘Note that Hend Karbotli and Hend Issa are one in [sic] the same person as per Veda Report. Hend Issa is her name whilst she was married’. A copy of a driver licence in the name of ‘Hind Issa’ purportedly certified on 17 January 2017 by Paul Bruce Tuddenham, a Justice of the Peace, was attached to the email.
[3]Ms Issa was not in fact a director of Mazop at that time. On 22 February 2017, C & F Nominees procured an ASIC extract for Mazop which showed ‘Jihad Karbotli’ (Mr Karbotli’s birth name) as sole director and shareholder. On 28 February 2017, a Form 484 Change to company details was lodged with ASIC notifying ASIC of Ms Issa’s appointment as a director of Mazop. Ms Issa later informed ASIC that she never acted, and never consented to act, in the capacity as director of Mazop. Ms Issa deposed in her witness statement tendered at trial that she did not sign a Memorandum of Resolution of the Directors dated 27 February 2017 or a Consent to Act as a Director dated 27 February 2017 and that the signatures in those documents were not hers. The Resolution of Directors, Consent to Act, Form 484, and Ms Issa’s letter to ASIC are not in the Appeal Book but were part of the trial court book.

The ‘Veda Report’ was also attached.[4] At the top of the first page, it stated ‘Report for: HIND ISSA (+ 1 cross-reference)’. In the middle of the second page there was a section headed ‘Identity details’ which stated ‘Identities: 2’ . The ‘primary’ identity was recorded as ‘Hind ISSA’, with a reference to driver licence 96820587 and a Veda file number. The ‘Cross reference’ was recorded as ‘Hind KARBOTLI’, without reference to any document or Veda file number. On the last page, there was a section titled ‘Business relationships’ under which was recorded ‘Current directorships’ and ‘Total number: 0’.
[4]The Veda Report is a credit report, not a change of name certificate.

Mr Skeels proceeded to procure a title search for the Property, which showed a caveat lodged on 19 January 2017 by FX Money Link Investments Pty Ltd in respect of an existing unregistered mortgage dated 13 January 2019 (‘FX Money Mortgage’). Mr Skeels sent Mr Samuel an email noting that this timing ‘seems very odd’ and asked Mr Samuel to ‘obtain an explanation of the circumstances’. Mr Skeels did not recall what, if any, response Mr Samuel provided.

On 3 February 2017, C & F Nominees sent a document entitled ‘Loan Offer’ to ‘The Directors’ of Mazop, care of Mr Samuel. The Loan Offer recorded an offer for a principal sum of $1.2 million, conditional on various matters including an independent valuation of the Property. It also recorded the guarantors as Mr Karbotli and Ms Issa.

On 12 February 2017, Mr Samuel returned an executed version of the Loan Offer to C & F Nominees, which contained, on the final page headed ‘Acceptance of Offer’, two hand-written signatures, the second discernible as ‘Hind Karbotli’, above the typed words ‘For and on behalf of Mazop Pty Ltd’ and under the date ‘10/02/2017’.

Mr Samuel also sent C & F Nominees a document entitled ‘Originator Agreement’ dated 1 February 2017 between Windsor Capital Management, Mazop and Mr Karbotli and Ms Issa as guarantors. The execution page of the document contained:

(a) the type-written words ‘Execution for multiple director company: EXECUTED by Mazop Pty Ltd ACN 082 155 155 in accordance with s 127(1) of the Corporations Act 2011’, and underneath those words two hand-written signatures, one above the type-written words ‘Director’ and ‘FULL NAME: James Karbotli’ and the other, discernible as ‘Hind Karbotli’, above the type-written words ‘Director/Secretary’ and ‘FULL NAME: Hend Karbotli’;

(b) the type-written words ‘Execution for guarantor(s) SIGNED SEALED AND DELIVERED by James Karbotli’ and adjacent to those words a hand-written signature, purportedly witnessed by Julie Archer; and

(c) the type-written words ‘Execution for guarantor(s) SIGNED SEALED AND DELIVERED by Hend Karbotli’ and adjacent to those words a hand-written signature, discernible as ‘Hind Karbotli’, purportedly witnessed by Carol Grevis.

On 13 February 2017, a document entitled ‘Statement of Position’ was also provided to C & F Nominees, which purported to set out Mr Karbotli’s assets and liabilities. The Statement of Position was not verified by any independent accountant, rather it was signed solely by Mr Karbotli. The statement did not seem to distinguish between Mr Karbotli’s assets and the assets of his various companies. Assets were shown at approximately $13 million and liabilities were shown as slightly less than $2 million.

On 21 February 2017, following receipt of an independent valuation which valued the Property at $1.2 million, Mr Skeels informed Mr Samuel that the maximum loan C & F Nominees was prepared to offer was $800,000.

On 22 February 2017, security documents for execution were dispatched from McNab, McNab & Starke on behalf of C & F Nominees to ‘The Director’ of Mazop, care of Mr Samuel. The covering letter was in the following terms:

We refer to previous correspondence and enclose the following security documents for execution by you:
1.        Mortgage in duplicate with a copy for your records.
2.        Memorandum of Common Provisions.
3.        Disbursement Authority in duplicate.
4.        Our account for professional costs.
5.        Our client’s account for the facility fee . [sic]
6.        Solicitors Certificate for Borrower [sic]
7.100 Point Identification Check Form. As a result of amendments to the legislation we are now required to obtain ID as certified documents.

We will require a Certificate of Currency of insurance over the property noting the interest of C & F Nominees Mortgage Securities Limited as the Mortgagee.

The 100 Point Identification Check Form had two sections. The first was headed ‘Details of the Borrower’. The second was headed ‘Identity Documents’ and listed acceptable primary and secondary documents. In respect of the primary identification documents the form stated ‘If you have changed your name from that on the document (eg, due to marriage etc), the document cannot be accepted’.

On or around 4 March 2017, executed documents were returned by email from Mr Samuel to C & F Nominees, including the mortgage and disbursement authority. The executed version of the mortgage:

(d) stated, in the standard form general introductory paragraph, that the mortgage ‘is given in consideration of and to better secure the principal sum lent or agreed to be lent to the mortgagor by the mortgagee’;

(e) described the mortgagor as ‘Hend Karbotli’;

(f) recorded the principal sum as $800,000;

(g) specified ’15 March 2018’ next to the item ‘How and when principal sum is to be repaid’;

(h) was undated and included the hand-written words ‘DO NOT DATE’;

(i) incorporated the provisions contained in the Memorandum of Common Provisions No AA2712 (‘MCP’);

(j) included a page headed ‘Covenants’ (page 2 of 3) which stated:

The mortgagor covenants with the mortgagee as follows:-
1. To pay the principal sum in the manner and at the times specified.
…
7.The Guarantor pursuant to Clause 4.2 is James Karbotli of 8 Amalf [sic] Drive, Surfers Paradise Qld 4217.
8.Mazop Pty Ltd will be primarily responsible for payment of the principal and interest as the money will be utilized by Mazop Pty Ltd.

(k) did not include a definition of ‘Covenantor’;[5]
[5]Clause 4.2(b) of the MCP provided that: The Guarantor guarantees to the Mortgagee, due and punctual performance and observance by the Mortgagee [sic] and any Covenantor of the obligations of the Mortgagor and the Covenantor under this Mortgage.

(l) did not contain any signatures following the type-written words ‘Execution and attestation’ appearing at the bottom of the covenants page of the mortgage; and

(m) included an execution page (page 3 of 3) which contained:

(i) the type-written words ‘SIGNED by the said HEND KARBOTLI’ and adjacent to those words a hand-written signature, discernible as ‘Hind Karbotli’, purportedly witnessed by Julie Archer;

(ii) the type-written words ‘SIGNED by the Guarantor JAMES KARBOTLI’ and adjacent to those words a hand-written signature, purportedly witnessed by Julie Archer; and

(iii) the type-written words ‘EXECUTED by MAZOP PTY LTD’, and underneath those words two hand-written signatures, one of which was discernible as ‘Hind Issa’, and under those signatures the type-written words: ‘Sole Director/Sole Secretary – James Karbotli of 8 Amalf [sic] Drive, Surfers Paradise QLD 4217’.

The executed disbursements authority contained, under a hand-written date ‘28^thFeb 2017’, two hand-written signatures, the first discernible as ‘Hind Karbotli’, above the type-written words ‘Signed- Hend Karbotli’ and a second above the type-written words ‘Signed- James Karbotli’.

On 6 March 2017, Mr Samuel delivered copies of documents to C & F Nominees, including documents purporting to certify the identity of Ms Issa in accordance with the 100 point identification check. The covering 100 point check form included in ‘Section 1 — Details of the Borrower’, the hand-written words ‘HIND ISSA’ above the type-written words ‘Full name of the Borrower’ and the hand-written words ’30 Francis St, Mermaid Beach’ above the type-written words ‘Residential Address of the Borrower’. The documents provided included:[6]
[6]Documents were also provided in respect of Mr Karbotli, including a certified copy of a ‘History Certificate’ which contained a history of changes of name registered at the Registry of Births, Deaths and Marriages Melbourne. No such ‘History Certificate’ was provided in respect of Ms Issa.

(n) a copy of a Queensland driver licence in the name of ‘Hind Issa’, which had expired on 15 January 2017, purportedly certified by a Justice of the Peace, Gary Kimberly, of the Department of Justice and Attorney-General Queensland on 18 January 2017;[7]
[7]The address on the licence is 30 Francis Street, Mermaid Beach, Queensland.

(o) a Statutory Declaration of Carol Marie Grevis taken and declared before Mr Kimberly on 18 January 2017;[8]
[8]The Statutory Declaration states ‘I hereby certify that Hind Issa and Hend Karbotli of 30 Francis Street, Mermaid Beach Qld 4218, whom I have known personally for 7 years in my capacity as James Karbotli’s bookkeeper are one and the same person. Hend Karbotli was her married name and after the divorce from her ex-husband, her name was changed back to her maiden name Hind Issa[.] [A]ttached are documents in both names noting the rates notice for the Bulleen property. Quill accounting group have set up the Trust in her current name. [A] certified copy of her drivers licence with her photo, are [sic] also attached.’ The attached documents were not included in the bundle provided to C & F Nominees.

(p) a ‘Westpac Bank Cash Reserve’ statement addressed to ‘Hind Issa’ as trustee for the Lion Enterprises Trust;[9]
[9]The address is a PO Box in Surfers Paradise, Queensland.

(q) a letter dated 25 May 2012 from Westpac Banking Corporation addressed to ‘Hind Issa’ as trustee for the Lion Enterprises Trust;

(r) a letter dated 24 May 2012 from Munro Accountants addressed to Mr Karbotli and ‘Mrs H Issa’ with a trust deed for the Lion Enterprises Trust;

(s) an Income Tax Statement from the Australian Taxation Office dated 22 August 2012 addressed to ‘Mrs Hend Karbotli’;[10]
[10]The address is a PO Box in Moreland, Victoria.

(t) a Quarterly PAYG Instalment Notice dated for the period October to December 2011 addressed to ‘Mrs Hend Karbotli’;[11] and

(u) a Notice of Assessment from the Australian Taxation Office dated 14 September 2016 addressed to ‘Mrs Hind Issa’.[12]

The identification provided was less than the required 100 points.

[11]The address is a PO Box in Surfers Paradise, Queensland.

[12]The address is a PO Box in Southport, Queensland.

On 27 March 2017, Mr Samuel sent an email to C & F Nominees attaching copies of a biographical page of a current passport, a current Medicare card and the expired driver licence, all in the name of ‘Hind Issa’, purportedly certified by Mr Kimberly on 26 March 2017. The identification provided was again less than the required 100 points.

Also attached to Mr Samuel’s 27 March 2017 email was a ‘Solicitor’s Certificate’ in the following terms:[13]
[13]The Solicitor’s Certificate was part type-written and part hand-written. The hand-written parts are shown in italics.

APPENDIX 1
Schedule 1
FOR USE IN CERTIFICATION WHERE THE PERSON(S) SIGNING IS A GUARANTOR TO A LENDER OR A SECURITY PROVIDER BEING REFERRED TO IN THE DOCUMENTS AS THE GUARANTOR
SOLICITORS CERTIFICATE
PART A
To: C & F NOMINEES MORTGAGE SECURITIES LTD
THIS CERTIFICATE IS PROVIDED BY:
STEPHEN RICHARD PICKEN
A solicitor holding a current Practising Certificate under the Legal Profession Practice Act 1958 and not acting for you in this transaction.
I HAVE BEEN ASKED TO INTERVIEW :
HEND KARBOTLI
(hereinafter called ’the borrower ’)
I HAVE BEEN PROVIDED WITH THE FOLLOWING DOCUMENTS:
(1) LOAN OFFER DOCUMENTS — C & F MORTGAGE SECURITIES LTD
(2) MORTGAGE DOCUMENTS — C & F MORTGAGE SECURITIES LTD
(3) ATTACHMENTS RE DISBURSEMENTS & COSTS
PART B
EXPLANATIONS GIVEN BY THE SOLICITOR
I explained to the borrower, before the borrower signed the documents, the general nature and effect of the documents required to be signed by the borrower including the risk of loss of any security property and other assets owned by the borrower.
PART C
EXCLUDED EXPLANATIONS
…
PART D
STATEMENTS BY THE PERSONS SIGNING DOCUMENTS FOLLOWING THE ABOVE EXPLANATIONS
The borrower stated to me :
That he/she/they understood the general nature and effect of the documents. It appeared to me they did have such understanding. That he/she/they were signing these documents freely, voluntarily and without pressure from any other persons.
PART E
IDENTIFICATION OF PERSONS SIGNING DOCUMENTS
The following evidence of identification was produced to me by the borrower viz:
(1) DRIVERS LICENCE 096820587
…
SOLICITOR’S CERTIFICATE :
I CERTIFY the above information
S R Picken Dated 4/3/2017
CLIENT’S CERTIFICATE :
I CERTIFY that
I have been handed a copy of this certificate
I have read this certificate
I am the client named
the above information is true
Hind Issa Dated 4.3.2017

Mr Skeels said he ‘Googled Picken’s name and saw he was listed as a practising Queensland solicitor’.

Mr Skeels recommended the loan to a number of C & F Nominees’ contributors who confirmed their willingness to transfer funds.

On 29 March 2017, the loan from C & F Nominees to Mazop settled. At settlement, C & F Nominees paid the sum of $448,425.81 to the solicitors for FX Money against a discharge of the FX Money Mortgage and its withdrawal of a caveat. C & F Nominees also provided the sum of $310,414 directly to Mazop by electronic funds transfer.

The mortgage was executed by C & F Nominees under its common seal attested by directors, Mr Skeels and Mr Starke, and dated 3 April 2017. It appears that C & F Nominees attempted to lodge the mortgage, but received a requisition from the Registrar of Titles because the covenants page of the mortgage document was not executed.

On 27 April 2017, C & F Nominees sent an email to Paul Tuddenham, a broker employed by Mazop, requesting a ‘progress report’ on receipt of the signed covenants page of the mortgage. Mr Tuddenham replied that same day attaching an executed version of the covenants page which contained a hand-written signature above the hand-written words ‘JAMES KARBOTLI’ and a hand-written signature, discernible as ‘Hind Issa’, above the hand-written words ‘HIND ISSA’.

The C & F Mortgage was re-dated 1 May 2017 and registered as instrument number AN182157Q.

By October 2017, Mazop had defaulted on the payment of interest under the C & F Mortgage and on 22 November 2017, a Notice to Pay was served on Mazop, Mr Karbotli and Ms Issa claiming the sum of $813,828.32, interest, and costs on an indemnity basis.

On 20 June 2018, in response to enquiries from Mr Skeels, Mr Picken confirmed by email that he did not meet with Ms Issa during the transaction, having been advised by Mr Karbotli that she could not attend a meeting, and that he reluctantly agreed to witness her signature subject to seeing the identification documents.

The proceeding

C & F Nominees commenced the proceeding in the County Court on 15 December 2017 against Ms Issa, Mr Karbotli and Mazop. Mr Picken was joined to the proceeding on 27 September 2018, and the Registrar was joined on 8 November 2019. Default judgment was entered against Mr Karbotli and Mr Picken. Mazop is in external administration.

C & F Nominees alleged that the C & F Mortgage obliged Ms Issa and Mazop to repay the principal sum on 15 March 2018 and to pay monthly interest on the fifteenth day of each month, with costs in the event of a breach to be paid on an indemnity basis. By failing to comply with a Notice to Pay, C & F Nominees alleged that Ms Issa breached the C & F Mortgage and C & F Nominees were entitled to possession of the Property.

Ms Issa’s defence was that she did not sign the C & F Mortgage and that C & F Nominees did not take reasonable steps to verify her authority and identity to ensure the person executing the mortgage was the same person who was the registered proprietor of the land that was the security in accordance with the requirements of s 87A of the TLA. The consequence was said to be that the C & F Mortgage was void and of no effect.

C & F Nominees accepted that Ms Issa did not sign the C & F Mortgage but submitted that it did comply with s 87A and would suffer loss and damage by being unable to recover its principal and interest under the mortgage. C & F Nominees asserted that it was entitled to rely on various documents, including the Solicitor’s Certificate provided by Mr Picken, and the 100 point identification check documentation. The judge disagreed and held that C & F Nominees did not take reasonable steps. In his reasons, the judge, by reference to two hypotheticals, indicated what may be considered as reasonable steps in the circumstances.

Ms Issa also alleged that C & F Nominees did not advance any moneys to her, nor did she authorise, direct or consent to C & F Nominees advancing money to anyone else. She alleged that, on a proper construction, the C & F Mortgage secured nothing. Ms Issa also denied receiving the Notice to Pay and denied that C & F Nominees was entitled to possession.

The judge held that, as a matter of construction, the C & F Mortgage and the covenants contained in it (which the parties agreed are indefeasible), did not secure any liability of Ms Issa to C & F Nominees because she did not borrow any money and the relevant covenant was expressed to relate to ‘the principal sum lent or agreed to be lent to the mortgagor by the mortgagee’. The funds were advanced by C & F Nominees to Mazop, controlled by Mr Karbotli, the suspected fraudster.

A claim by C & F Nominees against the Registrar for indemnity pursuant to s 110 of the TLA[14] predicated on its inability to enforce the C & F Mortgage also failed. The judge held that C & F Nominees’ loss was caused or substantially contributed to by its own neglect.
[14]Section 110 of the TLA is set out at paragraph 134 below.

Proposed grounds of appeal

C & F Nominees contended that the judge, by reference to his hypotheticals, imposed too high a standard for compliance which in effect required a guarantee as to authority and identity (proposed ground 1.1). C & F Nominees contended further that the judge applied the wrong version of s 87A of the TLA (proposed ground 1.2), and erred in finding that reliance on the Solicitor’s Certificate (proposed ground 2) and other documents did not constitute reasonable steps to verify the authority and identity of Ms Issa (proposed ground 3).

C & F Nominees also contended that, as a matter of construction, the covenant by the mortgagor (Ms Issa) was to repay the principal sum advanced to and utilised by Mazop and that the judge erred in finding the C & F Mortgage secured nothing (proposed ground 4).

C & F Nominees also contended that if it failed in the claim to enforce the C & F Mortgage, it is nevertheless entitled to indemnity under s 110 of the TLA (proposed ground 5).

The precise proposed grounds of appeal are set out below in relation to each proposed ground.

Proposed ground 1.2

It is convenient to deal with this proposed ground first.

Proposed ground 1.2 is in the following terms:

The Trial Judge erred in his application of section 87A of the TLA because his Honour held that the original version of the provision applied to the proceeding even though the provision had been amended before the proceeding had been commenced. His Honour should have held instead that the version of section 87A of the TLA that came into effect on 20 September 2017 applied to the proceeding. That is because the First Respondent had not initiated any action to seek to accrue any rights that might arise upon her taking advantage of her power under the original version of section 87A to have the mortgage declared void while that enactment was still in force.

Ms Issa submitted that the judge applied the correct version of s 87A of the TLA and that any right she had under s 87A to have the C & F Mortgage removed from the Register and ‘avoided’ accrued before registration of the C & F Mortgage and before the amendment of s 87A. That amendment took effect after the C & F Mortgage was executed but before the Notice to Pay was served.

C & F Nominees submitted that the judge erred in finding that Ms Issa had obtained an accrued right under the original version of s 87A, because she had not commenced any proceeding before the amendment came into operation.

The Registrar submitted that the original version of s 87A was in force at the time C & F Nominees took the steps it took to identify the person signing the mortgage and so its compliance with s 87A fell to be determined at that time. It was further submitted that a mortgagee’s vulnerability to the exercise of the Registrar’s right to refuse registration of a mortgage (or to remove a mortgage from the register) accrues immediately upon the mortgagee’s contravention of s 87A.

The Registrar submitted, that in any event, on the amended version of s 87A, C & F Nominees would not have succeeded in establishing that it took reasonable steps in respect of the mortgage (the amended version) and therefore resolution of the ground was inconsequential to the outcome of the appeal.

The nature of the amendment to s 87A of the TLA that occurred in 2017 was to remove the specific focus on the time of the execution of the impugned mortgage and to instead provide simply that ‘reasonable steps’ were to be taken with respect to the mortgage. Any difference between the two versions lies in the question of timing. The focus of the original version was on the time of execution and the focus of the amended version was the general circumstances of the mortgage without there being any anchor to a specific point in time.

In the end the parties agreed that it is not necessary to determine which version of s 87A of the TLA applies in this case. In our opinion, for the reasons submitted by the Registrar as set out below, any resolution of this ground cannot affect the outcome of the appeal.

First, the judge did not refuse to address any fact, matter or argument offered by C & F Nominees at trial on the basis that the conduct or fact or matter in question either pre-dated or post-dated the execution of the C & F Mortgage by the mortgagor. To the contrary, the judge considered all of the documents, arguments and materials put forth by C & F Nominees and the documents relied upon to attempt to make out the ‘reasonable steps’ requirement.[15]
[15]Reasons [83].

Secondly, in this Court, C & F Nominees did not focus on the difference in the wording between the versions of the section and did not explain how the phrase ‘with respect to’ operated any differently from the words ‘at the time of execution’. To the extent that there may be an expansion of the facts, matters or circumstances that could be considered, depending on which version of the section applied, this was not addressed by C & F Nominees in its submissions.

Thirdly, in this Court, C & F Nominees’ argument did not depend on a resolution of this ground that is favourable to it. On C & F Nominees’ construction of s 87A, execution of a mortgage takes place when all the parties to it sign the document and that is the time by which the borrower’s identity and authority must be verified. Accordingly, C & F Nominees say that in this instance execution of the C & F Mortgage took place on 3 April 2017 when C & F Nominees signed it and by that stage all of the measures that C & F Nominees relies upon had been completed.

Accordingly, leave to appeal in respect of proposed ground 1.2 is refused.

Proposed grounds 1.1, 2 and 3

It is convenient to deal with these proposed grounds together.

Proposed grounds 1.1, 2 and 3 are in the following terms:

1.1The Trial Judge erred in his construction of section 87A of the TLA because his Honour held that the provision in effect required a mortgagee to take all steps necessary to guarantee that the person executing the mortgage was the actual owner of security property – and that in essence that could only be achieved by a mortgagee adopting the elements of a procedure his Honour himself had identified and described. By contrast, on its proper construction, section 87A of the TLA requires only that the mortgagee take ’reasonable steps’ to verify the authority and identity of a mortgagor, and the provision permitted flexibility in terms of the specifics of the measures that a mortgagee could legitimately adopt to verify the identity and authority of the mortgagor.
2.The trial judge erred in his construction of, and the inferences to be properly drawn from, the terms of the solicitor’s certificate dated 4 March 2017 by failing to find that the solicitor’s certificate represented, and it was reasonable for the Applicant to rely upon, that:
2.1 the solicitor physically met with the mortgagor;
2.2 the solicitor directly spoke with the mortgagor;
2.3the mortgagor told the solicitor that she wished to give the mortgage in question; and
2.4the mortgagor handed her driver’s licence to the solicitor in person, based on which, the solicitor verified the identity of the mortgagor.

3.The trial judge erred in holding that the Applicant (ie mortgagee) had not taken reasonable steps to verify the authority and identity of a [sic] mortgagor. His Honour should have held that the Applicant had taken requisite reasonable steps because the measures that the Applicant employed in this instance, including its reliance on the solicitor’s certificate, were legitimate and reasonable. In particular, one manifestation of the reasonableness of the Applicant’s reliance on the contents of the solicitor’s certificate is the fact that, had the solicitor in fact carried out the measures represented in the certificate, the fraud could not have occurred.

The critical question is whether C & F Nominees took ‘reasonable steps’ to verify the authority and identity of Ms Issa (proposed ground 3). Part of this question, although framed as a separate proposed ground of appeal, is whether C & F Nominees was entitled to rely on the Solicitor’s Certificate (proposed ground 2). Finally, C & F Nominees contended that the procedure for compliance with s 87A of the TLA suggested by the judge amounts to a guarantee and is overly prescriptive (proposed ground 1.1).

Judge’s reasons

Critically, the judge found as follows:

In their totality, the 100-point check and related documents established that Ms Issa was a real person whose name had been variously recorded over the years. In particular, she was the person shown as the registered proprietor of the Bulleen property. In themselves, however, these documents were incapable of establishing that she was the person who purported to execute the mortgage. In themselves, they could not be regarded as reasonable steps toward establishing the identity of the person signing the mortgage. They could constitute such steps in combination with something else, and the ’something else’ would be proof, or, at least, some distinct indication, that the person who executed the mortgage was the person depicted in the recently expired driver’s licence. The entire purpose of ’photo ID’ is to enable the person seeking to establish the identity of a subject to compare the officially labelled photograph, as in a driver’s licence or passport, with the features of the person to be identified. In the absence of such comparison, ’photo ID’ is incapable of establishing identity. That comparison constitutes the indispensable link in the process.
What C & F relied upon to establish that crucial link was the Solicitor’s Certificate, which, as a standard form, seems to have been framed with entirely different issues in mind. The provisions as to advice and so forth imply that a face-to-face meeting has occurred between the person signing as mortgagor and the certifying solicitor, but there is no explicit certification to that effect. Whether the steps taken by C & F are to be regarded as ’reasonable’ for the purposes of s 87A must be judged not merely, or perhaps not even primarily, by reference to the facts of this particular case, but rather by reference to a range of scenarios which the prudential and security regime should seek to deal with.[16]

[16]Reasons [87]–[88].

After considering two hypothetical situations,[17] the judge concluded that:

[A] process which relies upon steps which were designed for another purpose and fails to require, explicitly and directly, a link between the photo identification and the actual execution of the mortgage document cannot, either individually or in combination, constitute the taking of reasonable steps to establish the identity of the mortgagor.
I am fortified in these conclusions by the comparison between the practices which C & F followed in 2017 and which, on Mr Skeels’ evidence, remained entirely unaffected by the enactment of s 87A, whether in its original or amended version, and the practice which it now follows.[18]
[17]Ibid [89]–[90].
[18]Ibid [91]–[92] (emphasis added).

C & F Nominees’ submissions

C & F Nominees submitted that it was entitled to rely on the Solicitor’s Certificate. It submitted that it was entitled to infer, as Mr Skeels did, that:

(v) Mr Picken met face to face with Ms Issa;

(w) Mr Picken directly spoke with Ms Issa;

(x) Ms Issa told Mr Picken she wished to give the C & F Mortgage; and

(y) Ms Issa handed her driver licence to Mr Picken in person, based on which Mr Picken verified her identity.

It was submitted that the inferences to be drawn were proper and reasonable and established the identity and authority of Ms Issa.

In addition to the Solicitor’s Certificate, C & F Nominees referred to the 100 point identification check, the insurance on the Property and the documents from the Australian Taxation Office. Taking all these matters into consideration, it was submitted that C & F Nominees took reasonable steps to verify the authority and identity of the mortgagor, Ms Issa.

It was submitted and repeated that if the solicitor had in fact carried out the measures represented in the certificate, the fraud would not have occurred. The identity would have been verified and the free and voluntary giving of the mortgage confirmed. This was said to show that reliance on the Solicitor’s Certificate was reasonable.

Finally, it was submitted that the procedure articulated by the judge went beyond reasonable steps and amounted to a guarantee in relation to identity and authority. The judge erred, it was submitted, in suggesting that compliance was best achieved by the mortgagee arranging for someone to witness the execution having verified the identity of the mortgagor.[19] The explanatory memorandum and legislation provided for flexibility and was not prescriptive. Compliance could be achieved either by complying with the Registrar’s directions or by some other way that constitutes reasonable steps. The issue was whether reasonable steps were taken and it was submitted that they were.
[19]Ibid [87]–[92].

Ms Issa’s submissions

Ms Issa submitted that the (reasonable) steps must be taken at the time of execution of the mortgage and that the Solicitor’s Certificate did not deal with the execution of the mortgage.

It was submitted that Mr Picken was not C & F Nominees’ agent and that the form of the Solicitor’s Certificate was directed to other matters, such as the understanding of the document,[20] and was not updated to provide for authority and identity issues, being the critical issues arising out of the new provisions of s 87A of the TLA. In any event it was submitted that this was not a step taken by C & F Nominees, and that Mr Picken, in effect a stranger, took no steps to verify the identity and authority of the mortgagor, as required.
[20]Arising out of Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48.

In relation to the judge’s hypotheticals and suggested procedure, it was submitted that in finding that there was a missing link or rather no link between the photographic identification and the execution of the mortgage the judge was not supporting any higher standard but simply identifying what may be considered reasonable in relation to authority and identity at the time of execution of the mortgage. There was no error, it was submitted, in the finding that the Solicitor’s Certificate failed to provide a link to the execution of the C & F Mortgage and in making suggestions as to how this may be achieved.

Registrar’s submissions

The Registrar emphasised the evident policy behind the legislation. Where mortgagees were not dealing directly with the registered proprietor of a property, safeguards needed to be introduced in order to protect against identity fraud. The only real safeguard, it was submitted, was a comparison between the signatory on the mortgage and photographic identification. It was submitted further that the judge’s suggested procedure was not overly prescriptive but rather an example of how authority and identity may (reasonably) be established, namely, to compare likeness (photographic identification against physical appearance) at the time of execution of the mortgage. This could take place whether outsourced or not.

It was submitted that the Solicitor’s Certificate did not represent that the identity of the person interviewed — alleged to be Ms Issa — was confirmed against the driver licence and that the solicitor had carried out this comparison. It was submitted that the absence of any certification of comparison of likeness was inimical to the notion of reasonable steps to verify identity. Further, as found by the judge, the Solicitor’s Certificate was ambiguous as to whether the solicitor conducted the interview in person.

The Registrar also submitted that what constituted reasonable steps needed to be considered ‘in the circumstances of this case’. The Registrar pointed to the circumstances of the 100 point identification check, which was ‘beset by problems’ including the expired driver licence and uncertified copies of bank statements. The Registrar also pointed to the surrounding circumstances, including that the certificate of title had been lost just a matter of weeks before the loan application; that the FX Money Mortgage was signed only three weeks prior to the loan application and registered two weeks prior, which Mr Skeels noted at the time seemed ‘very off’; that C & F Nominees had no knowledge of Ms Issa’s actual income or expenses; and that the stated value of the Property in the loan application was inflated compared to the independent evaluation. The Registrar submitted that in such circumstances it was not reasonable for C & F Nominees to ‘rely on mere inferences that may or may not be available from a document [the Solicitor’s Certificate] not fit for purpose, but made for another purpose’ than compliance with s 87A of the TLA.

Analysis

In our opinion, C & F Nominees did not take reasonable steps to verify the identity and authority of Ms Issa[21] to execute the mortgage as required pursuant to s 87A of the TLA. The Solicitor’s Certificate, whether alone, or together with other evidence, was not sufficient for such purpose. We also consider that the judge did not set too high a bar as to what was reasonable but merely considered how such reasonable steps may be achieved. The judge’s suggestion was not the only way that such reasonable steps may be achieved.
[21]Or more relevantly Hend Karbotli, the named registered proprietor of the Property. This required the verification of a further link, that is, between Ms Issa (Hind or Hend – both were used) and Hend Karbotli, a point that was not developed by any party.

The email from Mr Samuel to Mr Skeels dated 2 February 2017, the commencement of the loan application, attached the Veda Report (see paragraph 11 above). The Veda Report is in respect of Hind Issa and also refers to her as Hind Karbotli. The registered proprietor of the Property was Hend Karbotli. The email refers to the registered proprietor as Hend Issa. C & F Nominees did not make any further enquiries and did not receive a certified copy of a change of name from the registered proprietor, Hend Karbotli, to Hind (or Hend) Issa. A certified copy of a change of name was received in respect of Mr Karbotli.[22] Further, the Veda Report does not list any directorships for Ms Issa.
[22]See footnote 8 above.

The Loan Offer is dated 3 February 2017. It is addressed to ‘The Directors’ of Mazop but was sent by email to Mr Samuel of Windsor Capital Management. The terms are referred to above. ‘James Karbotli’ and ‘Hend Karbotli’ are referred to as ‘Guarantor/s’. On the third page of the document there is a heading ‘Independent Advice’. The following paragraph appears in relation to this heading:

C&F require that the borrower obtains independent legal advice from their own solicitors. A form of acknowledgement to this effect will be required as part of the mortgage documentation.

A number of matters should be noted. First, C & F Nominees was not dealing directly with Ms Issa, or indeed Mr Karbotli or Mazop. All dealings were through the broker, who was not the agent of C & F Nominees. Secondly, although there is a requirement for independent advice — perhaps mistakenly relating to the borrower and not the guarantors as is usually the case — there is nothing in the Loan Offer about the need to verify the identity or authority of the proposed mortgagor in respect of the security property. Thirdly, although there are various conditions in the Loan Offer, none are directed to the requirement to ensure the authority and identity of the proposed mortgagor, Ms Issa.

The Loan Offer was accepted by Mazop on 10 February 2017. Both Ms Issa and Mr Karbotli signed the Acceptance of Offer and a Declaration under the Consumer Credit Code for and on behalf of Mazop. The signature of Ms Issa is fragile and is a forgery. Ms Issa was not a director of Mazop on that date, a fact referred to in the Veda Report and therefore known to C & F Nominees.

On 22 February 2017, C & F Nominees sent the security documents for execution to ‘The Director’ of Mazop, care of Mr Samuel. The documents are referred to in paragraph 18 above. Documents 1 to 3 are not relevant for present purposes but are relevant to proposed ground 4. Documents 4 and 5 are not relevant. Documents 6 and 7 are relevant.

Document 6 (the Solicitor’s Certificate) was a standard form solicitor’s certificate. The certificate was designed to enable a lender or mortgagee to ensure that, where required, the borrower and/or any security provider received independent legal advice as to the nature and effect of the documents prior to signing. This was to prevent a lender or mortgagee from taking advantage of a special disability that it was aware of. Although designed for this different purpose, Mr Skeels admitted that the document continued to be used in this form without any amendment to specifically take into account the necessary verification of the identity and authority of the mortgagor. Whether this nevertheless had the effect of such verification is discussed below.

Document 7 was the 100 point identification check form. Following reference to the document, the following appears: ‘As a result of amendments to the legislation we are now required to obtain ID as certified documents’. This is the only reference to any requirement under the new legislation, presumably s 87A of the TLA. The paragraph does not, however, go any further. The document itself records that the 100 point identification check form is ‘in order to verify your identity’. This is presumably and purportedly done through primary and secondary identification documents which are accorded points and are required to be certified. It is not explained how this identity check has an effect on or is linked to the execution of the mortgage and in particular the witnessing of the mortgage, especially if this is done at a later time. The form did not require any certification by the person certifying the documents, for example, that the information on the form is true, that the documents were produced in a face to face interview or that the person identified had a reasonable likeness to the person in the photographs in the identity documents.

On or around 4 March 2017, executed documents were sent by email from Mr Samuel to Mr Skeel at C & F Nominees. They included the executed mortgage and the executed disbursement authority, but not the Solicitor’s Certificate or the 100 point identification check form. That version of the mortgage is not dated and there is no separate execution and attestation on the covenants page as required, and subsequently attended to. The execution page contains the signatures of Mr Karbotli and Mazop and the forged signature of Ms Issa. The disbursement authority is dated 28 February 2017. It is signed by Mr Karbotli. Ms Issa’s signature is a forgery.

On 6 March 2017, documents were received by C & F Nominees. They included the 100 point identification check form purportedly certifying Ms Issa’s identity by reference to copies of her expired driver licence, a statutory declaration by Carol Grevis, a Westpac bank statement, Australian Taxation Office statements and a PAYG statement. The expired driver licence was purportedly certified by Mr Kimberly on 18 January 2017 and the statutory declaration purportedly taken by Mr Kimberly that same day. Mr Skeels gave evidence that he realised the identification provided in respect of Ms Issa was less than the 100 points required by C & F Nominees.

On 27 March 2017, Mr Samuel emailed various documents to Mr Skeel. They included copies of the biographical page of Ms Issa’s passport, her current Medicare card and her expired driver licence, all purportedly certified by Mr Kimberly on 26 March 2017.[23] The email also attached the Solicitor’s Certificate notwithstanding execution and return of the C & F Mortgage to C & F Nominees on or about 4 March 2017, over three weeks earlier. The loan from C & F Nominees to Mazop settled on 29 March 2017. There is no evidence at all of any assessment or analysis of the documents by C & F Nominees to establish the authority and identity of Ms Issa.
[23]Mr Skeels conceded that as the driver licence had expired the necessary 100 points was not achieved.

C & F Nominees conceded that reliance on the Solicitor’s Certificate was critical to its contention that it took reasonable steps to ensure the identity and authority of Ms Issa. Although a separate ground, it is clearly fundamental to this critical analysis.

We agree with the judge that reliance on the Solicitor’s Certificate was not sufficient to establish that such reasonable steps were taken to ensure the authority and identity of Ms Issa, for at least the following reasons.

First, the Solicitor’s Certificate is ambiguous as to whether Mr Picken conducted a face to face interview with Ms Issa. It is not sufficiently clear that he did.

Secondly, although Part E of the certificate refers to evidence of identification in the form of ‘DRIVERS LICENCE 096820587’ there is no certificate or reference to any comparison of likeness between the photographic identification in the driver licence and the person (if any) before Mr Picken.

Thirdly, the Solicitor’s Certificate was prepared and was in use for an entirely different purpose, that is, to ensure that the borrower or security provider received independent legal advice in relation to the ‘general nature and effect of the documents … including the risk of loss of any security property and other assets owned by the borrower’.[24] No attempt was made to amend the certificate so as to deal more specifically, clearly and precisely, with the issues of authority and identity, the focus of the newly introduced s 87A of the TLA. That is not to say that the certificate does not go some way to establishing authority and identity. However, on its own it is insufficient for such purpose.
[24]The certificate was in any event an outdated standard form prepared by the Law Institute of Victoria. The new version of the certificate has, by reference to the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015, a stringent procedure for verification of identity. It is not necessary to decide and we make no finding as to whether the new version of the certificate would have been sufficient for the purpose of s 87A of the TLA.

Fourthly, so far as and to the extent that the Solicitor’s Certificate purports to verify authority and identity, it does not speak at the time of execution of the mortgage, but some time before. This missing link was properly emphasised by the judge.

Fifthly, although a standard document, essentially for other purposes, there is no attempt to properly complete the document. There is, for example, continuous reference to the borrower, not the mortgagor. The words ‘he/she/they’ appear without deletion.[25]
[25]It should be noted that Mr Picken signed a similar certificate for Mr Karbotli.

Sixthly, there is no certification of any verification by Mr Picken that Ms Issa was the same person as the mortgagor (incorrectly described in the certificate as the ‘borrower’), being Hend Karbotli. The driver licence purportedly relied on is in the name ‘Hind Issa’.

For these reasons, we do not accept that the Solicitor’s Certificate verifies the identity or authority of Ms Issa or more relevantly Hend Karbotli, the named registered proprietor. It does not constitute the taking of reasonable steps to verify that the person executing the mortgage was Ms Issa (or Hend Karbotli). Reasonable steps must be taken to ensure two related critical requirements regarding verification of authority and identity under s 87A are satisfied. First, it must be verified by photographic identification and a comparison of likeness that the mortgagor (the person who will execute the mortgage) is indeed the mortgagor (the registered proprietor of the property). Secondly, it must be verified that the identified mortgagor is indeed the person executing the mortgage. Reasonable steps were not taken to satisfy either of those requirements in this case. Of course, they may be satisfied at the same time and usually are, but not necessarily so, as purportedly occurred in this case.

The other purported identification documents sent directly to C & F Nominees on 6 and 27 March 2017 do not assist in the verification process referred to above. All the documents establish[26] is that there was a person named Hind Issa with a facial profile, and also that there was a person named Hend Karbotli.[27] There is no evidence or indication that it was Ms Issa that confirmed and verified that she was indeed the Hind Issa referred to in the documents and the Hend Karbotli who was the registered proprietor. There were a number of issues with the purported identification documents, including that they were very old and under different names and directed to different addresses. More importantly however, there is no link or connection between the 100 point identification check and the Solicitor’s Certificate and the execution of the mortgage or satisfaction as to her authority and identity.
[26]Leaving aside the fact that 100 points were not reached.
[27]In the certified passport Ms Issa is wearing a head covering. There is no head covering on the facial profile on the driver licence and no facial profile on the Medicare card.

The mortgage was signed by C & F Nominees on 3 April 2017 and the signed covenants page (page 2) was later provided to C & F Nominees on 27 April 2017, before the mortgage was registered on 1 May 2017. Sometime between 3 and 27 April, the covenants page was purportedly signed by Ms Issa without any indication of a witness. Further, the covenants page was signed ‘Hind Issa’ and the mortgage appears to be signed by ‘Hind Karbotli’ whereas the mortgagor was ‘Hend Karbotli’. Reasonable steps were not taken to ensure the identity and authority of Ms Issa (or Hend Karbotli) in relation to the execution of page 2 which contains critical covenants that we have found would otherwise render Ms Issa liable on a proper construction of the C & F Mortgage. This is dealt with in proposed ground 4.

In all of the circumstances, including the sequence of events and the documentation relating to the execution of the mortgage, it cannot be said that in relation to the execution of the C & F Mortgage, C & F Nominees took reasonable steps to verify the authority and identity of Ms Issa as required.

Even if reasonable steps had been taken to verify the authority and identity of the person who was going to execute the mortgage, there is a further critical problem when it comes to the authority and identity of the person who actually executed it.[28] The witness to Ms Issa’s signature on the mortgage, Julie Archer, did not notify C & F Nominees or provide any evidence that the person she observed signing the mortgage was indeed Ms Issa (and that Ms Issa was the same person as the registered proprietor, Hend Karbotli), as appeared from checking her likeness with suitable photographic identification. Of course, none of this could be done because the signature was a forgery. However, C & F Nominees did not take any reasonable steps to ensure that this was done, that is, that any witness conducted the necessary checks. In such a case, if the witness had said that they had conducted a check but in fact did not, C & F Nominees may be entitled to rely on the purported verification and may be protected or indemnified. The legislation is in our view aimed at this very situation. However, C & F Nominees did not take this elementary but necessary step, instead purporting to rely on a Solicitor’s Certificate which for the reasons given did not adequately verify the authority and identity of Ms Issa (or Hend Karbotli) in relation to her execution of the mortgage, a position not ameliorated by the 100 point identification check, and indeed made worse by the later unverified execution of the covenants page of the mortgage, another forgery.
[28]The inferences urged by C & F Nominees (paragraph 61 above), even if available, do not extend to the execution of the mortgage, the critical matter that the legislation addresses.

The adequacy or reasonableness of the steps will depend on the facts and circumstances of the particular case, including the relationship between the parties, any unusual features of the transaction, and the knowledge of the mortgagee. In this case the obligation to take reasonable steps to confirm the authority and identity of the mortgagor needs to be assessed in light of the knowledge of C & F Nominees, before settlement of the loan, of, inter alia, the following facts and matters in relation to Ms Issa: first, the fact that, despite having signed the Loan Offer, she was not a director of Mazop at the relevant time; secondly, the unusual and unexplained features of the unregistered FX Money Mortgage, secured by a caveat lodged about two weeks before the Loan Offer; thirdly, the inadequate 100 point identification check, much of which was received on 27 March 2017 (together with the Solicitor’s Certificate) well after execution of the mortgage and two days before settlement of the loan; fourthly, the fact that Ms Issa was referred to by various names and the identification documentation provided was generally in the name of ‘Hind Issa’ and not ‘Hend Karbotli’, which was the name recorded on the title as the registered proprietor of the Property.

Finally, in respect of ground 1.1, we do not consider that the judge was seeking to impose a higher standard or in effect requiring a guarantee of authority and identification. Rather, mindful of the aim and purpose of the legislation and recognising the fundamental requirement to verify and establish a direct link between the photo identification and the actual execution of the mortgage, the judge held that reasonable steps were not taken. His Honour also identified what steps might be considered reasonable, without being prescriptive.

For the reasons given, we grant leave to appeal in respect of proposed grounds 1.1, 2 and 3 but dismiss the appeal in respect of those grounds.

Proposed ground 4

Proposed ground 4 is in the following terms:

The trial judge erred in holding that the mortgage in question secured nothing and that as a result the Applicant could not enforce the mortgage. His Honour should have followed the reasoning in Pyramid Building Society (in liquidation) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 196, Small v Tomassetti [2001] NSWSC 1112 and Perpetual Trustees Victoria Ltd v Xiao Hui Ying [2015] VSC 21 and held that the indefeasibility which section 42 of the TLA granted to the mortgage extended to the covenant to pay contained in the mortgage.

Having failed in respect of grounds 1.1, 2 and 3 it is not strictly necessary to deal with this proposed ground, which cannot affect the outcome of the appeal because the mortgage is void under s 87A(5)(b). However, in deference to the written and oral submissions of the parties we propose to shortly state the reasons why we would otherwise have allowed the appeal on this ground.

The critical question is whether the forged mortgage properly secures payment of the principal sum. For convenience, the relevant specific personal covenants are set out again below:

The mortgagor covenants with the mortgagee as follows:-
1. To pay the principal sum in the manner and at the times specified.
…
7.The Guarantor pursuant to Clause 4.2 is James Karbotli of 8 Amalf [sic] Drive, Surfers Paradise Qld 4217.
8.Mazop Pty Ltd will be primarily responsible for payment of the principal and interest as the money will be utilized by Mazop Pty Ltd.

Judge’s reasons

The judge accepted Ms Issa’s submission that as a matter of construction the mortgage secured nothing because on its face, the covenant to repay any debt to C & F Nominees was premised upon moneys actually having been advanced to and received by the mortgagor, being Ms Issa.[29]
[29]Reasons [93].

The judge accepted that the operative words in the standard form general introductory paragraph of the mortgage were that ‘the mortgage is given in consideration of and to better secure the principal sum lent to the mortgagor by the mortgagee’.[30] These words identify the consideration. Further, the judge accepted that the covenant to repay was introduced by the words ‘the mortgagor covenants with the mortgagee’ and that the principal sum of $800,000 was to be ‘repaid’ by 15 March 2018 — the effect of the word ‘repaid’ being that ‘money has been paid to someone and that money will be returned or paid back’.[31] The judge also noted that the ‘one and only person’ identified in the mortgage as a guarantor was Mr Karbotli,[32] and considered that the mortgage did not stipulate that moneys would be advanced to Mazop or at its direction.[33]
[30]Ibid [95] (original emphasis).
[31]Ibid [96].
[32]Ibid.
[33]Ibid [109].

Accordingly, the judge considered it ‘unnecessary to seek to distil the true rule governing the indefeasibility of covenants to pay in registered mortgages’.[34]
[34]Ibid [107].

C & F Nominees’ submissions

C & F Nominees submitted that the covenant to pay in the mortgage is express and does not rely on any other related document for its interpretation or effect, such that the covenant to pay delimits or qualifies the estate or interest of C & F Nominees and secures the sum of $800,000. C & F Nominees further submitted that the mortgage ought to be construed to read that the moneys would be advanced to Mazop on behalf of or at Ms Issa’s direction.

It was submitted that the specific terms of the personal covenants contained in the mortgage, including covenants 1 and 8, should be taken as being intended by the parties to have primacy over the general mortgage provision. To conclude otherwise in relation to covenant 1 would be to deny the existence of the principle that a mortgagor’s personal covenant to pay achieves indefeasibility upon due registration of the mortgage. Also, to deny that Mazop was intended to receive the money would be to ignore that it was named as a party to the mortgage and executed it in that capacity.

Consequently, C & F Nominees submitted, the judge should have held that the parties intended: for C & F Nominees to advance moneys to Mazop on behalf of or at the direction of Ms Issa; that Ms Issa was obliged to pay to C & F Nominees those moneys in the manner and time specified (noting the covenant was to ‘pay’, rather than ‘repay’, the principal sum); and that Ms Issa’s obligation was secured by a mortgage over her property in C & F Nominees’ favour. Accordingly, C & F Nominees was entitled to enforce its mortgage because Ms Issa had failed to pay, when due, the $800,000 advanced by C & F Nominees.

Ms Issa’s submissions

Ms Issa submitted that the personal covenant was to ‘repay’ an amount advanced, so it was incorrect for C & F Nominees to say that it was a covenant simply to pay the principal sum. Emphasis was placed on phrases on the first page of the mortgage including ‘[t]his mortgage is given in consideration of and to better secure the principal sum lent or agreed to be lent to the mortgagor by the mortgagee’ and ‘[h]ow and when principal sum is to be repaid’. Further emphasis was placed on the introductory words to the covenants on page two being ‘[t]he mortgagor covenants with the mortgagee’ and the words in the first covenant itself as to payment ‘in the manner and at the times specified’. It was submitted that such construction was supported by the MCP which uses the words ‘repayment’. Accordingly, Ms Issa’s position was that the judge was correct in finding that the mortgage secured nothing because it purported to secure moneys advanced to her and no moneys actually were advanced to her or at her direction.

Registrar’s submissions

The Registrar submitted that the judge’s construction of the mortgage was the only conclusion reasonably open to the Court. It was submitted that C & F Nominees was obliged to ensure that monies were disbursed in accordance with the mortgage and failed in that duty by disbursing the money to a person who lacked authority.

Analysis

The parties agree that, based on the authorities referred to, indefeasibility attaches not only to the estate or interest in the Property but also to any covenant to pay. The critical question of construction is precisely what the mortgage secures, given the tension between the standard form general introductory paragraph stating the consideration and not being promissory in nature (favoured by the judge) and the specific personal covenants, which are promissory in nature. Does the mortgage secure payment by Ms Issa of the principal sum even though funds were not lent to her? The answer depends on a proper construction of the entire document, that is the C & F Mortgage, including the MCP.

In the recent New South Wales case of Winau Aust Pty Ltd v LCC Property Development Pty Ltd (‘Winau’),[35] Kunc J set out the relevant principles relating to the construction of a mortgage as follows:
[35](2020) 19 BPR 40,261; [2020] NSWSC 434.

The relevant legal principles were not in dispute. In relation to the construction of a commercial contract, the High Court said in Electricity Generation Corporation v Woodside Energy Ltd (2004) 251 CLR 640 (Electricity Generation Corporation), at [35] per French CJ, Hayne, Crennan and Kiefel JJ:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context. …’ As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience.’

Where the construction of a forged mortgage is in question:
(1)Sackville JA (with whom Allsop P and Campbell JA agreed) said in Perpetual Trustees Victoria Ltd v English (2010) 14 BPR 27,339; [2010] NSWCA 32; BC201001246 at [11]-[13]:
Later authorities in Australia and New Zealand, while acknowledging that registration of a forged mortgage confers an indefeasible title on the registered mortgagee (unless the mortgagee has been guilty of fraud), have pointed out that there is a further question to be answered, at least where the contest is between the innocent registered proprietor and the mortgagee. That question is whether the indefeasibility of the mortgagee’s title effectively validates all the terms of what otherwise would be a void instrument and, if not, what is the test for identifying the provisions of the mortgage that can be enforced against the estate or interest of the innocent registered proprietor.
In order to answer that question, courts have generally proceeded on the basis that it is a question of construction of the mortgage as to whether it grants the mortgagee a security interest that can be enforced against the Lands (including the interest of the defrauded registered proprietor). This has often involved the courts in a minute analysis of the language of complex mortgage documentation that is unlikely to have been read, let alone understood by a mortgagor. By hypothesis, the innocent registered proprietor in a case of forgery will not have even had a chance to read the documentation on which his or her fate as a proprietor will rest.
The problem has been compounded by the tendency of institutional lenders to rely on ever more complex documentation that is designed to ensure that they have security, not merely for a specified sum advanced to the borrowers, but for any moneys advanced to or due by then, whether in the past or in the future. These ’all moneys’ clauses require reference not only to the mortgage instrument itself, but to other documents which themselves may be forged. The irony is that as lenders draft ever-wider clauses they make themselves more vulnerable to the effects of forgery. This is because all moneys clauses may depend for their effectiveness on the validity of antecedent instruments that have not been, and indeed cannot be registered under the Torrens system. Since forgery renders such instruments void under the general law, the indefeasibility provisions of the RP Act may not protect the mortgagee.
(2)In Yazgi v Permanent Custodians Ltd (2007) 13 BPR 24,567; [2007] NSWCA 240; BC200707767 at [24], Beazley JA (as her Honour then was) referred to the decision of Young CJ in Eq (as his Honour then was) in Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR 22,281; [2004] NSWSC 745; BC200405182:
His Honour then dealt with the question of the extent of that indefeasibility, adopting the question posed by Campbell J in Small v Tomassetti: ’indefeasibility for what?’ Young CJ in Eq pointed out that the answer to that question depended upon the wording of the covenants in the particular mortgage. He said that under the ’old fashioned form of mortgage’ there was a statement of the sum that had been lent and an acknowledgement that the moneys had been so lent. Thus, when those matters were stated in the body of the mortgage document, the production of the mortgage document itself constituted prima facie evidence of the existence of the debt. However, where there was no statement of the amount lent in the mortgage (as in an ’all monies’ mortgage), proof of the indebtedness and that the indebtedness was secured by the mortgage had to be established in some other way.[36]

[36]Ibid [62]–[63].

In many cases, where on a proper construction the mortgage was held to secure nothing, the covenant was directed to a transaction or loan that did not exist or was different to that embraced by the covenant. The covenant must be compared and assessed in accordance with the facts. If, to take a simple case, the mortgagor covenants to pay an amount advanced to X and no amount was advanced to X the covenant secures nothing. Of course, the covenant may not be so narrow; it may not refer to a particular transaction or loan between identified parties. The covenant may more broadly refer to all amounts owing or it may simply identify an amount secured without reference to the underlying transaction or loan.

In our opinion a reasonable businessperson looking at the language used by the parties[37] and the commercial purpose to be achieved or secured by the C & F Mortgage, all examined from within the four corners of the mortgage and MCP, would conclude that Ms Issa had agreed to pay the principal sum, whether advanced to her or Mazop.
[37]For the purpose of the analysis of this ground it must be assumed that Ms Issa executed the C & F Mortgage.

The starting point must be the specific personal covenant. Ms Issa agreed to pay $800,000 on 15 March 2018. The obligation is clear, precise and unambiguous. The amount is certain. The date is certain. The obligation is not tied to any transaction or loan that may not exist. Rather, it is simply an agreement to pay regardless of the identity of the borrower. The obligation to pay is direct. ‘I will pay you this amount,’ says Ms Issa. It is not framed as a payment by reference to or dependent upon any further analysis.

There is in our opinion nothing in the C & F Mortgage or MCP that affects or undermines this analysis. Such a clear covenant does not attract any of the complexities evident in many of the authorities.

Covenant 8 clearly contemplates that the principal sum would not be used by Ms Issa but by Mazop and that it would bear primary responsibility for its payment. It is arguable, but not necessary to determine, that by its execution of the C & F Mortgage, Mazop incurred and accepted that obligation.[38] The short point is that, notwithstanding the peculiar structure of the covenants and indeed the documentation in relation to the loan transaction,[39] Ms Issa undertook to pay a defined amount, the principal sum, that she knew and acknowledged she would not receive or derive the benefit of.
[38]Mazop was liable anyway as a borrower under the Loan Offer.
[39]Mazop was the borrower and Ms Issa (and Mr Karbotli) was a guarantor.

In Small v Tomasetti,[40] the relevant covenants to pay were in terms that the mortgagor was to pay the defined ‘principal sum’ plus interest. No further reference was needed to any transaction document to understand the extent of the covenants and they were enforceable. It was clear, as it is in the case before us.
[40](2001) 12 BPR 22,253; [2001] NSWSC 1112.

In Perpetual Trustees v Cox (‘Cox’),[41] the covenant to pay was defined by reference to the definition of ‘Secured Money’ which referred to money owing under other agreements. Although the mortgage was not forged, the other agreements and the direction to pay were forged. The covenant was held not to secure any amount.
[41](2014) 17 BPR 33.325; [2014] NSWCA 328.

In Winau, the covenant to pay related to the ‘liability described … in this mortgage’. The liability was described in the relevant Memorandum of Common Provisions as being the amount stipulated in Schedule A as the amount advanced by the lender to the debtor the repayment of which is secured. No amount was advanced to the borrower and in such circumstances the covenant, although indefeasible, did not secure any debt.

A covenant to pay will be enforceable where it is directed to a principal sum, as distinct from a transaction which according to its terms did not take place, as in Cox and Winau.

In our opinion, Ms Issa’s reliance on Winau is misplaced. Although, like Winau, there is reference to an amount lent or to be lent by C & F Nominees to Ms Issa, which as in Winau did not occur, there is also clear reference to payment of the principal sum, being the amount advanced to and utilised by Mazop. This is a specific direct covenant and has primacy over the standard form general introductory paragraph. In Winau, there was no direct covenant to pay an amount without reference to a transaction that did not take place.

The standard form wording in the introductory paragraph of the mortgage unnecessarily distracts from and complicates the issue. The fact that no amount was lent by the mortgagee to the mortgagor, a factor that informed the decision of the judge, does not displace or affect the contrary specific covenants and in particular the clear and unequivocal first covenant. The fact that nothing was lent to Ms Issa does not mean that another part of the mortgage, namely the specific covenants, evidencing another transaction, with an obligation to pay, are simply to be ignored. The general must give way to the specific and the standard form introductory wording must give way to the specific covenants applicable to the particular transaction.[42] Clearly, the introductory words must be qualified and understood in the context of the C & F Mortgage as a whole and in particular the specific covenants.
[42]Hume Steel Ltd v Attorney 39 CLR 455, (Isaacs A-CJ) quoting Hesse v Stevenson (1803) 3 Bosanquet & Puller 565, 574; 127 ER 305 (Alvanley LCJ); The Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324, 46-53 (Ashley, Beach and McLeish JJA) quoting Margetson v Glynn [1982] 1 QB 337, 344 (Fry LJ).

In our opinion, the standard form MCP does not affect this analysis. The many and varied obligations contained in the MCP, designed to cover many different transactions, do not detract from the specific and clear obligation to pay contained in covenant 1. In any event, the MCP does not support the construction advanced on behalf of Ms Issa.

By cl 1.2(a) of the MCP ‘[Ms Issa] promises to pay all the Secured Money to [C & F Nominees]’. ‘Secured Money’ relevantly includes ‘all amounts that … [Ms Issa] owes [C & F Nominees]’ under the Mortgage.[43] Secured Moneys also includes the ‘Advance’.[44] ‘Advance’ is defined as the amount specified in the mortgage.[45] The C & F Mortgage itself specifies the amount and the direct obligation on the part of Ms Issa to pay. ‘Secured Money’ also includes money that is ‘advanced to the Mortgagor or Covenantor or anyone whose obligations the Mortgagor has guaranteed’.[46]
[43]Clause (d)(4) of the definition of Secured Money.
[44]Clause (a) of the definition of Secured Money.
[45]Advance is defined as the amount specified in the Titles Office Form. Titles Office Form is defined and includes the Mortgage as executed.
[46]Clause (b) (where second occurring) of the definition of Secured Money.

The contention that the relevant provisions of the MCP support the consideration first expressed in the C & F Mortgage, that is ‘to better secure the principal sum lent or agreed to be lent to the mortgagor by the mortgagee’ again ignores the more specific personal covenants, and the definitions and matters referred to in the preceding paragraphs. Finally, it is not correct to conclude that the C & F Mortgage and MCP, properly construed, only extend to and secure moneys advanced to Ms Issa. As demonstrated, the C & F Mortgage covers the promise by Ms Issa to pay a specific sum on a specific date.

For the reasons given, we grant leave to appeal on this ground but dismiss the appeal, the applicant having failed to establish the validity of the mortgage.

Proposed ground 5

Proposed ground 5 is in the following terms:

The trial judge erred in holding that the Applicant was not entitled to be indemnified by the Registrar of Titles in accordance with section 110 of the TLA for the loss it will sustain if the mortgage is rendered void pursuant to section 87A of the TLA. His Honour should have held that the Applicant was entitled to be indemnified by the Registrar of Titles because its loss was not caused or substantially contributed to by its neglect: the cause of the loss was the fraud perpetrated by others, and the Applicant’s conduct did not contribute substantially to that cause.

Judge’s reasons

The judge held that C & F Nominees’ claim for indemnity under s 110 failed.[47] The judge found that any entitlement to indemnity would be an ‘incongruous result’ in light of the purpose of the legislation.[48] The judge considered that the duty under s 87A, which upon his findings must be regarded as having been neglected by C & F Nominees, was not merely a generalised duty to take reasonable care but a specific statutory duty to identify the named mortgagor as the person executing the relevant mortgage. C & F Nominees’ failures made a ‘large or big’ contribution to its loss.[49]
[47]Reasons [135].
[48]Ibid [129].
[49]Ibid [134].

C & F Nominees’ submissions

C & F Nominees submitted that, in the event that it was not entitled to enforce the C & F Mortgage, it was entitled to indemnity under s 110 of the TLA because its loss was not caused or substantially contributed to by its neglect. Rather, the cause of the loss, it was submitted, was the fraud perpetrated by others, a cause that it did not substantially contribute to.

Ms Issa’s submissions

Ms Issa made no submissions with respect to this ground.

Registrar’s submissions

The Registrar submitted that the intent of Parliament was to provide indemnity only in the event that the mortgagee had complied with s 87A or s 87B of the TLA. This is specifically expressed in s 110(4) which also caps the interest rate recoverable in the case of a fraudulent mortgage where the mortgagee has complied with s 87A or s 87B. Nothing is said about recovery in the event of non-compliance.

The Registrar submitted that it was C & F Nominees’ failure to take reasonable steps in its own interest that affected the validity of the C & F Mortgage and substantially contributed to the loss.

Analysis

In our view, there is substance in the submissions made on behalf of the Registrar.

Section 110 of the TLA relevantly provides as follows:

110Entitlement to indemnity
(1)Subject to this Act any person sustaining loss or damage (whether by deprivation of land or otherwise) by reason of—
…

(b) any amendment of the Register;
…
shall be entitled to be indemnified.

…
(3)No indemnity shall be payable under this Act—
(a)where the claimant his legal practitioner, conveyancer or agent caused or substantially contributed to the loss by fraud neglect or wilful default or derives title (otherwise than under a disposition for valuable consideration which is registered in the Register) from a person who or whose legal practitioner, conveyancer or agent has been guilty of such fraud neglect or wilful default (and the onus shall rest upon the applicant of negativing any such fraud, neglect or wilful default);

…

The critical question therefore is whether C & F Nominees ‘caused or substantially contributed to the loss by … neglect’. It bears the onus of establishing that it did not.

We do not accept that C & F Nominees is able to claim indemnity in circumstances where, notwithstanding that it failed to take the reasonable steps required and was in breach of s 87A of the TLA, it is able to deflect such breach and point to the fraudster that created the circumstances or condition that enabled the breach to occur.

Adopting a common sense test or approach to causation,[50] it is tolerably clear that any loss occasioned by the inability to enforce the C & F Mortgage resulted directly from the failure by C & F Nominees to take reasonable steps under s 87A. Had C & F Nominees taken reasonable steps to establish the authority and identity of Ms Issa one of two things would have happened. First, the C & F Mortgage would not have been executed and the loan would not have been made and no loss suffered. Or, secondly, the fraud would have been more elaborate and might have extended to the authority and identity of Ms Issa, despite the taking of reasonable steps. In such event, it might be that, despite the taking of reasonable steps, loss still arose but it was not attributable to neglect on the part of C & F Nominees.
[50]March v E & MH Stramare Pty Ltd (1991) 171 CLR 506, 509 (Mason CJ); [1991] HCA 12; Strong v Woolworths Ltd [2012] 246 CLR 182, 194 [26] (French CJ, Gummow, Crennan and Bell JJ); Bucic v Arnej Pty Ltd [2019] VSC 330 [63]–[64] (Zammit J).

The reasonable steps are aimed at minimising the risk of fraud. The steps taken failed to minimise the risk of fraud, and in fact enabled the fraud to occur. It is no answer to say that the fraud could have occurred anyway. If the fraud had occurred without the neglect of C & F Nominees — despite compliance with s 87A of the TLA — indemnity may be available. But as it happened, there was a direct causal link between C & F Nominees’ failure to verify the authority and identity of Ms Issa, the execution of the C & F Mortgage and the loss. The failure or neglect clearly caused or substantially contributed to the loss.

Of course, the underlying fraud provides the context, condition or framework within which the reasonable steps need to be considered. It is neither helpful nor complete to say that the fraud caused the loss. A finding of fraud is a conclusion. It is necessary to examine the relevant facts. In this case, Ms Issa’s signature was forged and she gave no authority to enter into the transaction. These are the very matters that the reasonable steps are directed to, that is, so far as reasonable to verify authority and identity. Not having taken such steps is critical. It enabled the fraud to go through unchecked.

C & F Nominees relied on the Court of Appeal decision in Registrar of Titles v Fairless (‘Fairless’).[51]The facts and circumstances in Fairless are far removed from the case before us and it is of no assistance to C & F Nominees.
[51][1997] 1 VR 404.

In Fairless, a trusted family friend and neighbour of Mr Fairless, an elderly man with no business experience, duped Mr Fairless into signing contracts of sale and transfers of land to the neighbour and his wife for no consideration. Mr Fairless trusted his neighbour and did not understand the documents presented to him for signature. The documents were presented to Mr Fairless in such a way that they did not indicate their purpose. The neighbour having disposed of the properties to innocent third parties, Mr Fairless claimed indemnity from the fund pursuant to s 110(1) of the TLA. He succeeded.

In finding for Mr Fairless, the Court of Appeal (Tadgell and Phillips JJA) held that there was no relevant neglect on the part of Mr Fairless. Given their relationship, it was not neglect on the part of Mr Fairless to trust and rely on his neighbour. Further, the loss ‘was caused or substantially contributed to’ by the deliberate deception of the neighbour.[52]
[52]Callaway JA held that although Mr Fairless made a large contribution to his loss there was no neglect on his part and there was a reasonable excuse for his conduct.

Unlike Fairless where there was no neglect, C & F Nominees was in breach of a statutory duty and relevantly neglectful. Had C & F Nominees complied with its statutory duty and taken reasonable steps, it may have been, in the event that the loan settled, in the same position as Mr Fairless and entitled to indemnity, despite the forgery.

Accordingly, leave to appeal in respect of proposed ground 5 is refused.

Conclusion

For the reasons given above, we refuse leave to appeal on proposed grounds 1.2 and 5, grant leave to appeal on grounds 1.1, 2, 3 and 4 and dismiss the appeal in respect of those grounds.

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C & F Nominees Mortgage Securities Ltd v Karbotli [2021] VSCA 134

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VS Property & Holding Pty Ltd v Zurzolo [2024] VSCA 199

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Issa v Owens [2023] QSC 4

VS Property & Holding Pty Ltd v Zurzolo [2024] VSCA 199

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Breskvar v Wall [1971] HCA 70

[2021] VSCA 134

14 May 2021