Clarey v Thomson
[2002] VSC 156
•6 May 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6844 of 2000
| ELIZABETH CLAREY | Plaintiff |
| v. | |
| NICK THOMSON AND OTHERS | Defendants |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 23-27, 30 AND 31 JULY; 1-3, 6-10, 13-17, 20 AND | |
DATE OF JUDGMENT: | 6 MAY 2002 | |
CASE MAY BE CITED AS: | CLAREY v THOMSON & ORS | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 156 | |
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CATCHWORDS: Contract of sale of land – Vendor's signature on transfer allegedly forged – Same person acting for both vendor and purchaser – Fraudulent application for loan by purchaser – Payment of cheque to vendor's agent at settlement – By lender at direction of purchaser/borrower – Vendor not received proceeds of cheque from agent – Another cheque at settlement paid to vendor's mortgagee – Interlocutory injunction restraining registration of discharge of mortgage, transfer and new mortgage – No case submissions – Election not to call evidence – Multiple defendants – Discretion not to put defendants to their election – Subrogation of mortgagee's rights – Agent's authority to attend settlement and receive monies on behalf of vendor – To whom should lender pay money? – Does lender owe duty of care to vendor to ascertain authority of vendor's agent to receive payment? – Does lender owe duty of care to vendor in assessing loan application by purchaser/borrower? – Circumstances giving rise to equitable fraud? – Is vendor estopped despite forged signature on transfer?
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J.K. Arthur | John Sayers & Associates |
| For the Fifth Defendant | Mr A.T. Schlicht | Russell Kennedy |
| For the Sixth and Seventh Defendants | Mr T.J. North and Ms G. Hubble | Anderson Rice |
HIS HONOUR:
The Proceeding
In this proceeding the plaintiff, Mrs Elizabeth Clarey, seeks a raft of orders including:
(a)a declaration that the contract of sale of her property at 1 St. Andrews Crescent, Bulleen ("the Bulleen property") to the first defendant, Mr Nick Thomson, is voidable and that it has been duly avoided;
(b)rescission of the contract of sale;
(c)an order setting aside the contract of sale and/or the purported transfer by her to Mr Thomson of the Bulleen property;
(d)a declaration that the transfer is void and of no effect;
(e)a declaration that she is entitled to be registered as the proprietor of the Bulleen property (subject to a mortgage to the fifth defendant, the National Australia Bank Ltd ("the NAB"));
(f)injunctions restraining the registration of the discharge of her mortgage to the NAB, the transfer to Mr Thomson and a purported mortgage by Mr Thomson of the Bulleen property to the seventh defendant, Permanent Trustee Company Ltd ("Permanent");
(g)an order for delivery up and cancellation of the transfer to Mr Thomson; and
(h)an order for delivery up to her of the duplicate Certificate of Title of the Bulleen property.
All of this relief was sought on the basis that without Mrs Clarey’s agreement or approval settlement of the sale of the Bulleen property took place on 5 September 2000, that Mrs Clarey’s signature on the transfer to Mr Thomson of the Bulleen property was forged and that she did not receive payment of certain monies from Permanent.
Putting simply and in summary form what is a very complex fact situation, Mrs Clarey sold the Bulleen property to Mr Thomson for the sum of $520,000. Mr Thomson obtained a loan of $468,000 from Permanent, through its agent, the sixth defendant, Morbanc Securities Ltd. ("Morbanc"). The loan was to be secured by a mortgage over the Bulleen property. At settlement, on 5 September 2000, Permanent apparently paid the NAB its debt of $149,709.50 and handed to the third defendant, Mr Peter (Boutros) Chalhoub, a cheque for $269,970.58 made payable to the second defendant, Middle East Investments Pty. Ltd. ("Middle East") in return for receiving the purported transfer from Mrs Clarey, a chattels statutory declaration purportedly signed by her, the discharge of mortgage from the NAB and the Certificate of Title of the Bulleen property. Mrs Clarey had appointed Middle East and/or Mr Chalhoub to act for her in lieu of a solicitor. The cheque for $269,970.58 was banked by Mr Chalhoub into Middle East’s account and the proceeds subsequently withdrawn in various amounts. Mrs Clarey's complaint was that she had not received any of those funds.
On 14 September 2000, Mrs Clarey obtained an interim injunction, and on 4 October 2000 an interlocutory injunction, restraining the Registrar of Titles from registering the discharge of mortgage from the NAB lodged in dealing No. X024760J, the transfer to Mr Thomson lodged in dealing No. X024761F and the mortgage from Mr Thomson to Permanent lodged in dealing No. X0247626.
The Missing Defendants
Of the seven defendants named in the proceeding, only three were represented at the hearing. Indeed, I was informed that the first defendant, Mr Nick Thomson had not even been served with the writ. It was said that he could not be located. I find it quite extraordinary that no application was made for an order for substituted service, particularly where, as will be seen, the address of Mr Thomson's parents and one of his "wives" was known. I was never given a satisfactory explanation for this omission.
Despite the non-service of Mr Thomson, counsel for Mrs Clarey persisted in seeking the relief pleaded in the Further Amended Statement of Claim and submitted to me that she should be entitled to final orders such as those set out in (a) to (d) in paragraph 1 above. No submission was made which satisfied me how such relief could be granted in the absence of service of the writ on Mr Thomson.
The second and third defendants, Middle East and Mr Chalhoub, were served with the writ and they entered an appearance and filed a defence through their solicitors. Subsequently, the solicitors filed a Notice of Solicitor Ceasing to Act. Neither Middle East nor Mr Chalhoub sought to appear at the hearing. Mr Arthur of counsel, who appeared for the plaintiff, explained to me that at this stage the plaintiff had elected to proceed only against the NAB, Morbanc and Permanent. As Mr Arthur pointed out, all of the claims were in the alternative. No relief was sought in the hearing against Middle East or Mr Chalhoub. However, he then indicated that "at some later point in time", the plaintiff might seek relief against them. Whether or not this could be done was not pursued. In practice, it probably does not matter, because Mr Chalhoub had been bankrupted on 24 February 1999 and Middle East was, presumably, a company of no substance.
The fourth defendant, the Registrar of Titles, is abiding the result of the proceeding and was not represented at the hearing.
That left the fifth defendant, the NAB, and the sixth and seventh defendants, Morbanc and Permanent, as the only defendants represented at the hearing. Mr Schlicht of counsel, who appeared for the NAB, maintained throughout the hearing that there was no case against his client and that the NAB should not have been joined as a defendant. The main opposition to the plaintiff therefore came from Mr North of counsel, who appeared with Ms Hubble of counsel, for Permanent, and its agent Morbanc. This opposition was not surprising given that Permanent had lent approximately $468,000 to Mr Thomson, supposedly on the security of a mortgage from him over the Bulleen property, and Mrs Clarey was seeking to prevent Permanent from obtaining that security. (In these reasons, a reference to "the defendants" will unless otherwise indicated be a reference only to the three defendants who were represented at the hearing.)
Also represented at the hearing was the third party, Mr Guiseppe Verduci, the former husband of the plaintiff. The third party claim was brought by Permanent and Morbanc. Mrs Clarey and Mr Verduci were represented by the same solicitor and barrister and I was informed that no conflict of interest was seen to prevent the joint representation. In essence, the third party claim repeated the allegations in Permanent's counterclaim that Mr Verduci, Mrs Clarey, Mr Thomson and Mr Chalhoub entered into a scheme to defraud Mrs Clarey's creditors and Permanent by Mrs Clarey selling the Bulleen property to Mr Thomson, which Mr Thomson would pay for by borrowing funds from Permanent without any intention of repaying those funds or any interest thereon to Permanent, and that Mrs Clarey would use the proceeds of the sale of the Bulleen property without satisfying her creditors.
The Course of Plaintiff's Case
At the hearing, the course of the plaintiff's case was disrupted for several reasons. Mrs Clarey has previously suffered from depression and a stroke. After she had been giving evidence for a number of days, she broke down and was admitted as an involuntary patient to the Upton House Psychiatric Unit at Box Hill Hospital. At that stage her cross-examination was not completed. Further, it became necessary for her counsel to seek leave to recall her in order to ask her questions about her purported signature on the original transfer and to put into evidence a number of documents on which a forensic document examiner had based his expert evidence. After one false start, this evidence was finally given, but Mrs Clarey again collapsed as soon as cross-examination restarted. Dr. Matthew Gelman, one of the medical practitioners treating Mrs Clarey at Upton House, gave evidence that, after her last visit to Court, Mrs Clarey was "severely depressed … agitated and … in quite a tormented state of mind." He thought that it would be at least a month before she could return to Court either to give instructions or be cross-examined.
Subject to Mrs Clarey's unfinished cross-examination, the plaintiff's counsel closed her case after calling seven other witnesses (not counting the witnesses about Mrs Clarey's medical condition). Counsel for the NAB and counsel for Permanent and Morbanc then submitted that there was no case to answer against their clients.
It should be noted that throughout the plaintiff's case, after she first collapsed, applications were made for an adjournment of the hearing. Generally, after discussion, Mr Arthur, on behalf of the plaintiff, agreed to continue with the current witness or the next witness or to postpone actually seeking the adjournment. However, after closing the plaintiff's case, he did apply for the hearing to be adjourned. That application was in a sense overtaken by the making of the no case submissions, on which I reserved my decision. I also indicated that if I concluded that the case should proceed, I would be prepared to adjourn the further hearing until Mrs Clarey's health had improved sufficiently for her to attend Court.
One way round the undoubted difficulty confronting Mrs Clarey's legal representatives would have been to appoint a litigation guardian pursuant to Order 15. I was informed that, in effect because of the risk of an order for costs being made against them, none of Mrs Clarey's children were prepared to be appointed the litigation guardian. Mr North submitted that the obvious person to be appointed was the third party, Mr Verduci, given that he had been present throughout the hearing and was represented by the same lawyers as Mrs Clarey. However, Mr Arthur responded that this course was considered inappropriate because the defendants had submitted that it was Mr Verduci who had made all of the relevant decisions and that appointing Mr Verduci would reinforce that impression. This unsatisfactory situation was still unresolved when the plaintiff closed her case.
Before dealing with the no case submissions, it is necessary to set out in greater detail the factual background. Simply recounting the relevant events has been difficult because Mrs Clarey's story was not always easy to follow. As she explained, her prior illnesses had affected her memory. In the reasons which follow, I will attempt to avoid, wherever possible, making findings on the multitude of issues canvassed by the parties, particularly issues going to credit, as the hearing may have to continue. I will confine my findings to those necessary for me to decide the no case submissions. Further, it goes without saying that my decision on the no case submissions can only be made on the evidence currently before me. I am, however, able "to consider all questions which bear on the sufficiency of the evidence" and I have the "power to draw or to decline to draw all inferences from the evidence given" on which the plaintiff might seek to rely.[1]
[1]Protean (Holdngs) Ltd (Receivers and Managers Appointed) v American Home Assurance Co [1985] VR 187 at 239 per Tadgell J
The Factual Background
The plaintiff, Mrs Elizabeth Clarey, had been left a considerable amount of money by her deceased husband. In May 1995 she married Mr Verduci, whose wife had died a short time before. Mrs Clarey and Mr Verduci had known each other for a long time. Although she remained married to Mr Verduci, Mrs Clarey separated from him shortly after they married and by 2000 she was living in Sydney. Nevertheless, Mr Verduci continued to look after her financial affairs in Melbourne. As Mrs Clarey put it, he assisted her "in matters of business". Mr Verduci was a bankrupt between 19 March 1996 and 31 July 1999.
In 1997, Mrs Clarey purchased the Bulleen property, on which a substantial house had been erected. Part of the purchase price was provided by a loan from the NAB which was secured by a mortgage. By 1999, Mrs Clarey was in default under that loan and the NAB was pressing for payment, as were other creditors. Mr Verduci's trustee in bankruptcy was suing Mrs Clarey in the County Court of Victoria and the purported purchaser of a business had obtained judgment against Mrs Clarey in the Magistrates' Court of Victoria. The judgment had been unsuccessfully appealed to this Court. In addition, Mrs Clarey was defending a claim by a former de facto husband in the Supreme Court of New South Wales.
By letter dated 7 January 2000, the NAB advised Mrs Clarey that her account was overdrawn and had been in default for 70 days. The facility was cancelled by the NAB by letter dated 31 March 2000. By notice of default dated 17 April 2000, the NAB advised that if the full amount of $144,697.64 was not repaid within 31 days, it would exercise a power of sale in respect of the Bulleen property.
Mrs Clarey said that at some stage she authorised Mr Verduci to find a buyer of the property. A solicitor, Mr Frank Costanzo, was instructed in about September 1999, because by letter dated 27 September 1999, Mrs Clarey authorised him to provide "section 32 documents to Mr John Adicho … or to any persons he may direct you to." Mr Adicho, who had been a bankrupt between 28 November 1995 and 17 April 1999, was a friend of Mr Verduci. Also in 1999, Mr Verduci spoke to a solicitor, Mr John Sayers, about preparing a contract of sale but was referred to a conveyancer, Ms Anne Lane, as Mr Sayers did not do conveyancing work. A contract of sale was prepared by Ms Lane, possibly in 1999. Mr Verduci also said that, in about 1999, Mrs Clarey spoke to a real estate agent from Hudson Bond Real Estate Pty Ltd about selling the property and that she signed an undated agency agreement. The price nominated in that document was $480,000.
Mr Verduci said that he found a purchaser by the name of Howard. He said that Mr Adicho assisted him with this transaction as he wanted to avoid having to pay commission to a real estate agent. However, in cross-examination, Mr Verduci said that he introduced the proposed purchaser to Mr Adicho so that he could help the purchaser to obtain finance for the purchase of the Bulleen property. Mr Adicho said that the purchaser's name was Howarth.
A contract of sale was signed in blank by Mrs Clarey and by the proposed purchaser. Mr Adicho added in his handwriting an incomplete subject to finance clause. The date by which the unstated amount of finance was to be obtained was "25 March 2000". Even though the contract was signed by the proposed purchaser the Particulars of Sale did not name the purchaser. Also left blank were the price and the amount of deposit and the date of the sale and the date for payment of the balance of the purchase price. A blank statement pursuant to s.32 of the Sale of Land Act 1962 was also signed in blank by Mrs Clarey and the proposed purchaser. Another blank contract of sale was apparently signed by Mrs Clarey at about the same time. These three documents were not discovered by the plaintiff but were produced at the trial by Mr Verduci when the question of inadequate discovery was raised with him in cross-examination. These documents were all prepared and signed before May 2000. The sale to Mr Howarth (or Howard) did not proceed, apparently because he could not sell his property.
Mr Adicho said that after the sale to Mr Howarth fell through the house on the Bulleen property was "full" of furniture. He said that you could not help noticing the furniture:
"There was a lot of older pieces and a lot of imported Italian pieces and a lot of collectables, paintings, tapestries."
Subsequently, a buyer for the Bulleen property, in the person of Mr Thomson, was located by Mr Verduci. Mr Thomson was also known as Halit Melih (or Melleh) Ulu. In April and May 2000 Mr Verduci was finalising the preparations for the launch of the Small Business Party. Mr Verduci said that he was introduced to Mr Thomson as someone of Turkish background who could recruit lots of Turkish people to be members of the new party. After discussions with Mr Verduci, Mr Thomson agreed to purchase the Bulleen property, including a large amount of antique furniture at the property, for the sum of $640,000. Mr Verduci said that, at first, Mr Thomson was interested in renting the Bulleen property on behalf of a motor cycle club to establish a high quality escort agency. Later, Mr Thomson expressed interest in buying the Bulleen property himself.
Mr Thomson, however, needed to borrow money to fund the purchase and Mr Verduci introduced Mr Thomson to Mr Chalhoub, who agreed to assist him to find the necessary finance. Mr Chalhoub was associated with Middle East. He could not be a director of that company because he had been bankrupted some time before these events. Mr Verduci said that shortly before 9 May 2000 he gave a number of documents, including the earlier uncompleted contractual documents referred to above, to Mr Chalhoub. He did this, he said, to show Mr Chalhoub that there was another person interested in purchasing the Bulleen property. Included in the bundle was a completed contract of sale which showed a price of $640,000 or $660,000 payable by Mr Howard (or Howarth). Mr Verduci said he wanted to convince Mr Chalhoub that the price of $640,000 for the house was "not a high price". Mr Adicho said that the price of the earlier sale of house and furniture was $650,000, which he saw in a completed contract.
On 9 May 2000, Mrs Clarey came down from Sydney and went with Mr Verduci to see Mr Chalhoub. At that meeting Mrs Clarey met Mr Thomson, she thought for the first time. She understood that Mr Chalhoub was acting for Mr Thomson. A Mr Rodda was also present. They all then went to see a Mr Petsini, whom Mrs Clarey and Mr Verduci both called "a solicitor", although it would appear that Mr Petsini ran a conveyancing company, Residential & Commercial Property Transfer Co. ("RCPT"). Mr Verduci said that Mr Petsini's name had been suggested to him by Mr Chalhoub as "a solicitor" who "could be trusted" and did not "charge very high prices like most solicitors do". Mr Verduci said that Mr Petsini was going to act as Mrs Clarey's solicitor. He did not know whether he was also acting for Mr Thomson.
Mrs Clarey said that at Mr Petsini’s office she signed a contract of sale and a s.32 statement. She then left the room because she was not feeling well. In her evidence Mrs Clarey identified her signature on the s.32 statement and was not able to read the other signature. Mr Verduci said that he saw Mrs Clarey sign a couple of documents, which he believed were a s32 statement and a contract of sale. Apart from that, his recollection was not "very clear". However, he did say that he saw Mr Thomson sign both of the documents previously signed by Mrs Clarey. Although this signed contract of sale was not put into evidence, Mr Verduci said that it provided for Mr Thomson to pay "a deposit of at least ten per cent" with the balance in 30 days. Mrs Clarey said that she did not take away from that meeting copies of any of the signed documents.
By letter dated 9 May 2000, RCPT wrote on behalf of Mrs Clarey to the manager of the Sunshine branch of the NAB advising that the Bulleen property had been sold and that settlement was due "within 30 days" and requesting a payout figure and asking the NAB to arrange for a discharge of mortgage.
Some time later, Mr Chalhoub dropped into the premises at 444 Lygon Street, Brunswick, which was a shop being leased by Mr Verduci as the headquarters of his political party. He had been there since late April or early May 2000. Mr Verduci said that Mr Chalhoub suggested that there was no need for Mrs Clarey to incur the cost of a solicitor and that he could do the conveyancing work for Mrs Clarey very cheaply. Mr Verduci said that Mr Chalhoub said to him:
"… I am well experienced at conveyancing specialist. I can arrange all the paperwork for the buyer and the vendor, if your wife want I can act for both of you and she can save a lot of money …"
In cross-examination, Mr Verduci said that Mr Chalhoub said:
"… my work is not as expensive as the solicitor, the amount of work required by your wife is very little, I can do the conveyancing for her if you like and you can save yourself some money."
Mr Verduci spoke to Mrs Clarey and she agreed with Mr Chalhoub's proposal. No evidence was led about the termination of the services of RCPT or whether that firm forwarded any of Mrs Clarey’s documents to Mr Chalhoub.
By a Letter of Instruction – Surrendering Deeds dated 5 June 2000 and signed by her, Mrs Clarey gave the NAB a blank authorisation in respect of surrendering deeds and other documents held by it on her behalf. Middle East's name and address appeared on that document as the contact details for Mrs Clarey. In evidence in chief, Mrs Clarey was asked what this document was for. Mrs Clarey's answer was that it was "to settle the money, the authority to take the money."
Mrs Clarey was also asked about a document dated 12 June 2000 which purported to be an acknowledgment by her that she had received from Mr Thomson the sum of $64,000 as a deposit on the sale of the Bulleen property. Mrs Clarey denied that it was her signature on the document. She said that she had not received any deposit from Mr Thomson. Mrs Clarey also denied that it was her signature on a Deposit Statement dated 29 June 2000, made pursuant to s27 of the Sale of Land Act 1962. This document also contained a Release of the Deposit by the Purchaser dated the same day and purportedly signed by Mr Thomson.
At some stage, Mr Chalhoub apparently made contact with Morbanc through a Mr Terry Baxter of Mars Finance Pty Ltd ("Mars Finance"). Mr Thomson signed a loan application form addressed to Morbanc, dated 30 June 2000. He stated his residential address as "7/16 Wallace Street, Brunswick", the name of his own business as "Koala Manchester" and his work telephone number as 03-9380 9618. (As will appear subsequently, all of this information was false.) The purchase price of the Bulleen property was stated to be $640,000 and the settlement date as 10 July 2000. The loan amount sought was $576,000 or 90% of the purchase price. Mr Chalhoub and Middle East were nominated in the box for "Solicitor/Accountant".
By letter dated 11 July 2000 Mr Chalhoub wrote to a Ms Truong at the Sunshine branch of the NAB advising that the Bulleen property had been sold and asking that it "prepare documents for discharge of mortgage for said property and also advise of full amount owing to NAB". That letter was faxed to the NAB together with a copy of a contract of sale which included a s32 statement. Both of these documents purported to be signed by Mrs Clarey, and although she said it was her signature on the s.32 statement, she denied having signed the contract of sale. The s.32 statement was dated 9 May 2000 and Mrs Clarey said that it was a document she signed at "the solicitor's office" on that day. The contract of sale was undated. The Particulars of Sale page of the contract of sale stated the price to be $640,000, the "Vendors Conveyancing Agents" to be "Middle East Investments Pty. Ltd." and Mrs Clarey's address to be "444 Lygon Street, East Brunswick". The purchaser's surname was incorrectly spelt as "Thomsom". The description of the chattels to be sold with the property simply read: "All fixtures and fittings as inspected".
It appears that Mr Thomson had difficulties in obtaining a loan of $576,000. Mr Verduci said that he was told that mortgage insurance for a loan that size was the problem. He said that it was therefore suggested that the sale of the Bulleen property should proceed without the furniture. After consulting Mrs Clarey and receiving her consent, Mr Verduci, on behalf of Mrs Clarey, and Mr Chalhoub, on behalf of Mr Thomson, agreed to a reduced purchase price of $520,000 for the Bulleen property alone. No written contract of sale in that amount was ever signed by Mrs Clarey, but there was no dispute that she agreed to sell the Bulleen property to Mr Thomson for $520,000. Mr Verduci said that Mr Chalhoub told him on a number of occasions that all of the paperwork could be done "on settlement day".
Mr Verduci said that when he asked Mr Chalhoub about the deposit he was told that Mr Chalhoub was holding it “in his trust account”. When it was suggested that Mr Thomson's permission could be sought to allow payment of the deposit to Mrs Clarey in advance of the settlement, Mr Chalhoub said that as it was only a few days before settlement, it might as well all be done at the same time. Mr Verduci also said that Mr Thomson told him that he had paid the deposit to Mr Chalhoub.
Mrs Clarey said that by August 2000, she was becoming very keen for settlement to occur, but that she could not get any satisfaction from Mr Chalhoub. The date kept being pushed back. It was said that settlement would occur on 31 August, but it did not. Mr Verduci said that he told Mr Chalhoub that he had to let Mr Verduci know the date of settlement so that Mr Verduci could communicate with Mrs Clarey:
"… to come down to sign chattels, disbursement orders and above anything else, to be at settlement to collect her bank cheque made out to her personally."
Mr Verduci also said that he knew that settlement could not take place because Mrs Clarey had not signed the required documents, including the transfer and the chattels statutory declaration. Towards the end of August, after several wasted trips, Mrs Clarey again came down from Sydney in anticipation of settlement occurring.
For one reason or another settlement did not take place as quickly as planned. It was not until 14 August 2000 that Morbanc made its written offer to lend Mr Thomson the sum of $468,000 or 90% of the new purchase price. The offer was purportedly accepted by Mr Thomson on 15 August 2000 by him signing and dating the letter of offer. By a 24 page facsimile dated 21 August 2000, Morbanc forwarded a number of documents to its solicitors, Anderson Rice. The documents included copies of what were described as "Application Form", "Bank Statements", "Approval by Investor", Certificate of Title", "Contract", "Valuation Report", "Approval by Mortgage Insurer" and "Letter of Offer". In fact, the contract consisted only of the Particulars of Sale page. The price was stated to be $520,000 payable by a deposit of "$64,000 (29.6.2000)" with the balance due "within 30 days from the date hereof." The purchaser's surname was again misspelt "Thomsom" and the name of the "Vendors Conveyancing Agents" was also misspelt as "Midlle East Investments Pty Ltd." The purchaser's solicitors were said to be "as above", that is, Middle East.
On the same day, Ms Michelle Asling of Anderson Rice sent a facsimile to Middle East advising that her client, Morbanc, had advised that Middle East was acting for the borrower, Mr Thomson, in the purchase of the Bulleen property. Ms Asling asked Middle East to provide the following documents by return:
" · copy current title search and search receipt
· draft Transfer of land (unsigned)
· copy signed contract."
A file note of Ms Asling dated 22 August 2000 records that a secretary of Middle East (Henny) attended Anderson Rice and provided a copy title search and transfer. "Henny" was Ms Henny Gordon, Mr Chalhoub's assistant at Middle East. Like others in this dispute, Ms Gordon was an undischarged bankrupt. The file note stated that Middle East was "both conveyancer and introducer."
In another file note dated 23 August 2000 Ms Asling recorded that she would fax Mr Baxter of Mars Finance what she required:
"re: contract of sale he will chase conveyancer as they do not speak English."
Ms Asling then sent a facsimile to Mr Baxter which included the following
"As discussed we enclose herewith copy of Contract of Sale held on our file. We would be pleased to receive a copy of the execution page with both parties signature as well as a completed date in respect of the Day of Sale (copy marked **)."
By a facsimile dated 23 August 2000 Mr Baxter responded to Ms Asling as follows:
"Re: Nick Thomson
As requested, please find attached copies of contract of sale for the above client."
As requested by Ms Asling, only two pages of a contract of sale were attached – the execution page and the page showing the completed day of sale. The contract was purportedly signed by Mrs Clarey and Mr Thomson and appears to be dated "29/6/2000." The figure "6" appears originally to have been a "5", so that it could have once been "9/5/2000."
By a letter dated 25 August 2000, Anderson Rice forwarded to Mr Thomson the Loan Agreement with Permanent and a number of other documents including a Disbursement Authority, a Warranty, an Acknowledgement, a Statutory Declaration and a Direct Debit Request, all of which were to be signed by Mr Thomson. The Disbursement Authority set out the amounts of various fees and charges. The final entry was "Balance Available" which was stated "to be paid as directed by Borrower or Representative of Borrower." The amount was "To be advised." These documents, purportedly signed by Mr Thomson on 28 August 2000, were subsequently returned to Anderson Rice.
By a Middle East facsimile dated 31 August 2000, Mr Chalhoub asked Anderson Rice, the solicitors for Permanent and Morbanc:
"to please have the balance of settlement paid to Middle East Investments Pty Ltd as we are the conveyancer for both paties [sic]. If you need an authority of the vendor please inform us, as we will fax same to you today."
According to the facsimile, settlement was anticipated to be at 2.30 p.m. on 4 September 2000. The facsimile was signed by Mr Chalhoub above his name and the description "Finance Director & Conveyancer". According to an Anderson Rice file note, Ms Asling telephoned "Henny of Middle East Conveyancing" at 12.15 p.m. on the same day to advise that:
"we required a fax from her client advising that it is okay to drawer [sic] the balance of funds to their office."
By facsimile also dated 31 August 2000, Ms Asling requested "Henny" at Middle East to provide:
"Authority from the borrower that the balance of funds can be made payable to your firm."
Although it is not clear, it would appear that Middle East responded to this request by faxing to Anderson Rice on 31 August 2000 a document purportedly signed by Mr Thomson authorising:
"that the balance of settlement be lodged with Middle East Investments Pty Ltd."
Mr Thomson's signature was witnessed by Mr Chalhoub.
In late August and early September 2000, Anderson Rice prepared an authority, and then an amended authority, to draw cheques in respect of the loan to Mr Thomson and sent it to Origin Mortgage Management Services ("OMMS"), which apparently played some role in providing the actual funding to the borrower. The authority requested a cheque made payable to Middle East in the sum of $419,681.17. The amended authority changed the amount to $419,680.17. In neither version was there any request for a cheque in favour of the NAB. Both versions also requested cheques to pay various fees and charges, including an amount of $7,020.00 in favour of Mars Finance.
Mrs Clarey said that on one occasion she spoke to Ms Gordon, inquiring about when settlement would take place. Mrs Clarey said that she told Ms Gordon that she wanted to be at the settlement to collect her cheque. She said that she knew from prior experience that she should attend settlement to sign whatever documents needed to be signed and to collect her cheque. Mrs Clarey said that Ms Gordon told her they would ring her and inform her when settlement would take place.
Eventually, Mrs Clarey was told that settlement was to take place on 4 September, and then on 5 September 2000. She waited for a call to attend to the settlement to sign the necessary documents and collect her cheque. When no call came Mrs Clarey and Mr Verduci said that they unsuccessfully attempted to find out where the settlement was to take place by ringing Middle East and the NAB.
Mr Adicho said that about two weeks before settlement occurred he found out that Mr Chalhoub was acting for Mrs Clarey as her conveyancer and that he was also acting for the purchaser and assisting him to obtain finance. Mr Adicho said that he warned Mrs Clarey and Mr Verduci against having the same person acting for the vendor and the purchaser. He suggested that they ensure that everything was put in writing. Mr Adicho also said that he told Mrs Clarey and Mr Verduci that Mr Chalhoub was "a very slippery character, a very shady character" from information he had received and from what he did to a friend of Mr Adicho. He said that he told Mrs Clarey and Mr Verduci that they had made a mistake letting Mr Chalhoub handle Mrs Clarey's affairs as well as the purchaser's. He warned them not to let him handle any money. On hearing this, Mrs Clarey broke down in tears, but Mr Verduci said not to worry, it would be all right. Mr Adicho also said that he told Mr Verduci that he could get the file back from Mr Chalhoub. Despite Mr Adicho's warnings, Mrs Clarey continued to retain Mr Chalhoub. Mr Adicho said that he was later told that it had gone too far to withdraw the instructions from Mr Chalhoub, but he knew that was not correct.
Although Mr Verduci said that he did not mention to Mr Adicho that Mrs Clarey was selling the Bulleen property, Mr Adicho said that he knew about the sale because he had "never ending" conversations about it with Mrs Clarey and Mr Verduci. He said that as settlement got closer, there were "countless conversations" with Mrs Clarey and Mr Verduci. He also said that:
"I was getting numerous phone calls because obviously Elizabeth was very concerned."
He said that Mr Verduci told him on a Friday afternoon that settlement was scheduled for the following Monday afternoon. Mr Verduci rang him up late on the Monday afternoon and said settlement had not taken place. On the Tuesday, Mr Verduci told Mr Adicho that:
"settlement was taking place at 3.30 and they're just making arrangements – he was waiting for a phone call so they can attend settlement …"
When Mr Verduci was recalled to give further evidence, it was put to him in cross-examination what Mr Adicho had said in evidence, as set out above. Mr Verduci denied that Mr Adicho had said to him what he claimed to have said. Mr Verduci stated that he had not told Mr Adicho about the sale before 5 September 2000, because:
"he would get cross with me for losing out on the commission, and that was the only reason I did not disclose anything to him … He must be confusing his date, but I did not disclose to him the property was being sold to any individual, because he would not have liked it. For that reason I did not tell him that I was using Chalhoub or any other people."
It is unnecessary to resolve this conflict, at this stage.
In an Anderson Rice file note dated 4 September 2000, Ms Asling recorded the following:
"I telephoned Henny of Middle East Investments … and asked her to provide me with an authority from the client stating that he is aware that he will be charged interest as of today and he would like settlement to occur tomorrow.
Henny will also phone the NAB and obtain a pof [payout figure]. Advised that I would require this first thing tomorrow morning if I am to change cheques."
Another undated and unidentified handwritten note (presumably an Anderson Rice file note) recorded:
"Settlement cancelled – TSF [transfer] not provided."
On 5 September 2000, Ms Asling recorded in a file note that Henny had phoned and advised the payout figure from the NAB. The note continued:
"The balance of the funds need to be made payable to Middle East."
Another amended authority to draw cheques was prepared by Anderson Rice at 11.00 a.m. on 5 September 2000 and sent to OMMS. This time the amended authority requested cheques in favour of both the NAB and Middle East. Ms Asling recorded in a file note that she had rung Henny at 11.31 a.m. and "changed settlement to 3.00 p.m. today."
Mrs Clarey said that, on 5 September 2000, at Mr Adicho's suggestion, she arranged for a facsimile to be sent to Mr Chalhoub from Mr Verduci's office at 444 Lygon Street, Carlton. Mr Adicho wrote out the facsimile, Mrs Clarey signed it, and Mr Verduci sent it at 1.55 p.m. on that day. The facsimile read:
"Dear Mr Chalhoub,
As discussed in our telephone conversation I now confirm in writing the instruction given to you and your secretary Ms Henny how the balance of the settlement of the monies of the property in Bulleen where [sic] going to be disbursed. The residue of money after paying secured mortgage to national bank where [sic] to be paid to me Elizabeth Clarey by bank cheque. No funds are to be used for any other purpose.
Sincerely yours
Elizabeth Clarey."
Mrs Clarey agreed in cross-examination that in the facsimile she was telling Mr Chalhoub that the NAB was to be paid out at the settlement of the Bulleen property. She said that she was "happy that I've settled the debt" to the NAB. The purpose of selling the house, she said, was "to pay the National Australia Bank, to pay my debts, get the rest and go and live with my daughter and try and have a little bit of peace …" She also said that in her claim against Mr Chalhoub and Middle East, her complaint was that he did not follow her instruction in the letter to pay "the residue of money" to her by bank cheque (or at all).
Mr Verduci said that on 5 September 2000, after he had sent the facsimile, he spoke to a Mr Kerry Milte who suggested he contact a solicitor, Mr Darryl Nelson. He spoke to Mr Nelson and requested him to contact Mr Chalhoub. Mr Verduci said that he asked Mr Nelson to tell Mr Chalhoub to stop the settlement taking place. Mr Verduci said that Mr Nelson subsequently rang back and told him that:
"… either settlement took place or it's going to take place, that Elizabeth has nothing to fear, those sound to be wonderful people, good people, that she should get her money either that afternoon or the next morning."
Later, Mr Verduci said that when Mr Nelson rang back he said:
"… words to that effect that settlement had taken place. I don't fully recall all his words but something that settlement had taken place or was in the process of taking place."
In answer to a question from me as to whether Mr Nelson told him how much Mrs Clarey would receive the next day, Mr Verduci said that he did not recall. Shortly after that, he told me that Mr Nelson had mentioned "something like $270,000 … that the bank had issued a cheque for $270,000 or whatever."
Mr Nelson was called to give evidence as part of the plaintiff's case. He said that he was contacted by Mr Verduci, who told him that the conduct of the person he and "his partner" had engaged to look after the sale of the partner's property was:
"unsatisfactory and misleading and he didn't know where he was …. He asked me to contact that particular person and ascertain what the true position was".
Mr Nelson said that Mr Verduci:
"was concerned both that he wanted to know where and when settlement was and it was my belief that he wanted actually physically to attend the settlement."
Mr Nelson said that he knew Mr Chalhoub and had "full confidence in him". He said that he telephoned Mr Chalhoub at about 11.30 a.m. or 12 o'clock and was told that the settlement would take place at, he thought, 3.00 p.m. that day "at the National Bank in Collins Street".
Mr Nelson thought that he then had a subsequent conversation with Mr Verduci and conveyed all of that information to him. He expected Mr Verduci would attend the settlement. Nevertheless, that afternoon, Mr Nelson went to the NAB and found that "settlement had already been effected". Asked why he went to the settlement, Mr Nelson said:
"An implied request from Mr Verduci to see the matter through for him, I suppose."
After that, Mr Nelson:
"rang Mr Verduci and told him that settlement had taken place and for him to contact Mr Chalhoub and make arrangements, whatever those arrangements were about receiving cheques. I had no idea of what the settlement price was or how much was owing on the mortgage or how much was received. I knew none of those details."
In his further evidence, Mr Verduci said that Mr Nelson was "mistaken" in his evidence about times. Mr Verduci insisted that he did not contact Mr Nelson until the afternoon. He denied being told by Mr Nelson when and where the settlement was to take place. I prefer the evidence of Mr Nelson to that of Mr Verduci on this point.
Although no direct evidence was led it is apparent from the documents that settlement took place on 5 September 2000 and this was confirmed in a letter from Anderson Rice to Morbanc dated that day. Further, it was admitted by the defendants in the pleadings that settlement of the sale of the Bulleen property occurred on 5 September 2000. On behalf of Permanent, Anderson Rice handed over two cheques at settlement. One was made payable to the NAB in the sum of $149,709.50. The second was made payable to Middle East. It was a bank cheque drawn on the ANZ Banking Group Ltd for $269,970.58. In return, Anderson Rice received on behalf of Permanent the purported transfer from Mrs Clarey to Mr Thomson, a chattels statutory declaration, the discharge of mortgage from the NAB and the Certificate of Title of the Bulleen property and the mortgage from Mr Thomson.
When she first gave evidence, Mrs Clarey was shown a photocopy of the transfer which was dated 6 September 2000 and asked whether it was her signature which appeared on the document. She said that it was not., She denied signing the transfer. I subsequently gave leave to Mr Arthur to recall Mrs Clarey to show her the original of the transfer. She said that it was not her signature on the document and that she did not sign the transfer. The chattels statutory declaration dated 4 September 2000 was purportedly signed by Mrs Clarey, but she denied that it was her signature on the original of that document when it was shown to her in evidence in chief. No challenge was made by the defendants to Mrs Clarey's denial that she had signed those documents. However, it must be remembered that her cross-examination was not completed.
Mrs Clarey and Mr Verduci said in evidence that they were concerned by the suggestion that settlement had taken place because they did not understand how it could have occurred in the absence of papers signed by Mrs Clarey. Mr Verduci specifically mentioned the transfer and the chattels statutory declaration as documents which Mrs Clarey had to sign.
According to an Anderson Rice document – Instructions to Stamp and Lodge Documents dated 5 September 2000, the NAB's discharge of mortgage, the transfer from Mrs Clarey to Mr Thomson and the mortgage from Mr Thomson to Permanent were lodged at the Titles Office on 6 September 2000. Other documents apparently provided to enable the stamp duty to be assessed and paid were "Statutory Declarations", "Contract", "Notice Acquisition" and "Letter Stamps Office."
Mr Verduci said that he went to Mr Chalhoub's office in Preston late on the afternoon of 5 September and at 9.00 o’clock on the following morning, 6 September 2000, to pick up the cheque, but on each occasion no one was there. He returned about ten o'clock on the same day and eventually Mr Chalhoub opened the door. A confrontation took place outside the office. Ms Gordon was present, as was Mr Adicho who came in response to Mr Verduci's telephone call. Two policemen were also there. Mr Verduci said that he said to the policemen that:
"… all I want from this gentleman is the file of my wife, which he is refusing to hand – he was supposed to do some conveyancing for my wife and he had the document that belonged to my wife; there was supposed to be a settlement, I don't know if this settlement had taken place, if it's going to take place. I want my wife's file …"
According to Mr Verduci, Mr Chalhoub told the policemen that "he handed the cheque to the purchaser". At Mr Adicho's suggestion, he and Mr Verduci took some papers from Mr Chalhoub's car. Mr Verduci said that as a result of reading the papers taken from Mr Chalhoub's car, he became aware of Morbanc's involvement for the first time.
Mr Adicho said that when he arrived at Mr Chalhoub's office at about 10.30 a.m., Mr Chalhoub, Ms Gordon, Ms Gordon's son and the two policemen were already there. He said that he heard Mr Chalhoub telling Mr Verduci that he had mailed the cheque. Mr Adicho asked Mr Chalhoub to whom the cheque had been mailed and he replied "to the vendor" and then "to the vendor's solicitor". Then Mr Chalhoub said that "the cheque probably would have gone to the purchaser". Mr Adicho said that, with the assistance of a policeman, he was able to look at the papers and he recognised the name of Morbanc, so he telephoned Morbanc. He said that he was told that two cheques had been issued, one to the NAB and the other to Middle East. Mr Adicho said that in one of his conversations with Morbanc it was said that everything seemed to be in order. He replied that it was not in order as otherwise the police would not be present. He asked that Morbanc try to stop payment on the cheque to Middle East. Mr Adicho said that he subsequently spoke to a solicitor at Anderson Rice and asked him to try to stop payment on the cheque to Middle East because it had not been issued according to the vendor's instructions. He said something fraudulent appeared to have occurred.
A file note by Ms Asling dated 7 September 2000 confirmed the telephone call from Mr Adicho. It read as follows:
"John Adicho of Australian Financial Consultants … telephoned on the morning of 6.8.00 [sic] and advised that there was fraudulent matter in regards to the settlement, which took place yesterday. He explained that the Vendor has not received the balance of the funds from Middle East. He further advised that the Police would charge Middle East this afternoon. Advised that this would be a matter for a Solicitor and transferred the call to David [Archer]."
After the confrontation with Mr Chalhoub, Mr Verduci and Mr Adicho returned to the Lygon Street office. Mr Adicho said that he drafted a letter which was to be faxed to Anderson Rice. Mrs Clarey said that she copied in her own handwriting the note drafted by Mr Adicho, which was then faxed to Morbanc's solicitors, Anderson Rice, at 1.21 p.m. on 6 September 2000. That facsimile read:
"Dear Mr Archer,
Further to your discussion with Mr Adicho please be advised that I suspect fraudulent activities from Middle East Finance. The balance of $270,000 was to be disbursed to myself, Mrs Elizabeth Clarey. Enclosed is a copy of the disbursement request. The police attended Middle East Finance offices at 131 Plenty Road Preston this morning, that's when Mr Peter Chalhoub of Middle East Finance finally revealed certain papers to me. I am now in the process of reporting this to the Fraud Squad. Please stop the cheque of $270,000 if it has not yet been cashed. Thank you for your assistance. Mr John Adicho will be in contact with you shortly.
Yours faithfully,
Elizabeth Clarey".
The enclosed "disbursement request" referred to in the facsimile to Anderson Rice was the facsimile sent to Mr Chalhoub the previous day.
Ms Asling's file notes recorded other steps taken by her and Mr Archer:
"Telephoned the ANZ Business Banking line and quoted Morbanc account was advised that it usually takes 3 days from the date the cheque is banked to hit their system. To date they have no evidence that the cheque has been cashed.
…
David spoke with the Preston Police Station and John Adicho.
…
John Adicho phoned.
…
I returned John's phone call and advised him that we could not find out if the cheque has been banked. Advised that at this stage we had no evidence that the matter was of a fraudulent nature.
…
AM Thursday, 7 September 2000
…
John Adicho then phoned and I advised him firmly as per DA's instructions. He questioned if we knew if the cheque had been banked and I advised him that it was too early to tell. He was quite aggressive and stated that the Vendor had taken possession of the property and had lodged a Caveat. I stressed that until we had proper legal evidence that it was a fraudulent matter we would do nothing. Explained that it was a matter between the Vendor and Middle East and the matter of possession was between the Vendor and Purchaser. He asked for Morbanc # and contact ref. Advised John of Garry Skelton's name and advised that he would have to look up the contact # himself – our client etc."
Mr Verduci made a complaint to the Brunswick CIB. He said that he requested the detective's urgent assistance in attempting to stop payment of the cheque. Detective Senior Constable Nick Konstantinidis responded by sending to Mr Garry Skelton of Morbanc at 3.40 p.m. on 6 September 2000 the following facsimile:
"Subject:Request to stop payment of Bank cheque to Midle [sic] East Investments Pty. Ltd. from Morbanc Security Limited.
1.On the 6th of September, 2000 I received a complaint about fraudulent activity in relation to money being paid for the sale of property at 1 St. Andrews Crescent, Bulleen. The money was supposed to be paid to the owner of the property Elizabeth CLAREY on 5th of September, 2000. This was the date of settlement.
2.The money was not paid and there are some anomalies in the paperwork and the whole deal in regards to the sale of the house. The matter is currently under investigation by me at Preston C.I.U. I have been unable to contact Middle East Investments Pty. Ltd., to get their explanation. From my investigation I believe that there is a high possibility of illegal activity involved and that Elizabeth CLAREY could stand to lose over $300,000.00
3.I request that you arrange to put a stop on the bank cheque for the sale of 1 St. Andrews Crescent, Bulleen. I request that the money is not paid to Middle East Investments Pty. Ltd., or any other person until the matter is investigated further. This will avoid loss to CLAREY through possible illegal activity. For the information of Gary SKELTON Morbanc Securities Limited."
Mr Skelton of Morbanc responded to this request by immediately sending an urgent facsimile to the settlements officer at OMMS. It read as follows:
"Re: Origin Loan No. 392300376 – N. Thomson
Please check with ANZ Bank whether Bank Cheque for $419,681.17 ifo 'Middle East Investments P/L' has been negotiated following settlement on 4/9/2000.
If cheque has not been negotiated, the [sic] we request that it stopped [sic] as this transaction may not be in the hands of the appropriate party."
The reference to a bank cheque for $419,681.17 in favour of Middle East was a mistaken reference to one of the earlier authorities to draw cheques, which omitted to refer to the NAB. On 7 September 2000, Mr Skelton remedied his error and correctly asked whether the cheque to Middle East for $269,970.58 had been "negotiated and whether it can be stopped pending further enquiries." By a telephone message later that day, Mr Skelton was advised by OMMS that it had been unable to stop the cheque.
It would appear that someone from Morbanc noted the following on a facsimile received from Anderson Rice:
"7/9 – Rang Terry, with [Middle East], advised him that we require him to take copies of original documents
Contract/Disb. Auth.
Original contract was handed to Clarey's husband in the presence of the police yesterday.
Original disbursement authority is to be sighted and copied prior to today's meeting."
On 7 September 2000, Mrs Clarey and Mr Verduci went to the Titles Office and lodged a caveat, dealing No. X027640D, in which Mrs Clarey claimed "an estate in fee simple" in the Bulleen property. The caveat was written out by Mr Verduci and signed by Mrs Clarey. The ground of claim was: "Contract of Sale dated Sept. 2000 between the Caveator and Nick Thomson". Mrs Clarey said that she signed a blank contract of sale of the Bulleen property at the Titles Office but she could not remember when she did that. There was no contract of sale dated September 2000 made between Mrs Clarey and Mr Thomson. The factual basis for the caveat was, therefore, without any foundation and it should be removed. In any event, it was lodged after Permanent lodged the dealings so that it cannot affect them (see s91(2) of the Transfer of Land Act 1958).
During cross-examination, Mrs Clarey was asked about another caveat dated 7 September 2000 which had been discovered by her. The ground claimed in this caveat was: "Registered owner due to defouting [sic] Contract of Sale". I consider that Mrs Clarey probably tried to lodge this caveat but that it was rejected by the Titles Office because it disclosed no caveatable interest and that this led Mrs Clarey and Mr Verduci to prepare the other caveat which falsely claimed a caveatable interest under a contract of sale.
As discussed, the attempt by Morbanc to stop payment on the cheque made payable to Middle East did not succeed. The bank records revealed that the ANZ bank cheque was banked in Middle East’s account with the NAB on 5 September 2000 with a request for a special clearance. Virtually all of the $269,970.58 was withdrawn by three cheques (numbers 000457, 000461 and 000462) each made payable to cash, and each of which was then used to purchase a NAB bank cheque in the same amount, the details of which are as follows:
Date
Branch Obtained
Payee
Amount
5 September 2000
271 Collins Street
Nick Thomson
$142,470.58
8 September 2000
Preston
Ahmad Yatim
$ 50,000.00
12 September 2000
Malvern
Robert Knust
$ 75,000.00
$267,470.58
The evidence does not reveal why Ahmad Yatim or Robert Knust were paid these sums by Middle East. The only other substantial withdrawal from Middle East's account, after the $269,970.58 was credited, was cheque number 000458 for $1,500.00 which was debited on 5 September 2000. The evidence does not disclose the payee of that cheque.
Mrs Clarey agreed in cross-examination that she had not made any attempt to stop Mr Chalhoub or Middle East from withdrawing the proceeds of the cheque for $269,970.58 obtained by Mr Chalhoub at settlement.
By a facsimile dated 12 September 2000, Mr Chalhoub wrote to Mr Baxter of Mars Finance asking him to release the commission payable to Middle East. Enclosed with the facsimile were copies of "the 2 receipts demanded by you." In fact, the two copied documents were cheque butts, both dated 5 September 2000 and both said to be payable to "Nick Thomson." The details of the butt for cheque number 000457 reveals that it was, as seen above, for a bank cheque in the sum of $142,470.58. Cheque number 000459 reveals that it was said to be for a "cheque bank" in the sum of $127,500.00. This cheque was never presented and seems to have been replaced by the two cheques (numbers 000461 and 000462) which together totalled $125,000.00
In his facsimile to Mr Baxter, Mr Chalhoub also stated the following:
"We have also attempted to contact the client, Mr Nick Thomson, but have not yet been able to have any response.
As we have informed you prior we have been told oraly [sic] of the authority but as the vendor and purchaser are very close friends working and living in the same premises, we did not challenge the instructions given to us. We have only the authority from the purchaser, signed in front of Mrs Gordon and Mr J. Verdsucci [sic] – the husband of the vendor."
The Allegedly Forged Signatures
In support of Mrs Clarey's evidence that she had not signed the transfer of the Bulleen property to Mr Thomson, a forensic document examiner, Mr Gary Storey, was called by the plaintiff. Mr Storey also expressed a view about the authenticity of other purported signatures of Mrs Clarey and about the authenticity of signatures on documents which purported to be those of Mr Thomson. Mr Storey's qualifications and experience are impressive but, although his expertise was not questioned by the defendants, the procedure adopted to instruct him about the issues in the case was strongly criticised. Mr North sought to exclude Mr Storey's evidence altogether. Although I refused that application, these and other criticisms of Mr Storey's evidence need to be considered.
Mr North's first point was that of the 42 documents on which Mr Storey relied to express his opinions, including 20 documents relating to Mrs Clarey, most of them were documents which had not been proved in the case and many of those had not even been discovered. Eventually, Mrs Clarey gave evidence that it was her signature on a number of historical documents which had been provided to Mr Storey as "standards." Although this evidence was given by Mrs Clarey at a time when she was clearly unwell (and should not have been recalled), and has not been the subject of any cross-examination, I am prepared to assume, for present purposes, that her statements were correct.
Mr North obtained concessions from Mr Storey that the provision of standards of Mrs Clarey's signature had been "deficient." He agreed that he did not himself obtain a specimen signature from Mrs Clarey. Nor was he given copies of, or referred to, the originals at the Titles Office of a number of earlier conveyancing documents such as transfers and mortgages.
Secondly, Mr North argued that Mr Storey's mind had been unfairly prejudiced by the expression of views in his written instructions about what was described as "an elaborate scheme" to assist Mr Thomson to raise the finance, and about which signatures were or were not genuine. In addition, yellow stickers with Mr Verduci's writing on them were left on when the documents were photocopied for Mr Storey. One of those stated: "Signature looks a forgery". Another was: "Security information signature a forgery". Mr Storey firmly rejected the suggestion that these comments would have influenced his findings.
Thirdly, many of the documents apparently relied on by Mr Storey were photocopies. In his report Mr Storey specifically warned about the danger of relying on examination of a photocopy rather than the original. This was not surprising given the quality of some of the photocopies – signatures were disappearing because they had been photocopied so many times, and with other documents the signatures had been cut off or virtually obliterated in the photocopying process. Mr Storey said that with some of these poor quality photocopies he would not try to draw any conclusion from them.
In these circumstances, Mr North submitted that Mrs Clarey should be estopped from alleging that the settlement occurred without her agreement or approval and from claiming that the discharge from the NAB, the transfer from her to Mr Thomson, and the mortgage from Mr Thomson in favour of Permanent should not be registered.
Mr North relied on the decision of the Court of Appeal of the Supreme Court of Queensland in Klement v Pencoal Ltd[28] In that case the appellant and one L were registered lessees, as tenants in common, of a mining lease and an associated special lease. For a fee of $10,000 they granted two companies an option to purchase the property for $1 million. The companies assigned their interest to P, which exercised the option and purchased the property, paying the $1 million to L. To effect the transfers to P, L forged the appellant's signature. P later transferred the property to B. The appellant brought proceedings claiming that B held one-half of its interest in the property on trust for the appellant. This was based on a contention that because of the forgery, there had been no effective transfer of the appellant's interest either to P or subsequently to B.
[28][2000] Q Conv R 54-546
At first instance, it was held that the appellant held out L as his agent "to conduct the entire transaction on his behalf." The appellant's own part was to be confined to signing transfers. But the authority with which the appellant clothed L "was to include production of relevant documents purporting to have been executed by the vendors in performance of their obligations." The appellant was therefore bound to the transfers despite the forgery. It was held that the appellant was estopped from denying the validity of his signature on the transfers. It was further held that the appellant's deliberate failure to disavow the forgery for more than three years, despite knowledge of it, amounted to ratification of its effectiveness.
The Court of Appeal (de Jersey CJ, McMurdo P, Davies JA) dismissed the appeal. In a joint judgment, their Honours held that a contention, that P's solicitors should have enquired expressly into the validity of the appellant's signature upon the transfers, missed the point. They stated:
"The fact is that the established ostensible agency of Lindner excused Pencoal's solicitors from the need to take those steps … Further, by the appellant's own approach to the matter, he is in the position of being estopped from denying the validity of his signature. The appellant is not in the position of being able to benefit from any laxity in Pencoal's solicitor's performance, even were that otherwise established. The appellant's own approach, in short, excused Pencoal from any need for further enquiry."[29]
[29][2000] Q Conv R 54-546 at 60,464
Their Honours referred to another ground of appeal which contended:
"… that the judge wrongly concluded that because Lindner had the appellant's authority to tender documents at settlement, the circumstance of the forgery did not prevent transfer of title. The appellant submitted that a forged transfer was ipso facto 'a pure nullity' which could not give rise to an effective transfer."[30]
Their Honours continued:
"This misconstrues the learned judge's findings. The judge found that the appellant did not authorise Lindner to sign the appellant's own name on the transfers. But otherwise, 'Lindner was plainly held out by the (appellant) as his agent to conduct the entire transaction on his behalf'. The appellant intended that 'Lindner conduct all the necessary dealings with the purchaser … this was to include production of relevant documents purporting to have been executed by the vendors in performance of their obligations'. Lindner had (ostensible) 'authority to represent that the documents which he presented at the settlement were valid as to their signature'.
Pencoal was entitled to rely on that ostensible authority. It did so in the respects covered earlier – dealing exclusively with Lindner, with whom it would not have dealt if alerted by the appellant to the problem. Hence the judge's conclusion as to authority, estoppel and ratification did rightly render the circumstance of the forgery, taken alone, of no abiding consequence in the resolution of the issues." [31]
[30][2000] Q Conv R 54-546 at 60,464-5
[31][2000] Q Conv R 54-546 at 60,465
Klement establishes, in my opinion, the important proposition that a party may be estopped from denying the validity of a transaction, notwithstanding that the relevant document may be a forgery. It is a matter of considering all of the circumstances of the case. For the reasons advanced by Mr North, I consider that Mrs Clarey is estopped from denying that she is bound by the contract of sale with Mr Thomson, that the settlement occurred with her knowledge and approval, that the NAB discharged its mortgage over the Bulleen property, that she transferred that property to Mr Thomson and that he mortgaged it to Permanent. Therefore, Mrs Clarey's claim that she is entitled to restrain the registration of the discharge from the NAB, the transfer to Mr Thomson and the mortgage from Mr Thomson to Permanent must fail. The interlocutory injunction will be dissolved.
It was never explained to me why the plaintiff was entitled to claim that her contract of sale with Mr Thomson "is not, and/or, was never, binding upon" her. Nor was it explained how I could grant a declaration along those lines in the absence of service of the proceeding on Mr Thomson. Particularly in this case where repudiation of the contract of sale by Mr Thomson is said to have been accepted by the plaintiff "by service of the writ herein."
Conclusion
I have, therefore, reached the conclusion that the no case submissions by the NAB and by Permanent and Morbanc should be upheld. In my opinion, Mrs Clarey has no claim against any of these defendants and requiring Permanent and Morbanc to go into evidence will not assist her. This is, of course, a most unhappy result for Mrs Clarey. She may have other claims available to her, such as her rights against Mr Thomson for the unpaid balance of the purchase price and against Middle East and/or Mr Chalhoub for negligently or fraudulently handling the conveyance and for failing to account to her for, at least, the $269,970.58. However, these will probably be of little comfort to her. Nevertheless, acting on Mr Verduci's advice, Mrs Clarey appointed Middle East and/or Mr Chalhoub to act for her on the conveyance and, despite Mr Adicho's warnings, neither she nor Mr Verduci sought to terminate Mr Chalhoub's instructions. Regrettably, she and not Permanent must suffer the consequences of this extraordinary episode.
After the parties have had an opportunity to consider these reasons, I will hear submissions concerning what final orders should be made.
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