Hoon v Credit Connect Mortgage Services Pty Ltd

[2021] VCC 1642

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION
GENERAL LIST

Revised
Not Restricted
Suitable for Publication

Case No. CI-21-04208

ANG CHIU HOON	Plaintiff
v
CREDIT CONNECT MORTGAGE SERVICES PTY LTD	Defendant

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JUDGE:	HIS HONOUR JUDGE COSGRAVE
WHERE HELD:	Melbourne
DATE OF HEARING:	7 and 12 October 2021
DATE OF RULING:	26 October 2021
CASE MAY BE CITED AS:	Hoon v Credit Connect Mortgage Services Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VCC 1642

RULING
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Subject:INJUNCTION

Catchwords:              Interlocutory injunction – sale of a property – fraud

Legislation Cited:      County Court Civil Procedure Rules 2018 (Vic); Transfer of Land Act1958 (Vic)

Cases Cited:Inglis v Commonwealth Trading Bank of Australia Ltd (1969) 119 CLR 334; Maviglia Investments Pty Limited v BKSL Investments Pty Ltd (in liq) & Ors [2017] NSWSC 490; Swann Road Pty Ltd v Sterling and Freeman Advisory Pty Ltd [2019] VSC 136

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Castelan	Sutton Laurence King Lawyers
For the Defendant	Mr I Hristovski	Summer Lawyers Pty Ltd

HIS HONOUR:

Introduction

1This proceeding began as an application by the plaintiff (“Hoon”) by summons on originating motion filed on 5 October 2021. Hoon sought an interlocutory injunction to restrain the defendant (“Credit Connect”) from settling or completing the sale of the property at 10/8 Grosvenor Street, Abbotsford in the State of Victoria (“the property”) until 30 days after the date when the defendant produced certain documents in response to an application by Hoon for preliminary discovery under Order 32.05 of the County Court Civil Procedure Rules 2018 (Vic) (“the Rules”).

2When Hoon’s application was first returnable before me, Credit Connect had only very recently been served with the application and sought the opportunity to file material in opposition to the application.  I adjourned the application until 12 October 2021 and made orders for the filing of supporting material and submissions.

3Between the two hearings, the position changed. Hoon no longer pursued its application under Rule 32.05 of the Rules. She decided that she now had sufficient information to determine whether to commence a proceeding against Credit Connect seeking relief under section 87A of the Transfer of Land Act 1958 (Vic) (“the TLA”).

Background

4Credit Connect is the registered second mortgagee of the property pursuant to Mortgage AT321130K registered on 10 June 2020.  Hoon alleges that the mortgage was created fraudulently and that her signature on the mortgage was forged. 

5Hoon contends that Credit Connect failed to take reasonable steps to verify her identity and to ensure that she was the person who executed the mortgage.  Hoon seeks a declaration that, on the assumption that she can prove her case, the mortgage is void. 

6The following matters emerge from the affidavit material:

(a)   Hoon lives in Indonesia and was last in Australia in 2012.

(b)   Hoon does not speak English.

(c)   In 2015 Hoon’s son lived in Melbourne and studied at Swinburne University.  Hoon bought the property for her son to live in while at university.  Hoon’s daughter, Valentine, was the principal point of contact for the purchase in Melbourne and she arranged everything on her mother’s behalf. 

(d)   The purchase price for the property was $699,000.  Hoon paid part of the purchase price herself and borrowed the balance. 

(e)   Valentine knew a person called Rendy Effendi who worked for the ANZ Bank.  She contacted him to ask if he could assist in obtaining a loan for Hoon.  Effendi asked Valentine for a copy of Hoon’s passport and Indonesian identification card.  Valentine provided the copies as asked. 

(f)    Effendi arranged the loan.  The bank approved the loan. 

(g)   The purchase settled on 18 July 2016.  Valentine understood that Effendi would arrange for two ANZ Bank accounts to be opened in Hoon’s name – one for the residential loan and one as an off-set account.  Effendi arranged for the loan account to have a direct debit from the off-set account for the monthly loan payments.

(h)   Although Hoon believed she had only opened two accounts, Effendi also set up another “equity manager account” with the ANZ in Hoon’s name.  Effendi opened this overdraft account without Hoon’s knowledge or consent.  The account was not linked to Hoon’s other accounts at the ANZ. 

(i)    As at 1 October 2021, Hoon owed the ANZ Bank approximately $250,000 on the fraudulent overdraft account.  Effendi was the only person who used that account. 

(j)    In September 2019, Effendi set up a company Aus‑Indo 188 Pty Ltd.  Effendi is the director/secretary and a shareholder in the company.  Although she was unaware of it, Hoon was also a director and the other shareholder in the company.  Hoon only became aware of the existence of the company in late 2020 after she engaged Kabo Lawyers to act on her behalf.

(k)   In late 2020, Hoon’s son received a letter from lawyers acting on behalf of Credit Connect asking that he vacate the property. 

(l)    In late 2020, Hoon knew nothing about Credit Connect: she had not signed any second mortgage over the property; she had never met any solicitor with respect to the second mortgage; she had not met or spoken to Tran Minh Phuoc, a solicitor, who allegedly witnessed her signature on the Credit Connect mortgage and allegedly provided legal advice to Hoon in her capacity as guarantor.

(m)     Credit Connect registered the mortgage over the property on 10 June 2020.

(n)   On 28 May 2021, Credit Connect repossessed the property.

(o) On 21 September 2021, Hoon’s solicitors wrote to the Registrar of Titles asking that the Registrar exercise the power granted by section 87A(3)(b) of the TLA to remove the mortgage from the Register of Titles. The Registrar rang Hoon’s solicitor the following day to advise that the Registrar would not exercise the power as requested.

7In recent correspondence, Credit Connect informed Hoon that it had sold the property pursuant to a contract of sale.  Credit Connect refused to provide the applicant with a copy of the contract and would not reveal precisely when settlement was scheduled to take place. 

8It was for this reason that Hoon sought discovery of relevant documents under Order 32 of the Rules and an injunction to prevent the completion of the sale of the property until after she had received the discovered documents and had decided whether or not to pursue the claim against Credit Connect.

9Because of the recent change in circumstances, the only issue presently concerning the Court is whether or not to grant Hoon’s application for an interlocutory injunction.  In doing this, the Court is required to consider whether Hoon has raised a prima facie case and whether the balance of convenience favours the grant of the relief sought. 

Legal principles

10The legal principles to which the Court must attend in considering questions about the grant of interlocutory injunctions are uncontroversial. 

11First, a plaintiff must demonstrate a prima facie case.  This requires the plaintiff to prove on a prima facie basis a sufficient likelihood of success to justify the preservation of the status quo pending the hearing and determination of the matter by the trial judge.  The strength of the probability of success which the plaintiff must demonstrate depends on factors including the nature of the rights asserted and the consequences which will flow from the interlocutory orders sought.

12Secondly, the balance of convenience must favour the granting of an injunction.  The balance of convenience requires the Court to consider matters both supporting and militating against the grant of the injunction.  Relevant factors will include the nature and strength of the plaintiff’s claim and where the greater risk of injustice lies – which party will be at the greater risk of peril depending upon whether the injunction is granted or refused.  Another relevant factor is the extent to which damages would be an adequate remedy for the alleged wrongdoing.

Prima facie case

Hoon’s submissions

13Hoon relied upon several matters to establish the prima facie case. 

14First, Hoon referred to the reliance which Credit Connect placed upon the solicitor Tran to identify Hoon as the borrower.  Hoon alleged that the person purporting to be Tran and act as her solicitor was an imposter.  In August 2021, Valentine found that Tran’s email address was [email protected].  The same Google search revealed that Tran’s business phone number was [phone] and that his mobile was 0411 109 694.  In the documentation produced by Credit Connect, it is said that Tran’s email address is [email protected] and that his phone number is [phone].  Hoon contended that these discrepancies strongly indicated that the person with whom Credit Connect dealt was not in fact the solicitor Tran. 

15In addition, there was evidence from Tran that he had never met or spoken to Hoon and that he did not know her.  He said that he had never witnessed her signature on loan or security documents and he did not even speak Indonesian (being her native language).  This evidence was consistent with Hoon asserting that she was the victim of fraud.  Such a conclusion seems reasonably open in circumstances where Hoon swears that she was not in Australia in 2019 and indeed, has not been here since 2012.

16Hoon’s essential allegation was that Credit Connect took no appropriate steps to check that the person which it relied upon to identify the plaintiff as the mortgagor of the property was truly the plaintiff’s solicitor.  Hoon pointed out that the email correspondence purportedly from Tran did not look like the usual email correspondence from a solicitor.  There was no reference to Tran being a solicitor.  His business address was not part of the email.  There was no reference to the Law Institute of Victoria, the professional standards scheme or the comments about the confidentiality of the communications which are commonly found on emails from a firm of solicitors.  Hoon also relied upon the fact that Credit Connect, contrary to statements in its own documentation, never collected the finance documents from Tran’s office.  Rather, Credit Connect dealt with another solicitor and collected them from the offices of that solicitor.

17Another matter which Hoon relied upon was what it characterised as Credit Connect’s failure to comply with good contemporary lending practice.  Hoon referred to an affidavit which showed that from about October 2020, Credit Connect and/or its solicitors mandated the use of meetings or conferences over Zoom to check identities of prospective borrowers.  This was not done in the present case.  It was said that the fact that Credit Connect failed to comply with its own guidelines told heavily against the company. 

Credit Connect’s submissions

18Credit Connect undertook a careful analysis of the chronology of events in this case.  Its argument was designed to show that it acted reasonably in taking all appropriate measures to verify the identity of the mortgagor and to confirm the relevant authority of the mortgagor. 

19On 5 September 2019, Credit Connect issued a letter of offer to Aus‑Indo 188 Pty Ltd (the borrower), Hoon and Effendi offering a loan in the amount of $116,600.  Hoon and Effendi were the two directors and shareholders of the company at the time.  The letter of offer confirmed that Credit Connect required security including personal guarantees from Hoon and Effendi supported by a second registered mortgage over the property. 

20On the same day, Credit Connect received a “declaration of purposes for which credit is provided” (“the purpose declaration”) apparently signed by Hoon and Effendi.  Hoon’s signature was witnessed by Sam Sopheak. 

21At 4:41pm on 5 September 2019, Effendi sent an email to David Nunn, the finance director of Credit Connect.  The email contained the contact details for Tran.  This included mobile and landline telephone numbers and an email address of “[email protected]”.

22At 9:03am on 6 September 2019, Credit Connect’s solicitor, Ms Rijono, sent an email to Tran enclosing a copy of the loan documents to be signed by the borrower, Hoon, and Credit Connect.  The email directed Tran to verify the authority and identity of Hoon in a manner which complied with Schedule 8 of the “Verification of Identity ARNECC Model Participation Rules”.  The email also asked Tran to provide a copy photograph of Hoon and Effendi taken at the time of signing the security documents.  Tran was to certify the photograph and provide independent legal advice to Hoon in the manner outlined in the security documents. 

23At about 2:42pm on 6 September 2019, Rijono had a telephone conversation with Tran.  She made a file note of a discussion in which she confirmed that she discussed the verification of identity process with Tran. 

24At about 1:44pm on 9 September 2019, Tran sent an email to Rijono confirming that he had received an amended cheque direction, that he had informed Hoon about it and that he had signed and witnessed the loan documents earlier that day. 

25At 1:48pm on 9 September 2019, Rijono received an email from Nick Zheng, a solicitor with Cliffords Lawyers and Migration Agents, informing Rijono that his firm acted for Effendi and provided Rijono with the loan documents signed by both Hoon and Effendi.  Where required, Tran witnessed Hoon’s signature. 

26The loan documents returned to Rijono included the following:  a signed and witnessed mortgage over the property; an authority to disburse the loan signed by Hoon and Effendi and witnessed by Tran and Zheng respectively; a solicitor’s certificate of legal advice provided by Tran to Hoon; an identification verification form dated 9 September 2019 signed by Tran where he confirmed that he complied with the Registrar of Titles Verification of Identity Standard; certified copies of Hoon’s passport and identification card; a certified photo of Hoon holding her passport and identification card as requested by Rijono in her email to Tran dated 6 September 2019.

27Credit Connect collected the original signed documents from Zheng’s office on 11 September 2019.

28On 11 September 2019, the loan was disbursed into Hoon’s bank account at the ANZ.

29On about 2 December 2020, Hoon emailed a solicitor at Summer Lawyers, the solicitors acting for Credit Connect in relation to the property.  The email, which was apparently drafted by Hoon’s daughter, sought an opportunity for the mortgage to be put back in order and for a chance to resolve the matter.  To that extent, it was evident that Hoon was aware of the loan and the mortgage which Credit Connect held over the property by this time in 2020.

30A few days later, Kabo Lawyers wrote to Summer Lawyers about the loan. 

31On 18 May 2021, Credit Connect took possession of the property which was vacant at the time.

32On 31 August 2021, Credit Connect entered into a contract of sale over the property.

33In short, Credit Connect argued that it took reasonable steps to verify the authority and identity of the mortgagor.

Analysis

34The basis of Hoon’s claim is Credit Connect’s failure to satisfy section 87A of the TLA. This provides as follows:

“(1)     In respect 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)).”

35If a mortgagee takes the requisite steps in accordance with the requirements of the Registrar of Titles pursuant to section 106A of the TLA, then that is highly likely to satisfy the requirements of section 87A. As noted, the requirements of the Registrar of Title for paper conveyancing transactions are set out in the guidelines published from time to time by the Registrar (“the Guidelines”). Subsequently, Tran, as the verifier of Hoon, confirmed to Credit Connect that the identity verification process had been conducted in accordance with the verification of identity standard prescribed by the Registrar.

36The Guidelines provide for an Australian lawyer to perform the identification.  Where this occurs, the solicitor is obliged to follow the Guidelines.  They do not require any additional commitment from the mortgagee and the mortgagee need not personally undertake the verification.  The mortgagee is entitled to delegate the task.

37The critical part of Hoon’s complaint appears to be Credit Connect’s failure to properly check that Tran was who he purported to be.

38It appears from the evidence that, although the solicitor at Summers Lawyers, Rijono, contacted Tran and spoke to him, she did not take any specific steps to assure herself that the person with whom she communicated was in fact the solicitor, Tran, practising from 836 High Street, Preston.  Nor did she specifically check that he was the individual who advised Hoon about the transaction with Credit Connect, verified her identity before witnessing her signature and certified her photo with the passport and ID card.

39While Hoon has pointed to a discrepancy between the actual and purported email address and phone numbers used by Tran, I am not satisfied that this greatly assists Hoon’s case against Credit Connect in relation to the claim pursuant to section 87A of the TLA.

40First, Credit Connect took steps to satisfy itself that verification was done correctly – Rijono confirmed with Tran that he would undertake the verification; she required Tran to meet with Hoon in person; she required Tran to certify that the ID documents looked like Hoon and that verification was performed in accordance with the Guidelines. In doing this, Credit Connect took reasonable measures to follow an appropriate process

41Secondly, while some of the documentation from Tran did not include all of the information which one might commonly find on communications from a solicitor, its absence was not universal.  For example, the stamp used for the certification of Hoon’s photo (and other documents) included a reference to Tran’s work address.  Likewise, the address appeared on the email of 11 September 2019 from Tran to Rijono. 

42Thirdly, the failure by Summer Lawyers in 2019 to conduct a verification exercise with Hoon via Zoom is not significant.  Zoom meetings became commonplace only after the current coronavirus erupted in the first quarter of 2020 and made its way around the world.  Criticising a party for not adopting in 2019 a practice which only became common subsequently is not persuasive. 

43Overall, I consider that Hoon’s prospects are such that she does not have an especially strong prima facie case.

Balance of convenience

Hoon’s submissions

44Hoon contended that the balance of convenience favoured the grant of an injunction because if there were no injunction, Hoon would lose the property and be limited to a claim for damages against a fraudster.

45Hoon noted that, under the mortgagee contract of sale which Credit Connect entered into, if at the date of settlement, Credit Connect as the vendor was unable to complete the contract due to an injunction or court proceedings or claims by third parties, it could elect by written notice to the purchaser to extend the settlement date for up to six months from the date of the contract or terminate the contract.  In the latter case, the purchaser, subject to the return of the deposit, waived the right to make any claim against Credit Connect in relation to the contract.  Thus, said Hoon, Credit Connect would not suffer any damages claimed by the purchaser for breach of contract if the injunction were granted. 

46Hoon also examined some of the correspondence and argued there was approximately $430-$440,000 equity in the property.  To that extent, a delay in the final adjudication of Hoon’s claim would not cause significant or irreparable damage to Credit Connect. 

47Further, Hoon pointed to an exception to the rule in Inglis v Commonwealth Trading Bank of Australia,[1] namely, that where a party seeks to restrain a mortgagee from exercising the power of sale, the Court will not grant an injunction unless the amount of the mortgage debt is paid (assuming the debt is not disputed) or is paid into Court (if the debt is disputed).  An exception to the usual rule applies where the validity of the mortgage is in issue.[2]

[1](1969) 119 CLR 334.

[2]See Swann Road Pty Ltd v Sterling and Freeman Advisory Pty Ltd [2019] VSC 136 at [4] – [5] relying upon Maviglia Investments Pty Limited v BKSL Investments Pty Ltd (in liq) & Ors [2017] NSWSC 490 at [58].

48Finally, Hoon argued that the greater risk of injustice lay in not granting the injunction.  If the Court granted the injunction, Credit Connect retained its mortgage and interest continued to accrue on any moneys found to be owing.  If there were no injunction, the property was sold and it would be irrecoverable for Hoon. 

Credit Connect’s submissions

49Credit Connect contested the balance of convenience on a number of grounds.  It said that:

(a)   if the sale did not complete on the due date of 12 October 2021, then Credit Connect would be in breach of the contract and might be liable for damages; and

(b)   there was no equity in the property.  If Credit Connect did not realise its security then the accruing interest would increase the debt owing and the corresponding shortfall.  It was said that Hoon lives overseas and had no other assets in Australia against which Credit Connect could recover. 

50Credit Connect’s argument failed to grapple directly with the points made by Hoon about the former’s exposure to damages and the equity in the property.  Because Hoon’s points seemed to me to have substance and Credit Connect failed to address them head-on, I find that Credit Connect has probably overstated its case on these issues and is exaggerating its predicament.  This is a matter of some concern because Courts rely upon the legal profession to assist in the administration of justice. 

Analysis

51I appreciate that if no injunction is granted, Hoon will lose the property.  While I accept that Credit Connect can probably avoid breaking the contract of sale for the property, I am concerned that the rights or potential interest of the purchasers in the property will be destroyed if the sale is postponed.  From Hoon’s perspective, an important consideration for the Court is her delay in taking legal measures against Credit Connect to fight for her ongoing interest in, and ownership of, the property.  It is clear from the affidavit material that Hoon was aware of the fraud in December 2020.  It appears that Hoon or her daughter were aware in May 2021 that Credit Connect had repossessed the property, changed the locks and removed the furniture.  Notwithstanding this, Hoon delayed until October before seeking interlocutory relief.  Had Hoon acted sooner to protect her rights, it is quite possible that Credit Connect would not have entered into the contract of sale for the property which it did in August 2021.  Where an interlocutory injunction is concerned, delay of a relatively short time can properly be regarded as unreasonable.  It is well recognised that a plaintiff is expected to seek relief promptly once he or she has notice of the wrongful acts in question.

52Another concern about Hoon’s application is the undertaking as to damages.  Hoon has lived in Indonesia for many years.  Hoon’s son has been living in Indonesia since about February this year.  It seems that Hoon has no other assets of note in Australia.  To that extent, if an injunction were granted and ultimately it was found to have been incorrectly given, then Credit Connect would be unlikely to recover any loss and damage flowing from that grant of the injunction.  Hoon did not appear to provide any specific security to support the proposed undertaking as to damages.  This is a relevant factor for the Court to take into account. 

Summary

53On balance, I consider that the Court should not grant an interlocutory injunction.  I do so for the following reasons.

54First, the prima facie case which Hoon raises is not compelling. While Hoon may ultimately be able to prove a contravention of section 87A of the TLA, on the evidence to date, the case does not look especially strong.

55Secondly, although Credit Connect may avoid a damages claim from the purchasers who bought the property for breach of contract, an injunction is likely to affect their rights.  At best, the purchase will be delayed and at worst, Credit Connect can elect to terminate the contract and return the deposit. 

56Thirdly, while Hoon appears to be an innocent victim of the fraud perpetrated by Effendi, Credit Connect too appears to be innocent.  Hoon’s delay in issuing legal proceedings and seeking injunctive relief complicated the situation.  Hoon was aware of the fraud in December 2020 but took no legal action to protect her rights until a few weeks ago.  Without this delay, Credit Connect might not have exercised its power of sale. 

57Fourthly, there was no evidence to suggest that the property was special in some way to Hoon.  No one has been living at the property since early this year.  If there has been wrongdoing by Credit Connect, I consider that damages would be an adequate remedy. Currently there is no suggestion that the auction price of $675,000 was anything other than the current market value.  Nor was any question raised in the evidence to suggest that Credit Connect could not meet an award of damages.

Conclusion

58I propose to make orders as follows:

(a)   the application by Hoon for an injunction be dismissed.

(b)   costs of the application be reserved.

59If either Hoon or Credit Connect has any objection to the proposed orders, they should file written submissions by 10:00am on 29 October 2021. The submissions are not to exceed four A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. Unless I regard it as necessary or a party persuades me otherwise, I intend to determine the final orders and costs without a further hearing.