MDN Mortgages Pty Ltd v Caradonna - [2010] NSWSC 1298

No judgment structure available for this case.

CITATION: MDN Mortgages Pty Ltd v Caradonna [2010] NSWSC 1298

HEARING DATE(S): 30/6/09
30/7/09
7/10/09
14/10/09
28/10/09
9/12/09
17/12/09
2-4/3/10

JUDGMENT DATE :
17 November 2010

JURISDICTION: Common Law Division

JUDGMENT OF: Kirby J

DECISION: 1. The parties should prepare short minutes reflecting the findings in this judgment and agree, if possible, upon costs.
2. The matter to be listed on a date to be agreed to deal with any issues arising from the short minutes and such other issues as remain.

CATCHWORDS: REAL PROPERTY - torrens title - indefeasibility of title - mortgages - registration of forged instrument - mortgagee innocent of fraud - whether mortgage on its proper construction secures a debt - whether mortgagee entitled to assume document properly executed - s128 and s129 Corporations Act 2001 (Cth) - whether in personam remedy against registered mortgagee - subrogation.

LEGISLATION CITED: Contracts Review Act 1980
Conveyancing Act 1919
Real Property Act 1900
Corporations Act 2001

CATEGORY: Principal judgment

CASES CITED: Jones v Dunkel (1951) 101 CLR 298
Sanpine Pty Limited v Koompahtoo Local Aboriginal Land Council [2005] NSWSC 365
Sanchet v Director of Public Prosecutions (Cth) [2006] NSWCCA 291
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115
Allen, Allen & Hemsley v DCT (NSW) (1989) 20 FCA 576; (1989) 86 ALR 597
Commercial Bank v Amadio (1983) 151 CLR 447
Blomley v Ryan (1956) 99 CLR 362
Assets Co Ltd v Mere Roihi [1905] AC 176
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202
Perpetual Trustees Victoria Ltd v English & Anor [2009] NSWSC 478
Small v Tomassetti [2001] NSWSC 1112
PT Limited v Maradona Pty Limited (1992) 25 NSWLR 643
Chandra & Anor v Perpetual Trustees Victoria Limited [2007] NSWSC 694
Provident Capital Ltd v Printy [2008] NSWCA 131
Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165
International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; (2008) 234 CLR 151
Kimberley Securities Ltd v Esber [2008] NSWCA 301
Story v Advance Bank Australia Limited (1993) 31 NSWLR 722
Soyfer & Anor v Earlmaze & Ors [2000] NSWSC 1068
Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266
Vassos v State Bank of South Australia [1993] 2 VR 316
Vella v Permanent Mortgagees Pty Ltd [2008] NSWSC 505
Pyramid Building Society (in Liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Perpetual Trustees Victoria Ltd v Cipri [2008] NSWSC 1128
Ghana Commercial Bank v Chandiram [1960] AC 732
Cochrane v Cochrane (1985) 3 NSWLR 403
Highland v Exception Holdings Pty Ltd (in Liq) [2006] NSWCA 310; (2006) 60 ACSR 223
Registrar General v Gill [1994] NSWCA 261
Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269

PARTIES: MDN Mortgages Pty Limited (Pl)
Maria Antonietta Caradonna (Def)

FILE NUMBER(S): SC 2007/13184

COUNSEL: F Gleeson SC/K Williams (Pl)
D C Eardley (Def)

SOLICITORS: Magney & Magney Solicitors (Pl)
Russo & Partners (Def)

MDN MORTGAGES PTY LIMITED v Maria Antonietta CARADONNA

(2007/13184)

I N D E X

Para No.

The pleadings.
2

The hearing.
12

The issues.
20

Background.
22

Early assistance to Tony.
25

The September 2001 transaction.
41

The October 2002 loan.
62

The November 2004 loan.
109

Default under the Mortgage.
150

Was the defendant’s signature on the Mortgage forged?
180

Was the September 2001 loan Tainted?
194

The legal framework.
202

What is secured by the 2004 Mortgage?
209

The validity of the Facility Agreement 2004.
218

Statutory assumptions under the Corporations Act 2001.
231

Was there a special relationship?
239

Is there a personal equity?
255

The plaintiff’s alternative case: Subrogation.
260

Orders.
265

********** IN THE SUPREME COURT

OF NEW SOUTH WALES
COMMON LAW DIVISION

JUSTICE DAVID KIRBY

Wednesday 17 November 2010

2007/13184 MDN MORTGAGES PTY LIMITED v Maria Antonietta CARADONNA

JUDGMENT

:

The pleadings.

2 MDN Mortgages Pty Limited (“MDN Mortgages”) (the plaintiff) seeks possession of a property at 13 Kincumber Road, Bonnyrigg, that is owned by Mrs Maria Antonietta Caradonna (“Mrs Caradonna”) (the defendant). The plaintiff says that on 1 November 2004 it loaned Caradonna Investments Pty Limited (“Caradonna Investments”) $320,000, pursuant to a Facility Agreement executed by the company. The Facility Agreement made the following provision in respect of security: (Ex R, tab 34)

“(4) The Borrower is not entitled to any advance pursuant to this Agreement unless and until the Lender holds the Security and the Guarantee in form and substance satisfactory to the Lender. The Borrower acknowledges that the Security is charged with payment of the Debt.”

3 The Schedule to the Facility Agreement (Item 6) defined the security in these terms: (Ex R, tab 34)

“(a) First registered mortgage by Maria Antonietta Caradonna in favour of the Lender in respect of the property known as 13 Kincumber Road Bonnyrigg NSW 2177. Title Ref: Folio Identifier 23/263093.

(b) Guarantee by the Guarantors.”

4 The Schedule also identified the Guarantors (Item 1) as “Angelo Antonio Caradonna” (the defendant’s son), “Stephen Palumbo” (the defendants’ son in law) and “Maria Antonietta Caradonna” (the defendant). A Deed of Guarantee and Indemnity was, according to the plaintiff, executed by the Guarantors the same day (1.11.04). It included a covenant by which they jointly and severally guaranteed the performance by Caradonna Investments of its obligations under the Facility Agreement (Clauses 2, 3 and Item 5 of the Schedule). By Clause 11 the Guarantors, jointly and severally, covenanted to grant a registered first mortgage over the property at 13 Kincumber Road, Bonnyrigg. On the plaintiff’s case, Mrs Caradonna, as part of the settlement on 1 November 2004, granted a mortgage over her property in favour of the plaintiff as security for the obligations under the Facility Agreement and the Guarantee.

5 There having been default by the borrower, a Statement of Claim was issued on 26 June 2007 against the defendant. The sum of $356,074.22 was said to be outstanding. The plaintiff therefore sought to exercise its power of sale.

6 Mrs Caradonna, by her Defence, denied that she executed the guarantee or the mortgage. The signatures on such documents, purporting to be her signature, were attached without her authority. She was not a party to the Deed of Guarantee and Indemnity.

7 By a Cross Claim (“the first cross claim”), Mrs Caradonna sought a declaration that the signature on the mortgage was a forgery and the mortgage a nullity. The Certificate Of Title, she said, had been produced by MDN Mortgages to the Registrar General without her authority. She asserted that she had a personal equity to have the mortgage set aside. A further claim under the Contracts Review Act 1980 was abandoned by her counsel (Mr Tregenza) by letter directed to my Associate dated 25 June 2009 (T 202 cf Plaintiff’s Reply [28]).

8 MDN Mortgages, by an Amended Defence to the Cross Claim, denied that Mrs Caradonna had a personal equity. Alternatively, if she did, she was not entitled to the relief claimed because she had not offered to do equity, by repaying the benefit conferred upon her by the discharge of a mortgage which encumbered her property.

9 MDN Mortgages itself commenced a Cross Claim (“the second cross claim”). It asserted that the 1 November 2004 mortgage was the last in a sequence of mortgages on the property. Each mortgage in the sequence replaced an existing mortgage. The sequence was as follows:

The November 2004 mortgage paid out a mortgage of $314,000 Mrs Caradonna had given to Magney Mortgages Limited on 24 October 2002, under similar arrangements involving a Facility Agreement with Caradonna Investments and a Deed of Guarantee.

The 24 October 2002 mortgage had paid out a mortgage of $213,000 Mrs Caradonna had also given to Magney Mortgages Limited on 6 September 2001, again under similar arrangements involving a Facility Agreement with Caradonna Investments and a Deed of Guarantee.

10 MDN Mortgages, in these circumstances, seeks a declaration that, having paid out the previous mortgage and thereby conferred a benefit upon Mrs Caradonna, it became an equitable assignee of Magney Mortgages, with the same priority as if it had been the registered mortgagee.

11 Mrs Caradonna, by her Defence to the Second Cross Claim, acknowledged that she had executed the mortgage and guarantee associated with the 6 September 2001 loan to Caradonna Investments, but denied that she had done so in respect of the loans on 24 October 2002 and 1 November 2004.

The hearing.

12 The hearing began on 30 June 2009. Mr Tregenza of counsel appeared for Mrs Caradonna instructed by Mr Gerard O’Donnell of Breens solicitors. Affidavits were read and objections dealt with. An affidavit from Mrs Caradonna included the following: (Ex 1)

“21. I have looked at a copy of a mortgage bearing date 6 September 2001 purportedly signed by me in front of Lorenzo Flammia solicitor. The signature on this document appears to be mine ...”

13 The paragraphs that followed dealt with the documentation associated with the transactions on 24 October 2002 and 1 November 2004. In each case she said that the signatures appearing on those documents were not her signatures ([22] to [24]). In the context of the two mortgages executed on 24 October 2002, Mrs Caradonna said this:

“I did not authorise Tony or any other person to sign them on my behalf.”

14 In the course of argument, in respect of an objection, counsel then appearing for Mrs Caradonna said this: (T 17 (30.6.09))

“It will be contended that Tony Caradonna, the plaintiff’s son, is the relevant forger.”

15 Some of the plaintiff’s witnesses were required for brief cross examination. The plaintiff then closed its case (T 34 (30.6.09)). Mrs Caradonna was then called. She gave brief evidence in chief, through an interpreter, in which she was shown six documents and asked whether the signature which appeared on those documents was hers. Her evidence, in substance, was as follows: (T 35/6 (30.6.09))

The mortgage of 6 September 2001 was signed by her (T 35).

The signature on the undated guarantee, accompanying a letter from Manna & Flammia, solicitors (16.8.01), being a Deed of Guarantee, was not her signature (T 36).

A Declaration as to Receipt of Independent Legal Advice as a Third Party Mortgagor (15.6.01) was her signature (Ex D, p 48). However, an Acknowledgement of Legal Advice as a Proposed Guarantor (Ex D, p 50) was not her signature (T 36).

A Consent by Guarantor to Legal Advice (acknowledging that her solicitor, acting for other parties, may have a conflict) was not her signature (Ex D, pp 51 and 52) (T 36).

16 Mr Fabian Gleeson SC, for the plaintiff, then began his cross examination. After lunch, Mr Tregenza announced that his instructions, and those of his solicitor, had been withdrawn. The matter was adjourned.

17 Mrs Caradonna then appointed new solicitors, Russo & Partners. The matter was further adjourned to enable a handwriting expert to examine a number of documents. It was a protracted process. The matter ultimately resumed on 2 March 2010.

18 When the matter resumed, Mr David Eardley of counsel appeared for Mrs Caradonna, instructed by Russo & Partners. Both parties sought to supplement the evidence filed on the last occasion. It was at once apparent, as the plaintiff later submitted, that those representing the defendant had “changed her case theory” (Plaintiff’s Reply [11]). Amongst the affidavits relied upon by the defendant at the resumed hearing was an affidavit of Mr Tony Caradonna. The affidavit included the following: (Ex 7)

“12. I was not aware of the 2002 and 2004 loans and had no knowledge of their existence until the 2002 and 2004 loan documents were shown to me by Mr Russo in September 2009. I am not aware how the 2002 and 2004 loan documentation came into existence.

13. I did not as a director of Caradonna Investments retain Mr Flammia of Manna & Flammia to act on behalf of Caradonna Investments or any other person in the 2002 and 2004 loans.

14. I have not executed any mortgage or loan documentation for the 2002 and 2004 loans in front of Lorenzo Flammia.”

19 Mr Caradonna added that he had not received money on settlement. In particular, having reviewed the bank statements of Caradonna Investments, he “had no record of receiving the surplus of $92,000”, a reference to the money left over once the preceding mortgage had been discharged (Ex 7 [15]). At no stage, according to his affidavit, had he given Mr Flammia, solicitor, instructions to act in respect of these transactions (Ex 7 [16] and [17]).

The issues.

20 The plaintiff, in helpful written submissions, identified a number of specific questions that may need to be addressed. They included (cf Plaintiff’s Submissions [78])

First

Second , was the November 2004 Facility Agreement duly executed by Caradonna Investments?

Third , if the Facility Agreement was not duly executed, was the plaintiff entitled under s 129(5) of the Corporations Act 2001 to assume that it had been duly executed?

Fourth , what obligations of the defendant (if any) were secured by the November 2004 mortgage, upon registration of that mortgage? That is, what interest of the plaintiff was rendered indefeasible by registration?

Fifth , did the plaintiff produce the Certificate of Title to the property to the Registrar General without the authority of the defendant?

Sixth , if so, does the defendant have a personal equity to have the November 2004 registered mortgage set aside?

Seventh

or

the amount of $215,567.67, plus interest since 24 October 2002 (being the amount paid out to discharge the previous mortgage (6 September 2001)).

Eighth

Ninth , was the defendant’s signature on the 6 September 2001 mortgage or the Deed of Guarantee forged or attached without her authority?

Tenth

21 Let me begin by examining the evidence related to these documents, more or less chronologically.

Background.

22 Mrs Caradonna was born in Italy in 1939. She left school at the age of eleven years, having completed fifth class (Ex 1 [4]). She then worked on her family’s farm. Arrangements were made for her to marry Gerardo Caradonna in 1957 (Ex 1 [6]). They had four children including, relevantly:

Anna Maria, born in August 1958, now married to Stephen Palumbo.

Angelo Antonio (“Tony”), born in November 1961.

23 Their youngest child, Vito, is disabled. He now lives in a nursing home (Ex 1 [9]). Before he entered the nursing home (in approximately 2007), Mrs Caradonna was his carer (Ex 1 [9]).

24 Mrs Caradonna’s father emigrated to Australia in the 1950s, arriving ahead of her mother who followed in about 1960. Mrs Caradonna and her husband arrived in 1963. In 1981, or thereabouts, they purchased land at 13 Kincumber Road, Bonnyrigg and built a house. Mrs Caradonna’s husband died on 9 February 1995 (Ex 1 [8]). Mrs Caradonna remained in the house, which is still her residence.

Early assistance to Tony.

25 Some time before 1993, Mrs Caradonna and her husband were approached by their son, Tony. He wanted to borrow money to buy a stall at the Flemington Markets. He asked to use their home as security (Ex 1 [11]). Mrs Caradonna and her husband agreed. She described what then happened in these words: (Ex 1 [13])

“13. In 1993 my husband and I received a telephone call from a male person from whom Tony had arranged to borrow money. The man said to me words of or to the effect ‘I want to see you in town’. My husband and I went to Sydney. I don’t remember the name of the man or the building in the city where we saw him. We were accompanied by Tony. I recall that the man said ‘Are you happy for this to happen?’ The man gave my husband and I a lot of papers to sign but told us to do so ‘in front of a solicitor’. Thereafter my husband and I went to see Mr Trimarchi, a solicitor in Liverpool We signed the document and Mr Trimarchi witnessed our signatures.”

26 The mortgage was executed by Mrs Caradonna and her husband on 15 November 1993, securing a loan of $146,000 (Ex H, tab 7). Mrs Caradonna, when asked about the loan in cross examination at the resumed hearing, agreed that she had signed the documents with her husband, saying, accurately, that it had been repaid (T 6 (2.3.10)). However, when shown a copy of the document (Ex P, tab 3), she said this in respect of the first page: (T 6)

“A. INTERPRETER : This one, yes, but it looks like but.

27 Mrs Caradonna was then shown the last page of the document. She said this: (T 6/7)

28 The document was uncontroversial. There was no question that it was Mrs Caradonna’s signature and that of her husband. As mentioned, this evidence was given at the resumed hearing (2.3.10). It was the first in a series of denials.

29 Mrs Caradonna’s original affidavit (31.3.08) included the following detail concerning a default under the loan: (Ex 1 [14])

“14. A recent search by me of the papers I held in my home in regard to the various dealings I have had with my son Tony, resulted in my discovering a letter dated 30 May 1995 from Anthony Sunman & Co Solicitors. I do not recall receiving such letter. Any time that I have received similar correspondence I have spoken to my children about such document and in particular Tony. He has said to me each time words of or to the effect ‘don’t you worry about that Mum’.”

30 The letter from Anthony Sunman & Co, solicitors, of 30 May 1995, acting for the mortgagee, was produced. The letter drew attention to the fact that the mortgage was in arrears and threatened proceedings (Ex P, tab 5). At the resumed hearing, in cross examination, Mrs Caradonna was shown the letter (T 7). She was reminded, with the aid of an interpreter, of her previous affidavit. She said this: (T 7)

31 Shortly after the letter from the solicitors (28.6.95), the mortgage was discharged (Ex H, tab 9). Meanwhile, Mr Caradonna had died. On 12 July 1995, the mortgage was replaced with another from Westpac, this time for $310,000 (Ex H, tab 10). The mortgage was signed “Maria A Caradonna”. Alongside that signature, under the word “Debtor”, Tony Caradonna signed his name, as he acknowledged (T 80). Separately, and also under the word “Debtor”, was the signature of Stephen Palumbo, which, in cross examination, he also acknowledged (T 60). When Mrs Caradonna was shown that document in cross examination, however, she said this: (T 12)

32 That, I repeat, was evidence at the resumed hearing. However, Mrs Caradonna, in her original affidavit, provided the following recollection of the background to the replacement mortgage. She said this: (Ex 1 [16])

“16. In about July of 1995 Tony said to me words of or to the effect ‘I am going to pay out the monies I borrowed in 1993 with a new loan from Westpac. Prior to that time I had regularly said to Tony ‘Tony you pay bank?’ to which Tony replied ‘I pay every month, don’t you worry’. I am now informed that, at the time he borrowed money from Westpac Banking Corporation in about July 1995, the money advanced was approximately $310,000. I was not aware at the time of signing the mortgage, again in front of Anthony Trimarchi, that additional monies had been borrowed by my son Tony.”

33 Mrs Caradonna also provided the following detail concerning the August 1997 mortgage: (Ex 1 [19])

. I recall Mr Macri saying words of or to the effect ‘you’ve not done it again for your kids’

34 At the resumed hearing (2.3.10), that paragraph was read to Mrs Caradonna through an interpreter. She was then asked the following: (T 9/10)

35 The affidavit, Exhibit 1, was sworn in the presence of Mrs Caradonna’s then solicitor, Gerard O’Donnell, as witness. Alongside Mr O’Donnell’s signature appears “M Caradonna”. The affidavit was accompanied by a certificate of an interpreter, in these terms:

“I, Angela Angelone, of Community Relations Commission Language Services, interpreter, certify that before the above named deponent swore the affidavit, I read it over to her in the Italian language and she appeared to hear and understand the same and I interpreted the oath to her. I am competent to interpret from the English to the Italian language.”

36 At the resumed hearing (2.3.10), Mrs Caradonna’s attention was drawn to the final page of her affidavit and the various signatures, including the certificate of the interpreter. She said this: (T 10/11)

37 Again there was no controversy about Mrs Caradonna’s signature on her earlier affidavit. Indeed, it was used by the handwriting experts as a sample of the way in which she signed.

38 On 26 February 1999, Caradonna Investments was registered as a company. Tony Caradonna and Mrs Caradonna were appointed directors. On 10 January 2000, Mrs Caradonna was replaced by Stephen Palumbo (Ex 8, annex A). Mr Tony Caradonna, in cross examination, provided the following description of the way in which the company operated: (T 86)

“Q. ... when it was yourself and your mother as directors from March '99 to early 2000 was the arrangement with your mother that she left everything to you to attend to in relation to the company's business?
A. I can't remember.

Q. You are not suggesting your mother had an active part in the business affairs?
A. No, she had no active part at all.

Q. She was content to allow to you look after the affairs of the company?
A. Yes.

Q. I want to ask you about bank accounts. What bank account did Caradonna Investments have from the time it was incorporated?
A. Western City Credit Union.

Q. And the signatories to that account were?
A. Just myself.

Q. And that was the company's bank account?
A. Yes.

Q. When Mr Steven Palumbo became a director on 10 January 2000, was the arrangement in relation to the day to day affairs of the company that he left things to you to attend to?
A. Yes.

Q. And you would keep him informed of events from time to time?
A. Yes, from time to time, yes.

Q. And if you were to refinance any loans of the company you would inform him about those matters?
A. I would have to because he was a director.

39 The August 1997 mortgages were discharged on 9 August 1999 and replaced by two mortgages arranged by R L Kremnizer & Co, Double Bay (Ex H, tabs 14 and 15). There was a first mortgage (where the mortgagees were Hely Services Pty Limited and Douglas Walter Lack and Margaret Lack) for $195,000 and a second mortgage (to Pacific Coast Nominees Pty Limited) for $30,000 (a total of $225,000). Mrs Caradonna, in her original affidavit, said that she had no recollection of signing those mortgages (Ex 1 [20]). At the resumed hearing (2.3.10), when shown her signature (Ex P, tab 14), Mrs Caradonna said that the signature (“Maria A Caradonna”) was not her signature (T 17). The transcript included the following: (T 18)

40 Again, there was no real controversy concerning that document. Mr Tony Caradonna remembered refinancing through Kremnizer & Co (T 82). When shown his mother’s signature, he was not sure that it was hers (T 84). He nonetheless believed that he could recall his mother giving a mortgage in connection with Caradonna Investments, through Kreminizer (T 84).

The September 2001 transaction.

41 The plaintiff, MDN Mortgages, was described by Mr John Dickinson (a director and sales manager) as a small company with three employees (Ex C [6], [9]). The company provided short term loans for business purposes to borrowers referred by brokers (Ex C [6]). Mr Dickinson had previously worked for Magney Mortgages Limited (Ex C [3]). Whilst at Magney Mortgages he met Mr Tony Caradonna. He said this: (Ex C [13])

“13. By 2004, I had been dealing with Tony Caradonna for about 4 years. He referred borrowers to me for finance, on occasions. On other occasions, he applied for finance for himself (or for a company with which he was involved, Caradonna Investments Pty Ltd).”

42 Mr Tony Caradonna said much the same thing. He described their relationship in these terms: (Ex 7)

“3. In about 2000 I became acquainted with John Dickinson through a mutual associate Mr Vince Milti who was also involved in the boxing promotion business and I met Mr Dickinson regularly at boxing matches.

4. In late 2000 I recall a conversation I had with Mr Dickinson where Mr Dickinson said ... words to the effect:

John said: ‘Tony, I am a lender, if you have anyone who wants to borrow money please send them across to me and I will see what I can do for them.’

I said: ‘That’s great John. If I know anyone I’ll send them to you.’

5. Over the next year I referred a number of people to Mr Dickinson to obtain loans. I did not receive any commissions for these referrals and merely wished to introduce them to Mr Dickinson and foster the relationship between myself and Mr Dickinson.

6. In about November or December 200, Irena Bradirick shared an office with Caradonna Investments and acted as a mortgage broker in her own right. I recall she actively sought and referred clients to Magney Mortgages for loans.”

43 Mr Caradonna said that he spoke to Mr Dickinson, in September 2001, about getting a loan on behalf of Caradonna Investments. Mr Dickinson said he would send “the document” (Ex 7 [7]). In fact, as Mr Caradonna acknowledged (T 89), their conversation was somewhat earlier. On 11 April 2001, an application was completed and sent by fax addressed to Mr Dickinson. On the cover sheet of the application, in printing, were the words, “From Tony Caradonna” (Ex R, tab 6). It was a six page questionnaire where the answers had been printed by hand. It was dated 12 April 2001 and signed. On the last page there was a further note, which was also printed and in these terms: (Ex R, tab 6)

“Attention John.

235k

App 380k
To re finance from Kremnizer & Co
for 12 mths int only.
Regards
Tony
Contact me
at 9.30 am 0402-766511
17/4/2001”

44 When taken to the signature in cross examination, Mr Caradonna said, “It don’t appear like my signature” (T 91). The cross examination continued as follows: (T 91)

45 Mr Caradonna was asked about the handwriting in the rest of the document. Was it his? Again, he was “uncertain” (T 92). It was a very large sample of handwriting. The following question was then asked: (T 92)

46 To assist Mr Caradonna in his recollection, his attention was drawn to the mobile phone number appearing in the note. It was the same number as on the letterhead of Caradonna Investments (Ex R, tab 39B). Still Mr Caradonna remained uncertain. The application was sent by fax from the Conrad Jupiters Hotel in Queensland. Mr Caradonna acknowledged the hotel was one of his sponsors and that he was staying at the hotel in April 2001 (T 92). The message itself referred to his being in Queensland on business. The following question was then put: (T 93)

47 There can be no doubt that Mr Caradonna completed the application and the postscript and knew it. He was a most unsatisfactory witness. Since he had acknowledged the September 2001 transaction in his affidavit, why did he deny an uncontroversial preliminary document in the history of that transaction? The document examiner retained by the defendant, Mr Storey, as I will shortly explain, sought samples of Mr Caradonna’s signature in an original form from the defendant’s solicitor (T 147). However, they were never provided (T 147). I infer that Mr Caradonna refused to acknowledge the obvious because he was not anxious to verify his signature, or a large sample of his handwriting.

48 On 17 April 2001, Magney Mortgages made the offer of a loan in a letter signed by Mr Dickinson. The letter was addressed, “Dear Tony” (Ex T, tab 1). The letter provided a form to be completed. It was returned by fax to Magney Mortgages on 9 May 2001 and again on 21 May 2001. The fax used was that of Overseas Travel, the business operated by Maria Palumbo, Mr Caradonna’s sister. Mr Caradonna had no recollection of sending the fax. He acknowledged he had no fax machine at that time (T 94). He rented the back of his sister’s office (T 132). When the letter was returned, the words “Attention John, as discussed” were printed on the letter. The printing was similar to the application form (Ex R, tab 6; cf Ex C, tab 1). As mentioned, the document made provision for acceptance. When it was returned on 21 May 2001, it included the following printed names with signatures alongside: (Ex T, tab 1A)

Antonio Caradonna

Stephen Palumbo

Antonietta Caradonna

Mrs Maria Palumbo

49 Mr Caradonna said he did not recognise the signature alongside his name (T 94). When asked about Mr Stephen Palumbo’s signature, he said he did not ever recall having seen his signature (T 94). That evidence, however, was at odds with evidence he had given earlier of their practice as directors of Caradonna Investments, which he described in these terms: (T 86)

50 Mr Caradonna said that he did not know his sister’s signature (T 94). His mother’s signature did not appear to be hers (T 94).

51 A handwriting report of Ms Novotny was tendered on behalf of the plaintiff. She examined, amongst other things, signatures on various documents attributed to Mr Tony Caradonna. She acknowledged a limitation upon her investigation. The signatures available to her for comparison were reproductions, not originals. I will examine her conclusions below. There were examples of Mr Caradonna’s signature on documents which were not associated with this litigation. They included documents provided to Western City Credit Union when opening an account (Ex S). The application annexed a photocopy of his passport and driver’s licence. He also signed the annual return for Caradonna Investments on 24 December 2002 (Ex 10, item 70: report Mr Storey). To my eye, the signatures on these documents certainly appear to be similar to the signature attributed to Mr Tony Caradonna on the document accepting the offer by the mortgagee (17.4.01) and the declaration that the loan was for a business purpose (Ex 10, items 69.4 and 69.5: report Mr Storey).

52 On 24 July 2001, a Notice to Vacate was served upon Mrs Caradonna by the Sheriff’s Office (Ex U). The Kremnizer mortgages were, or at least one of them was apparently in arrears. The document was faxed to Overseas Travel (Ex R, tab 8). Mr Caradonna said he did not recall receiving the document. Nor did he recall the mortgage being in default (T 95). However, Mrs Caradonna, in her original affidavit, in the context of the mortgage of 6 September 2001, did provide a recollection of the events which led to the refinancing: (Ex 1 [21])

“21. ... I recall seeing Mr Flammia at a boxing match at Penrith. This was shortly after I had received a letter about monies and interest outstanding. I told Mr Flammia about the letter and in fact gave him the letter. He said to me ‘Tony fix it up’. Tony was with me at the time.”

53 On 26 July 2001, Manna & Flammia, solicitors, wrote to R L Kremnizer & Co stating that the loan was being refinanced (Ex R, tab 9). R L Kremnizer responded on 30 July 2001, agreeing to stay the eviction provided that outstanding interest and legal fees were paid. It appears that the arrears were paid, since the eviction did not proceed.

54 On 16 August 2001, Manna & Flammia, solicitors for Caradonna Investments, returned the Deed of Guarantee and Indemnity to the solicitors for Magney Mortgages. The deed made provision, on the last page, for the document to be “signed, sealed and delivered” by each of the guarantors in the presence of a witness. It appears that the witness to each signature was Mr Lorenzo Flammia, the principal of Manna & Flammia, whose distinctive signature can be seen alongside the signatures of Mrs Caradonna, Mr Tony Caradonna, Mr Stephen Palumbo and Maria Natalie Palumbo. However, Mr Palumbo, when shown the document, denied that it was his signature (T 65). Mrs Caradonna, on the first day of the trial (30.6.09), was shown the document and denied that it was her signature (T 36). The denial was the more plausible because she acknowledged that the mortgage of 6 September 2001 had been signed by her (T 35) (supra [15]). Mr Tony Caradonna, when asked about the signature alongside his name, said that he was “uncertain” (T 99). Again, to my eye, pictorially, Mr Caradonna’s signature appears similar to signatures on other documents, including those not associated with this litigation, to which reference has been made. I will, however, return to the issue of Mr Tony Caradonna’s signature below.

55 A Facility Agreement between Magney Mortgages Limited and Caradonna Investments Pty Limited, identifying the terms of the loan, including the security at Bonnyrigg (Ex R, tab 11), was also prepared. The document made provision for the Common Seal of Caradonna Investments to be affixed in the presence of two directors. The seal was affixed with signatures in respect of each director. The document was shown to Mr Tony Caradonna. He affirmed that it was his signature. He said this: (T 98/9)

“Q. Then if we go to the last page of this document please, you will see there a reference to the common seal of Caradonna Investments, your signature appears on the left-hand side above the words "signature of director"?

A. Yes.

Q. And then under the common seal appears the signature of Mr Palumbo, doesn't it?
A. It appears, yes.

Q. And you say your ordinary practice was this is a document where you would both, that's yourself and Mr Palumbo, would sign at the same time?
A. Say again. Sorry?

56 Mr Palumbo, when shown the same document, was asked whether he recognised Tony Caradonna’s signature. He answered, “Yeah”, and then after a pause added, “Well, I don’t know. I don’t know what his signature looks like” (T 64). It is likely that his first answer was the truth, and that he did recognise Mr Tony Caradonna’s signature. However, Mr Palumbo denied that the “S Palumbo” appearing on the Facility Agreement was his signature (T 64). He added that Tony Caradonna had possession of the Common Seal of Caradonna Investments, which I accept (infra [229]).

57 Settlement took place on 6 September 2001. A mortgage in favour of Magney Mortgages Limited was handed over (Ex R, tab 13). Above the words “Signature of Mortgagor” appeared “Maria A Caradonna” in handwriting. Alongside her name was the signature of Mr Flammia, solicitor, as witness. In the context of that document, Mrs Caradonna said this, in her original affidavit (31.3.08): (Ex 1 [21])

“21. I have looked at a copy of a mortgage bearing date 6 September 2001 purportedly signed by me in front of Lorenzo Flammia Solicitor. The signature on this document appears to be mine. Mr Flammia had been to my place at Kincumber Road Bonnyrigg on two occasions, to the best of my recollection. I recall signing a will prepared for me by Mr Flammia. ... The signature on the mortgage of 6 September 2001 appears to be mine. I did not attend at 45 Castlereagh Street Penrith given by Mr Flammia as his address on any occasion.”

58 In a later affidavit (19.3.09), sworn before the trial began, Mrs Caradonna elaborated upon her account: (Ex 3 [4])

“4. ... I did not sign such a mortgage document on before or after 6 September 2001 in front of Lorenzo Flammia Solicitor. Further, to the best of my recollection, I did sign a mortgage document in or about September 2001 at the request of my son Angelo Antonio Caradonna.”

59 Mrs Caradonna added: (Ex 3 [5])

“5. At the time my son said to me words of or to the effect ‘this is for cheaper interest’. At that time my son did not mention to me that he was borrowing any more money. At the time that I recall signing a mortgage in 2001, at the request of my son, I did not sign any other documents. I did not receive or declare that I had received independent legal advice regarding the document my son asked me to sign in or about September 2001. I did not sign any document purporting to be an acknowledgement by me of legal advice by me as a proposed guarantor. I did not sign any document purporting to be a consent by guarantor to legal advice or a consent by borrower to legal advice.”

60 Mrs Caradonna’s affidavit also included the following paragraph, reflecting the way in which the case was put on the first day, in contrast to the way in which it was put at the resumed hearing (2.3.10) (supra [18]): (Ex 3 [7])

“7. I did not authorize my son Tony or any other person to sign any documents on my behalf.”

61 The two mortgages of the R L Kremnizer & Co clients were discharged on 20 September 2001 and the mortgage of Magney Mortgages registered the same day (Ex H, tab 1).

The October 2002 loan.

62 The September 2001 mortgage was for a term of one year. The date for repayment was 1 September 2002 (Ex D, tab 1, schedule: item 3). It will be remembered that Mr Tony Caradonna denied having made application to refinance the loan (supra [18]), whether in 2002 or in 2004 (Ex 7 [11]). The account he provided in his affidavit of what happened after the September 2001 mortgage was simply this: (Ex 7 [9])

“9. Thereafter, Caradonna Investments discharged the mortgage to Kreminizers and the loan was refinanced with Magney Mortgages for an amount of approximately $215,000.00 and Caradonna Investments paid interest on the loan from time to time, until approximately 2005 when the company went into liquidation.”

63 In cross examination, Mr Caradonna was asked the following: (T 100)

“Q. The lender wasn't giving you the money with no obligation to repay, was he?
A. No, no one would do that.

Q. So it's a serious matter, the company had borrowed $213,000 for 12 months interest only, and so by September 2002 Caradonna Investments had to either repay that amount completely or refinance that mortgage, you agree?
A. Normal practice, yes.

Q. And there was no reason why normal practice didn't apply to the borrowings of Caradonna Investments, was there?
A. I wouldn't assume so, no.

64 The position taken by Mr Caradonna was absurd. He acknowledged he was party to a loan repayable in one year (September 2002). He provided no account of what happened and what he did once the loan fell due.

65 The cross examination continued: (T 100)

66 I will shortly describe the documentation associated with the 2002 and 2004 loans. It is clear beyond argument that, notwithstanding his denials, Mr Tony Caradonna organised both loans. Indeed his evidence, including his affidavit evidence, was, I believe, so brazenly false, that I propose to refer the papers to the Director of Public Prosecutions, so that consideration may be given as to whether charges should be preferred against him.

67 Handwriting evidence was called by both the defendant and the plaintiff. I will shortly refer to it. That evidence strongly suggested that the signatures of the defendant and others on documents associated with both with the 2002 and 2004 loans were forged (apart from the signatures of Mr Tony Caradonna himself and perhaps Mr Flammia). The evidence of forgery is stronger in some cases than in others. However, I believe a pattern does emerge when each document is examined in the context of the others concerned with the same transaction. For instance, on some documents (the guarantees) there were four signatures, Mr Tony Caradonna, his mother (the defendant), his sister (Mrs Maria Palumbo) and her husband (Stephen Palumbo). There is strong, even very strong in some cases, evidence that two of those signatures have been forged. There is some evidence that a third signature has been forged. The only signature that appears to be authentic is that of Tony Caradonna. The inference of forgery, and responsibility for the forgery, gains strength from the context, especially where, as here, the same pattern is repeated in respect of the refinancing in 2004.

68 In reaching the conclusions that I am about to express, I am conscious that Mr Flammia’s name (and his unusual and distinctive signature) appears on certain documents as a “witness”. Mr Flammia was not called. I will return to that aspect below.

69 Let me first describe the documentation in respect of the 2002 loan. On 10 September 2002, Magney Mortgages faxed two Letters of Offer, which both began with these words: (Ex D, tab 15)

“We are pleased to advise that based upon your Mortgage Loan Application, we are prepared to arrange the loan described below subject to the following terms and conditions and your written confirmation that you wish to proceed.

Mrs Marim (sic) Carradonna)”

70 The Mortgage Loan Applications were not tendered. There were two offers because the amount being loaned exceeded two-thirds of the property valuation (Ex D, tab 15). The sum of $279,000 was to be loaned on a first mortgage and $36,000 on a second mortgage (Ex D, tab 16), at a higher rate of interest. The offer required signatures from each of the persons described as “borrowers” in respect of three matters (although the “borrower”, in the documentation of the loan ultimately prepared, was Caradonna Investments):

First, an acceptance of the terms of the offer.

Second, a declaration that the loan was for business purposes.

71 The forms were completed, with the names of the “borrowers” printed on three occasions, since three declarations were required. Signatures appeared alongside each name. The date, 12.9.02, was then written alongside each signature. The printed names and dates, in each case, appear to have been written by the same person. Mr Tony Caradonna, in his affidavit, denied that the signature alongside his name was his (Ex 7 [11]). Mr Stephen Palumbo (Ex 8 [3]), his wife Maria Palumbo (Ex 9 [3]) and Mrs Caradonna (Ex 6 [3]) likewise swore that the signatures alongside their respective names were not their signatures. When taken to the signatures on one of the Letters of Offer, Mr Palumbo said this: (T 66)

“A. None of these signatures are right. My wife and my mother-in-law. It’s all wrong.”

72 The defendant retained Mr Gary Storey, a forensic document examiner, to provide a handwriting opinion in respect of a number of documents. Specimen documents were identified and a comparison was then made with documents which were termed “questioned documents”, that is where there was an issue as to forgery. Mr Storey was, for 28 years, a police officer in the Victorian Police. He retired with the rank of Inspector. He has been in private practice as a document examiner since 1993 (Ex 10, annex B). In accordance with what was said to be world practice, he expressed conclusions on a qualitative scale, either positive or negative. Relevantly, the gradations on the positive scale (that is, suggesting the document is a forgery) are as follows: (Ex 10, annex B)

“1. Conclusive

2. Very strong support

3. Strong support

4. Limited support

5. No conclusion or inconclusive”

73 There was an elaboration upon the fourth category, limited support, which was as follows: (Ex 10, annex B)

‘limited support’

wrote or did not

did or did not

74 One of the documents Mr Storey examined was the acceptance of the Magney Mortgage offer in respect of the $36,000 second mortgage (Ex D, tab 16), where there were three signatures “M A Caradonna”. Mr Storey formed the view, based upon a pictorial assessment, that the specimens appeared to have been written by the same person. He identified a number of characteristics (12 in all). He then examined the questioned documents (including the letter of acceptance). He noted the following difference: (Ex 10, p 4 [16])

“16. Examination of the questioned signatures shows that all are signed ‘M A Caradonna’ with the exception of the signature appearing on the document item 28 which is signed ‘M. B. Caradonna’. This would seem to be inconsistent to specimen signatures which are habitually signed ‘Maria Caradonna’. there is only one example where the signature is signed ‘M A Caradonna’ and four examples where it is signed ‘M Caradonna’.”

75 However, he did not rely upon that feature because the more extensive range of specimen signatures may have revealed a different pattern of signing. There were, nonetheless, a number of inconsistencies in the questioned documents which he identified (11 in all). He concluded that there was strong support that the person who wrote the specimens (Mrs Caradonna) did not write the signatures on the Magney Mortgages acceptance document. I accept that opinion. I accept that Mrs Caradonna’s signatures on both letters of acceptance (Ex D, tabs 15 and 16) were probably forged.

76 The same exercise was then undertaken in respect of the name “M Palumbo” on the same document. That signature was compared to specimen signatures of Mrs Palumbo. Mr Storey noted that there were only four specimen signatures, although he regarded that as sufficient to conduct a meaningful examination. They were all reproductions but were pictorially similar. When compared to the questioned signatures, there were a number of inconsistencies. He could not exclude the possibility that the questioned signatures were the product of some level of disguise. Nonetheless, he believed there was strong support for the conclusion that Mrs Palumbo did not write the signatures on the acceptance forms. Again I accept as probable that Mrs Palumbo did not sign either form (Ex D, tabs 15 and 16).

77 Mr Storey undertook the same exercise with respect to the signature of Stephen Palumbo on the same document. The specimen signatures provided in respect of Stephen Palumbo were examined. A pictorial assessment was consistent with their having been written by the same person. There were eight individual characteristics which he identified. The questioned signatures, on the other hand, contained a number of inconsistencies. Mr Storey said this: (Ex 10, p 7 [26])

“26. Therefore, it is not possible to entirely eliminate the possibility that the specimen writer has disguised their normal writing. However, while this possibility cannot be dismissed, it is noted that there is a similarity between the letter ‘a’ formation written on some of the questioned signatures compared to some of the formations ... on the questioned M Caradonna signatures. This raises the possibility but does not prove that the same person could be involved in writing both the M Caradonna and S Palumbo questioned signatures.”

78 Mr Storey’s ultimate conclusion was tentative. He formed the view that, in respect of two of the three signatures (items 2.1 and 3.1 on the acceptance form), there was more support for the proposition that Mr Palumbo did not write those signatures than the alternative that he did write them. It will be remembered that Mr Palumbo denied having written them. I accept as probable that he did not sign either acceptance letter (Ex D, tabs 15 and 16).

79 Returning to the history of the transaction, on 18 September 2002, Magney Mortgages wrote to their solicitors. They said they had approved the loans and asked that the solicitors prepare appropriate documentation (Ex D, tab 16). The documentation, once prepared, was provided to Mr Lorenzo Flammia of Manna & Flammia, solilcitors, acting for Caradonna Investments. Mr Flammia’s office, in preparation for the settlement, forwarded three documents. They were:

First, a declaration by Maria Antonietta Caradonna of 14 October 2002 that she was a third party mortgagor and guarantor in respect of a loan between Caradonna Investments and Magney Mortgages, where the security was her home at 13 Kincumber Road, Bonnyrigg. She acknowledged receiving independent legal advice relating to the loan and security documents. She further acknowledged that, having received such advice, she had freely and voluntarily signed the following documents:

Secondly, an acknowledgement by Maria Antonietta Caradonna of legal advice by proposed guarantor. The document recorded that Mrs Caradonna had produced her passport and Medicare card. It provided a brief summary of the advice which had been given, including that the lender could take possession of her property if there were default under the loan. Again the document was signed “M A Caradonna” (Ex D, tab 24).

Thirdly, a consent by guarantor to legal advice, acknowledging that the solicitor, Mr Flammia, may be disabled from acting, were a conflict to arise between the parties to the transaction. Once more the document was signed “M A Caradonna” (Ex D, tab 25).

80 To my eye, the signatures on these documents, purporting to be those of Mrs Caradonna, look different from the specimen signatures. The three documents were examined by Mr Storey. He concluded, in each case, that there was strong support for the proposition that the signatures were not the signatures of Mrs Caradonna. That evidence coincides with Mrs Caradonna’s denial. I accept as probable that Mrs Caradonna did not sign the declarations.

81 Settlement took place on 24 October 2002. The structure of the transaction was the same as the September 2001 loan, apart from the fact that there were two mortgages. Facility Agreements between the borrower (Caradonna Investments) and the lender (Magney Mortgages) were executed in respect of both the first (Ex D, tab 17) and second (Ex D, tab 18) mortgages. The seal of Caradonna Investments was affixed to each agreement. A signature which resembles that of Mr Tony Caradonna appears on each document, as well as a signature of “S Palumbo”. On one of the agreements (Ex D, tab 17), the signature which appeared to be that of Mr Tony Caradonna was written twice and one signature was crossed out and “S Palumbo” written above it.

82 There was, in addition, a Deed of Guarantee and Indemnity (Ex D, tab 19). The name of the guarantors appeared on the last page, “Maria Antonietta Caradonna, Antonio Caradonna, Stephen Palumbo and Maria Palumbo”. Alongside their names were signatures which had been witnessed by a person whose signature resembles that of Mr Flammia.

83 Two mortgages were executed (Ex D, tab 20), one in respect of the first mortgage and the other in respect of the second. In each case, under the words “signature of mortgagor”, there appears a signature “M A Caradonna”. The mortgage form included a second page, also signed “M A Caradonna”, with the witness signature alongside. The front page of the mortgage form made provision for the signature of the mortgagor to be witnessed, the certification being in these terms: (Ex D, tab 20)

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

84 Each mortgage was stamped with the name “Lorenzo Flammia, Solicitor”, with a handwritten address at Penrith underneath. Above the stamp, on each document, there was a signature that appeared to be that of Mr Flammia. The two mortgages were to replace and pay out the September 2001 mortgage. A discharge of the earlier mortgage was therefore prepared, to be handed over on settlement (Ex D, tab 22).

85 The sum of $315,000 was advanced under the loan, which included $213,000 to discharge the September 2001 mortgage. Magney Mortgages prepared a letter, addressed to the ANZ Bank, with instructions concerning the cheques to be drawn in accordance with the agreement. Their letter included the following schedule: (Ex D, tab 21)

Borrower	Payee	Amount	Total
CARADONNA INVESTMENTS PTY LIMITED 202674	Magney & Rhodes	$1,575.29
Magney Mortgages Limited	$1,778.00
Magney Mortgages Limited	$2,804.12
Office of State Revenue	$349.00
Magney Mortgages Limited	$213,000.00
Magney Mortgages Limited	$2,567.67
Magney & Rhodes	$330.00
Caradonna Investments P/L	$92,595.92	$315,000.00

86 There was handwriting evidence in respect of a number of these documents. However, before dealing with that evidence, it is instructive to examine what happened to the surplus funds (after the discharge of the previous mortgage and expenses). It can be seen from the schedule that the bank was instructed to prepare a cheque in favour of Caradonna Investments for $92,595.92.

87 It will be remembered that Mr Tony Caradonna denied receiving the money as a result of refinancing the September 2001 mortgage (supra [19]). Mr Caradonna, when cross examined, acknowledged that he had an account with Western City Credit Union. He was shown a bank cheque drawn by the ANZ Bank on 24 October 2002, in favour of Caradonna Investments for $92,595.92. It was stamped “Western City Credit Union” (Ex R, tab 19). He was also provided with bank statements relating to that account. They were addressed to “Mr A A Caradonna trading as Caradonna Investments P/L, 10 Comboyne Place, St Clair”. He acknowledged that was his name and address (T 101). Counsel then drew his attention to an entry on 24 October 2002 in respect of a cheque for $92,595.92 (T 101). Mr Caradonna said he could not recall it (T 101). The cross examination continued as follows: (T 101)

“Q. This is a copy of the transactions on the company's bank account with Western City Credit Union?
A. Did you say that this was deposited into Caradonna Investments?

Q. Into an account headed Mr A Caradonna trading as Caradonna Investments Pty Ltd, that's how the account is addressed, and you have told the Court that Caradonna Investments had its bank account with Western City Credit Union?
A. That's correct, member number 49001, this is a completely different member number.

88 The plaintiff then demonstrated that Mr Caradonna had two accounts with Western City Credit Union, one in respect of membership number 48731 and the other in respect of 49001 (Ex S). Still Mr Caradonna persisted with his denial. He said this: (T 102/3)

“Q. It's an account in your name trading as Caradonna Investments?
A. I've never seen that, and I don't recall depositing it or anything. Like I said, 48731, I don't know, and it's definitely not Caradonna Investments. Caradonna Investments is definitely 49001.

Q. Go back to the refinance arrangements. Did you transfer money from your Western City Credit Union, 49001, into this bank account, member number 48731?
A. No.

Q. So it would be false to suggest that ever occurred?
A. What, that I transferred from one account to another?

89 Mr Caradonna was then taken to other entries in the credit union bank statement, where money had been transferred from account 49001 to account 48731 (T 103). His attention was drawn to a number of items where money had been withdrawn and described as “Tony’s petrol”. The following was put: (T 104)

“Q. They relate to transactions that you operated on this account, don't they?
A. Who's Tony?

90 Mr Caradonna was then taken to the Facility Agreements. He said he did not recall refinancing the September 2001 loan (T 104). When shown the signatures on the last page of one of the agreements (Ex R, tab 16), he said: “It doesn’t look like mine” (T 106). He acknowledged that he primarily had custody of the seal, which was kept in the office (T 105). Counsel concluded his cross examination on this aspect as follows: (T 107)

“Q. I want to suggest to you when the mortgage was refinanced over your mother's house in October 2002, part of the refinance proceeds, $92,595.92 was deposited into your account with Western City Credit Union, wasn't it?
A. That's the first time I've seen that, I wasn't aware of it, no.

Q. So you weren't aware of it, you say, but you now accept you did receive the benefit of that money in October 2002, didn't you?
A. Disagree with it.

91 I reject Mr Caradonna’s evidence. I believe that he is plainly lying. He received the surplus funds of $92,595.92, as he well knew. Indeed, that conclusion was accepted by counsel for the defendant in his final submissions (DS [35]). I also infer that he organised the refinancing.

92 Let me return to the signatures on the various documents associated with the transaction. Beginning with the two mortgages (Ex D, tab 20), the signature of “M A Caradonna” appears on the front page of each mortgage form and on each annexure (Mortgage 9089357D and 9089358B). To my eye, pictorially, they appear different from the specimen signatures of Mrs Caradonna and, indeed, somewhat different from each other. Both documents were examined by Mr Storey (Ex 10, items 6.1, 6.2; 7.1 and 7.2). Mr Storey concluded that there was very strong support for the proposition that they did not match the specimen documents (Ex 10, p 9 [42(A)]). In plain language, there was “very strong support” for the conclusion that each was a forgery. Again, that coincides with Mrs Caradonna’s evidence. I accept as probable that Mrs Caradonna did not sign the mortgages.

93 Moving, then, to the Facility Agreements, Mr Palumbo denied that he signed either agreement. When taken to the signatures on the last page of each agreement, he said that they were not his (T 69, 71). Mr Storey examined one of the Facility Agreements (that with the signature crossed out) (Ex D, tab 17). He identified the document as “item 8.22” (Ex 10). Mr Storey had access to a ten page document (which was a photocopy) submitted by Mr Palumbo to the Australian Taxation Office in October 2001 and signed by him on each page (items 36 to 45). He made the following comment upon the specimen signatures: (Ex 10, p 5 [21])

“21. Based on a pictorial assessment of the specimen signatures I have found no evidence to indicate that the same person has not written all the specimen signatures and I have assumed that this is the case. If in the future this assumption proves to be incorrect then all the conclusions based on this assumption will need to be reviewed.”

94 Mr Storey identified eight individual characteristics of Mr Stephen Palumbo’s writing with variation in the execution of his signature. He then examined the questioned documents. His conclusion was more tentative. He believed that there was more support for the proposition that it was not Mr Palumbo’s signature on the Facility Agreement (item 8.22) than the reverse (Ex 10, p 9 [42(C)]). Aspects of Mr Palumbo’s evidence were not satisfactory. On occasions he appeared anxious not to implicate Mr Tony Caradonna. However, when asked to identify his own signature, he discriminated between documents, identifying plausibly those signatures which were his and those which were not. I accept that it is probable that Mr Palumbo did not sign the October 2002 Facility Agreement.

95 Was the second signature on the Facility Agreement (over the words “signature of director”) that of Mr Tony Caradonna? Mr Caradonna specifically denied that it was his signature (Ex 7 [11(l)]). Mr Storey identified a number of documents where he believed it would be useful to compare the signatures attributed to Mr Tony Caradonna with specimen signatures.

96 However, he could not form a view. He said this: (Ex 10, p 9 [39]-[41])

“39. It was not possible to conduct a comparative examination of the A Caradonna signatures with any specimen signature, either of Mr Caradonna or any other writer of the specimen signatures examined as part of this examination.

40. I observed nothing to indicate that the same person has not written these questioned signatures. Further, the writer of these questioned signatures has the writing ability to have written any of the questioned signatures in the names of M Caradonna, S Palumbo and M Palumbo.

41. To take this aspect further I recommend normal course of business signatures of Mr Caradonna be obtained.”

97 When giving evidence, Mr Storey elaborated: (T 147)

“A. Basically the result of instructions I was given, sir, that was an implicit question as to whether the A Caradonna was written by anyone or did A Caradonna write any of the other material.

Q. And you weren't able to express an answer to this question, were you?
A. No sir, because I was only supplied material which was all questioned.

Q. And you were never given any specimen signatures for A Caradonna?
A. No.

Q. You did ask for that?
A. I did ask for original material, but I have not (been) given any.”

98 The plaintiff, in submissions, urged that the Court should infer from the failure to provide specimens that any evidence that Mr Storey could have provided, had specimens been given, would not have assisted the defendant’s “new case”, that the 2002 and 2004 mortgages were forged (Plaintiff’s submissions [103]) (Jones v Dunkel (1951) 101 CLR 298).

99 Confining myself for the moment to Mr Tony Caradonna, I accept that submission. The position in respect of other witnesses is more complex, since specimens were provided, although Mr Storey would have liked more. I will return to that aspect below.

100 The plaintiff retained Ms Novotny, a document examiner, and asked her to address specific questions. She did so at relatively short notice. At that stage, it was anticipated the case would conclude in the early part of the year. She said more than once in her evidence that her examination was somewhat rushed (T 153). Ms Novotny is a graduate in science with honours in applied chemistry and forensic science (1997). She has worked full time as a document examiner since 1997 (Ex M, annex H). She prepared a report of 26 February 2010, addressing the specific issues identified by the plaintiff. One issue concerned signatures of Mr Tony Caradonna. She was asked to make a comparison between a number of specimen documents and documents which were questioned. Ms Novotny identified, at the outset, a number of limitations arising from the material which she had available to make that comparison. She said this: (Ex M, p 3/4 [5]-[7]))

“5. The examination of the A Caradonna signatures is limited by:

(a) the reproduction nature of many of the questioned signatures and the varying quality of the reproductions;

(b) the reproduction nature of many of the specimen signatures and the varying quality of the reproductions; and

(c) the paucity of contemporaneous specimen signatures attributed to Mr Caradonna.

6. The reproduction nature of a signature precludes any useful microscopic examinations to determine the finer details of structure and dynamic qualities. As such, the examinations are limited to the pictorial features that are evident on the copy submitted.

7. The paucity of contemporaneous specimen signatures precludes a proper assessment of the range of natural variation in signatures written by a person at a given time.”

101 Ms Novotny, in Appendix A to her report, identified the specimen documents and those that were questioned. The specimen documents were those associated with the September 2001 loan (where Mr Caradonna had acknowledged his participation) (Ex 7 [7]) (items 65 to 69). She also had available as a specimen a copy of an ASIC Annual Return for Caradonna Investments for 2002, as well as the affidavit sworn by Mr Caradonna in these proceedings (Ex 7).

102 The signature on the last of these documents (Ex 7) may be put to one side. Mr Caradonna’s signature on the affidavit was utterly different from his “usual” signature, such as the signature on his licence in 2003 (Ex S), his passport in 2007 (Ex S) and the signatures on the many documents involved in these proceedings which, from time to time, he acknowledged were authentic. I will come back to his change of signature below (infra [179]).

103 Ms Novotny believed, nonetheless, that conclusions could be drawn concerning Mr Caradonna’s signature, notwithstanding the limitations of the material. In the context of the October 2002 loan, her conclusions may be summarised as follows;

First, in respect of the Facility Agreement (loan $279,000) dated 24 October 2002 (Ex D, tab 17) (item 8), the signature on the left hand side of the page above the Common Seal was probably written by Mr Tony Caradonna. The signature opposite, on the right, which was then crossed out, was inconclusive as to whether it was Mr Tony Caradonna’s signature.

Second, in respect of the Facility Agreement (loan $36,000) dated 24 October 2002 (Ex D, tab 18) (item 63), the examination was inconclusive.

104 I have already made a finding (supra [91]) that Mr Tony Caradonna arranged the refinancing of the October 2002 loan. I have also expressed the view (supra [98]) that the failure to provide original specimens of Mr Caradonna’s signature gives rise to a Jones v Dunkel inference. In the context of these findings, Ms Novotny’s evidence and my own impression, I believe it probable that Mr Tony Caradonna did sign both the 2002 Facility Agreements.

105 Moving finally to the Deed of Guarantee and Indemnity, which form part of the documentation of the 24 October loan, there are four signatures on that document, each witnessed by a person whose flamboyant signature resembles that of Mr Flammia. Opposite each signature are the words “SIGNED, SEALED AND DELIVERED” with the person’s name printed. In the case of Maria Antonietta Caradonna, the signature is in the form: “M A Caradonna”. Mrs Caradonna denied any involvement in the 2002 loan. When cross examined, she was not asked specifically about this document. Mr Storey’s examination was directed primarily at the 2004 loan documents. He did not examine all documents associated with the earlier loans. He did not offer an opinion about the Deed of Guarantee. Ms Novotny did look at the Deed of Guarantee, but only in the context of Mr Tony Caradonna’s signature (Ex 10).

106 I am therefore left with Mrs Caradonna’s denial and my own impressions. To my eye, the signature on the Deed of Guarantee is rather different from the specimen signatures of Mrs Caradonna and other samples of her signature in earlier documents. Mrs Caradonna, without any disrespect to her, was a woman of limited education. Her signature often had a tentative, child-like quality. Mr Storey made the general comment that Mrs Caradonna’s writing appeared to be slower and more laboured than the questioned documents (T 148). The signature on the Deed of Guarantee, to my eye, appears rather more fluent and pictorially different to specimen signatures from Mrs Caradonna.

107 The Deed of Guarantee is one of a series of transactions. For the reasons stated, the fact that other documents in the series may have been forged is, I believe, relevant to whether the 2002 Deed of Guarantee was, as a matter of probability, also forged. I accept that probably Mrs Caradonna’s signature was forged.

108 Let me pass to the November 2004 loan.

The November 2004 loan.

109 The October 2002 mortgage was to be repaid one year later (1.11.03). When it was not repaid, the solicitors for the mortgagee wrote to Mrs Caradonna on 18 June 2004, enclosing notices under the Conveyancing Act 1919 (Ex D, tab 26). One assumes that similar letters were sent to the other guarantors. On 20 September 2004, a Default Statement of Claim was issued in the Supreme Court, naming Caradonna Investments and the four guarantors (including Mrs Caradonna) as defendants. The claim was for the $315,000 principal and outstanding mortgage payments ([21]) (Ex D, tab 27). It was served upon Mrs Caradonna on 28 September 2004 (Ex D, tab 28). I infer that it was served upon the other defendants at about the same time. Judgment was entered on behalf of Magney Mortgages on 20 October 2004 (Ex D, tab 30).

110 It is plain from these events that there was some urgency in refinancing the loan. Indeed, within days of the despatch of the notices (18.6.04), an application was made to MDN Mortgages on 29 June 2004. The application form made provision on the front page for the “Introducer’s Name”. In printing, which is remarkably similar to the printing on the earlier application to Magney Mortgages (12.4.01) (Ex R, tab 6), the form was completed (according to its terms) by “Tony Caradonna” (Ex R, tab 21). The application sought $320,000. It included an assets and liabilities statement, with the printed names of Antonio Caradonna and Maria Caradonna at the foot of the page. Alongside each name there was a signature (Ex R, tab 21). The printing of each name appeared to be that of the same individual. The form was accompanied by two declarations:

first, a declaration in respect of privacy, where the names of the borrowers were again printed (in what appeared to be the same hand) with signatures alongside;

secondly, a declaration that the loan was for a business purpose, where the names of each guarantor (Antonio Caradonna, M A Caradonna and S Palumbo) were again printed in what appeared to be the same hand. Again, there were signatures alongside each name.

111 Mr Tony Caradonna was asked about this document in cross examination. He denied that the signature at the foot of the assets and liabilities statement was his (T 113). He also said that his mother’s signature did not appear to be hers (T 113). His personal details were recorded in the form, including his driver’s licence, mobile phone number, email address. Mr Caradonna acknowledged that each was accurate, adding: “Who wrote it is a different story” (T 113).

112 Mr Caradonna, in his affidavit (Ex 7), denied that the signature on the application was his signature (Ex 7 [11](g)). Mrs Caradonna, in her affidavit (Ex 6), said that the signatures on the application were not hers (Ex 6 [3](g) and (h)). Mr Palumbo likewise denied that the signature on the Declaration of Purpose (as guarantor) was his signature (Ex 8 [3](g)).

113 Mr Storey examined the application (Ex 10, items 9, 10.4, 10.5 and 10.6). He expressed no view about Mr Tony Caradonna’s signature. His focus was upon Mrs Caradonna’s signature and that of Mr Palumbo. His conclusions may be summarised as follows (paraphrasing his terminology) (Ex 10):

very

strong support

very strong support

strong support

more support

114 Ms Novotny examined the item 10 documents, looking at Antonio Caradonna’s signature. She determined, in each case, that it was probable that his signature had not been forged (Ex M). Counsel for the defendant, in submissions, accepted that conclusion (DS [34]).

115 Counsel for MDN Mortgages made extensive submissions on the issue of forgery, in the context of the 2004 documents (PS [79-[108]). I will therefore refrain from expressing a concluded view until all the evidence in respect of the 2004 loan documents has been assembled.

116 On 1 July 2004, MDN Mortgages responded with a Letter of Offer to loan $320,000 to Caradonna Investments. The letter was sent to Tony Caradonna’s email address (Ex C [24]). The letter required the payment of legal and valuation fees and a number of declarations. The reply to the offer was apparently despatched twice, because the first response was thought to have gone astray, although eventually it arrived. The acceptance required the signatures of each of the guarantors (Mr Antonio Caradonna, Mrs Maria Caradonna and Mr Stephen Palumbo) (Ex B, tab 21) and also Declarations of Financial Position and Business Purpose.

Item 3.

Item 4

Item 5

Item 4

221 Clause 4 dealt with “SECURITY” and was in these terms:

The Borrower acknowledges that the Security is charged with payment of the Debt.

222 Clause 5 identified “EVENTS OF DEFAULT”, which included the failure to perform the terms of the agreement, at which time the money outstanding became due and payable.

223 Provision was made on the final page of the agreement for the parties to sign. It provided as follows:

THE COMMON SEAL of MDN )

of:

THE COMMON SEAL of CARADONNA )

of:

224 Mr David Magney and another person signed on behalf of MDN Mortgages. The company’s Common Seal was not affixed. Similarly, there were signatures for the directors of Caradonna Investments and, again, the company’s Common Seal was not affixed.

225 In the case of Caradonna Investments Pty Limited, the signatures appear to be (on the left) that of Mr Tony Caradonna and (on the right) that of S Palumbo. It will be remembered that there was handwriting evidence received in respect of these signatures. I have determined, upon the basis of that evidence, that the signature of Mr Tony Caradonna was in fact his signature (supra [144]).

226 Was the signature of S Palumbo a forgery or attached without his authority? Again, the onus is upon Mrs Caradonna to establish, on the balance of probabilities, that it was either a forgery or unauthorised (supra [180]). Mr Palumbo denied that it was his signature (Ex 8 [3(j)]) (supra [138]). Mr Storey was provided with specimens of Mr Palumbo’s signatures, being a ten page document. It was a copy of a form signed on each page by Mr Palumbo and submitted to the Australian Taxation Office. The original was presumably with the Australian Taxation Office. On the basis of that material, Mr Storey formed an opinion that there was more support for the proposition that the signature of Mr Palumbo was forged, than that it was genuine (supra [142]). In the body of his report, Mr Storey set out particular characteristics of Mr Palumbo’s signature and characteristics of the questioned signatures that were different. He added this: (Ex 10 [26])

“26. Therefore, it is not possible to entirely eliminate the possibility that the specimen writer has disguised their normal writing. However, while this possibility cannot be dismissed, it is noted that there is a similarity between the letter ‘a’ formation written on some of the questioned signatures compared to some of the formations on the questioned M Caradonna signatures. This raises the possibility but does not prove that the same person could be involved in writing both the M Caradonna and S Palumbo questioned signatures.”

227 The plaintiff submitted that the defendant had not discharged the onus upon her (PS [115]). Mr Palumbo’s “bare denial” should not be accepted. He clearly would have done whatever was necessary to prevent his mother-in-law being evicted from her home (PS [117]). It was submitted that Mr Storey’s evidence should be given no weight. He had no original specimens. He acknowledged that this was a significant limitation upon his ability to express an opinion. The specimens provided showed a variation in the way in which Mr Palumbo signed. Mr Storey, in these circumstances, could not eliminate the possibility that the differences between the specimen signatures and the questioned signature was the product of a variation over time.

228 Giving full weight to these submissions, I nonetheless accept that the evidence establishes, as a matter of probability, that Mr Palumbo’s signature was forged. Probably Mr Tony Caradonna was responsible, or someone on his behalf. I have earlier commented upon Mr Palumbo’s evidence (supra [94]). I accept his evidence that he did not sign the 2004 Facility Agreement. Again, the context cannot be ignored. There is evidence of widespread forgery involving many documents associated with the 2004 and earlier loans.

229 So the real issue is whether Mr Tony Caradonna was authorised to sign on Mr Palumbo’s behalf. There were only two directors of Caradonna Investments, Mr Tony Caradonna and Mr Palumbo. It was, nonetheless, very much Mr Tony Caradonna’s company. He managed its day to day affairs. He was the only signatory on its bank account. He kept the Common Seal. Mr Palumbo never disagreed with decisions he made (supra [38]). I also accept that Mr Palumbo was anxious to avoid his mother-in-law being evicted.

230 Accepting all that, nonetheless, I believe that it is probable that Mr Stephen Palumbo knew nothing of the November 2004 loan agreement, including the Facility Agreement, until well after the settlement. He did not authorise Mr Tony Caradonna to sign on his behalf. Again, the documents reveal a pattern of concealment on the part of Mr Tony Caradonna, whether because he believed his mother or family members may object, or because time was short, or for some other reason. It is also significant that Mr Palumbo’s signature was imitated (as in a forgery), rather than Mr Tony Caradonna signing on his behalf without imitation and signifying that fact, or at least disclosing it shortly after to Mr Palumbo. So, of the two signatures on the Facility Agreement, one was authentic and one was forged. The issue arises whether the Facility Agreement gave rise to enforceable debt, which was then secured by the Mortgage.

Statutory assumptions under the

Corporations Act

2001.

231 The plaintiff asserted that, notwithstanding the forgery of Mr Palumbo’s signature, the Facility Agreement was valid and enforceable, and created a debt which was secured by the Mortgage. It relied upon what is sometimes called the “indoor management rule of company law” (Story v Advance Bank Australia Limited (1993) 31 NSWLR 722, per Gleeson CJ at 724). The rule is now embodied in s 128 and s 129 of the Corporations Act.

232 A company may execute an agreement with, or without, its Common Seal. Where the Seal is not used, the Corporations Act makes the following provision in s 127(1):

“s 127 (1) A company may execute a document without using a common seal if the document is signed by:

(a) 2 directors of the company; ...”

233 The Corporations Act then makes the following provisions in respect of people who deal with companies, identifying assumptions which they may make:

“s 128 (1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

(2) ...

(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.

(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.”

234 The relevant assumption, in the context of this case, was the following:

“s 129 (5) A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.”

235 MDN Mortgages argued that they were entitled to make the assumption in s 129(5) in relation to its “dealings” with Caradonna Investments (PS [58]-[61]; [121]-[126]). Its dealings involved the negotiation and, through the Facility Agreement, the consummation of a loan to Caradonna Investments for $320,000 (Story v Advance Bank Australia Limited) (supra at 732-733). The Facility Agreement was in the form set out above (supra [223]). It made provision for two signatures with the words “signature of director” beneath each. The document was executed. Two signatures appeared. The document therefore appeared to have been executed in accordance with s 127(1)(a) (Soyfer & Anor v Earlmaze & Ors [2000] NSWSC 1068, per Hodgson J at [73]-[78]). It did not matter than one of the signatures (that of Mr Tony Caradonna) was illegible. Objectively, the document appeared to comply with the section.

236 Counsel for the defendant responded to these arguments by drawing attention to s 128(4) of the Corporations Act. The assumption of regularity could not be made in circumstances where a person, at the time of dealing with the company, “knew or suspected that the assumption was incorrect”. In Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266, Kitto J described what constituted a suspicion, in these words: (at 303)

“A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to a ‘a slight opinion, but without sufficient evidence’, as Chambers’ Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence.”

237 Here, according to the defendant, there was a “special relationship” between MDN Mortgages and Mr Tony Caradonna which amounted to “actual notice, not constructive notice, that the plaintiff needed to take additional and prudent steps to ensure that any documents executed were duly signed by two directors of the company ...” (DS [58]). Counsel for the defendant added: (DS [58])

“58 ... That being so, any documents provided by Mr Tony Caradonna, would ordinarily be viewed by a reasonable person with a degree of suspicion when procuring a mortgage from the Defendant. This being especially the case when there was no benefit flowing to the Defendant, but all of the benefits flowed to a company owned by a business associate of the Plaintiff.”

238 The assertion on behalf of the defendant of a special relationship between MDN Mortgages and Mr Tony Caradonna was made a number of times throughout written submissions, including in the present context. It is convenient to deal with that suggestion at this stage, gathering in the material set out more fully in the defendant’s submissions on unconscionability and other aspects which are relied upon.

Was there a special relationship?

239 The argument that there was a special relationship involved three propositions:

First, that the relationship between Mr Dickinson, the Sales Director of MDN Mortgages, and Mr Tony Caradonna can be characterised as a “special relationship”.

Secondly, that such a relationship “necessitated the plaintiff taking additional and prudent steps when lending money to Mr Tony Caradonna and procuring a mortgage from the defendant, so as to protect the rights of the defendant” (DS [19]).

Thirdly, that the plaintiff, in breach of that duty, failed to take reasonable and prudent steps to protect Mrs Caradonna.

240 As to the first aspect, the special relationship, the submissions of the defendant identified the following matters which were said to give rise to such a relationship: (DS [16]-[18])

“16. John Dickinson is a Director of the Plaintiff and is employed by the Plaintiff as the Sales Manager. Mr Tony Caradonna was known to John Dickinson since 2000.

17. Mr Tony Caradonna was known to the Plaintiff as a mortgage broker and a loyal referral source. Further, the loans that were referred to (Magney Mortgages Limited) and the Plaintiff by Mr Tony Caradonna had performed well and were all serviced on time and without incident.

18. It is submitted that (Magney Mortgages Limited), the Plaintiff and the Defendant shared a mutually beneficial business relationship. It is submitted that the relationship is best described as a special relationship.”

241 Counsel for MDN Mortgages responded by drawing attention to a number of matters. First, the defendant did not plead any “special relationship” between the plaintiff and Mr Tony Caradonna (PS reply, [27]). Secondly, no such suggestion was made to either Mr Dickinson or Mr Magney when each was cross examined (PS reply, [18]). Thirdly, as a matter of causation, even were there such a relationship, it would have no bearing upon the likelihood of Tony Caradonna forging signatures on documents (PS reply, [18]). Nor would it follow from prior dealings with the lender, that the lender had actual or constructive notice of the risk of forgery on the part of Mr Caradonna (PS reply, [26]). Indeed, Mr Dickinson said this, which was not challenged: (Ex C [20])

“20. In fact at the time (that is, in 2004), I considered Mr Caradonna to be a good mortgage broker and a loyal referral source to Magney Mortgages. If someone had asked me to do so, I would have given Mr Caradonna a reference to that effect. I had no reason to believe that Tony Caradonna was or may have been dishonest in any dealings he had with Magney Mortgages, MDN Mortgages, myself, or anyone else.”

242 Fourthly, the matters set by the defendant, as the basis for the special relationship, namely prior business dealings, would not justify describing the relationship as “special” in any legally relevant sense (PS reply, [25]).

243 I accept the plaintiff’s submissions. It is commonplace in business for people to refer prospective clients to each other. The matters identified by the defendant do not, in my view, establish a “special” relationship in any legally relevant sense.

244 I should perhaps address the remaining issues, since they are relevant to the suggestion of wilful blindness, which is made in the context of the defendant’s case in respect of the in personam exception to indefeasibility.

245 Mr Dickinson of MDN Mortgages knew that the property being offered as security was Mrs Caradonna’s home (T 21 (30.6.09)). He also knew that she was a pensioner (T 22). It may be assumed, as well, that Mr Dickinson had knowledge of the fact that Mrs Caradonna, in common with many parents, some to their cost, had pledged her home in the past as security for loans provided to her son or his company. However that does not, in my view, provide a basis for the suggestion that MDN Mortgages owed a duty to Mrs Caradonna to protect her from her son. The application by Caradonna Investments was submitted to MDN Mortgages for the loan. It included an assets and liabilities statement. From the perspective of MDN Mortgages, Mrs Caradonna was willing to provide security for the loan that was sought.

246 Moving to the third aspect, the suggested breach of duty by MDN Mortgages, counsel for the defendant identified the following (paraphrasing his submissions) (DS [19]-[25]):

First, the lender failed to make reasonable enquiry to determine that Mrs Caradonna’s signature had not been forged on the loan documents.

Secondly, the lender failed to provide Mrs Caradonna with all loan and guarantee documentation.

Thirdly, that the only time the lender communicated with Mrs Caradonna was after the loan was in default.

Fourthly, the lender failed to verify the assertions of income on the part of the borrower.

Fifthly, there was no evidence as to the lender’s procedures in respect of acceptance of persons who provided a guarantee.

247 It was said by the defendant that these matters, in the context of the lender’s knowledge that Mrs Caradonna was a pensioner who may lose her home, amounted to a breach of duty. The lender had “actual, not constructive knowledge of the vulnerability of the defendant” (DS [25]). Collectively, these matters amounted to “wilful blindness” and “unconscionable conduct” (DS [26]).

248 Counsel for MDN Mortgages responded to these submissions in a number of ways. First, these matters were not relevant to any pleaded defence. The defendant had not sought to set aside the 2004 Mortgage on the basis of unconscionability or the Contracts Review Act 1980 (NSW) (PS reply, [28]). Secondly, the plaintiff’s practice, in dealing with borrowers, was described by Mr Dickinson in these words: (Ex C [34])

“34. It was the invariable practice of MDN Mortgages to insist that all borrowers and guarantors must have their signatures on formal documents witnessed by a solicitor, and they must receive appropriate legal advice about the transaction. To my knowledge, this was conducted by Manna & Flammia, Solicitors. Based on the information MDN Mortgages (or its solicitors) received from Manna & Flammia, Solicitors, I believe that all parties to the transaction had met this requirement (including Mrs Caradonna).”

249 Mr Magney duly received from Messrs Manna & Flammia, solicitors, documents which had been executed. It was not “put to Mr Magney or Mr Dickinson in cross examination that their reliance on the solicitor was unreasonable, or that they should have taken further steps to check the signatures were genuine” (PS reply, [29(a)]). The principles in Browne v Dunn should preclude the defendant from now taking this point in submissions.

250 Thirdly, once the settlement had taken place on 1 November 2004, MDN Mortgages sent Caradonna Investments, and each of the guarantors including Mrs Caradonna, a letter confirming the details of the Mortgage. The letter recited the amount borrowed ($320,000) and identified the security (13 Kincumber Road, Bonnyrigg) (Dickinson: Ex C [40]) (PS reply, [29(c)]).

251 Again, I accept the submissions of the plaintiff. The conduct of the plaintiff and its solicitors, towards the borrowers and guarantors, including Mrs Caradonnas, was reasonable. They did not refrain from enquiry, when enquiry was plainly required. There was no wilful blindness. There is no basis for the suggestion that something more was required of them.

252 Returning to the issue under the Corporation law, and the apparent compliance of the Facility Agreement with the requirements of that statute, is there any basis upon which it can be said that Magney Mortgages Limited knew, or suspected, that the loan documents had been forged or were irregular? Actual knowledge or suspicion that the assumption of regularity is unwarranted is required. Here there is no such evidence. I accept the evidence of Mr Dickinson that he had no reason to believe, in 2004, that Mr Tony Caradonna was otherwise than honest in his dealings with others, including his mother.

253 I therefore accept that the Facility Agreement of 1 November 2004 was enforceable against Caradonna Investments and effective to create a debt owing to MDN Mortgages. Annexure A, clause 1, secured that debt against the property of the defendant. There being default under the Mortgage, the plaintiff is, subject to the rights of Mrs Caradonna in personam, entitled to exercise its power of sale and possession under ss 58 and 60 (respectively) of the Real Property Act (s 57(2)(a) of the Real Property Act and Provident Capital Limited v Printy (supra)).

254 Let me turn to the issue of whether Mrs Caradonna has a personal equity to set aside the 2004 Mortgage.

Is there a personal equity?

255 The First Cross Claim asserted that Mrs Caradonna had a personal equity arising from the unauthorised production of the Certificate of Title to the Registrar General in order to register the 2004 Mortgage (supra [7]). A personal equity provides an exception to indefeasibility. It may be asserted against the registered proprietor of land under the Real Property Act in circumstances where the proprietor’s enforcement of its interest or rights would be unconscionable or unconscientious, such that equity would intervene (Vassos v State Bank of South Australia [1993] 2 VR 316 at 333; Story (supra); Vella v Permanent Mortgagees Pty Ltd [2008] NSWSC 505 at [372]-[377]).

256 Here, as the plaintiff acknowledged, it follows from the finding that Mrs Caradonna’s signature was forged, that she did not authorise the production of the Certificate of Title to the Registrar General (cf PS [109]). However, as submitted by the plaintiff, lack of authorisation or consent by the mortgagor for the production of the Certificate of Title to register a mortgage, does not by itself give the mortgagor a personal equity or right in personam sufficient to defeat the mortgagee’s indefeasible title. Something more is required, such as knowledge by the mortgagee of the lack of consent or knowledge that the mortgagor’s signature on the mortgage has been forged. The test was stated by Hayne J in Vassos (supra), in these terms: (at 333)

in personam

257 These remarks were cited with approval and applied by Gleeson CJ in Story (supra) at 736/7; and Young CJ in Eq in Vella (supra) at 372 and 377.

258 The plaintiffs, in the same submissions, pointed out that both Story and Vella were cases in which it was held that the mortgagor did not have a personal equity to set aside a registered mortgage which was forged, in the absence of knowledge or wilful blindness to the forgery on the part of the mortgagee (see also Grigic (supra); Pyramid Building Society (in Liq) v Scorpion Hotels Pty Ltd [1998) 1 VR 188; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 and Perpetual Trustees Victoria Ltd v Cipri [2008] NSWSC 1128).

259 Counsel for the defendant suggested that the special relationship between MDN Mortgages and Mr Tony Caradonna provided the “something more” required beyond knowledge. It amounted to wilful blindness (DS [26], [71]-[73]). However, for the reasons stated (supra [251]), in my view the plaintiff neither had knowledge of the forgery, nor acted in a way which may be characterised as wilful blindness to the possibility that there may be forgery. Nor is there evidence of any other matter that would make the plaintiff’s enforcement of its registered mortgage unconscionable. I do not believe, therefore, that Mrs Caradonna had a personal equity to set aside the registered mortgage.

The plaintiff’s alternative case: Subrogation.

260 It will be remembered that there was a Second Cross Claim of the plaintiff, putting an alternative case (supra [9]). It relied upon the doctrine of subrogation, having paid out mortgages that would otherwise have encumbered the defendant’s property.

261 Counsel, in submissions, referred to the principle established in Ghana Commercial Bank v Chandiram [1960] AC 732 at 745, that the mortgage shall be kept alive for “the benefit of the third party who pays it off” (PS [73]). Reference was also made to Cochrane v Cochrane (1985) 3 NSWLR 403, where Kearney J accepted that principle unless it were shown that the circumstances were such as to displace such a presumption. In that case, his Honour made these observations: (at 405C)

“This principle is based on equity’s concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out.”

262 That passage was approved by Santow JA (Giles and Hodgson JJA agreeing) in Highland v Exception Holdings Pty Ltd (in Liq) [2006] NSWCA 318; (2006) 60 ACSR 223 at [102]. Santow JA referred, with approval, to Registrar General v Gill [1994] NSWCA 261, in which Gleeson CJ and Priestley JA said:

“The equitable principles relating to subrogation aim to adjust the interest of three parties, such as a creditor, a debtor and an insurer or surety, in such a way as to avoid the unconscionable result of double recovery by the creditor or inequitable discharge of the liability of the debtor.”

263 The principle of subrogation, as an equitable remedy available in a variety of circumstances, was confirmed by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 at [6] and [88]-[98].

264 In view of my conclusion that the plaintiff can claim possession under the registered Mortgage, I need not deal with this aspect, apart from saying that in view of my findings the appropriate alternative (were this doctrine applied) would be the amount paid out in discharge of the 2001 Mortgages ($215,567.67 plus interest since 24 October 2002).

Orders.

265 I make the following orders:

1. The parties should prepare short minutes reflecting the findings in this judgment and agree, if possible, upon costs.

2. The matter to be listed on a date to be agreed to deal with any issues arising from the short minutes and such other issues as remain.

*********

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Citations

MDN Mortgages Pty Ltd v Caradonna [2010] NSWSC 1298

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CITATION:	MDN Mortgages Pty Ltd v Caradonna [2010] NSWSC 1298
HEARING DATE(S):	30/6/09 30/7/09 7/10/09 14/10/09 28/10/09 9/12/09 17/12/09 2-4/3/10
JUDGMENT DATE :	17 November 2010
JURISDICTION:	Common Law Division
JUDGMENT OF:	Kirby J
DECISION:	1. The parties should prepare short minutes reflecting the findings in this judgment and agree, if possible, upon costs. 2. The matter to be listed on a date to be agreed to deal with any issues arising from the short minutes and such other issues as remain.
CATCHWORDS:	REAL PROPERTY - torrens title - indefeasibility of title - mortgages - registration of forged instrument - mortgagee innocent of fraud - whether mortgage on its proper construction secures a debt - whether mortgagee entitled to assume document properly executed - s128 and s129 Corporations Act 2001 (Cth) - whether in personam remedy against registered mortgagee - subrogation.
LEGISLATION CITED:	Contracts Review Act 1980 Conveyancing Act 1919 Real Property Act 1900 Corporations Act 2001
CATEGORY:	Principal judgment
CASES CITED:	Jones v Dunkel (1951) 101 CLR 298 Sanpine Pty Limited v Koompahtoo Local Aboriginal Land Council [2005] NSWSC 365 Sanchet v Director of Public Prosecutions (Cth) [2006] NSWCCA 291 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115 Allen, Allen & Hemsley v DCT (NSW) (1989) 20 FCA 576; (1989) 86 ALR 597 Commercial Bank v Amadio (1983) 151 CLR 447 Blomley v Ryan (1956) 99 CLR 362 Assets Co Ltd v Mere Roihi [1905] AC 176 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Perpetual Trustees Victoria Ltd v English & Anor [2009] NSWSC 478 Small v Tomassetti [2001] NSWSC 1112 PT Limited v Maradona Pty Limited (1992) 25 NSWLR 643 Chandra & Anor v Perpetual Trustees Victoria Limited [2007] NSWSC 694 Provident Capital Ltd v Printy [2008] NSWCA 131 Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; (2008) 234 CLR 151 Kimberley Securities Ltd v Esber [2008] NSWCA 301 Story v Advance Bank Australia Limited (1993) 31 NSWLR 722 Soyfer & Anor v Earlmaze & Ors [2000] NSWSC 1068 Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266 Vassos v State Bank of South Australia [1993] 2 VR 316 Vella v Permanent Mortgagees Pty Ltd [2008] NSWSC 505 Pyramid Building Society (in Liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Perpetual Trustees Victoria Ltd v Cipri [2008] NSWSC 1128 Ghana Commercial Bank v Chandiram [1960] AC 732 Cochrane v Cochrane (1985) 3 NSWLR 403 Highland v Exception Holdings Pty Ltd (in Liq) [2006] NSWCA 310; (2006) 60 ACSR 223 Registrar General v Gill [1994] NSWCA 261 Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269
PARTIES:	MDN Mortgages Pty Limited (Pl) Maria Antonietta Caradonna (Def)
FILE NUMBER(S):	SC 2007/13184
COUNSEL:	F Gleeson SC/K Williams (Pl) D C Eardley (Def)
SOLICITORS:	Magney & Magney Solicitors (Pl) Russo & Partners (Def)

Para No.
The pleadings.	2
The hearing.	12
The issues.	20
Background.	22
Early assistance to Tony.	25
The September 2001 transaction.	41
The October 2002 loan.	62
The November 2004 loan.	109
Default under the Mortgage.	150
Was the defendant’s signature on the Mortgage forged?	180
Was the September 2001 loan Tainted?	194
The legal framework.	202
What is secured by the 2004 Mortgage?	209
The validity of the Facility Agreement 2004.	218
Statutory assumptions under the Corporations Act 2001.	231
Was there a special relationship?	239
Is there a personal equity?	255
The plaintiff’s alternative case: Subrogation.	260
Orders.	265