Perpetual Trustees v Capital Securities
[2009] VCC 34
•13 February 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
EXPEDITED CASES DIVISION
Case No. CI-07-01539
| PERPETUAL TRUSTEES VICTORIA LIMITED (A.C.N 004 027 258) | Firstnamed Plaintiff |
| & | |
| CHALLENGER MORTGAGE MANAGEMENT PTY LTD (A.B.N. 72 087 271 | Secondnamed Plaintiff |
| 109) v | |
| CAPITAL SECURITIES (AUST) PTY LTD (A.C.N 099 360 675) | Defendant |
| v | |
| HOUSEYIN SOYTURK, FIKRIYE SOYTURK, CENGIZ SOYTURK, SUREYYA | Third Parties |
| SOYTURK & MICHAEL OSTIJIC |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 2, 3, 4 and 5 February 2009 |
| DATE OF JUDGMENT: | 13 February 2009 |
| CASE MAY BE CITED AS: | Perpetual Trustees v Capital Securities |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0034 |
| REASONS FOR JUDGMENT |
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Catchwords: breach of loan origination agreement by reason of fraudulent misrepresentations of defendant’s agent – whether breach caused plaintiffs’ loss.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D.V. Aghion | DLA Phillips Fox |
| For the Defendant | Mr V. Ruta | Simon Nixon |
| For the First and Second Third | Mr M.C. McKenzie | James McDermott Barrister & |
| Party | Solicitor | |
| For the Third and Fifth Third | No appearance | No appearance |
| Party | ||
| For the Fourth Third Party | Mr. G.J. Herbert (on 2, 3 and 4 | Brygel Lawyers |
| February, then unrepresented) | ||
| HER HONOUR: |
1 This case relates to recovery by the plaintiffs for breach of a clause in a loan “origination agreement” based on the fraudulent misrepresentations of the defendant’s agent.
2 The first plaintiff (Perpetual) has established a mortgage backed securities program for the purpose of, among other things, investing in mortgage loans. As part of those arrangements, the second plaintiff (formerly known as Interstar Securities (Australia) Pty Ltd) (Interstar) assisted Perpetual to manage the mortgage backed securities program.
3 The defendant (Capital) conducts the business of arranging finance and wanted to submit applications for loans to Interstar where the loan funds were to be provided by Perpetual as part of the mortgage backed securities program.
4 On 4 October 2003, Interstar appointed Capital as an “originator” to the mortgage-backed securities program. The relationship was governed by a written origination and management origination agreement (the origination agreement).
5 Pursuant to clause 4.1 the originator could submit an application by a prospective borrower for the provision of loan finance by Perpetual to Interstar for the consideration of Interstar.
6 Pursuant to clause 5.1 the originator agreed to undertake various functions including submitting applications for consideration, arranging valuations, carrying out credit checks and doing “such other things as agreed from time to time between Interstar and the Originator” (5.1(e)). Pursuant to clause 5.2 the originator agreed to perform various other functions in relation to “settled” loans (which were defined as those where a drawdown had been made by a borrower).
7 Critically, Clause 18.1 of that origination agreement provided as follows:
“The originator agrees to indemnify and keep indemnified Interstar and the Trustee [Perpetual] from and against any damages, losses, outgoings, costs, charges or expenses suffered or incurred by Interstar or the Trustee directly or indirectly in respect of:
(a) any breach of the originator’s obligations, warranties, representations and covenants under this agreement or the Manual or any error, omission or misrepresentation whether innocent or fraudulent by the originator or the originator’s representatives.”
8 The meaning of originator’s representatives set out in Clause 1.1 was:
“(a) All officers, employees and agents of the originator;
(b) all independent contractors of the originator;
(c) suboriginators.”
9 Further, pursuant to clause 9.2 the warranties and indemnities contained in the origination agreement were deemed to be repeated at the time each loan was settled and were to continue in force notwithstanding settlement of any loan. They were also stated to be for the benefit of Perpetual notwithstanding that it was not a party to the origination agreement.
10 By application dated 2 June 2004 purportedly from Houseyin Soyturk, his wife Fikriye Soyturk, his son Cengiz Soyturk and his daughter in law Sureyya Soyturk the Soyturks applied to Capital for a loan of $220,500. The Soyturks have been joined as the first to fourth third parties by the defendant to the current proceeding.
11 The property offered as security in respect of the loan the subject of the loan application was 46 Ferris Avenue Deer Park Victoria. The loan application indicated that the name in which the security property would stand would be all four Soyturks. [1]
[1] page 3 in respect of Houseyin Soyturk and Fikriye Soyturk, and also page 3 in respect of Cengiz Soyturk and Sureyya Soyturk
12 The loan application was forwarded to Interstar by facsimile of 8 July and “referred” on the same day by Interstar pending the obtaining of full mortgage insurance and the provision of documentation to Interstar for verification and settlement.
13 Thereafter the loan was formally approved on 12 July 2004 subject to special conditions which included receipt of an original valuation report.
14 Interstar thereupon instructed First Title City West (“First Title”) – who were settlement agents for Perpetual and a division of Tress Cox Solicitors- to prepare documentation for settlement.
15 Following further provision of information (which will be referred to further below) on 3 September 2004 Perpetual and purportedly each of the Soyturks entered into a loan agreement pursuant to which Perpetual agreed to advance the sum of $220,500 to the Soyturks.
16 Further, also on 3 September 2004:
• a transfer of land was purportedly executed by each of the Soyturks providing for the Ferris Avenue property to be jointly owned by each of them as tenants in common; the signature of Fikriye Soyturk said to be “by her attorney Cenzig Soyturk under Power of Attorney dated 1 May 2004”; • a mortgage of land over the property was also purportedly executed by each of the Soyturks (the signature of Fikriye Soyturk again being said to be pursuant to the Power of Attorney of 1 May 2004).
17 The power of attorney dated 1 May 2004 and given to Cenzig Soyturk, was purportedly signed by Fikriye Soyturk and witnessed by Michael Ostojic. It appears to have been prepared by Zeljko Stojakovic, solicitors.
18 The mortgage was also witnessed by Mr Ostojic.
19 The precise title of Mr Ostojic, who is the fifth third party, is somewhat unclear on the evidence properly before me. As will be seen below, he has been convicted of an offence of obtaining property by deception in relation to the loan monies disbursed by Perpetual.
20 Mr Ostojic is described as a “Relationship Manager” for Capital in correspondence from a solicitor, Harry Szmerling, of 13 August 2004 and the plaintiffs have alleged that he was an employee of the defendant. The defendant denies this but Mr Ruta, who appeared as Counsel for the defendant, conceded that although he was not an employee, Mr Ostojic was “an agent of the defendant.”
21 Prior to the settlement of the transaction, in a document entitled “settlement confirmation” dated 1 September 2004 First Title confirmed to Perpetual, Interstar and others, that the title to the property at Ferris Avenue was “good and marketable” and that “all security documents including a mortgage have been properly signed and are in order.” Further that when registered the mortgage would be “first ranking on the title of the land in favour of the lender.” The settlement confirmation then indicated that security documents would be returned after registration and gave details of insurance.
22 The loan was subsequently settled on 3 September 2004, wherein $215,937.74 was transferred by Perpetual into a bank account in the name of Sureyya Soyturk.
23 On 15 September 2004 the Land Titles Office issued a requisition seeking a letter from the solicitor for the transferor in circumstances where the transferee was also the attorney for the transferor. The requirement was for a letter on letterhead signed by the current practitioner for the transferor stating:
(a) that the transfer constituted a proper exercise of the attorney; and (b) that the transfer was in the best interests of the donor. 24 The requirement was not satisfied, and the mortgage and transfer were subsequently withdrawn on 12 November 2004.
25 On 3 October 2004 the Soyturks defaulted on the loan. Subsequently charges were laid against both Cengiz Soyturk and Michael Ostojic.
26 On 15 August 2008 Judge Coish convicted Michael Ostojic of two counts of obtaining property by deception, and sentenced him to a term of imprisonment of two years on count 1. The particulars of offence of count 1 are contained in the presentment (WO3295113) which was cited in the certificate of conviction. The particulars of the offence are as follows:
“The Director of Public Prosecutions presents that Michael Ostojic at Sydenham in the said state on the 3rd day of September 2004 dishonestly obtained for himself and another, Cengiz Soyturk, from Perpetual Trustees Victoria Ltd the sum of $215,937.74[2] with the intention of permanently depriving the said Perpetual Trustees Victoria Ltd of the said sum by deception, namely by falsely representing that:
[2] The difference between this sum and the amount of the loan being $220,500 is that disbursements were paid to various entities at the time of settlement
(a) Fikriye Soyturk, Huseyin Soyturk, Sureyya Soyturk and the said Cengiz Soyturk were joint applicants for a loan; (b) A transfer of land enabling Sureyya and Cengiz Soyturk to be registered as joint proprietors on a certificate of title to the property at 46 Ferris Avenue, Deer Park, was lawfully executed by or on behalf of Fikriye Soyturk and Huseyin Soyturk as transferors; (c) Certificate of title to 46 Ferris Avenue, Deer Park, was provided as security for the loan with the knowledge of Fikriye and Huseyin Soyturk; and (d) A loan application dated 2 June 2004 contained genuine signatures of Fikriye Soyturk and Huseyin Soyturk.”
27 On 22 August 2008 Judge Smallwood also convicted Cengiz Soyturk of two counts of obtaining property by deception, and sentenced him to a term of imprisonment of three years on count 1. The particulars of offence of count 1 are contained in the presentment (U01886017) which was cited in the certificate of conviction. The particulars of the offence were in virtually identical terms to the particulars relating to Michael Ostijic.
Issues
Plaintiffs and defendant
28 Although the plaintiffs in their original statement of claim sought relief on a number of bases, the relief sought at trial[3] was restricted to a contractual claim on the basis of the fraudulent misrepresentations of Mr Ostijic which were said to breach clause 18.1(a) of the origination agreement.
[3] By reason of the Second Further Amended Statement of Claim of 3 February 2009
29 The fraudulent misrepresentations relied upon were those already set out in the presentment at parts (a) to (d) as referred to in paragraph 26 above.
30 The plaintiffs claimed the loss suffered as a result of this breach was $282,287.22. Mr Aghion, counsel for the plaintiffs, also abandoned an earlier claim for damages on the basis of the principles in Hungerford’s case.[4]
[4] Hungerfords v Walker (1989) 171 CLR 125
31 The defendant also helpfully reduced the ambit of the dispute. Thus, Mr Ruta indicated that, given that Challenger Mortgage Management Pty Ltd (formerly known as Interstar) had been joined as a plaintiff, the privity question was no longer in issue. The defendant was also not pursuing a defence of contributory negligence, given the plaintiffs were pursuing their claim on the basis of contractual relief alone. Finally Mr Ruta also accepted that, if liability was established, then the plaintiffs would be entitled to judgment in the amount of $282,287.22.
32 Whilst not formally conceding that fraudulent misrepresentations were made, Mr Ruta also did not positively challenge such a finding. Rather he sought to submit that the terms of clause 18.1(a) only operated whilst the originator was carrying out its functions as a mortgage originator which ceased once the loan was approved. Further, and more significantly, he submitted that the plaintiffs’ loss in settling the loan was not caused by the misrepresentations.
33 On the basis of the conviction and presentment above I accept that the fraudulent misrepresentations in the terms alleged more particularly at paragraphs (a) –(d) of the above presentment are made out. Further, given Mr Ruta’s concession, above (see paragraph 20), that the misrepresentations were made by the defendant’s agent, Mr Ostijic.
34 The main issues remaining for the court are then:
(a) whether or not clause 18.1(a) operates in relation to the fraudulent
misrepresentations;(b) whether or not the plaintiffs’ loss was caused by the making of the
misrepresentations.Third parties
35 The third party proceedings were originally heard together with the proceedings brought by the plaintiffs’ against the defendant when the trial commenced on 2 February. The first and second third-parties were represented by Mr McKenzie of counsel and the fourth third-party was represented by Mr Herbert. The third third-party, who is currently in prison, has never lodged an appearance, and has taken no part in the proceedings. The fifth third-party had been represented, but his solicitors had filed notice ceasing to act on 3 March 2008. Although he was notified of the proceedings, he also took no part in the trial. He is also in prison.
36 Proceedings between the defendant and the first and second third parties were subsequently settled on 3 February with orders made by consent that the third-party proceedings by the defendant against the first and second third parties be struck out with costs.
37 The position of the fourth third-party was more vexed. On the third day of the trial after the plaintiffs had closed their case, Mr Herbert applied for leave to withdraw on behalf of himself and his instructor on the basis of an ethical impediment. That leave was given, and the case briefly adjourned to enable Mrs Soyturk to obtain access to legal advice. Mr Andreou, of counsel, then appeared in the afternoon on behalf of Mrs Soyturk to make application for the third-party proceedings against her to be heard separately from the proceeding between the plaintiffs and the defendant. This was, inter alia, to enable Mrs Soyturk to have an opportunity to obtain legal advice for the future conduct of her defence. The application was supported by the plaintiffs, although not by the defendant.
38 Given what I considered to be exceptional circumstances, I directed that there be a separate trial of the remaining third-party proceedings to be heard on 27 April 2009, and made various other orders in relation to those proceedings. The court then continued to hear this proceeding between the plaintiffs and defendant. However Mrs Soyturk was permitted to participate, unrepresented, and was given opportunity to make representations which will be referred to below.
Witnesses
39 The case largely proceeded on the basis of written documentation with the exception of one “expert” witness, Mr Bock, whose evidence will be referred to below.
40 Mr Ruta sought to submit that some (unspecified) inference should be drawn given the failure of the plaintiffs to call oral evidence. However I am unable to draw any such inference and accept Mr Aghion’s submission that there is no other obvious witness whom the plaintiffs would be expected to call.
Causation
Chronology in more detail
41 In order to analyse the question of causation it is necessary to refer to the chronology in more depth, particularly the course of the transaction between the date that the loan was approved and the date that settlement of the loan took place which period was emphasized by Mr Ruta.
42 As indicated already, the loan was approved on 12 July 2004 and First Title instructed to prepare documentation.
43 In an email of 13 July 2004 First Title informed Interstar that the title search showed only Houseyin and Fikriye Soyturk as registered proprietors of the security property. Interstar then raised this issue with Angela Chen at Capital. Capital, through Angela Chen, then informed Interstar by email of 13 July 2004 that all four borrowers would be on the title after the transfer had been completed by the clients’ solicitors. This information was then forwarded to First Title.
44 On 14 July Interstar forwarded documents for execution and a checklist for the consideration of the purported borrowers at 46 Ferris Street Deer Park.
45 An undated memorandum to “Harry” from “MO” also appears in the documentation requesting completion of a transfer to Cengiz and Sureya Soyturk. There then appears to follow correspondence from Harry Szmerling & Co, solicitors addressed to “Mr and Mrs C Soyturk” enclosing a Transfer of Land for signature.
46 By correspondence dated 2 August 2004, Capital sent the mortgage documents and the transfer of land to First Title. The transfer was in respect of 46 Ferris Avenue, St Albans. It gave the transferors’ names as Huseyin Soyturk and Fikriye Soyturk. It described the transferee as Huseyin Soyturk and Fikriye Soyturk of 46 Ferris Avenue, St Albans, as to 19 equal undivided 20th parts or shares as joint proprietors, and Cengiz Soyturk and Sureyya Soyturk as joint proprietors as to one equal undivided part or share all as tenants in common.
47 By letter of 3 August, 2004, First Title requested various documents of Capital, being a stamped transfer, an insurance policy, a certificate of title, a discharge of mortgage and an original certified copy of the power of attorney for Fikriye Soyturk.
48 By facsimile transmission from Angela Cheng of Capital of 10 August 2004 an insurance policy and a power of attorney for Fikriye Soyturk were provided with an indication that they would post the original of the power of attorney and other outstanding documents shortly. However, no original power of attorney was ever provided.
49 Correspondence from Harry Szmerling dated 13 August then forwarded a stamped transfer to Michael Ostijic, “Relationship Manager” at Capital.
50 By receipt dated 31 August 2004, First Title acknowledged receipt of the certificate of title, the stamped transfer of land, and the power of attorney from Capital.
51 Evidence of a discharge of mortgage was also provided by way of a lodgement summary report of 18 August 2004. The face of the document suggests that “Huseyin Soyturk” as customer had lodged that discharge.
52 The settlement confirmation document from First Title as previously described (see paragraph 21) is then provided on 3 September 2004, with the transaction then settling on 3 September. The loan agreement was then entered into between Perpetual and the Soyturks on 3 September.
53 However, as highlighted by Mr Ruta, on settlement, the funds were not disbursed to the account specified in a written direction and authority document but were apparently disbursed to a Westpac account in the name of Soreya Soyturk.
54 The communications in relation to this matter were as follows:
•
a written “Direction and Authority” (undated) document which purports to be signed by each of the Soyturks directs that the settlement funds should be deposited into a Commonwealth bank account in the name of the trustee for the Soyturk Family trust account number 102 633 48;
•
a facsimile dated 1 September 2004 from First Title to Interstar requested that an account with a number of 157152 be credited with the settlement proceeds;
•
a written facsimile from Angel Cheng at Capital dated 2 September 2004 to First Title requested First Title to make a Telegraphic Transfer to a Westpac account in the name of Soreyya Soyturk number 666846 at St Albans.
55 In the result the parties have accepted that the funds were deposited into the account in the name of Mrs Soreyya Soyturk apparently on the basis of the facsimile from Ms Cheng of 2 September.
Other evidence
56 The defendant also sought to rely on expert evidence of Jack Bock, a solicitor.
57 In his Amended Expert Statement dated 1 July 2008, Mr Bock makes reference to various parts of Interstar’s Legal Manual and the Interstar Guidelines Manual[5] including the following;
[5] Pursuant to clause 8.1 of the origination agreement Capital was to strictly adhere to and comply with their obligations under this manual
•
Section 5 of the Manual which states that Interstar has a firm policy that it will not make loans where third parties are involved; “third parties” being any person whose name does not appear on a certificate of title as owner;
•
Section 6 suggests that it is of fundamental importance that Interstar obtains a valid and enforceable first registered mortgage;
• Section 8 states that Interstar requires a solicitor’s certificate as to title; •
Section 15 of the manual expresses Interstar’s policy that the form of any power of attorney be approved by Interstar’s solicitors or settlement agents and that clear evidence be provided to Interstar’s solicitors that the donor expressly consents to the relevant documents being executed under Power of Attorney;
•
Section 5.1.1 of the guidelines require the loan originator to physically meet a borrower and satisfy itself, beyond doubt as to their identity. If the originator is unable to do so, it should satisfy itself that another person has done so and that the integrity of the person can be relied upon.
58 He also cites s125B(5)(b) of the Instruments Act 1958 which provides that an attorney must provide an undertaking to avoid acting where there is any conflict of interest between the interest of the donor and the attorney’s interest.
59 He concluded:
(a) That taking into account ordinary conveyancing practices the panel solicitors ought to have known that: (i) the transfer of land executed under the Power of Attorney was not capable of registration without the certificate of a solicitor for the donor of the power;
(ii) the mortgage was not capable of registration in the absence of registration of the transfer;
(iii) the power of attorney was ineffective;
(b)
in the absence of a solicitor’s certificate as to title the matter should not have proceeded to settlement;
(c)
in the absence of a written direction from all the borrowers, the funds should not have been paid into the bank account of only one of them;
(d)
the loan application should have been subject to a requirement that the two senior borrowers be independently advised;
(e)
Interstar’s solicitors were negligent in allowing the matter to proceed having regard to the requirement that Interstar obtain a valid and enforceable first mortgage.
60 In oral evidence he agreed that an original power of attorney would not have assisted as the power of attorney on its face demonstrated a conflict between the donor transferor and one of the transferees who was the attorney. In these circumstances there should never have been a settlement.
61 Mr Bock’s credentials (as set out in his statement) extended to 15 years acting as a consultant to a Finance Broker and Mortgage Originator Group. However, under cross-examination by Mr Aghion he conceded that his credentials did not suggest he had ever acted or advised a commercial lender.
Defendant’s submissions
Indemnity inoperable
62 Mr Ruta first submitted in his written submissions that the indemnity in clause 18.1 could only apply whilst the originator is carrying out its functions as a mortgage originator which were highlighted by clause 5.1 of the origination agreement and involved the submission of applications for consideration, arranging valuations and carrying out credit checks. Once the loan was approved such functions ceased.
63 However, this was not pursued strongly in oral submission, and in my view is not sustainable.
64 First, even if such a submission was sound it would not provide a defence to the misrepresentations made as set out in parts (a) and (d) of the presentment which were misrepresentations concerning the loan application itself rather than the security documentation. Pursuant to clause 9.2 such misrepresentations were also deemed to be repeated at the time the loan was settled and notwithstanding settlement of the loan.
65 In any event, the terms of the origination agreement clearly contemplated a role for the originator beyond the approval stage as is indicated by clause 5.2 which describes the role of the originator in relation to settled loans. The role of the originator pursuant to clause 5.1(e) further includes doing such other things “as agreed from time to time between Interstar and the Originator.” Such agreement can be readily inferred here where the originator was intimately involved in the production of security documents. Moreover it must be remembered that the originator’s own agent has been intimately involved in the production of the transfer of land and certificate of title as is established by his conviction.
66 Finally, the terms of clause 18.1(a) do not restrict the relevant misrepresentations to those made “under this Origination agreement or Manual.” Rather the natural reading of the clause extends to “any… misrepresentation whether innocent or fraudulent” by the originator’s agent.
67 Accordingly I reject Mr Ruta’s submission and find that the misrepresentations as previously set out constitute a breach of the origination agreement.
Chain of causation broken
68 In supporting his causation submission Mr Ruta emphazised the significance of the two staged process involved: the first being the loan approval phase and the second being the time up to the actual settlement of the funds. He submitted that the plaintiffs’ loss in disbursing the loan proceeds was not caused by the misrepresentations but by other acts and particularly the First Title confirmation letter and the payment of the funds contrary to the written authority. He concluded:
“The plaintiff was not induced by the misrepresentations of the fraudulent signatures on the documents. The true intervening event in this matter is simply the document at CB351 [the settlement confirmation document of First Title].”
69 In terms of the actual misrepresentations concerning the loan application (the subject of parts (a) and (d) of the presentment), Mr Ruta submitted as follows:
• that the loan application was “only one of the documents” considered by Interstar in approving the loan and that approval was actually made on a number of matters including credit reports and rental agreements. He also submitted that the effect of the misrepresentations as to the loan were effectively “spent” once the process moved past the approval phase and into the disbursement phase given the various other acts and omissions of First Title including the matters they advised in the settlement confirmation document; • that the transfer of land (the subject of misrepresentation (b)) was not prepared by the defendant; and further was not registrable as the transferee was also attorney for the transferor and this represented a conflict of interest. He also cited defects in the power of attorney and suggested that a close examination of the transfer would have disclosed that the transaction was in reality a “third party mortgage” in breach of section 5 of the manual given the parents owned 19 parts of 20. He also submitted that the transfer of money to Mrs Soyturk’s account should not have been made given the absence of a written direction to do so; • that in terms of the certificate of title Mr Ruta emphasized that it was not procured by the defendant and further that the discharge of mortgage necessary to clear the title was prepared by Mr Houseyin Soyturk and not the defendant. 70 In relation to the transfer, Mr Ruta also cited defects in the power of attorney and emphasized that it was not prepared by the defendant. Further:
• that it failed to comply with s125A and 125B of the Instruments Act;
• that there was a failure to comply with clause 15 of the manual.
71 Although the defendant’s written submissions also raised a failure to look at the original power of attorney, this was not pursued strongly in oral submissions. Rather, as Mr Bock’s evidence highlighted, the real concern raised was the conflict on the face of the document (original or otherwise) between the donor transferor and one of the transferees who was the attorney.
Mrs Soyturk’s submissions
72 Mrs Soyturk made some short submissions wherein she invited the court to consider evidence which was not properly before it as to certain other transactions. However, she also raised a concern that no-one had actually met her in-laws face to face to ask them if they really wanted to enter into the transaction.
Principles
73 The plaintiffs have the onus of showing that the loss for which compensation is claimed was caused by the breach of contract relied upon.
74 Whether a particular loss is caused by a particular breach is determined by applying the criteria of common sense. Further, the criteria that the loss would not have occurred “but for” the breach relied upon is not the exclusive test of causation.[6]
[6] March v Stramare Pty Ltd (1991) 171 CLR 506 at 515
75 It is not necessary for the breach in question to be the exclusive or dominant cause of the loss complained of. Rather the question is whether the breach “caused or materially contributed to” the harm suffered.[7]
[7] Above at 514
76 The causal link between breach and loss can be severed by an act or event subsequent to and independent of the breach. However the intervening act must be potent enough to “break the chain of causation” so that it can be treated in a practical sense as the sole cause of the damage. [8] Further, it makes no sense to regard the negligence of the plaintiffs or a third party as a superseding cause or “novus actus interveniens” when the defendant’s wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiffs or third party and that injury occurs in the ordinary course of things.[9]
[8] Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 at 315 & 361
[9] March v Stramare Pty Ltd (1991) 171 CLR 506 at 518-9
77 Mr Aghion sought to submit that, given that there is no common law defence of contributory negligence to a fraudulent misrepresentation[10] it followed that the same principle prevented a defence based on the acts of the plaintiffs or their agent (First Title) based on causation principles. It followed that the defence of intervening or supervening cause was not a defence at law.
[10] citing Standard Chartered Bank v Pakistan National Shipping Corporation [2003] 1 AC 959
78 I do not accept this proposition. Rather the cases appear to recognise that the plaintiffs’ own deliberate or negligent conduct after breach may intervene or supervene as the legal cause of the loss.[11] Whether it does or not is to be analysed in accordance with the principles previously enunciated.
Analysis
Chain of causation broken
[11] E.g. See March v Stramare Pty Ltd (1991) 171 CLR 506 at 517-8 and Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310
79 In my view it is clear that the plaintiffs were induced to enter the loan and settle it on the basis of the misrepresentations of the defendant’s agent. If Perpetual had known that Houseyin and Fikriye Soyturk were not really joint applicants for the loan and/or had not lawfully executed the transfer and/or did not know of the provision of the certificate of title and/or that the loan application did not contain their genuine signatures, then the monies would not have been disbursed. Put another way, “but for” the making of the misrepresentations, prima facie, the loss would not have been sustained.
80 In terms of the primary submission that the settlement confirmation and/or disbursal of funds without authority broke the chain I do not accept this submission. Rather, in my view the fraudulent misrepresentations not only generated a risk that the documentation would be accepted as “in order” and the funds disbursed, but the defendant’s agent can be taken to have intended that this would be exactly what happened.
81 Further, although there was no written direction from all the borrowers as to the disbursal of funds, the funds were disbursed on the basis of a specific instruction from the defendant (in the facsimile dated 2 September 2004 from Angela Cheng).
82 In terms of the misrepresentations concerning the loan application:
•
the fact that the loan application was made on the basis of other documents is not to the point; the misrepresentation need only be one of the causes of the loss;
•
I also do not accept that the misrepresentations concerning the loan application were “spent.” The downplaying of the defendant’s role in the “second stage” is not supported by the evidence. As set out above, the defendant played a part in obtaining and forwarding documents and instructions. In any event, the defendant’s agent, Mr Ostijic, has been convicted of representing that the transfer was lawfully executed when it was not and of representing that the certificate of title was provided with the knowledge of Fikriye and Houseyin when it was not. The defendant’s role thereby clearly exceeded the role of “conduit” as suggested by Mr Ruta.
83 In terms of the transfer of land:
• the fact that it was not prepared by the defendant is not to the point given the misrepresentation of its agent; • moreover, I do not accept the characterisation of the transaction as a “third party transaction” because of the 19/20 and 1/20 split since all four borrowers were on the title produced. In any event, the real defect in the transfer was that it was produced by the deception of the defendant’s agent in representing that it was lawfully executed by or on behalf of Fikriye Soyturk and Huseyin Soyturk when it was not; • further, the real reason the transfer could not be registered subsequent to the requisition of the Title’s Office seeking a letter from a solicitor was that no honest solicitor could have provided the letter requested. Again this was because of the acts of the defendant’s agent in completely misrepresenting the transaction.
84 In terms of the certificate of title, the fact that the defendant did not prepare it is no answer. The defendant’s agent has been convicted of representing that it was provided with the knowledge of Fikriye and Houseyin Soyturk when this was false.
85 Finally, in terms of the power of attorney, sections 125A and B of the Instruments Act [12] only have operation in relation to enduring powers of attorney. The power of attorney before the court appears to be a general power of attorney. In terms of the alleged breach of section 15 of the manual a fraudulent “consent of the donor” might well have been provided if a donor consent was requested: thus when First Title did raise a concern about the identity of the registered proprietors the response was the production of a fraudulent transfer.
[12] which came into effect on 1 April 2004
86 In any event, even if there was some failure to appreciate that the attorney was bad and/or to obtain further documents in support, this does not break the chain of causation given the risk that this would occur was created by the breach itself. Although then, it might have been better if First Title had “picked up” certain concerns raised by the documentation any such failure was foreseeable and not out of the ordinary in a case involving a sophisticated fraud and the creation of several fraudulent documents. It might even be said that the defendant might have done better also, for example, as suggested by Mrs Soyturk, by taking steps to meet the borrowers (as contemplated in 5.1.1 of the guidelines). However, be that as it may, the defendant’s agent’s conduct created a situation of danger, the risk being that the documents he misrepresented would be accepted as being what they purported to be.
87 Thus even if I were to accept that First Title and/or the plaintiffs should have made the other checks as suggested by Mr Bock, such omissions do not in my view break the chain of causation as the agent’s conduct was a continuing cause of the loss.
88 Overall then I am satisfied that the misrepresentations made by the defendant’s agent considered individually or as a whole caused or materially contributed to the plaintiffs’ loss.
89 I am comforted in this conclusion by the terms of clause 18.1 itself which provide for the indemnity to operate in relation to loss suffered or incurred directly “or indirectly.” However, the plaintiffs have satisfied me in any event that the defendant has caused the loss within the ordinary principles cited already.
90 It follows that I reject the submissions of the defendant to the contrary.
Conclusion
91 There will be judgment for the plaintiffs in the sum of $282,287.22.
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