Perpetual Trustees Victoria Limited v Menzies - [2012] NSWSC 1066

Supreme Court

New South Wales

Medium Neutral Citation: Perpetual Trustees Victoria Limited v Menzies [2012] NSWSC 1066
Hearing dates: 31 August 2010, 1 - 3, 6 -10, 16, 22 - 24, 29 September 2010, 22 October 2010, 3, 20 December 2010, 1, 3, 14, 15 March 2011, 1, 4, 5, 13, 14 April 2011
Decision date: 10 September 2012
Jurisdiction: Common Law
Before: Adams J
Decision:
1. I give judgment for Ms Menzies on the action brought by Perpetual and Challenger against Ms Menzies.
2. She is not liable under either the mortgage or the loan agreement.
3. It may be that some ancillary orders need to be made, and I will give directions about this matter and as to costs after hearing from the parties.
4. In the circumstances, it is not necessary for me to consider Ms Menzies' cross-claims.

Legislation Cited: Evidence Act 1995 (Cth)
Conveyancing Act 1919
Real Property Act 1900
Land Titles Act 1925
Interpretation Act 1987
Sale of Goods Act 1923
Privacy Act 1988 (Cth)
Cases Cited: Jones v Dunkel [1959] HCA 8; 101 CLR 298
Manly Council v Byrne and Anor [2004] NSWCA 123
Greenwood v. Martins Bank Ltd [1933] AC 51
Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507
Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890
Associated Midland Corporation v Sanderson Motors Pty Limited [1983] 3 NSWLR 395
Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452
Rowe v B & R Nominees Pty Ltd [1964] VR 477
Capital Access Australia Pty Limited v Hraiki and Anor [2011] NSWSC 109
Chen v Song [2005] NSWSC 19
Klement v Pencoal Limited [2000] QCA 152
Soyfer v Earlmaze Pty Limited [2000] NSWSC 1068
Texts Cited: G E Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths
Category: Principal judgment
Parties: Perpetual Trustees Victoria Limited (First plaintiff)
Challenger Financial Group Limited (Second plaintiff)
Ann Marie Menzies (First defendant)
BMC Mortgage Corporation Pty Limited (Second defendant)
Representation: Counsel:
G Sirtes SC & D Parish (First and second plaintiffs)
B Skinner & J Baird (First defendant)
G Curtin SC (Second defendant)
Solicitors:
Mills Oakley Lawyers (First and second plaintiffs)
Eakin McCaffery Cox (First defendant)
Gilchrist Connell (Second defendant)

File Number(s): 2007/263094

Judgment

Introduction

Ann Marie Menzies is sued by Perpetual Trustees Victoria Limited (Perpetual) pursuant to a mortgage and loan agreement allegedly entered into by her. (Challenger, earlier named Interstar, procured Perpetual's funds for the purpose of the advance; for present purposes it can be ignored.) Ms Menzies denies that she was party to either document. This judgment concerns Perpetual's action against Ms Menzies and her counterclaim against Perpetual. There is other connected litigation between Perpetual and Challenger Financial Services Group Limited on the one hand, and BMC Mortgage Corporation Pty Limited on the other, which will be the subject of a further hearing. BMC, called a mortgage originator, organises for Challenger (and, thence, Perpetual) to provide the funds. The party to the loan agreement and mortgage is Perpetual. In this case, the approach to BMC was made by a Mr Dive, called a broker. A Mr Reddy, whose role is extensively discussed, is also a defendant, but filed no defence or appearance. Ms Menzies brought cross-claims against Perpetual, Challenger, BMC, Mr Dive's company and Terence Reddy.

For the reasons that will appear I have concluded that Ms Menzies should succeed and that she and indeed the other parties were the victims of a complicated fraud certainly perpetrated by self-declared accountant Terrence Reddy, likely in concert to a greater or lesser extent with one Felix Lyle with whom he was closely associated. The relevant transactions included the aborted purchase of a residential property in Cardigan Street, Stanmore and the completed purchase of a residential property in Hancock Street. Two loans were negotiated, one with Perpetual and the other with Permanent Trustee Company Limited, the former in Ms Menzies' name, secured by a mortgage over Ms Menzies' home, and the latter in the name of Valcorp Developments Pty Limited secured over the Hancock Street property with a personal guarantee in the name of Ms Menzies.

The fraud involved the forging of Ms Menzies' signature on a number of crucial security documents and the creation of a convincing but forged Certificate of Title over her residence in Stanmore. In the result, I am satisfied that Ms Menzies did not execute either loan agreement or mortgage or authorise their execution on her behalf, that she did not authorise the use of her Certificate of Title, moreover that she never intended to personally borrow or be personally responsible either directly or by guarantee for the repayment of the moneys advanced and did not in any real sense obtain the benefit of any of the funds provided.

I should state at the outset that, although some aspects of her evidence were unreliable, Ms Menzies, who was extensively cross-examined, struck me as genuinely attempting to tell the truth, though sometimes reconstructing events according to her beliefs (and, perhaps, hopes) rather than the facts. However, this did not to my mind adversely affect her evidence in respect of any of the crucial facts in the case. She trained as a psychogeriatric nurse in 1979 and was employed in that role since then. Her wage was about $50,000 net a year with no additional income. Her only assets were her home and savings of about $40,000. There was no suggestion in the evidence that she had ever been involved in any commercial activity of significance, let alone property development.

Although early in Ms Menzies' evidence I expressed a view that suggested otherwise to some extent, I formed the conclusion by the time her evidence ended that, though not unintelligent, she was at once extremely ignorant about financial matters and had naively placed her trust in two plausible rogues, whose inventions she all too readily believed. As the transactions unravelled, she was reluctant, I think, to accept that she had been taken advantage of and, to some extent, was blinded by the hope that things were not so bad as they would have appeared to be to a more alert and knowledgeable person, and as they all too gradually appeared to her.

Mr Reddy also gave evidence and was extensively cross-examined. I found him to be a versatile and brazen liar whose testimony could not be accepted unless it were independently corroborated and then only to the extent of that corroboration. I have no doubt that he was involved, one way or another, in the forgeries which litter this case. Even when he eventually admitted straight-out frauds, he tried to justify them in terms that demonstrated extraordinary coolness and presence of mind. That Ms Menzies was no match for him is all too obvious. As to Mr Reddy's relationship with Mr Lyle he said he was "a business associate we met occasionally until we had this transaction so we didn't meet on a very regular basis." He said that he didn't recall doing anything of substance with Mr Lyle but rather it was "more introduction to lawyers, brokers, helping him, steering him into the right direction as to which type of property purchase and stuff like that." He later said that he knew that him "well enough to say hello to him all the time and if he called me and asked me for information I'd give it to him voluntarily" however he said that he had never done any business with him.

Although there is reason to suppose that Mr Reddy's conduct and that of Mr Lyle is already the subject of investigation by the authorities, I intend to refer the papers to the Director of Public Prosecutions to take such steps as are appropriate.

As to the other witnesses, I thought their evidence was by and large truthful although not always reliable. As will be seen, important matters were sometimes affected by assumptions, reconstructions and the problems associated with the passing of time.

The plaintiff's case against Ms Menzies

Perpetual sues Ms Menzies for possession of her home upon a default under s 58 of the Real Property Act 1900, being the failure to pay arrears specified in the s 57(2)(b) notice of July 2007. In the alternative, it seeks a monetary judgment against Ms Menzies personally for her liability under the loan. In the event that Ms Menzies did not execute the loan agreement, Perpetual alleges that her failure to notify it constituted a representation by silence that estops her from denying the effect of the transaction or otherwise she ratified or authorised Mr Reddy's actions.

The forged Certificate of Title

In the shifting sands of narrative, lies, uncertain and mistaken recollections and unexplained facts, there are several facts which provide anchor points for understanding, if not the certain, at least the likely course of events and enable conclusions to be drawn which might otherwise be problematical to be derived with a reasonable degree of probability. Perhaps the most important of these is the creation of the forged Certificate of Title over Ms Menzies' home. It was on this Certificate of Title, which was provided to Perpetual's solicitors at the time of settlement of the mortgage, upon which Perpetual's mortgage was registered. Also of crucial importance as anchor points are the forgeries of Ms Menzies' signature on the Perpetual loan agreement and mortgage. Although Ms Menzies' signed the Valcorp mortgage to Permanent as Director (this is, of course, entirely consistent with her case), neither an executed loan agreement (which referred to her personal guarantee) nor a guarantee has been produced.

In 1984 Ms Menzies became the registered proprietor of the Stanmore property. In due course, following the discharge in May 1994 of a mortgage on the property in favour of a building society, a Certificate of Title was issued to her. It was then free of all encumbrances. This Certificate remained in her possession until November 2001 when it was deposited in the registry of this Court as part of surety for a bail undertaking given by Felix Lyle.

That the Certificate of Title ultimately produced to Perpetual on settlement is a forgery is not susceptible of doubt, not because of detailed forensic examination (although this was carried out and revealed other variations from a genuine document) but because the forger made an elementary error which, however, is not obvious unless the forgery is placed side by side with a genuine Certificate. It can then be seen that the words "Certificate of Title" printed in large italics on the back are reversed on the forgery. Unless one were alerted to this positional inaccuracy, the forgery would easily pass all conventional examination. Indeed, it did so when it was lodged with the mortgage at the Land Titles Office and taken for genuine by the clerks or examiners whose duty it is to ensure that only genuine Certificates of Title are accepted. It is, perhaps, worth noting here that a forger who had available the original Certificate of Title would not be likely to make this gross error, since comparison would immediately expose it. It is reasonable to infer that the forger did not have access to the original although this conclusion is based upon other grounds, including the evidence of Ms Menzies and the logic of events. For completeness, I should mention that, when the paper on which the original and the forged Certificates are compared, the latter is of a substantially lighter grade and the red ink on the back is darker. I do not propose, (for obvious reasons) to set out the evidence of Mr Coleman, an expert called from the Department of Lands as to this issue, as to how the forgery might have been created. It is sufficient to note that the forger did not need to have access to the original to create the false Certificate although, without it, the task was rendered rather more complicated and required some specialized knowledge, which, however, could be acquired without all that much difficulty.

There is only one sensible reason for undertaking the burdensome and risky task of creating a forged copy of Ms Menzies' Certificate of Title. That is, that the fraudster(s) knew that she would not permit the registration of any mortgage over her property and that the existence of the proposed mortgage would, when registered, become known to her. The creation of the forgery can thus only be explained by inferring that it was at all times known that that Ms Menzies would never consent to any transaction that would require registration of a mortgage. It is but several short - but, in my view, inevitable - steps to infer that it must have been known that she would not consent to a mortgage at all or to a substantial loan that involved any personal liability or guarantee a substantial loan that might entail a debt which would place at risk her only asset. It must also be remembered that the fraudster(s) were taking a very substantial risk in the event that the forgery was discovered and one supposes that it was calculated that, in that event, the whole intended fraud was criminal at all events and there was no way of avoiding this particular risk. The point is that the forgery, with the accompanying risks, was unnecessary if the fact was that Ms Menzies was a knowing participant in transactions that would give rise to her being personally directly or indirectly liable for the debts that were ultimately created. Other hypotheses have been proposed, but they all seem to me to be unreal.

In addition to the forgery of the Certificate of Title, Ms Menzies' signature was forged on all the security documents upon which Perpetual relied to advance its funds and a significant number of other documents which, had they come to Ms Menzies' attention, would have exposed the fraud. The sheer scope of these forgeries is unprecedented in my experience. Again, they provide eloquent evidence supporting Ms Menzies' case that she was the victim of a thoroughgoing and well organized fraud.

Ms Menzies' evidence about not signing these documents is supported by uncontested expert evidence that, on close examination of the matters relied on, I find convincing.

The evidence of the handwriting expert

Ms Menzies relied on the expert evidence of Mr Chris Anderson as to the genuineness of a number of signatures said to be hers contained on relevant documents. The expertise of Mr Anderson was not in dispute and I am satisfied that he is well qualified to provide the opinions that were adduced in evidence. He gave evidence and was cross-examined, to which I do not intend to refer except to state that it did not cause me to doubt the reliability or accuracy of his evidence; to the contrary, I thought he was an objective, careful and reliable witness. Given the nature of the case, the fact that neither Perpetual nor BMC sought to adduce any handwriting evidence can be regarded as reinforcing the correctness of Mr Anderson's opinions (of which, I might say, I am at all events independently persuaded).

The suitability of Mr Anderson's approach was not controversial. It may therefore be briefly described. He conducted a microscopic (where appropriate) and macroscopic examination of the questioned and the specimen signatures to assess the structure, features and writing quality of the signatures and then made a comparative examination of the questioned and the specimen signatures. Mr Anderson noted that the majority of the questioned and four of the specimen documents were reproductions, which limited any examination to a pictorial assessment of their respective features, since the reproduction "process does not reproduce the finer details of letter construction, nor does it allow a proper assessment to be made of the line quality, speed or fluency of the writing" that can be assessed with the aid of a stereomicroscope.

There is no issue as to Ms Menzies' specimen signatures and I therefore move on to the questioned signatures. These were divided into four groups (A, B, C, D) based on pictorial similarities or lack thereof. The Group A signatures "have a level of pictorial similarity to the specimen signatures". "Pictorially similar" means that "the questioned and specimen signatures have some level of pictorial resemblance that is observable and cannot be attributed to coincidence or chance", thus allowing the formulation of "hypotheses on how the questioned signature may have come into existence" but assessment of genuineness or otherwise is not made at this stage. Mr Anderson thus postulated the following two hypotheses -

H1. The writer of the specimen signatures wrote the questioned signatures.

H2. Another writer wrote the questioned signatures attempting to copy the form of specimen signatures either freehand or by a tracing process.

Mr Anderson's report then sets out a detailed comparative descriptive analysis of the specimen and questioned signatures which I pass over but which informed my own examination of the disputed signatures. No issue about this analysis arises. The respect of 33 questioned signatures in Group A he concluded -

These observations provide evidence in support of the 2nd hypothesis, H2. Other than the specimen writer has the writing skill to have written the questioned signatures, there is no other evidence providing support for the 1st hypothesis, H1. Given the nature of the inconsistencies on the questioned signatures I am of the view that the likelihood of the 1st hypothesis occurring is reasonably remote.

In respect of four of the questioned signatures in Group A, Mr Anderson said -

... these signatures appear to fall within the range of variation exhibited by the specimen signatures ....

In other words these observations provide evidence in support of the 1st hypothesis, H1. Other than the limitation placed on this aspect of the examination in examining reproductions I have observed no evidence to support the occurrence of the 2nd hypothesis.

Group B comprises the only legible questioned signature that is legible: the words, "Ann Marie Menzies" can be read. (It is on an ASIC change of company details form for Valcorp.) Mr Anderson said this bore no pictorial similarity with the specimen signatures. However, without a specimen of Ms Menzies' ordinary handwriting (as distinct from a signature) he was unable to assess the likelihood of it's being genuine or not, since it was possible that she simply signed it in a way that was not usual for her. As mentioned above, however, Mr Reddy admitted that he had written this signature.

Group C comprised two illegible signatures on two ASIC Change of Company Details forms but as writing rather than signing. There is no pictorial similarity between them and the specimen signatures but, for the same reason as applied to the Group B signature, Mr Anderson was unable to assess whether they were genuine or not. However, he noted that the signatures on the forms had a level of pictorial similarity to each other, whilst one appeared to be written with more speed and fluency than the other. He concluded that these appearances suggested the possibility some one had tried to copy on the former document the form of the signature on the latter with the other possibilities being that they are variants written by the same writer or the handiwork of two different writers. He added that only examining the originals of these two documents would assist in resolving this issue. We also know from Mr Reddy that he wrote these signatures.

Group D comprised signatures on reproductions of the application by Valcorp for finance to BMW Group Financial Services dated 27 October 2005, a Quik Doc Declaration to Perpetual of Valcorp's financial position dated 28 October 2005, a Quick Equity Declaration to Perpetual dated 28 October 2005, a statement of Ms Menzies' assets and liabilities to BMW Group Financial Services dated 28 October 2005 and a Autosure Protection Application by Valcorp dated 28 October 2005. These signatures bear a strong pictorial resemblance to the signature on the reproduction of Ms Menzies' passport. The overall variation exhibited by the specimen signatures together with the "striking similarity" between these questioned signatures and the "highly unusual" passport signature indicates that the questioned signatures could be the product of a free-hand simulation using the passport signature as the model. Mr Anderson also pointed out that passport signature appears to have been cut off at the edges, presumably due to the writer signing on a narrow label, thus giving the signature "the appearance of having three little feet". He considered that, If this observation were correct (and I am quite sure it is), then this further supported his observations that these questioned signatures could be the product of a free-hand simulation process as the documents they have been signed on appear to have no evidence of the signatory being required to sign on a label but demonstrate the three feet. These factors provide evidence supporting the hypothesis that another writer wrote the questioned signatures in an attempt to copy the specimen signature as it appeared on the passport either freehand or by a tracing process whilst the only evidence supporting the hypothesis that the one writer wrote all signatures is "this writer has the writing ability to have produced these questioned signatures and cannot be entirely eliminated from having done so. (I interpolate that, having carefully examined the signatures in question and the original passport, I have no doubt that the only rational explanation for the questioned signatures is that they are attempts to copy the original, genuine signature.)

Mr Anderson's conclusions may be summarised as follows -

(1)There is very strong support for the proposition that the writer of the illegible specimen signatures did not write the illegible signatures on 16 of the questioned documents [listed but I shall identify them as they arise] compared to the support for the alternate proposition that the writer of the specimen signatures wrote these signatures.

(2)There is strong support for the proposition that the writer of the illegible specimen signatures wrote the illegible signatures on the originals of the Express Loan Income and Purpose Warranty [for the Permanent Loan] dated 30 September 2004 [almost certainly an error for 2005], the EasyDoc Declaration of Financial Position addressed to Perpetual dated 30 August 2005, Consent to use personal information addressed to BMC dated 30 August 2005 and Declaration as to Purpose of Credit [for BMC] dated 30 August 2005 compared to the support for the alternate proposition that another writer wrote these signatures.

(3)There is strong support for the proposition that the writer of the illegible specimen signatures did not write the 22 illegible signatures on the originals of the questioned documents [additional to those in para (1), which I shall also identify as they arise] compared to the support for the alternate proposition that the writer of the specimen signatures wrote these signatures.

(3)The findings as to the three ASIC documents mentioned above are inconclusive as to authorship.

The levels of conclusion used in Mr Anderson's laboratory reflect the general practice around the world of forensic document laboratories which comprise, in respect of positive conclusions: conclusive, very strong support, strong support, limited support, no conclusion or inconclusive.

It will be seen that Mr Anderson has identified 38 documents for which there is strong support or very strong support that the signatures on them that purport to be that of Ms Menzies are not hers. I have examined these signatures for myself in light of Mr Anderson's report and accept these conclusions. Further, having regard to this evidence, my own examination and the circumstances otherwise established, I am persuaded that, in respect of these documents, there is a high degree of probability that the signatures on them are not genuine.

The genuine Certificate of Title is lodged with the Court

Ms Menzies deposed that, in about November 2001, her daughter introduced her to the father of her then boyfriend, Felix Lyle. Her daughter told her, and she believed, that Mr Lyle was a property developer and that he had brought up his two sons alone because their mother was not around. Shortly after this first meeting her daughter's boyfriend came to Ms Menzies' home and told her that his father had been charged with a crime that he did not commit but that he had been implicated because some drugs were found in one of the properties that he had in his name. He said that his father needed surety for his bail. Ms Menzies said that she did not want his father to go to gaol for something he did not do, and agreed to put up a surety for his bail. A few days later Mr Lyle came to the house and thanked her for agreeing to act as surety for his bail undertaking and said that his solicitor, Mr Martin Ricci would be in touch with her. Shortly after, Mr Ricci then arranged to meet Ms Menzies at the Supreme Court on 29 November 2001 to sign the bail papers. He said that the original Certificate of Title would need to be brought to the court and lodged there until the case was dropped. Accordingly, on that day Ms Menzies went to the bail section of the Supreme Court with Mr Ricci and signed a number of documents including a consent to a caveat and a mortgage. Ms Menzies handed her original Certificate of Title to the registry. Immediately before doing this she said that she made a small mark with a blue pen at the bottom of the first page. She did so, she says, because she wished to be certain that, when Mr Lyle's bail was eventually answered and the Certificate returned, it would be the actual document which she had lodged. The Certificate of Title (undoubtedly genuine) showing the blue mark is exhibited in the proceedings.

Ms Menzies was cross examined about this matter by Mr Sirtes SC for Perpetual who asked whether she placed the mark on the document to make sure that the court was not going to make a copy and return the copy, keeping the original. She denied that she thought that someone in the court might make a copy and not return the original, explaining that she just wanted to be sure that she would get her original back. Mr Curtin SC for BMC also cross-examined her to suggest that she had placed the dot on the document at a much later time in order, in effect, to disprove the possibility that she had provided it to Mr Reddy for the purpose of obtaining the loan. Ms Menzies also denied this. One logical difficulty with the hypothesis proposed by Mr Curtin is that it seems to imply that at first she agreed to the use of her Certificate of Title but later refused because she did not wish to enter into a mortgage. Put together with the forgeries of her signature on the loan agreement (and the mortgage), however, this implies (as I think) that, at the very least, she was not a party to the loan agreement and thus cannot be liable (at least, in any straightforward way) for the debt or under the mortgage. For reasons that will become clear, I think this "change of direction" hypothesis is most improbable. For the present, however, it is enough to note that it was not put to Ms Menzies in cross-examination directly - although it was put to her, and denied, that she was always a willing party to the loan agreement and the mortgage.

At all events, I think that Ms Menzies' evidence as to the time on which the dot was placed on the Certificate is truthful. It must be remembered that she was ignorant of the procedure and that Mr Lyle was, to some extent, an unknown quantity. That she just wanted to be sure about return to her of the title to her home seems to me to be quite believable. She struck me as someone who was in some ways not given to thinking things through in any well reasoned way. The dot, of course, does not mean that the forged Certificate was not produced with the assistance of a photocopy, merely that the forgery it was not a photocopy of the original. I am also satisfied by the expert evidence that the forgery was not a photocopy.

As to what happened to the original Certificate of Title, regrettably the Court's records seem to be somewhat incomplete. On 4 April 2005 the District Court registry wrote to the bail section of this Court noting that Mr Lyle had appeared in answer to his bail undertaking, that the charge was finalised on 4 February 2005, that Ms Menzies was his surety and "the amount deposited by the surety may now be returned", of course a reference to the amount (of $50,000) secured by the grant of the unregistered mortgage, deposit of the Certificate of Title and registration of the caveat. Ms Menzies said she was telephoned about May 2005 by Mr Ricci who told her that she would soon receive all her papers back from the Supreme Court. Mr Lyle also telephoned her about this time to tell her the same thing. Although this was not the subject of cross-examination, I believe that she places this conversation in May by virtue of the letter of 5 May 2005 from Ms Joyce, a registry officer of the Court, set out below. I think it more likely that any such conversations would have occurred in February, when the charge was in fact dealt with and the surety ended. Nothing turns on this. It is simply an example of the defective reconstruction of memory to which we are all subject.

Ms Joyce's letter to Ms Menzies informed her -

"An audit of the Supreme Court safe has revealed that the Withdrawal of Caveat form was not collected from the Registry following the trial of Mr Lyle.

The attached form will need to be lodged at the Land Title Office...to have the Caveat removed from your property.

If you have any further queries please do not hesitate to contact me at the above extension."

Ms Menzies still had in her possession and produced the original envelope, the letter and the withdrawal of caveat form. She says that the Certificate of Title was also in the envelope and that she recognised that it was the same document that she had lodged with the Court because it bore the blue mark. She did not lodge the withdrawal of caveat, she said, as it did not seem particularly urgent to her at that time. She said that, after receiving the envelope and its contents, she kept it in a hiding place at her home and (I take it) shortly after called Mr Lyle to inform him that the certificate had been returned. He said he would take her out to lunch as thanks. She also says that aside from her initial telephone conversation, she did not speak with Mr Lyle about the return of her Certificate of Title. For reasons which will become clear in due course, it was necessary for Mr Lyle (and Mr Reddy) to obtain the Certificate of Title for the purpose of providing security for the loan which had been arranged with Perpetual. Moreover, a search made on Perpetual's behalf had revealed that the caveat was still registered on the title and a withdrawal of that caveat was essential to enable the matter to proceed.

Ms Joyce had only been sent to the bails section for two months to audit the safe to find out what was in there and give a list of what she found to someone else in registry, who determined what needed to be returned and to return documents that were no longer needed. She said the letter of 5 May 2005 addressed to Ms Menzies was written and signed by her. Of course, this could only have been done in light of the letter from the District Court and, until this was received, no occasion for returning the Certificate of Title and Withdrawal of Caveat had arisen. Since the letter makes no reference to the Certificate of Title, Ms Joyce (quite reasonably) thought it most improbable that it had been enclosed with the withdrawal. She identified all the handwriting on the withdrawal form as hers, except that the signature as caveator was that of the Registrar. She said that, when the Certificate of Title was lodged it would have been kept in the bail safe. Since the withdrawal form was completed in her hand, to my mind it must follow (and she agreed it was most likely) that it was not in the safe (unless a blank form was there, which was most improbable since it would have had no identifying information - unless it had been attached to the Certificate of Title against the occasion for its completion and return to the surety) and, therefore, it was not one of the documents discovered by her on her audit. Also, there would have been no occasion to list a blank form. Furthermore, it has title details on it which, it is very probable, she would have obtained from the Certificate of Title. Thus, if Ms Joyce found (perhaps instigated by receipt of the letter from the District Court) a document in the safe that could be related to Ms Menzies' surety, it would in all probability have been the Certificate of Title rather than just a blank withdrawal form, although she did not recall seeing one there. She said (unsurprisingly given her short period in this section) that she did not recall at any stage being involved in the return of a Certificate of Title where one had been lodged for a surety and did not recall seeing Certificates of Title stored in the safe. The envelope on the letter to Ms Menzies was written in Ms Joyce's handwriting and would have been placed in the outgoing mail tray.

I am of the view that it is most likely that, in fact, the withdrawal of caveat form as completed by Ms Joyce, signed by the Registrar and dated 5 May 2005 had not been found in the safe. The document most likely to have been in the safe was the Certificate of Title, of which the registry undoubtedly had possession. (As to the unregistered mortgage, a copy is an exhibit to Ms Menzies' affidavit, with other documents relating to the bail but its provenance is unexplained.) There is no documentation at all as to what happened to the Certificate of Title or the unregistered mortgage, although they must have been held by the Court's registry, presumably in the bail safe, and returned some time after 4 February 2005.

On 28 September 2005 Mr Ricci wrote to "Richard" at the court in the following terms -

RE: FELIX LYLE

SUPREME COURT REFERENCE NO, 72762/01

I refer to the above matter and our telephone conversation today.

I confirm that I am requesting that a surety by the name of Ann Marie Menzies be removed in relation to the above matter.

She put up her property in the sum of $50,000. I believe that the Certificate of Title is held at the Supreme Court.

A letter has previously been forwarded by the District Court to you to release another surety by the name of Norma Smith who has collected her Title Deeds.

Would you please arrange for Caveat No 1/K/3857 to be removed and advise when the Certificate of Title is ready to be collected.

I look forward to hearing from you.

Mr Ricci's inquiry about delivery of the certificate must have been made on Mr Lyle's instructions and thus that Mr Lyle did not know that it had already been returned (with the consequence that, as I think, Ms Menzies is mistaken as to when she told him that the Certificate of Title had been returned, if indeed if she ever did). Moreover, it follows that Mr Ricci had not collected it. I do not believe that Ms Menzies separately attended at the Court to do so. This leaves as the only mode of its return the letter of Ms Joyce and confirms the conclusion stated above as to this matter. (By the way, it also suggests that "Richard" was unaware of the Joyce letter, since Mr Ricci was not, it seems, told that, at least the withdrawal had been sent to Ms Menzies.)

Some delay in responding to Mr Ricci's letter entailed and, on 11 October 2005 Mr Ricci wrote to the District Court registry requesting that a "letter of finalisation" be faxed from the District Court to the Supreme Court bails registry, as he understood that such a letter had already been sent on a number of prior occasions but misplaced in the Supreme Court. Mr Ricci's letter stated that the return of surety was now a matter of urgency for "my client" identified as Mr Lyle. (Why this was indeed urgent will become clear in due course.) Ms Menzies said (and I accept) that she did not authorise Mr Ricci to write these letters and had no contact with Mr Ricci or anyone else from his firm about the matter.

No further record of any inquiry by Mr Ricci has been produced, and I think it very likely that he did not press the matter of returning the Certificate of Title because (without suggesting at all that he was aware of this) his client had not required it, since he knew that the problem of obtaining the Certificate of Title was solved, either because he knew that a forgery had been or could be created or because Mr Reddy, having such a forgery, told him that he now had the deed. To complete this aspect of the case for the present, a further Withdrawal of Caveat was executed by the Registrar of the Court and provided to Perpetual's solicitors on settlement. I have no doubt that it was obtained by Mr Reddy, or at his instigation, perhaps, via Mr Lyle or by Mr Ricci. As it happened, although Ms Joyce's document was not in registrable form (though obviously Ms Menzies would not have been aware of this) and that ultimately provided was, the obtaining of the latter document, to my mind, supports the inference that she did not provide her security documents to Mr Reddy or Mr Lyle.

The return of a document such as a Certificate of Title should have been evidenced in the Court's records by a receipt of some kind, either by correspondence or, in the event of a personal collection, the signature of the person doing so. No such letter or receipt has been produced.

Taking all these matters into account, I am of the view that the Certificate of Title had not been delivered prior to 5 May 2005. Returning to the letter of Ms Joyce in light of these considerations (particularly that an empty withdrawal form was not likely to have been not in the safe but was obtained and completed only when it was known that the surety had ended) I think the probability is that the Certificate of Title was indeed enclosed with Ms Joyce's letter of 5 May 2005 as Ms Menzies says, despite the absence of reference to it and the need of a receipt either overlooked or thought to be obviated by the way in which the letter was understood.

Ms Menzies says that she thereafter did not give the Certificate of Title to any person, except her own solicitors for the purpose of these proceedings, and in particular never gave it to Mr Lyle or Mr Reddy and was never asked by either of them to provide either the original or copy. However, she in effect conceded in cross-examination that, although she was "pretty sure" that she never showed Mr Reddy the document she may have "pulled it out when we were doing the Cardigan Street dealing". (I will come to this transaction in due course.) I think that it is unlikely that Mr Reddy asked to see the Certificate and, hence, that it is unlikely in fact that Ms Menzies showed it to him. I do not believe that Mr Reddy ever wanted her to think that somehow her property might be at risk in respect of the proposed transactions.

It remains to add reference to a peculiar and, I think significant, feature of the registration system, which is that, when a registered mortgage is discharged, a new Certificate of Title is issued to the registered proprietor which does not refer to the earlier encumbrance. Its existence can be ascertained by performing an electronic historical search but not by examining the Certificate of Title. Accordingly, if the property ultimately purchased were sold at a profit - which was, of course the expectation and, indeed the fact, as will be seen - the mortgage would be discharged, the forged Certificate would be replaced by a new (and genuine) Certificate having no reference to any mortgage to Perpetual. That Certificate could then disappear and Ms Menzies and, for that matter, Perpetual would never have known what had been done. This scheme depended upon the instalments payable under the mortgages (there was an additional mortgage to Permanent Trustees, which also comes into the tale and with which I deal in due course) being paid out of the bank account into which Perpetuals advance was paid. But, as will be seen, Mr Reddy's greed or, perhaps, desperation for funds led him both to drain this account and obtain other loans in Ms Menzies' name, which he failed to service, including the procuring of registration of a further mortgage over her home, resulting in default action eventually exposed the frauds and near financial catastrophe for Ms Menzies.

Cardigan Street Stanmore

Ms Menzies said that over the period from November 2001 to August 2005 she stayed in touch with Mr Lyle, telephoning him every few months or so to ensure that he was still around. Every three or four months or so she met him for a coffee in a café next to the community centre in Glebe. That time he was living in Glebe and she was working there. On those occasions Mr Lyle talked to her about his children, his elderly mother, his girlfriends and his property developments. He never mentioned any illegal activities, drugs or bikies (he had been associated with one of the so called outlaw motorcycle clubs). He talked about being busy with business and renovating several properties.

From about May 2005 (as I gather) Ms Menzies thought of buying an investment property to renovate and sell at a profit. In August 2005 she noticed a property for sale on Cardigan Street in Stanmore (to distinguish this property from Ms Menzies' home, I shall refer to it simply as "the Cardigan Street property") just around the corner from her own home. As she believed that Mr Lyle was a property developer and his builders might be able to do the renovations for her, she spoke to him about the project. She said she told him that there was a house for sale in Cardigan Street that she was interested in buying and doing up and mentioned that there was a block of flats next door so that approval from the council for townhouses should be possible. Mr Lyle responded that he had an architect friend and, if Ms Menzies liked, he would get his friend to look at it. He also mentioned that he had some builders that could help. Ms Menzies said that a few days later she met with Mr Lyle and a man who he identified to her as his architect outside the property and they went to have a look at the front. Mr Lyle said that he thought the property would be good to do up and he would introduce Ms Menzies to a good accountant, Mr Terence Reddy, whom, he told her, he had known for a long time and trusted and would do a good job of arranging finance for her. Ms Menzies thanked him for this and Mr Lyle responded that he was glad he could help her to make some money as he was very grateful to her for "keeping me out of gaol for four years."

In cross-examination Ms Menzies testified that she had no prior experience in property development. She said that she had at first no specific property or rather real estate in mind but simply the idea that attempting a development would be a good thing to do. Although she had some savings of about $40, 000 she intended to obtain a bank loan to buy the property including paying for stamp duty and conveyancing costs, together with enough funds to pay a deposit and, of course, further funds in addition to buying the property to renovate it. When she purchased her own property she had bought it with a mortgage and understood that, in order to borrow a substantial sum of money she would have to provide some security. She understood that one part of that security would be the property purchased for development, but depending on how much was needed, it might be necessary to secure a loan against her own property and she understood that this was one of the possible sources of security for the purpose of financing any proposed development. She agreed that the other issue was the repayment of capital and interest and the income from her job as a nurse did not provide any excess for these payments. She said that she thought she would use the rent for this purpose, which she had done when she had purchased her Stafford Street property. She proposed that the rent would cover the bulk, if not all, of her repayments. However, her proposal never became concrete enough for her to make any particular decisions let alone calculations.

Ms Menzies thought that the Cardigan Street property would cost about $500,000 and that, as Mr Lyle was a property developer, she would buy the house, and he would help with the renovations. She had discussed this kind of transaction with him previously because that was the kind of thing he was already doing, renovating houses and selling them. She did not really think that she would be able to borrow all the money because she knew that, considering her income, she probably could not have obtained a loan. She agreed that buying and developing the Cardigan Street property would have required a capital investment of at least 1 million dollars, although of course, this rather depended on the nature of the renovations and Mr Lyle's role in respect of undertaking them. It was put to her by Mr Sirtes SC for Perpetual that it was inevitable that she would have needed to use her own house as security. She said at the time that she did not think about that possibility. Of course, even with her house as security, that she could service such a loan, was entirely out of the question. This supports, as I think, Ms Menzies' evidence (referred to below) that she believed Mr Lyle would, indeed, undertake the renovations and service the loan until ultimate sale of the property.

Ms Menzies said that, shortly after the conversation with Mr Lyle in which he mentioned Mr Reddy, the two men came to her house and they talked about the proposal. Mr Reddy told her that the best way to undertake the development was to buy the house in the name of a company of which she needed to be the director and that the company could then obtain a loan to buy the house. Ms Menzies said, for the first time in cross-examination as it happened, that the arrangement was that she would buy the property and that he would make the repayments and they would split the profit when it was sold. She had always said that this was the arrangement which applied to a later joint transaction involving a property in Hancock Street, but her affidavits omitted to mention this arrangement as also having applied to the Cardigan Street transaction. Her explanation was that she was not asked this question by her solicitors. Although, on the face of it, this is surprising since the relationship between Mr Lyle and the financial arrangements in respect of the purchase of the property lies at the centre of the case. But I am minded to think Ms Menzies' evidence in this respect was true. Firstly, the security in question on which Perpetual is suing did not relate to the Cardigan Street property, which (as will be seen) scarcely proceeded any distance and was a mere precursor to the transactions in dispute in this case. Secondly, had the solicitors asked about this matter it is inevitable that Ms Menzies instructions (whatever they were) in relation to it would have been reflected in the affidavit. I think it is most unlikely that Ms Menzies gave instructions in this respect which were deliberately omitted for some tactical reason. In short, I accept Ms Menzies' explanation for the omission of this matter from her affidavits.

Much is made by Mr Sirtes SC and Mr Curtin SC of the inferences that should be drawn from this transaction as to whether Ms Menzies was prepared to expose herself to the risk of personal liability and the loss of her home in the hope of making a profit. I will deal with these contentions in due course. I would point out that Mr Sirtes and Mr Curtin cannot have it both ways: if she were a knowledgeable purchaser and investor (which I do not accept), she would have known that merely purchasing the property in the name of the company created no personal liability and, even if a loan had been organised at that stage - which, as we shall see, had not even been applied for - she had certainly not entered into any personal guarantee of its obligations, let alone agreed to give security over her home. I do accept that it certainly crossed her mind that, if she bought a property in her name with borrowed funds, she would be personally liable to pay that debt. However, it of course does not follow that, in respect of any of the transactions in question here, she had actually decided to expose herself to such an obligation. Indeed, I am satisfied that the evidence demonstrates, certainly on the balance of probabilities, that opposite is the case.

I need to go back a step, to a date that was before Mr Reddy had actually met Ms Menzies and which shows, I think, that he had been in contact with Mr Lyle, who had told him about her. It also shows that there were already in his mind plans that involved, at least Valcorp and probably Ms Menzies, although it is not really possible to hypothesise what they might have been, except that the following events bespeak some fraudulent intention; indeed, as will be shown, the forms themselves were false in one way or another and thus scarcely consistent with honest dealing. Mr Reddy agreed the ASIC forms came out of his office and said of the form lodged on 17 July 2005 (demonstrated by the ASIC date received stamp) that the Menzies signature "looks like my handwriting." After giving a Certificate under s 128 of the Evidence Act 1995 (in effect, requiring him to answer questions that might expose him to prosecution, the first of many such Certificates) in respect of the lodgement of documents with ASIC, he said that he signed the ASIC documents "because it was just easy to process, couldn't send it off because we had to send an original". The first form changed the registered office to Mr Reddy's office, with which Ms Menzies had no connection. It purported to be signed by her as Director, which she certainly was not, at that time. The form also gave the contact person for the company as Tamara Eason, Mr Reddy's employee. He said that he did not get permission from Ms Menzies "but I thought she knew that Valcorp would be operating" -

Q:How did you think that?

A:When we, initially, in our conversation, she knew setting up a company and it would be in an office in the city

Q:When you told her that, who told her that?

A:I can't recall telling her that or not telling her that but she knew that there was going to be a company.

Q:That doesn't say where the registered office was going to be does it?

A:No

Mr Reddy's evidence, as pointed out below was that he met Ms Menzies for the first time in August 2005, just before the Cardigan Street auction. He said that maybe he had signed the forms because she may have been busy on that day. However, as at 17 July 2005 he had not met Ms Menzies. His response, "I must have met her" could not have been true. I mention this matter, chronology apart, since it provides an explanation for the somewhat odd fact that on the first form (as well as the subsequent two forms filed in early September) the signatures purporting to be that of Ms Menzies were plainly not attempts to copy her genuine signature. That on the first form is the only clearly legible signature in all the documents - as the handwriting expert Mr Anderson says, it is more like writing than signing. (His opinions are discussed below) I say "odd" because - with two exceptions I will deal with in a moment - all the other signatures purporting to be hers are clearly attempts to copy the genuine signature. The two exceptions are the signatures on the other two ASIC returns, which are also plainly not attempts to copy but are illegible.

Mr Reddy said that he had a clear memory of his first meeting with Ms Menzies at her home. He said that the meeting comprised himself Mr Lyle, he thought Simon [Cooke] and another person whom his name he could not remember and maybe Victor "the construction guy but I am not quite sure". He said that he was not told at any stage either by Mr Lyle either at that meeting or subsequently of the nature of his relationship with Ms Menzies, although in a telephone call he described her as a friend. Mr Reddy says that between 2005 through to about 2007 he communicated with Ms Menzies either through text messages or face to face discussion probably three to five times. He could not remember receiving text messages from her.

The timing of the creation of the document lodged on 17 August and the form of the Menzies signature on it, though at first glance trivial, are significant circumstantial facts. The explanation for these signatures and the form they take is, to my mind, that as at 17 August, Mr Reddy had not met Ms Menzies and so could not have obtained her signature on the first form but needed, for some reason to change the registered address of the company to that of his own office and the contact details to those of his employee. He did not have available to him any genuine signature to copy and hence wrote her name without using a signing style. Furthermore, although he did have Ms Menzies' genuine signature when the two other forms were lodged, it is so markedly different to that on the first form that to have attempted to copy it could have invited suspicion. The illegible signatures that he admittedly used, on the other hand, might well have been taken for different forms of the first signature, were any comparison made. The two forms later lodged, concerning changes of officers and shareholding, stated these had been effected on 17 August 2005, which brought them into line with the first form, purportedly signed by Ms Menzies as Director. Strangely, the form as to change of shareholding of the company's one issued share) states that it was not beneficially held by her for reasons never explained. (One can hypothesise that this was to give Mr Reddy some room to move if he ever needed to, but I do not take this any further.)

Returning then to the early discussion involving Mr Reddy (and, I think, Mr Lyle), Ms Menzies said that he told her he had a shelf company that could be used and, when she agreed to use it, asked her (at some point) to sign a one page document with ASIC at the top which, she understood, said she had taken over as director. (Such a form was never lodged, I think because it showed that her signature was too different to that which had already been used, as discussed above. I do not believe that Ms Menzies authorised Mr Reddy to use her signature for this (or, indeed at any time), nor that he thought he was authorised to do so. It was nevertheless useful to obtain her signature on this form since it gave him an example of her genuine signature.) Ms Menzies understood that the company was to be hers and the only difference between undertaking the development in her own name and doing it through a company was that the company structure would be utilised. This did not amount to a concession, however, that she and not the company was to be liable for the cost of the project and I do not believe that, at this point, she had decided to undertake any personal obligations. Indeed, I infer that she agreed to participate in the proposal because it did not involve personal obligations. She denied that the development was, as Mr Sirtes SC for Perpetual described it, "your baby", because it was to be undertaken with Mr Lyle and using his builders.

Ms Menzies arranged to attend the auction at Cardigan Street. She understood that it would be necessary to have the deposit funds available at that time if a winning bid were made. She did not intend to pay that deposit from her own savings and, in fact, did not do so. There had been no decision about the maximum price that they would be prepared to pay. Ms Menzies said that "we were still waiting for the finance...to come through", which Mr Reddy was arranging. Ms Menzies understood, as at the date of the auction, that the finance was "in place" and, so long as the property was sold at the price which she was prepared to pay, she would buy it through Valcorp Developments, the shelf company provided by Mr Reddy.

For reasons which will become clear, I consider that Mr Lyle and Mr Reddy seized on the Cardigan Street proposal as a way to inveigle Ms Menzies into a scheme which would enable them to take advantage of her naivety for the purpose of defrauding Perpetual, using Ms Menzies as a "front" to give an apparently genuine flavour to the transaction with that company providing, of course, that they could obtain, one way or another, access to an unencumbered Certificate of Title to hand over on settlement. Given the sequence of events, I think it is most likely that the use of a forged Certificate of Title on respect of Ms Menzies' home was always contemplated. (This suggests that one or both of Mr Lyle and Mr Reddy had previous experience with forging such a document, but this is speculative and I do not rest any conclusions upon it.)

It is now necessary to move to the evidence concerning the application for finance in respect of the Cardigan Street proposal. This was arranged through a Mr Wayne Dive, a director of Dive Investments Pty Limited, which operates as a mortgage broker under the trading name of Smartline. He says that in about August 2005 he received a telephone call from Mr Reddy whom he had previously known in connection with a loan brokered on his referral and understood was formerly a commercial broker and property investor and manager. Mr Reddy told Mr Dive -

I am going into joint venture property development with a lady by the name of Ann-Marie Menzies. We are buying an investment property in Cardigan Street Stanmore. Ann Marie is putting up her unencumbered property in Stafford Street Stanmore as security to raise funds for her contribution towards the joint venture. We hope to buy the property in Cardigan Street, a deceased estate, for about $610, 000. We have incorporated a company Valcorp Developments Pty Ltd to buy the properties. She is a director of Valcorp. Ann-Marie needs to obtain finance over her Stafford Street property. We also need to obtain a loan for the property in Cardigan Street for the purchase price and to do renovations. These will be Low Doc loans can you arrange finance for us?

This was the commencement of the fraud. Of course, it was not true that Mr Reddy was in a joint venture with Ms Menzies. (I deal with Mr Reddy's explanation for this representation below.) Nor was it true that Ms Menzies had agreed to secure any finance on her home. Mr Dive then spoke to a Mr Maloney, whom he knew, at BMC to tell him of the proposal and, shortly after called Mr Reddy and told him in effect that an application form completed by the company and by Ms Menzies was necessary. No question arose, at least at this point, about seeing Ms Menzies personally (the effect of which has led to cross-litigation between Perpetual and BMC, not immediately calling for decision). He sent the application forms by facsimile to Mr Reddy.

On or about 30 August 2005 (the Tuesday following Saturday 27 August 2005, the day of the auction at which, as will be seen, Mr Reddy paid the deposit by a cheque that was dishonoured, almost certainly on that day). Mr Dive received the following forms, dated that day by Mr Reddy: applicant declaration, consent to use personal information, declaration as to purchase of credit and EasyDoc declaration of financial position. Of course, the point of an EasyDoc loan was that no proof of the asserted financial position was necessary, as undoubtedly Mr Reddy was well aware. Ms Menzies agrees that she had signed these forms except for the applicant declaration. She said the EasyDoc declaration of financial position may not have contained her name written at the top of the page when she signed it but she could not recall. (I think this candour, certainly capable of being against her interest, strengthens her credibility. During her evidence, Ms Menzies made a number of similar concessions which were, if she was minded to lie to support her case, not necessary to be made.) The consent to use personal information form of the same date, Ms Menzies says contained her signature just under the phrase "signature of borrower(s)" but she said that she thought she was signing it for Valcorp. The declaration as to purpose of credit was also signed by her alongside the word "(borrower)" but she said that she signed this also, as she thought on Valcorp's behalf. Her evidence in this respect was tested in cross-examination. I have concluded that she was being truthful, not only because of the way in which she gave her evidence, but also because of what I thought was the probability, having regard to the evidence as a whole.

She says that these documents were handed to Mr Reddy in relation to the proposed purchase of Cardigan Street. In cross-examination she suggested at one point that they were signed after the auction but then reverted to the account given in her affidavit that she had signed them on the evening before, although the documents were dated three days later. She says that when she signed the documents they were not dated and those dates are not in her handwriting. She said that she trusted Mr Reddy because of Mr Lyle's recommendation.

On 1 September 2005 Mr Dive received by facsimile a copy of a cheque for $1,800 dated the same day drawn on the Laiki bank account of Ocean Drive Developments (Aust) Pty Ltd (one of Mr Reddy's companies) made payable to BMC for its fees, and a copy of a statement of financial position for Valcorp Pty Limited, which Mr Dive forwarded onto Mr Maloney the same day. The statement of Valcorp's position forwarded on 1 September 2005 identifies the Cardigan Street property as the security, the purchase price as $610,000 and the amount of the proposed loan as $460,000. (Although, as will be seen, by this time the sale had fallen through.) Mr Dive said that the cheque was either delivered to him or he collected it from Mr Reddy's office in Pitt Street. Some time in early September Mr Dive was informed that further forms were required by BMC. He sent them to Mr Reddy, who returned them to him on 5 September 2005. Those documents comprised a LowDoc application form and ASIC search of Valcorp Developments Pty Limited. The Low Doc application form purported to be signed by Ms Menzies and stated that her income before tax was $140,000 per annum and that the loan amount sought was $480,000. Ms Menzies says, and I accept, that the writing, including the signature on the form, is not hers. The income was, of course, Mr Reddy's fabrication. Mr Dive said in effect that, had he been aware of Ms Menzies' true financial position, the loan would not have been approved.

Ms Menzies' evidence, in substance, was that she simply signed such documents as were put in front of her by Mr Reddy because she trusted him. She said that she probably did not read each document and she certainly did not notice that she was identified as the borrower. She said, in effect, that she either did not read or did not take any particular notice of the identification of the lender as Perpetual Trustees Victoria Limited, since her recollection is that she only became aware of that name much later. Ms Menzies also made available to Mr Reddy her passport to enable him to copy it for the purpose of the loan together with her driver's licence and European Union passport and a rates notice over the property. Although these verified her personal identity, I accept that it did not occur to her that she was to be the borrower, as distinct, from applying for the loan on Valcorp's behalf.

As mentioned above, the auction of Cardigan Street took place on Saturday, 27 August 2005. Ms Menzies said that on the previous day Mr Lyle, Mr Reddy and another person (introduced by Mr Lyle as a builder) came to Ms Menzies' home. Mr Reddy told Ms Menzies that finance had been arranged and he had arranged for the "real estate agent to bid at the auction". (Certainly, the first of these assertions was untrue.) Mr Lyle said that the builders he used could start on the renovations soon, as they did not have much other work on. Ms Menzies said that she was excited about these developments. It was regrettable that she did not seek more information about the actual details, I think reflects her commercial ignorance, simple naivety and misplaced trust.

At the auction, Mr Reddy said to Ms Menzies that he would bid for her, which he did. Ms Menzies said that she had understood that Mr Lyle was to pay the deposit and that she saw Mr Reddy hand what she assumed was Mr Lyle's cheque to the real estate agent. A few days later, she said, Mr Reddy telephoned her to say, "The deal fell through, you didn't get the Cardigan Street property, the purchase didn't go ahead". He added that there was another property available in Hancock Street she should look at. Ms Menzies agreed. She was then called by Mr Lyle who said he would take her to see the property at Hancock Street, which he described as "the perfect property" and claimed it would be more profitable than the property in Cardigan Street. Ms Menzies agreed to view it.

Mr Reddy said that he attended the auction intending to pay a cheque by way of deposit on an account controlled by him even though the account did not contain adequate funds to cover such a cheque. He was aware that finance had not been arranged and he denied telling Ms Menzies that finance had been arranged or, indeed, meeting her the previous night. He also denied telling Ms Menzies that the purchase had not gone ahead. He said that Mr Lyle had spoken with her because he had found the property in Hancock Street, about which he knew nothing until he sent Mr Reddy the front page of the contract. Mr Reddy, said he did not know whether Valcorp would pay the $610,000 ultimately bid but that there was a period of six weeks in which to obtain finance and "we were planning to exchange on the deposit bond, which didn't require a lot of money at that point in time". He said the deposit cheque was dishonoured. He said the bond did not proceed because he was called on Monday by Mr Lyle who said that the council would not give approval to convert the building into a block of units, "so he pretty much reneged on the deal". If finance had not been available, then the deposit would have been forfeited. No arrangement had been made by the time of the auction to acquire a bond. I should mention also that Mr Reddy at first denied that, but then said he may have been present with Ms Menzies when she signed some of the loan application forms. He agrees that he had obtained the application forms from Mr Dive.

On 1 September 2005 Mr Dive, following a telephone call with Tamara Eason, Mr Reddy's employee, sent by facsimile to Mr Reddy (amongst other papers) a short bond application form asking him to "arrange with Ann Marie [Menzies]...and fax back" the three page form which is exhibited in these proceedings but (I think from oversight) was not the subject of any evidence from Mr Dive, Mr Reddy or Ms Menzies. The form purports to have been signed by Ms Menzies on 2 September 2005 but when it was returned is unclear. It states that it is made on behalf of Valcorp and Ms Menzies in respect of the purchase of Cardigan Street. The assets (without identifying whose they were) are said to be a cheque account for $25,000, shares worth $62,000 and a Toyota Corona worth $20,000. I am satisfied that Ms Menzies did not have any shares (except for her one share interest in Valcorp, which was for all practical purposes worthless). I am not satisfied that the details as to the cheque account and the car were true, nor do I believe that the information came from Ms Menzies. This document was examined by Mr Anderson and fell into the class described in para (3) of the summary of the effect of his report. In light of the evidence as a whole, I conclude that more probable than not the purported signature of Ms Menzies on this form is a forgery, almost certainly perpetrated by Mr Reddy against the possibility that he might need to redeem his worthless deposit cheque. There is no evidence that the form was actually submitted to QBE for its consideration. For whatever reason the proposed purchase did not go ahead and almost certainly had come to an end at or about this time. The need for the forged bond was, therefore overtaken by events.

The documents signed by Ms Menzies, as she thought on 26 August 2005, the night before the auction, are all dated 30 August 2005. The loan documents were sent in dribs and drabs to Mr Maloney of BMC on 30 August 2005, 1 September 2005 and 2 September 2005. Shortly after 2 September 2005 Mr Maloney spoke to Mr Dive and told him of the caveat which was registered on Ms Menzies property and that it was necessary to obtain a withdrawal. This, of course, was the Supreme Court caveat. Mr Dive called Mr Reddy, informed him of the caveat and requested him to ask Ms Menzies about it, which Mr Reddy said he would.

It will be recalled that a withdrawal of caveat form, apparently (though not actually) duly executed on behalf of the Court had been sent to Ms Menzies on 5 May 2005. Whatever might have been in the position about the Certificate of Title, there is no doubt that Ms Menzies had this document when Mr Reddy agreed with Mr Dive to enquire about it. I am quite sure he did not do so. Ms Menzies was not asked by Mr Reddy or, for that matter, by Mr Lyle about the withdrawal (let alone for her Certificate of Title) since the withdrawal form in her possession would have been that which was handed over on settlement - providing, of course, that Ms Menzies' was agreeable to her home being security for the loan. The same, of course, goes for her Certificate of Title. The evidence of Mr Dive is the first that connects Mr Reddy with the need to obtain a withdrawal of caveat, a problem raised at quite an early stage. Since he did not make any enquiry of Ms Menzies or, if he did so (which I do not accept), he must have been rebuffed. It follows from this, virtually taken alone, as cogent evidence that Ms Menzies did not agree to secure any loan on her home, a conclusion all the more convincing when the creation and use of the forged Certificate of Title is taken into account. (There is, however, a great deal of other evidence that tends strongly to the same conclusion, as will be seen.) It is unnecessary to repeat the communications between Mr Lyle's solicitor, Mr Ricci, with the Supreme Court. It will be recalled that on 28 September 2005 he had wrote to ask for removal of the caveat and advice as to whether the Certificate of Title was able to be collected. In the result, a second (genuine) withdrawal of caveat was ultimately obtained from the Court, probably by Mr Ricci, and passed on to Mr Reddy for the settlement of the loan to Perpetual. In this way, the withdrawal in Ms Menzies' possession was not necessary and she could be by-passed, as I am quite satisfied is what happened.

I am somewhat sceptical that, at least by the date of the auction, the proposed purchase of the Cardigan Street property was regarded by Mr Lyle and Mr Reddy as a genuine transaction. They must have known, as at 27 August 2005, not only that no loan had been approved but none had been applied for and, of more immediate importance, that there were no funds to pay Mr Reddy's deposit cheque. It seems that Mr Reddy had provided against this problem by an application for a deposit bond organised through Mr Dive and fraudulently completed. The auction took place on 27 August 2005, so that the Monday would have fallen on 29 August. He was not, therefore, in a position to replace his cheque as he said he had promised to do on either the Monday or the Tuesday following the auction.

The purchase of the property at Hancock Street Rozelle

I accept Ms Menzies' evidence that, shortly after the purchase of Cardigan Street fell through, Mr Lyle suggested to her that, instead, the property at Hancock Street should be purchased and developed. He took her to see the property and they talked about the project. Mr Lyle told Ms Menzies, in effect, that the property was ripe for development and they should do it together. He had available builders, accountants and lawyers and, if Ms Menzies got the loan, he would pay the instalments until the house was sold and they could split the profits. He said that Ms Menzies was working full-time and he was able to "run the business". Ms Menzies said that she did not want to be involved in anything illegal, a reference to Mr Lyle's previous charge which concerned the manufacture of amphetamines. Mr Lyle assured her that he would do nothing wrong since he did not wish to end up in Court again. He repeated his role and said that Mr Reddy would arrange the finance. Ms Menzies agreed to participate in the project.

A contract dated 15 October 2005 and signed by Mr Lyle as director of Valcorp and the vendor has been tendered. It was forwarded by the estate agent to Access Business Lawyers 20 October, who were informed also that the deposit of $35,750 was "invested by our office as directed by the contract". Settlement took place on 23 January 2006. On settlement, $125,729.03 was paid to the vendor by a bank cheque, making up the difference between the purchase price and the finance available through Permanent. At that time the Valcorp account had only $262.28. Mr Reddy said that, because the bank cheque was drawn on Laiki bank, the funds came from another one of his accounts with the bank. There are notes of telephone calls contained in Mr Venegas's file referring to deposits to be made for the purpose the settlement by Mr Cooke. Mr Reddy said that he could only think that Mr Cooke's involvement might have been a contribution either towards the balance of the purchase price or the stamp duty or some other disbursement "because I may not have had enough". Of course, it was essential that this purchase proceed, lest the entire scheme collapse. Hence the necessity for the make-up cheque.

The applications for loans

Mr Dive was told by Mr Reddy that the purchase of Cardigan Street and, by implication, the ensuing project involving was a joint venture between Mr Reddy and Ms Menzies. As I understand his evidence, Mr Lyle's involvement was never mentioned. Mr Dive was cross-examined about his failure to make contact with Ms Menzies until April 2006 (to which I shall come in due course). He said, first of all, that he did not understand that BMC required physical identification of an applicant for a loan. (Indeed, this is BMC's case as against Perpetual's contention that it was part of their contractual arrangements that BMC would ensure physical identification of the borrower.) Mr Dive said, at all events, his intention was always to meet with Ms Menzies at some stage during the process. He said that, on a number of occasions, he told Mr Reddy that he was always available during the day or after hours to meet with Ms Menzies and that he would love to talk to her because he had an interest in property development himself. He said that Mr Reddy told Mr Dive that Ms Menzies worked in a nightclub and it was very difficult to get in contact with as she worked long hours and slept most of the day. Although, Mr Reddy's evidence was that she was working in the hospital but he was not sure what her job was I accept Mr Dive's evidence as to what he was told. Mr Dive said that he was unaware that Ms Menzies actually worked at a hospital during the days and did not work at night. Mr Dive telephoned Ms Menzies home phone number on a number of occasions during the day (as I understand it) but she did not answer and he thought she must be asleep. He said, in effect, that Mr Reddy had put him off contacting Ms Menzies. He thought that he would meet with her before the final loan documents were ready and go through them with her to make sure that all was in order. He said that he told Mr Reddy that when the loan documents were ready he would like to go through them with Ms Menzies. However, the next he heard about the matter they had already been sent to Galilee's. He said that, from his point of view, he understood that a solicitor retained by Ms Menzies was involved in the transaction and he took some comfort from this.

Mr Reddy was cross-examined about his communications with Mr Dive -

SKINNER

Q. The form goes further doesn't it Mr Reddy. It gives information to ASIC as to whom the contact person was to be for the company, doesn't it?

A. Yes it does.

Q. Who was that person?

A. That was Tamara.

Q. Tamara Eason, correct?

A. Yes.

Q. That step of notifying ASIC that from that date onwards, the 7th September 2005 that Tamara Eason was to be the contact number was part of your fraudulent endeavours concerning Ann Marie Menzies, wasn't it?

A. No.

HIS HONOUR

Q. You see, what appears to be the case and I would like you to explain to me if it is wrong, that you took every step and acted at every point in a way that separated Ms Menzies from either knowledge, or participation in, any of these transactions. So far as you were concerned it was as though she didn't exist. That is what it looks like, do you agree?

A. It looks like that, yes.

Q. And do you say that was accidental or deliberate?

A. It wasn't accidental.

Q. So it was deliberate?

A. No it wasn't deliberate either. Ms Menzies was aware a company was going to be formed.

Q. I am not talking about the company. I am talking about the entire transactions from beginning to end, were designed to isolate Ms Menzies from what transpired. Is that not what you attempted to do?

A. No.

Q. Do you agree that what happened has the appearance of that intention?

A. Largely looks like that, yes.

SKINNER

Q. All communications with Mr dive about two loan applications were all conducted by you?

A. Yes.

Q. Weren't they?

A. Yes.

Q. You never took Ms Menzies to meet Mr Dive?

A. I don't remember taking her, no.

Q. And the address that you provided Mr Dive for contact purposes with Ms Menzies was your office?

A. Yes.

Q. So far as details of Valcorp were concerned they were all details relating to your office?

A. Yes they were.

Q. And you provided Mr Dive with no information with which he could - withdrawn - and you never took Ms Menzies along to meet Mr Dive?

A. No I don't recall.

Q. Well you know you didn't?

A. I don't know I didn't. I don't recall taking her to see Mr Dive or Mr Dive seeing her at my office.

HIS HONOUR

Q. Mr Reddy, are you saying as you sit there you may have taken her along to see Mr Dive?

A. No I don't think I did.

Q. Well isn't it the fact that you know you did not?

A. Okay, I know I did not.

Q. And is the reason that you know you did not because it was a deliberate decision by you that they would not communicate - you did not wish them to communicate?

A. No that wasn't the case. I mean, Ms Menzies knew about the mortgage --

Q. No, no, I am not talking about that. I am talking about communicating with Mr Dive. Isn't it the fact that you know that Mr Dive never met Miss Menzies because you planned it that way?

A. No it wasn't like that, no.

(I should mention that Mr Reddy's demeanour was careful and deliberate. It never gave me the impression of simply, as it were, giving in. The admission that he knew he never took Ms Menzies to see Mr Dive was made, I am sure, because he realised that his attempt to temporise by appealing to a failure of recollection was unconvincing)

Mr Dive said that the initial applications related to the purchase and development of the Cardigan Street property. He said that, some weeks after lodgement of the documents he was advised by Mr Reddy that the purchase was not proceeding and the application "was left in escrow at BMC until another property...was located". The EasyDoc Declaration of Financial Position dated 30 August 2005, signed by Ms Menzies, was filled in by him, he thought before he sent it to Mr Reddy for Ms Menzies' signature. The date may have been added when he received it from Mr Reddy by facsimile. The Consent to Use Personal Information and Credit Reports contains only one entry other than the signature of Ms Menzies, which is the date and was probably placed on the document when it was received from Mr Reddy. The same is the case with the Declaration as to Purpose of Credit and the Applicant Declaration Form although this latter form was not, Ms Menzies says (and I accept) signed by her. Also forwarded to BMC was a document giving details of Valcorp, completed for the purposes of the loan application in respect of Cardigan Street. That form was completed by Mr Dive. It contains no handwriting of Ms Menzies and no signature, forged or otherwise. It gives her address at her home and her home telephone number. A separate form adapted for a "personal borrower" relates, it appears, to an application by Ms Menzies. According to Mr Dive it, also related to the purchase of Cardigan Street. It can fairly be described as, in substance, a fraudulent document. The original postal address has been whited out and changed to 312/508 Riley Street which was said to have been her address for five years. Mr Dive said that he did not enter this address. (I must say, however, the handwriting bears an uncanny resemblance to other writing accepted by Mr Dive's as his but, because this was not put to him in cross-examination I am not prepared to draw this conclusion.) The address, which never had anything to do with Ms Menzies, was certainly supplied by Mr Reddy. He said that he does not know where the information came from but it was not Ms Menzies; he took no steps to verify the address but, "I did what I was told", by whom he did not remember. Of course, he had visited Ms Menzies in her home. The telephone number was that of Mr Reddy, as is the mobile number. The form states that Ms Menzies occupation is "Director - Events Mnr": and that she was an employee of Valcorp since 2003. Of course, she was not and never was an events manager, nor was she ever employed by Valcorp, let alone since 2003. I am satisfied these facts were provided by Mr Reddy. I am also satisfied that he knew they were false. Her solicitor is said to be Mr Venegas of Access Business Lawyers. The business telephone number is given as 9231 1555, a number not associated with Ms Menzies. The home telephone number has been scribbled over and is impossible to read. The contact name for the valuers access is Ms Eason whose the telephone number is stated as 9231 1555. The postal address at Suite 1301/115 Pitt Street Sydney was Mr Reddy's business address. The proposed security is Ms Menzies' home. The form contains a statement of Ms Menzies assets and liabilities. Her assets are shown as the home at $830,000, furniture/ household effects of $35,000, balance in a bank account of $50,000 and superannuation of $160,000. The liabilities are an existing mortgage to BMC of $539,000.00 and rent payable by the proposed borrower of $140,000.00. Although Mr Dive said, at first, this was part of the application sent to BMC in respect of Cardigan Street, so that the reference to the BMC mortgage was his mistake, it was (as he later conceded) actually sent when Mr Reddy tried to get a further advance from Perpetual secured by the forged mortgage. (I discuss this matter later but mention it now because it is significant, as it seems to me, that Mr Dive's file - if so it can be described - comprised a mess of different applications and amended forms that went backwards and forwards between him and Mr Reddy and BMC. I am not satisfied at all that Mr Dive has anything approaching a clear understanding of the transactions as they unfolded and have formed the conclusion - discussed later - that much of his evidence is a reconstruction based on what he later came to understand.) The form says the property is leased for six months for which the gross rent is $39,000 per annum. Leaving aside the valuation of the property, and the reference to the existing BMC mortgage (in fact, the Perpetual mortgage) the information on this form is false. The property was not let but it was occupied by Ms Menzies. She did not have furniture or household effects of $35,000, she did not have $50,000 in the bank and she did not have $160,000 in superannuation. I am satisfied these details were invented by Mr Reddy.

Mr Sirtes SC submits that if on the accepted evidence the Court finds that a reasonable person in Perpetual's position would have expected Ms Menzies (acting honestly and responsibly) to have notified them upon receiving the correspondence that she was the borrower and mortgagor when she knew she was not, Perpetual could reasonably assume that she was the borrower and mortgagor, so that the effect of her not doing so is to estop her from denying the effect of that misapprehension. I am unable to see how these facts could give rise to the duty that Clarke J, Glass and McHugh JJA thought was essential to the creation of the estoppel.

Furthermore, aside from reference to the authorities, Mr Sirtes SC's submission depends on the receipt of correspondence that was not received by her. Furthermore, it was ex post facto: the advance had already been made. Mr Sirtes also argued that her delay resulted in "a loss of a fair chance to obtain that which a person might obtain, whether by way of a legal remedy or may itself amount to a detriment, citing Thompson v Palmer (supra), submitting that her failure to do so as at 17 October 2006 prevented Perpetual from seeking freezing orders in respect of the Laiki Bank accounts of Valcorp and InvestOne, at that time, the former account having a balance of $370,000 and the latter $100,000. However, the page of the bank statement relied on relates to 2005 and not 2006 and the amount of $370,000 to the balance as at 17 October 2005. The account was closed on 6 April 2006. As at October 2006, the balance in the InvestOne account (assuming that it was still operating) is unknown. It is unlikely to have been substantial, if anything. (It is worth noting also, I think, that as at 17 October 2006, Perpetual had no rights under the loan agreement, there was no indebtedness by Ms Menzies and "it could not be misled into refraining from enforcing something it did not possess': vide Rowe v B & R Nominees Pty Ltd [1964] VR 477 per Gillard J at 485.) I have already pointed out that I accept Ms Menzies' evidence as to when she notified BMC that she had not signed the mortgage or loan agreement with Perpetual. This was a reasonable time at which to do so. Perpetual was, in my view, given notice by virtue of those communications.

The mere likely existence of an assumption in the other party if a particular action is not taken by the other is not enough, quite apart from the question whether the assumption is justified. Silence raises a number of obvious possibilities. Furthermore, the knowledge of the facts - even accepting the timetable proposed by Perpetual - came after the advance was made. The estoppel could scarcely operate retroactively to prevent a denial of liability when, even on that case, no question of notification had then arisen.

Actual authority

This depends on the contention that Ms Menzies authorised Mr Reddy to sign the agreement and the mortgage. I have held otherwise, on the basis of evidence that I believe to be overwhelming. I accept that Ms Menzies authorised Mr Reddy to organise finance, but not to create a loan that exposed her to any personal liability, let alone secured against her home. I have dealt with the conversations with Mr Dive and Mr Conley, preferring Ms Menzies' evidence. It is not to the point to refer to Ms Menzies' agreement in relation to the Hancock Street transaction, in respect of which of which she executed the mortgage. As I have mentioned, I do not believe that she executed the loan agreement, let alone the guarantee. Mr Sirtes SC's posited question - not, as it happens, put to Ms Menzies - as to why, when presented with the Permanent mortgage (not the loan agreement, as I have held) she did not say to Mr Venegas, "Hang on, where did this documentation come from. Nobody had the authority to accept this loan on my behalf?" misses the point. No question of acceptance of the loan had - so far as she knew - arisen before then. She had at least authorised Mr Reddy to make the application. The purpose of the execution of the mortgage was, of course, to accept the loan. Had she declined to sign the loan agreement (had it been given to her) and the mortgage, that would have been the end of the matter from her point of view. There was no mystery about this event, although a knowledgeable party might have wondered about there being no loan agreement. As to the other contentions about the circumstances which, in Mr Sirtes' submission, should have led Ms Menzies to ask questions, in particular about the additional funds beyond Permanent's advance, I do not agree that these matters actually crossed her mind as, I believe, she trusted Mr Lyle's (and likely Mr Reddy's) assurances - in general terms - as to what was necessary and what was being done. As to the chandelier, the laying of a path, the stripping and polishing of floors, these would scarcely involve substantial sums and she understood that this was Mr Lyle's responsibility. As to the shortfall in the purchase price, I have already mentioned that the contract was not signed by Ms Menzies but by Mr Lyle and my conclusion that this was not varied.

Ostensible authority

It is submitted that, if Ms Menzies gave Mr Reddy ostensible authority to enter into the Perpetual loan, then she is estopped from denying his exercise of that authority in order to create binding legal relations. This requires a representation to Perpetual, by words or conduct, that Mr Reddy was authorised to act on her behalf to enter into the transaction. Mr Sirtes SC relies on the facts earlier mentioned but in respect of which I have made findings adverse to those for which he contends. It is sufficient, I think, to point out that the mere giving of her identification papers to Mr Reddy to enable him to make an application for what she thought was a Valcorp loan to be secured on Hancock Street, was not to give him ostensible authority to BMC or, later, Perpetual to enter into another loan, still less the signature on three pages of an application for that finance, none of which documents actually state that it is an application for finance. At all events, the most that this involved was authority to make an application and not any ostensible authority to enter into the loan agreement or mortgage as distinct from making an application. As to there being ostensible authority in respect of her signing a document that referred to her personally as the borrower, it may be that Mr Dive (and BMC) was entitled to infer that Ms Menzies was making an application as a borrower. Of course, the application required a great deal of other information, which was falsely created by Mr Reddy without any authority, ostensible or otherwise, but which Mr Dive assumed had come from Ms Menzies without any representation having been made to him in this respect either by her or Mr Reddy. Moreover, there is no evidence of any reliance by Perpetual or BMC on the representation that Ms Menzies was the borrower as contained in the documents she signed for the purpose of making the advance which, depended entirely on the implied representation - for which Ms Menzies was in no way responsible - that her signatures were genuine.

Moreover, Mr Dive agreed that there was never any suggestion that Mr Reddy was Ms Menzies' agent and that it was correct that "at no time Mr Reddy indicate to you that he had any authority to bind Ms Menzies in the transaction which he was proposing to you".

Mr Sirtes SC contends that the loan applications were executed by Ms Menzies. I have found that this was not so, although she did sign some documents (unidentified) at the beginning of the matter. Those which have been produced do relate to an application but do not constitute an application, let alone two applications. An application for finance does not, of course, amount to an agreement to take up any loan that might be proffered. Although no doubt it is a representation as to the facts contained, it does not create any legal relations of any kind, let alone amount to any representation as to agency. It is submitted that Ms Menzies "intended to be bound by them", but bound to what? The documents she signed referred to her as the borrower but this did not and could not be relied on as giving Mr Reddy ostensible authority to enter into the loan agreement, let alone the mortgage.

It is clear that Perpetual relied on an actual identification of Ms Menzies by BMC (though whether it was entitled to, in light of its contractual relationship with BMC, is somewhat doubtful - but I do not need to determine this matter at present). Mr Sirtes does not articulate any argument that seeks to show how what happened in respect of the identification documents and the three application documents signed by Ms Menzies gave rise to any ostensible authority in Mr Reddy upon which BMC or Perpetual arise. Moreover, it is clear that BMC and Perpetual relied on the execution of the loan agreements and the mortgage by Ms Menzies in order to make the advance. They did not rely on the application documents to identify the borrower, except for the purpose of drawing the documents. They did not rely on any agency in Mr Reddy or any other person at all, but on an assumption that the security documents were executed by Ms Menzies. They relied, as mentioned above, on an implied representation that the signatures were genuine, but Ms Menzies was not in any sense responsible for that representation and there is no evidence as to who actually produced the documents at settlement, though I doubt that mere production of the documents would amount to any representation that the signatures on them were genuine. There can be no doubt that Ms Menzies gave no authority whatever to forge her signatures on any documents, let alone the security documents, and neither BMC or Perpetual relied on any authority. They both believed (in this respect) that they were dealing directly with Ms Menzies.

I do not see, either, that Ms Menzies was imprudent in respect of the Perpetual loan, although that she trusted Mr Lyle and Mr Reddy for as long as she did when problems later came to light after the advance was made could be regarded as somewhat imprudent. Mr Sirtes SC argues that the shortfall between the purchase price for Hancock Street and the Permanent loan pointed to the Perpetual loan and "either Ms Menzies was comfortable with Mr Reddy and/or Mr Lyle raising money on her behalf, or she thought that that hundreds of thousands of dollars for the Hancock Street purchase price shortfall, the renovations, the deposit, and the associated conveyancing and legal costs were appearing out of thin air". Questions to this effect were, however, not put to Ms Menzies. I do not think that it would be fair to draw the adverse inference contended for. Much might depend on what she was told by Mr Lyle or Mr Reddy about these matters, in the context - largely ignored by Mr Sirtes - of the elaborate, indeed extraordinary, steps taken by them to keep her ignorant of the Perpetual transaction.

Mr Sirtes SC also refers to entrusting Mr Reddy (or perhaps Mr Lyle) with her Certificate of Title. I have already dealt with my findings in this respect. Moreover, the Certificate of Title that was used was a forgery and thus not provided by Ms Menzies.

Ratification

If I may say so with respect, the principles governing the notion of ratification have been usefully summarised in the recent decision of Pembroke J in Learn & Play (Rhodes No 1) Pty Limited v Lombe [2011] NSWSC 1506 as follows -

Ratification

[21]Ratification may be expressed or implied. It will be implied whenever the conduct of the person in whose name a transaction has been entered into is such as to show that the person adopts the transaction. Silence, acquiescence or inactivity may be sufficient to demonstrate implied ratification: Taylor v Smith (1926) 38 CLR 48 at 54 (Knox CJ); Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225 at 234; Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56 at [53] - [61] (Young CJ in Eq); Pollard v Wilson [2010] NSWCA 68 at [121]; Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" Building Units Plan No. 3881 (1987) 1 Qd R 487 at 496 (Connolly J); Brockway v Pando [2010] WASCA 192 at [1116] - [117]. If the principal is aware of all the material facts, takes no steps to disown the transaction within a reasonable time, or adopts no means of asserting his rights at the earliest opportunity, that may, in certain circumstances, amount to sufficient evidence of ratification.

[22]What is crucial however in any ratification is that it is necessary that the principal have full knowledge of all the material circumstances in which the transaction was purportedly entered into and its material features. There may be circumstances, probably rare, in which the principal should be taken as having intended to ratify and take the risk of the transaction, whatever the circumstances may have been: Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA (supra) at 234....

[23]I should also observe that ratification has objective as well as subjective features. It is not open to a principal who, by his conduct, appears to the outside world to have adopted a transaction, to be able to prove subjectively that he did not intend to approve it. A principal is not entitled to prove subjectively that he did not intend to adopt a transaction when he has done an unequivocal act to adopt it with full knowledge of its terms and features: Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA (supra) at 235.

[24] On the other hand, the subjective knowledge and understanding of the principal is also relevant. It must be shown that the principal was aware of the material terms and features of the transaction which he is said to have adopted and ratified. Without such full knowledge, there will not be ratification according to law. I doubt very much whether a principal, who was aware of the material terms, could successfully contend that he lacked the relevant knowledge because of his own obtuseness, neglect or failure for some other reason to appreciate the significance of those terms. However I need not decide that question in this case.

In Capital Access Australia Pty Limited v Hraiki and Anor [2011] NSWSC 109 Schmidt J held that the defendants had from the beginning known of and authorised both the mortgage and loan agreement even though their signatures on both documents were forged. The case advanced for the defendants was that this did not assist the plaintiff, because forgery or fraud could not be ratified, although accepting that a forged document could be adopted, if there was knowledge of the fraud. However, her Honour found that at the point of alleged ratification they were aware of the forgery, and nevertheless withdrew the allegation of forgery, with the consequence that they accepted the documents as genuine.

Of course, (though this was not an issue in Hraiki) it does not follow from knowledge that one has not signed a relevant document, that the signature on it is therefore a forgery. That depends on what is known about the signature. It may well be that the document was executed as an agent by someone representing he or she is authorised by the principal. There is no suggestion here that Ms Menzies was aware until the documents were actually seen by her, at a much later stage, than the alleged ratification or adoption, that her signature was forged on the Perpetual documents.

As was pointed out by James J in Chen v Song [2005] NSWSC 19 (a judgment not referred to by Schmidt J in Hraiki), whether there can be ratification of a forgery is a difficult question, citing Rowe (supra), Klement v Pencoal Limited [2000] QCA 152 and Soyfer v Earlmaze Pty Limited [2000] NSWSC 1068 Hodgson CJ in Eq (as he then was). G E Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths states the following at [5.15]:

'Nor can, at least in theory, an act that is void when effected by a purported agent be validly ratified by the principal. So it has been said that a purported agent's forgery of the principal's signature cannot be ratified, the reason being that a forged document is a nullity; it is void, not voidable. Justification for such a result has also been derived on the basis that an act that is a criminal offence is not capable of ratification.

In most cases a forger who counterfeits a signature or seal does not profess to act as an agent, and it is for this reason that ratification cannot be effected. If, however, the agent in forging the signature purports to act for an identified principal, there appears no reason why the principal should not be able to ratify.' [emphasis in original, citing, inter alia, Rowe v B and R Nominees Pty Ltd [1964] VR 477].

Perpetual's submission in this respect depends again on the contention as to Ms Menzies' receipt of "voluminous" correspondence and her failure to inform BMC, Perpetual or Challenger that she had no knowledge of the transactions to which they referred. It is submitted that her silence requires the inference that she approved of the Perpetual loan. I have already dealt with this contention. Mr Sirtes SC also relies on the conversation between Ms Menzies and Mr Stevens of Challenger following receipt of the s 57(2)(b) notice in August 2006 and the fact that "she paid off the arrears" and payments continued to be made from her account with HSBC. I have already dealt with this evidence, in particular concluding that I accept Ms Menzies' evidence that these payments were made with funds supplied by Mr Lyle and she thought that the loan was that which related to the Hancock Street property. I do not accept at all Mr Sirtes' submission that Ms Menzies "sat on her hands to await any potential benefit from the [Hancock Street] Rozelle property transaction." Again, what she did and my findings on the matter are sufficiently set out above.

It will already have been seen from my discussion of Ms Menzies' knowledge at all material times, that she did not have "full knowledge of [the] terms and features of the transactions", still less at the time when she arranged for payments to be made out of her HSBC account. Nor could these payments be seen as unequivocal acts of adoption. The payment of a few instalments could not amount, in the circumstances, to this.

In short, I do not accept that Ms Menzies ratified or adopted the Perpetual loan.

Submissions by BMC

Mr Curtin SC's written submissions were confined to the case between BMC and Perpetual and Challenger on the assumption that a verdict for Ms Menzies were given on their Statement of Claim. However, it is necessary briefly to deal with Mr Curtin's oral submissions. Essentially, he adopted Mr Sirtes SC's submissions but wished to focus on the loan. He submitted that there were two "games" in play: the first was to buy and renovate a property to make a profit; and the second was Mr Reddy's plan to use the funds obtained for the purchase and renovation for his own purposes. He submitted that Ms Menzies had agreed to a personal liability on the basis that she always thought the project would make a profit and thus that she would not lose any money.

I would agree that it is quite possible that, when the idea of purchasing a property and renovating it for resale was being considered by Ms Menzies, she may well have thought that she would need to borrow money and possibly would have done so were it not for the interposition of Valcorp. I would also accept that she believed there would ultimately be a profit and that she did not consider, or give any real consideration, to the possibility of loss. As to this issue, timing is crucial. In my view, for the reasons given in the judgment, by the time the loan application was being made, Ms Menzies thought there was but one loan, that it was to be obtained and was in fact obtained by Valcorp and was secured alone over the Hancock Street property and that she would not need and did not agree to make herself personally liable for the loan. Moreover, I think that she remained of this understanding until, on 10 October 2006, she went to BMC's offices and discovered the mortgage over her home and the other loan in her name with Perpetual, and concluded this was the loan taken out by Mr Reddy about which she had been told by Mr Lyle a few days before.

Mr Curtin SC submitted that Ms Menzies had authorised Mr Reddy to organise the finance necessary for the Hancock Street project and argued that this included, if necessary, applying for a loan in her name for any amount which was necessary in the event that Valcorp did not get a sufficient advance. I agree with the first part of this submission but, for the reasons already given, not with the second part. I do not believe that Ms Ms Menzies ever contemplated, let alone authorised, either applying for or entering into a second loan in her name. The authorisation was confined at all times to Valcorp. Mr Curtin SC drew (I think correctly) a distinction between authorizing an application on the one hand and authorising the entry into a loan agreement on the other, although he submitted that, if the former occurred, it was easier to infer the latter also. Had Ms Menzies discovered - say, when the loan agreement came to be signed by her - that she would be personally liable and (necessarily) that liability was to be secured on her home, I have no doubt whatever that she would not have executed it. That was, of course, the reason for the forgery of the Certificate of Title and her signature on the security documents and any other document that might have betrayed the true position. Moreover, that this occurred is (as I explained above in the course of my judgment, very cogent evidence to my mind supporting the conclusion that this transaction was never part of the agreement or understanding or, most significantly, any authority.

In dealing with the question of agency, Mr Curtin SC pointed out that, in arming Mr Reddy with at least some of the loan application documents that did not specify a lender, she gave him perhaps actual and at least ostensible authority to select any lender, even perhaps, more than one. So much can be agreed. However, that would not change the fundamental matter, which concerns the identity of the borrower rather than the lender and the security. For the reasons given, I do not accept that Ms Menzies gave actual authority for Mr Reddy to apply for a loan for her personally (including any guarantee) secured on her home. I have dealt with the possibility of ostensible authority above. In respect of the loan agreement (and, I think, the mortgage) Mr Curtin SC put the matter candidly and succinctly, "unless she clothed [Mr Reddy] in some way which communicates to Perpetual that he is authorised to sign there is no ostensible authority".

Mr Curtin SC also relies on the authorisation of Mr Reddy to operate the Valcorp account. I have already explained why I do not believe this occurred. But, if it did, it could not establish, or even suggest, that Ms Menzies had authorised him to apply for a loan in her name, let alone enter into a loan agreement on her behalf, signing her signature. Mr Curtin submitted that she was prepared to enter into a personal guarantee in respect of the Permanent loan. I have explained why I do not believe this was so.

Mr Curtin SC also referred to other matters, such as Mr Cohen's letter of 27 October 2006 to the police and Ms Menzies apparent inaction after hearing that the Hancock Street property had been sold. I have dealt sufficiently with the former. As to the latter issue, I would point out that at this time Ms Menzies had retained lawyers, with whose inaction she was unhappy but I do not think that the lack of further significant wrestling with these issues indicates anything of importance adverse to her. Other matters were also taken up briefly by Mr Curtin but these have all been sufficiently covered in my judgement and discussion of Mr Sirtes' submissions.

Conclusion as to the case of Perpetual and Challenger against Ms Menzies

Accordingly, I make the following orders:

1.I give judgment for Ms Menzies on the action brought by Perpetual and Challenger against Ms Menzies.

2.She is not liable under either the mortgage or the loan agreement.

3.It may be that some ancillary orders need to be made, and I will give directions about this matter and as to costs after hearing from the parties.

Cross-claims

In the circumstances, it is not necessary for me to consider Ms Menzies' cross-claims.

**********

Decision last updated: 17 October 2012

Medium Neutral Citation:	Perpetual Trustees Victoria Limited v Menzies [2012] NSWSC 1066
Hearing dates:	31 August 2010, 1 - 3, 6 -10, 16, 22 - 24, 29 September 2010, 22 October 2010, 3, 20 December 2010, 1, 3, 14, 15 March 2011, 1, 4, 5, 13, 14 April 2011
Decision date:	10 September 2012
Jurisdiction:	Common Law
Before:	Adams J
Decision:	1. I give judgment for Ms Menzies on the action brought by Perpetual and Challenger against Ms Menzies. 2. She is not liable under either the mortgage or the loan agreement. 3. It may be that some ancillary orders need to be made, and I will give directions about this matter and as to costs after hearing from the parties. 4. In the circumstances, it is not necessary for me to consider Ms Menzies' cross-claims.
Legislation Cited:	Evidence Act 1995 (Cth) Conveyancing Act 1919 Real Property Act 1900 Land Titles Act 1925 Interpretation Act 1987 Sale of Goods Act 1923 Privacy Act 1988 (Cth)
Cases Cited:	Jones v Dunkel [1959] HCA 8; 101 CLR 298 Manly Council v Byrne and Anor [2004] NSWCA 123 Greenwood v. Martins Bank Ltd [1933] AC 51 Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 Associated Midland Corporation v Sanderson Motors Pty Limited [1983] 3 NSWLR 395 Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452 Rowe v B & R Nominees Pty Ltd [1964] VR 477 Capital Access Australia Pty Limited v Hraiki and Anor [2011] NSWSC 109 Chen v Song [2005] NSWSC 19 Klement v Pencoal Limited [2000] QCA 152 Soyfer v Earlmaze Pty Limited [2000] NSWSC 1068
Texts Cited:	G E Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths
Category:	Principal judgment
Parties:	Perpetual Trustees Victoria Limited (First plaintiff) Challenger Financial Group Limited (Second plaintiff) Ann Marie Menzies (First defendant) BMC Mortgage Corporation Pty Limited (Second defendant)
Representation:	Counsel: G Sirtes SC & D Parish (First and second plaintiffs) B Skinner & J Baird (First defendant) G Curtin SC (Second defendant) Solicitors: Mills Oakley Lawyers (First and second plaintiffs) Eakin McCaffery Cox (First defendant) Gilchrist Connell (Second defendant)
File Number(s):	2007/263094