Salera v Cousens
[2001] VSC 378
•11 October 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 4080 of 1998
| ALFREDO AND MIRELLA SALERA | Plaintiffs |
| v. | |
| SHIRLEY YVONNE COUSENS | Defendant |
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JUDGE: | HARPER, J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 8, 12, 13, 14, 15 JUNE 2001 | |
DATE OF RULING: | 11 OCTOBER 2001 | |
CASE MAY BE CITED AS: | SALERA v. COUSENS | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 378 | |
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CATCHWORDS: Mortgage – Recovery of moneys advanced – Whether moneys advanced under mortgage were paid in accordance with the mortgagor's instructions – Disbursement authority – Allegedly forged – Agency of mortgage broker – Whether broker exceeded scope of his authority – Commonwealth Bank of Australia v. Khouri & Anor. [1998] VSC 128, Citibank Savings Ltd. v. Riley (1994) 6 BPR 13,929, Petersen v. Moloney & Anor. (1951) 84 CLR 91 and Armagas Ltd. v. Mundogas SA [1986] AC 717 distinguished.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. R. Cook | Mills Oakley |
| For the Defendant | Mr. D. Fitzgibbon | Waters O'Brien |
HIS HONOUR:
This is a case concerning the recovery of funds advanced through a solicitor mortgage practice by the plaintiffs, Alfredo and Mirella Salera, to the defendant, Shirley Yvonne Cousens. In summary Mrs Cousens admits she executed the relevant mortgage to secure the loan; but she also says that she neither received the funds nor were they disbursed in accordance with her wishes. Instead she alleges that the moneys were misappropriated by a finance broker, Mr Keith Bulfin. She says that Mr Bulfin was not acting within the scope of his authority. She therefore denies liability to repay.
A brief examination of the pleadings will help to paint the picture. In an amended Statement of Claim filed on 16 August 1999 the plaintiffs allege that the defendant was the registered proprietor of property situated at 50 Warringa Road, Frankston. On 23 May 1997 she mortgaged her estate and interest in that property to secure moneys advanced by the plaintiffs. The defendant admits these allegations in an Amended Defence and Counterclaim filed on 7 September 1999. She further pleads that at the time she became registered proprietor she held her interest in the Warringa Road property as trustee of the Lightning Enterprises Trust, a position from which (as she alleges) she retired on 19 June 1997. The plaintiffs for their part next allege, and Mrs. Cousens denies, that as at 23 May 1997 they advanced the sum of $175,000 to the defendant under the mortgage. In further and better particulars of the statement of claim the plaintiffs provide details of the various payments totalling $175,000 and plead written authorities to disburse.
The plaintiffs then plead that on 25 July 1997, pursuant to a variation to the mortgage, they advanced the total sum of $330,000 to the defendant under that mortgage as varied: there was, according to the plaintiffs, an initial advance of $175,000 followed by a further advance of $155,000. Mrs Cousens admits the variation (indeed, on 9 July 1997, she received advice about it from Mr. Bernard Davis, an independent solicitor) but she denies that the sum of $330,000 was advanced to her or to any person at her request. She points to the undoubted truth that one cannot repay that which one has never received. She accordingly admits she has paid neither principal nor interest, but pleads that she is not obliged to do so. Nothing is made of the allegation that, after 19 June 1997, she was no longer a trustee.
The defendant also counterclaims against the plaintiffs. She pleads that as the moneys were not advanced, no moneys are secured and she is not indebted to the plaintiffs in any way. She therefore seeks a declaration to that effect, delivery up and discharge of the mortgage as varied, and the return of the duplicate certificate of title.
It is clear that the defendant cannot maintain her claim for such relief. In his opening, Mr. Fitzgibbon on behalf of the defendant conceded that only the first advance of $175,000 is in issue; he accepted, quite properly, that his client could not deny liability to repay the second advance (of $155,000). This sum had been used to pay out an earlier mortgage – a transaction to which I shall return later in this judgment. Having thus enjoyed the benefits of the loan, the defendant was bound to honour her part of the bargain and repay the relevant moneys.
Consideration of the questions for determination in this case must begin with the circumstances in which the earlier mortgage was executed by Mrs Cousens through the efforts of Mr Bulfin. The former gave evidence that she is trustee of the family trust established by her brother, Mr Gary Lewer, who lives in the house located on the property; it is in effect the home of Mr Lewer and his family. It has never been her home, despite the fact that she is the registered proprietor of the land on which it stands.
In approximately early February 1997 Mr Lewer decided to invest in the fast food chain known as "Hungry Jack’s". He required finance. His lenders required security. He decided that the Warringa Road property should be mortgaged for that purpose. Since Mrs Cousens was the registered proprietor, he asked her to sign a mortgage. She agreed. Thus the initial mortgage was conceived.
Mr Bulfin, acting at Mr. Lewers’ behest, proceeded to put the scheme into effect. He approached the firm of Quinn & Quinn, solicitors, to arrange the loan. On 12 February 1997 by letter directed simply to "Mr Keith Bulfin" with no other address Quinn & Quinn offered on behalf of their clients to grant a first mortgage over the Warringa Road property for the sum of $155,000 for a term of 12 months at an interest rate of 9% per annum payable monthly in advance. After receiving advice from an independent solicitor, Mrs Cousens executed a mortgage on 5 March 1997. This was subsequently registered.
Mrs Cousens gave evidence that, to the best of her recollection, she first met Mr Bulfin on the day she signed the mortgage. She did not provide him with any instructions about the transaction or the disbursement of the loan funds. Indeed, her evidence is that she had no discussions with anyone about the arrangements by which these moneys were to be lent; she was present "purely to sign". She was not interested to learn what plans her brother had, and was happy for him to do whatever he wanted.
Mrs Cousens subsequently wrote out by hand and faxed an authority dated 25 March 1997 for her brother’s wife, Ms Kathryn Macdonald, to disburse the funds (court book p.58). After payment of the appropriate fees, the balance of the funds were then, at the written direction of Ms Macdonald, used "to acquire shares in 74 Manly Pty Ltd" (a company which, it appears, owned a number of outlets from which "Hungry Jack’s" franchises would operate). For reasons which will appear later, it is important to note that this document was handwritten by Mr Bulfin and signed by Ms Macdonald. It is at p.57 of the court book.
I now turn to the mortgage the subject of these proceedings. On the day the Quinn & Quinn mortgage was executed, Mr Bulfin telephoned Mr Edmund Gurgiel, a solicitor who conducts a mortgage lending practice with Feingold Partners, to enquire about arranging a loan of $320,000 secured by a second mortgage over the Warringa Road property. That contact was followed by a letter dated "March 6, 1977" (sic) signed by Mr Bulfin under the letterhead of Anglo Dutch Securities Ltd. The letter refers to "the client" as having significant assets and says that the funds would be used to pay for shares in a "Hungry Jack’s" meat processing plant. Mr Gurgiel gave evidence that he understood from Mr Bulfin that "the client" was Ms Macdonald. Mr Bulfin also gave him an outline of the venture and the names of the various companies involved. According to that evidence, Mr. Gurgiel was told that Mr Bulfin was "involved in putting the whole scheme together, co-ordinating all the parties, arranging for the various due diligence operations that were under way at that stage as well as taking an interest in the venture itself" through the Bulfin family company, NVJ Pty Ltd. I accept that this what Mr. Gurgiel was told.
By letter addressed to Mr Bulfin dated 17 March 1997 an offer for a mortgage loan of $280,000 to be secured by a second mortgage from Mrs Cousens was conveyed on behalf of the plaintiffs. The loan was for a term of six months to be guaranteed by Ms Macdonald and Mr Lewer. Undertakings were sought from the corporate entities involved in the venture to assign shares to the mortgagees in the event of default under the mortgage. This offer was then reduced to $265,000 following a valuation of the property which was less than anticipated. Although documentation was prepared for the smaller ($265,000) loan and some documents were signed by Mrs Cousens, that transaction did not proceed after Mr Bulfin indicated to Mr Gurgiel that the undertakings from the third party companies could not be given because the "transaction had been reconfigured". A further offer of $175,000, secured by the real estate alone, was then put by the plaintiffs.
A set of standard documents was prepared by Mr Gurgiel for execution by Mrs Cousens and by Ms Macdonald. His purpose was to secure on behalf of his clients, the plaintiffs, a written acknowledgment by the signatories that they understood what they were signing and had obtained appropriate advice. Since the area of dispute in this case centres on the disbursement of the loan funds and not on the execution of the mortgage, I will not consider these documents in any detail. I should say, however, that Mr. Gurgiel impressed both in the witness box and in the meticulous care with which the documents drawn by him were prepared.
Before the mortgage was executed Mr Gurgiel required that moneys be set aside for some rectification works. These had been identified as necessary by a building surveying service engaged by him, a representative of which had inspected the Warringa Road property on 7 May 1997. Consistently with this, a handwritten letter addressed to Feingold Partners dated 23 May 1997 acknowledges that $15,000 is to be retained for the purpose of these building works. It purports to be signed by Mrs Cousens, although she denies that the signature is hers. That sum is presently held in trust in the names of the parties pending the outcome of these proceedings.
In his closing submission Mr Fitzgibbon proposed that this amount should go to the party or parties who was or were ultimately successful in the litigation as a whole. I do not agree. These moneys clearly belong to the plaintiffs; the defendant would accordingly be unjustly enriched if she were allowed to retain them. Of course, the amount would be taken into account when determining any judgment sum.
On 16 May 1997 Mrs Cousens signed the second mortgage. She confirmed her signature on that document and once again acknowledged that she had received advice from an independent solicitor (Ms Christine Marks) although she now has little recollection of its content. She again gave evidence that she was there "purely to sign". Ms Macdonald appears as guarantor on that mortgage.
So we come to the central issue in this case. It is whether the defendant authorised the distribution of the funds advanced by the plaintiffs. Two documents are directly relevant. The first is a typed document headed "Authority to Complete and Disbursement Authority Acknowledgment and Undertaking" which is undated and apparently signed by Mrs Cousens. It provides, among other things, for payment of a total of $8,160 for the costs and disbursements of Feingold Partners and for various fees and duties. The balance is stated to be $166,840.00; but there is no indication on the face of it to whom the balance should be paid. Mrs Cousens denies that the authority was signed by her. Mr Gurgiel gave evidence the it was returned to him with the executed mortgage and that he had "absolutely" no knowledge that it had been forged. For his part, Mr Fitzgibbon conceded during closing address that, in the absence of any evidence that Mr Gurgiel was aware of any forgery, the sum of $8,160 was properly disbursed.
During the trial Mr Fitzgibbon on behalf of the defendant sought to adduce evidence from both Mr Bulfin and a handwriting expert to corroborate the evidence given by Mrs Cousens. I refused that application. As I indicated in my ruling, the point is not whether in fact there were forgeries; it is whether irregularities in the impugned documents were so obvious that Mr Gurgiel could be said to have notice of them. It is significant, I think, that Mrs Cousens herself gave evidence that she had difficulty ascertaining whether what purported to be her signature was indeed so or whether it was a forgery. As she said during cross examination, "… Mr Bulfin is very good at what he does and that [the signature on the document headed 'Authority' at p.160 of the Court Book] is a pretty good copy of my signature". In these circumstances, it could hardly be expected that Mr Gurgiel would be able to detect any problem with signatures.
The second document is a handwritten letter dated 16 May 1997 addressed to Mr Gurgiel. Evidence was given by him that it was provided to him with the executed mortgage. It reads, in substance:
"Dear Sir
Re:Settlement of second mortgage over the property known as 50 Warringa Road Frankston.
Value $175,000.00
Please pay the sum of $175,000.00 less my legal fees to NVJ Pty Ltd (a company owned by Nicholas John Bulfin of 23 Seymour Grove Brighton).
Thank you.
Yours faithfully
[signed] K Macdonald Witness [signed] S.Y.Cousens".
It appears that this letter was written by Mr Bulfin. It was admittedly signed by each of Ms Macdonald and Mrs Cousens. While Mrs Cousens and Ms Macdonald acknowledge their signatures, however, they both gave evidence that the letter was incomplete when they signed. They say that while the address and heading were on the paper, it contained nothing of substance. This is, however, not entirely accurate. According to Ms Macdonald, "… I remember that bit, I remember our address being on the top of the page, and he started 'Dear Sir', and I think that the next bit, the 'Re' with our address on it was there also…". If this is correct, it would be most surprising had not both Ms Macdonald and Mrs Cousens noticed the reference to "Settlement of second mortgage over the property known as 50 Warringa Road, Frankston." Yet both Ms Macdonald and Mrs Cousens gave evidence that they thought the document was to be merely an authority to a building inspector to enter for the purposes of assessing the extent of the work required to effect the repairs deemed necessary by Mr Gurgiel. I do not accept this evidence.
Mrs. Cousens submits that, in preparing the document, Mr Bulfin acted outside the scope of his authority. The defendant did not, however, argue that in doing what he did, Mr Bulfin was the agent of the plaintiffs.
I find the evidence given by both witnesses in relation to this document lacks credibility. The issue I must decide, however, is whether there was anything on the face of the letter which could be said to constitute notice to Mr Gurgiel that he should not accept it as authority from the mortgagor to disburse the funds as directed.
Mr Keith Bulfin was called by the plaintiffs as a witness. During the course of his evidence, however, he sought the protection of s.29 of the Evidence Act 1958. This provides, in effect, that if the court is of the opinion that, in answering a question, a witness will expose himself to punishment for an indictable offence, the witness may decline to answer. In relation to questions which are presently relevant, I was of that opinion. Mr. Bulfin seised the opportunity thus made available to him. There is for this reason no evidence from him about the extent or source of his authority, or the circumstances in which the disbursement authorities were created.
Another handwritten letter should be mentioned at this point. It is dated 22 May 1997 and signed by Mr Nicholas Bulfin on behalf of NVJ Pty Ltd (which, it will be remembered, is – if the letter of 16 May 1997 is to be believed – "a company owned by" Nicholas himself). It directed Feingold Partners to pay $25,000 of the loan balance to J M Smith & Emmerton. A further $25,000 was to be paid to David Tonkin & Associates, with the remainder to go to E R Bulfin, the wife of Keith and the mother of Nicholas. Mr Gurgiel gave evidence of his understanding, based on information provided to him by Mr Keith Bulfin at the outset of the transaction, that J M Smith & Emmerton were the solicitors involved in the float of one of the corporate vehicles involved in the scheme, while David Tonkin & Associates were performing the due diligence assessment.
A letter dated 26 May 1997 confirming that settlement had occurred was sent by post to Mrs Cousens with a copy to Ms Macdonald. Although it did not detail how the funds were distributed, the letter states that "settlement was effected on Friday 23 May 1997 by advancing the sum of $175,000.00." It specifically refers to the sum of $15,000.00 as having been retained for rectification works.
During cross-examination it was put to Mr Gurgiel that he was aware that Mr Keith Bulfin was facing charges relating to a substantial fraud. It followed, so the questions suggested, that no document with which he was concerned should be accepted as genuine before being carefully scrutinised. Mr. Gurgiel, however, denied any knowledge of Mr. Bulfin’s status as a suspect. I accept his evidence on this point. He also denied having any knowledge that any of the documents were forged. Again, I accept this evidence.
Mr Fitzgibbon submitted that Mr Gurgiel should not have accepted the letter dated 16 May 1997 as authority to disburse the balance of the funds. He submits that it was significant that Mrs Cousens signed the letter as witness and not as principal. He says that had Mr Gurgiel exercised the degree of care to be expected of a competent mortgage lending practitioner, he would not have disbursed the proceeds of his clients’ loan on the authority of this document.
The evidence given at trial demonstrates that although Mrs Cousens was mortgagor, Ms Macdonald and her husband were those who sought to raise the funds and deploy them. Mr Gurgiel knew this. He knew, in other words, that Mrs. Cousens was a necessary but nominal party to a transaction the intended beneficiaries of which were Ms Macdonald and Mr Lewer. During cross-examination Mr Gurgiel gave the following evidence, the truthfulness of which I accept:
"We see many documents unfortunately, including those signed by solicitors, where they put their signatures in the wrong place. If Ms Cousen’s signature had not been on that page, I would not have acted, but given that it was, I took that at least as affirmation of the borrower, Kathryn Macdonald’s instructions, but at best, perhaps at worst, I saw it as her signature in the wrong place on the page."
The plaintiff sought in this context to answer the (anticipated) criticism that Mr. Gurgiel was negligent in reacting as he did to this document. The defendant sought to establish such negligence. Each party called an expert to give evidence on this point. Each took a different view about the disbursement authorities (the handwritten letter dated 16 May 1997 in particular) and the role of Mr Bulfin in collecting and returning the documents for execution. Mr Peter Davis was called on behalf of the plaintiffs. He is a solicitor with accreditation as a property law specialist and has had the management of a private mortgage lending practice for ten years. He gave evidence that it was common in 1997 for a mortgage broker (a) to give final details as to the distribution of settlement moneys to the lender's solicitors on behalf of the borrower and (b) to attend at settlement and to receive moneys on behalf of the borrower. Mr. Davis nevertheless conceded that such practice is uncommon now.
Mr Davis said that if presented with the two authorities in question he would have proceeded to settlement. When asked during cross-examination about the fact that the handwritten letter shows the defendant signing as witness, Mr Davis said:
"This is the sort of thing that borrowers might do when they write a letter to you. They’re not legally trained people and [don’t know the] significance of [the word] 'witness' or what have you. I don’t know what this person meant by 'witness' but I saw that it was signed by both parties and that would give me comfort."
And later:
"Well, I’d seen that it was signed by them, and that’s what I’d be interested in seeing, whether – what the significance of a witness – you and I probably know that a witness tends to just, what they’re really saying is 'I saw that other person sign it', but I think a lot of people out in the street would say, 'Well, I’m witnessing what they’re saying, I’m in agreeance (sic) with it', possibly too I could read it like that."
Mr Davis also gave evidence that he would have acted in accordance with the direction given in the handwritten letter dated 22 May 1997 and signed by Mr Nicholas Bulfin on behalf of NVJ Pty Ltd. It was put to him in cross-examination that this letter was handwritten and directed the moneys be paid to the wife of the broker, and that this ought to have been a matter of concern. In reply, Mr Davis said:
"I don’t know whether I would have known whether it was the wife or not, but I have a direction from the borrower to pay it to a company, NVJ, if that’s what it is, and then NVJ has done a further direction, I think it’s implicit in what the borrower’s saying that they could go further and pay it by direction of NVJ as well as actually to NVJ because it might be a more convenient way to pay the money save from a (sic) financial institutions duty."
Mr Simon Libbis was called as an expert witness on behalf of the defendant. He is a solicitor of 25 years’ standing. He, like Mr. Davis, has a specialist accreditation in property law. He is immediate past president of the Property Committee of the Victorian Law Institute, as well as being a member of both the Property Law Dispute Resolution Panel and the Property Law Section Executive of the Law Council of Australia Property Committee. He has presented seminars to the Leo Cussen Institute, the Real Estate Institute of Victoria and the Major Fraud Squad.
In relation to the handwritten letter dated 16 May 1997, Mr Libbis gave evidence that he would not accept such a direction to disburse "because I’d say it isn’t signed or doesn’t even purport to be signed by the borrower, by a guarantor, and normally the instructions wouldn’t come from a guarantor in any circumstances." He said he would contact the borrower either through her solicitor, or (if she did not have one) directly, to obtain authority to disburse. Moreover, when he gave evidence that he would not raise any problems with signatures with the broker he said:
"I think the fact that the broker might be involved in the transaction as a person benefiting from the mortgage, would certainly mean that I wouldn’t be talking to the broker about problems with witnessing of documents. I’d either be talking to a person acting for the borrowers if they were acting for them, in this case, possibly the person who witnessed their signatures, and if that person was no longer acting for them, I’d want to take it up directly with the borrowers."
The evidence of Mr Davis (to the effect that, knowing Ms Macdonald was receiving the benefit of the loan while Mrs Cousens was the registered proprietor, he would take comfort from the fact that both had signed the letter and he would therefore act in accordance with the direction) was put to Mr Libbis in cross examination. In response, Mr Libbis gave the following evidence:
"I’d have to differ in that on the basis that in these circumstances where the person receiving the moneys, rather than a guarantor it’s what [is] called a third party mortgage, where the person receiving the benefit of the money is someone other than the mortgagor, that would make me doubly cautious as to ensure the authority came from the borrower or the mortgagor, that they had in fact authorised the disbursement in that way."
Turning to the handwritten direction from Nicholas Bulfin, Mr Libbis said:
"… the only person that could authorise me to disburse that to someone else would be the person who gave me the authority in the first place. There’s no authority in here to take further directions from the person receiving the money, so I definitely wouldn’t rely on that to disburse the funds in accordance with that letter."
I accept the expertise of each of Mr. Davis and Mr. Libbis. Their evidence was, however, of marginal significance. The disbursement authority was, after all, the defendant’s document. The plaintiffs had nothing to do with it until it came into their hands (or the hands of their solicitors) from the defendant or from those for whose actions she was (as between herself and the plaintiffs) responsible. The issue, therefore, is not whether Mr. Gurgiel was negligent. It is, first, whether the 16 May document accurately reflected the borrower’s direction about the disbursement of the proceeds of the loan; secondly, whether - if it did not – Mr. Gurgiel nevertheless honestly accepted that it did; and, thirdly, whether such honest acceptance was so unreasonable that his clients can be held responsible for the fact that the disbursement was not in accordance with the borrower’s wishes.
I am prepared to assume that Mrs. Cousens’ intentions in relation to the loan proceeds were not accurately reflected in the document of 16 May. This assumption is made in the face of my doubt that she was telling the truth when she said in evidence that she signed a document that was, in substance, blank. It is also made in the face of indications that, at least as at 16 May and for some time thereafter, not only Mrs. Cousens but, more particularly, her brother and Ms. Macdonald, wanted the $175,000 to go to NVJ Pty. Ltd.: support for this conclusion is to be inferred from the fact that, until the plaintiffs commenced to seek redress, nobody associated with the borrowing complained that the funds had been wrongly disbursed. There is, it is true, some evidence that while Ms. Macdonald and Mrs. Cousens received a letter from Mr. Gurgiel telling him that the loan funds had been "advanced" (see paragraph [25] above) they did not understand this to mean that they had been "disbursed". In my opinion, it remains appropriate to conclude that the failure at any material time to complain about the fate of the advance is properly explicable on the basis that the borrowers were content that it be disbursed in accordance with the terms of the letter of 16 May.
Be that as it may, I have no doubt that Mr. Gurgiel honestly believed that the disbursement authority accurately reflected Mrs. Cousens’ wish that the principal of the loan ($175,000) be paid in accordance with its terms. I find accordingly.
The final question is whether, in providing the proceeds of the loan in accordance with the disbursement authority, Mr. Gurgiel acted so unreasonably that the defendant can properly claim that, as between herself and the plaintiffs, the funds were never received by her or on her authority. In my opinion, the answer is clear. It is that he did not. Even if Mr. Libbis is correct in his opinion that a prudent solicitor would not have disbursed the funds in accordance with the document of 16 May, the evidence of Mr. Davis strengthens me in the conclusion to which I have independently come – namely, that what Mr. Gurgiel did was by no means so careless as to warrant a finding that, if the loan moneys were not disbursed in accordance with the borrower’s wishes, the plaintiffs must take responsibility for, and accept the consequences of, that circumstance.
Another consideration strengthens me in this conclusion. If anyone is to blame for the wrongful disbursement of the relevant funds, it is the defendant herself. On her own story, she signed, in blank, the document later completed by Keith Bulfin in order to gain an advantage for himself at the expense of one or other of two innocent parties – the plaintiffs or the defendant. By giving a blank document the authority of her signature, Mrs. Cousens was in my opinion much more directly responsible for the consequential loss than was Mr. Gurgiel.
Indeed, in my opinion, Mr. Gurgiel’s behaviour was not a causative factor at all. If this be so, it would be a perversion of justice should that loss fall on him or his clients. On what basis should his supposed culpability be judged? He was presented with a document signed by two people whom he knew to be related by marriage and whom he knew to be participants in the enterprise in which the loan funds were to be employed. He was also aware that NVJ Pty. Ltd. was one of the corporate vehicles through which the endeavour was to be consummated. It is surely not surprising in these circumstances that he assumed that each signatory was aware of, and agreed with, the proposed disbursement. It is true that Mrs. Cousens signed as a "witness" and that Ms. Macdonald signed as author of the document. It is also true that one analysis of their respective roles would have their legal positions reversed, given that Mrs. Cousens, and not Ms. Macdonald, was the borrower and mortgagor. On the other hand, Mr. Gurgiel knew that Mrs. Cousens was a mere trustee with no beneficial interest in the "Hungry Jack’s" enterprise, whereas (as he also knew) Ms. Macdonald was directly and immediately involved in it. This being so, the fact that the defendant signed as witness was perfectly explicable. For the same reason, it could not be said that the document should necessarily have aroused suspicion in the mind of the mortgagees’ solicitor.
Mr. Fitzgibbon in his closing submission argued that Mr Gurgiel could, and should, have checked with Mrs Cousens about the signatures on the handwritten authority dated 16 May 1997. Had he done so, he submits, the fraud would have been revealed and the money never advanced.
Mr Fitzgibbon relied on four cases during his closing submission. The first is Commonwealth Bank of Australia v Khouri & Anor[1]. He observed that, as the trial Judge, I upheld the defence of Mrs Khouri, who was aware of the nature of the documents she signed. In my opinion that case was quite different to that before me now. That case was principally concerned with the application of the principles enunciated by the High Court in Garcia v National Australia Bank Ltd[2] and Amadio v Commonwealth Bank of Australia[3] and the construction of various contractual terms. While it is true that I found that Mrs Khouri was not liable in respect of one transaction because she did not receive the proceeds of the loan nor were they paid at her direction, I also found that she was not a party to that transaction. That is not this case. I further found in relation to another transaction that unauthorised advances under a mortgage could not be enforced because I was not satisfied that Mrs Khouri had signed the relevant documents and the signature of her husband alone was not sufficient authority under the terms of the Memorandum of Common Provisions. That also is not this case.
[1][1998] VSC 128
[2][1998] HCA 48
[3](1983) 151 CLR 447
The next authority upon which Mr. Fitzgibbon relied is a decision of Windeyer J in Citibank Savings Ltd v Riley[4]. That case concerned moneys advanced under what was described as a "mortgage power credit line facility". The moneys were transferred to the account of the mortgagors’ accountant who had forged an authority to disburse. The plaintiff argued that the indefeasibility enjoyed by the mortgage extended to the forged authority. His Honour found that the forged authority was not part of the security but rather was given pursuant to it. Mr Fitzgibbon sought to rely on the following passage at page 13,933:
"The security over the land obtained on registration of the mortgage on the title rendered the land liable as security for sums drawn down under the provisions of the mortgage power facility. The title to that security was indefeasible; Mayer v Coe (1968) 88 WN (NSW) 549; Breskvar v Wall (1972) 126 CLR 376. However, that security does not extend to unauthorised drawdowns under documents. It was not suggested that indefeasibility would save the debit made against the forged cheque and I do not consider the debit made pursuant to the forged authority to be in any stronger position."
[4](1994) 6 BPR 13,929
Even had the plaintiffs argued that registration of their mortgage protected them against an abuse by Mr. Bulfin of his authority, nevertheless, for the reasons expressed below, nothing done by him was relevantly in breach. In other words, I do not accept that there was in the present case an unauthorised drawdown; and for that reason the present case is distinguishable from Citibank Savings Ltd v Riley.
Next Mr Fitzgibbon drew my attention to the case of Petersen v Moloney & Anor[5]. This was an action by the vendor of a property against the purchaser for recovery of the purchase moneys. The purchaser pleaded that he had paid the moneys to the vendor’s estate agent. The estate agent had not paid the moneys to the vendor and was now bankrupt. The estate agent had been instructed by the vendor to find a purchaser for her house. The issue was the extent of the authority of the estate agent. In the joint judgment of Dixon, Fullagar and Kitto JJ at 94-95 their Honours said:
"When a person is employed to find a buyer of property, he is commonly said to be employed as an agent, and the term 'estate agent' is a common description of a class of persons whose business is to find buyers for owners who wish to sell property. But the mere employment of such a person under the designation of agent does not, apart from the general rule that the employer will be responsible for misrepresentations made by him, necessarily create any authority to do anything which will affect the legal position of his employer. He may, of course, be given any express authority which the employer thinks fit to give him, and estoppels may arise, but the law does not imply from the mere fact of employment to find a purchaser a general authority to do on behalf of the employer anything which may be incidental to the effecting of a sale. In the present case it is clear that the plaintiff employed Pulbrook to find a purchaser for her house and its contents. But it must, we think, be regarded as settled law that an agent employed to find a purchaser has no implied authority to receive the purchase money in the sense that a receipt by him is a receipt by his principal and will therefore discharge the purchaser."
[5](1951) 84 CLR 91
In my opinion the defendant can draw little comfort from this case. The extent of authority of an estate agent is a very different thing to the extent of authority of someone in the position of Mr Bulfin, especially in the present circumstances.
The last case to which Mr Fitzgibbon referred was Armagas Ltd v Mundogas SA[6]. That case concerned the scope of authority of a broker appointed by the plaintiff to negotiate the purchase of a ship. In the course of his judgment (at 734) Robert Goff LJ quoted from the advice of the Privy Council in the matter of Russo-Chinese Bank v Li Yau Sam[7] as follows:
"It is undoubted that a person who deals with an agent, whose authority he knows to be limited, as the plaintiff knew in this case, does so at his peril, in this sense, that should the agent be found to have exceeded his authority his principal cannot be made responsible. … In other words, if the agent be held out as having a limited authority to do on behalf of his principal acts of a particular class, then the principal is not bound by an act done outside that authority, even though it be an act of that particular class, because, the authority being thus represented to be limited, the party prejudiced has notice, and should ascertain whether or not the act is authorised."
[6][1986] AC 717
[7][1910] AC 174
In written submissions Mr Fitzgibbon argues that Mr Bulfin acted well beyond the usual authority of a mortgage broker by collecting the cheques, by allowing Nicholas Bulfin to sign a disbursement authority and by forging documents authorising the disbursement of funds to NVJ Pty Ltd. He further submits that Mr Gurgiel should have known that Mr Bulfin’s authority was limited and that he had exceeded it. Notwithstanding these submissions, however, Mr Fitzgibbon does not identify any evidence to substantiate the point. While, therefore, it is clear that Mr Bulfin played an active role in arranging the finance, it is equally clear that Mrs Cousens was content for him to do so; in fact her evidence was that she was present "purely to sign" and she had no active role or interest in the use to which the moneys were put. Nor can Mrs Cousens rely on the fact that her dealings with Mr Bulfin were limited and that she gave him no specific instructions to do anything. There is no doubt that the moving force behind this transaction was Ms Macdonald (with Mr. Lewers another active participant) and that (a) Mrs Cousens was given, and accepted, a largely passive role in it while (b) Mr. Bulfin was allowed, and was very happy, to assume an opposite role. This was Mr. Gurgiel’s understanding of the position. His understanding was accurate. In these circumstances, it cannot be said that the plaintiffs through Mr Gurgiel had any notice that Mr Bulfin’s authority was relevantly limited.
Mr Gurgiel gave evidence that Mr Bulfin himself had an interest in the venture and, in relation to it, was thus more than a mere finance broker. This evidence was not challenged, and I accept it as being true. Indeed the evidence given by Ms Macdonald relating to the earlier mortgage with Quinn & Quinn and the dealings with the loan proceeds supports this conclusion. This is especially so given that there was no suggestion of any impropriety in Mr Bulfin, or that he acted beyond his authority by, for example, preparing, as he did (in his own hand writing) the disbursement authority signed by Ms Macdonald in that instance and to be found at page 57 of the Court Book.
The fact, if it be so, that Mr Bulfin duped Ms Macdonald, Mr Lewer and Mrs Cousens cannot of itself constitute good cause to transfer the resultant prejudice to the plaintiffs; and, for the reasons given above, I am not persuaded that Mr Bulfin was acting outside the scope of the authority given to him by Mrs Cousens.
It is further said that Mr Gurgiel should not have accepted the signature of Nicholas Bulfin on any disbursement direction. Moreover, it was submitted that I should accept that both the plaintiffs and the defendant were innocent dupes of Mr Keith Bulfin, and that I should have regard to the fact that, unlike the defendant, the plaintiffs may have a cause of action elsewhere to recover their loss. This is a reference to a possible claim in negligence against Mr Gurgiel and his firm. I cannot accept this as a basis for deciding in favour of the defendant. For one thing, it would in my opinion be unfair to the plaintiffs to place upon them the initial burden of Mr. Bulfin’s sins simply because they might in an action in negligence be able to recover from Mr. Gurgiel. The outcome of any such proceeding is by no means certain, and in any event it was Mrs. Cousens who committed the more careless and more immediately consequential act when (if her own evidence be truthful) she signed the blank document which subsequently became the disbursement authority.
In their prayer for relief, the plaintiffs seek a declaration "that the defendant as mortgagee has made default in the performance and observance of the covenants contained in the mortgage and the varied mortgage in that she has failed to pay the principal sum or interest or any part thereof due and payable by the defendant to the plaintiffs pursuant to the provisions of the mortgage and the varied mortgage." For the reasons given above, I am of the opinion that they are entitled to this or like relief. The counterclaim must be dismissed. Because the plaintiffs did not in their prayer for relief seek orders in relation to the sum of $15,000 referred to in paragraphs [14] and [15] above, I will hear counsel about those orders.
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