What are the 2016 verification of identity provisions for non electronic land transactions in Victoria?

Further to my post about Verification of Identity on 17 December 2014, there is now a proposal to require the same level of verification for paper transactions as well as electronic transactions.

For consistency between paper and electronic conveyancing, Land Victoria has introduced a new verification of identity process for any paper instrument or dealing lodged with Land Victoria.

Lawyers, mortgagees and conveyancers must take reasonable steps to verify a client's identity. 

The Verification Process Simplified

A person must have their identity verified if they are a party to a paper dealing to be lodged with Land Victoria. 

The verification process comprises three key elements:

1.   Verification of a person's identity

2.   Verification that the person is a legal person

3.   Verification that the person has the right to enter into the transaction.

The Verification Of Identity Interview may be with the lawyer, the mortgagee or with a third party Identity Agent authorised by them. 

At the Interview, the client must produce original identification documents (Identity Documents) to formally verify their identity (Acceptable forms of identity documents include a passport, driver's licence and a birth or citizenship certificate).

The person conducting the interview is required to take a copy of these documents, which will be retained for nine years from the date of the Interview.

Once completed, an Interview remains current for two years.

Verification of Persons Overseas

Presently there is no formal process to verify the identity of a person residing out of Australia. I expect that Australian Consular Officials may be called upon to undertake this task (more details below).

More than one Paper Dealing

Standard sales and acquisitions of land generally involve more than one paper dealing to complete the land transaction. For example, a purchaser of land who borrows money to pay for the purchase will be need to sign a mortgage and a land transfer. 

In that case, both the purchaser's lender and the purchaser's lawyer will have separate verification requirements that will need to be satisfied. 

I would expect that the lawyer and the lender would co-ordinate their efforts to minimise unnecessary duplication of the Interview process.

Who May Perform the Verification of Identity?

The lender, a lawyer or a third party Identity Agent authorised to undertake the verification (such as Australia Post) may conduct the Interview.

Mortgagees may use reasonable steps or safe harbour procedures to identify mortgagors in all jurisdictions for both paper and PEXA mortgages.

ARNECC Participation Rules – version 3

1.   Verification Of Identity is required for all PEXA dealings as specified in Model Participation Rules version 3.

2.   Mortgagees must take ‘reasonable steps’ to identify mortgagors (see previous blog on this issue). 

3.   If a Subscriber (such as a panel lawyer) is lodging mortgages on behalf of mortgagees, the Subscriber must be reasonably satisfied that the mortgagee has taken reasonable steps to verify the identity of each mortgagor – cl 6.5.1(b).  As a result, Subscribers will need to ask mortgagees what steps are taken.  This enquiry can relate to the procedure used by mortgagees as distinct from asking for details of the steps taken on a case by case basis.

4.   The rules prescribe a ‘safe harbour’ procedure that can be used called the ‘Verification of Identity Standard’ – cl 6.5.2.  This standard requires the mortgagee or an approved ‘Identity Verifier’ (such as lawyers, finance brokers and Australia Post) to conduct a face-to-face interview.  If documents containing photographs are produced, the mortgagee or Identity Verifier must be satisfied that the person being identified is a reasonable likeness to the person in the photographs – Schedule 9.

5.   Often mortgagees will not know whether a mortgage will be registered through PEXA or paper. As a result, mortgagees normally also need to comply with the rules for paper dealings.  It is therefore good news that paper and PEXA processes should be aligned from May 2016.

6.   There is no safe harbour prescribed for Verification Of Identities conducted overseas.  However, ARNECC and the Department of Foreign Affairs and Trade (DFAT) have developed a new arrangement to assist. The VOI service will be provided by an Australian Embassy, High Commission or Consulate – see MPR Guidance Note #2 – Verification of Identity (Updated).  The service can be used for both electronic and paper conveyancing.

Procedures

1.   Verification Of Identity for paper dealings now applies to most dealings for land located in Victoria.

2.    Evidence supporting the Verification Of Identity must be retained for seven years from the date of lodgement of the mortgage.

3.    In Victoria, mortgages lodged through PEXA are void if the mortgagee ceases to retain a copy of the mortgage signed by the mortgagor – s 74(3) Transfer of Land Act 1958.  The copy can be retained electronically.  PEXA mortgages can also be signed electronically.

4.    Mortgagees who title insure should ensure that their insurer’s cover will apply given the process used for VOI.

Conclusion  

It seems that we are edging ever closer to the day when all conveyancing transactions will be conducted electronically. For now, it seems that the requirements for conducting paper and electronic transactions are being aligned, to the point where eventually the procedures will be identical. Then, the inevitable question will be: "Do we need paper transactions any more?"

WG Stark 

Hayden Starke Chambers

Are there any recent Victorian Supreme Court cases in 2015 about fraud under the Torrens legislation?

In Perpetual Trustees Victoria Ltd v Xiao Hui Ying & Anor [2015] VSC 21, the Supreme Court of Victoria considered the doctrine of indefeasibility of a mortgage of a property in circumstances where the mortgagee has become registered by fraud and the owner is innocent of the fraud. 

Summary

The fact that a borrower’s signature is forged on a mortgage would not, in the absence of fraud by the lender, affect the lender’s ability to rely on a registered mortgage, due to indefeasibility of title under the Transfer of Land Act, 1958. 

In modern times, most banks enter into ‘all monies’ mortgages, so that they can seek repayment of all debts at the time that the mortgage is repaid. The complication is that this requires the parties to enter into loan agreements at the same time as executing the relevant mortgage documents.

The relevant terms of the loan agreements are where the obligations to repay are located, not in the mortgage itself.

In New South Wales (and New Zealand) there are numerous cases that have concluded that mortgages in such circumstances secure nothing because the signature on the loan agreement has been forged, making that agreement void. This means there is no amount secured by the loan agreement. This in turn meant that no money was secured by the ‘all monies’ mortgage, and as a result the mortgage ought to be discharged without any payment by the registered proprietor who did not commit any fraud.

A number of earlier Victorian Supreme Court decisions had declined to follow the New South Wales cases on this point. They concluded that a lender’s title obtained on registration of a mortgage was not defeated unless the lender was involved in or knew about the fraud.

In Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21, Hargrave J of the Supreme Court of Victoria concluded that where the underlying loan agreement on which a lender relies is forged, the lender cannot rely on its registered ‘all monies’ mortgage, even in circumstances where the lender had no knowledge of the fraud.

You should bear in mind that the decision turns on the facts of the case; however, in today’s modern lending environment, the facts are not uncommon.

The decision

A summary of the factual background is as follows:

a.     The first defendant (Ms Xiao) was born in China in 1960 and on moving to Australia met the husband, the second defendant (Mr Fitzgerald). Ms Xiao gave evidence that she spoke limited English and relied on Mr Fitzgerald.

b.     Mr Fitzgerald required finance to make an investment in a Chinese restaurant in Burwood. He was the registered proprietor of a property in Vermont, however he had a poor credit history and knew that he was unlikely to get finance in his own name. He therefore transferred the Vermont land to Ms Xiao, subject to a “re-transfer” document and a deed of trust, which were contested at trial.

c.     Mr Fitzgerald then went about obtaining finance from the plaintiff through a mortgage originator, Capital Securities (Aust) Pty Ltd (Capital). Mr Fitzgerald obtained a loan in the name of Ms Xiao from the plaintiff lender that was secured over the Vermont property.

d.     The originator dealt directly with Mr Fitzgerald, but failed to verify that Ms Xiao was the borrower or the accuracy of the loan application

e.     Justice Hargrave found that Ms Xiao was a pawn in Mr Fitzgerald’s fraud, in that Mr Fitzgerald acted fraudulently in obtaining the loans.  He did not tell Ms Xiao he was obtaining the loans, he forged her signature on the loan documents, mortgage and related documents and otherwise falsified the loan application

f.      The originator assisted Mr Fitzgerald by falsely witnessing Ms Xiao’s signature and providing a valuation prepared by Mr Fitzgerald to the trust manager when it knew Mr Fitzgerald was not independent.

g.     There was a subsequent default on the loan and the plaintiff took steps to enforce its mortgage. Justice Hargrave considered himself bound to follow the reasons of the New South Wales Court of Appeal in Perpetual Trustees Victoria Ltd v English and Anor [2010] NSWCA 32 and Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328 where the relevant mortgage and loan documents were in similar terms. The New South Wales decisions held that, whilst the mortgage document may have had indefeasibility under the Torrens legislation, the mortgage secured nothing as the loan documentation had been forged.

Key points

In determining whether the mortgage secured the repayment of the loan, Hargrave J decided (at paragraphs 82 and following):
82 The fact that Mr Fitzgerald forged Ms Xiao’s signature on the mortgage did not, in the absence of fraud by Perpetual, of which there was no suggestion, affect the indefeasibility of the mortgage when registered.
83 Indefeasibility, however, extends only to the covenant for payment contained in the mortgage.
84 Whether any, and if so what, amount is secured by a covenant for payment contained in the mortgage is a matter of contractual interpretation. Where the covenant for payment appears on the face of a forged mortgage, or in a document expressly incorporated by reference in the mortgage, the indefeasibility of the mortgage on registration will extend to the covenant for payment as properly construed.
85 The covenant for payment in this case is one step removed from the mortgage. The forged mortgage expressly incorporated a memorandum of common provisions, which contained a covenant for payment by reference to amounts owing under any other agreement between Ms Xiao and Perpetual — present or future. That drafting device is unexceptional and will be given effect where such an agreement can be identified. However, whether such a covenant is effective in the circumstances of this case — where the agreements to which it refers are forged — requires consideration.

The Honourable Justice Hargrave then conducted an analysis of the documents between the parties. 

Relevantly, Hargrave J noted:

a.     In the absence of fraud by a lender, the lender has the benefit of the mortgage once it is registered.  However, that protection extends only to the covenant for payment contained in the mortgage

b.     In this case, the covenant for payment was one step removed from the mortgage, and was found in the memorandum of common provisions

c.     The mortgage provided that it was given in consideration of and to secure loans, advances or financial accommodation provided by Perpetual to the borrower (the wife).  However, no loans were provided by Perpetual to the wife as she was unaware of the loan documents and they were forged.

The thrust of the New South Wales’ decisions was that, where the loan agreement on which the lender relies is forged and therefore void, there is no ‘secured agreement’ and therefore no ‘secured money’, being the terms commonly appearing in common provisions. In particular:

a.     In Perpetual Trustees Victoria Ltd v English & Anor [2009] NSWSC 478, the New South Wales Court of Appeal considered that a mortgage secured nothing where a husband forged his wife’s signature on the mortgage and loan agreement as there was no agreement between the lender and the borrower at the time the mortgage was executed;

b.     In Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328, the Court of Appeal in New South Wales held that a mortgage secured nothing, even though the mortgage itself was not forged.  The court considered that it was sufficient that a direction to draw down one of three facilities under the terms of the mortgage had been forged.

In contrast, in Solak v Bank of Western Australia Ltd [2009] VSC 82, the Supreme Court of Victoria had reached a contrary conclusion on the basis that the reference to ‘you’ in the mortgage, memorandum of common provisions and loan agreement was the forger purporting to be the registered owner of the property.

Justice Hargrave declined to follow the Solak decision on the basis that it was 'plainly wrong'.

Prior to Solak, in Vassos v State Bank of South Australia [1993] 2 VR 316, the Supreme Court of Victoria held that title obtained on registration of a forged mortgage cannot be defeated on the grounds of fraud if the mortgagee was not a party or privy to the fraud. In Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, the Court of Appeal followed the Vassos decision, albeit in slightly different circumstances.

The Perpetual v Xiao decision rejected the earlier Victorian cases and adopted the New South Wales position.

However, Justice Hargrave went on to find in the particular circumstances that Ms Xiao held the loan on trust for Mr Fitzgerald. Hargrave J also found that Mr Fitzgerald was liable to Perpetual for defrauding it. The combined effect of these conclusions was that while the mortgage secured nothing and was held on trust by Ms Xiao for Mr Fitzgerald, Perpetual was entitled to have the value of the land applied in discharge of Mr Fitzgerald’s liability to it as a fraudster.

Justice Hargrave also found that Ms Xiao did not authorise Mr Fitzgerald to sign the loan agreements and she could not ratify the loan agreements as they were forged. In particular, the court confirmed that a forged loan agreement is a nullity and is incapable of ratification.

Justice Hargrave also found that the plaintiff was not prevented from enforcing the loan by reason of unconscionable conduct by the mortgage originator.  The court considered that the originator had acted unconscionably.  However, ultimately, the court held that Perpetual itself did not act unconscionably and was not liable for the originator’s actions.

On 27 May 2015, the Court of Appeal refused leave to appeal (see [2015] VSCA 124). This means in effect that we now have Court of Appeal authority in this state that the decision of Justice Hargrave is the law in Victoria.

Implications 
The decision makes it clear that the benefit of a registered mortgage can be lost even where a lender has no knowledge of any fraud. Perpetual was left effectively unsecured and was saved only by the unusual circumstances, which led to the finding that the husband retained a beneficial interest in the land.

The decision is also a warning for lenders who use third party mortgage originators. The court rejected legal criticisms of Perpetual’s business model and the trust manager’s failure to make inquiries with the originator about the loan. However, in practice the originator’s conduct caused Perpetual to lose the benefit of its mortgage.

Whilst fraud is often very hard to detect, lenders need to ensure their systems minimise the risk of loans being granted in fraudulent circumstances.

W G Stark
Hayden Starke Chambers 

Are there any recent High Court cases in 2015 about fraud under the Torrens legislation?

In Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, the High Court of Australia considered the scope of indefeasibility of a transfer of a property into the name of joint proprietors, where one joint proprietor has procured the transfer by fraud and the other is innocent of the fraud.

Background

Claude and Felicity Cassegrain were dairy farmers.  Their dairy farm was owned by a company, which had a number of directors. Claude was one such director. Felicity was not. 

In 1993 Gerard Cassegrain & Co Pty Ltd settled legal proceedings brought against CSIRO on the basis that it was paid the amount of $9.5 million. Entries were then made into the company's accounts to create a loan of $4.25 million owing by the company to Claude Cassegrain, one of the directors. In the court proceedings it was accepted that Claude had no entitlement to any part of the compensation and that there was never any moneys owing to him by the company.

In 1996, Claude and his sister, the directors of the company, transferred the dairy farm to Claude and Felicity as joint tenants and fraudulently debited the purchase price of $1 million from the fictitious loan from Claude in the company’s books.

In 1996 Claude's siblings brought oppression proceedings against him in the Federal Court. The Federal Court held that Claude's conduct in relation to recording a loan of $4.25 million and drawing down on that loan was oppressive and unfairly prejudicial to the other shareholders in the company.

In 2000 for a consideration of $1 Claude transferred his interest in the dairy farm property to Felicity.
  
Subsequently further proceedings were brought seeking to have the whole of the property re-transferred to the company. 

The claim was that:
a.     Claude had fraudulently effected the transfer of the property;
b.     Claude had acted as Felicity's agent for the purpose; and
c.     Felicity's interest in the property was tainted by Claude's fraudulent conduct.

The High Court noted that it was not alleged that Felicity was a participant in or had notice of Claude's fraudulent conduct.

The relevant sections of the New South Wales legislation (which is similar to the Western Australia legislation) provide that:
S.42 The registered proprietor ... of an interest in land ... shall except in case of fraud, ... hold the same, absolutely free from all other estates and interest that are not so recorded.
S.118 Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
Proceedings brought by a person deprived of land by fraud against:

A person who has been registered as proprietor of the land through fraud; or

A person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.

There is no equivalent to section 118 in Victoria. 

The Court concluded that Claude taking the steps necessary to procure registration of the transfer from the company to Felicity and himself as joint tenants showed no more than that Claude had performed tasks that were for the advantage of Felicity. This alone did not show that his fraud was within the scope of any authority she had given to him. Without further evidence it did not show that knowledge of his fraud was to be imputed to her.

In this case Claude, but not Felicity, was registered as proprietor of an interest in land (as a joint tenant) through fraud. The joint interest which Felicity acquired was indefeasible.

However, by a second transfer, Felicity derived from Claude an interest as tenant in common as to his half. Felicity derived that interest from a person who was registered as proprietor of that interest through fraud. As Felicity was not a transferee for valuable consideration the Court held that the second transfer should be reversed.

The High Court’s findings

The High Court accepted that Claude’s interest in the farm had been acquired through fraud.  However, the Court held (with Keane J dissenting) that Felicity had acquired her interest as joint tenant without actual fraud on her part or on the part of an agent for her, and so her joint title in the farm was indefeasible under the usual principles in such cases as Frazer v Walker, Breskvar v Wall, and Bahr v Nicolay (No. 2). 

Claude was not her agent in the relevant sense. Though he was the cause of her acquisition of an interest, he was not acting within the scope of any authority she had given him.  The High Court applied and approved the approach of Street J to the determination of who is an agent for the purposes of fraud within the meaning of the Torrens legislation, in Schultz v Corwill Properties Pty Ltd  [1969] 2 NSWR 576.  To be an agent, a person must be acting within the scope of some authority given by the registered proprietor such that knowledge of the fraud by the agent would be imputed to the registered proprietor.

Nor was it any answer that Felicity was a joint tenant such that she and Claude were regarded in law as having a single indivisible estate in the whole of the land. Although Keane J dissented on this point, the majority held that the statute as interpreted by the Courts for well over 100 years provided that only actual fraud on her part could defeat her interest in the land, even as a joint tenant.  The statute took priority over mere theoretical considerations derived from speculation on the nature of a joint proprietor’s title.

There was, however, as noted, a second transaction that required consideration by the Court.  Claude subsequently transferred his joint interest to Felicity, so that she became owner of the whole fee simple interest in the dairy farm.  She was a volunteer, as the transfer was for no consideration ($1).  In NSW, s.118(1)(d) of the Real Property Act provides for the title of a volunteer only to have the benefit of indefeasibility on a deferred basis: that is to say, if a registered proprietor was not a transferee for value, the transfer could be set aside if it had been procured by fraud on the part of someone else.  This was exactly what had happened in the transfer to her of Claude’s joint half interest. 

The second part of the decision is thus not of direct application in Victoria, as it turned on a specific statutory provision in NSW that we do not have here.  In Victoria, the question whether a volunteer acquires an indefeasible title is somewhat problematic, given that there are two strong single judge decisions to the effect that indefeasibility only applies to transferees for value (King v Smail [1958] VR 273 per Adam J and Rasmussen v Rasmussen [1995] 1 VR 613 per Coldrey J).  Against this, there are two Court of Appeal decisions in NSW on provisions in the Real Property Act, which are remarkably similar to those in our Transfer of Land Act. Those decisions held that volunteers obtain the same protection under the Act as transferees for value.  A dictum of the High Court that appears to endorse this view (Bogdanovic v Koteff (1988) 12 NSWLR 472; Farah Constructions Pty Ltd v Say-Dee (2007) 230 CLR 89 at [198]).  A decision of the Victorian Court of Appeal is probably required to resolve the matter definitively once and for all. However, as readers will know, decisions of the New South Wales Court of Appeal are very persuasive here, if not binding.

In any event, in Victoria, the same result may have been reached by way of an in personam action against Felicity under s.172 of the Property Law Act, 1958 on the grounds that Claude’s transfer of his half interest to her was probably a disposition of property with the intent to defeat creditors.


W G Stark
Hayden Starke Chambers

Fraudulent activity in Property transactions 2015

Today I gave a talk to the Leo Cussen Property Law Conference 2015 entitled: "Liar Liar - Fraudulent activity in Property transactions." 

The talk covered the recent High Court decision about indefeasibility of title and fraud in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, and the recent Supreme Court of Victoria decision of Hargrave J in Perpetual Trustees Victoria Ltd v Xiao Hui Ying and Anor [2015] VSC 21, which deals with fraud and indefeasibility of registered mortgages.

A copy of the paper is available from the Leo Cussen Institute (see: www.leocussen.vic.edu.au) and will be available to subscribers at www.greenslist.com.au 

W G Stark 

Hayden Starke Chambers  

16 October 2015

Will NSW also adopt the Verification of identity requirements by mortgagees?

Following on from Victoria and other states, in New South Wales, new requirements for verification of the identity of mortgagors will apply from 1 January 2015.


The NSW amendments (like the Victorian provisions) require a mortgagee of land to take reasonable steps to ensure that the person who executed the mortgage, or on whose behalf the mortgage was executed, as mortgagor, is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt to which the mortgage relates.

These provisions are being enacted in anticipation of electronic conveyancing commencing nationally in the near future. 

Once all states have the appropriate legislative regime in place, there will be no further impediments to the commencement of  electronic conveyancing.

The major banks have now decided to accept electronic conveyancing as inevitable and have taken the necessary steps for it to become the standard form of a conveyancing transaction.  

Those of us who like paper titles and mortgages will soon no longer be able to conduct conveyancing business in the 'old-fashioned' way! I don't believe I am the only person who is nervous about this process! However, we all have to move with the times.

W G Stark
Hayden Starke Chambers 

Victorian lenders required to take 'reasonable steps' to verify the identity of borrowers from September 2014

Further to my post of 25 August 2014, the Transfer of Land Amendment Act 2014 (Vic) came into effect on 24 September 2014. 

As previously noted, the amendments require lenders to take 'reasonable steps' to verify the identity of borrowers before executing a mortgage or variation of mortgage. 

The amendments are a part of the legislative package brought in to allow for the full introduction of e-conveyancing.

 
W G Stark
Hayden Starke Chambers

Can I obtain leave to defend an application for summary judgment for possession (part 2)?

Further to my post about summary judgment for possession, the Honourable Justice Ginnane (of the Supreme Court of Victoria) in ANZ Banking Group Ltd v Loftus [2014] VSC 342 was called upon to decide an appeal from an order for summary judgment granted by an Associate Justice in a claim by a mortgagee for possession of a security property.

ANZ sued Mr Loftus ("the defendant") among other things for possession of a property given as security for the loans.  

The defendant denied signing the mortgage in his defence.  

On 2 April 2014, an Associate Justice granted summary judgment in favour of ANZ.  A solicitor appeared for the defendant at the hearing of the summary judgment application. However, no affidavit in opposition was filed on his behalf.  

Ginnane J notes (at paragraph 13) that in her reasons, the learned Associate Justice observed:

In the course of the hearing I directly asked Mr Loftus’ solicitor why an affidavit had not been filed on behalf of Mr Loftus. The Court was informed that Mr Loftus’ solicitor had some concerns about Mr Loftus in that she thought he may have an acquired brain injury and that this presented difficulties in terms of Mr Loftus being able to attend to give instructions and to prepare such an affidavit. This is an extremely serious matter that was put before the Court. Mr Loftus is legally represented and yet no material has been put before the Court. There was no application for an adjournment for more time so that an affidavit could be filed by Mr Loftus.

At paragraph 17, Justice Ginnane also notes: 
    The Associate Justice in reaching her decision stated:

Having considered the evidence and heard submissions, I do not consider Mr Loftus has any real prospect of success. It was open to Mr Loftus to put some material before the Court and he failed to do so. In circumstances where he makes an allegation of fraud, it is incumbent on Mr Loftus to put some evidence to substantiate the allegation or that demonstrates there is at least a question to be tried.

The defendant terminated the solicitor's retainer and appealed to a Judge of the Trial Division against the order granting ANZ summary judgment. 

At the hearing of the appeal, the defendant was represented by duty counsel under the Victorian Bar scheme. He sought to rely upon an affidavit prepared and sworn by him which was not before the Associate Justice.  

In his affidavit, the defendant:

1. explained why there was no affidavit before the Associate Justice.  He alleged that he met with his solicitor to give instructions for an affidavit and it was agreed that the solicitor would send a draft to him.  However, he swore that he did not receive a draft affidavit from his solicitor and he did not do anything further because he thought his solicitor had everything under control;
2. swore that he did not have a brain injury; and
3. set out his version of events concerning the ANZ loans and denied ever signing a mortgage.

In respect of comments regarding a brain injury, the two counsel appearing on the appeal for the defendant informed Ginnane J that they had not seen evidence of a brain injury in their contact with him.  

One of the grounds of appeal from the decision of the Associate Justice was that the amended defence and particulars disclosed a triable issue and should be taken to have been filed and served on a “proper basis”, having regard to s 18 of the Civil Procedure Act 2010 and the obligations that it imposed on persons to whom the overarching obligations applied in responding to allegations that were made in a proceeding. 

Justice Ginnane rejected those submissions. At paragraph 28, he went on to find:

Mr Loftus was in essence making an allegation of fraud against the ANZ.  Whatever may be the position in respect of other defences,[1] in my opinion, a defence of fraud must usually be supported by an affidavit setting out details of the defence.[2]  This is a case in which that was required.

The question of whether to allow the new evidence In considering whether to allow the new affidavit, Ginnane J referred to rule 77.06.9(3) which gives the court power to receive further evidence on appeal on questions of fact by affidavit.  Justice Ginnane also referred to Clark v Stingel [2007] VSCA 292 in which the Court of Appeal set out the principles upon which the Court will grant leave to introduce fresh evidence upon an appeal.  In that case, it was held that leave should be given only if:

• by the exercise of reasonable diligence such evidence could not have been discovered in time to be used in the original trial;
• it is reasonably clear that if the evidence had been available at the trial, and had been adduced, an opposite result would have been produced; and
• the evidence proposed to be adduced is reasonably credible.

The defendant's affidavit and the affidavits of ANZ concerning the relevant facts were in conflict. 

Justice Ginnane decided that where there are disputed questions of fact, those disputes are best resolved at trial after hearing oral evidence of witnesses.  

When applying s 63 of the Civil Procedure Act 2010, the Honourable Ginnane J was of the view that the defendant had real prospects of defending ANZ’s claim because his version of events may be accepted.

Justice Ginnane concluded that it was reasonably clear that if Mr Loftus’ evidence had been before the Associate Justice, summary judgment would not have been granted.

Justice Ginnane also relied on the fact that the judgment was not obtained after a full hearing at trial; it was obtained on a summary judgment application which is made on affidavit.  

The case was therefore distinguished from Clark v Stingel where further evidence was sought to be introduced at an appeal after a full trial.  The principle of finality of litigation was stronger after the completion of a trial than at an application for summary judgment.

The interests of justice were also viewed by the Honourable Ginnane J as an important factor when considering the admission of new evidence on appeal.  Relying on the defendant's account of his dealings with his solicitor and the solicitor's failure to file an affidavit or seek an adjournment to enable an affidavit to be filed, Ginnane J allowed the defendant to use his affidavit.

In the result, the appeal was allowed on the basis of the new evidence filed, because the defendant had established that he had real prospects of defending ANZ’s claim; it was therefore a proceeding that should go to trial.

The case is a good example of the circumstances where leave to defend will be granted to a defendant where a mortgagee is seeking possession of a security property.

There were credible allegations of fraud: the defendant swore that he had not signed the mortgage in question, the mortgage was witnessed by an employee of the bank and the defendant's lawyer had asked the bank to produce the original mortgage for examination. The bank only provided a copy. 

Counsel and solicitors in Victoria will be aware that the making of a false allegation of fraud amounts to professional misconduct. Therefore, making such an allegation will be rare and will only be made by lawyers on proper instructions. As a result, if such an allegation is made by a lawyer, the court will take it seriously. In this case, the allegation was made by the defendant himself after he terminated the services of his lawyer.

W G Stark

Hayden Starke Chambers

Will Victoria legislate a requirement that lenders must take reasonable steps to identify potential borrowers?

Four mainland states (New South Wales, Queensland, Western Australia and South Australia) have already legislated a requirement that lenders must take positive steps to verify the identity of proposed borrowers. 

On 5 August 2014, the Transfer of Land Amendment Bill 2014 was introduced into the Victorian Legislative Assembly.  

One of the amendments contained in the Bill is to require a lender to verify properly the authority and identity of a proposed borrower by taking "reasonable steps" (proposed Section 87A) to ensure that the proposed borrower is the same person as the registered proprietor or proposed registered proprietor of the property.

This proposal, if passed, will bring Victoria into line with the existing requirements in Queensland, New South Wales, South Australia, and Western Australia. 

The proposal means that a potential lender will be obliged to take certain legislated steps (set out in proposed section 87A(2) to verify the identity of the mortgagor. 

The sanction for lenders who fail to take those steps is that they will not obtain the benefit of indefeasibility of title in respect of the mortgage and the mortgage will be void. 

These proposals have gained currency in Australia, and Victoria has followed suit, as a result of allegations that the registration of fraudulent mortgages have become more commonplace. See, for example, the Victorian Bill's second reading speech, which alleges that there have been instances where a fraudulent mortgage was registered as a result of a financial institution neglecting to verify adequately the party with whom it was transacting (and thereby contributing to the fraud). 

In my opinion, it is good lending practice for potential mortgagees to undertake a detailed identity verification procedure, whether the Bill passes into legislation or it lapses when Parliament is prorogued for the forthcoming state election.

The problem with fraud is that identity theft is becoming more common, and fake identity documents are being used by fraudsters to trick lenders into lending money even if a thorough identity check is conducted. 

Electronic conveyancing and Electronic Certificates of Title are also nearly upon us, potentially creating more opportunities for fraud as a result of identity theft.

Whilst casting a heavier onus on lenders appears to be a simple answer to the problem, in reality identity theft is the real problem. If a lender has been duped by fake identity documents, these proposed legislative changes are unlikely to save the registered proprietor from the consequences. Lenders are more likely to be able to protect their position than registered proprietors. If a lender has conducted a thorough identity check as required by the proposed legislation, and it has still failed to uncover the identity theft, the registered proprietor will lose his or her property when the lender takes steps to recover the loan secured by its mortgage. This proposal will give mortgagees extra protection, by forcing them to prove that they took appropriate steps. Once those steps are proven, the registered proprietor will lose the mortgaged property even though they are not a party to the transaction.

W G Stark
Hayden Starke Chambers