Exercise caution: when can fraud by a witness of a mortgagor’s signature on a mortgage be brought home to the bank?

This week’s TGIF considers Spiliotopoulos v National Australia Bank Limited [2017] NSWSC 971, where a mortgagee alleged a witness fraudulently attested to his signature on a mortgage and the bank registered the mortgage with notice of fraud.

BACKGROUND

Parties

The plaintiff, Mr Spiliotopoulos brought proceedings against a number of defendants arising out of the circumstances that led to the registration of a mortgage over his property. Of relevance was, the registered mortgagee (Bank) and Ms Jackson, the witness who attested the plaintiff’s signature upon the mortgage at the request of the plaintiff’s wife.

Allegations of fraud

The plaintiff’s pleadings were unclear, but the Court interpreted the claims against Ms Jackson and the Bank as follows. The plaintiff alleged that Ms Jackson fraudulently attested to his signature upon the mortgage, as the plaintiff did not sign the mortgage in her presence, and that Ms Jackson was not satisfied that the person whose signature she was witnessing was the person named in the mortgage.

The plaintiff did not allege that the Bank participated in the fraud. Instead, the plaintiff alleged that the Bank obtained the mortgage with notice of and by reason of the fraud allegedly committed upon both the Bank and the plaintiff by Ms Jackson. The basis of this allegation was that the Bank:

• did not meet or discuss the mortgage with the plaintiff, which the plaintiff alleged the Bank was required to do “in the course of banking practice”; and

• did not comply with its own internal procedures and policies, despite the Bank’s officer who dealt with the mortgage certifying that they had been complied with.

For these reasons, the plaintiff claimed that the mortgage registered by the Bank was defeasible, and as such that he was entitled to have it removed as an encumbrance from the title.

DECISION

Justice Harrison dismissed the plaintiff’s claims against both Ms Jackson and the Bank.

Claim against Ms Jackson

The plaintiff did not sufficiently make out a claim against Ms Jackson for fraud. However, Harrison J noted that the facts may have been sufficient to disclose a cause of action in negligence.

Claim against the Bank

In considering the allegations made against the Bank, Harrison J stated that:

• In order for the mortgage to be set aside on the basis pleaded, the plaintiff must establish that he was defrauded out of his interest as registered proprietor and that the fraud was the Bank’s own, in the sense that it can be brought home to the Bank.

• If the plaintiff cannot establish that a consciously dishonest act can be brought home to the Bank, as the registered proprietor of the interest, its title will be indefeasible (emphasis added).

His Honour considered Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202, which concerned a forged attestation of a signature by an imposter, witnessed by bank officers. In that case, the Court of Appeal held that the attestation and certification by the bank officers did not amount to fraud. Powell JA held that the attestation could not constitute fraud unless it could be shown either that the bank officer knew that the imposter was not the true owner, or that, in signing the attestation, he was acting recklessly without caring whether or not the imposter was the true owner.

Applying this principle to the present case, Harrison J stated that:

The plaintiff does not allege that [the bank officer who dealt with the mortgage over the plaintiff’s property] or any other officer of the Bank did not believe that the mortgage was not a genuine document that could be properly acted upon, or that her suspicions were aroused, or that she abstained from making further enquiries lest she discovered that the plaintiff had not signed it. It is not alleged that the Bank engaged in a level of recklessness amounting to fraud.

Justice Harrison reasoned that the circumstances that would support the plaintiff’s claim to set aside the Bank’s mortgage would have to include facts that showed that the Bank proceeded to registration having committed a fraud upon the plaintiff, or that the Bank had knowledge that someone else had done so. His Honour concluded that the plaintiff did not bring any such evidence.

The plaintiff did not specifically plead any internal policies or procedures with which he alleged the bank failed to comply, nor did his claim identify the legal basis for the alleged requirement that the Bank meet or discuss the mortgage with the plaintiff “in the course of banking practice”. In any event, Harrison J concluded that:

• failure to comply with internal policies and procedures would not elevate the Bank’s conduct to a participation in Ms Jackson’s alleged fraud; and

• the possibility that the Bank officer who dealt with the mortgage might have discovered the fraud if she had met with the plaintiff would not be sufficient to amount to the Bank being on notice of the fraud, so as to defeat the Bank’s registered title.

COMMENT

This case concerned a mortgage entered into and registered in 2005, which was prior to the introduction of verification of identity (VOI) requirements. Although more stringent VOI requirements should serve to decrease the opportunity for fraudsters to commit forgeries and false attestations, with the introduction of electronic conveyancing, it remains to be seen whether this will present new opportunities for mortgage fraud.