This case involved sham contracts for inflated values designed to dupe the Commonwealth Bank.
The wife’s signature was forged on the mortgage and loan. The court held that indefeasibility of the registered mortgage did not help the lender because it was an all monies mortgage. As an all monies mortgage it relied on the validity of the loan for its force. As the loan was a forgery it was void and therefore the indefeasible mortgage secured nothing.
The husband did sign the guarantee of his wife’s loan but that did not help the bank, with the judge holding:
Until there is a principal debtor there can be no suretyship. No man can guarantee anybody else’s debt unless there is a debt of some other person to be guaranteed.
So the bank sought to recoup its loss from the solicitor purporting to act for the borrowers. It argued that by issuing cheque directions the solicitor warranted it was authorised by the husband and wife to receive the surplus funds.
The bank alleged the solicitor had been complicit in the fraud rather than behaving negligently. This was all important for the solicitor because if he was found to have acted fraudulently:
- he could not plead contributory negligence (and so force the bank to shoulder some of the blame);
- he could not please proportionate liability (and so force the fraudsters to shoulder some of the blame);
- he could not obtain indemnity from his professional liability insurer (Lawcover);
- he would likely be struck off;
- he would possibly be jailed.
LawCover believed the solicitor was dirty and refused to indemnify him so the solicitor joined LawCover to the proceedings to try to force them to indemnify him. LawCover and the bank worked together to convince the judge the solicitor was corrupt.
The judge held:
I regret to say that this was one of a number of times, I considered during the solicitor’s evidence that he had moulded his testimony in an effort to fill in holes that had emerged in his credibility.
I do not agree his demeanour was that of an honest and perhaps gullible man.
In my opinion, his accounts of the conversations with Mr Cooke, were so implausible that Mr Cooke were not required to be called as witnesses to rebut them.
In all of these circumstances, how could the solicitor have honestly believed that Mr Nolan was genuine purchaser of unit 5 for the price stated in the contract?
Another circumstance that points to the solicitor’s knowledge that the prices in the contracts were a sham are the letters dated…
Accordingly, the solicitor was found liable and LawCover was successful in denying liability.
Click here to read the later judgment in this case.