17 February 2015

This has been a long running saga.

The registered proprietor's brother forged the mortgage. When the registered proprietor raised the forgery as a defence, the lender cross-claimed against the mortgage orginator, claiming under the indemnity in the mortgage origination deed.

The lender’s claim failed against the mortgage originator due to a lack of evidence and only succeeded against the registered proprietor in respect of the amount used to discharge an earlier mortgage (subrogation). Click here to see our case note.

The lender appealed. The Court of Appeal found for the lender on the basis that the mortgage originator never properly identified the person signing the loan application. The Appeal Court discounted the other possibility open on the evidence (namely that a family member impersonated the registered proprietor and the identification was properly performed). Click here to see our case note.

In this case (to which this case note relates), the court had to determine what the damages were. The parties were in agreement as to the main component of damages. The case argued by the lender was that "but for" the breach by CTC the loan would never have proceeded. Thus, it was a nil transaction claim. The only issue taken by CTC was that the lender had recieved $96,000 from the mortgage insurer and the interest component did not reflect that. There was also an amount received from the fraudster's estate.

The dispute was over the claim for legal costs. The lender sought all legal costs on the grounds that the indemnity clause covered legal costs "arising from" the breach. The court noted that "arising from" was more loose than "caused by".

The lender noted that the indemnity clause did not require the cost incurred to be reasonable. CTC agreed but said it came down to a question of proof. The lender could not just pull a figure out of the air, and expect CTC to stump up. 

The lender then said an opportunity should be afforded to it, to provide evidence of the amounts it was claiming. The judge, who was clearly jaded by this suggestion, retorted:

Without wishing to sound jaded, I would remark by way of comparison that I have heard the present application during the course of a week in which I have, on the other two days of the week, sat an average of eight or nine hours a day with a list of about forty bail applications each day. The Court must, in accordance with the provisions of the Civil Procedure Act, be vigilant to ensure that the resources allocated to individual matters not only do not become disproportionate to the interests at stake in the individual proceedings but reflect a fair allocation of resources having regard to all proceedings properly within the jurisdiction of the Court.

In all the circumstances I am not persuaded that it would be appropriate in the present case to afford a further opportunity to Perpetual to adduce further evidence to address the difficulties cogently illustrated by CTC.

That left the lender without the benefit of its indemnity clause in relation to costs, but still able to relpy on ordinary costs orders it had obtained throughout the course of the proceedings. 

Click here to read the full judgment.

Matthew Bransgrove, Partner

Matthew Bransgrove has practised exclusively in the field of mortgage law and mortgage related litigation since 1998. He is author of Avoiding Mortgage Fraud in Australia (2015) Lexis Nexis. He is co-author of The Essential Guide to Mortgage Law in NSW (2008) Lexis Nexis and its successor The Essential Guide to Mortgage Law in Australia (2013) Lexis Nexis.

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