Bank of Western Australia v Tannous [2012] NSWSC 559

A son allegedly forged his mother’s signature on mortgage given to Firstfolio. The Firstfolio mortgage was subsequently refinanced by a mortgage given to Bankwest. This time the mother’s signature was allegedly forged by the father. Bankwest claimed possession.

The mother defended on the grounds of fraud and unjustness under the Contracts Review Act. Her circumstances were typical of a Contracts Review Act defence:

Mrs Tannous was born in 1942 in Lebanon. She married her husband Arthur Tannous in 1968. In 1968, Mr and Mrs Tannous migrated to Australia. She had no formal education except a very basic primary education in Lebanon (three years primary education). She has a very minimum grasp of the English language. She cannot read or write in English. She has little skills reading or writing in Arabic. 

The mother sought to join Firstfolio. This was on the grounds that she did not want to give credit to Bankwest for the amount of the Firstfolio mortgage in refinance (on the grounds that the Firstfolio mortgage was also unjust). An earlier judge rejected this joinder on the following grounds:

Where there is an issue about the unjustness of a contract or mortgage paid out by an incoming mortgagee who is the Plaintiff in proceedings, the issue is not determined by joining that prior mortgagee as a party to the proceedings. Rather, the issue is determined in the context of the discretionary order at the second stage of the Contracts Review Act proceedings. That is so, because the issue forms part of the controversy between the Plaintiff and the Defendants. The justiciable issue is what order should be made in circumstances where the contract made between the Plaintiff and the Defendants is held to be unjust. There is no justiciable issue between the Defendants and the mortgagee/lender whose contract has been completed and whose mortgage has been discharged.

The way was now clear for a Contract Review Act claim. However, the mother’s solicitors realised (belatedly) that they would not succeed under the Contracts Review Act. This is because it is settled law that if forgery is pleaded that fact is inconsistent with the existence of a contract (a forged contract is a nullity). They therefore proposed to focus on the forgery allegation.

Bankwest should have been able to rely on indefeasibility however they used an all-monies mortgage. As a result, they could not rely on indefeasibility of their mortgage. This is because it relied on an extraneous contract which was forged and therefore a nullity. Realising this, Bankwest amended their claim to seek restitution on the grounds it mistakenly advanced money that was had and received by the mother.

The mother countered this by once again seeking to cross-claim against Firstfolio. This time instead of unjustness under the Contracts Review Act she claimed under the Trade Practices Act seeking a declaration that the Firstfolio mortgage was void. Obviously, she hoped that by establishing that the Firstfolio mortgage was void, the money paid in discharge of it could not be claimed (by Bankwest) to be had and received by her.

Firstfolio argued that the mother was estopped from bringing this claim because it had already been adjudicated (an argument known as Anshun estoppel). A claim will be barred by an Anshun estoppel if the claim “was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it” in the earlier action. The judge held that Anshun estoppel did not prevent this new claim by the mother because:

At the time the mother’s earlier cross-claim was dismissed, there was no claim by Bankwest seeking restitution in relation to the moneys paid to Firstfolio. The mother and her legal advisers were not on notice that this restitution claim was to be made against her and did not draft the earlier cross claim against Firstfolio in the knowledge it had to meet this claim. It was therefore not unreasonable for her not to plead false and misleading information against Firstfolio in the earlier cross claim as she could not have anticipated the changed in pleading by Bankwest.

The court next considered whether the misleading and deceptive conduct claim against Firstfolio was doomed to fail. Firstfolio argued that the claim was doomed to fail because:

  1. Firstly, the representations were not false or misleading because Firstfolio had the benefit of indefeasibility of title.
  2. Secondly, any representations were no more than representations of opinion. A statement, which is ordinarily understood as a statement of opinion, is not apt to mislead if the opinion is genuinely and reasonably held by the maker of the statement. Firstfolio genuinely believed it held a valid mortgage.
  3. Thirdly, the “real, essential, substantial, direct, appreciable or effective” cause of the mother’s loss was the fraud and forgery by her son and husband, not any representations made by Firstfolio to Bankwest.

The judge held that whether the mother could succeed would depend upon the knowledge of the facts and circumstances surrounding the loan documents by the officers of Firstfolio. His Honour noted that the only way to determine that would be a full-blown hearing. Accordingly, he held that the misleading and deceptive conduct cross claim filed by the mother against Firstfolio was not doomed to fail.

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