CTC (as originator), submitted to Resimac (as manager), a forged application for a loan by Perpetual (as trustee) of $480,000. As required under the mortgage origination deed CTC verified the identity of the applicant, Mr David El-Bayeh.
The loan was made and upon default proceedings were commenced for possession of the property. The trial judge accepted Mr El-Bayeh’s denials that he signed the documents and found his signatures on the loan application, loan agreement and mortgage had been forged. The judge determined that Mr El-Bayeh’s brother Mr Youssef El-Bayeh had forged his brother’s signatures (click here for our case note). This resulted in a total loss of the funds advanced.
Perpetual sued CTC, alleging it had breached terms of the mortgage origination deed by failing to take reasonable care to identify the proposed borrower. The trial judge rejected this claim, and Perpetual appealed. The court of appeal reversed the trial judge and found against the originator.
The trial judge held that this conversation took place. Nevertheless found for CTC commenting:
“In light of the undisputed fact that CTC obtained a photocopy of David El-Bayeh’s passport, the possibility remains that a family member with a resemblance to David El-Bayeh impersonated him. It follows that I am not satisfied that there was any breach of duty on the part of CTC … “
The Court of Appeal disagreed:
The primary judge’s unchallenged findings were that Mr David El-Bayeh did not sign the application. If CTC did not make the requisite comparison between the signatory of the application and the original passport photograph, he failed to act with reasonable care. The fact that the application was submitted despite Mr David El-Bayeh not having signed it, strongly suggests that it did not.
In my view the strong probabilities are that Mr Naaman did not compare the original passport photograph with anyone who falsely purported to be Mr David El-Bayeh because, if he had, he would have observed that the photograph was not of the person before him. The possibility that someone could have successfully impersonated Mr El-Bayeh whilst Mr Naaman was carefully comparing the passport photograph to him is in my view remote.
The lesson from this case is clear. Those identifying borrowers, whether brokers, or originators, or solicitors, must view the original identification documents (passport or drivers licence) at the same time as they view the borrower in person. If they fail to realise they are looking at an imposter they will be disbelieved by the Court who will consider that such failure is unlikely to be the true explanation of the fraud slipping through and it is more likely that they never properly ID the borrower.