Australia: Lender recovers from mortgage originator who did not properly check borrower's ID

Last Updated: 29 August 2012
Article by Ross Rydge

Focus: Perpetual Trustee Company Ltd v CTC Group Pty Ltd [2012] NSWCA 252
Services: Financial Services, Disputes & Litigation
Industry Focus: Financial Services

In Perpetual Trustee Company Ltd v CTC Group Pty Ltd [2012] NSWCA 252, a lender has successfully sued its mortgage originator for monies not recoverable from the borrower on the basis that the mortgage originator did not follow proper procedures when checking the identity of the borrower.

The case

In August 2004, the mortgage originator (CTC) submitted to Resimac Limited, as manager of a lender (Perpetual), an application for a secured loan from Perpetual to Mr David El-Bayeh. The application attached documents signed by CTC verifying the identity of the applicant. The loan was subsequently advanced to Mr El-Bayeh upon the security of a mortgage over his property.

Upon default under the loan agreement, Perpetual commenced proceedings against Mr El-Bayeh who denied signing any of the documents. The trial judge, McCallum J, found that Mr El-Bayeh's signatures had in fact been forged, seemingly by his brother. As such, Perpetual failed against Mr El-Bayeh.

Perpetual claimed in the alternative against CTC alleging that CTC had breached terms of the agreement regulating the relationship between Perpetual, Resimac and CTC (Deed) which required CTC to take reasonable care to identify the proposed borrower and ensure that he or she had authorised the application submitted by CTC to Resimac.

The claim against CTC was rejected by McCallum J at the trial but has been upheld in the Court of Appeal.

The appeal

The appeal proceeded on the basis that the documents were in fact forged (as determined at the trial). Also, it was not disputed that CTC was in breach of its obligations under the Deed if it submitted the loan application without taking reasonable care to identify the prospective borrower and to confirm his authority to submit the loan application.

A "100 Point Check" form submitted by CTC to Resimac certified that CTC had identified the borrower by reference to his Australian passport. The form identified a current passport as one of a number of alternative documents by which CTC could identify the applicant. CTC chose the current passport alternative. The Guidelines issued by Resimac, with which the Deed obliged CTC to comply, required the submission of a completed 100 Point Check form.

The Court determined that, as CTC chose the applicant's passport as the principal means of identifying the applicant, and certified to Perpetual that the applicant had been identified by that means, it was incumbent on CTC, if it exercised due care in preparing and submitting the application, to:

  1. inspect the original of the passport; and
  2. use the original photograph to identify the applicant.

The Court found that, rationally, the identification could only be done by comparing the photograph in the passport with the person who signed the loan application. Ultimately, the Court determined that the strong probabilities were that CTC did not compare the original passport photograph with anyone who falsely purported to be Mr El-Bayeh, because, if it had, it would have observed that the photograph was not of the person before it, and would not have submitted the loan application.

Contrary to the view of the trial judge, the Court of Appeal found that the evidence did establish, on the balance of probabilities, that CTC failed to exercise the requisite level of care in identifying the borrower and confirming his authority to submit the loan application.

Of legal interest, CTC asserted on appeal that any liability it had to Perpetual is limited by s35 Civil Liability Act 2002 but, at the hearing, accepted that, as it had not pleaded and proved that any concurrent wrongdoers were liable to Perpetual, it's claim for proportionate liability under the Act must fail. Nor, on appeal, did CTC press its contention that Perpetual's damages should be reduced by reason of contributory negligence by Perpetual.


In appropriate circumstances, lenders should give consideration to the conduct of their mortgage originator, or other agents, in the context of the terms governing that relationship, to determine whether there may be grounds for a claim against that party in the event that the loan is not enforceable against the borrower.

Likewise, mortgage originators and other agents are clearly exposed to liability to lenders in circumstances where they fail to properly discharge all of their obligations in respect to the relationship.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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