In Perpetual Trustee Company Ltd v CTC Group Pty Ltd
 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.
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 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
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:
inspect the original of the passport; and
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
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
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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