The Victorian Supreme Court decision of Perpetual Trustees
Victoria Ltd v Xiao Hui Ying1 is a reminder that
financiers must remain vigilant of the risk of documents being
fraudulently signed. In this alert, Senior Associate Are Watne and
Solicitor Nicholas Hew discuss why financiers should take this
opportunity to consider the procedures and protections they
currently have in place and determine whether further protections
need to be implemented.
In Queensland, subject to the satisfaction of certain
requirements and exceptions, a financier will gain the benefit of
indefeasibility on registration of a mortgage. Examples of the
requirements which need to be satisfied include financiers'
obligations under section 11A of the Land Title Act to
take reasonable steps to confirm the identity of the mortgagor
before the mortgage is signed. The benefit of indefeasibility is an
important protection for financiers. However, the protection
provided by indefeasibility will only extend to the covenant for
payment in the mortgage.
In the decision referred to above, the signature of the wife
(who was the borrower and mortgagor) was forged on the mortgage and
loan documents. The husband acted fraudulently in obtaining the
loans and the wife was unaware the loans had been obtained.
The loans went into default and the amount owed to Perpetual
Trustees Victoria Ltd was $1,221,953.07.
The mortgage sought to be relied upon by Perpetual Trustees
Victoria Ltd was an "all moneys" mortgage which provided
that the mortgage was security for the payment of all "Secured
Money" payable under a "Security Agreement" (being
all agreements between the mortgagor and the mortgagee).
Put simply, the Court found that since the loan agreement had
been fraudulently signed, there was no "Secured Money" or
any "Security Agreement", meaning that the mortgage
In reaching this conclusion, the Court adopted the reasoning of
the New South Wales Court of Appeal (most recently, the decision of
Perpetual Trustees Victoria Ltd v Cox2 in which
the loan agreement and a mortgage had been validly signed, however
a payment direction had been forged. The Court determined that the
amount the subject of the payment direction was not "Secured
Money" and the mortgage was therefore not security for that
amount) and rejected contrasting Victorian authorities.
Financiers commonly require documents (such as witness
certificates) be provided by the person who witnesses a
mortgagor's signature on a mortgage. Given the possible
consequences outlined above, in situations where loan documents
(such as a loan agreement, facility offer or a payment direction)
are not signed in the financier's presence, financiers should
consider whether the signatures on those documents require evidence
verifying the authenticity of the signatures.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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