A mortgage manager who negotiated a loan at the request of a broker has sued the solicitor entrusted with mortgage preparation for its $183k loss arising from a failure to authenticate the identity of a witness to a mortgagor’s signature.
PSAL made short-term money loans on its own account and acted as mortgage manager on occasions.
It placed a broker’s December 2009 request for funds for borrowers Emily Thatcher, Jason Gilberthorpe and the company Smart Art Direct with lender Owl Projects Pty Ltd and instructed Brisbane solicitors to prepare security documents over Thatcher’s residence in Hornsby NSW.
In fact Thatcher was not Gilberthorpe’s mother as he had claimed but rather his 85-yr-old dementia affected and partially blind neighbour who had no knowledge whatsoever of the transaction.
Gilberthorpe forged Thatcher’s signature and that of solicitor ‘witness’ Stacy Kelly and returned the security documents and certificate of independent legal advice – supported for identification purposes by a copy of her “War Widows card” – to Galilee solicitors Sydney office.
The mortgage was not registered due to the fraud and it quickly fell into default. Owl obtained a default judgement for its loss against Gilberthorpe and his company but looked to PSAL for recoupment when pursuit of the borrowers proved futile.
PSAL then turned on the solicitors for failing to take reasonable measures to verify Mrs Thatcher’s consent to the transaction.
It argued that Galilee ought to have been alerted by the unconventional identification method (the War Widows card); the claimed loss of the certificate of title (reported by Gilberthorpe, not Thatcher); and the fact that Ms Kelly’s purported signature was accompanied only by the address of a Sydney city office high-rise, with no details of the law firm at which she was located.
The solicitors had failed in their duty – PSAL contended – to verify Kelly’s bona fides, to alert it that the transaction looked suspicious and to stop the advance proceeding.
But when the matter came before her Honour Judge Julie Dick in Brisbane’s District Court, a NSW conveyancing expert swore that – although a lawyer must check to ensure a document is properly executed – the authenticity of the signature of a person purporting to be a witness would not ordinarily be questioned.
Neither was it unusual that the signature of a borrower had been witnessed by a solicitor other than the one noted as acting for the party or that – given the urgency of a settlement prior to Christmas – the documents had been returned to the lender’s solicitors by Gilberthorpe rather than by Thatcher’s solicitor.
On the strength of that evidence Her Honour found that there was nothing in the documents or the way they had been signed which should have alerted “any reasonably competent solicitor” that the transaction was suspicious.
For PSAL the fight was over there but the court went on to consider its standing to sue. It did not accept that there was a “usual practice” for Galilee to have included it as co-lender when it was merely acting as manager. Thus the only party with standing to sue was Owl and thus PSAL had “accrued no loss”.
In the absence of any evidence as to PSAL’s obligation to repay Owl, the court concluded its payment had been voluntary and there could never have been any damages recovery by it from the solicitors it instructed.