Westpac Bank learnt it had no security worth enforcing after it was the victim of a sophisticated fraud lending $180,000 to a con artist masquerading as a woman owning property in Remuera, Auckland
The con artist vanished, along with the money. She left a trail of confusion behind: the property owner who knew nothing of the mortgage; a solicitor who had signed off on the legal documents; and the Bank which was out of pocket.
A central principle of the land registration system in New Zealand
To recover its losses, Westpac sued the solicitor who signed off on the legal documents. He had certified to the Bank that the mortgage documents were in order and would be registered against the title, before the Bank released the money. The solicitor had been conned by the fraudster who used a false passport and other documents to impersonate the true owner.
The fraud was discovered before the mortgage was registered, but the Bank sued the solicitor for negligence on the basis that if the mortgage had been registered it would have gained the protection of being “on the register” as secured creditor.
The Supreme Court pointed out that there is a difference between what is secured and what is owing. Registration would have given Westpac security over the land. But the Bank’s standard-form loan documents assumed that the person giving the security was the person taking out the loan. The loan document was not enforceable against the true owner of the Remuera property: she never signed it; the fraudster did. By contrast the mortgage document secured monies owed by the true owner. In this case the true owner owed nothing.
The Court ruled that even if the solicitor had registered the mortgage on behalf of the Bank before the fraud was discovered, the Bank would be in no better position – it would have security but no loan enforceable against the owner of the property.
The claim against the solicitor failed. It was for the Bank to pursue the fraudster.
Westpac v. Clark – Supreme Court (3.7.09)
08.09.009