Supreme Court New South Wales

• Medium Neutral Citation: Australian Financial Services and Leasing Pty Limited v All Up Finance Pty Limited [2012] NSWSC 1004
• Hearing dates: 27, 28 August 2012
• Decision date: 27 September 2012
• Jurisdiction: Equity Division
• Before: Associate Justice Macready

Decision

(1) Dismiss the first defendant's cross-claim dated 27 July 2011.

(2) Declare the following documents void and unenforceable:

(a) The mortgage over the Strathfield property dated 15 January 2010;

(b) The deed of guarantee and indemnity between the third defendant as guarantor and the first defendant as financier dated 15 January 2010;

(c) The acknowledgment purportedly signed by the third defendant dated 15 January 2010.

(3) The amount paid into court in these proceedings, being the net proceeds of the sale of the Strathfield property, together with any interest accrued thereon, be paid to the plaintiff in part satisfaction of the debt owed by the third defendant to the plaintiff.

(4) I will hear the parties on costs.

• Catchwords: PAYMENT OF MONEY OUT OF COURT - competing claims by two mortgagees for money held in court - proceeds from sale of third defendant's property - third defendant denies signing security documents in relation to mortgage in favour of first defendant - plaintiff relies on third defendant's evidence to claim priority in relation to money held in court - whether third defendant signed security documents - inferences to be drawn from failure to call potential witnesses
• Legislation Cited: Evidence Act 1995
• Cases Cited: Bringinshaw v Bringinshaw [1938] HCA 34; (1938) 66 CLR 336; Commonwealth Bank of Australia v Munro [2011] NSWSC 128; Dilose v Latec Finance Pty Ltd (1966) 84 WN (Pt1)(NSW) 557; Fabre v Arenales (1992) 27 NSWLR 437; Fazio v Fazio [2012] WASCA 72; Gianoutsos v Glykis [2006] NSWCCA 137; HML v R [2008] HCA 16; Ho v Powell [2001] NSWCA 168; Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1040; Jones v Dunkel (1958) 101 CLR 298; Moore v Moore [2012] FAMCA 387; Romeo v Papalia [2012] NSWCA 221; RPS v R [2000] HCA 3; Payne v Parker (1976) 1 NSWLR 191; Smith v Samuels [1976] 12 SASR 573; Spence v Demasi (1988) 8 MVR 1
• Texts Cited: "Cross on Evidence" (Australian edition)
• Category: Principal judgment
• Parties: Australian Financial Services and Leasing Pty Limited (Plaintiff); All Up Finance Pty Limited (First Defendant); Areca Finance Pty Limited (Second Defendant); Gordana Skarzynski (Third Defendant)
• Representation: Counsel: A R Moses SC & M P Cleary (Plaintiff); R Marshall (First Defendant); K Andronos (Third Defendant); Solicitors: Berry Buddle Wilkins Lawyers (Plaintiff); Jackson Lalic Lawyers (First Defendant); Paul Bard Lawyers (Third Defendant)
• File Number(s): 2010/326066

Judgment

1 This case concerns the execution of a mortgage said to have been given by the third defendant over her home in Strathfield as a security for some short-term finance for her husband's business. It was given in favour of the first defendant. The third defendant denies having signed the mortgage. The answer to the question of whether or not she did sign the mortgage will determine whether the first defendant or the Plaintiff, who also has a mortgage over the house, should take what little funds remain from the sale of the house for five million dollars, which remaining funds have been paid into court.

2 The first defendant agreed that if the court concludes that the third defendant did not sign the security documents, then it has no interest in the property. Neither of the mortgages was registered, but caveats had been lodged to protect each mortgagee's interest.

3 The Plaintiff discontinued its claim against the second defendant, Areca Finance Pty Ltd (Areca), who also claimed a security interest over the house, as a result of a conditional approval of another short-term loan for the third defendant's husband's business.

4 At the commencement of trial, the first defendant and third defendant resolved a cross claim brought by the first defendant against the third defendant with a discontinuance of that claim. The cross claim, which was also against the Plaintiff, sought declarations as to the validity of the mortgage given to the first defendant. Following upon the resolution of the cross claim against the third defendant, she was then called by the Plaintiff as a witness in the Plaintiff's case.

5 The cross claim as it was originally framed sought in the alternative (if the court found that the mortgage was not signed by the third defendant) various declarations and relief said to be based upon estoppel and an allegation that the third defendant's husband signed the mortgage as agent for the third defendant. Those claims were abandoned in final addresses and the only claim for relief by the first defendant against the Plaintiff are claims number 1 to 5, 10, and 12. These claims are for declaratory relief in respect of the security documents in favour of the first defendant, which it says are enforceable, and in respect of the first defendant's claim that it has priority over the plaintiff to the money held in court as its mortgage was prior to the mortgage given to the plaintiff.

BACKGROUND EVENTS

6 It is useful to set out the background of events so that the chronology becomes apparent. I will incorporate some of the material from the parties' submissions, which helpfully included some of this history.

7 The Plaintiff carries on a finance business. It provides customers with finance to purchase commercial or industrial equipment for use in the customer's business. Typically this involves the Plaintiff purchasing equipment from a supplier, upon the presentation of an invoice from a supplier, and then entering into a rental agreement with a customer. Under the rental agreement the customer pays an agreed monthly rental payment but equipment remains the property of the Plaintiff.

8 The first defendant carries on a short-term finance business. It provides customers with brokerage and other financial services by arranging loans from lenders to its customers. Its customers typically have bad credit ratings, and due to the high-risk nature of the lending, the first defendant is able to charge high rates of interest. Its customers usually require these services for the purpose of home loans, debt consolidation, bridging loans, and commercial finance requirements.

9 In late 2009, two companies controlled by Richard Skarzynski, the husband of the Third Defendant, perpetrated a fraud on the Plaintiff. The companies were called Total Concept Projects (Australia) Pty Ltd and Total Concept Productions (Australia) Pty Ltd. In late 2009, Mr Skarzynski approached the Plaintiff purportedly to obtain finance to purchase equipment for the business operated by these companies. The Plaintiff entered into a number of rental agreements with these companies in late 2009 under which the Plaintiff would own certain equipment to be used by these companies and those companies would rent that equipment from the Plaintiff. It was a term of the rental agreements that these companies would make rental payments to the Plaintiff for the equipment purchased by the Plaintiff.

10 In late 2009, the Plaintiff received from these companies a number of tax invoices generated by the manufacturers and suppliers of the equipment that the Plaintiff was to purchase and rent to these companies. The Plaintiff made payment pursuant to those invoices to the manufacturers and suppliers of the equipment believing that it would be the owner of the equipment particularised in the tax invoices. From late 2009 until early 2010 payments were made by the companies controlled by Richard Skarzynski under the rental agreements they had with the Plaintiff.

11 In early 2010, the Plaintiff discovered that the tax invoices were false and were not created by the manufacturers and suppliers whose names appear on the face of the tax invoices. It turned out that the equipment never existed.

12 In early 2010, proceedings were commenced by the Plaintiff against the manufacturers and suppliers (Hills Industries Ltd, Bosch Security Systems Pty Ltd and Jetobravo Pty Ltd) in the NSW Supreme Court seeking to recover the monies that the Plaintiff had paid by mistake of fact to those companies pursuant to the false tax invoices. Those proceedings were heard and judgment was given on 5 April 2011 by Einstein J. That judgment was the subject of an appeal to the NSW Court of Appeal. The hearing in the Court of Appeal has occurred and the Court has reserved its judgment.

13 The third defendant's home in Strathfield was subject to a mortgage to St. George Bank securing a loan of approximately four million dollars and the monthly repayments on that mortgage were in the order of $30,000. There was a default in one payment towards the end of 2009 that was remedied, but it obviously led to the events which occurred thereafter.

14 The husband of the third defendant submitted an application for finance to the first defendant on 10 December 2009 showing the Strathfield property of his wife in his list of assets and liabilities. There was an inspection of that property by an agent of the first defendant, Mr Siva Muniappan, in December 2009. The third defendant does not dispute that she met Mr Muniappan on that occasion but denies having knowledge of the purpose for his visit.

15 On 18 December 2009, the first defendant sent an indicative letter of offer addressed to Richard Skarzynski at the Strathfield property, offering him a loan of $300,000 and an interest rate of 30 per cent per cent per annum. The loan was to be secured by a second mortgage over the Strathfield property. That property was valued as at 21 December 2009 for the purpose of this loan at $5,250,000.

16 The first defendant sent to Mr Skarzynski a (final) "Letter of Offer" dated 12 January 2010 offering a loan for $300,000 for a term of six months at an interest rate of 5 per cent per month. Security for the loan was to be an unregistered mortgage and caveat over the Strathfield property and a guarantee from the owners of the property. If the loan was not repaid within the six months, default interest was to be applied at the rate of 15 per cent per month on any outstanding amount.

17 On or about 15 January 2010, a number of documents were purportedly executed in order to secure the loan. They included:

(1) A loan agreement between the first defendant as lender and the third defendant's husband as borrower. This was executed by Mr Skarzynski and by Troy King, the sole director and secretary of the first defendant.

(2) A deed of guarantee and indemnity between the third defendant as guarantor and the first defendant as financier. This was purportedly executed by the third defendant and by Mr King, however the third defendant denies executing this document.

(3) Two acknowledgements, purportedly signed by each of the third defendant and her husband, however the third defendant denies signing this document.

(4) A mortgage over the Strathfield property between the third defendant as mortgagor and first defendant as mortgagee. This was purportedly executed by the third defendant and by Mr King, however the third defendant denies executing this document.

18 Each of the purported signatures of the third defendant on the documents set out above was witnessed by a Ms Marian Mulvihill.

19 A caveat was lodged by the first defendant over the Strathfield property on 15 January 2010, identifying its interest as a mortgagee under the mortgage. There is a signature purportedly by the third defendant on the section of the caveat recording the consent of the registered proprietor, however the third defendant denies signing this document.

20 In early 2010, after the Plaintiff had discovered that the tax invoices were false, it raised the matter with the third defendant's husband and his business partner. That lead to the third defendant executing, on 23 February 2010, an unregistered equitable mortgage in favour of the Plaintiff over the Strathfield property as security for the payments due by the third defendant's husband's business to the Plaintiff. The third defendant admitted that she signed this mortgage, which post-dated the alleged mortgage given to the first defendant.

21 On 24 February 2010, the Plaintiff lodged a caveat on the title for the Strathfield property in respect of that interest.

22 In February and March there were defaults by the third defendant's husband's business in making the rental payments under the agreements, which were now secured by the mortgage given by the third defendant over her home. These breaches were not remedied and were a breach of the terms of the mortgage.

23 There is no doubt that the third defendant signed the mortgage in favour of the Plaintiff. She admitted this in a meeting with the Plaintiff's representative on 28 April 2010 and she has given evidence to this effect in these proceedings.

24 In early May 2010, the third defendant took an active role in arranging for the sale of her Strathfield property. She liaised with her conveyancing solicitor, Mr David Hooper, to prepare a contract for sale.

25 On 26 June 2010, the Strathfield property was sold for $5,000,000. The sale was settled the 15 October 2010. By this time the third defendant was also receiving advice from another solicitor, Mr Bard, in relation to the litigation, which had been commenced by the Plaintiff.

26 On 22 September 2010, Berry Buddle Wilkins, the Plaintiff's present solicitors, asked the third defendant through her solicitor whether she had signed the mortgage in favour of the first defendant. It was made plain in a response the next day, on 23 September, that the third defendant's position was that she did not sign the first defendant's mortgage and caveat.

27 These proceedings were commenced on 1 October 2010 and on 6 October orders were made for the surplus funds from the sale of the Strathfield property to be paid into court and for a joint handwriting expert to be engaged to prepare a report.

28 On 26 October 2010 $512,378.94 was paid into court. At the time of the hearing the funds in court amounted to $540,908.79 (Exhibit D). The claims of both the Plaintiff and the first defendant are far in excess of the amount of these funds.

THE PLAINTIFF'S CASE

29 The Plaintiff relies on sworn evidence of the third defendant that she did not sign the mortgage in favour of the first defendant. As has been noted in the background there is a joint expert's report, which the Plaintiff tendered (Ex B).

30 In the summary of conclusions the expert stated:

"Pursuant to instructions received, I have undertaken examinations of questioned and specimen signatures in the name Gordana Skarzynski. I concluded as follows:

(a) there is no evidence to suggest that any of the questioned signatures on document Q1 were written by the writer of the specimen signatures attributed to Ms Gordana Skarzynski; and

(b) each of the questioned signatures on document Q2 were written by the writer of the Specimen signatures attributed to Ms Gordana Skarzynski."

31 The document Q1 referred to by the expert was the mortgage in favour of the first defendant. The document Q2 was the mortgage in favour of the Plaintiff.

32 The expert elaborated on the conclusions relating to the document Q1:

"16.The three questioned signatures on document Q1 bear no resemblance to the structure and general form of the specimen signatures attributed to Ms Skarzynski. I consider the differences to be so profound and obvious that I have not included a description of them in this report. I can prepare such a discussion in a supplemental report if required.

17.On the basis of the specimen signatures submitted, I found no evidence to suggest that any of the three questioned signatures on document Q1 were written by the writer of the specimen signatures attributed to Ms Skarzynski.

18.A conclusion of "no evidence" is a weak negative conclusion and should not be interpreted as being in (qualitative) probability terms. I cannot state in definite terms or probability terms that the writer of the specimens did not, for whatever reason, execute one or more of the questioned signatures on document Q1 in a style different from that depicted by the specimen signatures submitted. I am only able to state that, on the basis of the material submitted, there is no evidence to support a proposition that any of the questioned signatures were written by that person."

33 She then turned to the signatures on Q2, which is the mortgage to the Plaintiff. After giving detailed reasons she concluded in paragraph 22:

"22.On the basis of my observations and given the complexity of the signatures, I concluded that each of the three questioned signatures on document Q2 was written by the writer of the specimen signatures attributed to Ms Skarzynski."

34 She then sets out the scope for further work in these terms:

"Scope for Further Work

32.An examination of handwriting of Ms Skarzynski and comparison with the questioned signatures on document Q1 may allow for the expression of more certain findings. Such a comparative examination would, however, be limited by the stylised and mostly illegible nature of the questioned signatures on Q1 and I anticipate may well largely be confined to the letters "G", "S" and "k".

33.An examination of handwriting and signatures of any other possible writers of the questioned signatures on Q1 may also be of relevance to resolving the issue of the questioned signatures on document Q1."

35 The first defendant pointed to the nature of the expert's conclusion, namely "that there is no evidence to suggest" that the third defendant wrote the disputed signatures. The expert report explained this conclusion to mean:

"There are situations where the phrase "no evidence written by" is more appropriate, for example, where there is evidence of possible distortion, and/or where the writings are in a pictorially quite different style. There is a realistic possibility that the specimen writer may have, for whatever reason, written the questioned entry in a style different to their normal writing/signature. Please note that this conclusion does not mean that the writer of the specimens did not write the questioned writing/signature."

36 There was no cross examination of the expert by the first defendant, who did not required her to be called.

37 The Plaintiff made a number of other points. The first was that the first defendant did not call Ms Mulvihill, who was the person who had witnessed the signature of the mortgagor on the disputed mortgage. She was a justice of the peace, who worked with the third defendant's husband. The second matter is that a comparison of the admitted signature of the third defendant with those that are disputed shows a substantial difference between them. Finally, the third defendant says that there were no steps taken by the first defendant or any of its officers, at the time of the purported execution of the mortgage, to meet the third defendant or discuss the execution of the documents with her.

THE FIRST DEFENDANT'S CASE

38 The first defendant maintains that the third defendant did in fact sign the disputed mortgage and submits that her denial of her signature in September 2010 was a recent invention. The first defendant says that it follows from the fact that the disputed signature is so different from the conceded signatures that the third defendant must have had two forms of signature. This was denied by the third defendant. The first defendant also points to the handwriting expert's report and says that it is inconclusive.

39 I return to the first matter, namely the question of recent invention. It was the first defendant's submission that the chronology of events and the documentary train shows that the third defendant was aware of the existence of the mortgage to the first defendant for some time prior to the sale of the Strathfield property and did not, between that time and 22 September 2010, take any step to disavow the execution of the mortgage.

40 The first defendant relies on Mr Muniappan's evidence in relation to his visit to the Strathfield property in December 2009, in particular that he introduced himself to the third defendant as an agent for the first defendant. According to the first defendant, the third defendant would have been aware of the impending mortgage to the first defendant, which would have been confirmed once the third defendant received the loan funds into the joint bank account of the third defendant and her husband.

41 By letter dated 18 January 2010, Jackson Lalic Lawyers, the solicitor for the first defendant, sent the third defendant a copy of the documents that had been executed on or about 15 January 2010. Therefore, the first defendant says that she would have been aware of the mortgage granted to them from about January 2010. The third defendant denied receiving that letter and maintained the stance that at that time she did not open the mail. She said this all changed when she found out about the various caveats in May 2010.

42 On 4 May 2010, the third defendant gave instructions to her conveyancing solicitor, Mr Hooper, to prepare the contracts for the sale of the Strathfield property. Mr Hooper replied on 5 May 2010 by letter in which he carefully set out inter alia details about the encumbrances on the property, which included the registered mortgage to St. George Bank and the three caveats by the first defendant, Areca and the plaintiff. The letter enclosed copies of all the caveats.

43 Having read the letter from Mr Hooper, which she conceded she did see (T28), the third defendant would have been aware of the claim by the first defendant to the loan of $300,000. The caveat contained her purported signature consenting to the lodgement of the caveat as registered proprietor. The signature is similar to the disputed signatures, of which there are other exampled in evidence, both on the security documents and the documents to do with the loan from St. George Bank.

44 Mr David Hooper went on to warn that there would have to be a compromise of a balance payable to the mortgagees so a withdrawal of caveat could be handed over in respect of each caveat to facilitate settlement. He noted that unless there was a substantial compromise, there would be a short fall for the caveators if the property was sold for $6,000,000 (which at that time he understood to be the expected sale price).

45 On 3 June 2010, Mr Hooper wrote to Areca's manager asking for confirmation of the amount outstanding and stating that on the sale of the property he would be require a withdrawal of the caveat. He sent a copy of that letter to the third defendant and her husband on 3 June 2010. Mr Hooper's covering letter also dealt with the other caveats and, dealing with the first defendant, he set out the amount of the loan, repayment date, and interest rate. Mr Hooper then noted that:

"I note your instructions the total amount due is $300,000.00 inclusive of interest due 15 July 2010.

Accordingly, I note your instructions it is not necessary for me the clarify the amount outstanding before the auction."

46 On 8 June 2010, Mr Ryan Kim of Jackson Lalic Lawyers sent a letter to the third defendant enclosing a Deed of Priority to be signed by her. The deed set out the competing interests of St George bank and the first defendant in relation to the Strathfield property. St George bank was not prepared to consent to the registration of the first defendant's mortgage unless this document was signed.

47 On 23 June 2010 Mr Ryan Kim rang the third defendant and had a conversation with her, during which he indicated that he had sent her a Deed of Priority containing incorrect details and would need to send a new one. The third defendant asked him to send it to her email address and said that she would sign it and send it to Mr Kim's office by post. The third defendant doesn't recall the conversation, but having seen Mr Kim in the witness box, I am prepared to accept his evidence in that respect. In due course, on advice, the third defendant refused to sign the Deed of Priority.

48 Mr Ryan Kim also gave evidence that on 10 June 2010 he spoke to Mr David Hooper, who said to him:

"I am aware of All Up Finance's loan of $300,000.00 and my client aims to repay the loan at settlement provided the sale of proceeds are enough to pay out all the caveators. I do not know whether the proceeds will be sufficient to pay out all lenders. At the moment there is one registered mortgage to St. George and three caveators."

49 Mr Kim wrote to his client, the first defendant, confirming that conversation. Notably there was no suggestion during his conversation with Mr Hooper that there would be a challenge to the amount owing to the first defendant.

50 On 14 July 2010, Jackson Lalic Lawyers, the solicitors for the first defendant, wrote to the third defendant regarding the loan due to the first defendant and asked whether it would be repaid by the repayment date, which was the next day. The third defendant did not respond to this letter but conceded that she received it shortly after 14 July 2010. She claimed that she told both Mr David Hooper and Mr Paul Bard, her solicitors, that the information regarding the loan was wrong (T48-49).

51 On 20 July 2010, Mr David Hooper, in a lengthy email to the third defendant and Paul Bard, set out the situation in relation to the amounts owing to Areca, the plaintiff and the first defendant. In relation to the loan to the first defendant, the letter made no reference to the Plaintiff's claim that the amount owing was wrong.

52 Also on 20 July 2010, the third defendant sent an email to Mr David Hooper querying whether St George Bank were entitled to part of the proceeds of sale of the Strathfield property to satisfy her husband's credit card debt. The first defendant says that this correspondence demonstrates that the third defendant was actively managing the sale of the Strathfield property and so would have been aware of the various amounts owing at settlement, including to the first defendant.

53 On 4 August 2010, the third defendant sent an email to Mr David Hooper. She suggested offers to resolve the caveats. One of the offers was to pay All Up Finances Pty Ltd $250,000.

54 On 21 September 2010 the third defendant signed a statement of claim and proxy in her husband's bankruptcy proceedings for a meeting with the trustees. She noted the first defendant's caveat over Strathfield at $350,000. The first defendant used this to demonstrate that the third defendant was aware of the mortgage and caveat granted to the first defendant at that time.

55 I will return to the effect of this evidence shortly.

Credit

56 The third defendant appeared to be a relatively truthful witness. In particular, she was consistent in her denials that she had not signed the security documents relating to the mortgage in favour of the first defendant. However I am of the view that the third defendant consistently downplayed her understanding of her financial affairs. For example, she stated that she did not recall the amount of the St George Bank mortgage repayments (T21) and gave evidence that she did not check her St George account balance regularly. There is evidence, such as her email to Mr Hooper in which she seeks legal advice on whether her husband's credit card debt has to be discharged from the sale proceeds, which suggests that she has a greater understanding of their financial affairs than she acknowledges.

57 Mr Muniappan agreed in cross-examination that he had never been employed by the first defendant and was in fact employed by ANZ at the time of his inspection of the Strathfield property (T67). Despite this, he maintained that he was acting on their behalf in December 2009 and introduced himself to the third defendant as doing so. I prefer the evidence of the third defendant to that of Mr Muniappan on the question of what was said during his visit.

Discussion

58 The first defendant's abandonment of their arguments based on agency and estoppel was probably appropriate. It leaves me only with the difficult task of determining whether or not the third defendant signed the security documents in relation to the mortgage to the first defendant.

59 In determining whether a forgery of the third defendant's signature has occurred, I must have regard to the nature of the cause of action, the nature of the subject-matter of the proceeding, and the gravity of the matters alleged (s 140(2) of the Evidence Act 1995).

60 An allegation of forgery is a very serious one. However the standard of proof remains "on the balance of probabilities". In Gianoutsos v Glykis [2006] NSWCCA 137 the court discussed the standard of proof that applied in civil proceedings where an allegation of serious wrongdoing was involved. Beginning at [45] McClellan CJ at CL (with whom Sully and Hislop JJ agreed) discussed the application of the test set out in Briginshaw v Briginshaw (1938) 60 CLR 336:

"Briginshaw is concerned with the circumstances when the obligation falling upon a moving party requires proof to the "reasonable satisfaction" of the judicial decision maker. That question will be informed by the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description or the gravity of the consequences flowing from a particular finding" (Briginshaw at 362).

When allegations which are being investigated or pursued in civil litigation involve a finding that a crime has been committed, application of the "Briginshaw test" as it has come to be identified has few difficulties. Weight must be given to the presumption of innocence and exactness of proof is expected (Briginshaw at 363).

... [T]he approach to the making of conclusions considered by Dixon J in Briginshaw... should not be understood as imposing a test in civil litigation other than the balance of probabilities. However, what is required is that when loading the scales appropriate weight is given to the matters to which Dixon J referred.

The "Briginshaw standard" is often spoken of quite loosely and as if it is a third standard of proof sitting somewhere between the balance of probabilities and beyond reasonable doubt. This is wrong. As Dixon J points out the civil standard of proof is proof on the balance of probabilities requiring the relevant party to prove the elements of its case to that standard."

61 It is common ground between the parties that there was no face-to-face contact between the third defendant and any representative of the first defendant, except for the meeting with Mr Muniappan in December 2009. No one from the first defendant or its lawyers spoke directly to the third defendant during January 2010 about her signing the documents relating to the first defendant. The relevant documents were delivered to the first defendant's lawyers by the third defendant's husband and received by Mr Kim. Mr Kim did not witness the third defendant's signature.

The allegation of recent invention

62 As stated above, the first defendant submitted that I should be satisfied that the third defendant's claim that the signatures were forgeries was a recent invention.

63 The first occasion on which the first defendant put the third defendant on notice that a mortgage was about to be given to the first defendant was the visit by Mr Muniappan to the Strathfield property in December 2009. Although the third defendant admits meeting him she does not recall the purpose of his visit being in connection with the proposed loan from the first defendant. It may be that she was busy, as she claims, and it may be that her husband did not discuss the loan with her given that it appears from the evidence that he organised the obtaining of loans secured over the Strathfield property. Thus it may well be that she did not recall or attach any significance to what might have been said as to the purpose of Mr Muniappan's visit. I accept the third defendant's evidence as to the visit as it related to her.

64 The third defendant steadfastly denied receiving the letter dated 18 January 2010 from the first defendant's solicitors that enclosed the security documents dated 15 January 2010 (T26). Her evidence was that she did not open the mail around that time. The first defendant suggested to the third defendant that in early 2010 she might have been concerned about opening her mail because she knew that at the end of 2009 there might have been a missed payment to St. George Bank. Her answer was simply that the payment was met and they moved on (T26). Her evidence was consistent that she did not open her mail in early 2010. Similarly the third defendant denied receiving the invoice from Areca dated 27 January 2010 (T36). The likelihood of her not opening the letter from Areca is fairly high. I accept that the third defendant did not receive the letters in January 2010 enclosing the security documents and the Areca invoice because she did not open her mail at that time.

65 The defendant stated that she started opening the mail from May 2010 and that she would have received Mr Hooper's letter of 5 May, enclosing the caveat in favour of the first defendant, soon after it was sent (T25-26). She says she first heard about the first defendant in about May 2010 and by June 2010 had told her solicitors that she disputed the mortgage to the first defendant (T38-T39).

66 Given the form of the question asked at T38.42 it is not clear whether the third defendant told the solicitors that her signature was forged or that she told them she disputed the debt to the first defendant. Later at T49 she says she disputed this debt. However, at T58 she comments that she knew that the contract for sale of the Strathfield property included the caveat with her disputed signature on it and claims that she told her solicitors of the dispute. Given the history of what the third defendant's solicitors did over the period from May through September 2010 in terms of corresponding with the first defendant without mentioning that the mortgage was disputed, I am not satisfied that the third defendant told her solicitors that she disputed the debt to the first defendant and her signature on the caveat. It is perfectly apparent that those facts were not brought to the attention of the solicitors and it may well have been that the third defendant thought that she was bound by the mortgage to the first defendant because of something that her husband had done. There is a possibility that she may have raised something with the solicitors and then decided not to raise it with the parties in some endeavour designed not to upset the sale. In the letter of 3 June 2010 from Mr Hooper to the third defendant he carefully notes her instructions that "it is not necessary for me to clarify the amount outstanding before auction".

67 There is no evidence to suggest that the third defendant should have seen the signatures on the mortgage before September 2010. She did agree that she had seen her signature on the form of the caveat in favour of the first defendant in May and claimed that she was shocked about the caveats. However the situation appears to be that she was first shown the mortgage signatures and asked whether they were hers in September 2010.

68 The third defendant gave evidence that she wanted to sell the Strathfield property quickly, without a big sales campaign (T27). It may have been that feeling bound by the documents, she tried to compromise the creditors' claims. There was no exploration of this aspect in cross-examination. Given that I reject her evidence of having told her solicitors of the dispute about the debt and her signature on the caveat it is open to me to conclude that the suggestion that she did not sign the mortgage is a recent invention. Such a decision has to be made after taking into account the other evidence in support of her claim that she did not sign the mortgage.

The expert report

69 The expert report provides a "weak negative conclusion" (at [18] of the report and the annexed definitions). However the unchallenged conclusion remains that the expert found no evidence that any of the signatures on the mortgage to the first defendant were written by the third defendant. At the same time, the expert was able to conclude that the mortgage to the plaintiff had been signed by the third defendant.

70 I have already referred to the possibility that the third defendant may have two forms of signature. The expert report leaves this possibility open. As in the pro forma Appendix to the report it is stated "there is a realistic possibility that the specimen writer may have ... written the questioned entry in a different style."

71 The first thing to observe about this possibility is that there is no positive evidence as to the existence of such a practice. It was denied by the third defendant. The second thing is that I disagree with the first defendant's submission that the disputed signatures are reasonably consistent, thereby adding weight to the first defendant's argument that the third defendant had a second form of signature. If one compares some of the alternative forms of signatures it is plain that they are not the same as there are a number of differences apparent amongst them. For example, the four signatures on the St George loan application (contested at T18-19) are quite different when compared to one another, and when compared to the Areca Letter of Offer dated 21 December 2009 and the signature on the caveat to the first defendant. The signatures on the mortgage in favour of the first defendant are also, as between themselves, quite inconsistent.

72 The expert at page 5 of her report enumerates similarities between the signatures on the mortgage to the plaintiff that she used to confirm that the same person executed them all. These included the shape of the first letter "k" and the form of abbreviation of what the expert took to represent the letters "ynski".

73 The expert report examines only the signature on the mortgage documents and not those on the other security documents related to the first defendant's cross-claim. However, having reviewed the signatures on the Guarantee and Indemnity, and the Acknowledgment in the third defendant's name, I consider that they are not similar to the signatures accepted by the third defendant to be genuine. In reaching this view I was helped by the expert's analysis of the similarities between the accepted signatures.

Inferences from failure to call Ms Mulvihill and third defendant's husband

74 Evidence was not called from two people who might have been able to given important evidence in relation to the signature, namely Ms Muvihill and the third defendant's husband. The plaintiff invited me to draw an adverse inference against the first defendant because of their failure to call those witnesses.

75 The failure to call Ms Mulvihill, who was a witness to the signature on the mortgage was an important matter. As I have said, she was a person who worked for, or with, the third defendant's husband and appears to be a Justice of the Peace. It is plain that she could give evidence of the signature on the documents. Neither party gave any evidence as to her whereabouts but an email from her is in evidence.

76 The plaintiff submitted that I should draw a Jones v Dunkel inference against the first defendant for its failure to call Mr Mulvihill. The so-called rule in Jones v Dunkel (1958) 101 CLR 298 permits the Court to draw an inference that the uncalled evidence would not have assisted the party who failed to call it and entitle the trier of fact to more readily draw any inference fairly to be drawn from other evidence: "Cross on Evidence" (Aus ed), at [1215]; Romeo v Papalia [2012] NSWCA 221 at [121]. However the failure to call the witness cannot be used to fill gaps in the evidence: Romeo v Papalia.

77 Strictly speaking, as Hodgson JA (with whom Beazley JA agreed) pointed out in Ho v Powell [2001] NSWCA 168, Jones v Dunkel related to a situation where there was evidence supporting an inference against a party, and that party did not give or call evidence, which that party was plainly in a position to have given or called, in order to explain or contradict the material presented. His Honour said that in his opinion, a similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case (at [15] - [16]).

78 The rule is a specific application of the well-established principles that a party is expected, within reasonable limits, to produce at the trial all the evidence that is fairly available to him: Spence v Demasi (1988) 8 MVR 1 at 12. The principle does not extend to drawing an inference that the uncalled evidence would in fact have been damaging to the party not calling it: Moore v Moore [2012] FAMCA 387 per Strickland J at [84]. Similarly, in civil cases, the unexplained failure of a party to call witnesses is not treated as evidence of fear that it would expose an unfavourable fact, nor as an assertion of the non-existence of the fact not proved: HML v R [2008] HCA 16; Fazio v Fazio [2012] WASCA 72.

79 In relation to Ms Mulvihill and the third defendant's husband, the first question, in my view is: which party is expected to call her or him? The cases deal with this by asking: to which party is the witness available, or what "camp" is the witness in? See for example Commonwealth Bank of Australia v Munro [2011] NSWSC 128 at [44]; Payne v Parker (1976) 1 NSWLR 191 per Glass JA. The second question is whether the witness' evidence would elucidate a particular matter. The final question is whether that party could be fairly expected to call Ms Mulvihill or the third defendant's husband, or whether there is a reason that properly explains their absence, other than that the witness would not assist that party's case.

80 Cox J summarised these questions in relation to a supporting witness (as opposed to a party not giving evidence) in Spence v Demasi, as follows:

"So far as a potential supporting witness is concerned, the court will first have to decide whether his absence should be regarded as telling against one party rather than the other - whether, in the nature of things, he should be put in a particular camp or simply seen as available equally to both sides. Even where that test is satisfied, an adverse inference cannot be drawn if there is an obvious or proved, and satisfactory, explanation for the failure to call the witness. That will depend upon the facts of the particular case."

81 In relation to the first matter, the significance of the inference depends on the closeness of the relationship of the absent witness with the party who did not call the witness: "Cross on Evidence" at [1215]; Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1040; Dilose v Latec Finance Pty Ltd (1966) 84 WN (Pt1)(NSW) 557 at 582.

82 Once it is established that a witness is available to one of the parties, the tribunal of fact must be satisfied that he probably would have the relevant knowledge or there would be no basis for any adverse deduction from the failure to call the witness: Payne v Parker.

83 Finally, it is necessary to verify that the potential witness not only could shed light on the subject in dispute, but also would ordinarily be expected to do so: RPS v R [2000] HCA 3. In relation to reasons why a party might choose not to call a witness, without attracting a negative inference against them despite the witness being in their "camp" and being able to elucidate a matter, Bray CJ said in Smith v Samuels [1976] 12 SASR 573:

"For the unfavourable inference to be justified the witness not called must be available: it must be 'in the power' of the party to call him. He may be unavailable through absence or illness. He may be unavailable because he would not be a competent witness. In my view he may also be unavailable in the relevant sense, or at least no unfavourable inference should be drawn from his absence, when there are strong reasons for not calling him other than the falsehood of the story he might be expected to confirm, such as his hostility to the party or, I would say, jeopardy or grave prejudice to the witness himself...." (emphasis added)

84 In this case there has been evidence adduced supporting the plaintiff's case that the third defendant did not sign the mortgage to the first defendant, namely the third defendant's evidence and the expert report. The first defendant could have called Ms Mulvihill to contradict that evidence. Plainly she would be the person with knowledge of who executed the mortgage. However, the first defendant has not called Ms Mulvihill and no explanation has been given as to why she was not called. Therefore, in my view, I am entitled to draw the inference that her evidence would not have assisted the first defendant's case.

85 The plaintiff also drew to my attention the fact that the third defendant's husband was not called.

86 The third defendant did not in her evidence in chief suggest who might have forged the documents. Similarly, the first defendant did not cross-examine the third defendant as to whom she believes forged her signature. Given that the mortgage documents were handed by the solicitors to the third defendant's husband, who took them away and returned them signed, and who also benefited from the loan secured by the mortgage, he could have been called to give helpful evidence. However, I do not think that the third defendant's husband can be said to be in the "camp" of either the plaintiff or the first defendant such that I might draw an adverse inference against either party for not calling him. While clearly he has a very close relationship with his wife, the third defendant, that does not translate in this case to having a close relationship with the first defendant, given that the third defendant and the first defendant maintain opposing versions of events.

87 He is also not available to the parties in the relevant sense given that what he might say in evidence could be unknown to them. I would not expect a party to call the husband "blind" in the hope of bolstering their case. Most importantly, a Jones v Dunkel inference may not arise if a witness has a reason for not telling the truth or refusing to assist and the party who may call the witness is aware of this: Fabre v Arenales (1992) 27 NSWLR 437. In Fabre, Mahoney JA (with whom Priestley and Sheller JJA agreed) said at 449-450:

"The significance to be attributed to the fact that a witness did not give evidence will in the end depend upon whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so. But there are circumstances in which it has been recognised that such an inference is not available or, if available, is of little significance. The party may not be in a position to call the witness. He may not be sufficiently aware of what the witness would say to warrant the inference that, in the relevant sense, he feared to call him. The reason why the witness is not called may have no relevant relationship to the fact in issue: it may be related to, for example, the fact that the party simply does not know what the witness will say. A party is not, under pain of a detrimental inference, required to call a witness 'blind'." (emphasis added)

88 Neither party would know what the third defendant's husband would say about signing the mortgage and they would be calling him blind. If his evidence was to be that he forged the signatures he would claim privilege under s 128 of the Evidence Act and the court might not require him to answer questions on that topic under s 128(4). I do not draw an inference against either party for their failure to call the third defendant's husband.

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Determination

89 A consideration of the evidence in support of the third defendant's claim, my own inspection of the various signatures and the failure to call Ms. Mulvihill leads me to reject the first defendant's suggestion of a recent invention. There are a number of reasons why the denial of signatures only emerged in September before the proceedings commenced.

90 I accept that the security documents in relation to the mortgage to the first defendant were forged. It follows that the amount paid into court in these proceedings, being the net proceeds of the sale of the Strathfield property, together with any interest accrued thereon, be paid to the plaintiff in part satisfaction of the debt owed by the third defendant to the plaintiff and I should dismiss the first defendant's cross-claim dated 27 July 2011.

91 The Plaintiff has requested that it be given the opportunity to make submissions on costs after judgment is delivered and I will allow that to occur.

Orders

92 I therefore make the following orders:

(1) Dismiss the first defendant's cross-claim dated 27 July 2011.

(2) Declare the following documents void and unenforceable:

(a) The mortgage over the Strathfield property dated 15 January 2010;

(b) The deed of guarantee and indemnity between the third defendant as guarantor and the first defendant as financier dated 15 January 2010;

(c) The acknowledgment purportedly signed by the third defendant dated 15 January 2010.

(3) The amount paid into court in these proceedings, being the net proceeds of the sale of the Strathfield property, together with any interest accrued thereon, be paid to the plaintiff in part satisfaction of the debt owed by the third defendant to the plaintiff.

(4) I will hear the parties on costs.

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Decision last updated: 27 September 2012