Thou shalt not bear false witness

While the recent jailing of former judge Marcus Einfeld for perjury in trying to avoid a traffic ticket is a stern reminder not to tell fibs, a New South Wales court decision has rung warning bells to all who witness the signing of property documents.

The law is familiar, the NSW Court of Appeal judge observed, with cases where someone forges a property owner's signature on a mortgage, induces someone else to witness the forgery then borrows money on that security. “Often the forger has been the husband of an unsuspecting wife,” His Honour added.

With these observations Judge Ipp began his judgment in the landmark case of Graham v Hall, where one of the parties was just such an unsuspecting wife. David Graham, a Justice of the Peace, lost his appeal against a lower court's ruling (and its $136,479.66 damages order) after he was sued by Kaylene Hall. The Court of Appeal ruled that Mr Graham breached the duty of care he owed Mrs Hall when he purported to witness forgeries of her signature on mortgage documents without knowing her or seeing her sign. The reason signatures on property documents must be properly and protectively witnessed, the Court explained, is that there is always a serious risk of loss resulting from forgery.

When Mrs Hall's husband found himself in financial difficulties, he told a friend he would refinance the family home to pay his debts. His wife was the only obstacle. If she found out how badly he was running his tank manufacturing business, their marriage would be over.

However, he confided to his friend, he would solve this problem by forging his wife's signature and not telling her anything. The friend warned him not to do this, or Mr Hall would go to jail.

Mr Hall ignored this advice and went not to jail, but to his grave. He died two years after carrying out his wicked plan and obtaining a private mortgage-secured loan from a Denise Abela.

Mr Hall had at the time instructed Ben Gelin, a Bathurst-based solicitor, to act for him and Mrs Hall in effecting Ms Abela's mortgage and supervising its registration. When the solicitor explained that both Halls would have to sign documents with him, Mr Hall said his wife was dying of cancer and could not go to the solicitor's office. When Mr Hall then offered to take the papers away for her signature, Mr Gelin said he would need to talk to Mrs Hall. Mr Hall replied that his wife would not agree to this because she was still bitter about how he, Mr Gelin, had behaved when he previously acted for a creditor against Mr Hall.

Mr Gelin believed Mr Hall's lies, and had no contact with Mrs Hall. She did not have cancer. She knew nothing of her husband's financial difficulties, the mortgage loan or of her husband's visit to Mr Gelin.

The solicitor would later concede in court that he had heard “alarm bells” because he was aware of Mr Hall's past financial problems and his propensity for bad business management. Mr Gelin appreciated there was a risk that the family home could be sold if Mr Hall defaulted.

Another cause for the solicitor’s concern was that the balance of the money being advanced (after paying out the existing mortgage and clearing some business debts) was paid to Mr Hall alone. Unfortunately, Mr Gelin took no steps in these circumstances to ensure that his apparently dying client, Mrs Hall, was really agreeable to significantly increasing the debt over the jointly-owned family home.

Mr Gelin testified that he observed Mr Graham's witness signature on the documents, that he knew him and thought, “This is a fair dinkum execution”. Nevertheless, the trial judge said Mr Gelin could have telephoned the witness and asked about Mrs Hall. He could have personally visited her, or he might have arranged for someone from his office to visit his client. At worst, he could have telephoned his absent client. As a result, Mr Gelin was held negligent for not taking reasonable precautions to protect his client's interests.

One of the documents bearing Mrs Hall's forged signature indicated that it had been signed in front of Mr Graham as witness, while he witnessed another - the mortgage document itself - and recorded that it was “signed in my presence by the mortgagor who is personally known to me”. Despite Mr Graham's attestation, Mrs Hall signed nothing. She was never in his presence, and did not know him. Her signature on each document was a forgery.

In due course, as lawyers say, Ms Abela's mortgage was registered. Only after her husband died, did Mrs Hall discover this unexpected encumbrance over her home. Worse, she soon learned that her late husband had been in default and that Ms Abela was about to exercise her power of sale.

Mrs Hall, not only grieving but also outraged and worried, promptly went to Bathurst lawyers, McIntosh McPhillamy & Co, where solicitor Chris Nicholls set about halting Ms Abela's default action and suing the solicitor and the JP.

The trial judge found Messrs Gelin and Graham both negligent and liable for Mrs Hall's damages which were what it cost her to pay out Ms Abela. The prime liability fell on the solicitor whose professional duty required him to act reasonably and protectively. He had to pay 60 per cent of Mrs Hall’s damages while 40 per cent fell to Mr Graham because of his failings.

Mr Graham appealed against this decision. Because economic loss was involved, the Court of Appeal first identified the interest for which Mrs Hall sought protection - joint ownership of her home. This interest must have been obvious to Mr Graham, the court remarked, when he purported to witness her signature as mortgagor. The risk of harm to Mrs Hall's interest arose from the fact that the falsely-attested mortgage was likely to be registered on the title. This risk was not only foreseeable but also self-evident.

Having established the foreseeability of this risk, the court then held that Mr Graham owed a duty of care to Mrs Hall - not unlike that owed by solicitors to beneficiaries when preparing wills. In this regard the court relied upon a recent High Court ruling that a solicitor, when ensuring the proper execution of a client's will, owed a duty of care to any intended beneficiaries under that will. (The solicitor in that case was liable in negligence to a beneficiary who missed out because the will in question was not validly executed.)

Mrs Hall's vulnerability was also significant in determining the care expected of a witness in these circumstances. The court acknowledged that, because the system of transmission of property interests accepts the reality of property owners' vulnerability to fraud, critical documents must be properly and honestly witnessed. To refrain from imposing a clear duty of care on a falsely attesting witness would, in the court's view, impair the reliability of the real property registration system.

Justices of the Peace and others (such as Commissioners for Oaths/Affidavits, solicitors and licensed conveyancers), who attest that they witnessed signatures being made before them when that is not true, commit an act which the court described as the very “antithesis” of their protective function. Such dishonest misrepresentation, the court explained, strikes at the heart of the system which witnessing officers are charged to protect.

Although Mr Graham did not testify in the lower court and called no evidence, it would seem that Mr Hall may have forged his wife's signature himself, and did not have someone impersonate her while signing in front of Mr Graham.

Whatever really took place, the JP was found derelict in his responsibilities, particularly having regard to his Oath of Office. This dereliction and breach of duty clearly caused Mrs Hall's loss.

While Mr Graham's conduct had, in the words of the court, “material causal potency” and was “morally blameworthy”, the solicitor was simply professionally negligent. That said, no matter how morally blameworthy the JP's conduct had been, the solicitor could have obviated this with inexpensive basic investigations regarding Mrs Hall's agreeableness to taking out a mortgage loan. Hence greater liability was attributed to him.

(Mr Graham also appealed on the basis of claimed immunity under Section 135 of the NSW Justices Act 1902. This immunity claim was largely rejected because his attestation was voluntary and not an exercise of his “duty as a justice”.)

The imposition of the above duty of care on witnesses of property documents is hardly onerous. Judge Ipp suggested that the standard of care required that a witness be honest and not only ensure a signature is made in his presence, but also identify the signatory as the person in the document - by simple reference to a passport or driving licence.