Solicitor not liable for creditor's loss

A solicitor who failed to register a mortgage promptly was not liable for the creditor's loss, because the borrower was an impostor.

This case¹, heard in New Zealand's Supreme Court, was an appeal by the creditor from the Court of Appeal's ruling that the creditor could not claim loss by reason of a solicitor's undertaking to promptly register a mortgage.

The solicitor acted for both the creditor and the borrower in preparing the documentation for the mortgage. As it turned out, the borrower was an impostor, and was not the registered proprietor of the property the subject of the mortgage. The solicitor's certificate sent to the creditor contained the relevant undertaking to promptly lodge and submit the documents for registration.

The creditor had advanced a large sum to the impostor, which was secured by an all-obligations mortgage that was also executed by the impostor. The solicitor failed to register the mortgage promptly and, by the time it was lodged for registration, the fraud had been discovered. In the meantime, a caveat had been registered, which precluded registration of the mortgage.

The creditor argued that, if the mortgage had been registered before discovery of the fraud, the creditor would have had indefeasible title as mortgagee.

The creditor contended:

• that the void forged mortgage would have been treated as valid under the indefeasibility provisions of the Land Transfer Act 1952 (LTA) if it had been registered without fraud on its part before it became aware of the deception; and

• that the solicitor's failure to register the mortgage before discovery of the forgery deprived it of statutory validation.

As a result, the creditor claimed it had suffered loss of moneys advanced and the interest the loan continued to bear under the terms of the loan agreement, because it was unable to exercise power of sale of the property.

The Court of Appeal determined that the terms of the creditor's advance were recorded in a loan agreement, which was also a forgery and therefore a nullity, and not in the mortgage. Accordingly, even if the mortgage had been registered, no moneys were thereby secured and therefore the creditor could not claim loss by reason of the solicitor's failure to register the mortgage promptly.

The Supreme Court upheld the Court of Appeal's decision, agreeing that an indefeasible registered mortgage secured nothing if the debt in respect of which it charged the land was an obligation derived from a forged loan agreement. Therefore, the creditor had not shown it suffered loss through failure by the solicitor to register the mortgage.

¹ Westpac New Zealand Limited v Clark [2009] NZSC 73

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