Auzora P/L v Andrewartha No. DCCIV-98-1870

AUZORA PTY LTD v KAREN ANDREWARTHA
[2000] SADC 17

Judge Lunn
Civil

Prior to 1997 G C Growden Pty Ltd (“Growdens”) carried on business in Adelaide as a finance broker. Mr Graham Growden was the head of the company. Persons wanting to borrow money approached Growdens. Their loan applications were considered by its Sales Department headed by Michael Sheedy. Loans had to be secured against real estate and to be no more than 70% of a valuation of the property over which the security was to be given. A written valuation had to come from one of a panel of four valuers nominated by Growdens, but borrowers could make their own arrangements with a valuer on the panel to obtain it. Growdens charged a procuration fee to the borrowers of about 1.5% of the amount borrowed and required borrowers to pay a number of other incidental fees. The interest rates charged were several per cent above those of banks as it was regarded as relatively high risk lending.
Once a loan application had been approved by the Sales Department the papers were sent to Growdens’ Investment Department which was headed by Robyn Gatjens. Growdens dealt with about 2,000 persons who had money to invest. In effect they matched borrowers with investors, although often a number of small investors had to combine their moneys to provide enough to fill the amount of a particular loan. Where a loan was above $500,000 Ms Gatjens needed the approval of Graham Growden before she could finalise it.
When lender clients of Growdens had authorised their money to be applied to a particular loan to a borrower client of Growdens the file was sent to a registered conveyancer employed by Growdens who prepared the necessary security documents and organised and attended at a settlement when the money was handed over and a mortgage in the lenders’ names was registered on the title of the borrower’s land.
After settlement was completed the conveyancer forwarded the file to Growdens Mortgage Management Department which thereafter handled the matter, received interest payments from the borrower and distributed them to the lenders. Growdens charged the lenders a mortgage management fee, which was usually 7 or 8% of the interest received, but that was the only fee which it charged to the lenders.
Associated Savings Pty Ltd (“Associated”) was another company controlled by Graham Growden. Moneys received from borrowers were deposited with Associated pending them being applied to particular loans. Where part of a borrowing was to be held back after settlement awaiting future conditions to be satisfied, such as the completion of a future stage of building work, this money was also deposited in Associated. Associated invested its funds on the short-term money market.
In 1984 the defendant qualified as a licensed land broker. Since the Conveyancers Act 1994 came into operation she has been a registered conveyancer under that Act by virtue of her previous registration as a land broker. That Act had the effect of changing the previous designation of a licensed land broker to that of a registered conveyancer. Apart from a few years when she was living interstate and having a family she has worked since 1984 as a land broker and later as a conveyancer. As from 30 March 1995 she was employed by Growdens as a conveyancer at a salary of $30,000 per year plus a 5% commission on mortgage settlement income. She was one of three conveyancers then employed by Growdens and her particular responsibility was for securities for new loans. She entered into a written Employment Agreement dated 10 May 1995 which required her to carry out the lawful directions of the managing director or his delegate. Her immediate superior was Robyn Gatjens to whom she reported. She had no role in either negotiating the loans which were made to borrowers or in arranging for investors to lend money. She had very little contact with the lenders. She did not concern herself with the valuations which had been obtained. She relied on the Sales and Investment Departments having properly set up the transactions. Although the valuations were on the files which she received, she did not read them except for the limited purpose of ensuring that the properties over which the mortgages were taken corresponded to those described in the valuations. Her well-defined role within Growdens was to prepare and arrange for the execution of the mortgages and other security documents, organise the settlements, attend upon them and report to borrowers when the settlements had been concluded. During the time that she worked for Growdens she did not carry on in her own right any business as a conveyancer.
Mr David Morgan is a solicitor who since prior to 1993 has carried on a legal practice under the name of “Morgans” at 154 King William Road, Hyde Park. In 1993 he incorporated a company Shelvan Pty Ltd (“Shelvan”) in which he was a shareholder and a director. The other director of it was the accountant of his legal practice who held the other issued share in trust for him. He used Shelvan for his personal investments. In December 1995 he incorporated the plaintiff company in which he is the sole director and shareholder also for his personal investments. It was common ground that Shelvan was struck off as a company in 1994 for failing to lodge returns and that as at the commencement of this trial it had not been restored to the Register. By an application taken out about a week before trial the defendant sought leave to amend to raise new grounds of defence based on Shelvan having been struck off the Register of Companies. A Master referred the application to be dealt with by the trial Judge at the commencement of the trial. The plaintiff contended that it was prejudiced by the lateness of the application because various documents had been destroyed. With the concurrence of counsel I adjourned the defendant’s application until after I had delivered these reasons on the basis that if I found that the plaintiff was otherwise entitled to succeed I would then deal with the application to amend, and, if it was allowed, then hear further evidence and argument on the points raised before entering final judgment.
In 1993 Mr Morgan had $70,000 available to invest. He approached Growdens which arranged to have it lent to people called Marschall on the security of a 1st mortgage over land valued at $135,000. He negotiated with Growdens a special mortgage management rate of 1% of the interest received. He took a good deal of interest in the documentation for this transaction and required to hold the duplicate mortgage and title himself. The money was lent in the name of Shelvan. This mortgage was discharged in December 1995 on the basis that Growdens would hold the principal sum awaiting Mr Morgan’s agreement to a further investment for it through Growdens.
Share Investment Concepts Pty Ltd (“SIC”) was a company which carried on business as a property developer and of which Brian Flew and Barry Horsell were the directors. Another property developer, Graham Hack, also had some undefined association with it, but he was not a director of it. On 20 September 1995 SIC apparently through the agency of a related company Coree Pty Ltd (“Coree”), entered into a contract to purchase about 31 hectares of vacant land at Aldinga (“the Aldinga land”) from D&S Securities Pty Ltd (“D&S”) of which A. Gerovasilis was a director. The purchase price was apparently $435,000. SIC approached Growdens for finance to enable it to purchase this land and to fund works necessary for its subdivision. Growdens initially declined to provide the finance, but SIC pressed its application. SIC approached Egan National Valuers SA (“Egans”), a firm of valuers which was on Growdens approved panel of valuers, to obtain a written valuation of the Aldinga land. Egans submitted a written valuation based on an inspection of 29 September 1995 stating that the current fair market value of the Aldinga land for mortgage purposes was $1.5 million. The valuation was addressed to SIC and included a disclaimer:
“This valuation is for the use only of the party to whom it is addressed and for no other purpose. No responsibilities excepted to any 3rd party who may use or rely upon the whole or any part of the content of this valuation.”

No one seems to have paid any regard to this disclaimer.

On 5 December 1995 D&S issued a notice to complete the purchase of the Aldinga land and threatened to terminate the contract if settlement did not take place by 19 December 1995. SIC renewed its application to Growdens for finance. Shortly before 11 December there was a meeting between Robyn Gatjens, Sheedy and Growden at which the proposal was discussed. At that time two other borrowers, Primrose Bay and Wexhaven, which were associated with Hack, were about $42,000 in arrears in their payments due on various loans which Growdens had arranged and were managing. Because of a fall in property values there was likely to be a deficiency of about $107,000 on those loans if there had to be a forced sale of the mortgaged land. Graham Growden authorised the loan to SIC upon condition that it agreed to $42,000 from the principal of the loan being used to pay these arrears of Primrose Bay and Wexhaven. It was also negotiated that various other payments would be made out of the principal sum to meet other outstanding debts. Growdens was acting in its own interest in approving the loan on the basis that this $42,000 was to be used to pay the debts of Primrose Bay and Wexhaven, and probably in some of the other moneys which were to be applied in various ways from the borrowing.
The loan was set up by Growdens on the basis that SIC would borrow approximately 70% of the valuation of the Aldinga land of $1.5 million which was a principal sum of $925,000. It was agreed that of this sum $138,000 would be held in Associated to pay for subdivision works after they were completed and $134,211 would be also retained in Associated as the interest payable on the loan for the first twelve months. On 11 December 1995 Growdens issued an offer to SIC for a loan on these terms for a period of one year at an interest rate of 14.5% per annum and secured by a 1st mortgage over the Aldinga land. It was accepted by SIC on 12 December. It was a term of the loan that Horsell and Flew would give personal guarantees. SIC was to be represented in its purchase of the Aldinga land by Peter Stokes, a registered conveyancer.
On 12 December Robyn Gatjens sent letters to numerous small investors known to Growdens offering them a share in the proposed loan to SIC. Because of the size of the loan of $925,000 Growdens had to organise numerous small investors to combine to produce enough money to make the loan. Those investors were then to take a joint mortgage to secure it. One of the letters was sent to Shelvan because it was known that the $70,000 which it had previously lent to Marschall was about to be available again for loan to another borrower. The letter received by Shelvan stated that the purpose of the loan was to assist SIC in the purchase of land and to undertake the first stage of a subdivision of twenty allotments, that the first advance was to be $652,789 and that the balance would be held in Associated until further works had been carried out. A copy of Egans’ written valuation was sent with the letter. Also enclosed was a duplicate Mortgage Investment Authority form (“the Mortgage Authority”), one copy of which was to be signed and returned if the proposal was acceptable.
Shortly after 13 December, and before 20 December, there was a telephone discussion between Mr Morgan and Robyn Gatjens. Gatjens then agreed to the continuation of the 1% management fee in lieu of the 8% mentioned in the Mortgage Authority. She indicated that Growdens would be lending up to 70% of the valuation. Mr Morgan asked her for the sale price of the land, but she said, as was the case, that she did not know it but that she would find it out and let him know. Mr Morgan also asked her for a copy of the settlement statement. Gatjens did nothing to respond to those requests. Mr Morgan later drove down to Aldinga and inspected the land. On about 20 December he had a telephone discussion with Jenny Henwood, another conveyancer employed at Growdens, about the discharge of the Marschall mortgage. When he attempted to discuss with her details of the proposed SIC mortgage she said he would have to speak to the defendant who was handling that settlement and she would have her ring him.
Early on the morning of 21 December the defendant rang Mr Morgan. It was their sole direct communication. She said that she needed his agreement for the SIC mortgage and requested that he fax the Mortgage Authority to her if he wanted to proceed. He indicated he had not received the settlement statement which he had requested from Robyn Gatjens. He also said he wanted copies of the mortgage and of the directors’ personal guarantee. The defendant replied she would get them to him. He did not ask her the direct question of what was the sale price of the Aldinga land, although, if he had asked her, there is no reason why she would not have told him as she then knew it. Mr Morgan at that stage trusted Growdens and regarded it as “a blue ribbon firm”.
Mr Morgan decided to proceed with the investment in the SIC mortgage, although it was common ground that there was an implicit understanding that if his request for the further documents was not complied with the Mortgage Authority which he forwarded would not be acted upon by Growdens. He completed the Mortgage Authority but he placed the plaintiff’s name on the form as the investor in lieu of that of Shelvan which had previously been placed there by Growdens. It was always understood that the subject matter of the Mortgage Authority was the $70,000 which Growdens held from the discharge of the Shelvan mortgage from Marschall. Mr Morgan placed a handwritten note on the Authority which read, “Note: management fee of 1% applies. Copies of mortgage required prior to settlement as well as guarantees and settlement statement.” He signed it and faxed it to Growdens at 10.15am on that day. What response Growdens made to his request for the settlement statement and other documents will be dealt with later in paragraphs 24-28.
Meanwhile at Growdens steps were being taken to try and effect settlement on the SIC loan by 22 December. After the letters to potential investors had been sent out on 12 December the file had been passed to the defendant. She prepared the mortgage document and the personal guarantee, but the names of the mortgagees were not included at that stage as she did not know who they all were. She sent those documents to SIC on 14 December. In the course of preparing the mortgage she read that part of Egans’ valuation which identified the Aldinga land, but she did not read any other part of it. Shortly afterwards she received the executed documents back from SIC together with an undated payment authority authorising how the $925,000 was to be disbursed. On 18 December she received a settlement statement dated 15 December from Peter Stokes, the conveyancer for SIC. This document made it clear that the purchase price of the Aldinga land was $435,000. Certainly by the time of the receipt of this statement, if not before from other documents on the file, the defendant knew that this sum was to be the purchase price for the Aldinga land.
On 21 December Robyn Gatjens was still desperately trying to raise the $935,000 which was needed to fill the loan. This was primarily her responsibility, and not that of the defendant. Christmas was looming and there were difficulties in communicating with some potential investors. Some of the money needed to meet the loan was already in Associated and other portions of it were put into the Growdens’ trust account as they came in. Eventually, 38 investors were required to make up the total of $935,000 and the plaintiff was the largest of them.
The defendant was liaising with Peter Stokes about arrangements for the settlement. The undated authority received from SIC had referred to $513,605 to be paid to the trust account of Peter Stokes at settlement. On 21 December Stokes sent a fax to the defendant asking that $419,489 be made payable to the ANZ Bank, which was presumably to discharge the existing mortgage on the Aldinga land. He requested a further cheque for $44,115 be payable to his trust account. He then rang the defendant and requested a further bank cheque for $50,000 to be made payable to A. Gerovasilis. Gerovasilis was a director of D&S, but the defendant did not then know this and made no inquiries about who he was or why he was being paid $50,000. Those three cheques totalled the amount which SIC had authorised in writing of $513,605. The defendant acted on this undated authority and on what she was requested by Stokes and did not seek any further authority on the topic from the plaintiff or any of the other investors.
Settlement eventually took place on 27 December 1995 which was apparently the first working day after Christmas. Robyn Gatjens provided to the defendant on that morning a list of the 38 investors, with the amounts to be contributed by each of them, totalling $935,000. However, some of that money was drawn on the authority of Robyn Gatjens out of Associated when those investors did not have any amount in credit in that company but those people subsequently paid the necessary sums to Associated. I accept that she had oral, if not written, authority from these investors to apply these moneys to the loan. The defendant thereupon completed the schedule of mortgagees for the mortgage document.
At settlement the defendant disbursed the principal sum of $935,000 under the mortgage as to $419,489 to the ANZ Bank, $44,115 to the Stokes’ trust account and $50,000 to A. Gerovasilis as previously mentioned. She paid $389,473 into Associated which was interest in advance of $134,211, future progress payments of $138,000, arrears for Primrose Bay and Wexhaven of $42,000 and $75,262 into a deposit there for SIC for unspecified purposes. Also paid at settlement out of the principal sum were stamp duty of $3,237, registration fees of $70, insurance premiums of $925, fees to Growdens of $1,075 for the preparation of the mortgage and the guarantee, $601 for reimbursement of FID and a total of $14,250 for procuration and application fees payable by SIC to Growdens. These payments were all authorised by SIC and were not contrary to any instructions given by the lenders to Growdens, although none of them had any direct knowledge of them.
On 16 January 1996 the defendant, with the approval of Robyn Gatjens, drew a cheque at the request of solicitors apparently acting for SIC for $25,000 against the $75,262 deposited in Associated to pay urgently outstanding rates and taxes on premises at Glen Osmond which were the offices of SIC and other companies associated with Hack. Apart from this payment the defendant was not herself involved in any other disbursement of the moneys deposited in Associated at the settlement. (In March 1996 Robyn Gatjens, at the request of SIC, used $11,000 out of the $75,262 in Associated to discharge a debt of $11,000 owed by Hack to Associated.) Once the defendant had reported to the mortgagees that settlement had occurred she passed the file for the SIC loan over to Growdens’ Mortgage Management Department which thereafter administered the matter. She had nothing further to do with it. She left Growdens in March 1996 to take up other employment as a conveyancer.
The Mortgage Management Department of Growdens used the $138,000 deposited in Associated for interest to pay the monthly interest instalments to the 38 mortgagees. The plaintiff received its first interest payment on 30 January 1996. A management fee of 7% had been deducted by Growdens. On 1 February Mr Morgan wrote to Growdens complaining that this fee should only have been 1% as had been previously agreed. His letter did not raise any other complaints. No reply was received and on 21 February Mr Morgan again wrote to Growdens seeking a response. Growdens ignored the correspondence and continued to deduct management fees of 7% from the plaintiff’s monthly interest payments.

Interest payments were duly made to the plaintiff on behalf of SIC until October 1996, but then they ceased. At about this time Mr Morgan heard rumours, which subsequently proved to be correct, that Growdens were in serious financial trouble. The plaintiff then took various steps to attempt to recover the moneys lent but without success. Growdens and Associated both went into liquidation. Afterwards Mr Morgan was given access to the file of Growdens on the SIC loan which informed him for the first time about much of what had gone on in making the loan. A receiver was appointed by the Supreme Court for the mortgagees’ interest in the SIC mortgage. That receiver ultimately sold the Aldinga land for $400,000 in December 1998. On 18 December 1998 the plaintiff received $25,652 being its proportionate share of the nett proceeds of the realisation of the mortgage and including a dividend received from the liquidator of Associated. The plaintiff has pursued a claim for its loss against the directors of SIC on their personal guarantees, but as yet it has not received anything from the guarantors who are defending the proceedings. It was agreed that the amount outstanding on the plaintiff’s share of the SIC mortgage as at the commencement of the trial on 7 February 2000, including accrued interest, was $108,936.
I now return to the hotly disputed issue of whether copies of the mortgage, guarantee and settlement statement, as requested by the plaintiff in the Mortgage Authority, were delivered to it. As is to be expected no witness had a good recollection of what had occurred over four years before. At the time the delivery of such documents was an event to which no particular significance would have been attached, except that in Growdens’ business the request for them by a borrower was most unusual.
In the telephone discussion between Mr Morgan and the defendant before 10.15am on 21 December he had requested copies of the mortgage, the guarantee and the settlement statement. This was reiterated in the note which he placed on the Mortgage Authority which he faxed to Growdens at 10.15am on that day. The defendant said in her evidence that she discussed that request with Robyn Gatjens who asked her to prepare and arrange for the delivery of the documents. That is confirmed by the evidence of Gatjens. The defendant said that she rang Morgans’ office to enquire whether they had an LTO box and when she was told that they did not have such a box she enquired what time the office would be opened until so that she could deliver the documents. She says that at this time she wrote a note on Growdens’ copy of the Mortgage Authority which read, “Office closed until 4/1/96.” (If this meant that Morgans’ office would re-open on 4 January, it was wrong as the other evidence showed that the office was not scheduled to re-open until 5 January. The point was not explored in evidence. The notation on the bottom of Morgans’ letterhead at the time showed the office was re-opening on 5 January. Thus the note made by the defendant did not derive from what she might have learnt from the correspondence and suggests she spoke to someone on the topic.) The defendant said that she decided to deliver the letter on her way home from work that day as she lived nearby. She had never previously been to the offices of Morgans and did not know precisely where they were. She could not remember the time at which she arrived there, but she thought it could have been in the vicinity of 5pm. She said that she left the copies of the three documents in an envelope at the reception area. She said, as was supported by her husband, that when she got home that evening she mentioned to her husband that she had delivered the documents and it was a point of interest that Morgans’ offices were next door to Cafe Paradiso which was a cafe which she and her husband often patronised, but she had not previously noticed the offices of Morgans were there. She did not have a clear memory about what she did with the documents at the offices of Morgans. Her counsel opened the defence case on the basis that she had given the documents to a woman sitting at reception. In her evidence-in-chief she did not mention giving the documents to any person and when cross-examined on the point she could not recall whether there was anyone at the reception desk at the time or not. In response to a request for a further pleading about how the documents were supplied to the plaintiff the defendant’s solicitors informally gave particulars by a letter of 28 May 1999 merely saying, “It will be our client’s case that shortly before settlement, those documents were delivered to the registered office of Auzora Pty Ltd (ie the solicitor’s office of Mr Morgan.).” The defendant said that it had always been her instructions to her solicitors that she herself had delivered the documents on the afternoon of 21 December. If so, this should have been stated in the letter of particulars, and it is of concern that it was not. The plaintiff did not complain, as it was entitled to do, that the letter did not give sufficient particulars and that it was not a proper response under Rule 46.20 to answer the request by letter. While the letter of particulars is not inconsistent with the defendant’s contention on the topic the generalised answer given makes it seem that the defendant’s solicitors so lacked confidence in their instructions on the topic that they wanted to give their client as much room as possible to manoeuvre in her evidence at trial about it.
Mr Morgan in his evidence categorically denied that any of the documents in question were received by him or at his office prior to settlement or at all. On 21 December Mr Morgan and all of the staff of Morgans attended a Christmas lunch at a nearby restaurant and the office was closed while they were away at the lunch. At some unspecified time later in the afternoon Mr Morgan and the staff returned to the office when the staff received a Christmas bonus, collected their belongings and went home. It appears that the office was not open for normal business during that afternoon. It is unclear how long the staff were at the office on that afternoon from when they returned from the restaurant until they each left. Mrs Sparre, who was Mr Morgan’s secretary, had left by about 4-4.30pm. It is unlikely, but not impossible, that after that time one of the other staff members could still have been at the office and that the door was open. If when the defendant arrived at the office the front door was shut, it would have been possible for her to have pushed her envelope under the door. She does not remember doing this, but it may have happened. The Mortgage Authority stated, “All correspondence is to be sent to me/us at my/our above address until further notice.” That address was Morgans’ office at 154 King William Road.
There are also unsatisfactory aspects about Mr Morgan’s evidence that the documents were not received. His case was that he wanted to check the documents to ensure that they were in order before allowing the settlement to proceed and that if he had been aware that the purchase price of the Aldinga land had only been $435,000 he would have had misgivings about the valuation and definitely would not have proceeded with the investment. If he had seen the settlement statement, he certainly would have known that the purchase price was only $435,000. In the light of this evidence about the importance of these documents to him it is strange that in his letter of 1 February 1996 to Growdens he did not complain there that the documents had not been received, although he did complain then about Growdens not honouring the arrangement for the 1% management fee. His explanation that he did not complain about it because it was then too late to do anything about it is not particularly convincing. Furthermore, in a long letter which he wrote to Growdens on 20 December 1996 after he was aware that recovery of the loan was at risk he made numerous grounds of complaint, and raised many possible causes of action, against Growdens, but again he did not mention any failure of Growdens to fulfil his request for delivery of the three documents in question prior to settlement. His failure to raise the matter in these letters suggests that either he had received the documents or that they were not as important to him as he now contends and when he wrote those letters he did not regard the omission as significant. Nevertheless, I am not prepared to find that he did actually see the settlement statement before the mortgage was entered into to. If he had, the significance of the purchase price shown in it would have caused him to respond immediately and to withdraw from the transaction. However, that does not mean that the documents were not delivered, and that for some unexplained reason, presumably associated with the Christmas closure of the practice, they did not come to his attention.
I accept the evidence of all the witnesses on the topic as being honest and that each has done his or her best now to recollect what occurred. On the balance of probabilities I accept the evidence of the defendant, supported as it is by that of her husband and Robyn Gatjens, that she did deliver copies of the mortgage, guarantee and settlement statement to the offices of Morgans late on the afternoon of 21 December 1995. By virtue of the provision in the Mortgage Authority mentioned above that delivery was a sufficient and effective service of the documents upon the plaintiff. Insofar as Robyn Gatjens gave some vague evidence that she had made some arrangements with Morgans for the delivery of the documents on 21 December she was mistaken in her recollection about this. I reject the plaintiff’s contention that there was some obligation on Growdens and/or the defendant to confirm the plaintiff’s receipt of the documents and to check before settlement was effected that they had been received and that Mr Morgan was happy with them. No such requirement was expressly or impliedly contained in the arrangements between the parties.
The plaintiff, and its expert witness Mr Adam, contended that the defendant was in an impermissible situation of a conflict of interest. For this they relied in part upon Section 30 of the Land and Business (Sale and Conveyancing) Act 1994 No 85, which provides:
“30. Except as authorised under the Regulations, a conveyancer must not act for both the transferor and the transferee, or the grantor and grantee, of property or rights under a transaction.
Penalty: Division 7 fine.”

I do not consider that this section has any application to the defendant as she was not a “conveyancer” for the purpose of it. There is no definition of the term “conveyancer” in that particular Act. The term “registered conveyancer” is defined in s3 of it to mean a person registered as a conveyancer under the Conveyancers Act 1994. The defendant is such a registered conveyancer. Section 30 is the only provision in the Land and Business (Sale and Conveyancing) Act where the term “conveyancer” is used. In all other instances it uses the term “registered conveyancer”. There is presumably some significance in the omission of “registered” in s30. The term “conveyancer” is defined somewhat restrictively for the purposes of the Conveyancers Act 1994 No 86 to mean:

“a person, other than a legal practitioner, who carries on a business that consists of or involves the preparation of conveyancing instruments for fee or reward.”

The defendant was not a “conveyancer” within this definition because she was never carrying on any business. Any business was that of Growdens and the defendant was merely an employee in it and was not herself carrying it on: Turner v Trevorrow (1994) 126 ALR 263 at 268. Interestingly, under the provisions of that Act a person can be a “registered conveyancer” without being a “conveyancer” as defined in it. The term “conveyancer” in s30 can only have meaning when it is viewed in the context of the provisions of the Conveyancers Act. While an artificial definition in one statute is not usually to be imported into another statute, there is a sufficiently close connection here between the two statutes for them to be interpreted in the light of each other: Pearce & Geddes “Statutory Interpretation in Australia”, 3rd edition para 3.28. Although it is a rule of construction of last resort, s30 as a penal provision should be given a restricted scope of operation where its meaning is unclear: R v Adams (1935) 53 CLR 563 at 567-8; Beckwith v R (1976) 12 ALR 333 at 339. Likewise, because it is a penal provision s22 of the Acts Interpretation Act does not apply to it. Whatever “conveyancer” may mean in s30 of the Land and Business (Sale and Conveyancing) Act for these reasons it does not extend to someone who is not within the term as defined in the complementary and related piece of legislation, the Conveyancers Act 1994. Reference was made to the Regulations under s30 of the Land and Business (Sale and Conveyancing) Act. These Regulations cannot apply if the Act does not apply and the interpretation of the Act cannot be governed by Regulations made under it. The extracts from Hansard which were put forward by the plaintiff’s counsel do not assist in construing s30. There is nothing there which expressly refers to s30 applying to a registered conveyancer who is employed by someone and who is not carrying on business.

The plaintiff also relied on s273 of the Real Property Act 1886 which provides:
“(1) .... The Registrar-General shall not receive any application for bringing land under the provisions of this Act, or any instrument purporting to deal with or affect land, unless there shall be endorsed thereon a certificate that the same is correct for the purposes of this Act, signed by the applicant or party claiming under or in respect of such instrument, or by a solicitor, or licensed land broker.”

It was pursuant to this section that the defendant certified the SIC mortgage. There is no reported judicial exposition of the meaning and operation of s273(1). It does not provide that a solicitor or registered conveyancer who certifies pursuant to it must be acting for any party to the transaction. On its face it is broad enough to allow any solicitor or registered conveyancer to certify any instrument whether there is any connection or not between the solicitor or conveyancer and the parties to it. Of course it may be a matter of disciplinary action against a solicitor or a registered conveyancer who does certify under s273(1) without proper justification to do so. However, there is no basis to imply from s273(1) that because a registered conveyancer certified a Real Property Act instrument therefore that conveyancer has any particular party to the instrument as his or her client, or any other legal relationship with such a person. Even if any such inference could be drawn, it does not mean that the conveyancer had the mortgagee as a client: there is no reason why a conveyancer for the mortgagor equally could not have certified the mortgage. Furthermore, any certification under s273 is only that the instrument “is correct for the purposes of (the) Act”. Whatever this may mean, it does not extend to certifying that the value of land over which a mortgage is given is sufficient to provide adequate security for the mortgage debt. That is not a concern of the Real Property Act, but is a commercial decision for the mortgagee. A mortgage which effectively secures $1 of a million dollar debt is still an effectual mortgage for the purposes of that Act. Section 273(1) cannot assist the plaintiff in this matter.

There was some debate during the trial whether there had been any breach of s.21 of the Legal Practitioners Act 1981 by the defendant and/or Growdens by reason of Growdens taking fees of $1,075 for the preparation of the mortgage and the directors’ guarantee. I need not resolve the issue as even if there were breaches they are not relevant to any duty owed by the defendant to the plaintiff or to any breach of it. I do not accept that statutory provisions such as s21 or ss273 and 274 of the Real Property Act 1981, place conveyancers in some special position so that the duties of care which they owe to parties in land transactions are thereby increased or extended. Whether the defendant was legally entitled to work as a registered conveyancer while employed by a finance broker which was not itself a corporate registered conveyancer was not raised in the trial and I make no comment on it.
In the loan to SIC Growdens was acting, as was its usual practice, for both SIC as the borrower in procuring finance for it and for the plaintiff and the other mortgagees in lending their money to SIC. The Mortgage Authority signed by the plaintiff contained a clause, “I/We hereby acknowledge that you are acting for both the lender and the borrower.” Growdens letterhead on both that Authority and on other documents described it as, inter alia, “Mortgage Investment Brokers” and “Mortgage Finance Brokers.” While there was no express disclosure by Growdens to the mortgagees that they were receiving application and procuration fees from SIC, it would have been obvious to the mortgagees that something like this must have been the case. Growdens owed duties both to SIC and to the mortgagees, including the plaintiff, as their agents in relation to the same transaction. This did not reduce the duties which Growdens owed to each, but it made it much more difficult for it to fulfil its obligations to all of them, as their respective interests were potentially in conflict.
In her evidence the defendant claimed that she was acting in the SIC transaction solely in the interests of the mortgagees and not for SIC as the mortgagor. I doubt that this was her actual subjective state of mind at the time. She had little appreciation of the legalities involved and it is likely that she never turned her mind to whether she was acting in the interests of the mortgagor, the mortgagees or all of them. It is only since this litigation has surfaced that she has appreciated what is involved in the issue. There was some suggestion that Peter Stokes was acting as the conveyancer for SIC in its capacity as the mortgagor. There was no direct evidence of this, and I reject it. The defendant dealt directly with SIC about the mortgage document and the authorities for the disbursement of the funds over and above those required to settle on the purchase. The involvement of Stokes was only as the conveyancer for SIC as the purchaser.
As a matter of law I hold that the defendant did owe at least some duties to SIC as the mortgagor and thus was not acting solely in the interests of the mortgagee. She was employed by Growdens to carry out the appropriate work of a conveyancer in transactions where Growdens were agents of one or more of the parties. Insofar as Growdens owed duties to the mortgagor and the mortgagees on the SIC mortgage it was an implied term of the defendant’s employment by Growdens that she would discharge those duties insofar as they properly fell within the province of a conveyancer and their discharge had been allocated to her by Growdens. Thus, for example, if the defendant had negligently prepared the mortgage so that SIC mortgaged more land than it had offered as security, neither Growdens nor the defendant could resist a claim by SIC on the basis that the defendant only owed a duty to the mortgagees and not to the mortgagor. If the defendant had made a negligent mistake in the preparation of the mortgage documents which prejudiced SIC, Growdens would be liable to SIC for the consequences of that mistake as it was made by its employee acting in the course of her duties. Section 27C of the Wrongs Act may or may not have prevented Growdens from recovering from the defendant any liability which it had to SIC for the defendant’s negligence.

There was no contract or retainer between the plaintiff and the defendant. The plaintiff’s contractual rights were only against Growdens and SIC. However, the defendant as an employee of Growdens owed some duty of care in tort to the plaintiff to exercise proper skill and care insofar as what she did affected the plaintiff: Shigaeva v Schafer (1984) 5 NSWLR 502; Krambousanos v Jedda Investments Pty Ltd (1996) 142 ALR 604. The crucial issues are what was the scope of that tortious duty and did it extend to the matters complained of by the plaintiff in this action.
It is necessary to look separately at each of the alleged duties to see whether each was owed in law to the plaintiff. There is no doubt that the defendant owed duties to the plaintiff in obtaining a first mortgage for it which was effectual in law and in disbursing the loan moneys at settlement to the persons who were authorised to receive them. They are irrelevant here because no breaches of such duties have been pleaded or proved. They are also duties which the defendant equally owed to Growdens as her employer. As the claim was finally pursued by the plaintiff the alleged breaches of duty fell into two main categories: firstly, that the defendant should have informed the plaintiff about the difference between the purchase price and the valuation and secondly that the defendant should have informed the plaintiff about the details of how the $925,000 was to be disbursed at settlement.
The law on the scope of the duty which the defendant owed to the plaintiff is best derived from the decision of the High Court in Hill v Van Erp (1997) 188 CLR 159. The relevant principles relating to the scope of the duty were not materially varied or extended by the subsequent decision of the High Court in Perre v Apand Pty Ltd (1999) 164 ALR 606. In applying the principles in Hill’s case it needs to be understood that it related to a different, but analogous, factual situation. There a beneficiary named in a will sued the solicitor, who had prepared the will on instructions from the testatrix, because the beneficiary was precluded by local law from taking any interest in the estate as the solicitor had negligently allowed the beneficiary’s husband to be a witness to the will. There the issue was whether the solicitor owed a duty in tort to the beneficiary with whom she had no contractual relationship. Here the defendant’s contractual relationship was with her employer which was the client of the plaintiff whereas in Hill’s case the defendant was in a contractual relationship with the testatrix, but there was no legal relationship between the testatrix and the plaintiff. In Hill’s case the issue was whether the solicitor owed the same duty to the beneficiary as she owed to the testatrix. Here the plaintiff is seeking to impose on the defendant duties independent of those owed by the defendant to Growdens as her employer. (It was not suggested that the defendant was under duties in her employment to inform Growdens that adequate security may not being obtained for the loan or that Growdens required her to advise the plaintiff of any basis of concern which she might have about the adequacy of the security or to inform the plaintiff about the way in which the settlement moneys were to be disbursed.)
I do not intend to go into the vexed legal question of what proximity or vulnerability must be established between the parties for a duty of care to arise in law for a claim in tort for pure economic loss. Clearly here the defendant was aware of the plaintiff and its need for proper security for its loan. All of the Justices in Hill v Van Erp (above) and in Perre v Apand Pty Ltd (above) recognised either as a element of their respective requirements for proximity or vulnerability, or as a separate issue, that various considerations of public policy could operate in a particular case to exclude the existence of a duty in law. I base my decision here primarily upon such issues of public policy.
As a matter of policy there was no legal duty on the defendant to disclose to the plaintiff the variation between the purchase price and the valuation by reason of a combination of the following considerations:

·.. The duty owed is to be restricted by the limited scope of the contractual obligations owed by the defendant to Growdens. She was not employed as a finance broker or to supervise or double check the work of the other departments of Growdens or to call in questions decisions made by Michael Sheedy and Robyn Gatjens, who were her superiors, in the performance of their duties for Growdens. This was recognised in Hill’s case by Brennan CJ at 167 and by Dawson J, with whom Toohey J agreed, at 182 where they acknowledged that if the retainer between the solicitor and the testatrix had been limited in what it required the solicitor to do this could have impinged on any duty owed to the beneficiary. Similarly in Voli v Inglewood Shire Council (1963) 110 CLR 74 at 85 Windeyer J held that the duty of an architect to a third party could be circumscribed by any limitations on his retainer from the building owner.

·.. The imposition of such a duty would potentially bring the defendant into conflict with Growdens. She would thereby be required to call in question decisions already made by her superiors. As Gaudron J said in Hill v Van Erp (above) at 196-7:

“..... there can be no duty of care owed to a third party if the duty asserted is inconsistent with the duty owed to the client.” (ie here the employer).

·.. The plaintiff did not rely upon the defendant herself as a registered conveyancer or otherwise to perform this duty. The plaintiff relied upon Growdens to set up the loan arrangements so that it was adequately protected. Mr Morgan at the time relied upon the whole of Growdens, and not specifically the defendant, to ensure that the mortgage provided adequate security for the loan. He had no reason to suppose that the defendant had any particular skill or experience because she was a registered conveyancer in evaluating the reliability of professional valuations. That was more properly the function of other employees of Growdens.

·.. The defendant was not, to the knowledge of the plaintiff, in a position of a conveyancer independently retained to protect generally the interests of the mortgagees. The plaintiff knew, or should have known, that the defendant was in no different position from Growdens which was acting for both the mortgagor and the mortgagees. Authorities such as McKessor v Mortimer (1989) 154 LSJS 288 are not in point because liability there was imposed on conveyancers who had a retainer to act for a party to a transaction generally and implicit in that retainer was an obligation to do whatever was appropriate to protect the interests of the client. Here the defendant to the knowledge of the plaintiff merely had the duty of carrying into effect a transaction which had previously been set up by other employees of Growdens who had the responsibility to do this: cf Dwyer v Long (1992) 58 SASR 102 at 106-107. The plaintiff could have appointed its own solicitor or conveyancer to act generally on its behalf in the matter, and in that case that professional would probably have been obliged to consider the adequacy of the security being given, but the defendant here is not to be elevated to a similar role.

·.. The imposition of the duty in question upon the defendant would impose a wide indeterminate liability upon her. She would presumably have had a similar duty to all of the other mortgagees. It would mean that in every transaction in which she acted as the conveyancer in the course of her employment by Growdens she could be potentially personally liable where Growdens through the defaults of its other employees failed adequately to protect the interests of its client mortgagors or mortgagees.

I hold that the defendant did not owe any duty to the plaintiff to disclose to the plaintiff prior to settlement the identities of the payees of the $925,000 disbursed at settlement for the following reasons:

·.. Provided sufficient of the moneys were applied to obtain a clear title to the Aldinga land and to enable registration of the 1st mortgage and sufficient moneys were set aside in Associated to meet the progress payments for the subdivision works and the interest for twelve months, which did occur, it was for SIC to authorise how the balance of the principal sum was to be disbursed at settlement. Even if there was some potentially sinister connotations in some of the proposed disbursements, the defendant was not aware of them. For the reasons put forward above in relation to the discrepancy between the valuation and the purchase price it was not the function of the defendant as a conveyancer to make enquiries about why certain moneys were being paid to particular persons at settlement or to alert the plaintiff to the issue so that it could make its own enquiries. What happened to the excess of the moneys not required for the purchase, the subdivision works and the twelve months interest was only the business of SIC and not of the mortgagees. I accept the evidence of Mr Lovejoy that it was usual practice for the procuration fee, the valuation fees and a premium for the Finance Brokers Indemnity Fund to be paid out of available principal moneys being advanced at settlement if that was authorised by the mortgagor.

·.. I accept the evidence of the defendant’s expert, Mr Lovejoy, that it is not usual practice for conveyancers acting for mortgagees to disclose to the mortgagees how the mortgagor requires the funds to be disbursed at settlement. The plaintiff’s case was that if this information had been disclosed it would have contained material which would have alerted Mr Morgan to problems. If it had so wished the plaintiff could have requested the information, but it did not. It was not suggested that the settlement statement which was requested in the Mortgage Authority was one which should have disclosed the identities of all of the payees.

Accordingly, the plaintiff has not shown that the defendant owed any relevant duty in tort to it.
The plaintiff also pleaded its claim on the basis that the defendant stood in a fiduciary relationship to it. For similar reasons to those set out above on why the defendant does not owe any relevant duty of care to the plaintiff I find that she did not owe any relevant fiduciary duty to it either. In particular no relevant fiduciary duty arises where to the knowledge of the plaintiff the defendant is in a situation of a conflict of interest from her employment by an agent for both the mortgagor and the mortgagees: Kelly v Cooper [1993] AC 205. The case of Maquire v Makaronis (1997) 188 CLR 449, relied on by the plaintiff, is distinguishable as there the clients were not aware of the solicitors’ conflict of interest.
I do not find that there was any relevant conduct by the defendant which could amount to misleading or deceptive conduct contrary to s56 of the Fair Trading Act 1987. There was no duty on her to make any greater relevant disclosures to the plaintiff than she made, and so her silence on other matters did not amount to misleading or deceptive conduct: Henjo Investments Pty Ltd v Collins (1988) 79 ALR 83.
If I had found that the defendant owed a duty to the plaintiff to disclose to it the difference between the purchase price and the valuation, I would not have found her to be in breach of that duty. The delivery of the settlement statement by her to Morgans’ office on the afternoon of 21 December 1995, as I have found above, was a sufficient disclosure in the circumstances. She was only required to serve the documents at the address of Morgans’ office in accordance with the term in the Mortgage Authority. She was not obliged specifically to raise the issue with Mr Morgan. As a lawyer he was not in any position of disadvantage, and, if he had read the document, he could readily have been expected to have appreciated the significance of the stated purchase price.
If I had found that the defendant had a duty to disclose to the plaintiff how the principal moneys advanced were to be disbursed at settlement, I would have found her to have been in breach of that duty. If such a disclosure had been made, the plaintiff would not have proceeded to invest in the SIC mortgage because it would have alerted Mr Morgan to aspects of the transaction of which he would not have approved.
As the defendant did not owe any relevant duty in law to the plaintiff the claim must fail. Accordingly, it is not necessary to deal with the defendant’s application to amend or to pursue any question of the ability of Auzora Pty Ltd to maintain this action.

[2000] SADC 17

22 March 2000