Bacash and Aureus April Pty Ltd v Nelson and Blackney
[2017] VCC 714
•9 June 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-15-02650
| JOSEPH BACASH and AUREUS APRIL PTY LTD | Plaintiffs |
| v | |
| DARROLL NELSON and KEITH BLACKNEY | First Defendant Second Defendant |
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JUDGE: | LEWITAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6, 7, 8, 10, 14, 16, 21, 23, 24 and 27 March 2017 | |
DATE OF JUDGMENT: | 9 June 2017 | |
CASE MAY BE CITED AS: | Bacash and Aureus April Pty Ltd v Nelson and Blackney | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 714 | |
REASONS FOR JUDGMENT
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Subject:Retainer to act as solicitor; misleading or deceptive conduct; damages for loss of opportunity
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Arthur | PBP Lawyers |
| For the first Defendant For the second Defendant | Ms K Anderson Mr G Steart | Obst Legal Steart Law |
HER HONOUR:
1 Aureus April Pty Ltd (Aureus) entered into a loan agreement dated 26 July 2011 for the sum of $12,000 with Frederick Maurice Lloyd (Lloyd) [1] (the first Lloyd loan) and a loan agreement dated 4 August 2011[2] in the sum of $10,000 with Lloyd and Neerim South Nominees Pty Ltd (Neerim South) (the second Lloyd loan). Joseph Bacash (Bacash) entered into an agreement dated 13 September 2011 to lend $30,000 to Ross Gerald Drechsler (Drechsler) and Otowerth Pty Ltd (Otowerth) (the Drechsler loan).[3] The rate of interest charged on each of the loans was 6% per month with a higher rate of 8% per month.
[1] Exhibit 13.
[2] Exhibit 18.
[3] Exhibit 21.
2 Aureus alleges that Darroll Nelson (Nelson) was retained to act as its solicitor in relation to each of the first and second Lloyd loans. Bacash alleges that Nelson was retained to act as his solicitor in relation to the Drechsler loan. The plaintiffs allege that Nelson and Keith Blackney (Blackney) made representations about each of the loans or otherwise engaged in conduct which amounts to misleading and deceptive conduct under s18 of the Australian Consumer Law (ACL) and/or s12DA of the Australian Securities Investments Act 2001 (ASIC Act) which induced the plaintiffs to make each of the loans and that the plaintiffs thereby suffered loss and damage. The plaintiffs allege that the loss and damage was caused by Nelson’s breach of the retainer, breach of duty of care and/or misleading and deceptive conduct and also by Blackney’s breach of duty of care and misleading and/or deceptive conduct.
3 The plaintiffs claim that Nelson’s retainer was partly in writing, partly oral and partly to be implied. Both the defendants deny that Nelson was retained to act as a solicitor for Bacash or his company Aureus.[4]
[4] Transcript pp 492, 612.
4 Both defendants say that Blackney prepared the loan agreements.[5] There is no written retainer. Nelson never provided a cost disclosure statement or a fee agreement.[6] Nelson did not render any accounts for his work to the plaintiffs or either of them. When cross-examined Bacash said that he never received an invoice from Nelson.[7] The main issue in dispute is whether Nelson was retained to act as a solicitor for the plaintiffs or either of them.
[5] Blackney transcript p 579, Nelson transcript p536.
[6] Transcript p 151.
[7] Transcript p 153.
5 Blackney says that the plaintiffs assumed the risk of the high interest rate transactions. Blackney denies that there were any misrepresentations. He admits that he met with Bacash who indicated that he wanted to lend money to borrowers at a high interest rate. Blackney told Bacash that he knew people who were in that position who would borrow money from Bacash and any of his entities at a high interest rate. Blackney then arranged for those people to be put into place as borrowers from the plaintiffs. Blackney drew the loan agreements and other documents. Blackney submits that the people who were borrowing were desperate borrowers who were prepared to sign up to high interest rates for short periods of time and that Bacash accepted the risks.
Background
6 Bacash owned pubs from 1974 to 2011. He sold the Albert Hotel for $1.2 million in 2009. He owned the Woodlands hotel in Sydney Road Coburg until he sold it in February 2011 for $1.8 million.[8] Bacash is a licenced used-car dealer. Bacash is the sole director and shareholder of Aureus.
[8] Transcript p 11.
7 Bacash said that he first met Nelson in 1998. Nelson gave him his home number and Bacash went to his house at Grant Street, Brighton on two occasions in early 1998 - 1999.[9] Bacash said that they became good friends.[10]
[9] Transcript pp 12, 31.
[10] Transcript p 12.
8 Blackney said that in 1998 or 1999 he met Bacash at the Baden Powell Hotel over lunch with Silvio Battisti and probably six to eight other people including Nelson and John Spottiswood (Spottiswood). They talked about business. It was a general conversation about loans and the weather.[11]
[11] Transcript p 569.
9 At that time Bacash approached Blackney and told him that he would be interested in entering into some loan agreements. Blackney met Bacash later that day in the carpark and gave him some information about the loan transactions.[12] Blackney and Bacash met again that afternoon. Blackney said that Nelson was not a party to the discussions in the car park or the subsequent meeting in the afternoon. At those meetings Blackney discussed the interest rate payable under the loan agreements, the profit and the loan to value ratio. Blackney explained that the interest rate was very high, “if it goes too long sometimes the LVR, which is loan to value ratio, would be too high and you might not get all your money back”.[13]
[12] Transcript p 569.
[13] Transcript p 570.
10 Blackney said that he and Bacash became working friends in the 1998 - 2000 period. After Bacash resumed occupation of the Woodlands hotel in Sydney Road Coburg, Blackney visited him there a couple of times during the day and on some evenings. Blackney had clients who were looking for finance.[14] Blackney said that a few loans went bad and Bacash sued him and they settled out of court. Blackney paid Bacash some of the money but ended up going bankrupt in approximately 2002 or 2003.[15]
[14] Transcript p 570.
[15] Transcript p 572.
11 Bacash said that Blackney visited him at his hotel in October 2010.[16] Bacash was about to sell the Woodlands Hotel in Coburg. Bacash said that on 11 March 2011 Blackney invited him to lunch at a restaurant in Carlton called Il Carretto together with Nelson.[17] Bacash said that Nelson and Blackney asked him “for the loan”.[18] Bacash said that he told them that he would only spend a total amount of $100,000 on small loans of 10, 15 and $20,000 at 6 per cent or 8 per cent in default for one month or two months.
[16] Transcript p 16.
[17] Transcript p 18.
[18] Transcript p 19.
12 Bacash said that Nelson and Blackney rang him again in May 2011 and said that they had three small loans. Bacash said that he was at 9 Newlands Road, Reservoir when the conversation took place. Bacash said that Nelson never came there.[19] According to Bacash, Nelson said that he would send the papers with Blackney. Bacash said that Nelson always used to send Blackney with the documents because Nelson does not drive.[20] Bacash said that he consulted “Dean” his solicitor.[21] Blackney said that these loans did not proceed.[22]
[19] Transcript p 20.
[20] Transcript p 20.
[21] Transcript p 20.
[22] Transcript p 573.
13 There were a total of eight loans which Blackney organised for the plaintiffs and various borrowers (the eight loans). Of the eight loans, three were bad and five were good in that the plaintiffs were repaid all their principal and interest.
Loan agreement between Aureus and John Frederick Maurice Loyd (Lloyd) dated 6 June 2011[23]
[23] Exhibit 3.
14 Lloyd was introduced to Nelson by a third party in 2010 or 2011. Lloyd retained Nelson to act as his solicitor. Lloyd wanted to refinance an existing mortgage to another firm of solicitors.
15 A loan agreement dated 6 June 2011 was entered into between Aureus and Lloyd. Bacash said that when the agreement came to him, the signatures of Nelson and Lloyd were on the document. Bacash said that he signed the document after he read the agreement.[24] Bacash said that a Declaration of Purpose signed by Lloyd on 6 June 2011[25] and a Direction to Pay dated 26 July 2011 were also given to him on the date of the agreement.[26] Bacash said that he gave Blackney and Nelson two cheques on 6 June 2011.[27] Contrary to that evidence, Bacash then said that he handed over the cash cheques of $9000 and $3000 respectively on a different day, 26 July 2011.[28] Bacash stated:
[24] Transcript p 24
[25] Exhibit 4.
[26] Transcript p 25.
[27] Transcript p 27.
[28] Transcript p 26.
Sometimes he [Blackney] said “Don’t give us a cheque that particular day”.
Yes, but on this time, they did ask you to give them the cheque on that day?...No, no. They only signed the contract, and then they come back later and they took the cheques. Cash cheques, two cash cheques.[29]
MR ARTHUR: Anyway, we can say, in relation to this loan, have you been repaid the moneys with this particular loan?...What date? Yes, I think I did. Yeah, I did.[30]
[29] Transcript p 27.
[30] Transcript p 27.
16 Bacash said that two other loan agreements were given to him on that day. The first was a loan agreement dated 6 June 2011 between Aureus and Gregoria Spencer (the Spencer loan agreement).[31] The Spencer loan agreement was signed by Gregoria Spencer and also signed and stamped by Nelson when the document was delivered to Bacash and before Bacash signed it. Also delivered with the Spencer loan agreement were a Declaration of Purpose dated 6 June 2011 and signed by Spencer and witnessed by Nelson[32] and a Direction to Pay signed by Spencer and also dated 6 June 2011.[33] The Borrower paid this loan.
[31] Exhibit 6.
[32] Exhibit 7.
[33] Exhibit 8.
17 The third was a loan agreement dated 6 June 2011 between Aureus and Winsome and Garry Peace (the Peace loan agreement).[34] When the Peace loan agreement was delivered to Bacash, it was signed by Winsome and Garry Peace and also signed and stamped by Nelson.[35] A Declaration of Purpose[36] and a Direction to Pay dated 6 June 2011[37] signed by the borrowers were also delivered to Bacash. The borrowers paid that loan.[38]
[34] Exhibit 9.
[35] Transcript p 34.
[36] Exhibit 10.
[37] Exhibit 11.
[38] Transcript p 35.
18 Bacash said that “every agreement came, I used to ring him [Nelson] - through Keith Blackney when he come to the office he – I said, “Ring Darroll,” and Keith used to ring up and we used to talk about it.”[39]
[39] Transcript p 31.
19 Bacash spoke about an “admission fee” or upfront fee which Blackney and Nelson charged. This fee was payable by the borrower.
20 The borrower would pay the admission or upfront fee at settlement when he repaid the loan. I accept Blackney’s evidence that he would get half the upfront fee at settlement and that Bacash would keep the other half “for his costs of running around, getting bank cheques or things like that.”[40]
[40] Transcript p 577.
21 Bacash said that as far as he was concerned Nelson was his solicitor.
He represented me. He claimed he didn’t, but if he didn’t represent me, I would go to another solicitor to do this loan. You don’t give people money without a solicitor.[41]
[41] Transcript p 37.
22 Nelson said that he did not act for Bacash as his solicitor. Nelson said that he never led Bacash to believe that he was acting for him. Nelson denied that he acted for Bacash and his company in 2011.[42]
Loan agreement dated 26 July 2011 between Aureus and Lloyd (the first Lloyd loan agreement) [43] – the first Lloyd Loan
[42] Transcript p 486.
[43] Exhibit 13, exhibit D.
23 Nelson said that he referred Lloyd to Blackney. Bacash agreed that in July or August 2011 he was told that Lloyd was trying to refinance his property. Nelson said that after he referred Lloyd to Blackney, Blackney arranged a loan with Bacash. Nelson said that his involvement then was to witness the signature of the loan documents by Lloyd. Blackney prepared the loan agreement. Blackney gave Nelson the loan agreement. Nelson said that he went through the loan agreement with Lloyd to make sure that Lloyd knew how much he was borrowing, how much interest he had to pay and when he had to pay it back.[44] Nelson then witnessed Lloyd’s signature to the loan agreement at Cambridge Street, Collingwood.[45]
[44] Transcript p 428.
[45] Transcript p 428.
24 Nelson said that he discussed the Declaration of Purpose[46] with Lloyd on the same day, 26 July 2011.[47] Nelson told Lloyd that if Lloyd signed the Declaration of Purpose, Lloyd would thereby waive the benefit of certain provisions of the National Credit Code. Lloyd indicated that he was prepared to do so and Nelson witnessed Lloyd’s signature. Nelson also signed the Certificate of Witness on the same day.[48]
[46] Exhibit 14.
[47] Transcript p 429.
[48] Exhibit 16.
25 When cross-examined, Nelson conceded that he witnessed the signature of the loan agreement at 10 Grant Street, Brighton and not at Cambridge Street, Collingwood.[49]
[49] Transcript p 483 (see also exhibit 3 p 554).
26 Bacash was cross-examined about the Certificate of Witness to the first Lloyd agreement.[50] The certificate is signed by Nelson and states.
[50] Exhibit 16.
LENDER: AUREUS APRIL PTY LTD (ACN: 005 162 087)
BORROWER: John Frederick Maurice Lloyd
PROPERTY: 14 Pepperell Drive Drouin Vic 3818
TITLE PARTICULARS: Volume 09881 Folio 539
I, DARROLL NELSON of 10 GRANT ST EAST BRIGHTON hereby certify that:
1. I am an Australian Legal Practitioner (within the meaning of the Legal Profession Act 2004).
2. I witnessed the signatures of John Frederick Maurice Lloyd to the Loan & Mortgage document in this matter.
3. I am satisfied that, having made all appropriate enquiries, the persons who signed the documents in this matter are John Frederick Maurice Lloyd – who are the registered owners of 14 Pepperell Drive Drouin Victoria – and are capable of and entitled to sign on behalf of themselves.
4. I believe, having provided any necessary or appropriate advice, that John Frederick Maurice Lloyd understand the nature and effect of the Loan & Mortgage document and the obligations that he has undertaken in signing the document.
I acknowledge that the Lender will reply [sic] upon this Certificate in advancing funds to the Mortgagors.
DATED: 26 July 2011
D Nelson (sgd)
DARROLL NELSON LLB
10 Grant Street Brighton Vic 3187
An Australian Legal Practitioner
Within the meaning of the
Legal Profession Act 2004
27 Bacash agreed that Nelson signed a Certificate of Witness in relation to each of the Loyd loan agreements.[51]
[51] Transcript p 154. See exhibit 16 first Lloyd agreement and exhibit B second Lloyd agreement.
28 Bacash said that when the first Lloyd loan agreement was given to him, he telephoned Nelson who told him that Lloyd was a friend of his. Nelson told him “He’s not to worry, he’s a friend of mine, and he got lot of equity in the house.”[52]
[52] Transcript p 39 and p 42.
29 When asked by his counsel “Why did you understand that [Nelson] was acting for you?”, Bacash stated “Well, because when I rang him up he said to me not to worries, is a plenty of equity in the house.”[53]
[53] Transcript p 43.
30 However when cross-examined Bacash said:
…when Blackney used to come to – to the warehouse with the document we – he – I used to ask him to ring Darroll Nelson. I didn’t say Darroll Nelson rang me, sorry, I didn’t say that.[54]
[54] Transcript p 148.
31 This evidence is contrary to the particulars to paragraph 47 of the Further Amended Statement of Claim dated 7 March 2017 (FASOC) which allege that Bacash rang Nelson.
32 The loan amount under the first Lloyd agreement was $12,000 with costs of $7000. The interest rate was 6% per month with a higher rate of 8% per month. The due date for repayment was 1 month.[55]
[55] Exhibit 13.
33 The security listed in the schedule of the first Lloyd agreement was a “registered caveat/second mortgage” over 14 Pepperell Drive Drouin. Bacash said that he understood that Nelson would put the caveat/mortgage in place “because he already sign on the… page before. On 373 he signed his - he (indistinct) the stamp.”[56]
[56] Transcript p 43.
34 Bacash said that he first saw the loan agreement on 26 July 2011. Blackney came to the factory and brought it in. Bacash said that he did not even sign this agreement.[57]
[57] Transcript p 38.
35 Bacash was referred to the Direction to Pay which he signed and dated 26 July 2011[58] and said that he wrote two cheques, a cash cheque for $9000 and another cash cheque for $3000.[59] When cross-examined Bacash said that he did not bother to look at the Direction to Pay dated 26 July 2011.[60]
[58] Exhibit 15.
[59] Exhibit 15.
[60] Transcript p 265, exhibit 5.
36 Bacash said that the moneys were not repaid by Lloyd.[61] Bacash did not instruct Nelson to issue proceedings. Bacash engaged different solicitors to take proceedings in the Magistrates’ Court . A judgment in default was entered against Lloyd. Bacash was not paid out of that judgment.[62]
[61] Transcript p 46.
[62] Transcript p 48.
37 Blackney said that in relation to the loan transactions the subject of these proceedings:
How did Mr Nelson come to witness the signatures of the borrowers on most of the loan agreements?...The client would ask - the client would try to find a solicitor, they couldn’t find a solicitor. I would say ring up this gentleman here, he’ll probably help you for free because you don’t want to be paying $1,100 to a solicitor to witness a 15 or $10,000 loan, and he would help out the client, basically, for free.
So you directed them to contact Mr Nelson?...Yes, in some cases, in some cases Darroll already knew the client, like Mr Lloyd for instance.
And Mr Drechsler?...And Mr Drechsler, yes.
….
Did you pay Mr Nelson any money for the services that he performed for you?...Yes.
Could you tell the court what that was?...Approximately $200 to $250, around about that figure, for lodging the caveat.
What would that amount include?...Lodgment fee, and his time.
How did you pay it?...In cash, probably in the coffee shop or near the titles office[63]
Caveat dated 20 September 2011 over Certificate of Title Volume 9881 Folio 539 by Aureus in respect of loan agreement dated 26 July 2011[64] (the caveat dated 20 September 2011)
[63] Transcript p 578.
[64] Exhibit 39.
38 Nelson said that he recognised his signature on the caveat dated 20 September 2011 “but I don’t know much about the rest of the contents, whose writing that is. I don’t – I don’t know.”[65] Nelson said that Blackney physically lodged the caveat.[66]
[65] Transcript p 437.
[66] Transcript 441, 507.
39 Nelson said that he did not seek instructions from Bacash about lodging this caveat.[67] Nelson said that he relied on the loan agreement that Bacash had previously entered into.
[67] Transcript p 511.
40 Bacash said that he did not instruct Nelson to lodge the caveat. Bacash said that he did not make any enquiry with Nelson about lodging it.
So, you didn’t provide specific instructions in relation to lodging any of the securities for the three loans?...Well, he never asked me to give him any money or anything. So, I.
Yes, money. You didn’t give him money in relation to the filing or lodgement fees?...No.[68]
…
I suggest to you that the reason why the caveat was not lodged until September 2011, because that was around the time when Mr Nelson received those instructions?...No, I don’t believe that.[69]
[68] Transcript p 158.
[69] Transcript p 159.
41 Blackney said :
I engaged him [Nelson] to lodge the caveat; that was all. I believe I’m the manager of the loan and I engaged the solicitor I wanted to engage. Mr Nelson did a lot of work for me. I employed other solicitors as well. [70]
[70] Transcript p 578.
42 Blackney said that the handwriting on the caveat dated 20 September 2011 is his.[71] Blackney said that he lodged the caveat as the manager of the loan.[72] Blackney said that the reason why it took until 20 September 2011 to lodge the caveat was because he lodged it after Lloyd refinanced the property with Equity One.[73]
…the first caveat went on and then we took it off because he [Lloyd] didn’t have enough money to settle, he was going to lose the property and endanger the money. We took the caveat off, we let the property settle, and then we left it off because we were promised a second mortgage through the same lender, Equity One, because they only lent the 60 per cent on the first and they were going to lend 70 per cent on the second. After myself being verbally told this, the lender changed his mind and said to my associate that they had to pay the first couple of payments and then he never paid the payments and that’s why we ran around and lodged the caveat because he was going to sign the disbursement to say I was going to get paid out of disbursement. I didn’t want to upset the first mortgagee to think that he had too many caveats on the property.[74]
[71] Transcript p 623; exhibit 39.
[72] Transcript p 624.
[73] Transcript p 625.
[74] Transcript pp 625-626.
43 Nelson was asked in cross-examination “You said you were Mr Blackney’s agent to lodge the caveats, did you get paid by him?”. He responded “Yes”.[75]
Loan agreement dated 4 August 2011 between Aureus and Lloyd and Neerim South (the second Lloyd loan agreement)[76] - the second Lloyd loan
[75] Transcript p 557.
[76] Exhibit 18.
44 The schedule to the second Lloyd loan agreement states that the loan amount was $10,000, the costs were $5000 making a total of $15,000. Interest was charged at 6% per month with a higher rate of 8% per month. The due date for repayment was 1 month after the start date. Interest and costs were to be paid monthly.[77]
[77] Clause 5, Exhibit 18.
45 The security listed in the schedule was “a registered caveat/second mortgage over: “The land contained in Certificate of Title: Volume 09881 Folio 539 otherwise known as 14 Pepperell Drive Drouin VIC 3818 plus any further security pursuant to clause 8”. Clause 8 of the second Lloyd loan agreement provides:
Further security
(a) the borrower consents to the lender registering a caveatable interest and charge on all property real and personal until the loan and all monies owing thereunder have been repaid in full
(b) the lender may register a caveat on any real property in which the borrower has a legal and/or equitable interest in relation to all monies due and payable to the lender under the terms of this agreement.
46 Nelson said that he witnessed Lloyd’s signature to the second Lloyd loan agreement in his office at Collingwood. Lloyd and his son Steven Lloyd attended his office on that occasion.[78] Nelson explained the Declaration of Purpose to Lloyd and witnessed the signatures of Lloyd and Steven to that document.[79] Nelson said that he made sure that Lloyd and his son understood the loan.[80] Once the loan documents were executed, Nelson gave the documents to Blackney.[81]
[78] Transcript p 431.
[79] Exhibit 19.
[80] Transcript p 431.
[81] Transcript p 432.
47 Bacash said that Nelson told him that he would send Blackney with a loan agreement because Lloyd wanted to get $10,000 to enable Lloyd to refinance Lloyd’s property to enable Lloyd to pay Bacash.[82] Blackney brought the second Lloyd agreement to Bacash’s factory on 4 August 2011. Bacash said that he read the second Lloyd loan agreement which was signed by Lloyd and Neerim South and witnessed and stamped by Nelson. Bacash signed it on behalf of Aureus and gave Blackney the cheque.[83] Bacash said that he was worried and spoke to Nelson who told him that if he gave Lloyd the $10,000, it would enable Lloyd to refinance the Drouin property.[84] Bacash also received the Declaration of Purpose signed by Lloyd and Nelson[85] and a Direction to Pay.[86]
[82] Transcript p 48.
[83] Transcript p 48.
[84] Transcript p 49.
[85] Exhibit 19.
[86] Exhibit 20.
48 Lloyd’s signature to the mortgage dated 18 August 2011 by Lloyd to Ringersma Investments Pty Ltd was witnessed by Nelson.[87]
[87] Exhibit 63.
49 A caveat in respect of the “loan agreement between Aureus April Pty Ltd and John Frederick Maurice Lloyd and Neerim South Nominees Pty Ltd dated 4 August 2011” was lodged by Sam Dinley of Dinley Lawyers on 15 December 2011.[88] Mr Bartholomew Potenza, solicitor for Bacash, gave evidence that Bacash advised him that he had no knowledge of ever having instructed Dinley Lawyers. Mr Potenza wrote to Dinley Lawyers and asked them to provide particulars of their file and they advised him that any documentation in their possession had been handed back to Blackney from whom they had received instructions.[89]
[88] Exhibit 72.
[89] Transcript p 384.
50 Nelson said that he did not receive any money in relation to either of the Lloyd loans.
51 Blackney said that he did not tell Bacash that the proposed loan was risky. Blackney said:
“We just spoke about the loan, about – this is the amount of the loan, this is the return, this is the property and this is the rough estimate of the value – the valuation and the security.[90]
Loan agreement dated 13 September 2011 between Bacash and Otowerth Pty Ltd and Ross Gerald Drechsler (the Drechsler loan agreement)[91]
[90] Transcrip p 631.
[91] Exhibit 21.
52 Nelson said that he met Drechsler a year before the date of the agreement. Drechsler was from Bendigo and came to Melbourne frequently. Blackney said that he arranged a loan for Drechsler from Bacash. He asked Nelson to witness Drechsler’s signature. Nelson said that Blackney rang him and said “I’ve got Mr Drechsler with me. Would you witness his signatures?” which Nelson did.[92] At the same time Nelson also witnessed the Declaration of Purpose. Nelson did not witness Bacash’s signature.[93]
[92] Transcript p 435.
[93] Transcript p 435.
53 Nelson said that he received a couple of hundred dollars from Blackney in relation to services rendered for the Drechsler loans.[94]
[94] Transcript p 446.
54 Nelson said that Blackney prepared the Drechsler loan agreement. Nelson did not prepare any mortgage in relation to it.
55 The Drechsler loan agreement is dated 13 September 2011. The amount of the loan is $30,000 with costs of $7000. Interest was payable at the rate of 6% per month. The due date for repayment of the principal was “2 months option of extending for an additional 1 months.”[95]
[95] Exhibit 21.
56 Bacash said that he spoke to Nelson and Blackney before he lent the money on 13 September 2011. Bacash said that they told him that Drechsler was a very successful builder in Bendigo and that he had built a lot of new homes.[96] The signatures of Otowerth, Drechsler and Nelson and Nelson’s stamp were on the Drechsler loan agreement before Bacash signed it.[97] A Certificate of Witness was signed by Nelson and dated 4 August 2011.[98]
[96] Transcript p 52.
[97] Transcript p 52.
[98] Exhibit B.
57 Bacash also received a Declaration of Purpose signed by Drechsler[99]. Bacash said that he never read the Declaration of purpose.[100] There was no Direction to Pay. Bacash said that he never read the Direction to Pay.[101]
“When Blackney told me to write the cheques, I used to write the cheques.”
So insofar as what the direction to pay says, did you just write what Mr Blackney told you or did you look at the direction to pay?...No, what Mr Blackney told me to write I did.
So you’re now saying the direction to pay, you didn’t pay any regard to, you just did what Mr Blackney told you? Yes, Your Honour, yes.”[102]
[99] Exhibit 22.
[100] Transcript p 155, exhibit 22.
[101] Transcript p 265.
[102] Transcript p 265.
58 Bacash said that he rang Nelson on that day. Bacash was asked the following questions by his counsel:
Did you speak with anyone prior to signing the loan agreement?...Yes I did. It’s – it’s normal procedure, Your Honour. Every time they bring, I used to ring Darroll, to find out – because he used to do the agreement.
Did you ring Darroll on that day?...Yes, I did, Your Honour.
…
Now, did you have any discussion about the security on p.231?...Yes, he got security on it.
But did you have any discussion with Mr Nelson about that?...Yes, I did, What he said to me, he got the caveat, or – or mortgage on it.
So what did he say to you before you signed the document?...He said to me that, “This is security written there (indistinct) second mortgage of the land.” And when I read it, I was under the impression that the money is secure, Your Honour.
What did Mr Nelson say to you?...Which way?
When - before you signed the loan agreement?...No, he just said, he just said – he said he’s a successful builder, and he’ll be able to pay. But I found later he’s a bankrupt, Your Honour.[103] (emphasis added)
[103] Transcript pp 53-54.
59 Blackney said that in or about June and September 2011 he met with Bacash and invited him to lend monies to Drechsler and Otowerth. Nelson was not at that meeting.[104] Blackney told Bacash that he had a good strike rate and “on the information that [he] had received from the client, they were normal loans.”[105] Blackney informed Bacash that there was equity in relation to the proposed security but that Bacash needed to assess the risk for himself.[106]
[104] Transcript p 641.
[105] Transcript p 629.
[106] Transcript pp 641- 642.
60 Although the Drechsler loan agreement is dated 13 September 2011, the moneys were not advanced until 29 September 2011. Bacash said that Blackney asked him to give him a cheque for $9000 and a cheque for $21,000. Blackney told Bacash to put the cheque for $21,000 in a name that Bacash could not spell so Bacash told Blackney to write who he wanted it for. Bacash then signed a cheque to “Blackmeng & Associates”[107] for $21,000 and a cash cheque for $9000.[108]
[107] Exhibit 42.
[108] Exhibit 43.
61 Blackney said that he prepared the loan documents and met with Bacash about a week later to get the cheques from him. Bacash gave him two cheques, one that was not filled in for $21,000 and the other one filled in for cash for $9000.[109] Blackney then went to another meeting in the city and overheard Nelson’s assistant say that Drechsler is probably going bankrupt. Blackney said that he became very suspicious and banked the money in his bank account but never advanced the money to Drechsler – “to wait until what happened” and to find out whether the information he overheard was true.[110]
[109] Exhibits 42 and 43.
[110] Transcript p 580.
62 Blackney said that he later returned $24,500 to Bacash in cash and cheques.
63 Blackney said that he did not in the beginning tell Bacash that he had retained those moneys but that he did have a conversation with Bacash when he was paying the money back and said that he had told Bacash that Drechsler went bankrupt and that they had actually saved the funds because of his actions. Blackney said that Bacash agreed but Blackney did not think that Bacash understood because Bacash rang him and said that Blackney had banked the cheques and Blackney replied:
That’s correct, we had that conversation about 18 months ago and we’re even because I’ve given you the money back and I’ve done this work” and I named all the work I did and the commissions that were still owed to me.[111]
[111] Transcript p 583.
64 Bacash said that he knew who the cheques were for from the cheque butts. But he did not produce the cheque butts.[112]
[112] Transcript p 260.
65 Counsel for Blackney, Mr Steart, submitted that the evidence that Bacash gave to the Court was inaccurate and indicated that his memory was faulty. Mr Steart cross-examined Bacash on the same point at pp 269-270 of the transcript:
Now, you told the court this morning that you gave two cheques to Mr Blackney when you signed the Drechsler loan agreement?...That’s correct.
That is what you told the court this morning?...That’s correct, Your Honour.
….
You are now saying that you gave those cheques to Mr Blackney on 29 September?...That’s correct.
Sixteen days later?....Right. Yes, your honour, because normally this is what I do, but in this case he come back two weeks later and I gave him the cheques.
So this morning they were cheques that you’d given at the time of signing, now they’re cheques given 16 days later?...Okay. I said that, Your Honour, this was the procedure with me, but on this particular case he came back two weeks later.
66 When cross-examined Bacash said that he did not even look to see whether there was a Direction to Pay in relation to this transaction.[113] Bacash said that he understood that Blackmeng Pty Ltd was a building company associated with Mr Drechsler.[114] Although Bacash had stated that he gave the cheque to Blackney on the day he signed the agreement on 13 September 2011, he later changed that evidence when cross-examined by Ms Anderson:
[113] Transcript p 266.
[114] Transcript p 266.
…and you’re now saying that, “no, no, no,” you actually told him to come back and you gave him the cheques at a later date?...No, Your Honour, I didn’t say to come back. It’s on his request; he used to come when he wants things. I do it for him and he gave me the name, he gave me the date, everything when he used to bring his request because he’s a broker. He used to come to me.
Mr Bacash, the question is, did you or did not give him cheques when you signed the loan agreement, when he came over?...No, I didn’t.
No, and that’s different to what you said this morning?...Well, I’m sorry if I said – I did say it, because I wrote here….
Mr Bacash, if you keep changing your story, you understand it makes it very hard for us to understand where the truth is?...No, no, I didn’t change the story. All I’m saying is it’s six, seven years old and…
Well, I suggest to you that your memory is obviously very faulty and that if it’s faulty in relation to this sort of a detail, it’s faulty also in relation to identifying what cash cheques relate to which loan?...No, that’s wrong. I’m not faulty in this way.
And whether or not Mr Nelson was actually acting for you or acting for the borrowers?...No, Mr….
Mr Nelson always – always acted for me.
Yes, so you say. But then you thought that the Mikrut’s lawyer was also acting for you, didn’t you?...Yes.[115] (emphasis mine)
[115] Transcript pp 268-269.
67 Bacash said that he sued Drechsler to recover the moneys. Drechsler told him that he never received the money.[116] When cross-examined Bacash said that Drechsler never got the money.[117] Bacash admitted that Blackney paid him $17,950. Bacash said that was interest, not the principal. However paragraph 46 of FASOC alleges that a part payment of $10,000 was received on 30 April 2012 and a payment of $7950 on 17 September 2012. Bacash agreed that he received those part payments from Blackney. Bacash said in cross-examination that as Blackney kept the money, he was paying interest on the money.[118] This differed from the plaintiffs FASOC. Mr Steart sought leave to file an amended defence in light of Bacash’s new evidence. On 8 March 2017 Orders were made giving leave to the plaintiffs to serve a reply. I gave the plaintiffs an opportunity to amend their pleading in relation to the Drechsler loan. The plaintiffs did not amend their pleading.
[116] Transcript p 54.
[117] Transcript pp 78 – 79.
[118] Transcript p 171.
68 Bacash was asked:
In relation to you now know you say, that the money never went to Mr Drechsler but instead went to a loan, I think you’ve referred to, to Mr Blackney?...Correct.
There is nothing in this pleading about a loan to Mr Blackney is there?...No.[119]
[119] Transcript p 174.
69 On 28 November 2011 Drechsler was declared bankrupt.[120]
[120] Exhibit 57.
70 On 8 December 2011 Registrar Luxton of the Federal Court of Australia ordered that Otowerth Constructions Pty Ltd be wound up.[121]
[121] Exhibit 56.
71 Mr Potenza was cross-examined about the letter his firm wrote to Blackney on 27 February 2014[122] asserting that Blackney had a duty to obtain security in relation to the Drechsler loan.[123] There was no allegation in FASOC that Blackney was obliged to obtain security in relation to the Drechsler loan. Mr Potenza agreed that when he initially wrote to Blackney in February 2014, he did so on instructions from Bacash.[124] In that letter PBP Lawyers allege:
[122] Exhibit 61.
[123] Transcript p 416.
[124] Transcript p 416; exhibit 61.
OUR CLIENT: JOSEPH BACASH
Monies owing pursuant to loan agreement dated 13 September 2011. Other parties: Otowerth Pty Ltd and Ross Gerald Drechsler
…
As you are aware, you acted as broker and financial adviser for our client in relation to a Loan Agreement dated 13 September 2011 (‘the Agreement”) entered into with Ross Gerald Drechsler (“Drechsler”) and Otowerth Pty Ltd ABN 28 105 242 573 (“Otowerth).
…
Our client also seeks recovery from you of his loss and damage arising from the Agreement.
You at all times facilitated and advised our client in relation to the Agreement.
Pursuant to the Agreement, Mr Bacash loaned to Drechsler and Otowerth, the sum of $37,000 (“the principal sum”) on 13 September 2011 repayable on 13 November 2011 (“the due date”) with interest of $4,440 making a total due $41,440.
Drechsler and Otowerth failed to pay the amount due on the due date and monies owing under the Agreement remain unpaid.
….
The Agreement provided for security for the loan as follows:
Security A registered caveat/second mortgage over: The land contained in Lot 10LP 051453 Certificate of Title: Volume 08746 Folio 510 and Lot 118 LP 534608E Vol 1100 Folio 312 And all other properties re - the trust deed. Plus any further security pursuant to clause 8.
…
No security was obtained by you in relation to the Agreement. Our client was never advised of this and was totally unaware that the loan was not secured in any manner. (emphasis mine).
72 Mr Potenza agreed in cross-examination that Blackney’s obligation to obtain security is not pleaded in FASOC.[125]
[125] Transcript p 417 – 418.
Was there a retainer?
73 The plaintiffs allege that Nelson was retained to act as a solicitor for the plaintiffs.
74 Nelson denied that he drew the loan agreements. Nelson assumes that the three loan agreements, the subject of this proceeding, the Drechsler loan and the two Lloyd loans, were drawn by Blackney.[126] Blackney agreed that every single loan agreement had the same wording for the security.[127]
[126] Transcript p 498.
[127] Transcript p 619.
75 Nelson said that he acted for the borrowers. He does not have any files in relation to Bacash because he was not acting for Bacash. Nelson said that he did not keep any files in relation to these loans. Nelson said that he did not charge the clients for his work. Nelson said that he charged them for legal work that he did for them, aside from these loans.[128] Nelson said that he acted for Lloyd when he discharged a mortgage over Lloyd’s property and took out a fresh mortgage. Nelson said that he acted for Drechsler in a liquidation matter and a bankruptcy matter.[129] Nelson said that he did not try to obtain finance for Lloyd or Drechsler.[130]
[128] Transcript p 502.
[129] Transcript pp 502 - 503.
[130] Transcript p 503.
76 I accept Blackney’s evidence that he drew the 8 loan agreements and every Declaration of Purpose, every Certificate of Witness and every Direction to Pay.[131] I accept Blackney’s evidence that he prepared the 8 loan agreements using a precedent from a Circuit Finance contract. Blackney said that he never sought Nelson’s advice when he was drawing the loan agreements.[132] I accept Blackney’s evidence that he would normally bring a copy of the title and a few other details together with the loan agreement. Then Bacash would give him the cheques to deliver back to the borrowers for the finance.[133]
[131] Transcript p 617.
[132] Transcript p 618.
[133] Transcript p 585.
77 The plaintiffs assert that there was an oral retainer and/or an implied retainer. Insofar as the retainer was oral, the plaintiffs relied on a conversation between Bacash and Nelson and Blackney at the Il Caretto restaurant on 11 March 2011. Bacash said in cross-examination that at that meeting he discussed making some investments of up to $100,000 with Nelson and Blackney. Bacash said that he told Nelson and Blackney that he was only able to spend $100,000 on small loans. Bacash said that Nelson said to him:
I’ll do all the legal and Keith Blackney does the – get the client, and if I’m happy with the agreement I will give Blackney the cheque.[134]
[134] Transcript p 19; paragraph 8, plaintiff’s written submissions dated 24 March 2017.
78 When cross-examined, Nelson denied that he told Bacash that he would do the legals.
[Bacash] has given evidence that you agreed to do the legals in relation to these loans.
WITNESS: I did not.
He says that you said that you would do the legals?...I did not.[135]
[135] Transcript p 491.
79 Blackney said that he had lunch with Nelson at Il Carretto Restaurant in Nicholson Street Carlton once or twice a week. He met Bacash there twice.
Mr Bacash has given evidence that you and Mr Nelson said to him that Mr Nelson would do the legals; you would source the borrowers and Mr Bacash would provide the funds. Do you accept that that was said?...Never.
Never?...No, not in conversation. I know it was said here by Mr Bacash, but I was never in that conversation and it never happened.[136]
[136] Transcript p 614.
The telephone calls
80 There is a dispute about whether Bacash and/or Blackney telephoned Nelson before Bacash advanced the money the subject of each of the loans. Bacash said “I rang Mr Nelson, every loan I had.”[137]
[137] Transcript p 264.
81 Bacash was asked the following questions about what happened when Blackney brought the loan documents to him for signature:
So, Mr Nelson wasn’t present there at all?...Your Honour, when Blackney come to (indistinct) with us, all the time we used to ring – I said, “Ring Nelson,” because deep down I don’t trust Blackney for the – in the past business dealing I had with him. So, he used to ring Darroll Nelson and he said to me everything all right. So, I said, “Are you sure,” he said, “All right,” so I gave him a cheque for Drechsler, not knowing, Your Honour, that Nelson represented Drechsler in the court and Drechsler was bankrupt. So, I mean, how I know that?
Yes, all right. Well, Mr Bacash, in relation to that, you say that it was only Mr Blackney at the yard. You then give evidence about the fact of calling Nelson?...Yeah.[138]
[138] Transcript p 146.
82 Nelson was cross-examined:
Mr Bacash says that in relation to each of those loans, the eight loans that we’ve gone to, that he would ring you after Mr Blackney had attended his premises with the loan agreements which had been witnessed by you and signed by the borrowers, that he would ring you to ask you – to seek your legal advice in relation to the loans?...Never happened.
That occurred in relation to each of the eight loans that I’ve taken you to?...Never happened.[139]
[139] Transcript p 493.
83 Nelson was cross-examined about the numbers written on the Spencer loan agreement.[140]
Now, Mr Bacash has given evidence that when Mr Blackney came around on 6 June to his business premises that he – that Mr Blackney rang you – so that Mr Bacash could seek this advice, so that he could speak to you, and you in fact gave him these contact details and they appear on the Spencer loan?...He had those contacts…
What do you say about that?...he had my contact details for a long time.[141]
….
Now, so Mr Bacash says the reason he wrote these numbers down is that you gave them to him and it was so that he can ring you on each occasion to see whether loans were okay?...No.[142]
[140] Exhibit 6.
[141] Transcript p 494.
[142] Transcript pp 494 - 495.
84 Blackney was cross-examined about the allegation that Blackney would ring Nelson on his mobile telephone before Bacash signed the loan agreement and before Bacash gave Blackney the cheque. Blackney said that Bacash never made any phone calls in relation to the loans.[143] Blackney said that he had a mobile telephone. Bacash did not ask to use it. Blackney said that Bacash had a mobile telephone but he never used it when Blackney was there.[144]
[143] Transcript p 585.
[144] Transcript p 586.
85 The following propositions were put to Blackney:
His evidence is then that he would - before he signed and before he gave you a cheque, he would – either he or you – sorry, I withdraw that. You would ring Mr Nelson on your mobile?...Yes.
Is that correct?...No, that’s what Mr Bacash said, but, no, that wasn’t correct.
And he would have a conversation with Mr Nelson as to whether the loan was good, whether the borrowers were good, whether the loan was worth proceeding with?...Yeah, I know Mr Bacash said that, but I disagree. That never happened.
Mr Bacash’s evidence is that without Mr Nelson’s involvement in the transactions, he would have never done business with you again?...Yep, well, he did.[145]
[145] Transcript p 615.
86 Blackney was re-examined about the telephone calls:
Mr Blackney, you were asked a number of questions by my learned friend Mr Arthur in relation to telephone calls which he suggested were made when you attended him to have loan documents signed and cheques collected?...Yes.
Do you recall those questions?...Yes.
What do you say about that to clarify any confusion?....Those calls were never made.
Questions were put to you suggesting that you telephoned Mr Nelson on your telephone?...Yes.
And that Mr Bacash then spoke to Mr Nelson on your telephone. What do you say about that?...It never happened.[146]
[146] Transcript p 647.
87 Having considered the whole of the evidence, I have formed the view that Bacash was a witness who in effect, would say what he thought would assist the plaintiffs’ case as opposed to a witness who was endeavouring at all times to give a truthful and accurate account of the facts.
88 For example, Bacash was prepared to give contradictory evidence as to when he gave the cheques to Blackney when questioned about the loan agreement between Aureus and Lloyd dated 6 June 2011.[147] During evidence in chief, Bacash gave evidence that he would hand cheques to Blackney on the same day that the agreements were brought to Bacash for signing.[148] However, Bacash then contradicted this in relation to the Lloyd loan dated 6 June 2011, when he claimed to have handed the cheques over on 26 July 2011[149]. When asked to explain why the date on the Direction to Pay in relation to this loan is dated 26 July,[150] Bacash claimed that Blackney at times said “don’t give us a cheque that particular day” and that for this loan, the contract was signed on the 6th of June and the cheques handed over later.[151]
[147] Exhibit 3.
[148] Transcript, p 26 lines 19 – 20, 22 – 23.
[149] Transcript, p 25.
[150] Transcript, p 26.
[151] Transcript, p 27.
89 Counsel for Nelson, Ms Anderson, later cross-examined Bacash on this point. Bacash repeated his evidence that the cheques had been handed over later, on 26 July 2011.[152] Ms Anderson pointed out that another Lloyd loan was made on 26 July 2011[153] and suggested to Bacash that the 6 June and 26 July 2011 loans were not in fact separate loans, but that Mr Bacash had only lent one amount of money to Lloyd during this period.[154] Bacash denied this.[155] Bacash was unable to explain why the same Direction to Pay (with the same amounts listed as the loan amounts) existed in relation to two different loans.[156]
[152] Transcript, p 136.
[153] Transcript, p 136.
[154] Transcript, p 136.
[155] Transcript, p 138.
[156] Transcript, p 138.
90 During re-examination, Mr Arthur tendered the original loan agreement for the Lloyd loan dated 6 June 2011 (exhibit 45). Attached to this document was the original Direction to Pay (in the sum of $10,000), which Bacash then agreed was attached to the loan agreement on the day that he signed it.[157] This Direction to Pay is dated 6 June 2011. Mr Arthur then presented exhibit D, the original loan agreement for the Lloyd loan dated 26 July 2011, to Bacash. This agreement contained a direction to pay the amounts of $9,000 and $3,000[158] and was dated 26 July 2011. Mr Arthur then tendered two cheques drawn by Aureus April Pty Ltd dated 6 June 2011 (exhibit 46) and two cheques drawn by Aureus April Pty Ltd dated 26 July 2011 (exhibit 47). The dates and amounts on these cheques matched up with the Directions to Pay attached to the two Lloyd loans.
[157] Transcript, p 237.
[158] Transcript, p 238.
91 Mr Bacash did not explicitly change his evidence on this point during re-examination. Rather, it was Mr Arthur’s tendering of the original loan document, which had a direction to pay dated 6 June 2011 rather than 26 July 2011, that contradicted Bacash’s original evidence that he was instructed to not hand over the cheques the same day and that Blackney came back later for them.
92 Similarly in relation to the Drechsler loan agreement, Bacash said that he gave the cheques to Blackney when the agreement was signed on 13 September 2011. Bacash later changed that evidence and said that he did not give the cheques to Blackney until two weeks after that date.[159]
[159] Transcript pp 267-268.
93 Bacash also asserted that he instructed Nelson to prepare the loan agreements in relation to the loans the subject of proceedings issued in the County Court in 2002 (the 2002 proceedings) between Bacash, Afinco Australia (Kuwait) Pty Ltd (Afinco) and Aureus against Blackney.[160] The plaintiffs in the 2002 proceedings claimed that Blackney prepared the loan agreements. Bacash then said that he was wrong when he gave evidence in this proceeding that Nelson had prepared the loan agreements in 1999.[161]
[160] Transcript p 13.
[161] Transcript p 122.
94 I regarded Blackney as a reliable and generally truthful witness. He was prepared to make concessions. Similarly, although Nelson gave some inconsistent evidence about where he interviewed Lloyd in relation to the first and second Lloyd agreements, he was also prepared to make concessions and attempted at all times to give an accurate account of the circumstances in relation to the loans the subject of these proceedings.
95 I do not accept Bacash’s evidence that he asked Blackney to telephone Nelson before he signed each of the loan agreements which Blackney delivered to him at his factory at Reservoir.
96 In an affidavit made 24 June 2016 Bacash at paragraph 6 gave evidence as follows:
In relation to each of the loans the Second Defendant would attend my factory/office at 9 Newlands Rd, Reservoir or at a restaurant or hotel. If the First Defendant was not there before signing the loan agreement I would always ring him and ask him if the borrowers were OK; are they good? The First Defendant responded to the effect pleaded in paragraphs 8, 48 and 92. The Second Defendant would attend with the loan agreement which I would sign after ringing the First Defendant and collect my cheque. After the borrowers had signed the agreement, I would get a copy. (emphasis mine).
97 This evidence is contrary to Bacash’s evidence in the witness box where he stated:
(a) That Blackney on each occasion came with the loan agreement and Nelson was not present;[162]
[162] Transcript p 113.
(b) that Bacash was presented with a copy of the loan agreement already signed by the borrowers and witnessed by Nelson.[163]
[163] Transcript pp 48, 52.
(c) that Bacash asked Blackney to ring Nelson;[164]
[164] Transcript p 23 lines 14-27; p 31 lines 27-32; p 39 lines 3 – 21.
(d) that Bacash asked about the security.[165]
The Mikrut loans dated 30 June 2011[166] (the first Mikrut loan agreement) and 10 November 2011 (the second Mikrut loan agreement)[167]
[165] Transcript p 44 lines 4-6; p 53; p 63 lines 16 – 23; p 66 lines 12-15; and p 110 lines 14 – 26.
[166] Exhibit 24.
[167] Exhibit 49.
98 Bacash referred to the first Mikrut loan agreement dated 30 June 2011 and said that the loan was made without the intervention of Mr Nelson in its inception.[168] The first Mikrut loan agreement was witnessed by Peter Rakovic. A Declaration of Purpose pursuant to s11 of the Consumer Credit Code was also dated 30 June 2011 and signed by Miro Mikrut (Mikrut) and Jennifer Mikrut and witnessed by Peter Rakovic. A Certificate of Witness was signed by Kenneth Ian Tulberg (an Australian Legal Practitioner at 26 Bonwick Street Fawkner) on 30 June 2011.[169]
[168] Transcript p 58.
[169] Exhibit A.
99 Bacash said that the loan agreement was prepared by Mikrut’s solicitor but “Not me”.[170] He just brought it to my office already prepared. Bacash said that he did not ring anybody about whether or not he should sign the loan agreement. He did not contact any solicitor.[171]
[170] Transcript p 123, exhibit 24.
[171] Transcript p 123.
100 Bacash said that he later became aware that Nelson had lodged a caveat over the property on 11 July 2011.[172] The caveat dated 11 June 2011 was lodged by Nelson and claims an equitable estate as chargee “pursuant to an agreement containing a charging clause dated the 30th June 2011 between Miro Robert Mikrut and Jennifer Mikrut as borrowers and Aureus as lender.”[173] Bacash said that “Nelson put the caveat on and take it off without us knowing.”[174] The caveat was withdrawn in September 2011.[175]
[172] Transcript p 59; exhibit 25.
[173] Exhibit 25.
[174] Transcript p 80, exhibit 25.
[175] Exhibit 26.
101 Nelson said that he lodged the caveat. He did not get instructions from Bacash to lodge the caveat. The instructions came from Blackney.[176] Blackney produced the loan agreement to him.
[176] Transcript p 517.
102 When cross-examined, Blackney said that he gave instructions to Nelson to lodge that caveat. Those instructions were without any reference to Bacash. Nelson signed the caveat and lodged it.[177]
[177] Transcript p 632.
103 A withdrawal of caveat dated September 2011 and signed by Nelson was lodged on 7 October 2011. Nelson said that he did not have Bacash’s instructions to lodge the withdrawal of caveat.
104 Blackney said that he used to go to Mikrut’s Tattslotto shop to get the payment every week for Bacash. Mikrut then sold his Tattslotto shop and paid Bacash but it took a little bit longer and then Mikrut rang Blackney and told him that there was still a caveat on the house. Blackney said that he got Nelson to sign a caveat withdrawal and “handed it to Mikrut”.[178]
[178] Transcript p 575; exhibit 26.
105 Blackney gave instructions to Nelson to lodge the withdrawal of caveat. It was lodged without reference to Bacash. Blackney stated “Well Mr Bacash got his money back and as far as I know Mr Bacash was happy and the loan was paid back in full”.[179]
[179] Transcript p 632 - 633.
106 Blackney said that he realised that Mikrut re-borrowed some months later but Blackney had nothing to do with the further loan.[180]
[180] Transcript p 575.
107 There was a subsequent loan agreement dated 10 November 2011 by Aureus to Miro Robert Mikrut and Jennifer Mikrut.[181] The second Mikrut loan agreement was not witnessed by Nelson.[182] It was witnessed by Michael Vaxalis. A Certificate of Witness dated 11 November 2011 was signed by Kenneth Ian Tullberg (not Nelson).[183] Bacash said “I don’t know these people, I never heard of this solicitor.”[184] However Bacash later said that at the time of the second Mikrut loan, Bacash rang Mikrut’s solicitor Mr Tullburg and spoke to Mr Tullberg who said “everything all right.”[185] Bacash said that Tullburg was not acting for him. He was acting for the borrower, Mikrut.[186] Bacash said that it was his understanding that Tullberg would lodge the security.[187] When cross-examined about the Mikrut loans, Bacash conceded that he did not consult a solicitor in relation to the Mikrut loans and relied upon the borrower’s solicitor to lodge any security.
[181] Transcript p 85.
[182] Transcript p 85.
[183] Transcript p 85.
[184] Transcript pp 85-86.
[185] Transcript p 127.
[186] Transcript pp 127, 128.
[187] Transcript p 128.
Well, Mr Bacash, you obviously – you say you didn’t employ a solicitor in relation to this loan?...Yes, I did, yes.
You didn’t, you said?...I did, yes. I always do it.
Who was the solicitor you employed…?...I’m talking about this loan.
…In relation to this Mikrut loan?...I’m sorry, I can’t hear you properly
So you didn’t employ a solicitor…?..Not in this…in relation to this loan?...Not this one, no. I’m sorry.
The signature in relation to the Mikrut signing, that’s a witness, that doesn’t have to be a solicitor – on p.605…Well, I- I couldn’t tell you.
I don’t know who Mr Peter Rajkovich – he certainly doesn’t put his stamp and say he’s a solicitor, does he?...No.
No, but if you turn over to 610, you’ll see the certificate of witness – that a solicitor, a Mr Tullburg, has explained the loan agreement to the Mikruts?...Well, what page?
610?...Yes. Well…
So they have a solicitor who’s explained it to them….?...Yes.
…independent of you. So that was provided to you at the time, I think you said?...That’s correct.
So they’ve come along and verified that they understand what they’re signing on the loan agreement, and it was presented to you already signed with the witness signature?...That’s correct, Your Honour, yes.
You say you did not engage a lawyer and you’re unable to point to any security you had in relation to the Mikruts at the time of that loan?...Well, I did, Your Honour, ring Mr Tullburg and I spoke to him, and he said everything all right. That’s why I gave him the loan, his solicitor, everything was all right.
So who did you ring and say, “Was it all right”?...Mr Tullburg , I got – my solicitor he got Dom.
So did you think he was now acting for you, Mr Tullburg?...No, no, no, he’s not acting for me, he’s acting to – to Mr Mikrut.
Mikrut, yes?...Never acted for me, no.
He was acting for the borrower?...Yes.
In signing the certificate, and you didn’t have a solicitor at all?...Not in this particular case, no.[188]
[188] Transcript pp 126 – 128.
108 Mikrut went to Bacash’s factory premises and said that he did not trust Nelson or Blackney and wanted to deal with Bacash directly without involving Nelson or Blackney. Bacash said “Yes, no problem.”[189]
[189] Transcript p 58.
109 Blackney said that Bacash never had a solicitor in relation to the 8 loans. Blackney said that he was the manager of the loans “to make sure everything was right to the best of my knowledge.”[190]
[190] Transcript p 612.
110 Blackney said that he prepared the mortgages and referred to, for example, the mortgage dated 6 October 2011 by Phillip Kassinidis to Aureus.[191] Blackney said that he prepared the mortgage by Drechsler to Bacash over Certificate of Title Volume 8746 Folio 510.[192] Blackney said that he did not lodge that mortgage because Drechsler did not receive the money.[193]
[191] Transcript p 636, exhibit 35.
[192] Exhibit 23.
[193] Transcript p 636.
111 I accept Blackney’s evidence that in relation to the first Lloyd loan, the second Lloyd loan and the Drechsler loan, only he met with Bacash and the meetings did not involve or include Nelson.[194]
[194] Transcript p 643.
112 Counsel for the plaintiffs, Mr Arthur, submitted that the oral retainer is supported by the following objective facts:
(a) Nelson had previously acted for Bacash in a series of loans in the period 1998-1999.
113 The plaintiffs submit that there was an existing relationship. Bacash said that he lent about $50,000 - $60,000 through the defendants in 1998. He said that Nelson would get his secretary to type up the agreements and Nelson would bring the documents to the hotel.
Then what would happen?...Well, when I read it, he always said to me – he convinced me it’s very secure. I used to take it, sign it, and give him the cheque.[195]
[195] Transcript p 14.
114 I do not accept Bacash’s evidence. Bacash, Afinco and Aureus issued proceedings against Blackney in the County Court of Victoria on 21 January 2002 (the 2002 proceeding).[196] In that proceeding the plaintiffs and Afinco claimed that in or about 1999 each of the plaintiffs and Afinco retained “Blackney as his, its or their finance broker and/or loan manager to arrange loans by them to various borrowers and to advise each of them in relation to such loans” (the 1999 retainer).[197] The plaintiffs alleged that Blackney prepared loan agreements pursuant to the retainer[198] and that the 1999 retainer included terms that:
(a) each of the loans to be arranged would be correctly documented in the respective written loan agreements and would be carried out in accordance with the terms of such agreements;
(b) each of the loans to be arranged would be secured by a second mortgage and caveat;
(c) when Blackney lent moneys to a company he would get directors’ guarantees;
(d) each of the loans to be arranged was secure.[199]
[196] Exhibit 2.
[197] Exhibit 2, [5].
[198] Exhibit 2, Clause 12.
[199] Exhibit 2, clause 8.
115 I do not accept Bacash’s explanation that he did not sue Nelson because “he [Nelson] blame it on Tom Scriva, and Tom Scriva is a dead person”.[200] This explanation is unsatisfactory because it is contrary to the allegations the plaintiffs made against Blackney in the 2002 Statement of Claim. If Bacash’s explanation is to be believed, the plaintiffs and Afinco were prepared to make incorrect and untruthful allegations in this Court to enable them to recover moneys which the plaintiffs and Afinco had advanced to various borrowers.
[200] Transcript p 15.
116 I accept Blackney’s evidence that none of the loans he arranged with Bacash in the period 1999 involved Nelson or his firm as a lawyer. Blackney drew the loan agreements for those loans. I accept Blackney’s evidence that he copied the loan document from Circuit Finance. Blackney has been using that loan document for nearly 18 years.[201]
(b)Nelson had extensive involvement in the entire contemporaneous loan history with the defendants in all lending by the plaintiffs both before and after the loans which are the subject of this proceeding.
[201] Transcript p 606.
117 The plaintiffs referred to the Spencer loan agreement. Bacash gave evidence that he rang Nelson before giving Blackney the cheques relating to the Spencer loan. When Nelson said the loan was “okay”, Bacash handed the cheques over.[202] He claims that it was during this call that Nelson gave him his mobile, home number and his work number.[203] Nelson said that he did not have two phones at home and it appears that one of the numbers was a fax number.[204]
[202] Transcript p 31.
[203] Transcript p 30.
[204] Transcript p 493 -494.
118 Bacash’s evidence is contrary to his evidence that on each occasion when Blackney came to his factory with the loan documents, he asked Blackney to telephone Nelson.[205]
[205] Transcript p 31.
(c) Nelson witnessed all the relevant loan documents the subject of the proceeding
119 Both sides agree that Blackney delivered the relevant loan documents after they had been signed and witnessed by Nelson. Nelson did not witness the signature of the plaintiffs or either of them. I accept Nelson’s evidence that on each occasion he explained the loan documents to the borrowers, witnessed their signatures and acted for the borrowers.[206]
[206] Transcript pp 727-729; 435 – 436.
120 All these actions are entirely consistent with Nelson’s evidence that he witnessed and signed the relevant loan documents agreements as solicitor for the borrowers.
(d) Nelson witnessed many other loan documents
121 Nelson also witnessed the Declaration of Purpose in relation to each loan. He also signed a Certificate of Witness. He did not witness the Direction to Pay which is consistent with his evidence.
122 These are documents which must be signed by a solicitor independent from the lender or the lender’s solicitor. The signature by Nelson to the Declarations of Purpose and the Certificate of Witness are consistent with Nelson’s evidence that he signed those documents as solicitor for the borrowers.
(e) Nelson lodged a caveat in accordance with the first Lloyd loan (ex 39)
123 I accept Nelson’s evidence that he lodged the caveat on instructions from Blackney. The caveat was lodged well after the Lloyd loan was entered into. Bacash himself said that he did not instruct Nelson to lodge the caveat.[207]
[207] Transcript p 158.
124 A similar submission was made by the respondent in Meerkin & Apel v Rossett Pty Ltd[208] in relation to the preparation of a lease by the appellant solicitor after the date of the alleged retainer. In that case the Court of Appeal (Charles JA) held:
..In my view this evidence does not support the argument that Meerkin & Apel had been retained in July 1989, as opposed to February 1990. It was conceded that a retainer had been brought into being between Meerkin & Apel and Rossett in 1990. The events to which Cook was referring in this passage of his cross-examination related to his being chased by Meerkin & Apel to get a lease signed, which, as appears from the cross-examination occurred in July 1990. Accordingly, even giving that evidence the most favourable application towards the trial judge’s conclusion, I do not think it supports the view that there was relevant contact between Meerkin & Apel and Cook in 1989 or the existence of any retainer before February 1990.
[208] [1998] 4 VR 54, 64.
125 The caveat which was lodged by Nelson in relation to the first Lloyd loan, post-dates all three loan arrangements and the funds being advanced.
126 Blackney would sometimes engage different solicitors to do work including lodging security. For example Blackney instructed Dinley Lawyers to lodge a caveat dated 15 December 2011[209] over the property at 1491 Mirboo North-Trafalgar Road Thorpdale in relation to the second Lloyd agreement. Mr Dinley also lodged a caveat dated 15 December 2011[210] in relation to a loan agreement between Aureus and Phillip Kassinidis dated 6 October 2011.[211]
[209] Exhibit 67.
[210] Exhibit 37
[211] Exhibit 33.
(f) Nelson lodged other documents
127 The only other documents lodged by Nelson were a caveat dated 14 July 2011[212] in relation to the first Mikrut loan agreement.[213] Bacash himself stated that he had not retained either Nelson or Blackney to act for him in relation to the Mikrut loans.[214]
(g) Nelson admitted that he acted on behalf of Aureus (see letter 30.8.2012 from Mills Oakley Lawyers (Mills Oakley) to Nelson[215]
[212] Exhibit 25.
[213] Exhibit 24.
[214] Transcript pp 123, 125.
[215] Exhibit 93.
128 As evidence of the retainer, the plaintiffs refer to the letter dated 1 October 2012[216] that Nelson wrote to Mills Oakley. In that letter Nelson referred to Aureus as “our client”. The plaintiffs submit that this is a significant admission.
[216] Exhibit 94.
129 However it is necessary to place the letter dated 1 October 2012 in context. The letter follows correspondence from Mills Oakley to Nelson dated 30 August 2012.[217] The letter from Mills Oakley is written to Nelson who is recorded as the lodgement address for the caveat lodged by Aureus over 14 Pepperell Drive, Drouin. The content of the correspondence from Mills Oakley refers to “your client” Aureus April Pty Ltd and “our client” Ringersma Investments Pty Limited. Mills Oakley advised that there will be insufficient funds to discharge the Ringersma mortgage at settlement and that there will be no residual sale proceeds. The letter from Nelson dated 1 October 2012 is a response to that letter from Mills Oakley. The plaintiffs submit that the reference to “our client” in the heading is a replication of the heading of the letter sent to Nelson.
[217] Exhibit 93.
130 Nelson said that he did not get instructions from Bacash to write the letter to Mills Oakley on 1 October 2012.[218] He said that he had instructions from Blackney.[219]
[218] Transcript p 523.
[219] Transcript p 523.
131 The first defendant submits that, although at that time Nelson’s address was the lodgement address in respect of the caveat, Nelson was not acting for either of the plaintiffs at the time of the arrangement and preparation of the loan, nor when the funds were advanced. Nelson’s conduct is limited to his conduct in relation to the caveat. Nelson had received those instructions from Blackney who was the manager of the loan transaction. Nelson’s conduct does not affect his conduct weeks earlier and cannot retrospectively be applied in relation to Blackney and the plaintiffs.
132 This caveat was lodged in relation to the first loan transaction which was dated 26 July 2011. The caveat was not lodged until 20 September 2011. The letter by Mills Oakley was forwarded to Nelson 12 months after that, which was well after the first and second Lloyd loans.
(h)each of the loan agreements required security documents to be lodged many of which were specifically referred to. It would be reasonably inferred that Nelson, as a practicing solicitor, would do this work.
133 I accept Blackney’s evidence that he would engage different solicitors to lodge the security.[220] I do not accept Bacash’s evidence that the fact that Nelson witnessed each of the loan agreements, the Declarations of Purpose and signed the Certificates of Witness meant that Nelson would “do the work” in relation to the security documents referred to in each of the loan agreements.
[220] Transcript p 578.
134 Further, in the 2002 proceeding the plaintiffs and Afinco alleged that Blackney was retained to arrange loans by them to various borrowers and that terms of the retainer provided that each of the loans to be arranged would be secured by a second mortgage and caveat.
Was there an implied retainer?
135 Counsel for the plaintiffs, Mr Arthur, submitted that it would be reasonable for the court to infer the existence of a retainer He referred to the following statement by Denning LJ in Griffiths v Evans:[221]
On this question of retainer, I would observe that where there is a difference between a solicitor and his client upon it, the courts have said for the last 100 years or more, that the word of the client is to be preferred to the word of the solicitor, or, at any rate, more weight is to be given to it. …The reason is plain. It is because the client is ignorant and the solicitor is, or should be, learned. If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences.
[221] [1953] 1 WLR 1424, 1428.
136 The facts in that case are different from the facts in this case. In that case there was no dispute that the solicitor was retained by the client. In that case there was a dispute about the terms and extent of that retainer and what the solicitor was employed to do. The solicitor said that he was employed solely for the purpose of a claim under the Workmen’s Compensation Acts and that he was under no duty to consider the possibility of a common law claim. The plaintiff in that case said that he employed the solicitor to conduct his case for compensation and the solicitor ought to have considered the possibility of a claim at common law.
137 In Meerkin & Apel v Rossett Pty Ltd[222] Charles JA observed that Lord Denning’s statement has not passed unscathed.
Lord Denning’s preference for the word of the client of course presupposes that the client has been shown to be such; and in that situation it is not surprising that there should be some leaning towards the interests of the supposedly more ignorant party.
[222] [1998] 4 VR 54.
138 The plaintiffs submit that the Court should infer the existence of a retainer. An implied retainer could only arise where on an objective consideration of all the circumstances an intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties.[223] In Dean v Allin & Watts (a firm)(Dean v Allin)[224] the Court held:
“All the circumstances” include the fact, if such be the case (as it is here) that the party in question is not liable for the solicitors fees and did not directly instruct the solicitors. These are circumstances to be taken into account, but are not conclusive. Other circumstances to be taken into account include whether such a contractual relationship has existed in the past, for where it has, the court may be readier to assume that the parties intended to resume that relationship, and where there had been such a previous relationship the failure of the solicitor to advise the former client to obtain independent legal advice may be indicative that such advice is not necessary because the solicitor is so acting. There was no such previous relationship in this case. Looking at the circumstances to which I have referred, the broad picture is not indicative of any implied retainer in this case. (emphasis added)
[223]Dean v Allin v Watts [2001] P.N.L.R. 39, [32].
[224] [2001] P.N.L.R. 39, [32].
139 Mr Arthur referred to Pegrum v Fatharly (Pegrum).[225] In that case a man called Wilkins and his group of companies wanted to borrow money from the appellants. The loan deed and securities would ordinarily be prepared by the lender’s solicitors at the borrower’s expense. Wilkins proposed that the borrowers’ solicitor prepare all the documents and the appellants agreed. Both parties together visited the solicitor and gave him the information to be put into the documents, it being understood that he was the only solicitor involved in receiving instructions and in preparing the documents. At the meeting, the solicitor sought and obtained the appellant’s confirmation that it was in order for him to prepare the documents. In those circumstances the court held that there was an implied retainer.
[225] (1996) 14 WAR 92, 95.
140 An examination of the facts in Pegrum shows that the situation is different from the present case. The fact that both parties consulted the same solicitor together was fundamental to the finding that a retainer existed. In this case it is clear that the borrowers and Bacash did not consult Nelson together. Further, unlike the facts in Pegrum, the loan agreements were not drawn by Nelson.[226] In Pegrum it was held that the agreement was to be a substantial transaction.
[226] See concession made by counsel for the plaintiffs at transcript p 699.
141 I am not satisfied that the facts in this case indicate that there was a de facto relationship of solicitor and client. Nelson did not receive from Bacash information necessary to complete the security documents. I do not accept Bacash’s evidence that he relied on Nelson, in the belief that he was his solicitor, to act for his benefit and in his interests.
142 Mr Arthur also referred to King v Benecke.[227] That case concerns a law firm, Garland Hawthorn Brahe, who had acted for George King and the King family for a number of generations. There had been a long standing solicitor client relationship for three generations. A difference arose between a father and son in relation to the transfer of shares in a property and there was a dispute about whether the transaction was appropriately documented. It was apparent that the solicitor had for some time been acting for both father and son. The solicitor opened a separate file for the father and a separate file for the son. The solicitor was involved in negotiations between father and son and gave advice on both sides of the transaction. The solicitor’s conduct in that case is different from the conduct alleged against Nelson which appears to be that there was a telephone call made by Blackney to Nelson and an assurance given in relation to security.
[227] [2013] NSWSC 568.
143 The loan documents in this case were not in fact prepared by a solicitor and in fact on the evidence, Blackney had previously prepared such documents for the plaintiffs. The striking similarities between all of those documents support Blackney’s evidence that he was the person involved in drawing each of those documents from his Circuit Finance precedent.
144 Mr Arthur also referred to Watkins (t/as Watkins Tapsell) v De Varda.[228] In that case the respondent agreed to buy half of Mr Foch’s interest in a Cambodian property for $195,000. The appellant, through Mr Coates, was the solicitor for the vendor (Foch). The solicitor drew up the agreement which did not sufficiently protect the interests of the purchasers. The solicitor prepared the documents and passed them over as having a quality which they did not possess, namely as documents on the faith of which the respondent should pay the purchase price of the property he sought to purchase. It was held that the solicitor owed the respondents/purchasers a duty of care. It was held that while the respondent was not contractually a client of the solicitor, the solicitor knew that the respondent was relying on him to proceed in accordance with the respondent’s interests.
[228] [2003] NSWCA 242.
145 In this case Nelson has given clear evidence, which I accept, that he did nothing to lead Bacash to think that he was acting for him. In relation to the plaintiffs’ case that he did proffer information in relation to the security, that is denied by both Nelson and Blackney.
146 I am of the view that the matters relied on by Mr Arthur fail to establish that Nelson had been retained by Bacash in relation to the Drechsler loan, the first Lloyd loan or the second Lloyd loan and that no implied retainer arose on an objective consideration of the circumstances.
147 Bacash is an experienced business man of 45 years who has engaged numerous solicitors to act for him in the past.[229] He understands the requirements such a relationship entails, including a fee agreement and that he would need to provide instructions.[230] On Bacash’s own evidence, he never provided any instructions to Nelson in relation to these loans.[231]
[229] Transcript pp 107-198.
[230] Transcript pp 109, 149-151, 153.
[231] Transcript pp 111, 120.
148 There is no written documentation to support such a retainer at the time each of the loan agreements were entered into and both Nelson and Blackney deny the involvement of Nelson in the preparation or arranging of loans on behalf of the lender. On the contrary, the documentary evidence indicates that Nelson as witness to the signature of the borrowers, was acting for the borrowers, which would preclude him from also acting for the lender. Bacash himself said that he gave no instructions to Nelson nor did he pay him for any legal services.
149 Bacash asserted that when he received the Certificate of Witness signed by Nelson in relation to the first Lloyd loan, he understood that meant Nelson would represent him and he would put a caveat or mortgage on it because “It would be foolish for anybody to write a cheque if their solicitor don’t tell you everything all right”.[232]
[232] Transcript p 45.
150 Similarly Bacash saw the Certificate of Witness in relation to the Mikrut loan[233] which was witnessed by Kenneth Ian Tullberg, a separate legal practitioner, as evidence that Mr Tullberg would lodge the security.[234] Bacash gave evidence that when he saw the Certificate of Witness signed by Mikrut’s solicitor he telephoned Mr Tullberg and as Mr Tullberg said that everything is “alright” he advanced the loan, regardless of not having any security in place in relation to the loan and well knowing that Mr Tullberg was acting for the borrower Mikrut.[235]
[233] Exhibit 24.
[234] Exhibit A.
[235] Transcript pp 127, 128,
151 In other words, Bacash saw a solicitor was involved in witnessing the loan agreement to the borrower and thought that that was good enough and that the solicitor would also register any security.[236] However, after further questions, Bacash recanted and stated that he did not expect the borrower’s solicitor to lodge the security on his behalf.[237]
[236] Transcript p 128.
[237] Transcript p 129.
152 Despite Bacash’s evidence that he only loaned money if a solicitor was involved (apart from the loan agreements the subject of proceedings against Blackney in exhibit 2), Bacash gave evidence that he loaned money to Mikrut without the involvement of Nelson or Blackney.[238] Nor did he involve any other solicitor.[239] However Bacash was unable to explain why the Mikrut loan agreement, which was not according to him prepared by Nelson (nor Blackney), was so similar to the other loan agreements which he asserted were prepared by Nelson.[240]
[238] Transcript pp 79, 83,123.
[239] Transcript p 123-124, 127.
[240] Transcript pp 60,130 and 134.
Did Nelson owe the plaintiffs a duty of care in tort?
153 The plaintiffs submitted that their primary position is that there was a retainer. In the alternative the plaintiffs claim that Nelson owed a duty of care to the plaintiffs or either of them in tort. The plaintiffs referred to Dean v Allin.[241]The English Court of Appeal held that even though there was no indication that the claimant in that case had been the solictor’s clients, the solicitors nevertheless owed the claimant a duty of care in tort.
[241] [2001] P.N.L.R. 39, [H8].
154 In Dean v Allin the Court of Appeal considered whether the solicitor owed a duty of care not to make a misrepresentation as to the efficacy of the security, and also a duty of care arising from the assumption of responsibility for putting in place an effective security. The Court of Appeal held:
Although there was no indication that the claimant had been the defendant’s client, the defendants had nevertheless owed him a duty of care in tort. They had been retained, inter alia, to ensure that the loan transaction between the claimant and CH proceeded as agreed between those parties. That agreement had specifically envisaged the creation of a valid security. Since there were no reasons, such as a conflict of interest, which militated against the existence of a duty of care in the circumstances, it followed that the defendants should be regarded as having undertaken responsibility to the claimant.
155 In my view Nelson did not owe Bacash a duty of care in tort. The facts in Dean v Allin are different from the facts in this case. In Dean v Allin the solicitor had been retained to prepare the loan agreement. Dean was an unsophisticated investor (lender). In that case the Court found that the solicitor must have realised that the appellant was not experienced in business matters. In this case I accept the evidence of Blackney and Nelson that Blackney drew the loan agreements. Bacash has been a businessman in the hotel industry for 45 years and had purchased properties prior to 1974. Prior to that he was involved in a restaurant and milk bar business.[242] Bacash had previous experience as a lender of relatively small sums of money at high interest rates. I do not accept Bacash’s evidence that he telephoned Nelson before Bacash signed each of the loan agreements. I do not accept the submission that the mere fact that Nelson witnessed the signature to the loan agreements by the borrowers and the Declaration of Purpose and signed a Certificate of Witness statement, imposed a duty on Nelson to provide effective security. In Dean v Allin it was in the interests of all parties to obtain security. In this case there was a conflict of interest between the borrower and mortgagor. In the circumstances of this case it is not fair just and reasonable to hold that Nelson owed a duty of care to Bacash.
[242] Transcript pp 105-106.
Misleading and Deceptive Conduct
156 The plaintiffs allege that Nelson made misrepresentations or otherwise engaged in conduct which amounted to misleading and deceptive conduct under s18 of the ACL and/or s12DA of the ASIC Act.[243]
[243] FASOC, [37A].
157 Section 18 of the ACL provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
158 The plaintiffs allege that Nelson’s statements were made in trade or commerce as they were made in the context of activities or transactions that bear a trading or commercial character.
159 Section 12DA of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
160 The plaintiffs conceded that Nelson cannot be liable under s12DA of the ASIC Act because advice given by a lawyer in his or her professional capacity about matters of law, legal interpretation or the application of the law to any facts is not financial product advice.[244]
[244] Section 12 BAB(6) of the ASIC Act.
161 The plaintiffs allege that Blackney made misrepresentations or otherwise engaged in conduct which amounted to misleading and deceptive conduct under s18 of the ACL and/or s12DA of the ASIC Act.[245]
[245] FASOC, [43A].
162 Section 131A(1) of the Competition and Consumer Act 2010 operates to exclude conduct relating to the supply of financial services from the meaning of s18 of the ACL.
163 In paragraphs 8, 48 and 92 of FASOC the plaintiffs allege that in order to induce Bacash to lend monies Nelson and Blackney orally represented to Bacash that:
(a) the proposed loan was not risky;
(b) the proposed loan would be repaid when due;
(c) the proposed borrowers had the financial capacity to repay the loan and the assets to satisfy a recovery claim;
(d) there was full and adequate security available to secure the loan.
(the representations)
164 The evidence from Bacash relies upon purported telephone calls he made to Nelson at the time of signing or receiving a signed copy of each of the three loan agreements. Bacash’s evidence that he called Nelson before he signed each of the three loan agreements and advanced any money is denied by both Nelson and Blackney. Bacash’s own evidence in relation to who made the telephone calls and what was said during those telephone calls is inconsistent and unreliable.
165 In relation to the representations allegedly made by Nelson, Nelson denied that he had any involvement in arranging the loans with Bacash. I accept Nelson’s evidence that Bacash did not ring him after Blackney had attended Bacash’s premises with each of the loan agreements.[246] I accept Blackney’s evidence that the purported telephone calls were never made.[247]
[246] Transcript p 493.
[247] Transcript p 647.
166 For these reasons I am not satisfied that Nelson made misrepresentations or otherwise engaged in conduct which amounted to misleading and deceptive conduct under s18 of the ACL.
The claim against Blackney for misleading and deceptive conduct
167 The plaintiffs allege that Bacash relied on the representations made by Nelson and Blackney.[248]
[248] FASOC paragraphs 10 and 16 in relation to the Drechsler loan, paragraph 50 in relation to the first Lloyd loan and paragraph 94 in relation to the second Lloyd loan.
168 There is no evidence that Bacash relied upon anything that Blackney told him. On the contrary Bacash stated in evidence in chief:
How important was it for you, your phone calls to Mr Nelson, that you’ve given evidence about?...I always talk to him and that’s the only reason I gave the money, because to me, with all respect to Keith Blackney, he’s nothing to me, Your Honour. He’s only a messenger.
What do you mean by that, “he’s only a messenger”?...Well, he’s only – was bringing the – from Nelson – Darroll Nelson to me like, he was only bringing the agreement and taking back, but he’s actually – it’s nothing- he’s not involved with it, because he’s not the solicitor, he’s not – he’s nothing to me, you know?[249]
[249] Transcript p 72-73.
169 For these reasons I am not satisfied that Blackney made misrepresentations or otherwise engaged in conduct which amounted to misleading and deceptive conduct under s18 of the ACL or s12DA of the ASIC Act.[250]
[250] FASOC paragraph [43A].
Claim against Blackney for breach of duty of care
The first Lloyd Loan
170 In paragraph 48 of FASOC the plaintiffs allege that Nelson and Blackney made the representations to Aureus.
171 The particulars to paragraph 48 do not refer to any representations made by Blackney. Blackney denied the allegations and referred to the particulars to paragraph 8 of the further amended defence of the second defendant dated 8 March 2017 (the second defendant’s defence). Blackney admitted that he met Bacash in July 2011 but that Nelson was not there.
172 Turning then to the evidence. In relation to the Lloyd loans Blackney said that there was equity in the proposed security. There was 35 per cent equity.[251] Blackney said “we just spoke about the loan – this is the amount of the loan, this is the return, this is the property and this is the rough estimate of the value – the valuation and the security.[252] Blackney said that he never used the word “risky”.
[251] Transcript p 630.
[252] Transcript p 631.
173 In paragraph 83 of FASOC the plaintiffs allege that at the time of making the representations, Blackney knew or ought to have known that the representations were untrue.
174 The plaintiffs allege that Blackney owed Aureus a duty of care to warn Aureus of the risk associated with the first Lloyd loan, the inability of Lloyd to repay the loan, that there was no proper and adequate security for the loan, of the risk associated with the security for the loan, that the loan was an uncommercial and unreasonable risk which would expose Aureus to loss and damage, of the financial position of Lloyd, that the security did not exist and/or was of no value and/or did not represent adequate and/or reasonable security for the loan and that Lloyd was unable to pay his debts and was insolvent. The plaintiffs allege that in breach of his duty of care Blackney made the first Lloyd loan representation negligently and failed to warn Aureus of these matters.[253]
[253] FASOC 86.
175 Blackney submitted that the 72% interest rate per annum negotiated in relation to each of the loans “speaks for itself” and that Bacash knew that the advance was extremely high risk. Blackney submitted that Bacash was a sophisticated lender who had previously been engaged in high risk lending. The plaintiffs conceded that there is much evidence of Bacash being an experienced and frequent short term lender.[254] In his written submissions Mr Arthur referred to Afinco Australia (Kuwait) Pty Ltd v MDM Legal Services[255] and Blackney’s evidence of the 1998 loans.
[254] Paragraph 26, outline of submissions filed on behalf of plaintiffs dated 24 March 2017.
[255] [2007] VCC 119.
176 Having considered all the evidence, I am not satisfied that Blackney knew that the first Lloyd loan was risky, would not be repaid when due, that Lloyd might not have the financial capacity to repay the loan or that there was not full and adequate security to secure the loan. The duty of care alleged in FASOC is contrary to the oral evidence given by Bacash at trial. Bacash did not state in his evidence that Blackney owed him a duty of care. Bacash did not consider that Blackney owed him a duty of care. He regarded Blackney as a messenger. Blackney was “nothing” to him.[256] For these reasons I am not satisfied that Blackney owed a duty of care to Aureus as alleged in paragraph 85 of FASOC.
[256] Transcript p 73.
The second Lloyd loan
177 The plaintiffs allege that Blackney made the same representations in relation to the second Lloyd loan.[257] The relevant particulars do not refer to any representations made by Blackney.
[257] FASOC paragraph 92.
178 Blackney denied the allegations and referred to the particulars to paragraph 8 of the second defendant’s defence.
179 Having considered all the evidence, I am not satisfied that Blackney owed a duty of care to Aureus as alleged in paragraph 129 of FASOC. I am not satisfied that Blackney knew that the second Lloyd loan was risky, would not be repaid when due, that Lloyd might not have the financial capacity to repay the loan or that there was not full and adequate security to secure the loan. Further, the duty of care alleged in FASOC is contrary to the oral evidence given by Bacash at trial.
Claim against Blackney in relation to Drechsler loan
180 The allegations against Blackney in relation to the Drechsler loan are similar to the allegations made against him in relation to the Lloyd loans. The plaintiffs allege in paragraph 8 of FASOC that in order to induce Bacash to lend monies to Drechlser and Otowerth, Nelson and Blackney orally made the representations to Bacash.
181 When cross-examined about the Drechsler loan, Blackney stated:
So in paragraph 8 of your defence, in relation to the Drechsler loan which is one of the 2011 loans, of course, you say that – you said to the first plaintiff that the proposed loan was risky. You’re saying you didn’t say that to him?...No. Not in the beginning. At the end, I did, that’s why I never advanced the money.[258]
[258] Transcript p 628.
182 On the second day of the hearing it became apparent that Drechsler did not receive the $30,000 which was allegedly advanced to him. In evidence-in-chief, Bacash stated that Drechsler and/or Otowerth never received the money.[259]
[259] Transcript p 54.
183 Paragraph 16 of FASOC provides:
Pursuant to the Drechsler agreement…Bacash loaned the principal sum to Drechsler and Otowerth on or about 13 September 2011 (‘the Drechsler loan”
184 Paragraph 16 of the further amended defence of the second defendant dated 8 March 2017 provides:
The second defendant denies the allegations in paragraph 16 and further says that he retained the principal which had been provided to him by the plaintiffs and the plaintiffs subsequently received the total sum of $33,065.05 from the second defendant by way of payment and set off.
185 I refused the second defendant’s application to claim that he paid the sum of $8863.80 by way of set off. Accordingly the second defendant claims that he paid $24,201.25 to the plaintiffs.
186 Mr Arthur indicated that the plaintiffs did not propose to amend their statement of claim.[260] The FASOC fails to acknowledge that the loan amount was never advanced to Drechsler. There is no claim against Blackney for moneys had and received.
[260] Transcript p 212.
187 Paragraph 40 of FASOC provides that at the time of making the Drechsler loan representations by Nelson, Blackney knew or ought to have known that the proposed loan was risky, the proposed loan might not be repaid when due, the proposed borrowers might not have the financial capacity to repay the loans and the assets to satisfy a recovery claim and there was not full and adequate security to secure the loan.
188 Bacash’s evidence was that Nelson made the representations to him on 13 September 2011 which was the date of the loan agreement.[261] There is no evidence that Blackney knew that the loan was risky on 13 September 2011 or when Bacash wrote the cheques for $30,000.
[261] Transcript p 52.
189 Blackney gave evidence that, upon overhearing a conversation about Drechsler becoming bankrupt, he banked the cheques given to him by Bacash in relation to the Drechsler loan into his own account. He claimed to have done so as a “cooling off period for me to do my homework.”[262] Blackney later used the money as “cash flow” and repaid Bacash in “bank cheques, and cash and work done” over the next 12 months.[263]
[262] Transcript p 582.
[263] Transcript p 583.
190 I accept Blackney’s evidence that he paid Bacash the amount of $24,500 in cash and bank cheques.[264] As previously stated, I did not give Blackney leave to amend his defence in relation to the amount of $8863.80 for fees in relation to the facilitation of other loans and for the reimbursement of other money expended by Blackney on Bacash’s behalf.
[264] Transcript p 583.
191 Blackney admitted that he did not inform Bacash that he had retained the funds.[265] He claims that he told Bacash a year later.
[265] Transcript p 583.
192 Bacash acknowledged during evidence-in-chief that he received two part payments from Blackney totalling $17,950. However Bacash denied that this was repayment of the principal sum, claiming that it was instead repayment of the interest owed on the principal.[266]
[266] Transcript p 79.
193 The FASOC fails to discuss the circumstances of the Drechsler loan. There is no claim relating to the moneys retained by Blackney. Insofar as allegations are made against Blackney for false and misleading conduct, the claims against him arise out of representations which were made March or September 2011 in order to induce Bacash to lend money to Drechsler and Otowerth.[267] Insofar as it is alleged that Blackney owed a duty of care to Bacash, the allegation is that Blackney knew or ought to have known that the proposed loan was risky at the time of making the Drechsler representations. The pleadings do not allege that Blackney wrongfully retained the funds which Bacash believed that he advanced to Drechsler and Otowerth.
[267] FASOC paragraph 8.
194 In these circumstances Blackney is not indebted to the plaintiff in respect of the claims made against him in the FASOC.
Damages
195 If I am wrong about the conclusions I have reached in the above paragraphs, it is necessary to decide the quantum of damages.
196 The loan amount advanced by the plaintiffs in respect of the three loans totals $52,000. However as stated above, the Drechsler loan was not advanced to the borrower so that the relevant amount loaned is reduced to $22,000. The plaintiffs bring a claim for $281,533.67 (or $134,708.85 in respect of the two Lloyd loans) including $7000 in relation to legal costs incurred by Mr Potenza for recovery action.
197 In relation to the loans of $52,000 the plaintiffs claim that but for the breaches alleged against Nelson and Blackney, the plaintiffs would not have entered into the loans. Consequently the plaintiffs are not entitled to recover interest at the default rates set out in the loan agreements.
198 In La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants (La Trobe Capital)[268] it was held that the loss suffered by a lender is determined by adding the capital loss (ie the loans) and the lost income, which is assessed by reference to what the lender would have received if they had not lent the money to these borrowers and not what they would have received if the borrowers had not defaulted.
[268] (2011)190 FCR 299.
199 In relation to loss of income, the starting point is to characterise the true nature of Bacash’s claim. The claimed damages are those resulting from the loss of opportunity to use of money that was lent to Lloyd and Neerim South which would have been employed in a profitable loan. The profit is the interest that Aureus would have charged the hypothetical borrowers. [269]
[269]Latrobe Capital (2011) 190 FCR 299, 316.
200 Bacash gave the following evidence:
If you had not made the loans through Nelson and Blackney….what would you have done with the moneys?...Well, Your Honour, it’s – other have avenues. I’ve have been approached, because (indistinct) hotel for 45 years, and I’ve met a lot of solicitors and accountants. He’s approached me, but I was not in (indistinct words) I didn’t have the money to do it. But now, when they approached me, I did it, and I could do it in many – many other places. But I was not interested, because I just lost the money, that’s it.[270]
[270] Transcript p 73.
201 Bacash said that there were a lot of avenues to lend money on short terms.
A lot of people doing it now. You can easy find – easy to get the money, to invest money these days, on short terms.[271]
[271] Transcript p 74.
202 I do not accept Ms Anderson’s submission that Bacash was not interested in loaning moneys to others if he had not made the loans through Nelson and Blackney. I am satisfied on a balance of probabilities that the plaintiffs would have taken action to lend the money on short term loans.
203 Having reached the point that a loss is established:
Its value must be estimated. That must be done no matter how difficult the task, even if some guesswork is involved: JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241; Waribay Pty Ltd v Minter Ellison [1991] 2 VR 391at 398. What is required is to estimate the chance of La Trobe finding a substitute borrower willing to borrow on the same terms, whether or not the chance of this happening is more or less than even: Mallet v McMonagle [1970] AC 166 at 126.[272]
[272]La Trobe Capital (2011)190 FCR 299, [90].
204 In St George Bank Ltd v Quinerts Pty Ltd[273] Nettle JA held that the value of the loss may have to be discounted heavily to “allow for the vicissitudes of chance”.
…[I]n order to provide a truly accurate reflex of the damage actually incurred as a result of not entering into a more satisfactory transaction at an identified rate of return, the spread should ordinarily be discounted to allow for possibilities such as that the funds invested in the improvident transaction could not have been placed in another more acceptable transaction; and the risk that, even if so placed, the other borrower might still have defaulted.
[273] [2009] VSCA 245, [25] and [27].
205 The amount of interest in relation to the first Lloyd loan of $12,000 is calculated at the rate of 72 per cent per annum from 26 July 2011 until 22 March 2017 (being 2067 days at $23.67) is $48,925.89. In my view this amount should be discounted by 45% given the fact that the money was to be lent on short term loans which meant that the receipt of interest would not be continuous during any given period and that 37.5% of the eight loans were bad. As a result Aureus April lost an opportunity valued at $26,909.
206 The plaintiffs claim legal disbursements of $1000 in relation to the first Lloyd loan.
207 The total amount of damages in relation to the first Lloyd loan would be $39,909 being the loan amount of 12,000 plus loss of income estimated at $26,909 and legal costs of $1000.
208 The amount of interest in relation to the second Lloyd loan of $10,000 is calculated at the rate of 72 per cent per annum from 4 August 2011 until 22 March 2017 (being 2058 days at $19.73) is $40,604. In my view this amount should be discounted by 45% given the fact that the money was to be lent on short term loans which meant that the receipt of interest would not be continuous during any given period and that 37.5% of the eight loans were bad. As a result Aureus lost an opportunity valued at $22,332.
209 The plaintiffs claim $1000 for legal disbursements in relation to the second Lloyd loan.
210 The total amount of damages in relation to the second Lloyd loan would be $33,332 being the loan amount of 10,000 plus loss of income estimated at $22,332 and legal costs of $1000.
211 There was a break in the chain of causation in relation to the Drechsler loan. I accept Blackney’s evidence that he decided not to advance the moneys to Drechsler and Otowerth and paid the money to himself. Accordingly Nelson is not liable for the misappropriation of the moneys to be advanced to Drechsler and Otowerth which constitutes a novus actus interveniens.
212 I propose to order that the plaintiffs’ claim against each of the defendants is dismissed. I will hear counsel on the question of costs.
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