Beneficial Finance Corporation Ltd v Eric Kay Prince & Associates

[1992] FCA 650

JUDGMENT NO. .n........ ....... a.. 6 9 3 I =l.% .

COURT OF AUSTRALIA )

I No. NG 406 of 1991

BENEFICIAL FINANCE

CORPORATION LIMITED

Applicant

AND :	ERIC KAY PRINCE 6 ASSOCIATES PTY LIMITED
First Respondent
ERIC KAY PRINCE Second Respondent
ERIC KAY PRINCE h ASSOCIATES PTY LIMITED and ERIC KAY PRINCE
Cross-Claimants
H K WILLIAMS
P J EVANS
JOHN  KBRR WILLIAMS
ROSS ANTHONY LINDGREN MICHAEL PAUL McDONALD
T M F YIM t/as HARRIS
WHEELER
Croes-Respondents

MTB r 18 AUGUST 1992 BXTEWPORE REASONS FOR JUDGMENT

C O M :  WILCOX J

PLlLCEr SYDNEY

WILCOX J: This is a cross-claim which arises out of a

principal proceeding brought by Beneficial Finance Corporation Limited against a company carrying on practice as a valuer; Eric Kay Prince and Associates Pty Limited, and Mr Eric Kay Prince, the principal of that company. The principal proceeding was based on a number of causes of action. The most significant were claims for breach of 6.52 of the Trade

tices Act 1974 and common law negligence. The claim made by Beneficial Finance was that the respondents were retained to value a parcel of land at Rutherford, near Maitland, and that they valued this land at $400,000 without being aware of, or drawing to the attention of the applicant, the fact that the land had been purchased by the proposed mortgagor of the land for only $65,000, that purchase having been completed only about two weeks before the valuation was made. The proposed mortgagor was Hunter Development Company Pty Limited.

There was a deal of evidence yesterday hbout the appropriateness of the valuation which was written,	irrespective of its failure to advert to the recent purchase.
As events turned out, it was not necessary to determine that matter. The principal proceeding was compromised this morning by an agreement between the applicant and the respondents for entry of judgment in favour of the applicant against the first respondent in the sum of $425,000. The detail of how this figure was calculated was not spelled out. The advance made by Beneficial Finance to the Hunter Development was $300,000.
But this advance was made in early August 1985; apparently on
2 August. There was a considerable interest claim. The
amount which was the subject of the agreement was less than the amount claimed in the principal proceeding.
After the compromise was announced, the question arose as to the future of the cross-claim. There was no agreement between the cross-claimants, which were the respondents in the principal proceeding, and the cross- respondents, the members of a firm of solicitors, Harris Wheeler. Harris Wheeler had acted for Beneficial Finance in connection with the mortgage, the subject of the principal proceeding. However, it was agreed between counsel for the cross-claimants and the cross-respondents, firstly, that the valuer had been negligent in connection with the task undertaken by him. This concession was inevitable. It is manifestly negligent for a valuer to write a valuation for a parcel of land without inquiring the purchase price of the land at its most recent purchase, particularly when that was
agreed that the figure of $425,000 represented a reasonable only shortly before the date of valuation. Secondly, it was
compromise of the principal proceeding and that damage to this effect had been sustained.
The question which arises on the cross-claim is whether Harris Wheeler were negligent in discharging their duty towards their client, Beneficial Finance. The issue is complicated by the paucity of information as to what happened

in regard to the preparation of the mortgage documents and the

settlement of the mortgage. The only person who gave oral evidence on the matter, a Mr Michael Speers, was the branch manager of the Newcastle branch of Beneficial Finance for a period commencing in about September 1983. He still held that position at the date of the relevant events, and he was concerned in them at least to the extent of writing a memorandum dealing with the application of Beneficial Finance's customer, Hunter Development Company for finance.

However, Mr Speers says that he has no recollection of the transaction at all, independently of the documents. Even with the documents, he was not able to say very much about it. His evidence really comes down to some statements about general practice and a pre-reconstruction of events from the documents. It is suggested by counsel for the cross-respondents that Mr Speers' claimed lack of recollection is not genuine. I see no reason to doubt the truth of what he says. I thought that Mr Speers was trying to be helpful and

was honest in his evidence. I am not surprised that a person	in his position, who no doubt has supervised thousands of
transactions in the intervening period, should lack an independent recollection of this particular one. It has to be remembered that it is over seven years since the transaction occurred and it appears to have been a long time before it became apparent that the matter would go to court. The
principal proceeding was instituted only days before the sixth anniversary of the transaction. In any event, whether Mr

Speers' lack of recollection is genuine or not, the fact is that he has contributed very little. So one has to go to the documents. In that connection, it appears that the bulk of the papers once held by Beneficial Finance are now missing. There is one file in evidence and a document has been produced from it; but Mr Speers says that there was definitely another file that cannot be found.

I accept the genuineness of this claim. After all, it was in Beneficial Finance's own interest to produce whatever documents it could in connection with the principal proceeding. The file of Harris Wheeler was subpoenaed and has been tendered but it is obviously incomplete. For example, a number of enclosures to a letter dated 30 July were apparently received; but they are not in the file. There is no explanation as to what happened to those documents. It is perhaps unsurprising that, at this point of time, no explanation is supplied. Once again, one has to bear in mind the lapse of time. In the case of Harris Wheeler, I note that

the cross-claim was not filed until December 1991, nearly six

and a half years after the events complained of.

All that I know about the transaction seems to be this. According to a file note, apparently in the handwriting of Mr Peter Hawkins who was presumably a solicitor, either a member of the firm or an employee of the firm, telephone instructions were received from Beneficial Finance on 31 July

1985 to act on an advance of $300,000 by the company to Hunter

Development Company. The postal address of the property was noted and there is a note: "phone instructions from Beneficial, urgent". On the same day, Harris Wheeler appear to have received a bundle of documents from Thompson Norrie, solicitors of Maitland, who were acting for Hunter Development Company, the proposed mortgagor. The covering letter refers to a conversation between the writer of the letter and Mr Hawkins of that day. Amongst the enclosed documents are a peal Pro~ertv Act search, which I assume to be a search relating to the subject property. The letter says:

"We a l s o enclose a c o p y o f the t r a n s f e r i n

f a v o u r of Hunter Development Company P t y

L i m i t e d and a d v i s e t h a t th i s was l o d g e d a t the

Lands T i t l e O f f i c e on 29 J u l y 1985 for

r e g i s t r a t i o n a s d e a l i n g number V863030. "

On the following day, 1 August, Mr Hawkins sent a
letter to Thompson Norrie, apparently via the document

exchange. The covering letter referred to the enclosure of a

of guarantee and various authorities and acknowledgments. The number of documents, including the mortgage document, a deed letter includes this paragraph:

"We	acknowledge	r e c e i p t	o f y o u r	letter	o f	30
J u l y ,	t o g e t h e r	w i t h	i t s	e n c l o s u r e s	and	once

same h a v e been i n s p e c t e d by the w r i t e r we w i l l

a d v i s e you o f a n y o u t s t a n d i n g r e q u i r e m e n t s . "

This paragraph is rather perplexing. On the one hand, it states unequivocally that the documents said to be enclosed by the 30 July letter were received. On the other hand, it suggests, that those documents have not yet been inspected. Counsel for the cross-claimants says, I think rightly, that in order to prepare the mortgage document Mr Hawkins would have needed a certificate of title reference. The file note of his original instructions does not contain any certificate of title reference and it seems reasonable to assume that this information came from either the search or the copy of the memorandum of transfer, both of which were said to be enclosed with the letter from Thompson Norrie of 30 July.

Counsel also says that, in order to obtain the correct name of the company, Mr Hawkins would have been likely to have looked at the copy memorandum of transfer. I agree that this would have been a sensible course; although I note that the letter of 30 July sets out the company's name in full. Additionally, it may be that Mr Hawkins was already familiar with the name. There is evidence from Mr Speers that

there had been several earlier advances by Beneficial Finance

to Hunter Development Company. Although there is no evidence

that Harris Wheeler acted on those transactions, it was apparently the custom of Beneficial Finance regularly to retain that firm, although not exclusively; so it may be that

Mr Hawkins already knew the name.

However this may be, it is not clear exactly what
documents Mr Hawkins considered. He sent off the documents on

1 August and, so far as the file reveals, the next thing that happened, so far as Harris Wheeler was concerned, was the receipt on 8 August of two letters from Beneficial Finance. One of these letters reads:

"We refer to the above advance and wish to advise settlement was effected on 2 August

1985. Please find enclosed mortgage documents

and guarantee duly executed. "

The second letter reads:

"We refer to the above advance and enclose
cheque for $2,397 being for legal fees."

The next item in the file is a letter of 14 August from Harris Wheeler to the Commissioner of Stamp Duties enclosing the documents for stamping. The stamp duty was part of the sum of $2397 which had been paid for legal fees.

Reference should also be made to a letter extracted from the file of Thompson Norrie dated 2 August and addressed to Harris Wheeler. This letter refers to Harris Wheeler's letter of 1 August 1985 which had obviously been received. The Thompson Norrie letter says that it encloses certain documents. These include the mortgage, the deed of guarantee and the various authorities and acknowledgments. A request is made to deduct from the advanced funds, the costs and disbursements referred to in the letter of 1 August. The original of this letter was in the file of Beneficial Finance. There is no copy of the letter on Harris Wheeler's file. It would appear that the letter was prepared by Thompson Norrie but found its way to Beneficial Finance rather than to Harris Wheeler. So far as the evidence reveals, it was not received at any stage by Harris Wheeler.

I note that there is a postscript to this letter referring to an enclosed final title search to 9 am today, that is 2 August. This letter combines with the letters from Beneficial Finance of 7 August to suggest to me that Beneficial Finance settled the mortgage directly with Thompson Norrie; or perhaps with Thompson Norrie's client, Hunter Development Company. Why this was done does not appear. Apparently Hunter Development Company was pressing. It may be that Beneficial Finance was prepared to take this short-cut in order to maintain goodwill with the client. Whatever the explanation, the situation seems to be that the usual course was not followed. In the ordinary course, the completed

documents would have been returned to Harris Wheeler, as	Thompson Norrie had intended when compiling the letter of 2
August. Harris Wheeler would have checked that the documentation was in order and requested Beneficial Finance to make available the necessary cheque to enable settlement of the mortgage transaction.
I should mention that there is in evidence a copy of a letter dated 30 July 1985, under the name of Mr Speers,
addressed to Harris Wheeler instructing that company to act on the mortgage. The letter appears to be a common form letter. Mr Speers said that this type of letter was sent on each occasion. As it happens, in the file relating to the subject transaction, there is a letter of 14 August from Harris Wheeler to Beneficial Finance which, after dealing with a couple of other matters, contains a statement:

"we do not appear to have ever received written instructions from you with regard to this matter and we ask that you provide us with a copy of such instructions so that w e might complete the mortgages as to repayment date, etcetera. "

On the following day, Beneficial Finance replied enclosing a "copy" of its letter of instructions. In the Harris Wheeler file there is a document which is stamped "copy", being a copy of the letter of 30 July. It is not apparent from the file that there was an original letter of instructions before the transaction was settled. Indeed, I

would infer to the contrary. However, I do not think that	this matters very much in the present case, because Mr Speers
gave evidence that the letter was a common form letter and had been sent to Harris Wheeler on numerous previous occasions. There is no evidence to deny that statement.
The significance of the letter of instructions is that there are six stated conditions of the retainer, the first of them is set out in para A, which reads:

'If any matters arise which will affect our

security position please do not proceed with
settlement but advise us immediately."

The argument put on behalf of the cross-claimants is that, particularly in the light of this instruction, Harris Wheeler were under an obligation immediately to report any matter which might adversely affect Beneficial Finance's interests; that M r Hawkins, having before him a copy of the memorandum of transfer which showed a consideration of $65,000, ought to have been alert to the fact that there was a potential problem in regard to the adequacy of security of an advance of $300,000 and sought instructions on that matter.

As I said to counsel when the submission was put, if this transaction had been completed by Harris Wheeler in the usual way, I would have little difficulty about his argument.

I accept that Beneficial Finance was mainly guided by the

valuation report in deciding the adequacy of its security, so

seems to me that a solicitor is under a duty to a client to

far as the value of the land was concerned. Nonetheless, it

call attention to any aspect of a transaction which calls into question the adequacy of the client's security. Accordingly, if Harris Wheeler had been allowed to receive the completed documentation, had considered the completed documentation and had indicated to Beneficial Finance that the matter was in order for settlement, I would have had no difficulty in accepting the cross-claimants' case. In saying that, I should

indicate that I have not heard from counsel for the cross- respondents; so what I have said is subject to anything that might be said by him. However, prima facie, I would think there was a good claim of negligence.

The difficulty about the cross-claimants' case, however, is that this process was not allowed to be completed. Beneficial Finance intervened and settled the matter itself.

Mr Hawkins never had the opportunity, of considering all the

completed documents and indicating that the matter was ready for settlement. It may, of course, be the case that, even if he had that opportunity he would not have noticed the consideration on the copy memorandum of transfer or, having noticed it, would not have called attention to it. But I do not think that his firm can be held guilty of negligence because an omission might have occurred at a later date. The fact is that the time for considering the papers, and certifying that the transaction was proper for settlement, never arose.

It is put by counsel that Mr Hawkins should have realised the situation before he wrote the letter on 1 August. Perhaps he should have, but I feel that it is difficult to say that there was negligence at that point of time without a greater understanding of what opportunity he then had to consider the matter. The only thing that is clear is that everything was done in a rush. One could understand Mr Hawkins taking the view that the priority was to get the draft documents away to Thomson Norrie for execution and that he would check through everything before he certified readiness for settlement.

Having regard to this situation, and particularly in the light of the paucity of available information, I do not think that the cross-claimant has discharged the burden of establishing negligence by those acting in the matter on behalf of Harris Wheeler. Accordingly, the cross-claim should be dismissed. The cross-claimant must pay the cross- respondents' costs of the cross-claim.

I certify that this and the preceding twelve (12) pages
are a true copy of the Reasons for Judgment

of the Honourable Justice Wilcox.

Associate:

Dated:	18 August 1992
Counsel for the Applicant:	M L D Einfeld QC and T S Hale

Solicitors for the Applicant:	Bruce Stewart Turton
Counsel for the First and
Second Respondents and
Cross-Claimants:	N C Hutley
Solicitors for the First and
Second Respondents and
Cross-Claimants:	Murray Stewart Fogarty
Counsel for the Cross-
Respondents:	M L Williams
Solicitors for the Cross-
Respondents:	Ebsworth and Ebsworth
Date(8) of hearing:	17 and 18 August 1992