Michael Peter Johnston v Roderick Alexander Smith - [2005] NSWSC 433

No judgment structure available for this case.

CITATION:
Michael Peter Johnston v Roderick Alexander Smith & Ors [2005] NSWSC 433

HEARING DATE(S): 7 March 2005 - 11 March 2005, 16 March 2005

JUDGMENT DATE :

25 May 2005

JUDGMENT OF:
Barr J at 1

DECISION:
Direct the entry of a verdict and judgment for the first defendant - order the plaintiff to pay the costs of the first defendant - dismiss the claim against the third and fourth defendants.

PARTIES:
Michael Peter Johnston, Roderick Alexander Smith, Growthcorp (Aust) Pty Limited, Charles Platcher, Andrew Craig Ashton, Mortgage Partners Pty Limited

FILE NUMBER(S):
SC 20743/01

COUNSEL:
RG Forster SC/ RM Lovas (Plaintiff)
LV Gyles/K Oliver (1st Defendant)

SOLICITORS:
Chegwidden Solicitors (Plaintiff)
Turtons Lawyers (1st Defendant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

GRAHAM BARR J

25 MAY 2005

20743/01 MICHAEL PETER JOHNSTON v RODERICK ALEXANDER SMITH & ORS
JUDGMENT

1 HIS HONOUR: The plaintiff, Michael Peter Johnston, sues the first defendant, Roderick Alexander Smith, and others for damages arising out of events in which Mr Johnston invested and lost a large sum of money. Mr Smith is a solicitor, the principal of the firm Penrhyn Parker, who acted for Mr Johnston. Some time ago Mr Johnston discontinued his claim against the second defendant, Growthcorp (Aust) Pty Limited, (“Growthcorp”). The third defendant, Charles Platcher, was bankrupt at the time of the events giving rise to the claim and Mr Johnston is content for his claim against Mr Platcher to be dismissed. The fourth defendant, Andrew Craig Ashton, has become bankrupt since the commencement of the proceedings and the Court has been invited to dismiss the claim against him as well. Terms of settlement have been filed in the action between Mr Johnston and the fifth defendant, Mortgage Partners Pty Limited (“Mortgage Partners”). The only dispute for determination is therefore the one between Mr Johnston and Mr Smith.

2 Mr Johnston was born in 1970. He attended primary school and high school, which he left after completing the school certificate at the age of fifteen years. He undertook an apprenticeship and studied at TAFE and became an auto electrician. He lived in a house in Curl Curl, originally purchased in the 1950s by his grandmother. His parents eventually became the owners and he purchased it from them in 1996. His father, who was an officer at Australia and New Zealand Banking Corporation (“ANZ Bank’) arranged a mortgage from that bank.

3 Mr Johnston had known a man called Nathan Morgan since they had attended school together. They remained friends and saw one another from time to time. In 1999 Mr Morgan was working for either or both of Growthcorp and Mr Platcher. The distinction does not matter, because he took his directions from Mr Platcher, who was a Director of Growthcorp. Growthcorp used to borrow money and sink it into land or property development. It was on the lookout for lenders of money. One of Mr Morgan’s functions was to introduce to Mr Platcher persons who might be prepared to invest money in Growthcorp. During October 1999, taking advantage of their friendship, Mr Morgan told Mr Johnston that he was working for a company called Growthcorp which needed investors to enable it to complete certain projects it was undertaking. Mr Johnston said that he was not interested, but Mr Morgan persisted, asking him several more times over the next few weeks. Eventually Mr Johnston agreed to meet Mr Morgan one evening at an hotel. He kept the appointment. Mr Morgan and Mr Platcher attended. Mr Platcher told Mr Johnston that Growthcorp needed investors for a project to buy land and build a backpackers hostel at Noosa and to buy, subdivide and develop an abattoir at Yallah. He handed Mr Johnston a number of documents. Mr Johnston said that he would like to think about it. After the meeting Mr Platcher twice telephoned Mr Johnston and Mr Johnston told him that he wanted to speak to his solicitor about the matter.

4 Mr Johnston was then a certified auto electrician working in steady employment. He was a director of the company that employed him, though not the manager. His net annual income was about $30,000.00. Apart from his house he owned no substantial assets. By that time his indebtedness to the ANZ Bank had been reduced to about $130,000.00. Mr Platcher was telling him that if he invested the sum of $360,000.00 Growthcorp would pay the interest on the loan and repay it in full after the six months. It would also pay out his housing loan at the end of the six months. He must have doubted whether he could raise such a large sum. He must also have wondered how the venture could pay off his mortgage, which then stood at four times his net annual salary, within six months. I think that it must have been doubts about such matters that made him want to obtain the advice of a solicitor before deciding whether to invest.

5 Mr Johnston saw a solicitor, Mr Edward Boyce, who told him that the proposal made no sense and that he should not sign documents or hand over money. Mr Boyce told Mr Johnston that he would like to see further documents before tendering any further advice.

6 I think that Mr Johnston must have told Mr Platcher who his solicitor was, because on 6 and again on 11 January 2000 Mr Platcher wrote to Mr Boyce on the letterhead of Growthcorp, outlining the proposal. Both letters refer to conversations, some before the first was written and some between the dates of the letters, and it sufficiently appears that Mr Platcher was trying to convince Mr Boyce that the proposal would be advantageous for Mr Johnston. It is not necessary to set out all the details of the letters, but sufficient to say that one of the terms of the arrangement proposed was that Mr Johnston would raise $360,000.00 on the security of his house. Growthcorp expected that the financier, Burrawong Investments Pty Limited (“Burrawong Investments”), would accept as security a second mortgage over the house.

7 In his evidence Mr Johnston was not prepared to say that he ever saw either of those letters. He said that he never spoke to Mr Boyce after the interview I have mentioned, merely that he tried on one occasion to telephone him but was unsuccessful.

8 It was Mr Johnston’s evidence that Mr Platcher complained that Mr Boyce was taking too long to advise on the matter and that if they did not act soon the investment opportunity would be lost. Although he knew that Mr Boyce’s advice was not to sign or lend money, he rejected it because he thought the opportunity too good to miss. In a statement made to the Australian Securities and Investments Commission (“ASIC”) he described Mr Boyce’s advice as “preliminary”.

9 So it was that Mr Johnston decided to make the investment and to sign whatever documents were necessary to bring it into effect. I am satisfied that at that time he knew that he would have to borrow the $360,000.00 in order to lend it to Growthcorp. He understood that the money had to be paid back to the financier and that if payments were not made all the money would become due. He knew what a mortgage was. He knew that when a mortgage was provided to secure a loan and there was default under the loan the lender would be able to take possession of the property secured and sell it. He knew that some investments were successful and that some were not. He was prepared to take the risk involved in this investment.

10 Mr Johnston attended Mr Smith’s office on 28 January 2000. He asserts that on that occasion he executed the mortgage to Burrawong Investments, not knowing that it was a mortgage. Mr Smith, he says, did not tell him that it was a mortgage that he was signing. He did not realise until the following April or May that he had mortgaged his house to Burrawong Investments. He asserts that Mr Smith acted without his authority in purporting to authorise and direct on his behalf the disbursement of sums out of the $360,000.00 borrowed. Mr Smith asserts that Mr Johnston signed the mortgage before 28 January 2000, knowing that it was a mortgage.

11 On 28 January 2000 Mr Johnston signed a document called “Declaration By Borrower” in which he declared, among other things, first that he had received independent legal advice about certain documents, including the mortgage, and secondly that after receiving that advice he had freely and voluntarily signed the documents, including the mortgage. Mr Smith witnessed his declaration. Mr Johnston asserts that the two declarations were false. Mr Smith’s case is that the first was not false and that he did explain the effect of the mortgage. He concedes that the second statement was false in that he gave Mr Johnston the necessary explanation after he had signed the mortgage, not before.

12 Mr Johnston asserts that Mr Smith was in breach of the duty of care he owed him as his solicitor in that he failed to exercise due skill and care, failed to explain that the document was a mortgage, failed to explain the nature and effect of the mortgage, failed to ensure that he understood the effect of the mortgage, accepted instructions from someone other than him in acting for him in the execution of the mortgage, acted in the interests of other persons and accepted instructions from someone other than him in authorising the mortgagee to disburse moneys.

13 These matters are denied.

14 Mr Johnston asserts that Mr Smith knew or ought to have known that the contents of the declaration were false and that Burrawong Investments would rely on the declaration. Consequently, he owed Mr Johnston a duty of care not to send the mortgage documents to Burrawong Investments. In breach of the duty, he sent them.

15 Mr Johnston also asserts that in sending documents by facsimile transmission Mr Smith engaged in conduct which was misleading and deceptive in trade or commerce: Sections 6(3), 52 Trade Practices Act 1974 (Commonwealth).

16 Burrawong Investments took the mortgage and advanced the money. Growthcorp failed to honour its promise to pay the instalments of interest, or to repay the capital sum after the expiry of the period of six months. It did not discharge the first mortgage on Mr Johnston’s house. Burrawong Investments exercised its powers under the Mortgage. Mr Johnston’s house was sold and he lost the whole of his equity in it.

17 Although there is a large measure of disagreement between Mr Johnston and Mr Smith about what happened before 28 January 2000 and during the conference that took place on that day, I am satisfied that these events led up to Mr Johnston’s execution of the mortgage.

18 During 1999 Mr Paul Veron was employed by Mortgage Partners, a mortgage broker. He and Mr Smith had known each other professionally for years. During the same year Mr Veron explained to Mr Smith that Mortgage Partners was receiving work from Mr Platcher, who had a company called Growthcorp. Mr Platcher had been referred to Mortgage Partners because it had access to private funds for lending, including the company Burrawong Investments. The principal of Burrawong Investments was Mr Lindsay Allsop. Mr Veron asked whether he might recommend Mr Smith as being prepared to act on behalf of any mortgagor concerned in such a transaction. Mr Smith agreed.

19 The money the loan of which was to be secured by a second mortage on Mr Johnston’s house was being lent by Burrawong Investments. Mortgage Partners was to be the broker. On or about 21 December 1999 Mr Veron informed Mr Smith that a new matter might come through. He sent by facsimile transmission a letter dealing with a proposed mortgage from Mr Johnston to Burrawong Investments for $360,000.00 over six months, secured over Mr Johnston’s house. The purpose of the loan was to purchase a business. The solicitors for Burrawong Investments were Clinch Neville Long. The solicitor handling the matter at that firm was Mr Leif Godwin. Mr Smith assigned the matter to his employed solicitor, Ms Baird. I accept Mr Smith’s evidence that Ms Baird would in the ordinary course have got in touch with Mr Johnston.

20 On 21 December 1999 Mr Ashton, writing on letterhead styled “AC Ashton & Company, Chartered Accountant” wrote this -

December 21, 1999

To Whom it May Concern,

RE: MICHAEL PETER JOHNSON

I advise that I have acted for Mr Johnson for the last 4 years.

Mr Johnson is currently employed by ABC Auto Electricians Pty Limited as Manager of the business.

His current remuneration is $65,200 p.a. inclusive of overtime and allowances. His income has been consistent at this level for the last 2 years.

If I can be of further assistance, please contact the writer.

Yours faithfully,

(Signed)

21 Mr Ashton wrote that certificate at Mr Morgan’s request. He knew that Mr Morgan worked for Mr Platcher. Mr Ashton had never met Mr Johnston and had never acted for him. He presumably had no idea how much money he earned. The certificate was false.

22 On 22 December 1999 Mr Platcher told Mr Morgan and a man called Luigi or Gino Pettenon to have the plaintiff sign some documents. They took two letters to him at work. The first was a letter written by Mortgage Partners to himself (though it called him “Johnson”). It is in these terms -

22nd December, 1999

Dear Sir/Madam,

RE: PROPOSED MORTGAGE OF $360,000

I am pleased to confirm the following loan approval:

LENDER:

BORROWERS:

PRINCIPAL:

TERM:

INDICATIVE

INTEREST RATE:

SECURITY

over:

NSW 2006

$130,000.

LOAN PURPOSE

BROKERAGE FEE

ESTABLISHMENT FEE

EXPENSES

duty and valuation

APPROVAL PERIOD

To proceed with this application could you please forward the following prior to close of approval period.

1. This letter duly signed and initialled.

2. Consent from ANZ for 2nd mortgage.

Please note that we reserve the right to withdraw or amend the loan approval at any time without liability and at our absolute discretion if, in our opinion or in the opinion of the Lender’s solicitors, there arises any matter which may adversely affect the proposed loan. Any changes to the terms and conditions will be shown in the loan document which will also give further and better particulars of the loan.

Yours sincerely,

(Signed)

22/12/1999

23 The second was a letter to be signed by Mr Johnston (though it, too, called him “Johnson”) and addressed to the ANZ Bank . It was as follows -

Attention: The Manager

Dear Sir/Madam

I hereby authorise Charles Platcher, consultant of Growthcorp Australia Pty Ltd to act on my behalf in matters relating to the ANZ bank top obtain their consent fro a second mortgage provided by Bunnerong Investments Pty Ltd.

Yours faithfully,

24 I am satisfied that Mr Johnston signed the acknowledgment of the receipt of the letter from Mortgage Partners and the letter addressed to the ANZ Bank.

25 On the same day Mr Godwin wrote a letter to Penrhyn Parker, marked for the attention of Ms Baird, in which he said this -

MORTGAGE FROM MICHAEL PETER JOHNSTON

We refer to the above matter and confirm that we act on behalf of the Mortgagee, Burrawong Investments Pty Limited.

Please note that the advance will not be completed until all matters relating to the Borrower and Security are to our client’s satisfaction. Accordingly, neither the contents of this letter nor any previous communications should be construed as an offer to lend.

We enclose the following:

1. Draft Mortgage;

3. Statutory Declaration in relation to property; and

4. Account for our fees and expenses.

In order to complete the advance, we require the following:

(a) Duly executed and stamped Mortgage;

(b) Duly executed Acknowledgment, Authority, Undertaking and Direction;

(c) Duly executed Statutory Declaration. (Please note that the amount outstanding on the first Mortgage needs to be inserted in paragraph 2 before execution);

(d) Payment of our fees and expenses.

(e) Section 47 Certificate showing the property to be clear for land tax up to and including 1999;

water rates and strata levies for calendar year 1999 (or an adjustment for this in the Direction to Pay referred to in (h) below);

(g) Satisfactory evidence of insurance noting our client as mortgagee;

(h) Direction to pay (which will need to include our client’s establishment fee and the brokerage fee that will be advised);

(i) Written consent from the first mortgagee regarding registration of our client’s Mortgage including stating that the Folio Identifier will be produced at the Land Titles Office for that purpose. The consent should also confirm the amount outstanding under the first Mortgage; and

(j) Survey (if available).

We look forward to hearing from you,

26 Attached to the letter were the documents named in it. The form of mortgage was unremarkable. Mr Johnston was named as mortgagor and Burrawong Investments as mortgagee. The principal sum was $360,000.00 repayable after six months. The form of Acknowledgment, Authority, Undertaking and Direction was as follows -

ACKNOWLEDGMENT, AUTHORITY, UNDERTAKING & DIRECTION

TO: Burrawong Investments Pty Limited

BURRAWONG INVESTMENTS PTY LIMITED MORTGAGE FROM MICHAEL PETER JOHNSTON

6 FAY STREET, NORTH CURL CURL, NSW, 2066

Michael Peter Johnston:

1. Acknowledges that he fully understands the nature and effect of the Mortgage document.

2. Undertakes to comply with any requisitions raised by the Office of State Revenue or the Land Titles Office in relation to the Mortgage.

3. Authorises you to complete any blanks contained in the Mortgage.

4. States that the Mortgage advance is to be applied wholly or predominately for business or investment purposes or for both purposes.

5. Directs you to pay the proceeds of the advance to Clinch Neville Long and thereafter to his solicitors Penrhyn Parker or as they may in writing direct.

DATED:

27 The Statutory Declaration was as follows -

STATUTORY DECLARATION

I, MICHAEL PETER JOHNSTON of 6 Fay Street, North Curl Curl, New South Wales, 2006 do solemnly and sincerely declare as follows:

1. I am the registered proprietor of the land contained in Folio Identifier 24/35509 known as 6 Fay Street, North Curl Curl, NSW, 2006 (“Land”).

2. The Land is unencumbered except for a registered first Mortgage in favour of Australia and New Zealand Banking Group Limited securing a principal sum of $_________

3. I am not aware of any matter or thing affecting the Land which would be adverse to my ownership of the Land or adverse to the interest of any mortgagee of the Land including, but not limited to -

(1) any matter or thing arising under a provision of any of the following Acts:

(Then followed the name of a number of Acts of Parliament.)

(2) any matter or thing arising by reason of any proposal of any of the following authorities:

(Then followed the names of certain statutory and other authorities.)

4. There are no rates or taxes outstanding with respect to the Land apart from current year’s council rates and current quarter’s water rates.

5. I acknowledge that Burrawong Investments Pty Limited will rely on the information contained in this Statutory Declaration in deciding whether to advance to me the sum of $360,000.00 to be secured by way of a registered second mortgage over the Land.

And I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Oaths Act, 1900 (as amended).

28 There followed provision for the subscription of Mr Johnston and of a witness.

29 At that time Mr Smith had never met Mr Johnston and Ms Baird was still dealing with the matter.

30 Early in January 2000 Ms Baird left her position. As she did so she told Mr Smith that she had spoken to Mr Johnston and Mr Platcher and that at that stage the matter was not going ahead.

31 Mr Smith did not call Ms Baird to give evidence and Mr Forster asked me to infer that her evidence would not have assisted Mr Smith’s case. The hearing was held more than five years after Ms Baird left Mr Smith’s office and there was no evidence about where she might be and how she might be contacted. I decline to draw the inference.

32 I accept Mr Smith’s evidence that in mid January 2000 Mr Platcher telephoned him and told him that the matter was going ahead. Shortly afterwards Mr Platcher went to Mr Smith’s office and asked whether he could take the documents Mr Godwin had sent and show them to Mr Johnston. He said that he would arrange for the production of evidence of insurance and of the payment of rates.

33 Although he knew that Mr Platcher was not his client and represented another party to the proposed loan and mortgage, Mr Smith saw no harm in what Mr Platcher was proposing. He handed over the documents.

34 Mr Platcher returned on 27 or 28 January with the Mortgage, the Statutory Declaration and the Acknowledgment, Authority, Undertaking and Direction. They had all been signed. According to the evidence of Mr Smith, which I accept, there was this conversation -

I didn’t realise that you were going to have him sign the documents yourself. Usually we have the client come in and sign them in our office and if necessary explain the documents to the client if they want us to. If Johnston requires an explanation of the documents he will have to come in and we can give him that.

Don’t worry. He hasn’t got time to come in and he has read the documents and understands what he is doing. He already has a mortgage with ANZ and understands his obligations to make payments and not default on the mortgage.

Well that is up to him

35 Mr Platcher also said -

Johnston wants to invest in the Curl Curl and Noosa developments and the money being drawn down will be used for that purpose, apart from the transaction costs. We need to have one cheque drawn for $80,000 to Seimon McKenzie to secure the purchase of the Noosa property. They are the solicitor for the vendors. Another $22,000 needs to go to Neville Leete Real Estate as the deposit for the Curl Curl property. Growthcorp needs an additional $85,000 for the Noosa development, there will then be the usual transaction costs including $7,500 to Mortgage Partners as agreed, and the balance is to go to Johnston.

36 On 27 January Mr Smith wrote a letter to Mr Godwin in the following terms -

Re: Burrawong Investments Pty Limited mortgage advance to Johnston

Ppty: 6 Fay Street, North Curl Curl

We refer to your letter dated 22 December 1999.

We now enclose the following:-

1. Signed mortgage documentation

2. Signed Form of acknowledgment

3. Signed Statutory Declaration

4. Evidence of payment of water and council rates

Documents to follow are:-

1. Clear land tax certificate

2. Evidence of insurance.

We request you attend to stamping the mortgage documentation.

Upon settlement we request the following cheques:-

1. Seimon McKenzie Trust Account $80,000.00

2. Neville Leate Real Estate $22,000.00

3. Growthcorp Australia P/L $85,000.00

4. Michael Peter Johnston Balance

5. Penrhyn Parker Solicitors $1,250.00

6. Mortgage Partners $7,500.00

7. Clinch Neville Long $2,907.30

8. Office of State Revenue $1,383.00

37 According to Mr Smith, he handed the letter to Mr Platcher together with the documents named in it as accompanying it, with the possible exception of evidence of the payment of water rates. He had still not spoken to Mr Johnston and was relying on everything Mr Platcher told him about Mr Johnston’s understanding of what was proposed and about his intention to enter into the mortgage. Mr Smith justified this by saying that he had already on a few occasions done much the same thing when others had lent their money on mortgage to Mr Platcher’s interests. Mr Platcher had always known how cheques were to be drawn and was familiar with the documents required. None of those mortgagors had ever complained.

38 Mr Smith’s file cannot be found, so the copies that it would have contained could not be put into evidence. There can be no doubt, however, that Mr Platcher delivered the letter and the associated documents to Mr Godwin. A copy was annexed to Mr Smith’s affidavit bearing a notation -

RECEIVED

12AM 28-1-00

39 On 28 January Mr Smith received a land tax certificate and evidence of insurance and sent them by facsimile transmission to Mr Godwin.

40 According to conveyancing law and practice as it stood in December 1999 what Mr Smith had then done would have been sufficient to commit his client Mr Johnston to the mortgage. However, in January 2000 the law and practice changed and, by a rule promulgated under the Legal Profession Act, intending mortgagees were given a protection that they had not previously had. It became necessary for any intending mortgagor to sign a declaration to the effect that the mortgage had been explained and that it had been signed after receipt of the explanation.

41 Mr Godwin telephoned Mr Smith and told him of this new requirement. Instead of contacting his client, Mr Smith telephoned Mr Platcher and told him about it. I accept that there was this conversation between Mr Smith and Mr Platcher -

Johnston has to be identified by me and I have to sign a certificate called “Declaration By Borrower”. I cannot sign the certificate unless I have explained the documents to him and identify him, myself. I will have to get him in and explain this to him otherwise I cannot sign off the documents.

Can’t you do this over the telephone?

No. Charles, I need to see Johnston. I need to explain the documents to him and I need him to sign a certificate stating he understood what he signed. I cannot do this over the telephone.

He is really busy and does not want to come in. Can we do it any other way?

No. I must see him otherwise he can see another local solicitor.

Can I ring him to see whether he can come in now?

Yes. No problems

42 Mr Godwin sent Mr Smith a form of declaration as he had promised. Mr Smith was wrong in what he had said to Mr Platcher. It was not he who had to sign the declaration but Mr Johnston.

43 Mr Platcher spoke again to Mr Smith and told him that he had spoken to Mr Johnston and that he could come to Mr Smith’s office. Later in the same afternoon he did so and the declaration that Mr Godwin required was completed and signed. It is in the following terms -

Schedule 1

DECLARATION BY BORROWER

Michael P. Johnston………………

6 FAY ST Nth Curl Curl……………………………

DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS:

BURRAWONG INVESTMENTS P/L

2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1.

3. After receiving the advice I have freely and voluntarily signed the following documents:

Mortgage

Authority & direction

Statutory declaration

AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the contents to be true and by virtue of the Oaths Act 1900.

MADE AND SUBSCRIBED by ……… )

the said Declarant at ….. SYDNEY )

the ………….. 28th ……………… day of )

JANUARY

(Signatory)

Before me:

…………..( initials )…………….
A Justice of the Peace/Solicitor

44 In reproducing the completed form the handwritten parts are shown in italics. The initials lastly appearing on the form are those of Mr Smith.

45 Mr Smith’s evidence about what happened in his office on 28 January is as follows. Mr Platcher arrived with Mr Johnston and introduced him. Also with them was Mr Morgan. Mr Smith asked Mr Platcher and Mr Morgan to go outside so that he could explain the declaration to Mr Johnston. He set about explaining it. The words he used included these. The explanation, he said, followed his usual practice.

I need to explain these documents to you to ensure you understand what you are signing. You will need to sign the Declaration By Borrower which states that you understand what you are signing. I know you already have a mortgage with ANZ, but I will still give you a full explanation as to the terms and conditions of this mortgage, although I assume the terms will be similar in many respects. I take it that you would already be used to making payments to ANZ under the mortgage. Is that right?

Yes.

The effect of the arrangement is that you will receive the mortgage sum and you will need to make payments on this mortgage as well. This mortgage is a second mortgage that sits behind ANZ in priority. That means if you default on either mortgage either mortgagee can take possession of your property, sell it and ANZ will be paid out first and Burrawong will be paid out next. These payments include any outstanding principal together with interest, legal costs and outstanding rates. You will get the balance, if any, after these payments have been made. If there is not enough to pay out the mortgagees then you are personally liable for the difference. The mortgagees can then come after your personal assets.

There are a number of ways that you can default on the mortgage. You have a number of obligations to the mortgagee primarily being to repay the monies on the date it is due. If you breach any of these obligations you are in default under the terms of the mortgage. Some of these events of default appear more significant than others. However, they are all events of default and have the same ramifications in the event of default. I will now go through the basic ways that you can default under the mortgage being the following:-

You must make all payments of interest as and when they fall due. Payments are due monthly in arrears. If you make any payments late you will be charged penalty interest as stated in the mortgage. The interest rates in the mortgage are 14% if made on time and 16% if you pay it late. The mortgage is only for six months. It is only short term. You will need to pay it out completely in six months time. Do you understand that?

Yes. This is only short term. I am investing in property transactions with Platcher and should be able to pay it out then.

I understand you are going into one at Curl Curl and one at Noosa. If you do not maintain the property you are in default. You must keep it maintained.

If you do not keep it insured and always noting the mortgagees as interested parties you are in default. Charles has helped you with the insurance I understand.

If you sell the property you must pay out the mortgage.

If you wish to do any renovations on the property you must seek and obtain the consent of the mortgagees. Obviously small improvements are okay but anything that involves demolition requires the mortgagee’s consent. During such work at any particular time the value of the property could be diminished – that is what the mortgagee is concerned about – maintaining the value of the property so that in the event of default by you the mortgage can be repaid.

You must keep all rates and taxes up to date.

You cannot offer this property as security to any one else for any other borrowings. You already have a loan with ANZ and it will be necessary to obtain their consent. Do you understand this?

Yes.

The mortgagees have agreed to advance the money based on your undertaking to pursue this consent. You will see on point 6 of the statutory declaration which you signed you gave this undertaking. We have already spoken to the mortgagee’s solicitor and they have agreed to this.

You must notify the mortgagee of any encumbrance that affects the land.

You can see all these things relate to maintaining the value of the property. In the event that you were to default on payments or something like that they want to be assured that the property is adequate in value so that the mortgagee gets paid out.

Do you understand this? If you default then the mortgagee has the right to take possession of your property and sell it. You must service both mortgages. Either mortgagee can commence recovery action if you default. Do you understand?

Yes.

46 Mr Smith read each clause of the Declaration By Borrower. He confirmed the first and second points and as to the third point said -

In respect to point three as you are the owner, the mortgagee will rely on your statutory declaration that you are unaware of any undisclosed affectations on the land. See this list here? Are you aware of any of these statutory bodies affecting the land?

No.

You are up to date with your rates so point four is okay?

See this Declaration By Borrower you need to sign this. It states that you are the borrower and that you have received advice on the mortgage and related documents. It further states that you are freely and voluntarily signing these documents and that you understand the documents. This is a requirement of the mortgagee. Are you okay with all the documents?

Yes. Where do I sign?

You will note that you have already signed the documents so technically point three is not quite right but I can’t see that will be a problem because you have now had the explanation.

Ok.

47 Mr Johnston signed the declaration and Mr Smith placed his initials on it.

48 There was then a conversation to this effect -

I understand you are putting money into property deals with Platcher. He has told me that you are involved in the property at Curl Curl they are buying and will be putting money into a Noosa development.

That is right.

Platcher has told me how the cheques are to be drawn.

Yeah. That is okay.

He has already told me some of the cheques being the following:-

Neville Leete Real Estate for $22,000.00.

Yes.

Seimon McKenzie Trust Account. I understand this relates to the Noosa development.

Growthcorp for $85,000.00

Us for our costs for $1250.00

Mortgage Partners for the brokerage as per your loan letter

Clinch Neville Long being the mortgagee’s costs

Office of State Revenue being the stamp duty on the mortgage

Is that what you want to happen?

Yes. Just confirm all of them with Platcher.

The balance will go to you?

Yes.

49 Mr Smith explained to Mr Johnston the form headed Acknowledgement, Authority, Undertaking and Direction. Referring to clause 5 he said -

This is a direction to CNL as to how to draw the moneys.

50 At about 4:20pm Mr Smith sent the Declaration By Borrower, the land tax certificate and insurance details by facsimile transmission to Mr Godwin.

51 Mr Smith estimated that the meeting took at least twenty minutes and, relying on the time of the facsimile transmission to Mr Godwin, thought that the meeting must have started before 4pm.

52 Mr Johnston’s account is taken principally from a statement he made on 9 May 2001 at the offices of the Australian Securities and Investments Commission (“ASIC”). He said that at about 3:30pm on 28 January he received a message at work that Mr Platcher wished to speak to him. He returned the call and Mr Platcher said -

We need you to sign these documents or otherwise we are going to lose this deal.

53 He went home, telephoned for a taxi and travelled by that means from Curl Curl to Mr Smith’s office in Miller Street North Sydney. He met Mr Platcher there at about 4:20pm. He and Mr Platcher were shown into an office and he was introduced to Mr Smith. Mr Smith looked at some documents and after reading them handed them to him, stating words to the effect of -

I hope you can afford to pay this interest.

54 Mr Johnston replied -

Well, no, Charles is here to help me pay the monthly amounts. I can’t afford to do this myself.

55 Mr Smith showed him where to put his signature on the document (sic). He was not given a copy of the document (sic). A copy was given to Mr Platcher and Mr Smith kept the other. The meeting lasted for approximately ten to fifteen minutes. On leaving the office Mr Johnston went downstairs with Mr Platcher to get a taxi back to work.

56 He understood when he signed the document at Mr Smith’s office that it was loan agreement by which he was borrowing $360,000.00 to lend to Growthcorp to invest in the Noosa project and a portion to be invested in the Yallah project. About two to three months later he realised that the document he had signed on 28 January was a mortgage to Burrawong Investments over his house.

57 In his statement to ASIC Mr Johnston identified his signature in various places on the mortgage but said that he did not recall whether that was the document that he signed at Mr Smith’s office. He observed that his signature appeared to have been witnessed by Mr Morgan and said that Mr Morgan was not at Mr Smith’s office when he signed whatever he signed. He identified his signature on the Acknowledgment, Authority, Undertaking and Direction. He said that he did not remember whether he had signed it in Mr Smith’s office. He identified his signature on the Statutory Declaration and said that he did not recall the circumstances in which he had signed it. He said that he did not give instructions to anyone about the disbursement of the proceeds of the loan.

58 Mr Johnston did not deal at all in his statement to ASIC with the Declaration By Borrower. That is odd, since the need to complete that form was the sole reason why he had been asked to leave work and travel to North Sydney. He was asked about the matter in cross-examination and acknowledged that the handwriting recording his name and address was his and that the signature on the form was his. He denied that the statement in it that he had received independent legal advice regarding the loan and security documents referred to in the first paragraph was accurate. He said that he did not read the document but did what Mr Smith told him to do. Mr Smith said -

Just fill out the top and sign it.

59 Mr Johnston said that he did not know that it was a declaration.

60 I was left unsure what Mr Johnston’s evidence was about when all four documents were signed. He was apt to repeat during his evidence that he did not remember signing particular documents he was shown. His position seemed to be that they were all signed at Mr Smith’s office on 28 January. He denied that he signed any of the four documents before the meeting.

61 Under cross-examination, Mr Johnston was shown the Mortgage and invited to agree that a copy of the document was shown to him in Mr Smith’s office. He was asked to agree that he must have read the words “mortgage” and “mortgagor” in the several places where they appear. He denied that he was shown the full face of the Mortgage, stating that it was folded in such a way as to obscure the word “mortgage”, where it appears at the head of the document. He drew a line across the first page of the Mortgage, about half way down, to demonstrate how things had been.

62 Mr Smith denied that the conversation took place in the terms set forth by Mr Johnston.

63 Even if Mr Smith is mistaken about the time the meeting took, Mr Johnston’s original estimate of between ten and fifteen minutes would have been sufficient for the events and conversations to have taken place as described by Mr Smith. At the hearing, however, Mr Johnston attempted to demonstrate that the meeting could not have lasted so long, contending for the conclusion that the completion and execution of the Declaration By Borrower must have taken place in some such perfunctory fashion as described by Mr Johnston and without the necessary explanations.

64 In an affidavit sworn on 23 October 2003 Mr Johnston dealt with the times of the events leading up to the conference with Mr Smith. He annexed to his affidavit Telstra records of calls made from the telephone installed in his house and records of One. Tel Pty Limited of calls made from his mobile telephone. They show that at 3:41pm on 28 January a telephone call was made from the service installed at Mr Johnston’s house to a taxicab company. The next registered call from that service was made at 3:46pm. It was to a mobile telephone, the owner of which Mr Johnston could not remember. The next call was not made until 4:46pm.

65 The record of the carrier of Mr Johnston’s mobile service shows that calls were made at 3:51pm, 4:31pm, 4:36pm, 4:37pm and 4:43pm. All were made to mobile telephones.

66 Mr Johnston said that the first of the calls made on his mobile telephone, at 3:51pm, was to Mr Morgan. It was made before he left home and got into the taxi. He said that the calls at 4:31pm, 4:36pm and 4:37pm were to Mr Morgan. He had to keep telephoning because he kept being disconnected. All three calls were made from the taxi. He alighted in North Sydney at 4:38pm. He met Mr Platcher and they went to Mr Smith’s office. After the conference he returned to the street, where Mr Pettenon gave him money for a taxi. He entered a taxi. At 4:43pm he telephoned his boss from the taxi to tell him that he was on his way back to work. That allowed only five minutes for him to get from the street to Mr Smith’s office, have the conference, sign whatever he signed, return to the street and find and enter another taxi.

67 The records of the taxi company were put into evidence. They show that Mr Johnston’s request was registered at 3:41pm, that a driver accepted the job at the same time and that the driver picked up Mr Johnston at 3:51pm. The driver registered his availability for another job at 4:16pm.

68 The documents sent by facsimile transmission by Mr Smith to Mr Godwin bear a time imprint of 4:23pm.

69 I would expect, in the absence of evidence to the contrary, that times recorded in the taxi radio log and the telecommunications records would be accurate. I make no such assumptions about the clock on Mr Smith’s facsimile machine and regard it as possibly accurate.

70 The evidence of the taxi company’s records alone shows that Mr Johnston’s version that the meeting began and ended between 4:38pm and 4:43pm cannot be accepted. Even his counsel did not rely on his evidence in this respect but submitted that the meeting could have taken no longer than about seven minutes, counting from the taxi log at 4:16pm and the facsimile record at 4:23pm. The difficulty about that submission is that there is no evidence of how long it might have taken to drive from Curl Curl to North Sydney at that time of the week. All the taxi log at 4:16pm shows is that Mr Johnston had by that time left the taxi. He might have done so seconds or minutes earlier. As I have implied, I cannot confidently calculate by reference to the registered time of the facsimile transmission.

71 Mr Johnston originally told ASIC in his statement that the meeting lasted approximately ten to fifteen minutes. That is not far from Mr Smith’s estimate.

72 I thought Mr Smith an honest witness. Where appropriate, he was prepared to make concessions that he might have thought likely to weaken his case. Dealing with the occasion when Mr Platcher returned the mortgage documents to him signed, he acknowledged that he knew that Mr Platcher had an interest and that he ought to have got in touch directly with Mr Johnston. Dealing with his readiness to accept Mr Platcher’s word about Mr Johnston’s willingness to enter the mortgage, about his understanding of the mortgage and about how cheques ought to be drawn, he acknowledged that he ought to have sought confirmation from Mr Johnston. He said that he would advise any employed solicitor of his to obtain instructions from the client in such circumstances. He conceded that clause 3 of the Declaration By Borrower was false.

73 I thought that Mr Johnston was an unsatisfactory witness. He continually asserted that he did not remember signing documents. He was not prepared frankly to acknowledge that signatures on documents were his, where they obviously were. When acknowledging that he had signed documents in December 1999 he stated that he did not know why. Dealing with the letter he signed on 22 December authorising Mr Platcher to deal on his behalf with the ANZ Bank, he told ASIC that he had signed it. In an affidavit sworn nine months later on 28 February 2002 he said that he had no recollection of signing such a letter. That was the position he took in his oral evidence. He claimed not have understood why Mr Platcher wanted a valuation of his house. He was reluctant to acknowledge that, having been advised by Mr Boyce not to commit himself, he had made no real attempt to obtain any further or final advice from him. He was not prepared to admit that he would have read a letter sent to him on 1 February 2000 by Mr Godwin enclosing an Epitome of Mortgage.

74 I am satisfied that Mr Johnston’s signature on the Mortgage and on the Acknowledgement, Authority, Undertaking and Direction were witnessed by Mr Morgan. Mr Morgan has a distinctive signature. He made an affidavit which was read on the hearing and gave oral evidence. He said that he witnessed documents for Mr Platcher from time to time but could not say whether he witnessed Mr Johnston’s signature on the documents I have mentioned. I am satisfied that his signature and initials appear in the appropriate places on the mortgage and the Acknowledgment, Authority, Undertaking and Direction.

75 The practice of conveyancers is to insert dates in documents like mortgages not when they are executed but when they are given effect to. Conformably with this practice, annexure A to the Mortgage, which sets out the bulk of its provisions, bears the date 28 January 2000 in Mr Godwin’s hand. The mortgage itself, however, bears the date “26-1-2000”.

76 There are two remarkable things about the third document, the Statutory Declaration. In three places on the first and second pages of the three-page document handwritten emendments have been made and Mr Johnston’s signature appears adjacent to them. In those places Mr Morgan’s signature also appears. At the end of the document however, the signature of the person witnessing Mr Johnston’s signature is not Mr Morgan but Mr Ashton. I have compared his signature with the signature on the Statutory Declaration and I think that they were written by the same person. Mr Ashton confirmed that the Statutory Declaration bore his signature.

77 The second significant thing about the Statutory Declaration is that it bears the date 26 January 2000 in Mr Ashton’s handwriting.

78 I accept Mr Smith’s evidence that although Mr Morgan was in his offices on that day, he was excluded from the conference at which he gave an explanation to Mr Johnston and was not present when Mr Johnston signed any document. There is no suggestion that Mr Ashton was there. The only reasonable conclusion is that the mortgage, the Statutory Declaration and the Acknowledgment, Authority, Undertaking and Direction were all executed before 28 January. Mr Smith’s facsimile transmission to Mr Godwin confirms it. The evidence of Mr Godwin confirms it. He already had those documents, appropriately executed as far as he was aware, when he told Mr Smith of the additional requirement for the Declaration By Borrower. I think that those three documents were executed in circumstances that Mr Johnston and Mr Platcher know about, probably on 26 January.

79 It follows that the only document which was completed and executed at the meeting on 28 January was the Declaration By Borrower. Copies of the other documents were there, of course, as part of Mr Smith’s file. It seems to me that what Mr Smith says was done could have been done within about fifteen minutes and that the reliable records of times permit the meeting to have lasted so long. I think that the meeting probably took up to fifteen minutes, beginning and ending between 4pm and 4:30pm.

80 I accept the evidence of Mr Smith that he gave an explanation in much the same terms as he set forth in his affidavit. One thing that he said orally, which impressed me, was that he would not have dragged Mr Johnston from Curl Curl to sign the declaration and not take the opportunity of giving him a proper explanation.

81 On 1 February 2000 Mr Godwin sent a letter to Mr Johnston referring to the completion of the matter and enclosing an Epitome of Mortgage. The letter is headed -

BURRAWONG INVESTMENTS PTY LIMITED MORTGAGE FROM JOHNSTON

82 Mr Forster SC, for Mr Johnston, submitted that Mr Smith gave no advice about the loan or the mortgage and that clause 2 of the Declaration By Borrower was therefore false. He relied on Mr Johnston’s assertion on oath that if he had been told that he was being asked to sign a mortgage over his property he would not have signed it.

83 I reject this submission. I am satisfied that Mr Johnston was well aware before he went to Mr Smith’s office that he was entering into a mortgage. He already had a mortgage and was aware of the general rights and remedies of a mortgagee over secured property. He must have read the letter from Mortgage Partners dated 22 December before he signed it. It was prominently headed -

PROPOSED MORTGAGE OF $360,000.00

84 I am satisfied that Mr Smith explained to Mr Johnston that he had executed a mortgage and what its incidents and consequences were. Clause 2 of the Declaration By Borrower was not false.

85 I accept the submission that Mr Smith breached his duty to Mr Johnston by taking instructions not from him but from another party whose interests were different from his, not only as to Mr Johnston’s understanding about the Mortgage and his willingness to enter into it but also about the manner in which the proceeds of the loan were to be dealt with. The fact that Mr Smith had done the same sort of thing on earlier occasions and had received no complaints says more about good luck than about justification. Mr Platcher was an important source of business for Mr Smith and I am satisfied that Mr Smith must have felt under strong moral pressure to oblige him. In my view he wrongly allowed that pressure to overcome his obligation to his client.

86 As things turned out, however, any harmful consequences of those breaches of duty was brought to an end when Mr Smith conferred with Mr Johnston on 28 January. Mr Smith ascertained that Mr Johnston understood that he was entering into a mortgage, and willingly. He obtained the necessary instructions about the distribution of the proceeds of the loan. Although Mr Smith could claim no moral credit for organising the conference, which had to be arranged in order to comply with Mr Godwin’s requirements, he is entitled to the benefit of the effect of it, namely that it remedied his breach of duty by removing any effect that it might have had.

87 Although clause 2 of the Declaration By Borrower was not false, clause 3 undoubtedly was. Although I am satisfied that Mr Johnston freely and voluntarily signed the Mortgage, the Statutory Declaration and the Acknowledgment, Authority, Undertaking and Direction, I am also satisfied that he did so before, not after, Mr Smith gave him independent legal advice about the loan and security documents. It was also submitted that on Mr Smith’s own evidence he gave his advice about the Acknowledgement, Authority, Undertaking and Direction after, not before, Mr Johnston signed the Declaration By Borrower. That may be accepted, for it so appears from the affidavit of Mr Smith read in the proceedings. So clause 3 was false in that respect as well.

88 The case on the falsity of clause 3 was put in this way. The Rule requiring the Declaration By Borrower to be furnished had been introduced to protect mortgagees like Burrawong Investments against claims for relief by defaulting mortgagors who might say that they had not been fully and fairly informed about the nature of the agreement they had entered into: Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447. In breach of his duty, Mr Smith misled Burrawong Investments by having Mr Johnston sign clause 3, knowing that it was false, and sending the declaration to Burrawong Investments’ solicitor. Mr Godwin did not know that it was false. If he had known that Mr Johnston had received advice after executing the Mortgage and associated documents and not before, he would have referred the matter to his principal, Mr Neville. Mr Neville would most likely have advised Burrawong Investments not to proceed with the transaction at that time. Burrawong Investments would have followed Mr Neville’s advice. Mr Platcher had told Mr Johsnton when requiring him to go to Mr Smith’s office to execute documents that he wanted him to sign them “or otherwise we are going to lose this deal”. Mr Platcher’s words to Mr Johnston made it likely that if the transaction was not completed on Friday 28 January the “deal” of which Mr Platcher spoke would cease to be available. Thus it was more probable than not that if Burrawong Investments, knowing of the falsity of clause 3, had delayed entering into the mortgage pending the execution of documents in a regular manner, the mortgage would for reasons known to Mr Platcher never have been completed. Although Mr Johnston’s loss resulted from the default of Growthcorp and Mr Platcher in failing to honour their agreement with Mr Johnston, that loss would not have eventuated if Mr Smith had not breached his duty, because there would have been no loan and no obligation to pay interest. Mr Smith was liable for the whole of the loss, even though his wrongdoing was not the sole cause of the loss. Reference was made to Chapman v Hearse (1961) 106 CLR 112.

89 Mr Godwin, Mr Neville and Mr Allsop all gave evidence. Mr Godwin said that he did not know when he received the Declaration By Borrower that clause 3 was false. He knew, of course, that the declaration was executed after the Mortgage – he had the original Mortgage in his possession before he even asked for the declaration to be completed – but he did not know that Mr Smith had not met or advised Mr Johnston before he signed the Mortgage and associated documents. He was cross-examined on a notation he made on a photocopy of Mr Johnston’s driving licence to the effect that -

Other sol. has not met. Johnston – conducted through Charles Platcher.

90 Mr Godwin remembered nothing of the occasion and the best he could do was to try to guess when and why he would have written that note. The evidence leaves uncertain the circumstances and the time at which the note was made and does not satisfy me that Mr Godwin knew that clause 3 of the Declaration By Borrower was false.

91 Mr Godwin said, and I accept, that if he had known that it was false he would have referred the matter to Mr Neville, his employer. Mr Neville said that he had acted for Burrawong Investments and its principal, Mr Allsop, for years. He said that if he had been told that clause 3 was false in that the advice had been given not before but after the execution of the Mortgage and associated documents were signed his initial reaction would have been to see whether he could have Mr Johnston swear a further declaration to take account of the difference in timing. He would have considered whether the Declaration By Borrower could be executed in a slightly amended form, but was not sure whether that could have been done in a way that complied with the Rule. He would have advised Burrawong Investments that, being uncertain about the appropriateness of the amended Declaration By Borrower, the safest course would be to have the mortgage documents to be re-executed and obtain a fresh declaration.

92 He agreed that there were two possible approaches, the conservative one being to have the mortgage documents and declaration executed again. He would have been looking for ways to avoid doing that, however, and might have taken the view that it was not necessary. The other approach was to ask Mr Smith for a letter confirming that he had given the appropriate legal advice. He said that it would have been a matter on which he would have sought instructions from Burrawong Investments.

93 Mr Neville said that Burrawong Investments’ mortgage precedents were readily available on computer. This was an uncomplicated mortgage with a single borrower and a single security. Documents could have been run off for re-execution within a matter of minutes. He agreed that Burrawong Investments was happy to proceed with the transaction and regarded it as part of his role to make it happen.

94 Mr Allsop said that the transaction was beneficial for Burrawong Investments and that if the Mortgage had not been entered into on 28 January, funds would have continued to be available for lending for some time and he would have gone ahead. He would in all likelihood have followed Mr Neville’s advice.

95 It seems to me that everybody concerned with the venture was so intent on seeing it brought into existence that if the falsity of clause 3 had been realised, everything necessary to solve the problem and give Burrawong Investments the protection to which it was entitled would have been done. Assuming that the conservative approach spoken about by Mr Neville had been taken, Mr Godwin would have produced a fresh set of documents and sent them to Mr Smith within hours. Mr Smith would have asked Mr Johnston to execute the Mortgage and associated documents afresh and then a fresh Declaration By Borrower.

96 As for Mr Johnston, he had decided against his better judgment and against the advice of Mr Boyce to enter upon a venture that promised rewards which must have seemed almost too good to be true. He had been prepared to leave work at a moments notice to travel to North Sydney to execute the Declaration By Borrower. He had on several occasions since 22 December signed documents because Mr Platcher or Mr Morgan had asked him to, no doubt telling him that he needed to do so so that the venture could begin. If Mr Platcher had told him late on 28 January or within the next few days that it was necessary to execute the mortgage documents again and make a fresh Declaration By Borrower I have no doubt that he would have done so.

97 Nobody concerned with any aspect of the venture had any interest in stopping or delaying it, other than by so long as was necessary to allow the Mortgage and its associated documents and the Declaration By Borrower to be properly executed.

98 The only thing that would have stopped these things happening, and the thing relied on by Mr Forster, would have been Growthcorp’s inability to accept the money and use it for the purposes Mr Platcher and Mr Johnston had in mind. That inability could be proved only by giving literal effect to the words used by Mr Platcher when urging Mr Johnston to go to Mr Smith’s office to sign the Declaration By Borrower.

99 Mr Platcher did not give evidence. I draw from that fact no inference adverse to Mr Johnston. Even if Mr Johnston knew where Mr Platcher might be found, it would not be hard to understand why he would not call him to give evidence and I would not have expected him to do so. The result, however, is that there is simply no evidence from Mr Platcher about the circumstances that faced Growthcorp.

100 One thing is clear. Mr Platcher was a most persistent salesman. A well known technique of such persons is to hold out to prospective purchasers that the outstanding offer cannot be held open much longer. I think that that is all Mr Platcher was doing when he told Mr Johnston that there was a risk of losing the opportunity to invest. I do not regard the words he is reported to have said as indicating any more than that he was in a hurry to get his hands on Mr Johnston’s money. I am not satisfied that if settlement had been delayed even for a few days Growthcorp would have been unable to accept the proceeds of the loan and use them for the intended purposes.

101 I conclude that Mr Smith was in breach of his duty to Mr Johnston in sending to the solicitor for the mortgagee the Declaration By Borrower which contained the false statement that Mr Johnston had received the relevant legal advice before executing the Mortgage and the associated documents. It may perhaps therefore be said that if he had done his duty and told Mr Godwin the truth instead of negligently misleading him, the Mortgage would not have been completed and the money would not have been advanced on that day.

102 There are two available responses, however. I have already set out the factual response. Mr Smith’s negligence was apt to do no more than delay the commencement of the Mortgage and the consequent risks to Mr Johnston by a few days at the most.

103 The legal response takes a common sense approach to Mr Johnston’s loss. The law of causation was examined by the Justices of the High Court of Australia in March v Stramare (E & MH) Pty Limited (1990 – 1991) 171 CLR 506. Mason CJ said this at 515 -

Causation as a question of fact

The common law tradition is that what was the cause of a particular occurrence is a question of fact which "must be determined by applying common sense to the facts of each particular case", in the words of Lord Reid: Stapley, at p 681. That proposition is supported by a long line of authority in the United Kingdom: Leyland Shipping Company, at pp 363, 369-370; Admiralty Commissioners v. S.S. Volute (1922) AC 129, at p 144; Yorkshire Dale Steamship Co., at p 706; Alphacell Ltd. v. Woodward (1972) AC 824, at p847; McGhee v. National Coal Board, at pp 5, 11; pp 1011, 1017 of All ER It is supported also by this Court's decision in Fitzgerald v. Penn (1954) 91 CLR 268.

It is beyond question that in many situations the question whether Y is a consequence of X is a question of fact. And, prior to the introduction of the legislation providing for apportionment of liability, the need to identify what was the "effective cause" of the relevant damage reinforced the notion that a question of causation was one of fact and, as such, to be resolved by the application of common sense.

Commentators subdivide the issue of causation in a given case into two questions: the question of causation in fact - to be determined by the application of the "but for" test - and the further question whether a defendant is in law responsible for damage which his or her negligence has played some part in producing: see, for example, Fleming, The Law of Torts, 7th ed. (1987), pp 172-173; Hart and Honor , Causation in the Law, 2nd ed. (1985), p 110. It is said that, in determining this second question, considerations of policy have a prominent part to play, as do accepted value judgments: see Fleming, p 173. However, this approach to the issue of causation (a) places rather too much weight of the "but for" test to the exclusion of the "common sense" approach which the common law has always favoured; and (b) implies, or seems to imply, that value judgment has, or should have, no part to play in resolving causation as an issue of fact. As Dixon C.J., Fullagar and Kitto JJ. Remarked in Fitzgerald v. Penn (at p 277): "it is all ultimately a matter of common sense" and "(i)n truth the conception in question (i.e., causation) is not susceptible of reduction to a satisfactory formula": at p 278.

104 Deane J said at 523 -

[T]he mere fact that something constitutes an essential condition (in the "but for" sense) of an occurrence does not mean that, for the purposes of ascribing responsibility or fault, it is properly to be seen as a "cause" of that occurrence as a matter of either ordinary language or common sense. Thus, it could not, as a matter of ordinary language, be said that the fact that a person had a head was a "cause" of his being decapitated by a negligently wielded sword notwithstanding that possession of a head is an essential precondition of decapitation. Again, the mere fact that a person makes a gift of money to another is not, in any real sense, a "cause" of the damage sustained by that other person when his agent negligently loses the money notwithstanding that the loss would not have occurred "but for" the original gift. As Lord Reid pointed out in Stapley (at p 681):

The question (of 'what caused an accident from the point of view of legal liability') must be determined by applying common sense to the facts of each particular case. One may find that as a matter of history several people have been at fault and that if any one of them had acted properly the accident would not have happened, but that does not mean that the accident must be regarded as having been caused by the faults of all of them. One must discriminate between those faults which must be discarded as being too remote and those which must not. Sometimes it is proper to discard all but one and to regard that one as the sole cause, but in other cases it is proper to regard two or more as having jointly caused the accident. I doubt whether any test can be applied generally.

It is true that, in the context of apportionment legislation which gives the latitude necessary to enable the relief to be fairly adjusted to fit the circumstances, the courts will be unlikely to deny causation in any case where the fault of a defendant contributed to an accident. Nonetheless, the question whether conduct is a "cause" of injury remains to be determined by a value judgment involving ordinary notions of language and common sense.

105 Toohey J said at 524 -

Where negligence is in issue, causation is essentially a question of fact, in the sense explained by the Chief Justice, into which considerations of policy and value judgments necessarily enter.

106 Gaudron J agreed with these judgments. McHugh J disagreed, saying this at 536 -

Thus, the "scope of the risk" test enables relevant policy factors to be articulated and justified in a way which is not possible when responsibility is limited by reference to commonsense notions of causation or to more specific criteria such as "novus actus interveniens", "sole cause" or "real cause", all of which conceal unexpressed value judgments.

107 Mason CJ dealt at 517 with the concept of novus actus interveniens. His Honour said this at 517 -

In similar fashion, the "but for" test does not provide a satisfactory answer in those cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which would otherwise have resulted from an earlier wrongful act. Many examples may be given of a negligent act by A which sets the scene for a deliberate wrongful act by B who, fortuitously and on the spur of the moment, irresponsibly does something which transforms the outcome of A's conduct into something of far greater consequence, a consequence not readily foreseeable by A. In such a situation, A's act is not a cause of that consequence, though it was an essential condition of it. No doubt the explanation is that the voluntary intervention of B is, in the ultimate analysis, the true cause, A's act being no more than an antecedent condition not amounting to a cause. But this explanation is not a vindication of the adequacy of the "but for" test.

108 In Trust Co Australia v Perpetual Trustees WA Limited & Ors (1997) 42 NSWLR 237 a firm of solicitors was retained by a trustee company to advise it whether any conflict of duty would arise if it acquired a particular property. The firm mistakenly failed to advise the company of the existence of a conflict of duty. The company acquired the property and later suffered losses by reason of the commercial consequence of the purchase. It brought an action against the firm to recover losses sustained, alleging that if the solicitors had given correct advice on the conflict of duty it would not have acquired the property.

109 It was held by McClelland CJ in Eq that a person under the duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposed upon the informant responsibility for losses which would have occurred even if the information given had been correct is not fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them: see his Honour’s judgment at 248, 249, particularly the reference to Medlin v State Government Insurance Commission (1985) 182 CLR 1 at 6 as follows (omitting citations) -

For the purposes of the law of negligence, the question whether the requisite causal connection exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of common sense and experience. … And that remains so in a case such as the present where the question of the existence of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, "but for" test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation exclude causation if not satisfied, is inadequate as a comprehensive positive test. … If, in such a case, it can be seen that the necessary causal connection would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of common sense and experience, properly to be seen as having caused the relevant loss or damage.

110 It seems to me that insofar as there was any chance that the Mortgage would not have been completed and the money not advanced but for Mr Smith’s breach of duty, that breach of duty was not the real and effective cause of Mr Johnston’s loss. The real and effective cause was the default by Growthcorp and Mr Platcher. That they might default was one of the risks Mr Johnston took in entering into the venture.

111 For these reasons Mr Johnston’s claim against Mr Smith fails.

112 I make the following orders -

1. Direct the entry of a verdict and judgment for the first defendant;

2. Order the plaintiff to pay the costs of the first defendant;

3. Dismiss the claim against the third and fourth defendants.

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Citations

Michael Peter Johnston v Roderick Alexander Smith [2005] NSWSC 433

Cases Citing This Decision

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Cases Cited

3

Statutory Material Cited

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Chapman v Hearse [1961] HCA 46

Fitzgerald v Penn [1954] HCA 74

CITATION:	Michael Peter Johnston v Roderick Alexander Smith & Ors [2005] NSWSC 433
HEARING DATE(S):	7 March 2005 - 11 March 2005, 16 March 2005
JUDGMENT DATE :	25 May 2005
JUDGMENT OF:	Barr J at 1
DECISION:	Direct the entry of a verdict and judgment for the first defendant - order the plaintiff to pay the costs of the first defendant - dismiss the claim against the third and fourth defendants.

PARTIES:	Michael Peter Johnston, Roderick Alexander Smith, Growthcorp (Aust) Pty Limited, Charles Platcher, Andrew Craig Ashton, Mortgage Partners Pty Limited
FILE NUMBER(S):	SC 20743/01
COUNSEL:	RG Forster SC/ RM Lovas (Plaintiff) LV Gyles/K Oliver (1st Defendant)
SOLICITORS:	Chegwidden Solicitors (Plaintiff) Turtons Lawyers (1st Defendant)