Michelangelo Alfredo Mascarello v Registrar-General of New South Wales - [2018] NSWSC 284

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Michelangelo Alfredo Mascarello & Anor v Registrar-General of New South Wales [2018] NSWSC 284
Hearing dates: 12, 13, 15 February 2018
Decision date: 08 March 2018
Before: Sackar J
Decision:
See para [398]

Catchwords:
EQUITY – subrogation – general principles – Registrar-General’s statutory right of subrogation – nature of statutory right of subrogation under Real Property Act 1900 (NSW) – amount Registrar-General can seek to recover in subrogation

NEGLIGENCE – duty of care – general principles – causation – proportionate liability – duty of care of solicitor – whether solicitor breached duty of care witnessing fraudulent signatures
CONTRACT – penalty – loan agreement – where the lower rate was 36% p.a. and higher rate 72% p.a. – whether higher interest rate void as penalty – whether deed of settlement entered into by Plaintiffs bar to Registrar-General’s claim under penalty
Legislation Cited: Civil Liability Act 2002 (NSW)
Evidence Act 1995 (NSW)
Interpretation Act 1987 (NSW)
Professional Standards Act 1994 (NSW)
Real Property Act 1900 (NSW)
Statue Law (Miscellaneous Provisions) Act 2002 (NSW)
Cases Cited: Acron Pacific Pty Ltd v Offshore Oil NL (1985) 157 CLR 514
Andrews v Australia and New Zealand Banking Group Pty Ltd [2012] HCA 30
Badenach v Calvert [2016] HCA 18
Bofinger v Kingsway Group Ltd [2009] HCA 44
Boscawen v Bajwa [1996] 1 WLR 328
Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072
Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694
Glen Line v Attorney General (1930) 36 Com Cas 1
Heydon v NRMA Ltd [2000] NSWCA 374
Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees [2013] HCA 10
Kayteal Pty Ltd v John Joseph Dingnan [2011] NSWSC 197
Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371
King Investment Solutions v Hussain [2005] NSWSC 1076
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343
March v Stramare (E & MH) [1991] HCA 12
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359
Re Mango Credit Pty Ltd [2016] NSWSC 199
Registrar-General of New South Wales v LawCover Insurance Pty Ltd [2014] NSWCA 241
St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245
St Paul Travelers Insurance Company Ltd v Dargan [2006] EWHC 3189 (Cth)
Teresa Nadia Pedulla v Fernando Rene Panetta [2011] NSWSC 1386
Travel Compensation Fund v John Harvey Blair [2003] NSWSC 720
Yorkshire Insurance Company Ltd v Nisbet Shipping Company Ltd [1962] 2 QB 330
Texts Cited: Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007)
Dennis S K Ong, Ong on Subrogation (The Federation Press, 2014)
Category: Principal judgment
Parties: Michelangelo Alfredo Mascarello (first plaintiff)
Maria Luisa Mascarello (second plaintiff)
Registrar-General of New South Wales (first defendant)
K R Lawyers and Consultants Limited (second defendant, second cross defendant)
NWC Finance Pty Limited No 5 Pty Ltd (third cross defendant)
Representation:
Counsel:
H Altan (first defendant)
A R Zahra (second defendant)
P Walsh (third defendant)
Solicitors:
Ms Taouil, Andrew R Ford Lawyers (plaintiffs)
A Booth, Office of the Registrar-General (first defendant)
J Coorey, Ms D Morris, Sparke & Helmore (second defendant)
Summer Lawyers (third cross defendant)

File Number(s): 2015/187017
Publication restriction: n/a

Judgment

The proceedings
Background facts
The Mascarello properties
Conduct of Dennis Mascarello
Conduct of Mascarellos
Conduct of K R Lawyers and AKR
Conduct of NWC

Procedural history
Legal principles
Duty of care
Standard of care
Causation
Proportionate liability
Limitation of liability
Subrogation
Penalty

Parties’ submissions
Registrar-General
K R Lawyers
NWC

The Evidence
The Evidence of Michelangelo Mascarello
Evidence of Maria Mascarello
Evidence of Timothy Mascarello
Evidence of Lawrence White
Evidence of Grant Lee
Evidence of Peter Rosier
Evidence of Lena Pace
Evidence of Anne Kazas-Rogaris

Consideration
Duty of care
Standard of care
Was there a breach of duty of care
Causation
Proportionate liability of K R Lawyers
Professional standards defence
Failure to mitigate and associated claims
The Registrar-General a concurrent wrongdoer
Calculation of loss
The Claim against NWC

Summary of Findings
Costs/Claims against Dennis

Judgment

The proceedings

These proceedings arise out of a claim made by Mr Michelangelo Alfredo Mascarello and Mrs Maria Luisa Mascarello (Plaintiffs) for compensation from the NSW Torrens Assurance Fund from the Registrar-General of NSW (RG) (First Cross-Defendant). This claim was first made on 30 March 2014, as noted in the affidavit of Mr Mascarello of 1 March 2016 (Aff MAM1) at page 14 and the affidavit of Mrs Mascarello of 1 March 2016 (Aff MLM1) at page 14.
The parties to these proceedings and the Court were informed in the course of the proceedings that the Plaintiffs had settled their claims against the RG as of 7 February 2018 for $3,000,050.00 (the Settlement).
These proceedings concern a subrogated cross-claim by the RG against K R Lawyers and Consultants Pty Limited (K R Lawyers) (Second Cross-Defendant) pursuant to sections 133(2) and (4) of the Real Property Act 1900 (NSW) (RPA).
The RG’s claim against K R Lawyers is in negligence. K R Lawyers, particularly the sole director and sole solicitor of this company Mrs Anne Kazas-Rogaris (AKR), has been alleged by the RG of negligently contributing to the loss of the Mascarellos, who were victims of fraud committed by their eldest son.
These proceedings also concern a subrogated cross-claim by the RG against NWC Finance (No 5) Pty Limited (NWC) (Third Cross-Defendant) pursuant against sections 133(2) and (4) of the RPA. The RG claims that it is entitled to recover from NWC the amount settled with the Plaintiffs, on the basis that the obligation giving rise to the payment was void as a penalty.

Background facts

The Mascarello properties

The Plaintiffs were registered proprietors of the following three properties:

102 Brenan Street, Lilyfield, folio identifier 1/14250 (Lilyfield Property)

7/39 Norton Street, Leichhardt, folio identifiers 20/SP20276 and 16/SP20276 (Leichhardt Property); and

11 Shipley Avenue, North Strathfield, folio identifier 9/B/5360 (Strathfield Property).

They had purchased these three properties between the dates 24 June 1974 and 5 June 1991 with the assistance of loans from the then Commercial Banking Company of Sydney and Commonwealth Bank of Australia, as asserted in the affidavit of Michelangelo Alfredo Mascarello (or Micky Mascarello) of 1 March 2016 (Aff MAM1) at pages 3-6. This is corroborated by the affidavit of Maria Luisa Mascarello of 1 March 2016 (Aff MLM1) at pages 3-5. It is uncontroversial between the parties that, prior to the Plaintiffs being the victims of fraud, the Mascarellos had repaid in full any loans obtained in relation to these three properties.

Conduct of Dennis Mascarello

The Mascarellos were the victims of fraud in which their eldest son, Dennis Mascarello (Dennis), fraudulently procured multiple loans using the Plaintiff’s three properties as security.
This fraud it is alleged involved a number of steps:

On 28 November 2012, Dennis registered the company Mascarello Holdings Pty Limited (Mascarello Holdings), with both his parents unknowingly listed as directors and the registered office 104A Great North Road Five Dock NSW 2046 (Five Dock address) (Exhibit MM1 44-46);

The Five Dock address was that of a hair salon operated by Dennis’ wife Maria Solari, and not any of the addresses where his parents either lived or worked (Aff MAM1 6; Aff MLM1 12);

Dennis procured the genuine identification documents of his parents, the Plaintiffs. This at least included their original passports that were stored in their bedroom drawers, their drivers’ licenses that were stored in each of their wallets, the expired Heavy Vehicle Driver’s Licence of Mr Mascarello and their expired joint Medicare card stored in their bedroom drawers (Aff MAM1 12-13; Aff MLM1 11-13);

Dennis enlisted the services of a mortgage broker Giulia Penna (Ms Penna) to assist procuring loans for Mascarello Holdings, who is described by AKR in her affidavit of 25 November 2016 (Aff KR1) at pages 4-6;

Dennis enlisted the services of two imposters to masquerade as the Plaintiffs and attend the offices of AKR on a number of occasions, assumedly enlisting these imposters for their similarity in appearance to the Plaintiffs (AKR1 6-20);

AKR was retained to witness the fraudulent signatures of, and act for, the imposters (through the company Mascarello Holdings) as they pretended to be the Plaintiffs in relation to a number of loans from approximately October 2011 to October 2013 (Aff KR1 6-20);

Of particular relevance to this case, in one instance Dennis and the imposters used this charade to enter into a third tier loan agreement with NWC on 30 September 2013 for the principal of $1,540,000.00, with a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12), using the imposters’ fraudulent signatures witnessed before AKR to put forward the Plaintiff’s three properties as security (the Loan).

As a result of these steps, a mortgage was registered in favour of NWC over the Lilyfield Property on 14 October 2013 (Exhibit DM1 5-6), a caveat was lodged in favour of NWC over the Leichhardt Property on 14 October 2013 (Exhibit DM1 7-8) and a mortgage was registered in favour of NWC over the Strathfield Property on 21 November 2013 (Exhibit DM1 9-10).
It appears Dennis used the monies received from the Loan for his own purposes, and did not inform the Mascarellos of any of these fraudulent steps.
Dennis has pleaded guilty to criminal charges in respect of this fraud and is awaiting sentence at the time of writing this judgment.

Conduct of Mascarellos

The Plaintiffs first became aware of this fraud when they received a letter from NWC at their home (the Strathfield Property) on 17 February 2014. This letter was addressed to them as tenants of the property and instructed them to pay their rent to NWC directly as NWC had a mortgage over the property. The Plaintiffs were not tenants of the Strathfield Property and were unaware of any mortgages held by NWC (Aff MAM1 6; Aff MLM1 6).
When Dennis arrived at the Strathfield Property on 17 February 2014, the Mascarellos questioned him about the tenant letter, wherein they report he replied words to the effect (Aff MAM1 16; Aff MLM1 16):

Everything is under control! Don’t worry about it.

On 26 February 2014, the Mascarellos engaged a solicitor for legal advice, who informed them shortly afterwards that a number of previously unknown caveats and mortgages had been registered over their properties (Aff MAM1 6; Aff MLM1 6).
On 30 March 2014, the Mascarellos made a joint claim for compensation from the NSW Torrens Assurance Fund (Aff MAM1 14; MLM1 14; Exhibit MM1 190-224).
The Mascarellos then proceeded to sell their three properties and apply the proceeds of the sales to the Loan owed to NWC by Mascarello Holdings:

On 3 July 2014, the Mascarellos sold the Lilyfield Property for $872,000.00, using the proceeds of this sale to pay a sum of $780,302.21 to NWC (Aff MAM1 15; Aff MLM1 15);

On 15 September 2014, the Mascarellos entered into a Deed with NWC (the Deed) to pay a further sum of $700,000.00 pursuant to the Loan, where they subsequently sold the Leichhardt Property for $581,000.00 and used the proceeds of this sale to pay a sum of $516,471.32 to NWC (Aff MAM1 14; Aff MLM1 14);

On 28 November 2014, the Mascarellos sold their Strathfield Property for $1,200,000.00, using the proceeds of this sale to pay a sum of $700,000.00 to NWC (Aff MAM1 15-16; Aff MLM1 15).

There are no suggestions by any parties that the Mascarellos did anything other than attempt, in good faith, to repay the Loan held by NWC over Mascarello Holdings by selling their three properties and entering into the Deed with NWC.
It is also uncontroversial that the Mascarellos knew nothing about Dennis’ fraudulent conduct, or the involvement of the imposters, or the role of Ms Penna in the procuring of the Loan, until after the fraud was committed (see for example RG’s Outline of Submissions at [6]-[15]).

Conduct of K R Lawyers and AKR

K R Lawyers and AKR became involved in the circumstances leading to these proceedings via the mortgage broker Ms Penna, who referred clients, including but not limited to Dennis and the imposters, to K R Lawyers.
AKR states that she first met Ms Penna in approximately the middle of 2010. Ms Penna then began to refer work to her from approximately the middle of 2011. This work is reported to initially involve AKR witnessing signatures for various clients, and progressed to referred conveyancing work and legal advice for borrowers about documents relating to private loans (Aff KR1 4).
AKR states that referrals from Ms Penna were not particularly frequent, estimating Ms Penna would have referred approximately eight clients to K R Lawyers in any given six month period (Aff KR1 5).
According to the affidavit of AKR, K R Lawyers began to act for Dennis and the imposters through the referral of Ms Penna (Aff KR1 5-21):

In October 2011, Ms Penna spoke to AKR and said words to the effect:

I’m sending Danny and Maria Mascarello round to see you. Danny is Maria’s son and she’s looking at buying his house.

At some point prior to or during the dealings with Dennis and the imposters, Ms Penna is reported to have said words to the effect:

Micky and Maria are my uncle and aunt.

In October 2011, AKR met with Dennis and a woman introduced as ‘Maria Mascarello’ who is now acknowledged to have been an imposter. This meeting was in relation to a proposed purchase which did not go through and AKR does not claim to have witnessed any documents or signatures. This engagement was recorded in the first file of AKR (First File) (Exhibit AKR1 20-45);

In December 2012, AKR was referred again by Ms Penna in relation to a short term loan with DLF 102 Pty Ltd (DLF Loan) for the purported ‘Mascarellos’. AKR met Dennis, the imposter already introduced as ‘Maria Mascarello’ and another imposter who was introduced as ‘Micky Mascarello’. They produced the original identification of the Plaintiffs, although AKR is not certain what identification the female imposter provided, as noted in AKR’s affidavit of 24 November 2017 (Aff KR2) at page 2. AKR maintains she did not notice the address in the identification documents was different to the address on the loan documents, but that the imposters resembled the photographs on the identification documents and that she believed the imposters were the persons depicted on the photographic identification documents (Aff KR2 3). No copies of the loan documents or identification produced are in the second file of AKR (Second File) (Exhibit AKR1 46-99). AKR claims from then onwards (Aff KR2 2):

On every occasion on which I witnessed the Signatories’ signatures on documents associated with any of the Loans, each of them produced at least one form of identification which included a photograph (being a driver’s license and/or passport).

On 13 June 2013, Ms Penna referred work to AKR in relation to Dennis and the imposters involving a further loan with Kazzi Family Holdings Pty Ltd (Kazzi Loan). AKR states she believed she witnessed signatures and took the identification documents of Dennis and the imposters in relation to this loan on 3 June 2013. Copies of both the Plaintiffs drivers’ licenses, their joint Medicare card and Mrs Mascarello’s Italian passport can be found in Exhibit AKR1 295-296. See also Fourth File (Exhibit AKR1 279-421);

On 17 June 2013, AKR received a phone call from someone who introduced themselves as ‘Micky Mascarello’ in relation to the DLF Loan. AKR then proceeded to purport to act for who she thought were the Plaintiffs, but were in fact Dennis and the imposters, negotiating a settlement in relation to the DLF Loan (Third File) (Exhibit AKR1 100-278);

On 20 June 2013, AKR met Dennis and the imposters in relation to another loan with Francesco Pascuzzo (First Pascuzzo Loan) where she states the imposters produced identification of some sort, although no copies of the identification are present in her files for this loan (Fifth File) (Exhibit AKR1 422-602). AKR relates she displayed concern for why they were entering into another loan, wherein the imposter posing as Mr Mascarello replied:

This is how Giulia [by which I understood Micky to mean Ms Penna] has told us to do it. We’ve known her for years. Whatever she says is fine.

Following this AKR provided the parties with advice in relation to the loan and again witnessed their signatures on relevant loan documents;

On 4 July 2013, AKR met Dennis and the imposters in relation to another loan with Francesco Pascuzzo (Second Pascuzzo Loan), wherein she states she reviewed their photographic identification and witnessed their signatures, allowing the loan to be successfully processed. Again no copies of identification documents are in her Fifth File for this loan;

On 27 September 2013, AKR was contacted by Ms Penna who referred Dennis and the imposters to her for the purposes of the final NWC Loan (Sixth File) (Exhibit AKR1 606-1131). On 10 October 2013 AKR, as directed by the solicitor acting for NWC, completed a written 100-Point Identification Check of the imposters for the purposes of the loan (Aff KR2 5 and Annexure A). AKR, on 10 October 2013, witnessed the signatures of the imposters and made certified copies of Mr Mascarello’s Italian passport and driver’s license, as well as certified copies of Mrs Mascarello’s Italian passport and driver’s license (Exhibit AKR1 770-772). The Sixth File also contains a certified copy of Mr Mascarello’s driver’s license (Exhibit AKR1 913). It appears from the affidavit of Lawrence Adrian White of 19 October 2017 that he never certified this copy, and that on the balance of probabilities, his Justice of the Peace Registration Number was fraudulently used and signature forged by Dennis and/or imposters.

With respect to the role of Ms Penna in referring Dennis and the imposters to K R Lawyers, in the affidavit of AKR of 12 February 2018 (Aff KR3), AKR asserts Ms Penna, on or about December 2013, came to the conference room of K R Lawyers whilst Dennis and the imposters were in the same conference room. Ms Penna is reported to have greeted Dennis and the imposters, and not to have said words to the effect “those are not the Mascarellos” or “those are not my aunt and uncle” (Aff KR3 3).
AKR states she was not aware of any ASIC Order or conviction for fraud relating to Ms Penna during the period in which she dealt with Ms Penna between October 2011 and October 2013 (Aff KR3 4). AKR also states as far as she is aware all the other persons referred to K R Lawyers by Ms Penna, with the exception of Dennis and the imposters, were genuine (Aff KR3 4).
In the affidavit of AKR of 13 February 2018 (Aff KR4), AKR asserts she was unaware during the period in which she dealt with Ms Penna between about October 2011 and October 2013 that Ms Penna was an undischarged bankrupt (Aff KR4 4).
The dealings of AKR set out in detail in her four affidavits are referred to by the then secretary for K R Lawyers, Lena Pace, in her affidavit of 10 November 2017. Particularly, on 13 October 2017, Lena Pace asserts she photocopied the Plaintiffs drivers’ licenses and Italian passports wherein she observes (Affidavit of Lena Pace as of 10 November 2017):

The photographs appearing on the identification described in paragraph 19, above, [the drivers’ licenses and Italian passports] appear to me to be the same persons referred to above as the Mascarellos. If they were not the same persons, they greatly resembled them.

Conduct of NWC

As noted, NWC entered into the loan with Mascarello Holdings on 30 September 2013 for principal of $1,540,000.00, with a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12).

In relation to this loan, Bransgroves Lawyers Pty Limited acting for NWC produced the mortgage memorandum AF166417J (Exhibit DM1 19-80). It provided in clauses 249-251 (the Lender being NWC and the Debtor being Mascarello Holdings):

249 The Lender must be paid interest on the Debt.
250 The Debtor is required as a primary obligation to ensure the interest is paid to the Lender.
251 Interest must be paid at the Higher Rate. However if:
(a) the Lender, on every day on which interest is payable under the Agreements, is paid the interest owing; and
(b) the Debtor and Co-Surety duly observe and perform all the terms, covenants and conditions contained in and implied by the Agreements; and
(c) no Event of Default has occurred.

then the Lender will accept payment of interest at the Lower Rate for the payment in question only.

There is no suggestion NWC acted other than as a bona fide mortgagee for value without notice, and there is no allegation of improper conduct on behalf of NWC.
As noted, the Mascarellos subsequently entered into the Deed of release with NWC on 15 September 2014 in respect of the loan agreement entered into by Dennis and the imposters (via Mascarello Holdings) on 11 October 2013 (see Exhibit DM1 99-107). There is no dispute between the parties that the Mascarellos entered into the Deed.
The Deed recites, inter alia:

[D] It was a term of the Agreement that the Borrower would pay interest at a rate of 72% per on a monthly basis. NWC Finance agreed to accept an interest rate of 36% per annum payable on a monthly basis if the loan was not in default.
…
[M] Pursuant to the terms set out in this Deed, the Guarantor has agreed to pay the Settlement Sum in full and final satisfaction of the debt owing to NWC Finance.
…
6. Bar
6.1 Bar to Proceedings
NWC Finance may plead this document as a complete defence and/or bar to any action, suit or proceedings commenced, continued or taken, or steps in any such action, suit or proceedings taken by the Borrower and/or Guarantor in contravention of clause 4 of this Deed against NWC Finance. However, this clause shall not affect any right of a party to this Deed to bring any action, suit or proceeding for a breach of this Deed.
7. Release
7.1 Borrower and Guarantor Release
On the Borrower paying the Settlement Sum, NWC Finance releases and forever discharges and releases the Borrower and Guarantor from any liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement.
7.2 NWC Finance Release
The Borrower and Guarantor releases and forever discharges and releases NWC Finance from any liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement.

Procedural history

The Plaintiffs originally made a claim against the RG on or around 30 March 2014. A copy of this claim is found at Exhibit MM1 at pages 190-224.
The Mascarellos entered into the Deed with NWC on 15 September 2014. Pursuant to the Deed they agreed, inter alia, to pay a sum of $700,000.00 to NWC. This was paid on 19 September 2014. A copy of the Deed is found at Exhibit DM1 at pages 99-107.
The Plaintiffs commenced proceedings against the RG filed on 17 August 2015. In these proceedings they claimed they were entitled to payment of compensation from the Torrens Assurance Fund pursuant to section 129(1) of the RPA.
The Plaintiffs also claimed against K R Lawyers on 5 September 2017. In an Amended Statement of Claim filed on 5 September 2017, the Plaintiffs claimed in negligence that K R Lawyers owed a duty of care to the Plaintiffs and breached said duty of care that caused the Plaintiffs’ loss or damage arising from NWC obtaining an indefeasible interest in their three properties. The particulars of this claim can be found in the Plaintiffs’ Amended Statement of Claim dated 5 September 2017 at pages 11-17.
The Plaintiffs have since abandoned their claim against K R Lawyers following the settlement of their case against the RG.
In response to the Plaintiff’s claims against the RG and K R Lawyers, the RG cross-claimed against Dennis, K R Lawyers and NWC, as detailed in Further Amended Statement of Cross Claim filed 12 October 2017.
As against Dennis, K R Lawyers and NWC, the RG sought damages in the amount of any amount of compensation that the Court orders the RG to pay the Plaintiffs from the Torrens Assurance Fund, costs and such further or other orders as the Court thinks fit (see Further Amended Statement of Cross Claim filed 12 October 2017 9-12).
The Plaintiffs settled their claim with the RG as of 7 February 2018 for $3,000,050.00.
NWC did originally cross-claim against K R Lawyers in negligence as of 27 July 2016, although NWC has abandoned this claim as of its formal Opening Submissions dated 9 February 2018.
As a result, these proceedings involve the remaining claim of the RG against Dennis, K R Lawyers and NWC. This involves the RG’s right of subrogation under sections 133(2) and (4) of the RPA. The RG seeks to stand in the position of the Plaintiffs in any rights and remedies they may have against Dennis, K R Lawyers and NWC, notwithstanding the Plaintiffs themselves no longer pursue any further claims against any parties.

Legal principles

Duty of care

In Chandra v Perpetual TrusteesVictoria Ltd [2007] NSWSC 694 (Chandra), Bryson AJ examined the duty of care owed by a solicitor, Mr Miller, to registered proprietors of land. The solicitor never met the registered proprietors of land, but instead dealt with an imposter who defrauded the registered proprietors from their land. His Honour observed at paragraph [100]:

[100] Duty to the plaintiffs. Where a solicitor acts for the registered proprietor of land under a contractual retainer, as Mr Miller thought he was acting, implied contractual duties deprive the question of whether there is a concurrent duty to the registered proprietors under tort law of some of its importance. There can, in my opinion, be no doubt about the existence of a duty of care under tort law where a solicitor conducts legal business on behalf of or in the interests of a person who is unable to enter into a contract of retainer because of some disability or incapacity. Mr Miller thought he had a contract of retainer but did not; and he thought that the legal business he did was done in the interest of the plaintiffs. In all respects, except that they did not know what Mr Miller was doing, the plaintiffs and their interests stood to be affected by negligence of Mr Miller as much as and perhaps even more than they would have been affected had Mr Miller actually had a retainer from the plaintiffs.

The decision of Bryson J in Chandra was distinguished by Nettle JA in St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, who stated in paragraphs [86]-[88] (references omitted):

[86] Finally, on this aspect of the matter, counsel for Quinerts referred to a decision of Bryson AJ, sitting as a judge of the Equity Division, in Chandra v Perpetual Trustees Victoria Ltd, in which a solicitor’s negligent breach of duty resulted in a fraudster obtaining a new duplicate certificate of title and the lender advancing funds on the faith of a fraudulent mortgage. The fraudster was held to be a concurrent wrongdoer in relation to the lender’s claim against the solicitor.
[87] In my view, there is nothing in Bryson AJ’s reasoning or conclusion which is inconsistent with the conclusion to which I have come in this case. The facts in Chandra were that, but for the solicitor’s negligence, the fraudster would not have got his hands on the duplicate certificate of title and so would not have been able to deceive the lender. But for that, there would not have been any loan. Consequently, the damage which the solicitor caused was the damage which resulted from bank making a loan which it would not otherwise have made. Similarly, but for the fraud, the bank would not have made the loan. In the result, the damage caused by the fraudster was the same damage as resulted from the bank making a loan which it otherwise would not have made. It followed that the damage caused by the fraudster was the same damage as was the subject of the lender’s claim against the solicitor and, therefore, the fraudster was a concurrent wrongdoer in relation to the lender’s claim against the solicitor.
[88] That stands in contrast to the facts of this case, where the damage caused by the Borrower and the guarantor by their failure to repay the loan was different to the damage caused by Quinerts’ negligence in the valuation of the property. Here, the Borrower and the guarantor are not liable in respect of the loss which is the subject of the Bank’s claim against Quinerts and so in my view are not concurrent wrongdoers.

Sections 5B and 5C of the Civil Liability Act 2002 (NSW) (CLA) also provide:

5B GENERAL PRINCIPLES
(1) A person is not negligent in failing to take precautions against a risk of harm unless:
(a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and
(b) the risk was not insignificant, and
(c) in the circumstances, a reasonable person in the person's position would have taken those precautions.

(2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things):
(a) the probability that the harm would occur if care were not taken,
(b) the likely seriousness of the harm,
(c) the burden of taking precautions to avoid the risk of harm,
(d) the social utility of the activity that creates the risk of harm.

5C OTHER PRINCIPLES
In proceedings relating to liability for negligence:
(a) the burden of taking precautions to avoid a risk of harm includes the burden of taking precautions to avoid similar risks of harm for which the person may be responsible, and
(b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done, and
(c) the subsequent taking of action that would (had the action been taken earlier) have avoided a risk of harm does not of itself give rise to or affect liability in respect of the risk and does not of itself constitute an admission of liability in connection with the risk.

Also of relevance to this case is section 5O of the CLA:

5O STANDARD OF CARE FOR PROFESSIONALS
(1) A person practising a profession ("a professional") does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice.
(2) However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational.
(3) The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.
(4) Peer professional opinion does not have to be universally accepted to be considered widely accepted.

K R Lawyers concede that they owed a duty of care to the Plaintiffs, specifically at paragraph [3] of the Short Submissions in Response to the RG’s Submissions.
K R Lawyers nevertheless submit that the circumstances in Chandra should be distinguished from the facts at hand. At paragraphs [7] of the Short Submissions in Response to the RG’s Submissions dated 15 February 2018, K R Lawyers suggest Chandra is far removed from the specific circumstances before this Court. They suggest this is because AKR was simply verifying identification (using genuine identity documents) and believed that she had met with the real clients.

Standard of care

Barristers and solicitors owe a duty of care to those whom they advise and for whom they act, with the duty being to exercise reasonable care and skill in the provision of professional advice. The standard of care and skill is that which may be reasonable expected of practitioners, and in the case of specialised practitioners, that which may be expected of the ordinary skilled person exercising and professing to have that special skill: Heydon v NRMA Ltd [2000] NSWCA 374 at [146] per Malcolm AJA.
Gageler J, agreeing with the orders proposed by the majority in Badenach v Calvert [2016] HCA 18 (Badenach v Calvert), but publishing separate reasons, noted at [57] (references omitted):

[57] Subject to statutory or contractual exclusion, modification or expansion, the duty of care which a solicitor owes to a client is a comprehensive duty which arises in contract by force of the retainer and in tort by virtue of entering into the performance of the retainer. The duty is to exercise that degree of care and skill to be expected of a member of the profession having expertise appropriate to the undertaking of the function specified in the retainer. Performance of that duty might well require the solicitor not only to undertake the precise function specified in the retainer but to provide the client with advice on appurtenant legal risks. Whether or not performance of that duty might require the solicitor to take some further action for the protection of the client's interests beyond the function specified in the retainer is a question on which differences of view have emerged. That question was not addressed in argument, and need not be determined in this appeal.

This is not to say, however, that a solicitor or barrister will be bound by such a standard of care only in instances of a retainer. This was noted by the majority of French CJ, Kiefel and Keane JJ in Badenach v Calvert at [23]. In this paragraph, French CJ, Kiefel and Keane JJ highlighted how there are myriad examples across a variety of contractual relationships that may give rise to a duty of care owed to a contracting party or (importantly) to a third party. This is to be determined by the application of general principles to the particular circumstances of the case.

Causation

K R Lawyers, in their Outline of Submissions at paragraph [26], draw attention to standard formulations of causation in March v Stramare (E & MH) [1991] HCA 12 (March v Stramare) and Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees [2013] HCA 10 (Hunt & Hunt). At paragraphs [43]-[45] in Hunt & Hunt, French CJ and Hayne and Kiefel JJ observed (references omitted):

[43] The proper identification of damage should usually point the way to the acts or omissions which were its cause. Causation is largely a question of fact, to be approached by applying common sense to the facts of the particular case. This is not to deny that value judgments and policy have a part to play in causation analysis at common law and, as has been observed, both factual causation and scope of liability elements are referred to in s 5D(1) of the Civil Liability Act.
[44] In March v Stramare (E & MH) Pty Ltd, it was observed that courts are no longer as constrained as they once were to find a single cause for a consequence and to adopt an “effective cause” formula. Courts today usually recognise that there may be wrongdoers whose acts or omissions occur successively, rather than simultaneously, and who may be liable for the same damage, even though one may be liable for only part of the damage for which the other is liable.
[45] The law’s recognition that concurrent and successive tortious acts may each be a cause of a plaintiff's loss or damage is reflected in the proposition that a plaintiff must establish that his or her loss or damage is “caused or materially contributed to” by a defendant's wrongful conduct. It is enough for liability that a wrongdoer's conduct be one cause. The relevant enquiry is whether the particular contravention was a cause, in the sense that it materially contributed to the loss. Material contribution has been said to require only that the act or omission of a wrongdoer play some part in contributing to the loss.

The RG, in the Final Submissions dated 15 February 2018 at paragraphs [30]-[31], points to the decision of Bryson J in Chandra at [102]:

The control which Mr Miller had over the risk that the plaintiffs would incur economic loss in the way which they did was not complete, because if Mr Miller had refused to act, Mr Pan could have gone elsewhere. Although Mr Miller’s control was not complete it was real and it was effective inasmuch as he did not exercise it.

It should be noted, however, that this quotation is concerned predominantly with an issue other than causation.
Section 5D of the CLA provides:

5D GENERAL PRINCIPLES
(1) A determination that negligence caused particular harm comprises the following elements:
(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and
(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:
(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and
(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

Proportionate liability

K R Lawyers submits, and the RG acknowledges, that the Plaintiffs’ claim against AKR is an apportionable claim within the meaning of section 34(1) of the CLA.
Sections 34(1)-(3) and 35 of the CLA provide as follows:

34 APPLICATION OF PART
(1) This Part applies to the following claims (apportionable claims):
(a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury,
(b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law.

(1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).
(2) In this Part, a “concurrent wrongdoer”, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.
(3) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1).
…
35 PROPORTIONATE LIABILITY FOR APPORTIONABLE CLAIMS
(1) In any proceedings involving an apportionable claim:
(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and

(b) the court may give judgment against the defendant for not more than that amount.

(2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:
(a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and
(b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3) In apportioning responsibility between defendants in the proceedings:
(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and
(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.
(5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.

In Kayteal Pty Ltd v John Joseph Dingnan [2011] NSWSC 197, Brereton J observed at [71]:

[71] In determining the relative responsibility of concurrent wrongdoers for a loss, it is necessary to compare the blameworthiness and causative potency of the conduct of each of them (Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187, [50]-[53]). Relevant factors include, but are not limited to, which of the wrongdoers was more actively engaged in the activity causing loss, and which was more able effectively to prevent the loss (Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, [93]-[97]). Although allowance should be made for the circumstance that the responsibility of one wrongdoer may be relatively increased if it was engaged by the plaintiff specifically for the purpose of guarding against the potential wrongdoing of another (such as a fraudster), there must nonetheless still be a reduction in the liability of the first, as the fraudster is on any view a concurrent wrongdoer, and the fraudster's responsibility may well exceed that of the solicitor. Thus in Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60, Hoeben J apportioned liability 90% to the fraudster and 10% to the solicitor. An almost identical result was reached by Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 25, 259. And in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, [571]-[600], Young CJ in Eq (as his Honour then was) apportioned responsibility 72.5% to the principal fraudster (Caradonna), 15% to a solicitor who had falsely witnessed a signature (Flammia), and 12.5% to the negligent solicitors - even though a purpose of engaging solicitors was to guard against the conduct of the fraudster.

Limitation of liability

K R Lawyers, in their Outline of Submissions dated 9 February 2018 at paragraphs [36]-[38], seek to rely on a limitation of liability defence pursuant to the Professional Standards Act 1994 (NSW) in which any award of damages (including interest and costs) may not exceed $1,500,000.00 by reason of K R Lawyers’ membership of the Solicitors Scheme.
The RG, in the Outline of Submissions dated 8 February 2018 at paragraph [51], seeks to rely on section 5(2) of the Professional Standards Act 1994 (NSW) to prevent K R Lawyers to rely on a limitation of liability. Section 5 generally provides:

5 OCCUPATIONAL LIABILITY TO WHICH ACT DOES NOT APPLY
(1) This Act does not apply to liability for damages arising from any of the following:
(a) the death of or personal injury to a person,
(c) a breach of trust,
(d) fraud or dishonesty.

(2) This Act does not apply to liability which may be the subject of proceedings under Part 13 or 14 of the Real Property Act 1900.
(3) Subsection (1) (a) does not operate to exclude from the operation of this Act liability for damages arising out of any negligence or other fault of an Australian legal practitioner in acting for a client in a personal injury claim.

Subrogation

Subrogation is the equitable doctrine that involves a process by which a party is deemed to have been substituted for another, so that this party acquires and enforces the other’s rights against a third party: Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) at 3. See also Bofinger v Kingsway Group Ltd [2009] HCA 44 and Boscawen v Bajwa [1996] 1 WLR 328.
In addition to the general law principles of subrogation, a statutory right of subrogation is afforded to the RG in the RPA in certain circumstances where the RG has compensated persons from the Torrens Assurance Fund.
Section 129 of the RPA sets out the specific circumstances in which any person who suffers loss or damage as a result of the operation of the RPA in respect of any land may claim compensation for their “compensable loss”, which is defined in section 128(1) as loss or damage of the kinds referred to in section 129(1), from the Torrens Assurance Fund.
Of particular relevance is section 129(1)(e), where compensation may be claimed where the loss or damage arises from “the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud”.
Section 129A sets out limits on the amount recoverable generally and section 129B sets out limits on the amount recoverable in respect of mortgages obtained by fraud.
Sections 131 and 132 set out the requirements for administrative proceedings and court proceedings for recovery of compensation respectively. Section 135 gives the RG the power to settle any claim for payment of compensation from the Torrens Assurance Fund, whether in the course of litigation to enforce the claim or otherwise.
Importantly with respect to subrogation, section 133 of the RPA provides as follows:

133 SUBROGATION OF RIGHTS TO CLAIM COMPENSATION
(1) An insurer cannot be subrogated to any other person in respect of that other person's right to claim compensation from the Torrens Assurance Fund in relation to compensable loss.
(2) If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the RG is subrogated to the claimant in respect of the claimant's rights and remedies against any person in relation to that loss.
(3) In the case of a deceased person, the compensation may be recovered from the deceased person's estate by proceedings taken against the deceased person's personal representative.
(4) The RG may join any person in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate.
(5) This section has effect despite any provision of the Legal Profession Uniform Law (NSW) or any other Act, law or agreement.

As already noted, the RG seeks to rely on this statutory formulation of subrogation of rights in sections 133(2) and (4) of the RPA.
An analysis of the RPA statutory formulation of the right of subrogation is provided in the judgment of Pembroke J in Teresa Nadia Pedulla v Fernando Rene Panetta [2011] NSWSC 1386 (Pedulla v Panetta). See also Bryson AJ in Chandra.
Pembroke J noted in Pedulla v Panetta at paragraph [37]:

[37] Section 133(2) provides that the RG “is subrogated to the claimant in respect of the claimant's rights and remedies against any person in relation to that loss”. The subrogation contemplated by Section 133(2) is a hybrid containing some features that differ from subrogation under the general law. I explain those features in paragraphs [40]-[44] below. However I do not think there is any basis, as a matter of construction, for concluding that the underlying rationale of the statutory remedy is different to that which applies to subrogation under the general law.

Pembroke J’s analysis in Pedulla v Panetta was discussed by Bathurst CJ and Basten and Meagher JJA in Registrar-General of New South Wales v LawCover Insurance Pty Ltd [2014] NSWCA 241 (RG v LawCover).
For an analysis of the history of proceedings leading to the judgment in RG v LawCover, see Basten JA at paragraphs [2]-[13] of that case.
Whilst RG v LawCover was not an appeal from Pedulla v Panetta, the judgment of Meagher JA in particular sought to clarify the analysis of Pembroke J of sections 133(2) and (4) of the RPA.
In RG v LawCover, Meagher JA highlighted how the statutory right of subrogation under section 133 of the RPA is not a “hybrid” right that affords the RG its own, distinct cause of action separate to that of the claimant: RG v LawCover at [55]-[58]. Rather, consistent with the general law notion of subrogation as a “stepping into the shoes”, section 133 allows the RG only to subrogate itself to any causes of action accruing to the claimant. The RG therefore cannot claim to have any distinct, separate cause of action against third parties by operation of sections 133(2) and (4):

[55] The Registrar-General submits that the right it acquired by subrogation under s 133(2) is “a statutory right of action entitling [it] to pursue a party for negligence so as to recover the ‘compensable loss’ paid to a claimant”. It contends that its cause of action against Mr Yee pursuant to that subsection “is not Mrs Pedulla’s cause of action against Mr Yee, but rather the Registrar-General's own cause of action for Mrs Pedulla’s compensable loss”.
[56] These submissions must be rejected. The rights and remedies which the Registrar-General is entitled to enforce by subrogation include Ms Pedulla’s cause of action against Mr Yee which is subject to all of the defences available to him. The loss or damage which may be recovered by the enforcement of that right is the loss or damage suffered by Ms Pedulla. The right of subrogation is “in relation to” the claimant's “compensable loss” (s 133(2)). It passes to the Registrar-General the benefit of the exercise of the claimant's rights against third parties that are available to diminish that loss and the right to have them exercised for that purpose. If their exercise results in the claimant receiving or recovering amounts on account of the compensable loss (including in that calculation the amount received from the Fund) which exceed the amount of that loss, the Registrar-General is entitled, as against the claimant, to retain or recover (under s 133A) the excess up to the amount received from the Fund.
[57] Except in circumstances where the Registrar-General enforces those rights in the compensation proceedings brought by the claimant, it must do so in separate proceedings brought in the claimant's name or in which the claimant has been joined as a party. The two propositions upon which the Registrar-General's arguments proceed - that it acquired an independent cause of action against Mr Yee in its own right and that its subrogated action is to recover the amount for which it is liable to Ms Pedulla - find no support in the language of the statute and do not accord with what is meant by being “subrogated” to another person's rights and remedies.

His Honour also clarified the operation of sections 133(2) and (4) of the RPA by reference to the Second Reading Speech, wherein section 133(2) was amended, and also the Explanatory Note to the amendment of section 133(4): RG v Lawcover at [50]-[52]. This is consistent when confirming the meaning of a provision is the ordinary meaning conveyed by its text: Interpretation Act 1987 (NSW) section 34.
Reference was made by His Honour to the Second Reading Speech by the Parliamentary Secretary Mr Collier regarding section 133(2) (New South Wales, Parliamentary Debates, Legislative Assembly, 25 March 2009, 13773 (Barry Collier)):

[T]he Registrar-General may also claim against any person against whom the compensated person would have a claim in relation to the loss and not just persons who caused or contributed to the fraud. This includes, for example, claims in negligence, claims pursuant to any contractual indemnity and claims on insurance. The Bill will amend the Act to allow the Registrar-General to recover any payment of compensation from a claimant who has received a further payment on account of the compensable loss from another source. This provision ensures that a person who has suffered loss does not double-dip and receives only what he or she is entitled to.

Section 133A of the RPA also relevantly provides:

133A REPAYMENT OF CERTAIN AMOUNTS
(1) If a claimant:
(a) receives a payment from the Torrens Assurance Fund in respect of the claim, and
(b) receives or recovers from another source or sources a payment on account of the compensable loss, and
(c) there is a surplus after deducting the amount of the compensable loss from the total amount received or recovered by the claimant from both or all sources,

the amount of the surplus is a debt payable by the claimant to the Torrens Assurance Fund.
(2) However, the amount payable by the claimant cannot exceed the amount the claimant received from the Torrens Assurance Fund in respect of the claim.

Reference was also made by His Honour to the Explanatory Note to the amendment altering subsection 133(4) by removing the words “as defendant” (Statue Law (Miscellaneous Provisions) Act 2002 (NSW) sch 1.24):

Joining of parties
Court proceedings for compensation in respect of a compensable loss under Part 14 of the Act are taken against the Registrar-General as nominal defendant. The Registrar-General is subrogated to the claimant in respect of the claimant's rights against any person against whom the claimant has a cause of action in respect of the loss. Section 133(4) of the Act provides that the Registrar-General “may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate”. However, it may be more appropriate for the Registrar-General (standing in the shoes of the claimant) to file a cross-claim against the party to be joined. To permit this, Item [5] of the proposed amendments removes the words ‘as defendant’ from s 133(4).

These secondary materials confirm Meagher JA’s analysis in RG v LawCover as the correct approach to section 133 of the RPA.
Under the general law insurer’s right of subrogation to an insured, the insurer cannot recover under the doctrine of subrogation anything more than they have paid to the insured. Note Dennis S K Ong, Ong on Subrogation (The Federation Press, 2014) at 103, quoting Diplock J in Yorkshire Insurance Company Ltd v Nisbet Shipping Company Ltd [1962] 2 QB 330 at 346:

The simple principle which I apply is that the insurer cannot recover under the doctrine of subrogation … anything more than he has paid.

This means if an insurer has paid an insured a certain amount, and then goes on to succeed in a subrogated claim against a third party to more than that amount, hence making a profit or windfall, the insurer would have to remit any surplus gained back to the insured. For a useful formulation of this principle, see Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) at 314-5, 351. See also St Paul Travelers Insurance Company Ltd v Dargan [2006] EWHC 3189 (Cth); Glen Line v Attorney General (1930) 36 Com Cas 1; Travel Compensation Fund v John Harvey Blair [2003] NSWSC 720 at [55] per Einstein J.
Noting the terms of section 133 of the RPA, and the general law principles of subrogation, it follows that the RG can only claim the amount settled with the Plaintiffs on 7 February 2018, that being the “compensable loss” to which the proceedings relate. Any amount, less costs and expenses, gained by the RG in a subrogated claim against third parties to more than the settled amount, hence making a profit or windfall, would need to be remitted back to the Plaintiffs. This again follows the principle that the RG merely “stands in the shoes” of the Plaintiffs and cannot recover under the doctrine of subrogation anything more than previously settled with the Plaintiffs.
It is also appropriate to consider the Second Reading Speech for the Real Property Amendment Bill 2000 (NSW) by the then Minister for Information Technology, Minister for Energy, Minister for Forestry and Minister for Western Sydney, Mr Yeadon (New South Wales, Parliamentary Debates, Legislative Assembly, 3 May 2000, 5191 (Kimberley Yeadon)):

When persons take court proceedings to claim compensation from the Torrens Assurance Fund they are to be taken against the Registrar-General. Such proceedings cannot be commenced before an administrative claim has been made and determined, and cannot be made more than 12 months after the administrative claim has been determined, except by leave of the court or with the consent of the Registrar-General. In any such proceedings, the Registrar-General is not bound by any prejudicial act or omission by any party to the proceedings. Therefore, should a claimant enter into a compromise with another person who is responsible for a loss that is the subject of a claim against the Torrens Assurance Fund, or waive his or her rights against that person, the Registrar-General is not affected by the compromise or waiver and is still able to take action to recover from the person responsible.
For example, if a claim is made as a result of a person committing fraud by forging his or her parents’ signatures on a mortgage of the parents’ property, the Registrar-General would be able to sue the son or daughter even though the parents may waive their rights against that person. The Registrar-General is presently subrogated to a claimant’s rights and remedies against any person against whom the claimant has a claim. This means that the Registrar-General can claim against any other person that the claimant is able to sue. In this way, the Registrar-General can seek either reimbursement of any damages paid to the claimant or a contribution towards the damages. This provision is reproduced in the bill with some modification.

Penalty

The position of NWC is that notwithstanding any issue of penalty, the Plaintiffs are foremost released of any claims and remedies against NWC by virtue of the Deed entered into on 15 September 2014.
With respect to penalty, the obligation accrued to NWC resulting from the loan agreement entered into by Dennis and the imposters 30 September had a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12). There is the issue whether the RG is entitled to recover from NWC the sum of interest accrued to NWC as a result of this loan, being in the amount of $319,143.64 (see RG’s Outline of Submissions at [80]).
The common law has recognised that a clause establishing a concessional interest rate for prompt payment, with a higher rate without prompt payment, may not give rise to a penalty. This is because a Court may choose to find no penalty where it is agreed to charge a certain rate of interest, and on the condition that if payment is made punctually, the rate will reduce: O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 367 per Gibbs CJ; Acron Pacific Pty Ltd v Offshore Oil NL (1985) 157 CLR 514 at 518 per Mason ACJ, Wilson, Brennan and Dawson JJ; Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [162]-[163] per Campbell JA.
Following the High Court’s decision in Andrews v Australia and New Zealand Banking Group Pty Ltd [2012] HCA 30, the Queensland Court of Appeal in Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371 decided to uphold the distinction between increases in the rate of interest (which attract the doctrine of penalty) and covenants offering an incentive lower interest rate for prompt payment (which does not attract the doctrine of penalty). Gotterson JA, with McMurdo P and Fryberg J agreeing, stated at paragraphs [41]-[43]:

[41] I am of the view that it is not open to this Court to accept the invitation made on behalf of the appellants. Although the correctness of the rule appears never to have been affirmed after a deliberate examination of it by the High Court, it has been acknowledged more than once by members of that Court.
[42] Further, the rule has also been recognised by intermediate courts of appeal in Australia. The clear direction given by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 153-4 is that in relation to non-statutory law, intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in other jurisdictions within Australia unless they are convinced that the law as expounded in those decisions is plainly wrong.
[43] Despite the criticism that has been made of the rule, I am not convinced that it is plainly wrong. That criticism has tended to focus upon the distinction that the rule makes. The objection to the distinction underlying the criticism is centred upon its dependence upon form rather than upon substance. The provisions are differently expressed in form, yet in substance the same interest rate outcome results from them where payment is not punctual – the higher interest rate is charged.

In King Investment Solutions v Hussain [2005] NSWSC 1076 (King Investments), Campbell J observed at [136]-[138]:

[136] The interest rate under the present mortgage was 118.8% pa, reducible to 60% pa if paid within 7 days of the due date. There is no doubt that both the higher rate and the lower rate are very high rates of interest. However, no attack is made on the mortgage as being unconscionable, or in any other way able to be set aside. Nor was it alleged that the mortgage was one to which the Consumer Credit (New South Wales) Code applies.
[137] Rather, the attack which is made is that the margin between 60% and 118.8% is such that it could not possibly be a genuine pre-estimate of the loss arising from late payment, and hence is a penalty.
[138] That argument fails. One requirement for a provision in a contract being a penalty is that it states a consequence which is agreed to follow from breach of one of the provisions of the contract. The structure of the interest clause in the present case is not like that. Rather, the interest clause in the contract involves a promise by the mortgagors to pay interest at 118.8%, and a promise by the mortgagee that, if the mortgagors pay the interest on time, or no more than 7 days late, the mortgage will accept interest at 60%. A clause structured in that way is not regarded as a penalty: Wallingford v Mutual Society (1880) 5 App Cas 685 at 702; CJ Belmore Pty Ltd v AGC (General Finance) Ltd [1976] 1 NSWLR 507. There is a lot to be said for the view that a clause which gives a benefit to a contracting party who performs the contract is no different in substance to a clause which imposes a detriment, equal in amount to that benefit, on a contracting party for breach. There is also a lot to be said for the view that equity ought look to substance not form. However, the law in this respect has been settled for too long for a first-instance judge to give effect to those views.

The RG also seeks to rely on Re Mango Credit Pty Ltd [2016] NSWSC 199 (Mango Credit) per Lindsay J at [90]-[94]:

[90] The contract documentation in the present proceedings pays lip service to this conventional rule in so far as it speaks of “lower” and “higher” rates of interest, and suggests that the higher rate is “reducible” to the lower rate in the absence of any default by the first respondent in the performance of his obligations as mortgagor.
[91] A central problem with this is, however, that, upon a construction of the contractual documentation as a whole, the higher rate of interest may be characterised merely as a secondary, “default” rate so as to be struck down, not saved, by the conventional rule governing differential rates of interest.
[92] That is because:
(a) the lower rate of interest is presented in the documentation, not merely as a concessional rate but as the contract rate of interest, reserving the higher rate for operation only in the event of a default in the mortgagor’s obligations;
(b) the lower rate is not available merely as a concession for prompt payment of instalments of interest, but is applied in the calculation of interest payable, for the whole term of the loan, up-front;
(c) as the mortgagor was contractually obliged to pay, and the mortgagee was contractually entitled to receive, at the outset a lump sum payment of interest for the whole term of the loan, the parties’ contract made no provision for interest to be paid at the higher rate except in the event of a default, including (but not limited to) a failure to repay the principal sum at the end of the loan term; and
(d) the higher “default” rate of interest was payable on the happening of any one of a large range of “the events of default”, not limited to default in repayment of the principal sum.

[93] Expressed in the language of Andrews v ANZ Banking Group Ltd: In so far as the contract documentation purported to require the first respondent to pay interest calculated at the higher rate upon his failure to repay the principal sum at the end of the loan term or earlier breach, it could be said to have imposed on him, to the benefit of the applicant, an additional detriment in the nature of a security for, and in terrorem of, the first defendant’s primary obligation to repay the principal sum. Given that compensation could be made to the applicant for any prejudice suffered by a failure of the primary obligation of the first respondent, the collateral stipulation that the first respondent pay interest at the higher rate (if not also associated obligations to pay “enforcement costs”) was in force only to the extent of that compensation, and the first respondent was relieved to that degree from liability to satisfy the collateral stipulation.
[94] The differential between the higher and lower rates of interest for which the mortgage provided is of such a dimension that it could be characterised as having been out of all proportion to any legitimate interest of the applicant in enforcement of the first respondent’s obligation to repay the principal sum in a timely manner: cf Bay Bon Investments Selvarajah [2008] NSWSC 1251 at [54] and [56].

Parties’ submissions

Registrar-General

The RG submits that AKR owed the Plaintiffs a duty of care, with the standard of care required being that which may be reasonably expected of legal practitioners practising in the relevant area of practice (RG’s Outline of Submissions at [21]-[26]).
The RG submits that AKR breached the duty of care she owed to the Plaintiffs, positing two alternative explanations for her conduct (RG’s Closing Submissions at [22]-[29]).

First Scenario: the imposters used by Dennis strongly resembled the real Mr Mascarello and Mrs Mascarello. The RG submits that this is a highly unlikely scenario, pointing to alleged differences in appearances between the imposters and the Plaintiffs and the supposed crudity of Dennis’ fraud.

Second Scenario: AKR either lacked care or was cavalier in the manner in which she conducted her practice. The RG submits this is the far more likely explanation, attributing this to such possible reasons as her being too busy, or being eager to appease the mortgage broker Ms Penna.

The RG alleges AKR was not a careful solicitor (RG’s Closing Submissions at [27]), pointing to alleged differences between hairstyles of the Mascarellos on their genuine photo identification and the hairstyles of the imposters remembered by AKR (RG’s Closing Submissions at [16]-[21]).
The RG also alleges Dennis “was no genius”. The RG alludes to the audio recording of 30 November 2012 (marked Exhibit P2) in which Dennis Mascarello, and a woman of unknown identity, speak over the phone to a representative of the lender in relation to the DLF Loan entered into by Mascarello Holdings and pretend to be Mr and Mrs Mascarello respectively (RG’s Closing Submissions at [22]). The RG states at this paragraph [22]:

[22] What is telling about that audio recording is that Dennis commences the conversation feigning an Italian accent, but shortly thereafter seemingly forgets to maintain the accent. This is not indicative of a genius who was able to execute subterfuge and train others to do so to such a degree to have been able to trick a prudent solicitor acting carefully.

In the RG’s Closing Submissions at paragraph [30], the RG submits that “there can be no question that the negligence of the solicitor was causative of the loss suffered by the Mascarellos. A solicitor was required to sign off on the relevant transactions”.
The RG submits that the correct valuation of the Plaintiffs’ properties would make their total loss to be between $4,275,000.00 and $4,450,000.00 (RG’s Opening Submissions at [52]-[60]).
The RG admits that the Plaintiffs’ claim against AKR is an apportionable claim (RG’s Opening Submissions at [28]).
The RG originally submitted that the circumstances of this case are such that an apportionment of at least 50% of the loss of the Plaintiffs should be attributed to AKR to reflect her blameworthiness and role in causing the loss (RG’s Opening Submissions at [32]). However, the RG has since acknowledged that for the purposes of proportionate liability this apportionment is too high. The RG now submits that the circumstances of the case suggests an apportionment of between 15-25% of the Plaintiff’s loss to AKR (RG’s Closing Submissions at [32]-[38]).
However, the RG suggests that the apportionment calculation should be based on the Plaintiffs’ loss, not on the amount of $3,000,050.00 paid in settlement between the Plaintiffs and the RG (RG’s Closing Submissions at [58]-[62]). The RG submits that there is a cap of $3,000,050.00 on the amount it can obtain from this Court in judgment. However, it also submits for the purposes of apportionment, that the percentage calculation should be calculated by reference to the Plaintiffs’ loss, and not by reference to the cap amount of $3,000,050.00 (RG’s Closing Submissions at [60]-[62]).
The RG rejects K R Lawyers’ submission that the RG was a concurrent wrongdoer as defined in section 34 of the CLA (RG’s Opening Submissions at [37]). The RG contends that it owes no duty of care to the Plaintiffs (RG’s Opening Submissions at [37]-[50].
The RG rejects the submissions of K R Lawyers that AKR is able to rely on the Professional Standards Act 1996 (NSW) to limit her liability to $1,500,000.00 (RG’s Opening Submissions at [51]). The RG submits this is because section 5(2) of the Act provides the Act “does not apply to a liability which may be the subject of proceedings under part 14 of the Real Property Act 1900”.
The RG also submits that it is not barred by the Deed entered into between the Plaintiffs and NWC, suggesting that the right of subrogation under sections 133(2) and (4) differ subrogation at general law (RG’s Opening Submissions at [62]-[72]). It also submits the interest provisions of the NWC mortgages are void as a penalty (see Further Amended Statement of Cross Claim filed 12 October 2017 at [6]).
The RG finally submits it is entitled to an order for any difference between any amount ordered to be paid by AKR and the Settlement as against Dennis (RG’s Closing Submissions at [64]).
The RG rejects any basis upon which the Court could find it failed to mitigate the Plaintiffs’ loss (RG’s Short Submissions in Response at [3]).

K R Lawyers

K R Lawyers accepts the existence of a duty of care to the Plaintiffs (K R Lawyers’ Short Submissions in Response to the RG’s Submissions at [3]).
K R Lawyers rejects the RG’s claim in negligence, fundamentally claiming that the RG seeks to impose on K R Lawyers a standard of perfection that is inconsistent with the role she performed (K R Lawyers’ Opening Submissions at [15]).
K R Lawyers rejects the RG’s submission that AKR was not a careful solicitor (K R Lawyers’ Short Submissions in Response to the RG’s Submissions at [6]).
K R Lawyers submits its function was not to scrutinise the borrowers, or act as an investigator or fraud detector. K R Lawyers submits that the standard of care simply required it to take reasonable steps and to act reasonably in identifying those held out to be the “Plaintiffs” and witnessing their signatures on the various loan and security documents (K R Lawyers’ Short Submissions in Response to the RG’s Submissions at [3]).
In this narrow function, K R Lawyers submits AKR acted in accordance with widely accepted competent professional practice in Australia and does not amount to negligence (K R Lawyers’ Opening Submissions at [25]). K R Lawyers also submits AKR took reasonable steps and acted appropriately in identifying who she thought were Mr Mascarello and Mrs Mascarello (K R Lawyers’ Closing Submissions at [4]).
K R Lawyers further submits even if found to have owed a duty of care to the Plaintiffs and to have breached that duty of care, there is no evidence to support a finding that K R Lawyers’ conduct caused the loss suffered by the Plaintiffs (K R Lawyers’ Opening Submissions at [26]-[28]).
K R Lawyers further submits that any loss accrued to the Plaintiffs should be held at $2,116,954.53, being the amount the Plaintiffs paid to NWC (K R Lawyers’ Closing Submissions at [31], [33]-[38]).
K R Lawyers submits that the RG’s own conduct and failure to mitigate by accepting the Plaintiff’s claim at a much earlier time has meant that the RG alone is responsible for the substantial increase in the Plaintiffs’ loss (K R Lawyers’ Opening Submissions at [29]-[32]).
As to the question of proportionate liability, K R Lawyers points to Dennis, Ms Penna, the two imposters, Alan’s Off the Shelf (or Richard John Muir) and the RG all as concurrent wrongdoers within the meaning of section 34 of the CLA. K R Lawyers therefore submits, when weighed against the conduct of these numerous concurrent wrongdoers, K R Lawyers played little to no part in the causation of the Plaintiffs’ loss (K R Lawyers’ Opening Submissions at [33]-[35]; K R Lawyers’ Closing Submissions at [23]-[26]).
K R Lawyers accordingly rejects the RG’s apportionment of 15-25%, suggesting that K R Lawyers’ responsibility could be nothing other than at the lowest end of the spectrum, if liable at all, to the Plaintiffs’ loss (K R Lawyers’ Short Submissions in Response to the RG’s Submissions at [9]).
K R Lawyers seeks to limit its liability of any award of damages to no more than $1,500,000.00 pursuant to the Professional Standards Act (K R Lawyers’ Opening Submissions at [36]-[38]).

NWC

NWC submits that the Deed between itself and the Plaintiffs has released NWC from all claims the Plaintiffs might have had against it (NWC’s Opening Submissions at [12]-[15]).
NWC accordingly submits if the Plaintiffs have no claims against NWC, then the RG’s cross-claim against NWC must fail, as the right of subrogation under section 133 RPA offers the RG no rights independent of the Plaintiffs’ own rights and remedies (NWC’s Opening Submissions at [12]-[15]; NWC’s Final Submissions at [23]-[56]).
NWC further rejects any suggestions that the interest provisions of the NWC mortgages, resulting in interest paid to NWC of $319,143.64, are void as a penalty (NWC’s Opening Submissions at [23]).

The Evidence

The Evidence of Michelangelo Mascarello

Last year application was made for the trial to be expedited. The principal reason advanced was his ill health. I ordered that his evidence be taken on commission, which was done on 25 October 2017.
Mr Mascarello swore two affidavits. One on 1 March 2016 (as noted Aff MAM1) and the second on 23 October 2017 (Aff MAM2).
Mr Mascarello was born in Molvena, Italy in 1935 and migrated to Australia in 1954. He married his wife on 8 May 1971.
In or around 1956 he obtained a Heavy Duty Driving Licence and began driving trucks. However, on 8 May 1987 he purchased a taxi plate and commenced working as a taxi driver.
Mr Mascarello and his wife Maria had three children. Dennis, born on 2 October 1973, Anna born on 8 May 1978 and Timothy born on 7 January 1983. Mr Mascarello then sets out in Aff MAM1 the various details of he and his wife’s purchase of the Lilyfield Property (24 June 1974), the Leichhardt Property (8 August 1983) and the Strathfield Property (5 June 1991).
Since 1975, there was no mortgage on the Lilyfield Property. However, in 2006, Mr Mascarello and his wife assisted their son Dennis to buy a house at Casula. For that purpose, Mrs Mascarello provided her son Dennis with the title deeds to the Lilyfield Property.
Since 1987, the Leichhardt Property had no mortgage on it. In that year, Mr Mascarello and his wife sold two blocks of land in Lake Macquarie so that he could purchase a taxi plate.
Since 1999, the Strathfield Property was also mortgage free.
On 17 February 2014, Mr Mascarello and his wife received a letter from Bransgroves Lawyers signed by Mr Reese addressed to the ‘Tenants’ of the Strathfield Property demanding a payment of rent to NWC. The letter stated that NWC had a mortgage over the Strathfield Property.
As a result on 26 February 2014, Mr Mascarello, his son Timothy and his wife Daniella, along with Mr Mascarello’s daughter Anna and her husband James Willis, attended a meeting with Mr Ford (the solicitor) to discuss the letter.
As a result of Mr Ford making enquiries, Mr and Mrs Mascarello’s worst nightmare unfolded.
Not only did Mr Mascarello and his wife discover the existence of numerous loans and mortgages but they also discovered the existence of Mascarello Holdings Pty Limited.
Mr and Mrs Mascarello were confronted with numerous documents concerning their various properties which purported to have their signatures on them. Mr and Mrs Mascarello deny any knowledge of any such documents and deny ever having agreed to and/or signed any such documents in connection with the various transactions concerning their properties, each of which was as a result of fraudulent conduct on the part of their son Dennis.
In particular, Mr Mascarello denied any knowledge of the NWC loan documentation and/or transaction. Further, he denied ever having provided identity documents to AKR.
On 30 March 2014, Mr and Mrs Mascarello made a joint claim for compensation from the New South Wales Torrens Assurance Fund (Exhibit MM1 190-224).
In the meantime, Mr and Mrs Mascarello set about selling their various properties in order to discharge the NWC liabilities. In total, Mr Mascarello asserts he has paid $2,116,954.53 to NWC which includes principal, interest and costs under the various mortgages taken out against the various properties by Dennis. Mr Mascarello has not spoken to his son since 17 February 2014, but became aware in about August 2014 that his son had been charged with various offences.
Not only was Mr Mascarello not aware of any of the transactions undertaken by his son Dennis, but he received no benefit whatsoever from any of the monies which were in relation to the fraudulent transactions.
Mr Mascarello denies ever having met Ms Penna and further denies that she is his niece and/or his wife’s niece.
Mr Mascarello denies at any time relevantly speaking to anyone about a short term loan.
Further, Mr Mascarello describes himself as being approximately 169 centimetres and of a stocky or solid build. He does have some grey hair, but has been bald or near bald for more than 15 years. He has never had wavy hair. He does not own, nor has he ever worn, glasses. Occasionally he wears his wife’s reading glasses.
He has neither met nor had any conversation with AKR. Nor did he provide any identification documents to her, or to anyone else, for the purposes of providing them to her.
Mr Mascarello was examined before Deputy Registrar Bellach on 25 October 2017. In his evidence, Mr Mascarello confirmed that he had sworn the two affidavits Aff MAM1 and Aff MAM2, and that his occupation was that of a taxi driver.

K R Lawyers submit that there has been no explanation proffered by the RG explaining the delay in arriving at a settlement with the Plaintiffs. Further the submission is that as this was a subrogated claim the Plaintiffs and hence the RG had a duty to mitigate.
The materials initially supplied to the solicitor for the RG included effectively two letters of demand. One to the Plaintiffs’ son Dennis inviting him to make a full admission as to his criminal conduct, the other to AKR which suggested at least by implication some potential involvement by her because of her failure to pick up what was said to be an apparent difference in the signatures which AKR witnessed on 30 September 2013 and in what was said to be the original signatures of Mr and Mrs Mascarello. Failure on the part of AKR to respond became a threat of possible referral to the Law Society of New South Wales Professional Standards Committee and the Fraud Squad.
Thereafter correspondence continued with the solicitor for the RG requesting among other things expedition of the calculation of Mr and Mrs Mascarello’s claim for compensation and payment thereof. However it was not until 22 September 2014 that the Plaintiffs’ solicitor quantified the precise amount claimed that the Fund should pay namely $2,169,184.09 which excluded selling costs, legal costs and disbursements and CGT Liability.
On 5 December 2014 however the solicitor for the RG wrote enquiring about certain aspects of the matter and asking in particular whether the Mascarellos had any knowledge of the loans other than the NWC loan and in particular that fraud was being alleged while they had elected to permit NWC to exercise a power of sale in relation to certain of the properties.
In February 2015 the solicitor for Mr and Mrs Mascarello informed the solicitor for the RG that the police investigation amongst other things had been delayed and the charges were yet to be referred against Dennis. It was also said that the New South Wales Law Society had ‘recently’ appointed an investigating officer to look into presumably the conduct of AKR.
On 17 April 2015 it was noted in a letter from Mr and Mrs Mascarellos’ solicitors that the RG had refused the claim and that unless a change in attitude came about proceedings would be commenced within 7 days.
On 23 April the solicitor for the RG responded by making the obvious point that the investigation undertaken had exposed a number of concurrent wrongdoers which made it impossible for RG to make a proper determination of its liability.
There is no evidence before the court from the RG or if I may add from Mr and/or Mrs Mascarello as to exchanges between them (other than those already mentioned) nor is there any information as to the precise progress of the police investigation. Any person who suffers loss or damage as a result of a fraud may claim compensation, but any claimant must co-operate fully with the RG for the purposes of ensuring the RG has sufficient information and undertakes a significant process in that regard: sections 131(6)-(8) RPA.
There is little doubt that this was a complex case to investigate. Dennis did not immediately admit his guilt. In addition, the solicitor for Mr and Mrs Mascarello was alleging negligence at least on her part, but may well have suspected more. Proceedings against K R Lawyers were brought on 5 September 2017 having commenced proceedings against the RG on 17 August 2015.
On 5 September 2017, the Mascarellos filed an amended statement of claim in which they sought to have their loss assessed on the basis of the current values of the Lilyfield, Strathfield and Leichhardt properties.
The RG of course settled the claim on 7 February 2018 $3,050,000.00.
Leaving aside the suggested delay on the part of the RG, the submission is made that AKR changed her position over time as to the identity of the elderly couple she saw. As pointed out at paragraph [7] of the RG’s Opening Submissions of 8 February 2018, having witnessed their signatures on at least 6 separate occasions it may be assumed that AKR believed that the elderly couple who presented at her offices were the real Mascarellos. It is then submitted that the position disclosed in her defence and in her affidavit sworn 24 November 2017 is that she did not know one way or the other. It is further pointed out by her not challenging Mr Mascarello’s evidence in cross examination it may be taken that the elderly people who came to see her were not the real Mr and Mrs Mascarello.
Here, whilst the RG has provided no explanation for the delay in reaching a settlement with Mr and Mrs Mascarello, they likewise have not produced any material post early 2015 to indicate the manner in which negotiations continued or not as the case may be with the RG. Nor is it plain on the evidence what additional information or material either they supplied or the RG acquired prior to the ultimate settlement in February this year.
Because of my view on negligence, and because of my view on the limitation of liability, the determination of this question is somewhat academic. However, I am not satisfied that the conduct of the RG can properly be characterised as unreasonable such as to support the submission that it has failed to mitigate. In a complex factual case such as this, with many potential concurrent wrongdoers, there was some considerable justification in delay in my view in finally resolving the Mascarello’s claim against the RG. From K R Lawyers point of view only belatedly did they decide to identify Ms Penna as a likely culprit in the fraudulent scheme. That is not to be critical but simply to say that the factual situation was somewhat complex.
In my view, if it were simply a question of a discount for failure to mitigate I am not satisfied such a proposition is made out. In other words I do not consider it has been shown that in all the circumstances the RG has failed to mitigate.

The Registrar-General a concurrent wrongdoer

On the question of proportionate liability, as I have already said, there is little doubt that the claim against K R Lawyers is an apportionable claim pursuant to section 34(1) of the Civil Liability Act 2002 (NSW). As is also clear from what I have already said, there are a number of other concurrent wrongdoers.
It is submitted that the RG can in law be a concurrent wrongdoer because it owed the Plaintiffs a duty of care and because it was reasonably foreseeable that the Plaintiffs would suffer additional loss and damage by the RG failing to exercise its statutory powers to consider and approve their claim and do so more quickly. The Plaintiffs were vulnerable in the sense that their losses continue to escalate and they had no financial ability to safeguard themselves whilst the RG delayed or refused to accept their claim.
This point strictly does not arise. However there is authority for the proposition that in such circumstances a duty of care would not arise over and above such claim as may be made on the fund. In particular Bryson J in Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072 at [79] and Pembroke J in Pedulla v Panetta at [64]. In my view the views expressed by their Honours accord not only with general principle but I think would fit comfortably within the legislative scheme. That said comity suggests that I should not express any contrary views to those articulated by Bryson and Pembroke JJ unless I consider them clearly wrong, which I do not. I am also of course mindful of Bryson J’s qualification in paragraph [79] when read in full.

Calculation of loss

On the question of calculation and loss and damage K R Lawyers submits that the usual means of calculating damages in tort are that they are to be determined as at the date on which the cause of action arose and the amount should be in monetary terms, a sum as if the tort had not been committed. K R Lawyers however accepts that the court has discretion in this regard. It follows in K R Lawyers’ submission that the loss and damage had crystallised and the cause of action was complete by about 28 November 2014 when the properties were sold and NWC was paid the sum of $2,116.954.53. That is it submitted the appropriate figure for the calculation of loss in this case. The RG submits the date of judgment is the appropriate date.
In any event several points are made as to the quality of the evidence put forward by the RG in support of what might be described as current values or values at the date of judgment. It is contended that each of the valuations are in the order of 3 to 4 months old, each has certain qualifications which makes reliance upon them problematical. For example in relation to the Strathfield Property a proper valuation of that property even if taken at the date of judgment is questionable because the precise arrangement between the various parties to what is described as a vague and undocumented event or finance arrangement faces a question mark over its valuation.
On this aspect K R Lawyers relies upon the mitigation argument which I have already dealt with.
K R Lawyers also submits that the RG cannot profit from the litigation. It submits that the RG only reluctantly disclosed the terms of settlement reached with the plaintiff which led to the RG agreeing to pay the Plaintiffs $3,050,000.00 inclusive of costs and expenses. Accordingly, the principal payment which ought to be made by the RG to the Plaintiffs is about $2,700,000.00 to $2,750,000.00 (once legal costs of $300,000.00 to $350,000.00 are deducted. It is further submitted that as the claim made by the RG is subrogated it is restricted to make a claim in the order of $2,700,000.00 to $2,750,000.00.
It is submitted that no objection was taken to the valuation reports and they support calculations of somewhere between $4,275,000.00 and $4,450,000.00 for the relevant properties. Further it is correct to observe the valuers were not cross examined.
A submission is also made by the RG that apportionment must be based on the loss suffered by the Mascarellos not on an amount paid in settlement to them. Again these arguments are theoretical only.
The right of subrogation provided by section 133 of the RPA is in my view entirely akin to the right of subrogation under the general law. In other words there is nothing in principle in my view preventing the RG as indeed if it were an insurer and even having settled with the insured to making a claim against any wrongdoer or wrongdoers which can be legally justified and which is greater than the amount paid to the insured. In other words any sum that the RG may have paid Mr and Mrs Mascarello does not in principle or by reason of statute in my view limit the amount which it can claim as a loss by reason of subrogation. However if some figure in excess of the sum paid to the Plaintiffs in full settlement was achieved by reason of any subsequent litigation then in my view consistent with the general law of subrogation and indemnity the RG would be obliged to account to Mr and Mrs Mascarello for any additional monies it might receive less costs and expenses. After all, the losses occasioned are those of Mr and Mrs Mascarello not those of the RG. Insofar as the RG relies upon Meagher JA in RG v Lawcover to support the proposition that there is a ‘cap’ on the amount the RG can recover, I do not read His Honour’s judgment in that light. There is little doubt that the RG is not entitled to profit. But in my view that would not prevent a court awarding the appropriate damages to a claimant (in this case the Mascarellos), which may or may not be the amount the RG settled for.

The Claim against NWC

I first should note that NWC formally abandoned its second cross claim against K R Lawyers so the only issue remaining with NWC is the claim made against it by the RG.
The RG makes a number of submissions about the agreement reached between NWC and the Mascarellos. As I understand it there is no disagreement as to the construction of the Deed they signed. I shall return to some of these questions shortly.
In any event the RG submits that by operation of section 132 of the Act it is not bound by any agreement entered into or release granted by the Mascarellos which might otherwise bind the Mascarellos.
In short the charging of 72% interest rate it is submitted should be held to be a penalty. In that regard the RG relies upon Lindsay J in Mango Credit.
Part of the resolution of the dispute between NWC and the RG is to be informed by the fact that on 15 September 2014 Mr and Mrs Mascarello and NWC entered a deed by which the Mascarellos purported to release their claims and remedies against NWC.
Whichever argument is advanced by the RG, NWC asserts any or all claims upon whatever basis or bases are barred by the terms of the Deed entered into by the Mascarellos.
In particular the recitals are relied upon, especially recital [M]. Clause 4.2 of the Deed also provides a warranty that the borrower and guarantor had sought and received independent legal and financial advice and had determined to enter into the Deed solely in reliance upon that deed.
Clause 6.1 provides that NWC can plead the document as a complete defence or bar to any proceedings. Clauses 7.1 and 7.2 which provide for general releases are also relied upon. In particular clause 7.2 which provides that the borrower and guarantor releases NWC from any “liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement”.
It is submitted that the Mascarellos did not make, nor do they make a claim for unconscionability and clearly were not ignorant of the frauds that had been perpetrated by their son. Further it is submitted that it must be taken that the Mascarellos at the time they signed the Deed to have been fully aware of the causes of action available to them as a consequence of the fraud in particular that the Leichhardt Mortgage not having been registered would be a nullity if the fraud had been made out. Clearly it is submitted they must have been aware of the high rate of interest payable under the mortgages when the Deed was signed.
It follows it is submitted by NWC that if the Mascarellos had no claims against NWC then the RG’s first cross claim pursuant to section 133 of the RPA must fail. This is because the section gives the RG no rights independent of the Mascarellos rights and remedies.
The Mascarellos have clearly and expressly released their claims and remedies against NWC and therefore no cause of action is disclosed against NWC.
Notwithstanding the allegation by the RG that the agreement amounts to a penalty it is submitted by NWC that the Deed in any event releases it from any liability in that regard. In addition, however, it is submitted that properly characterised the 72% interest provision is not a default interest position but the primary obligation under the mortgage which may be reduced by prompt payment. It is further submitted that any term that interest will be reduced on prompt payment is not a penalty. In particular NWC relies upon the decision of Campbell J (as he then was) in King Investments.
It is further submitted that the Leichhardt Mortgage secured no monies and accordingly NWC was not entitled to the proceeds of the sale of the Leichhardt Property. NWC submits however that the Leichhardt Mortgage should be construed as being collateral to the Lilyfield and Strathfield Mortgages notwithstanding the Leichhardt Mortgage may be a nullity the Leichhardt and Strathfield Mortgages created indefeasible obligations including a debt owed by the Mascarellos to NWC under the guarantee. In any event again the Deed is relied upon by NWC as releasing it from any liability in respect of the Leichhardt Mortgage.
The RG calls in aid section 132(4) of the RPA and submits that the result of that provision is not bound by the Deed entered into by the Mascarellos.
It is submitted that so far as the penalty interest claim is concerned indefeasibility provisions of the RPA do not have the effect of securing enforcement of the performance by a mortgagee of every covenant in a mortgage and that in particular covenants in a mortgage which are illegal or void will not be improved by registration with the result that if 72% interest is charged sell to be a penalty then it will be void.
The RG submits that rather than Campbell J in King Investments a more relevant authority is Lindsay J in Mango Credit. The effect of the RG’s submission is that to construe the agreement as providing a 72% primary rate but reducible for prompt payment is to look at the form rather than the substance of the agreement. In any event the RG submits that here unlike King Investments, the Mascarellos never signed any documents agreeing to such interest rates.
In addition, the RG relies upon Justice Darke’s interlocutory decision of 28 October 2016 dismissing NWC’s application for summary dismissal of the cross claim against it. With the very greatest respect to Darke J, the decision was just that. Unsurprisingly His Honour was at pains to address the arguability of the respective propositions importantly that of the RGs. All his Honour determined was that the RG’s argument could not be described as untenable or fanciful so far as its prospects of success were concerned. He applied unsurprisingly the conventional test when considering matters of summary disposal. It is equally plain that as a matter of common courtesy his Honour’s views should not lightly be ignored. However, here I have had the benefit of detailed submissions both on the law and the facts from all parties concerned.
Notwithstanding Lindsay J’s remark earlier referred to I am of the view that the 72% interest provision should properly be characterised as a primary obligation under the mortgage reducible upon payment. Further a clause establishing a concessional interest rate for prompt payment has long been established as not amounting to a penalty. Gibbs CJ said as much in O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at [27].
In my view in the circumstances the relevant clause absent any claim for unconscionability or other vitiating factor does not in my view take the case outside the general rule as discussed in King Investments. Therefore I do not consider the higher “rate” so described in context is any more than the primary obligation under the mortgage.
In my view the decision of the High Court in Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 also is not apposite. It says nothing at all about the accepted distinction between a clause providing an incentive for prompt payment and a penalty clause where the rate of interest is increased for failing to make timely payment. That distinction was recently reaffirmed by the Queensland Court of Appeal in Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371. Of particular relevance are the comments of Gotterson J at [41] and [42] with whom McMurdo and Fryberg JJ agreed. I note in passing application for special leave from the Court of Appeal was refused.
For the sake of completeness, I am of the view that the Deed and its provisions of which I have already adverted to is a complete answer to the cross claim against NWC (absent any claim for unconscionability, duress, or the like). As the New South Wales Court of Appeal made it clear in RG v Lawcover, the RG has no independent claim against any persons such circumstances. The rights and remedies which the RG is entitled to enforce by subrogation would include any rights Mr and Mrs Mascarello might have against NWC and the qualification that NWC has all of the defences available to it (per Meagher JA at [56]). That would include in my view a deed such as the one here executed by them which bars such a proceedings.
Likewise, in my view section 132(4) of the RPA is of no assistance to the RG. That provision states that the RG is not bound by a prejudicial act of omission by a party to the proceedings. It is clear that the provision is intended to preserve the RG’s ability to recoup funds paid out from the Torrens Assurance Fund against a party who in part or in whole is responsible for the compensable loss. In other words, as was made clear by the Minister during the Second Reading Speech to the Real Property Amendment Bill 2000 (NSW) quoted above at paragraph [83] of this judgment, if a claim was made as the result of a person committing fraud by forging his or her parents’ signature on a mortgage, the RG would still be able to proceed against that family member, even though the parents may have waived their rights against that person. That indeed adds content to the notion of “prejudicial”. NWC in no way would be said to be responsible for any part of the compensable loss.

Summary of Findings

It is convenient if I now summarise my findings:

It is accepted by the parties that K R Lawyers that it did owe a duty of care to the Plaintiffs.

The case pleaded by the RG in negligence for breach of duty of care against K R Lawyers is not made out. AKR did not act unreasonably, nor was she in breach of any statutory or regulatory enactment to that effect.

In any event, if breach were to be found, the conduct AKR and K R Lawyers was not ultimately causative of the Plaintiffs’ loss.

For the purposes of proportionate liability, if breach were to be found, in the circumstances the contribution of K R Lawyers to the harm of the Plaintiffs could not be greater than 5%.

Any potential claim by the Plaintiffs against K R Lawyers is subject to the limitation of liability under the Professional Standards Act 1994 (NSW). It follows that the limitation cannot be abrogated, and the quantum of the RG’s claim enlarged, by way of subrogation to the Plaintiffs’ claim.

The claim by K R Lawyers that the RG failed to mitigate the Plaintiffs’ loss is not made out.

Should it have arisen, the better view is that the RG did not have a duty of care so as to be a concurrent wrongdoer.

The RG can make a claim based on ‘current’ values and should not be limited to losses accruing at an earlier time. In other words, it can seek to recover not only more than it paid but values, in my view, at the date of the trial, especially where there is no evidence of a failure to mitigate. However, any extra were it to be achieved (less costs and expenses) should be remitted to the Mascarellos.

I invite the parties to prepare short minutes of order which reflect my reasons and findings.
If parties cannot agree on questions of costs, the matter should be listed for that purpose.

Costs/claims against Dennis

At the very conclusion of the RG’s submissions (RG’s Closing Submissions at [64]), it is submitted that the RG is entitled to an order for any difference between any amount ordered to be paid by AKR and the settlement sum as against Dennis.
This claim was not developed in the parties’ submissions or in argument. However, I would entertain further submissions in this respect if the need arises.

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Amendments

23 March 2018 - NWC Finance (No 5) Pty Ltd (third cross defendant)

Solicitors: Summer Lawyers (third cross defendant)

Decision last updated: 23 March 2018

Medium Neutral Citation:	Michelangelo Alfredo Mascarello & Anor v Registrar-General of New South Wales [2018] NSWSC 284
Hearing dates:	12, 13, 15 February 2018
Decision date:	08 March 2018
Before:	Sackar J
Decision:	See para [398]
Catchwords:	EQUITY – subrogation – general principles – Registrar-General’s statutory right of subrogation – nature of statutory right of subrogation under Real Property Act 1900 (NSW) – amount Registrar-General can seek to recover in subrogation NEGLIGENCE – duty of care – general principles – causation – proportionate liability – duty of care of solicitor – whether solicitor breached duty of care witnessing fraudulent signatures CONTRACT – penalty – loan agreement – where the lower rate was 36% p.a. and higher rate 72% p.a. – whether higher interest rate void as penalty – whether deed of settlement entered into by Plaintiffs bar to Registrar-General’s claim under penalty
Legislation Cited:	Civil Liability Act 2002 (NSW) Evidence Act 1995 (NSW) Interpretation Act 1987 (NSW) Professional Standards Act 1994 (NSW) Real Property Act 1900 (NSW) Statue Law (Miscellaneous Provisions) Act 2002 (NSW)
Cases Cited:	Acron Pacific Pty Ltd v Offshore Oil NL (1985) 157 CLR 514 Andrews v Australia and New Zealand Banking Group Pty Ltd [2012] HCA 30 Badenach v Calvert [2016] HCA 18 Bofinger v Kingsway Group Ltd [2009] HCA 44 Boscawen v Bajwa [1996] 1 WLR 328 Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072 Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 Glen Line v Attorney General (1930) 36 Com Cas 1 Heydon v NRMA Ltd [2000] NSWCA 374 Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees [2013] HCA 10 Kayteal Pty Ltd v John Joseph Dingnan [2011] NSWSC 197 Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371 King Investment Solutions v Hussain [2005] NSWSC 1076 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 March v Stramare (E & MH) [1991] HCA 12 O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Re Mango Credit Pty Ltd [2016] NSWSC 199 Registrar-General of New South Wales v LawCover Insurance Pty Ltd [2014] NSWCA 241 St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245 St Paul Travelers Insurance Company Ltd v Dargan [2006] EWHC 3189 (Cth) Teresa Nadia Pedulla v Fernando Rene Panetta [2011] NSWSC 1386 Travel Compensation Fund v John Harvey Blair [2003] NSWSC 720 Yorkshire Insurance Company Ltd v Nisbet Shipping Company Ltd [1962] 2 QB 330
Texts Cited:	Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) Dennis S K Ong, Ong on Subrogation (The Federation Press, 2014)
Category:	Principal judgment
Parties:	Michelangelo Alfredo Mascarello (first plaintiff) Maria Luisa Mascarello (second plaintiff) Registrar-General of New South Wales (first defendant) K R Lawyers and Consultants Limited (second defendant, second cross defendant) NWC Finance Pty Limited No 5 Pty Ltd (third cross defendant)
Representation:	Counsel: H Altan (first defendant) A R Zahra (second defendant) P Walsh (third defendant) Solicitors: Ms Taouil, Andrew R Ford Lawyers (plaintiffs) A Booth, Office of the Registrar-General (first defendant) J Coorey, Ms D Morris, Sparke & Helmore (second defendant) Summer Lawyers (third cross defendant)
File Number(s):	2015/187017
Publication restriction:	n/a