Muggleton v Tong

[1999] NSWCA 10

CITATION:	Muggleton v Tong [1999] NSWCA 10
FILE NUMBER(S):	CA 40912/97
HEARING DATE(S):	17/12/98
JUDGMENT DATE:	11 February 1999
PARTIES :	Leo Bernard MUGGLETON & Anor v Viet Nho TONG & Anor
JUDGMENT OF:	Mason P at 1; Handley JA at 2; Fitzgerald AJA at 3

LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S) :	20449/94
LOWER COURT JUDICIAL OFFICER:	McInerney J

COUNSEL:	R Weber (Appellant) J Anderson (Respondent)
SOLICITORS:	Mallesons Stephen Jaques (Appellant) Trevor Nyman & Co (Respondent)
CATCHWORDS:	Damages assessment; professional negligence by solicitors; calculation of loss in circumstances where solicitors contended that it was not their advice which caused clients to give a mortgage rather than an unsecured guarantee.; Held: challenged assessment of damages correctly made.
DECISION:	Dismissed

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40912/97
CLD 20449/94

MASON P
HANDLEY JA
FITZGERALD AJA

Thursday 11 February 1999

LEO BERNARD MUGGLETON & ANOR
v VIET NHO TONG

JUDGMENT

1 MASON P: I agree with Fitzgerald AJA.

________________________

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40912/97
CLD 20449/94

MASON P
HANDLEY JA
FITZGERALD AJA

Thursday 11 February 1999

MUGGLETON v TONG

JUDGMENT

2 HANDLEY JA: I agree with Fitzgerald AJA.

_____________________

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40912/97
CLD20449/94

MASON P
HANDLEY JA

FITZGERALD AJA

Thursday 11 February 1999

Leo Bernard MUGGLETON & ANOR v Viet Nho TONG & ANOR

JUDGMENT

3 FITZGERALD AJA: In accordance with a previous decision of this Court, See (1997) 41 NSWLR 42. the respondent-clients have a judgment against the appellant-solicitors for damages to be assessed for negligence. However, the Court’s judgment recognised that the clients might not be able to establish that the solicitors’ negligence caused them any loss. The present appeal is brought by the solicitors against a Common Law Division judgment which assessed the clients’ damages at $105,000.00. That is the amount of a judgment which this Court awarded a mortgagee, Esanda Finance Pty Ltd, against the clients, being the amount secured by a mortgage from the clients in favour of Esanda after it was varied by this Court under the Contracts Review Act 1980. The mortgage relates to the clients’ home, and this Court’s previous decision also gave judgment in favour of Esanda for possession of that property, which is valued at $200,000.
4 Superficially, the clients’ case against the solicitors is extremely simple, and consists only of three factual propositions, namely:
(i) The mortgage given to Esanda by the clients was given to guarantee the indebtedness to Esanda of a company associated with a friend and senior member of the client’s community, Mr Le.

(ii) Had they been properly advised by the solicitors, the clients would not have given a mortgage over their house in favour of Esanda, but would instead have offered only an unsecured guarantee of the company’s indebtedness to Esanda, limited to the amount of $105,000.
(iii) Esanda would not have accepted an unsecured guarantee from the clients, who accordingly would not have come under any liability to Esanda.

5 Proposition (i) is undoubted, and proposition (iii) is not seriously in dispute. The obligation undertaken by the clients in favour of Esanda was a substitute for a mortgage which Esanda held over another property from another person associated with the company. The Common Law Division Judge who assessed damages found that Esanda would not have accepted an unsecured guarantee from the clients.
6 His Honour also found that, if properly advised by the solicitors, the clients would not have given a mortgage in favour of Esanda over their home. That is the conclusion which is challenged by the solicitors before this Court. Although this Court in its previous judgment found that the clients intended to give Esanda only an unsecured guarantee, not a mortgage, the solicitors contend that it was not their negligence which caused its clients to give a mortgage because the clients were prepared to, and did, provide Esanda with whatever security Mr Le requested.
7 Unfortunately, the issue which now falls for resolution was not the subject of clear and comprehensive findings of primary fact by either the judge who initially tried the action or the judge who assessed the clients’ damages. The latter was at a considerable disadvantage, in that no witness gave oral evidence before him and the former had not made detailed findings with respect to credibility. The assessment of damages was conducted on the trial transcript, supplemented by only brief affidavit evidence of no particular relevance for present purposes.
8 The foundation of the solicitors’ case is evidence given by the male client. That evidence included statements by the male client that he told Mr Le that he thought of him as a brother “so if there anything you need and if I could do, I would do it”, that he had that attitude because he trusted Mr Le “like a brother”, and he “…. trusted that Mr Le would not do anything that might harm my family”. Later, the male client’s evidence in cross-examination continued:
Weber:

Q “I put it to you that on that day you were prepared to sign any document which Mr Le put to you in order to assist him?”
A. “Yes.”

Q. “And that was because you trusted Mr Le he was your brother?”
A. “Yes.”

Q. “And you saw that the document that were being asked to sign was a mortgage?”
A. “Yes.”

Q. “And you had already signed two mortgages in the past?"
A. “Yes.”

Q. “And you knew what a mortgage was?”
A. “I saw the documents with the word “mortgage” at that time but I did not understand was “mortgage” meant at that time.”

Q. “You understand that it was giving to Esanda the same rights over your house that you had given to the Commonwealth Savings Bank?”
A. I knew that the Commonwealth Bank had the right over the house because but I did not know that Esanda also had the right over my house.”

Q. “You knew the Commonwealth Savings Bank had a right over the house because you had given the Commonwealth Savings Bank a mortgage?”
A. “Yes, I knew that.”

Q. “And you knew that you had given the Commonwealth Bank of Australia a right over your house because you had given them a mortgage in relation to the newspapers overdraft?”
A. “About the mortgage for the newspapers, I knew that.”

Q. “And you knew that by the document that was being put in front of you, you were giving another lender a right over your house in the same way as you have given it to the Commonwealth Savings Bank and the Commonwealth Bank of Australia?”
A. “At that time I did not think that Esanda had a right over my house.”
…
Q. “Leave the position of Esanda to one side; you knew that when you were signing that document you were giving a mortgage to another financier?”
A. “Yes.”

Q. “And that was substantially the same process that you had been through when you had given mortgages to the Commonwealth Bank of Australia?
A. “No, they are different.”
…
Q. “And you knew that when you signed the document in front of you, which was a mortgage, that you were giving another financier similar rights over your house?”
A. “Yes.”
…
Q. “I’m putting to you that he did and that you were uninterested in what he was telling you?”
A. “Mr Do did not explain all that to me because if he did, then I wouldn’t have been that idiot to sign that sort of loan.”
….
Q. “What I want to put to you is Mr Do gave you a quite lengthy explanation of the mortgage but you were completely uninterested in that explanation because you had determined that you would sign the document in any event.”
INTERPRETER: “I am sorry, sir, could you please repeat that question again?”
PREVIOUS QUESTION READ BACK.
A. “I’d like to say that Mr Do did not explain to me as you the barrister, just said. However, I signed the document because Mr Le asked me to sign.”

9 However, the trial judge does not appear to have accepted that evidence, at least in its full literal effect, and he was entitled to take that course. The evidence was given through an interpreter, and it seems that there is no word for “mortgage” in the Vietnamese language spoken by the clients. This Court’s previous decision implicitly accepts the approach adopted by the trial judge to the male client’s evidence quoted above, and it is questionable whether the Court’s decision is consistent with an acceptance of that evidence in its entirety.
10 The most significant of the trial judge’s findings were that:
(i) Mr Le inadvertently misled the clients because he did not understand the nature of a mortgage.

(ii) The female client relied on the male client who, as has been seen, trusted Mr Le.
(iii)
(a) “I am far from satisfied that if [the solicitors] had adequately explained to the [clients] the reality of the risk they were gratuitously undertaking, they would not have executed the mortgage. I accept specifically the assertion to that effect in the affidavit of [the female client]”
(iii)
(b) The ‘assertion” referred to appears to be the contents of paragraph 10 of the female clients affidavit which was as follows”
“10. I would not have signed the document had I been aware that by doing so my husband and I could become liable for the debts of Mr Le’s company.”
(iv) “The [clients] probably shared with Le an obscured notion that the equipment [for which the company had borrowed from Esanda] was being obtained in some fashion akin to hire purchase and they believed that if the project terminated for any reason [Esanda] would repossess its “goods” and, although their real property stood to show that any deficiency or resale could be made good, they never really appreciated that there was an actual risk posed to their title and their enjoyment of their property”.

11 It seems impossible to reconcile all those findings. However, as will be seen, the first finding is important.
12 In its previous judgment, this Court held that the trial judge’s findings required a conclusion “that the [clients] knew that they were incurring personal liability for the company’s debt”. The Court added:

“The [male client] said in his first affidavit that Le asked him to guarantee the lease [of the equipment] and Le said the same. There was no finding or evidence that [the male client] and Le did not know what a guarantee was”.

13 Later, the Court added:
“The Court has upheld the findings that [the client] did not understand the nature of the mortgage they were granting, but did understand that they were incurring personal liability.”

14 An element of confusion is introduced because the mortgage signed by the client was unlimited as to amount while the mortgage on which they have been held liable to Esanda is limited to $105,000 because of the variation which the Court ordered under the Contracts Review Act. Nonetheless, the clients have the benefit of a finding that they did not know that the document which they signed in favour of Esanda was a mortgage over their house. As stated earlier, the solicitors nonetheless contend that it does not necessarily follow that the clients would not have signed a mortgage if the true nature of the transaction had been explained to them.
15 One further matter needs to be referred to, which is of considerable importance. Mr Le accompanied the clients to the solicitors when they signed the mortgage and remained with them throughout the period they were in the solicitors’ office. On the findings of the trial judge, neither Mr Le nor the clients understood the nature of a mortgage; i.e., none of them, including Mr Le, understood the effect of what the clients were undertaking. Had they done so, the proper inference, in my opinion, is that the transaction would not have proceeded. To my mind, the overall effect of the evidence apparently accepted by the trial judge is that neither Mr Le nor the clients intended that they should give a mortgage over their home to secure the company’s indebtedness to Esanda. It is, of course, correct that an unsecured guarantee also indirectly placed the clients’ property at risk, but that is far too sophisticated an analysis to found a realistic inference that the clients would accordingly have been prepared to give a mortgage instead of an unsecured guarantee. Secured and unsecured liabilities are not treated equally by the law or by the attitudes of financiers or borrowers or other members of the public.
16 In summary, I am of opinion that the challenged assessment of damages was correctly made, and the appeal should be dismissed with costs.