Purcell Partners v Settlement Group
[2012] VCC 1857
•18 October 2012
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted |
AT MELBOURNE
COMMERCIAL LIST DIVISION
EXPEDITED CASES DIVISION
Case No. CI-11-05606
| PERMANENT MORTGAGES PTY LTD (ACN 097 176 362) | Plaintiff |
| v | |
| PURCELL PARTNERS (A FIRM) -and- SETTLEMENT GROUP PTY LTD | Defendant Third Party |
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JUDGE: | LACAVA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8-9 October 2012 | |
DATE OF JUDGMENT: | 18 October 2012 | |
CASE MAY BE CITED AS: | PURCELL PARTNERS v. SETTLEMENT GROUP | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1857 | |
REASONS FOR JUDGMENT
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Catchwords: Third Party Proceeding-claim by legal practitioners against third party conveyancer for breach of retainer in failing to act on instructions-money paid at settlement under mutual mistake of fact-loss and damage.
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APPEARANCES: | Counsel | Solicitors |
| For the Defendant | Mr. A. Kirby | DLA Piper |
| For the Third Party | Mr. J. Ludlow | Downings |
HIS HONOUR:
1 This proceeding was commenced by writ issued by the plaintiff, a lender, against the defendant, a law firm. The defendant acted on behalf of the plaintiff in a re-financing transaction. The borrowers from the plaintiff were Mr and Mrs King. The defendant retained the third party, a conveyancer carrying on business in Perth Western Australia, to act as agent on its behalf in attending to settlement of the re-financing. Settlement took place in Perth on 18 June 2007 at about 3.00pm Perth time.
2 The plaintiff and the defendant have compromised the proceeding as between themselves. The matter proceeded before me on the issues in dispute in the third party proceedings only.
3 There is a factual background which is largely not in dispute and that needs to be set out in order that the legal issues between the defendant and the third party might properly be understood.
4 On 15 May 2007 La Trobe Home Loans of Australia Pty Ltd (La Trobe), as manager and representative of the plaintiff, made a loan offer of $1,201,000 to Mr & Mrs King. The loan offer was reissued on 23 May 2007. The purpose of the loan was to refinance existing debt secured on properties registered in the names of the borrowers. A condition precedent to the making of the loan provided for any pre-existing loans secured over properties taken as security to be repaid in full “by this advance”.[1]
[1]Tab 13
5 The loan was to be secured by first mortgages over the following properties in Western Australia:
A.A property described in Certificate of Title Volume 1543 Folio 330 known as 28/124 Terrace Road, Perth;
B.A property described in Certificate of Title Volume 1175 Folio 946 known as 52 Peninsula Road, Maylands;
C.A property described in Certificate of Title Volume 1883 Folio 519 known as 31 Fifth Road, Bejoording; and
D.A property described in Certificate of Title Volume 1556 Folio 042 known as 222/45 Adelaide Terrace, East Perth (“the Adelaide Terrace property”).
6.At the time of the loan offer, the existing mortgages and caveats registered over the security properties were as follows:
Certificate of Title Property address Registered mortgage/caveat Vol 1543 Folio 330 28/124 Terrace Road, Perth J577772 (mortgage to Keith Meyers and Shirley Meyers) J810157 (mortgage to John Investments Pty Ltd) J944302 (caveat by Concorde Innovations Pty Ltd) Vol 1175 Folio 946 52 Peninsula Road, Maylands J522054 (mortgage to Permanent Custodians Ltd) J896452 (caveat to Concorde Innovations) Vol 1883 Folio 519 31 Fifth Road, Bejoording J080758 (mortgage to Perpetual Trustees Australia Ltd) J872586 (caveat by Concorde Innovations) Vol 1556 Folio 42 222/45 Adelaide Terrace, East Perth J810294 (mortgage to John Investments Pty Ltd) J812893 (caveat to Chequecash Pty Ltd)
7.As the table above shows, at all relevant times, John Investments Pty Ltd held a registered second mortgage over the property at Terrace Road Perth and a registered first mortgage over the Adelaide Terrace property.
8.La Trobe instructed the defendant to act for it in relation to the mortgage transaction on or around 17 May 2007. Those instructions were confirmed by formal written instructions received afterwards but dated 15 May 2007. The instructions were reissued when the loan offer was reissued on 23 May 2007.[2]
[2]Tab 13
9.The defendant prepared the mortgage documents and wrote to the borrowers on 21 May 2007 enclosing a mortgage in duplicate for each property, as well as other documents including authorities to obtain payout figures, for their signature.[3]
[3]Tab 18
10.The borrowers signed authorities to obtain payout figures from each of the relevant mortgagees and caveators and returned those signed authorities (together with other documents) to the defendant.[4] Upon receiving those signed authorities, the defendant forwarded them to the relevant mortgagees and caveators (or their representatives) seeking payout figures. This occurred between around 31 May 2007 and 7 June 2007.
[4]Tab 19
11.The defendant booked in settlement with all parties on 18 June 2007 in Perth.[5]
[5]Tab 23
12.On or around 14 June 2007, the defendant instructed the third party to act as its settlement agent in Perth in relation to the settlement. By email dated 14 June 2007, the defendant asked the third party to book settlement on Monday 18 June 2007 at 3.00 pm at the third party's offices. The defendant advised the third party that there were four properties and six other parties.[6]
[6]Tab 22
13.The defendant sent a letter to the third party on 15 June 2007 enclosing settlement instructions. There were to be seven parties attending settlement. The third party was to represent the defendant as its agent. The other parties were the initial lenders being re-financed, namely, IRDI Securities, Bluestone, Private Mortgage Funding Management. The other party attending was another firm of solicitors Galic & Co representing another financier “to provide extra funding and hand over caveats to be registered AFTER LaTrobe Mortgage”.[7]
[7]Tab 24
14.Relevantly, the instructions in writing from the defendant to the third party were to collect all the certificates of title, discharges of mortgage and withdrawals of caveat listed in the instructions, including discharge of mortgage J810294 (registered over the Adelaide Terrace property).
15.Prior to settlement the defendant received faxes from the various registered mortgagees or their representatives advising of payout figures required to discharge the existing registered mortgages and for the removal of the various registered caveats. It did not receive any fax or other documentation that purported to relate the amount necessary to discharge the registered first mortgage and remove the caveat over the Adelaide Terrace property. The defendant did receive two faxes dated 14 June 2007 but faxed on 15 June 2007 at about the same time from Private Mortgage & Funding Management (PMFM) providing payout figures to discharge a first and second mortgage over a property at Terrace Road Perth as distinct from the Terrace Road property. The registered second mortgagee over the Terrace Road Property was John Investments Pty Ltd. The fax advised that company was owed $32,506.66.[8]
[8]The two page fax is in the bundle at Tab 26
16.It was anticipated by the borrowers and the plaintiff that the loan from the plaintiff would not be sufficient to cover all loans secured by the existing mortgages and caveats - i.e. that there would be a shortfall of funds. The borrowers had therefore secured a loan of $100,000 from Professional Payment Services Pty Ltd to cover the shortfall. The loan from Professional Payment Services was to be secured by a caveat registered over each of the security properties after the plaintiff’s mortgage.
17.After receiving the last payout figure on the morning of settlement, the defendant calculated the shortfall of funds and provided that figure to Galic & Co, a firm of Perth based solicitors that represented Professional Payment Services.
18.On the morning of settlement (18 June 2007), the plaintiff released the mortgage proceeds of $1,129,900 into the defendant's trust account. Also, the defendant sent a fax to its bank, the Commonwealth Bank of Australia (“the CBA”), authorising it to issue cheques drawn on its trust account and instructed the third party to collect those cheques for settlement.[9]
[9]Tab 27
19.Settlement took place on 18 June 2007 at 3.00 pm (WAST) at the third party's offices in Perth. At settlement, each of the representatives for the outgoing mortgagees and caveators handed over the relevant documents (signed discharges of mortgage and withdrawals of caveat) and in return the representatives for the incoming mortgagees handed over the requested cheques.
20.Immediately after settlement, one Tange Davey from the third party telephoned the defendant and confirmed that the matter had settled. This is a disputed fact. Catherine Martin a mortgage clerk employed by the defendant gave evidence in her witness statement that she was phoned by Davey who confirmed the matter had settled shortly after 5.00pm AEST.[10] She was not challenged on this evidence though Ms Micele who was called on behalf of the third party said that Davey had nothing to do with the settlement of the matter and would not have made the call. For reasons that I shall later explain I do not accept the evidence of Ms. Micele on any disputed evidence. I accept the evidence of Ms. Martin. I find she was phoned by Davey shortly after 5.00pm AEST and told that settlement had taken place.
[10]Martin witness statement paragraph 40
21.At settlement the third party handed over the cheques it had obtained from the CBA and received the relevant titles and discharges of mortgage (including a discharge of the mortgage registered over the Adelaide Terrace property). All of the representatives present to receive cheques said they were happy with the cheques they had received.[11] The settlement was therefore concluded.
[11]Michele witness statement paragraphs 31 to 34
22.After settlement all of the respective representatives left the third party’s offices save for an unnamed male person who attended on behalf of GV Lawyers, who PMFM. He stayed behind and told Ms. Michele that he had not been provided with enough money. He asked for the discharge of mortgage J810294 over the Adelaide Terrace property to be returned to him.
23.At this point there is another factual dispute. In her witness statement, Ms Michele (then known as Ms. Sandberg) gives evidence of what occurred with the representative from GV Lawyers who stayed behind after settlement. She gives this evidence in her witness statement:
“37. He also did some calculations on a calculator he had with him, and rang someone on his phone.
38. He then leaned over the desk and took back the discharge he had produced earlier of the mortgage over the Adelaide Terrace property as he said he did not have enough funds.
39.I then asked him why he had not said this earlier and his response was that this was his first settlement and was unsure of the procedure.”
24.I have added the emphasis. What Ms. Michele said in her witness statement may be contrasted with what she said in an email the day after settlement to Kylie Barbuto of the defendant. Ms Barbuto gave evidence she had asked Ms. Michele in a telephone conversation around 6.00pm on 18 June 2007 to put in writing everything that had occurred.[12] This request was confirmed in writing the following day in an email from Ms Barbuto to Ms Michele at 12.14pm AEST where she said “Could you please put together a brief explanation of settlement proceedings and your reason as to why the discharge was handed back.”[13] The request from Ms. Barbuto proceeds on the premise she had earlier been told by Ms. Michele that she had handed back the discharge of mortgage.
[12]File note of Ms Barbuto
[13]Attachment to the statement of Michele at Tab 10
25.Ms Michele responded by email at 2.53pm Perth time. What she said is important and differs markedly from her evidence in this court. She said:
“In this case the young man who was representing “G V Solicitors” didn’t advise he was short of cheques until all parties had left.(He was totally inexperienced and had no idea what was expected of him (I found this out after settlement) I instructed him to call his office who then advised me they had sent cheque directions through to Catherine.
I immediately called Catherine and explained there were no cheques for Title Volume 1556/Folio 42 and asked her to call the relevant parties and return the cheques as our instructions don’t give us the names of solicitors who are attending, only the financial institutions they are representing. Catherine then spoke to the solicitor concerned. I am not privy to what transpired from this conversation.
We were then instructed by GV solicitors to hand back the discharge of mortgage if there were no funds available, which we did and I advised Catherine of this.”
26.Again the emphasis is mine. It can be seen that in her evidence Ms. Michele said the representative from GV lawyers unilaterally took the discharge of mortgage from the desk. The day after the settlement her account was that she had handed it back pursuant to instructions from GV lawyers.
27.The version of what occurred with the representative from GV lawyers given by Ms. Michele in her email of 19 June to Ms Barbuto is consistent with the evidence of Ms. Martin and Ms Barbuto as to what they were told by Ms. Michele on 18 and 19 June 2007.
28.In her witness statement Ms Martin gives evidence of being phoned by Ms. Michele about 10 minutes after being told by Tange Davey that settlement had gone through. Ms. Martin says she was told by Ms Michele that the representative from GV Lawyers said he did not receive enough money. Ms. Martin said:
“I said to Connie that settlement had already gone through. I told her not to do anything and to get him to wait there while I tried calling the other parties to get them to go back so it could be sorted out.[14]
[14]Witness statement of Martin Tab 8 paragraph 45
29.After giving evidence in her witness statement of making various phone calls, Ms. Martin continued on as follows:
“While I was on hold to one of the mortgagees, I had another call from Connie Sandberg and I took that call. Connie said that the guy from GV lawyers had spoken to his office and they told him to get the discharge back and she had given it back to him. I said to her something along the lines of “why would you hand back the discharge if it has settled?” She said something along the lines of “because he asked for it back”.
30.Ms. Martin’s evidence in her witness statement accords with a diary note she prepared the following day.[15] In cross examination it was put to her that Ms. Michele would say the representative from GV lawyers simply took the discharge back from her. Ms Martin disagreed with that version of events saying “That isn’t how I recall what happened”.[16] It was not put to her that her evidence as to what was said in her conversation with Ms. Michele was wrong or that Ms. Michele would give a different version of the conversation. In evidence, Ms Michele did not give a different version of the conversation.
[15]Tab 31
[16]Transcript 76.
31.Ms Barbuto also gave evidence about her conversations with Ms. Michele in which Ms. Michele gave a version of events that differed from her evidence given in this court. Ms. Barbuto deals with the conversation at paragraph 10 of her witness statement.
“I rang Connie to find out what had happened and she told me that she had given back the discharge of mortgage to the guy from GV Lawyers because he was short of funds and had asked for it back….Conie said something along the lines of “because he told me he had to get it back”.[17]
[17]Tab 9 paragraph 10
32.The evidence of Ms. Barbuto is confirmed in her file note made on 19 June 2007.[18] In cross examination it was put to Ms. Barbuto that Ms. Michele would say the representative from GV lawyers simply took the discharge back from her. Ms Barbuto said that in her conversation with Ms. Michele immediately after settlement she was told by Ms. Michele that she had handed back the discharge of mortgage.[19] Again, it was not put to Ms. Barbuto that her evidence as to what was said in her conversation with Ms. Michele was wrong or that Ms. Michele would give a different version of the conversation. In evidence, Ms Michele did not give a different version of the conversation.
[18]Tab 31
[19]Transcript 78.
33.Ms Michele was cross examined about her evidence in her witness statement and how it differs from her explanation as to what occurred given in her email of 19 June 2007.[20] She conceded that she had now no clear recollection of what occurred with the person from GV Lawyers at he office soon after settlement only saying she that she now had no recollection of having handed back the discharge of mortgage.
[20]Transcript pages 142 to 143
34.I reject the evidence of Ms. Michele and prefer the evidence of both Ms. Martin and Ms. Barbuto as to what they were told by Ms. Michele as to what had occurred after settlement. Their evidence was clear and confirmed by contemporaneous file notes made soon afterwards. The evidence is also largely confirmed by the email from Ms. Michele herself to Ms. Barbuto of 19 June 2007. I do not suggest Ms. Michele was deliberately trying to mislead the court. My assessment of her as a witness was that she was vague in her recollection of events and the email prepared by her within twenty four hours of settlement is probably a much more accurate recording of what in fact took place on the previous day than her present memory of events now more than five years old.
35.Further, the third party has not called the representative from G V Lawyers who may have been expected to confirm Ms. Michele’s version of events were it accurate. No satisfactory explanation having been given in evidence as to why this evidence has not been called, I infer that had the representative from G V Lawyers been called as a witness by the third party he could not have assisted the third party’s case.
36.I find on the evidence that shortly after settlement had taken place and all other parties had left, the representative from GV Lawyers who attended settlement stayed behind. After checking his figures and adding up the total of the cheques he had received he told Ms. Michele he had not received sufficient funds. I find that Ms. Michele then phoned Ms. Martin of the defendant and told her what had happened. She was told by Ms. Martin to do nothing and to keep the representative from GV Lawyers at her office whilst she attempted to get the other parties back to the third party’s office. I find that the representative from G V Lawyers phoned his office and was instructed to ask for return of the discharge of mortgage to the Adelaide Terrace property and he asked Ms. Michele for return of this document. I find that without obtaining any instructions from the defendant to do so and, contrary to the instructions of Ms Martin to do nothing, Ms. Michele handed the discharge of mortgage to the Adelaide Terrace property back to the representative from G V Lawyers.
37.After she was phoned by Ms. Michele, Ms Martin made phone calls to ascertain what had gone wrong. Immediately after the telephone call between Catherine Martin and Ms Michele, Catherine Martin called PMFM to find out why the clerk from GV Lawyers representing PMFM had asked for one of the discharges of mortgage to be returned to him. PMFM advised that they had not been provided with enough funds to pay out the Adelaide Terrace property. PMFM indicated that the payout figures were, or should have been set out in three faxes. The defendant received two faxes from PMFM prior to settlement, not three faxes. The two faxes are the two separate pages found at Tab 26 of the Court Book.
38.Catherine Martin then called the other parties who had attended settlement to see if they could return to the third party's offices. Some of the parties had already banked the cheques, so it was not possible for each of the representatives who attended settlement to return to the third party's offices and hand back the documents and cheques provided to them.[21]
[21]Witness statement of Catherine Martin Tab 8 paragraphs 46 & 47
39.On 19 June 2007, the day after settlement, PMFM sent a fax to the defendant stating that the payout figure for mortgage no J810294 over the Adelaide Terrace property as at 19 June 2007 was $110,896, requiring a bank cheque for $110,000 made payable to John Investments Pty Ltd and a cheque for $896 made payable to Private Mortgage Funding & Management Trust Account.[22]
[22]Tab 34
40.On or around 19 June 2007, acting on the instructions of the defendant, the third party lodged the discharges of mortgage, withdrawals of caveat and mortgages in its possession at Landgate (the land titles office in Western Australia). Upon registration of those documents, the plaintiff had:
a. A first registered mortgage over the property at 28/124 Terrace Road, Perth;
b. A first registered mortgage over the property at 52 Peninsula Road, Maylands;
c. A first registered mortgage over the property at 31 Fifth Road, Bejoording;
d. A second registered mortgage over the Adelaide Terrace property instead of a first registered mortgage.
41.The defendant having advanced all of the funds that it had agreed to lend to the borrowers, was therefore left with a lesser security by what had occurred. Instead of holding a first registered mortgage over the Adelaide Terrace property it ranked second behind the first mortgagee for whom GV Lawyers acted.
42.On 27 October 2009 a Sequestration Order was made against the borrowers and a trustee in bankruptcy was appointed.[23]
[23]Tab 36
43.The plaintiff issued this proceeding against the defendant on 21 November 2011 claiming damages, interest and costs.
44.The plaintiff and the defendant reached a settlement on 25 May 2012 on the basis that the defendant would pay $200,000 inclusive of interest and costs to the plaintiff in full and final settlement of its claim.[24]
[24]Tab 37
45.The defendant claims as against the third party damages of $200,000 (exclusive of interest and costs) paid by it in compromise of the proceeding brought against it by the plaintiff. As to that part of the defendant’s claim in the third party proceeding the third party admits that the defendant settled the plaintiff’s claim on reasonable terms. The plaintiff also claims from the third party costs paid by it to its solicitors prior to the commencement of the proceeding and the third party proceeding amounting to $11,486.20.[25]
[25]Particularised in bundle of DLA Piper invoices tendered
46.The cause of action relied upon by the defendant against the third party is in contract. The defendant pleads a contract and the terms of it are pleaded at paragraphs 11 and 12 of the Amended Third Party Statement of Claim. Relevantly, in my opinion the important terms are those pleaded by the defendant in paragraph 12 sub paragraphs (g) to (i) as follows:
“g. was to effect the settlement of the loan, attend to registration of the plaintiff as the first registered mortgagee and act for the defendant strictly in accordance with the settlement instructions provided by the defendant to the third party, and not otherwise;
h. in carrying out the terms of the retainer, would act with all reasonable skill, care and diligence in acting for the defendant;
i. in carrying out the terms of the retainer, would act with all reasonable skill, care and diligence so as to protect the interests of the plaintiff, including but not limited to doing and completing all things necessary so that the plaintiff became the first registered mortgagee over the land in certificates of title volume 1543 folio 330, volume 1175 folio 946, volume 1883 folio 519 and volume 1556 folio 42.”
47.The defendant submits that in handing back the discharge of mortgage the third party breached its retainer. The defendant submits that the duty of the third party as its agent was a simple one; it was to carry out the settlement instructions conveyed to it by the defendant. The defendant submits that as a part of its retainer the third party, was instructed to attend settlement, collect discharges of mortgages and titles, hand over the relevant cheques and promptly register the discharges of mortgages and new mortgages. The defendant points to the decision in Cusmano v Pinner (1998) 157 ALR 61 at 79-80 relating to the function of settlement agents in W-A.
48.The defence pleaded in answer to the pleaded terms of the retainer is confusing. The third party does not admit the term pleaded in sub paragraph 12(g) and pleads other facts. As I read the defence as it relates to the terms pleaded in paragraphs 12(h) and 12(i) it amounts to a qualified admission of the terms pleaded. In my opinion the terms as pleaded by the plaintiff in those sub-paragraphs, if not expressly provided for or agreed, are implied. The defendant being a firm of solicitors in Melbourne, retained the defendant a firm of conveyancers in Western Australia, to act as its agent to look after or protect the interests of the plaintiff at settlement which was to take place in Perth. In my opinion the terms pleaded by the defendant in sub paragraphs 12(g),(h) and (i) would, in those circumstances be implied.[26]
[26]B P Refinery (Westernport) Pty Ltd v. Shire of Hastings (1977) 52 ALJR 20 at 26. See also Cheshire & Fifoot’s Law of Contract, 8th edition at [1.71]
49.The defendant’s case against the third party was also pleaded in contribution based upon section 23B of the Wrongs Act 1958.[27] That claim was not pursued in argument which focused on the defendant’s claim against the third party based on breach of contract and the damages that flowed from that breach. Whilst the defendant’s claim against the third party is therefore relatively simple the same cannot be said of the third party’s defence which, in my view was made unnecessarily elaborate and convoluted as to both fact and law. It is necessary that I summarise it. I do so with the assistance of a helpful written outline provided to the court by Mr. Ludlow.
[27]Statement of Claim on Third Party Notice paragraph 17
50.Mr Ludlow’s argument in my view ignores the fact that when his client gave back the discharge of mortgage to the Adelaide Terrace property contrary to specific instructions from Ms. Martin not to do so, it received nothing back in return. Had the defendant been able to take back all of the plaintiff’s money and return all of the securities to the various parties that produced them at settlement, then the settlement would have been completely reversed and no party would have been prejudiced. However, by returning the discharge of mortgage only and, not retrieving the money it had earlier handed over on the defendant’s instruction but on behalf of the plaintiff, the third party through Ms. Michele left the plaintiff vulnerable and with a lesser security as a result of which it later suffered loss and damage.
51.In its defence at paragraph 7 the third party refers to the conditions of the loan offer made by the plaintiff to the borrowers, the Kings. Those conditions provided for the existing lenders ‘to be repaid in full from this advance”.[28] Those conditions are not in dispute. The third party argues that as the solicitors for the plaintiff, the defendant had an “obligation” to ensure that the borrowers complied with that condition. The third party argues that as the solicitor for the plaintiff the defendant was “required” to obtain confirmation from PMFM prior to settlement that the PMFM mortgage over the Adelaide Terrace property would be discharged at settlement and what the payout figure was in order to receive the discharge of mortgage.
[28]Tab 13 page 3
52.Mr Ludlow submits that in receiving and in relying only upon the two faxes from PMFM dated 15 June 2007[29] the defendant did not discharge its obligations as solicitors for the plaintiff. He points to the fax subsequently forwarded after settlement as further proof in that regard.[30]
[29]Tab 26
[30]Tab 34
53.The fax numbered “P2”[31] whilst referring to the “Terrace Road” property did not in specific terms refer to the Adelaide Terrace property. It did however, give a payout figure of $32,506.66 to “John Investments P/L” which company was at all relevant times the registered first mortgagee of the Adelaide Terrace property. It is common ground that the fax from PMFM at Tab 34 was not sent until the day after settlement.
[31]Tab 26
54.In those circumstances it seems clear that what happened at settlement was that the defendant through its agents attended settlement ignorant of the fact that further money was needed to fully discharge the borrowings by the Kings from John Investments Pty Ltd. On the other hand the representative from PMFM, from G V Lawyers attended ignorant of the fact that the information now found in the fax at Tab 34 had not in fact been advised before settlement. It was in the context of this mistake that the settlement proceeded.
55.In paragraphs 11 and 12 of its amended defence the third party pleads that there was a condition precedent to the third party carrying out its contractual duties for the defendant. The condition precedent is said to be that the defendant had to provide the third party prior to settlement with sufficient funds to enable all of the existing loans to be paid out in full. Mr Ludlow relies upon Perri v. Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543-547 and 569-570.
56.I do not accept that submission. In my opinion it ignores the fact that the third party was retained to act as agent for the defendant in Perth and to stand in for it and protect the position of the plaintiff at the settlement even if insufficient funds had been provided, as was the case. I do not accept Mr. Ludlow’s submission that the mistake having been made and, the plaintiff via the defendant having provided to the third party insufficient funds to pay out the existing borrowings, that the third party had the right to avoid or terminate its retainer by the defendant without notice.
57.In my opinion, once advised that the settlement had proceeded on a mistaken basis, the third party was obliged by the terms of the retainer to protect the position of the plaintiff until the mistake could be rectified or, the party’s given the opportunity to assert their respective legal positions in a court consequent upon the settlement having proceeded with some or, all of the parties, having made a mistake. The third party as agent for the defendant was told by the defendant (Ms. Martin) to do nothing whilst she attempted to make contact with the other parties who’s representatives had left the settlement. That instruction having been given Ms. Michele was duty bound as the agent of the defendant to await further instructions. She had no basis for unilaterally proceeding to hand back the discharge of mortgage to the Adelaide Terrace property.
I accept the defendant’s submission that once completed a settlement is final unless all the parties agree to return to their former positions, Hawkins v Gaden (1925) 37 CLR 183. The plaintiff also relied upon Pascon Pty Ltd v San Marco in Lamis Cooperative Social Club Ltd [1991] 2 VR 227. In that case the purchaser was not released from liability to the vendor, despite the fact that settlement had been completed. The defendant submits the position in Pascon is analogous to this proceeding. The defendant submits that had the discharge not been handed back and had been registered by the third party as per the defendant’s instructions to it then the borrowers would have remained liable to the outgoing mortgagee despite the fact that settlement had completed. The defendant submits that immediately after settlement outgoing mortgagee would have had the right to sue for the unpaid money and could have registered a mortgage that ranked behind the plaintiff on the title to the Adelaide Terrace property. I accept that submission.
59.Mr. Ludlow submitted that the third party terminated the defendant’s retainer by handing back the discharge of mortgage to the Adelaide Terrace property to the representative from JV Lawyers. In his written submissions he described this action as “an election by the third party to avoid or terminate the defendant’s retainer.” I do not accept that submission. There is no evidence from Ms. Michele who is the director of the third party that she ever elected to terminate the retainer or that she did so in that way. Further, her actions subsequent to handing back the discharge of mortgage, in complying with the instructions from Ms. Barbuto to go ahead and register the security documents the following day, strongly suggest to me that Ms. Michele at least still regarded the retainer as being on foot. I reject Mr Ludlow’s submission that in handing back the discharge of mortgage Ms. Michele terminated the third party’s retainer by the defendant.
60.Mr Ludlow’s alternative submission, pleaded at paragraph 12 of the amended defence is an elaborate argument that concludes that in the circumstances the “the plaintiff, the defendant and the third party had no authority from the borrowers to refuse to give the PMFM discharge of mortgage back to PMFM’s representative when he demanded it back.[32] I reject this submission. In my view, the third party’s retainer was limited to acting as agent for the defendant at the settlement to protect the plaintiff’s interest. For the reasons I have set out above, the third party should not have handed back the discharge of mortgage absent instructions from the defendant.
[32]Paragraphs 19 to 28 of Mr. Ludlow’s written outline of submissions
61.Mr Ludlow further submits that based on the law of Restitution, settlement having occurred under a mistake of fact all of the funds paid out by the third party on behalf of the plaintiff were prima facie repayable upon demand and, in the light of the mistake by the representative from GV Lawyers, the discharge to the Adelaide Terrace property was prima facie returnable upon demand. The defence is pleaded at paragraphs 13 and 14 of the third party’s defence. It is elaborated upon by Mr Ludlow’s submissions at paragraphs 29 to 48.
62.Mr. Ludlow relies upon the principle in David Securities Pty Ltd v. Commonwealth Bank of Australia (1992) 175 CLR 353. I do not understand David Securities to be authority for any proposition that would justify in law the action taken by the third party in handing back part only of the security received without having first received back the money paid by the third party as agent for the defendant at settlement. As I understood Mr Ludlow’s submissions he concedes that at law the whole of the settlement should have been wound back. I accept the evidence of Ms Martin that was not possible on the 18th June 2007 because some of the parties that had attended had already banked the cheques they had received. I reject the submission that under the principles of David Securities the third party was justified in handing back the discharge of mortgage to the Adelaide Terrace property.
63.Apart from anything else, the third party in my view was only an agent acting for the defendant for the limited purpose of protecting the interests of the plaintiff at settlement. As the defendant’s agent the third party had no authority to hand back the discharge of mortgage. That was especially so in circumstances where it had been specifically told by Ms. Martin to do nothing until she got back to Ms. Michele.
64.A mistake having been made by a number of the parties at settlement, those parties undoubtedly had rights at law. Those rights probably did extend to a right to return of documents upon the return of money. However, any steps needed to undo the settlement in the circumstances of this case, in my opinion, had to be taken by the parties directly involved in the transaction themselves or, their respective authorised representatives. The third party was not authorised to act on behalf of the plaintiff to proceed in the way that it did. In my view, in so acting the third party breached its retainer by the defendant.
65.The defendant raises a number of other arguments in response to the arguments advanced by the third party. I deal with them briefly.
66.The defendant submits it is entitled in the factual circumstances here to rely on an estoppel by representation, also known as an estoppel in pais (Thompson v Palmer (1933) 49 CLR 507 at 547 per Dixon J; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674-6). It argues that the outgoing mortgagee tendered the discharge of the mortgage to the Adelaide Terrace property and, the plaintiff in funding the transaction, handed over various cheques, in reliance on the outgoing mortgagee tendering the discharge of mortgage. The defendant relies on Barry v Heider (1914) 19 CLR 197 especially the judgment of the Chief Justice at page 208 and the judgment of Justice Isaacs at pages 216-218. The defendant also refers to the text, Land Law, P. Butt, 4th ed., 2001, at [1939].
67.The defendant also submits that the plaintiff, having no knowledge of the mistake by the outgoing mortgagee until after settlement and, absent fraud, was entitled to seek to become registered as first mortgagee over the Adelaide Terrace property. The third party’s actions deprived it of that right. The defendant submits that post settlement the outgoing mortgagee had no rights that could prejudice the plaintiff becoming registered as first mortgagee. I accept that submission.
68.The defendant must therefore succeed on its claim against the third party for damages. The defendant claims the sum of $200,000.00 being the amount of the compromise with the plaintiff in the principal proceeding and pre-issue costs of $11,486.20. Those costs were incurred before the issue of the proceeding in investigating and analysing the facts and relevant claims and the pre-issue costs of dealing with the plaintiff.
69.There is no dispute between the parties as to the compromise amount of $200,000.00. There is dispute as to the pre-issue costs of $11,486.20.
70.The parties filed brief submissions in writing as to their respective positions. I am of the view that the pre-issue costs are properly recoverable as damages incurred as a direct result of the breach of the retainer by the third party. The defendant relies upon a number of cases set out in paragraphs 6 and 7 of its further submissions as statement of principles upon which it bases its claim. I accept those submissions.
71.For these reasons, the defendant succeeds on its claim against the third party.
72.The orders will be as follows:
1. There be judgment for the defendant on the third party claim.
2. The third party pay to the defendant the sum of $211,486.20 together with damages by way of interest.
73.I will hear the parties on the question costs and the calculation of interest.
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