Settlement Group Pty Ltd v Purcell Partners
[2013] VSCA 370
•17 December 2013
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2012 0209
| SETTLEMENT GROUP PTY LTD (ACN 117 803 684) |
| Appellant |
| v |
| PURCELL PARTNERS (A FIRM) (ABN 71 502 905 832) |
| Respondent |
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JUDGES: | MAXWELL P, REDLICH JA and DIXON AJA |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 25 July 2013 |
DATE OF JUDGMENT: | 17 December 2013 |
MEDIUM NEUTRAL CITATION: | [2013] VSCA 370 |
JUDGMENT APPEALED FROM: | Permanent Mortgages Pty Ltd (ACN 097 176 362) v Purcell Partners (A Firm)and Settlement Group Pty Ltd (ACN 117 803 684) [2012] VCC 1857 (Judge Lacava) |
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MORTGAGES – Real property – Refinancing – Multiple mortgages to be refinanced –Concurrent transactions – Outgoing mortgagee provided discharge of mortgage and signified satisfaction with settlement – Settlement concluded – Outgoing mortgagee discovered settlement cheque insufficient to repay loan – Discharge of mortgage returned to outgoing mortgagee – Incoming lender suffered loss – Whether incoming lender entitled to retain discharge of mortgage – Whether lender’s solicitors negligent in miscalculating payout figure – Whether settlement agent breached contract by returning discharge of mortgage – Whether outgoing mortgagee estopped as against incoming lender from demanding return of discharge – No estoppel – Solicitors’ negligence sole cause of lender’s loss – Appeal allowed.
ESTOPPEL – Contract – Mortgages – Real property – Refinancing – Multiple mortgages to be refinanced – Concurrent transactions – Outgoing mortgagee provided discharge of mortgage and signified satisfaction with settlement – Settlement concluded – Outgoing mortgagee discovered settlement cheque insufficient to repay loan – Discharge of mortgage returned to outgoing mortgagee – Incoming lender suffered loss – Whether incoming lender entitled to retain discharge of mortgage – Whether outgoing mortgagee estopped as against incoming lender from demanding return of discharge – No estoppel.
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APPEARANCES: | Counsel | Solicitors |
For the Appellant | Mr G G McArthur SC with Mr J R Ludlow | Madgwicks |
For the Respondent | Mr A R Kirby | DLA Piper |
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MAXWELL P:
This appeal concerns the settlement of certain mortgage finance transactions. Borrowings secured by separate mortgages over different properties were to be refinanced, on the same securities. As will appear, one of the refinancing transactions was not completed at the settlement, as a result of which the incoming lender suffered loss. The question for determination at trial, and on the appeal, was how legal responsibility for that loss was to be allocated.
It is necessary, first, to identify the key participants. The incoming lender, Permanent Mortgages Pty Ltd, had agreed with the borrowers, Mr and Mrs King, that it would refinance their existing debt. The loan would be secured by first mortgages over each of four properties. This proceeding concerns only one of the four properties, an apartment in Adelaide Terrace, East Perth (the ‘Adelaide Terrace property’). The outgoing mortgagee of the Adelaide Terrace property was John Investments Pty Ltd.
The incoming lender retained the respondent firm of solicitors, Purcell Partners, in relation to the refinancing transactions. The solicitors in turn engaged the appellant, Settlement Group Pty Ltd, to act as its settlement agent in relation to the settlement. For ease of reference, I shall identify the participants by their respective roles, as follows:
·Mr and Mrs King: ‘the borrowers’;
·Permanent Mortgages Pty Ltd: ‘the incoming lender’;
·John Investments Pty Ltd: ‘the AT mortgagee’ (‘AT’ being a reference to the Adelaide Terrace property);
·Purcell Partners: ‘the solicitors’; and
·Settlement Group: ‘the settlement agent ’.
The sequence of events
The solicitors sought and obtained from the borrowers signed authorities to obtain payout figures from each of the outgoing mortgagees of the four properties. The solicitors then sought payout figures from the mortgagees. Settlement was arranged with all parties for 18 June 2007.
The solicitors asked the settlement agent to make arrangements for the settlement to occur on 18 June, and provided written settlement instructions. In the days leading up to settlement, the solicitors received written confirmation of payout figures from outgoing mortgagees. A figure was received by the solicitors in respect of a second mortgage held by John Investments Pty Ltd over the property at Terrace Road, Perth. But no figure was received in respect of the mortgage over the Adelaide Terrace property.
On the morning of settlement, the incoming lender released the mortgage proceeds of approximately $1.13 million into the solicitors’ trust account. In turn, the solicitors authorised their bank to issue cheques drawn on their trust account in favour of the outgoing mortgagees.
The settlement was attended by representatives of each of the outgoing mortgagees. The AT mortgagee was represented by a clerk from a different law firm, GV Lawyers. The settlement agent handed payout cheques to the representatives of the mortgagees, each of whom provided in exchange a signed discharge of mortgage. The trial judge found that all of the representatives present to receive cheques said that they were happy with the cheques they had received. The settlement agent then announced that the settlement was concluded. Soon afterwards, the agent told the solicitors that settlement had taken place.[1]
[1]Permanent Mortgages Pty Ltd (ACN 097 176 362) v Purcell Partners (A Firm)and Settlement Group Pty Ltd (ACN 117 803 684) [2012] VCC 1857 (Judge Lacava) [20] (‘Reasons’).
After all of the other representatives had left, the clerk from GV Lawyers (acting on behalf of the AT mortgagee) told the agent’s representative that — as was the fact — he had not been provided with sufficient funds to discharge his client’s mortgages. The clerk therefore asked the agent’s representative to give him back the discharge of mortgage over the Adelaide Terrace property (the ‘DM’).
The settlement agent’s representative (Ms Michele) consulted the solicitors and was told that the settlement was complete and that she should not do anything. The solicitors then contacted the other parties who had attended settlement, some of whom said that they had already banked the cheques and that it was not possible for settlement to be undone. While those calls were taking place, however, Ms Michele handed the DM back to the representative of the AT mortgagee. The judge found that Ms Michele had no instructions from the solicitors to do so, and that she had acted contrary to the express instruction that she should do nothing.[2]
[2]Ibid [36].
In the result, the incoming lender obtained only a second registered mortgage over the Adelaide Terrace property. When the borrowers subsequently defaulted, and the security properties were sold, the incoming lender recovered only $2,000 from the proceeds of sale of that property. Had the incoming lender had a first registered mortgage, it would have received approximately $166,000 from the proceeds of sale.
The proceedings
The incoming lender subsequently sued the solicitors in negligence. That proceeding was settled on the basis that the solicitors would pay the incoming lender $200,000 inclusive of interest and costs, in full settlement of its claim. For the purpose of the present proceeding, the settlement agent admitted that this had been a reasonable settlement.
The solicitors instituted a third party proceeding against the settlement agent, claiming that the loss which they had suffered (in having to compensate the incoming lender) was wholly caused by the negligence of the settlement agent, in disobeying its instructions and returning the DM to the representative of the AT mortgagee. The trial judge upheld the third party claim, holding that the settlement agent was liable to pay the solicitors the full amount of the settlement sum, together with costs.
The settlement agent has appealed from that judgment. According to the appeal submission, the judge should have found that:
(a)the solicitors breached their contract with the incoming lender by failing to obtain the necessary payout figures for the Adelaide Terrace property and by instructing the settlement agent to proceed to settlement when it had not obtained those figures;
(b)the settlement agent did not breach its contract with the solicitors by returning the DM to the representative of the AT mortgagee;
(c)the solicitors’ breach of their contract with the incoming lender was the sole cause of the incoming lender’s loss; and
(d)accordingly, the solicitors’ claim against the settlement agent should have been dismissed.
For reasons which follow, I would uphold each of those submissions. The appeal should be allowed, the judgment below set aside and, in place of the orders made by the trial judge, there should be an order dismissing the solicitors’ third party claim against the settlement agent.
The negligence of the solicitors
I have had the advantage of reading in draft the reasons for judgment of Dixon AJA. As his Honour points out, the trial judge made no finding about whether the solicitors had breached their contract with the incoming lender, by failing to make the necessary arrangements to enable all of the outgoing mortgagees to be paid out at settlement. I respectfully agree with Dixon AJA, for the reasons which his Honour gives, that the trial judge ought to have found that the solicitors were negligent, and in breach of their contract, and that this breach was causative of the loss suffered by the incoming lender.
I have, however, reached a different conclusion from Dixon AJA on the question whether, separately from the negligence of the solicitors, there was negligence on the part of the settlement agent which was also causative of the incoming lender’s loss. As will appear, I disagree with his Honour on the question whether the AT mortgagee was entitled to a return of the DM at the time when its representative asked the settlement agent to return it. For reasons which follow, I have concluded that the AT mortgagee was entitled, in the events which happened, to the return of the DM. It follows that the solicitors could not have lawfully instructed the settlement agent to withhold it.
The contractual relationships
Dixon AJA has concluded that, once the settlement had concluded and the other participants had left, the AT mortgagee was estopped — as against the incoming lender — from demanding the return of the DM. In his Honour’s view, the AT mortgagee had, by the conduct of its agent at the settlement, induced the incoming lender to adopt the assumption that the borrowers were entitled to possession of the DM and that the AT mortgagee could not, and would not, contend otherwise.
In short, at the time when the incoming lender advanced the loan funds to the borrowers — and, on the borrowers’ authorisation, to the outgoing mortgagees — the incoming lender assumed that the borrowers were providing clear title to all four properties. But for its reliance on that assumption, his Honour concludes, the incoming lender would not have advanced funds to enable any of the outgoing mortgagees to be repaid, and the settlement would have had to be aborted. Funds having been advanced, it was unconscionable for the AT mortgagee to obtain the return of the DM.[3]
[3]See Dixon AJA [137] below.
With great respect, I consider that the question is to be resolved by application of ordinary principles of contract, including those of principal and agent. There is, in my view, no room for the application of the principles of equitable estoppel.
At a refinancing settlement of the kind presently under consideration, two separate contracts are to be performed — the loan agreement between the borrower and the outgoing lender and the loan agreement between the borrower and the new lender. In the present case, of course, there were multiple outgoing lenders and hence multiple contracts of the first kind.
The borrowers had a loan agreement with each of the outgoing mortgagees. It was a term of each of those contracts that, upon the borrowers paying the outstanding balance under the mortgage, the outgoing mortgagee would hand over to the borrower a discharge of the existing mortgage. As Dixon AJA has pointed out, the obligation to repay the outstanding balance and the obligation to hand over the discharge of mortgage can be characterised as ‘concurrent and mutually dependent obligations’. They are ‘simultaneous acts to be performed interchangeably’.[4] Each party’s obligation is conditional on performance by the other.[5]
[4]See Dixon AJA [116] below.
[5]Foran v Wight (1989) 168 CLR 385, 417.
The other contract to be performed at the settlement was the loan agreement between the borrowers and the incoming lender. The incoming lender had promised to advance the new loan to the borrowers, and the borrowers had promised to give the incoming lender clean title over all four security properties, to enable the incoming lender to take first-ranking security over each of the properties.
The borrowers were the only party common to all of the contracts. They had a contract with each of the outgoing mortgagees, and a contract with the incoming lender. Importantly for present purposes, however, the incoming lender had no contractual or other commercial relationship with any of the outgoing mortgagees.
The position of the borrowers — as party to both the original loan agreements and the new loan agreement — meant that the settlement agent would have to play a dual role at the settlement. It would act on behalf of the borrowers in the discharge of their obligations to the outgoing mortgagees, and on behalf of the incoming lender in the discharge of its obligations to the borrowers.
Because all of the obligations had to be performed at the settlement, the agreement between the borrowers and the incoming lender included an authority from the borrowers to the incoming lender to do the following things on their behalf:
·pay each outgoing mortgagee the unpaid balance of its existing loan; and
·receive in exchange from each outgoing mortgagee the relevant discharge of mortgage.
The incoming lender engaged the solicitors, who in turn engaged the settlement agent, to perform these tasks. In its capacity as agent for the borrowers, the settlement agent would discharge the borrowers’ obligations to the respective outgoing mortgagees and in exchange receive the discharges of mortgage. Then, in its capacity as agent for the incoming lender, the settlement agent would retain the discharges of mortgage to enable registration of new mortgages as security for the new loan to the borrowers.
As this analysis shows, the transactions which were to take place at the settlement in relation to each of the four mortgaged properties, including the Adelaide Terrace property, were quite separate from each other. That is, as between the borrowers and the outgoing mortgagee of a particular property, the performance of their (concurrent and mutually dependent) contractual obligations did not depend in any way on the performance of the like obligations as between the borrowers and any other outgoing mortgagee. They were discrete, independent sets of transactions, in performance of discrete, independent contracts.
The incoming lender, of course, had a direct interest in the four sets of transactions being satisfactorily completed at settlement. Its written instructions to the solicitors specified, as a condition which ‘must be satisfied prior to settlement’, that the existing loans on all of the properties ‘be repaid in full by this advance’. The obligation of the solicitors was to make sure that the amounts payable to all outgoing mortgagees were correctly calculated and that cheques for the payment amounts were ready to be handed over at the settlement.
In my view, the legal consequence of what occurred between the settlement agent and the representative of the AT mortgagee falls to be determined in accordance with the terms of the contract between the borrowers and the AT mortgagee. As I have said, it was under that contract that the relevant obligations fell to be performed. The borrowers were not entitled to receive the DM from the AT mortgagee unless they were able simultaneously to discharge their contractual obligation to pay the full amount outstanding under the mortgage contract.
As has already been explained, the borrowers were unable to perform that obligation because of the negligence of the solicitors. The solicitors had not ascertained the payout figure due to the AT mortgagee under the relevant mortgage and, as a result, had not provided the settlement agent with sufficient funds to enable it to make that payment to the AT mortgagee on behalf of the borrowers.
On ordinary contractual principles, the AT mortgagee was entitled to retain the DM unless and until it was paid out in full. At the time the cheques and the DM were exchanged, both the settlement agent and the representative of the AT mortgagee were acting under the mistaken belief (induced by the conduct of the solicitors) that the cheques did constitute repayment in full. Having checked his calculations and made enquiries of his employer, however, the representative of the AT mortgagee realised that this was not correct. The borrowers had not performed their part of the bargain. Accordingly, the AT mortgagee was not obliged to perform its part of the bargain. It was therefore entitled to receive back, and retain, the DM which had mistakenly been handed over.
The right of the AT mortgagee to retain the DM was, it must be emphasised, a right as against the borrowers. The borrowers alone had the contractual right to demand the DM from the AT mortgagee, and then only if they were simultaneously repaying the loan in full. The AT mortgagee’s right to retain the DM subsisted at all times, there having been no performance by the borrowers of their ‘concurrent and mutually dependent’ promise to repay.
The position might have been different had the AT mortgagee conducted itself in such a way as to disentitle itself to retain the DM, notwithstanding the failure of the borrowers to pay out the existing loan. In such circumstances, considerations of waiver or estoppel might have come into play. For example, the AT mortgagee might have expressly waived its right to retain the DM despite non-payment. On ordinary principles, a waiver would only be held to have occurred if there had been an ‘intentional act with knowledge’.[6] Again, circumstances can be imagined in which an estoppel might have arisen as between the AT mortgagee and the borrowers — because of some prior conduct by the AT mortgagee which would have made it unconscionable, in circumstances such as occurred at this settlement, for it to have insisted on its contractual right to retain the DM.
[6]Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305, 326; Commonwealth v Verwayen (1990) 170 CLR 394, 406, 423, 473–4.
Nothing of that kind occurred in the present case. There was no waiver, nor any conduct which might have conveyed to the borrowers that the AT mortgagee would not enforce its right to retain the DM pending repayment in full. In short, nothing done by the AT mortgagee at, or in relation to, this settlement affected the enforceability of its contractual right — as against the borrowers — to retain the DM until the loan was paid out in full.
On this view, the settlement agent had no right (acting, as it had been authorised to do, on behalf of the borrowers) to refuse the request by the representative of the AT mortgagee to return the DM. The borrowers had not discharged their obligation to the AT mortgagee. They therefore had no right to receive the DM and — hence — the settlement agent had no authority to retain possession of it. Accordingly, although the representative of the settlement agent was found to have disobeyed the instruction of the solicitors not to do anything, her conduct was in accordance with the true legal position under the contract between the borrowers and the AT mortgagee.
In Dixon AJA’s view, however, the conduct of the representative of the AT mortgagee created an estoppel — not as against the borrowers but as against the incoming lender. As noted earlier, his Honour has concluded that the AT mortgagee was estopped, as against the incoming lender, from asserting that it had a legal right to the return of the DM once it discovered that there had not been repayment in full.[7]
[7]See Dixon AJA [107] below.
The estoppel is said to be founded on the conduct of the representative of the AT mortgagee in handing over the DM and in confirming to all present (whether expressly or by acquiescence) that the relevant transactions were complete. As noted earlier, it was following that confirmation that all of the other parties to the settlement left. On his Honour’s analysis, the AT mortgagee had thus ‘completed the settlement’ and had created an assumption or expectation in the incoming lender that it (the AT mortgagee) was no longer entitled to mortgage security over the Adelaide Terrace property, because it had been paid out.
His Honour points out that the representative of the AT mortgagee could see that the incoming lender (through the settlement agent) was simultaneously settling other refinancing transactions, by making payments (on behalf of the borrowers) to other mortgagees. It is this feature — the concurrency of the respective transactions — which, on his Honour’s view, means that an analysis based simply on the separate contracts to which the borrowers were parties does not do justice to the position of the incoming lender. Rather, his Honour says, it is the settlement as a whole which becomes ‘unconditional’, once the outgoing mortgagees have signified their assent.[8]
[8]See Dixon AJA [121] below.
With great respect, I am unable to agree. As I have said, the AT mortgagee attended the settlement for one purpose only, namely, to receive the payout amounts to which it was entitled. As regards the Adelaide Terrace property, the AT mortgagee was present to receive the amount payable under that mortgage and, in return, to provide the DM to the borrowers. Neither the character of the AT mortgagee’s participation in the settlement conference, nor the enforceability of its rights against the borrowers, could have been affected by the fact that other outgoing mortgagees were in attendance for the purpose of carrying out, concurrently, like transactions with the borrowers.
It follows, in my view, that when the representative of the AT mortgagee handed over the DM and signified that he was content that the contract was performed, that statement could only have had legal significance in the context of the contractual relationship to which the AT mortgagee was a party, that is, its loan agreement with the borrowers. The AT mortgagee was not dealing with any other party.
Of course, the AT mortgagee was well aware that other parties were present and that the settlement would not conclude until each of the attending mortgagees signified its satisfaction with the payout amount it had received. But there was, as I have pointed out, no relationship of any kind between any of the outgoing mortgagees and the incoming lender. Each party was present to protect its own interests and — at least in the case of the incoming lender and the AT mortgagee — was legally represented for that purpose.
When — for reasons of commercial convenience — multiple, separate transactions are to be completed simultaneously in this way, there must always be a risk that a mistake of this kind will be made. But this will ordinarily be a very low risk, given that it is presumably a very simple task for solicitors acting on behalf of an incoming lender to ascertain with precision the amount(s) required to pay out the outgoing mortgagee(s). Should the solicitors neglect to perform that task with due care, they will be held accountable for any resultant loss. In the present case, as noted earlier, the incoming lender was fully indemnified by the solicitors against the loss which the lender suffered as a result of their negligence.
Equitable estoppel
The form of equitable estoppel recognised in Waltons Stores(Interstate) Ltd v Maher[9] could not, in my view, arise in these circumstances. As appears from the passage from the judgment of Brennan J extracted by Dixon AJA, the first element necessary to create such an estoppel is conduct by party A which leads party B to assume that ‘a particular legal relationship’ exists, or will exist, between party A and party B.[10] A further necessary element is that party B acts, or abstains from acting, in reliance on the assumption about the existence of that relationship.[11]
[9](1988) 164 CLR 387 (‘Waltons Stores’).
[10]See DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 285 ALR 311, 323 [49] (‘DHJPM’).
[11]See Dixon AJA [124] below.
In this case, nothing said or done by the representative of the AT mortgagee could possibly have created an assumption in the incoming lender that a particular legal relationship existed, or would exist, between them. There was not, and would never be, any legal relationship between them. Unlike the parties in Waltons Stores, the AT mortgagee and the incoming lender had had no prior dealings, and there was no contemplation of future dealings.
As I have said, the relevant conduct of the AT mortgagee at the settlement was referable to, and only to, the existing legal relationship between itself and the borrowers. No transaction of any kind took place between the AT mortgagee and the incoming lender. Rather, each of them was engaged in its own separate transactions with the borrowers. And each of them embarked on its transactions with the borrowers in the mistaken belief that the cheques to be handed over to the AT mortgagee would be sufficient to pay out the loan on the Adelaide Terrace property.
That mistaken belief was induced by the incoming lender’s own agents, the solicitors, whose decision it was that all the necessary arrangements had been made and that the settlement could proceed. Even if there were a contract between the incoming lender and the AT mortgagee, the incoming lender could not rely on a mistake induced by its own agent.[12] Quite properly, it is the solicitors on whom liability for the resultant loss has been fixed.
[12]Cf McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, 410.
Unsurprisingly, in my view, Australian courts have been reluctant to uphold claims of equitable estoppel in commercial settings like the present, where parties with commensurate bargaining power are engaged in arm’s length dealings regulated by express contractual provisions. In Austotel Pty Ltd v Franklins Selfserve Pty Ltd,[13] decided by the New South Wales Court of Appeal shortly after Waltons Stores,[14] the Court rejected a claim of equitable estoppel brought by a supermarket proprietor against a property developer. Kirby P said:
We are not dealing here with ordinary individuals invoking the protection of equity from the unconscionable operation of a rigid rule of the common law. Nor are we dealing with parties which were unequal in bargaining power. Nor were the parties lacking in advice either of a legal character or of technical expertise. The Court has before it two groupings of substantial commercial enterprises, well resourced and advised, dealing in a commercial transaction having a great value.
…
At least in circumstances such as the present, courts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people … If courts do not show caution here they will effectively force on commercial parties terms which the court may think to be reasonable … but which the parties have themselves held back from concluding … [T]he contract then enforced will not be that which the parties have concurred in but a different one, determined by the court …
…
The wellsprings of the conduct of commercial people are self-evidently important for the efficient operation of the economy. Their actions typically depend on self-interest and profit-making not conscience or fairness. In particular circumstances protection from unconscionable conduct will be entirely appropriate. But courts should, in my view, be wary lest they distort the relationships of substantial, well-advised corporations in commercial transactions by subjecting them to the overly tender consciences of judges.[15]
[13](1989) 16 NSWLR 582 (‘Austotel’).
[14](1988) 164 CLR 387.
[15]Austotel (1989) 16 NSWLR 582, 585–6 (citations omitted).
More recently, in Seven Network (Operations) Ltd v Warburton (No 2),[16] Pembroke J of the New South Wales Supreme Court expressed similar views:
As is well understood, the application of the doctrine of estoppel is circumscribed by established legal principles. For sound reasons, caution must be exercised before finding that an estoppel has been established. For if found, the effect of an estoppel will be to suspend or abrogate the valuable legal rights of a party. The quality of the evidence, the commercial reality, the inherent probabilities and the detriment to the party who seeks to set up the estoppel, must indicate that there is a good reason why the other party should be prevented from having full benefit of the bargain to which it originally agreed … In particular, an estoppel may well be difficult to establish in a formal legal relationship between arms length commercial parties, where their rights and obligations are carefully and extensively set out and formally documented … It is self-evident that, except for good reason, commercial parties do not usually conduct themselves in such a way as to forfeit their entitlement to exercise valuable legal rights.[17]
[16][2011] NSWSC 386.
[17]Ibid [46] (citations omitted; emphasis added). See also GE Healthcare Australia Pty Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 414, [13] and DHJPM (2011) 285 ALR 311, 328 [65].
These considerations apply with even greater force here, where the putative claim of equitable estoppel — asserting that the AT mortgagee had forfeited its right to retain the DM — would have had to be made by the incoming lender, which had no legal or commercial relationship of any kind with the AT mortgagee.
Conclusion
It follows, in my view, that when the settlement agent handed back the DM to the AT mortgagee, it was acting in accordance with its instructions. That is, it was
representing the borrowers, as it had been instructed and authorised to do, in their dealings with the AT mortgagee. For the reasons I have given, the handing back of the DM was precisely what was required by the contract pursuant to which the settlement agent (on behalf of the borrowers) was dealing with the AT mortgagee. Its retention would have been a breach of that contract by the borrowers.
Accordingly, in my view, the settlement agent was not in breach of its contract with the solicitors. The inability of the incoming lender to obtain a first registered mortgage security over the Adelaide Terrace property was caused solely by the negligence of the solicitors. Accordingly, there was no basis for the solicitors to recover from the settlement agent any part of the settlement sum paid to the incoming lender.
If, contrary to my view, it were to be concluded that the settlement agent was in breach of its contract with the solicitors when it handed back the DM, and that the breach was a cause of the solicitors’ loss, it would be necessary to decide the proportion of that loss for which the settlement agent should be responsible. In my opinion, the appropriate proportion would be 25 per cent. It seems to me that the solicitors’ own negligence was, by a substantial margin, the principal cause of the loss which they suffered.
REDLICH JA:
The facts are conveniently set out in the judgment of Dixon AJA. The solicitors succeeded at trial on the basis that the appellant, as settlement agent, had breached the terms of its retainer in handing back the discharge of mortgage to the outgoing mortgagee.
As the borrowers had failed to pay the outgoing mortgagee the outstanding balance of the mortgage, it had failed to comply with an obligation that was to be concurrently discharged with the outgoing mortgagee’s provision of a discharge of mortgage. The two obligations were mutually dependant and concurrent
obligations.[18] It was not suggested at trial or on appeal that the outgoing mortgagee had varied or waived the borrowers’ obligation to pay the outstanding balance in exchange for a discharge of the mortgage. Each of their obligations was conditional on performance by the other.[19]
[18] Foran v Wight (1989) 168 CLR 385, 417 (Brennan J).
[19]Ibid.
I agree with Maxwell P that the outgoing mortgagee was entitled to withhold the discharge of mortgage, as the borrowers had failed to comply with their obligation. The settlement agent was right to return the discharge of mortgage. It was not in breach of the terms of its retainer in doing so.
The outgoing mortgagee handed over the discharge of mortgage under a mistake of fact — namely, that it had been paid the outstanding balance under the mortgage. At the same time, the incoming lender assumed that their solicitors had, as required, arranged for payment to be proffered by the settlement agent which would discharge the balance outstanding on the mortgage. Because of the negligence of its solicitors, it was mistaken in that assumption. Its expectation was that it would become entitled to free title to the property only upon full payment of the outstanding balance of the mortgage. Its expectation was unfulfilled because of the negligence of its solicitors. The trial judge was not asked to consider whether, in light of these factual mistakes, it would be unjust if the incoming lender could not retain the discharge of mortgage.[20]
[20]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 385.
On appeal the incoming lender’s ‘right’ was said to be founded upon estoppel. For these and the reasons given by Maxwell P this contention cannot be sustained. No relationship existed between the outgoing and incoming mortgagee, nor was it expected that a particular relationship would exist between them that could support an estoppel. Furthermore, the expectation of the incoming mortgagee was that it would become entitled to free title only when the balance of the outstanding mortgage had been paid. The outgoing mortgagee was under no
obligation to the incoming lender to allow the borrowers or the Settlement agent to retain possession of the discharge when the concurrent condition for discharge of the mortgage had not been satisfied.
I agree with Maxwell P that the appeal must be allowed. The return of the discharge of mortgage to the outgoing mortgagee was not causative of any loss suffered by the incoming lender.
If, contrary to my view, an estoppel does arise, the question of apportionment of responsibility between solicitors and settlement agent must be considered. I agree with Dixon AJA for the reasons that he gives that the solicitors were negligent in the discharge of their duty to the incoming lender. The solicitors’ conduct was a primary reason for the incoming lender’s loss, such that they should bear the majority of responsibility for it. I would apportion responsibility as Maxwell P proposes.
DIXON AJA:
Introduction and issues.
A lender (Permanent Mortgages), having agreed to advance funds on registered first mortgage securities over four properties, suffered loss when the properties were sold following default by the borrowers (King). One of the securities was postponed to second ranking status. That loss of priority caused a shortfall of $166,216.10 for Permanent Mortgages in the recovery of the debt due from King. Permanent Mortgages was unable to register its mortgage on a clear title because the settlement agent (the appellant), retained by its solicitors (the respondent), returned the instrument of discharge to the outgoing mortgagee after Permanent Mortgages had advanced the refinancing loan. After completion of the refinancing agreements, the outgoing mortgagee (John Investments) asked the appellant to return the discharge when it realised that the funds provided to it were insufficient to pay out its loan to King and the appellant returned it. The primary judge found that in doing
so the appellant was in breach of its retainer by the respondent and that the breach caused Permanent Mortgages to lose priority for its mortgage.
Before completion, the respondent sought pay out figures from outgoing mortgagees and arranged the settlement cheques that included a cheque for John Investments in an insufficient sum. The respondent provided settlement instructions for all of the borrower’s refinancing agreements to the appellant, which the appellant followed, at least until settlement was completed. The primary judge made no finding of breach of duty by the respondent.
Permanent Mortgages’ claim, which included interest and costs, was settled for $200,000 all in by the respondent and, at trial, the respondent successfully claimed from the appellant damages for breach of retainer, represented by the settlement sum and pre-issue costs of $11,486.20. The appellant now contends that the primary judge was in error and that the proceeding against it ought to have been dismissed.
Grouped conveniently, the grounds in the notice of appeal raised three sets of issues to be determined.
(a) Was the respondent negligent? Was the respondent’s negligence a cause of Permanent Mortgages’ loss?
(b) Was the appellant’s breach of retainer, as found by the primary judge, a cause of Permanent Mortgages’ loss? Was the return of the discharge by the appellant neither a breach of retainer nor causative of Permanent Mortgages’ loss because Permanent Mortgages had, as against John Investments an inferior right to possession of the discharge?
(c) Should the damages claimed by the respondent from the appellant be reduced if the answer to (a) is yes?
To understand the context in which these issues are to be resolved, I will first set out the facts. The facts were not completely undisputed before the primary judge but, on appeal, the appellant does not challenge any factual findings made at trial, but does contend for further findings that ought to have been made on the evidence. It is convenient to draw the following narrative substantially from the judgment below.
What happened
On 15 May 2007, La Trobe Home Loans of Australia Pty Ltd, as manager and representative of Permanent Mortgages, 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 being taken as security to be repaid in full ‘by this advance’. The loan was to be secured by first mortgages over the following properties in Western Australia situated at:
(a)28/124 Terrace Road, Perth;
(b)52 Peninsula Road, Maylands;
(c)31 Fifth Road, Bejoording; and
(d)222/45 Adelaide Terrace, East Perth.
In May 2007, when La Trobe instructed the respondent to act for it in relation to the refinance transactions, the existing mortgages and caveats registered over the security properties were as follows:
Certificate of Title Property address Registered mortgage/caveat and outgoing lender 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)
Relevantly, John Investments Pty Ltd held a registered second mortgage over the property at Terrace Road and a registered first mortgage over the Adelaide Terrace property.
The borrowers provided the respondent with authorities for Permanent Mortgages to obtain payout figures from each of the relevant mortgagees and caveators and the respondent then sought that information from the outgoing lenders. On 14 June 2007, the respondent retained the appellant to act as its settlement agent in Perth. Settlement was booked in for Monday 18 June 2007 at 3.00 pm at the appellant’s offices.
The respondent sent settlement instructions to the appellant on 15 June 2007. There were to be seven parties attending settlement. The appellant was to represent the respondent as its agent on behalf of Permanent Mortgages. Five other parties were the representatives of outgoing lenders being re-financed, namely, IRDI Securities, Bluestone, Private Mortgage Funding Management, Concorde, and Financial Express. The other party attending was Galic & Co, solicitors, representing another financier that was providing additional funding, caveats to be registered after Permanent Mortgages’ mortgages on all four titles, and filing fees. The respondent instructed the appellant to collect all the certificates of title, discharges of mortgage and withdrawals of caveat listed in its instructions. That list included:
(a)discharges of mortgages J577772 and J810157 (in respect of the Terrace Road property over which John Investments held a second mortgage); and
(b)a discharge of mortgage J812094 (in respect of the Adelaide Terrace property over which John Investments held a first mortgage).
The appellant was not then instructed about the cheques to be handed over in exchange for these instruments. The respondent was ascertaining the pay out figures and the payment directions from the outgoing lenders and the quantum of the required funds, and would inform the appellant of these matters prior to settlement.
The borrowers and Permanent Mortgages anticipated that its loan would be insufficient to pay out all loans secured by the existing mortgages and caveats. The shortfall of funds would be met from a loan of $100,000 from Professional Payment Services Pty Ltd, to be secured by a caveat registered over each of the security properties after Permanent Mortgages’ mortgage.
On the morning of settlement, Permanent Mortgages released the loan proceeds of $1,129,900 into the respondent’s trust account and the respondent authorised its bank to issue cheques drawn on its trust account to be collected by the appellant for settlement. Sixteen separate cheques were required, which exhausted Permanent Mortgages’ agreed advance. After receiving the last payout figure on the morning of settlement, the respondent calculated the funding shortfall at $59,933.93 and provided that figure to Galic & Co, representing Professional Payment Services.
Settlement took place, as scheduled, at 3.00 pm on 18 June 2007. Each of IRDI Securities, Bluestone, Godfrey Virtue & Co for Private Mortgage Funding Management, Concorde, Financial Express and Galic & Co was represented and handed over the relevant documents and, in exchange, the appellant and Galic & Co handed over the requested cheques. In particular, Private Mortgage Funding Management, representing John Investments and another outgoing lender, Meyers received five cheques, including one cheque made out to John Investments for $32,506.66. After an opportunity for each attending party to check that documents or cheques were as required, all of the representatives present to receive cheques said they were happy with the cheques they had received. The primary judge found that settlement was therefore concluded. Appropriately, this critical finding was not challenged. It is, in my view, correct, well supported by the evidence.
It is necessary to leave the primary judge’s findings and return to the evidence about how the pay out figures, payment directions and required funds were ascertained by the respondent. The appellant contends, and I agree, that the evidence compels the conclusion that the respondent was negligent and in breach of its retainer in performing this task and that such breach was a cause of the inability of Permanent Mortgages to obtain a registered first mortgage over the Adelaide Terrace property.
In response to the request for pay out figures and settlement directions, Private Mortgage Funding Management, on behalf of the mortgagees of the Terrace Road and Adelaide Terrace properties, faxed on 15 June 2007 two letters to the respondent. Read together, and they were cross-referenced one to the other, Private Mortgage Funding Management informed the respondent that the information was provided in relation to the Terrace Road property, the first fax dealing with the first mortgage, J577772, held by Meyers, and the second fax dealing with the second mortgage, J810157, held by John Investments. Neither fax refers to the Adelaide Terrace property or the mortgage J812893 held by John Investments. The faxes stated the pay out figure on 18 June 2007 and provided payment directions, namely two cheques in favour of Private Mortgage Funding Management’s trust account, two cheques in favour of Meyer interests, and one cheque for John Investments.
Later, after settlement, a third fax from Private Mortgage Funding Management to the respondent emerged, dated 19 June 2007, which provided the pay out figure and settlement directions in relation to the Adelaide Terrace property. This fax, too, was specific, identifying that it related to the King facility and mortgage J810294 and informing the respondent that the pay out figure was $110,896 to be provided in two cheques, one in favour of Private Mortgage Funding Management’s trust account and the other in favour of John Investments. This fax was in somewhat different terms to the earlier faxes in that it assumed that settlement of this mortgage discharge was to be arranged. The reasons for that fax will shortly become clear.
The evidence at trial was that, with an authority from King, the respondent requested the pay out figure and settlement directions for the Adelaide Terrace property mortgage from Private Mortgage Funding Management. There was no evidence that Private Mortgage Funding Management had provided that information any earlier than the day after the settlement. The primary judge found that the respondent did not receive any fax or other documentation that disclosed the amount necessary to discharge the registered first mortgage over the Adelaide Terrace property. At settlement, there was, at least, a misunderstanding between John Investments, King and Permanent Mortgages about the amount required to obtain clear title to the Adelaide Terrace and Terrace Road properties. The true position was that John Investments was entitled to $110,896 to release Adelaide Terrace and $34,635.50 to release Terrace Road, and that part of this money was to be paid to Private Mortgage Funding Management’s trust account and the bulk of it to John Investments. The respondent’s mistaken belief, on its consideration of the responses it received from Private Mortgage Funding Management, was that John Investments required $34,635.50 to discharge both mortgages. On the respondent’s advice, the cheque tendered at settlement, by Permanent Mortgages for King, was in that lesser sum.
By its retainer, Permanent Mortgages instructed the respondent to:
(a)conduct all usual mortgage property inquiries;
(b)provide a Solicitor’s Certificate as to title when requesting funds for settlement; and
(c)ensure that all special conditions to which settlement of the loan was subject were satisfied. Relevantly, those special conditions included that ‘Existing Bluestone mortgages, Concorde Lending and Private Mortgage Funding Management (x2) loan to be repaid in full by this advance’.
Two comments about these conditions are pertinent. The Solicitor’s Certificate was not in evidence. The respondent’s witness, Ms Martin, stated that she prepared the Solicitor’s Certificate as to title, which was signed by a principal of the respondent, and forwarded to Permanent Mortgages. Although the special condition required that existing encumbrances be discharged by the advance, the true position, understood by all, was that existing encumbrances would be discharged by the advance as supplemented by the loan advance to King by Professional Payment Services, as I have noted.
In the context of the respondent’s retainer by Permanent Mortgages, the evidence of a want of care by the respondent is compelling. I have described the content of the faxes that came from Private Mortgage Funding Management on behalf of John Investments. A prudent solicitor knowing, as the respondent did, that John Investments held two securities over different properties that required discharge at settlement and retained on the terms set out above, would be put on inquiry by the absence of information about the Adelaide Terrace property and mortgage J812094 in those two faxes. An objective review of the faxes shows that no information was provided in respect of the Adelaide Terrace property and that the information that was provided is clearly in respect of only the Terrace Road property. The obligation of the solicitor for an incoming mortgagee is to ensure that, at settlement, the incoming mortgagee obtains clear title to the security properties in order to register its mortgage as a first ranking security. This requires that it provides the cheques, in the sums and to the payees, that the outgoing mortgagee directs. The solicitor cannot certify title to the incoming mortgagee, required for the release of the funds, without being satisfied that the funds required by the outgoing mortgagees will be available to exchange for the relevant title documents.
The primary judge had in evidence before him opinions expressed by Mr Francis James Lynch, apparently an expert in conveyancing practices and procedures,[21] to this effect. Mr Lynch also opined that a fundamental obligation of the representative of the outgoing mortgagee is to ensure that it obtains at settlement the funds required to pay out the loan secured by the mortgage, which it does by advising the incoming mortgagee prior to settlement of the amount required.
[21]I say apparently because there was little evidence of his qualifications and experience before the court below, although the was no challenge to the admissibility of his opinions.
Mr Lynch’s opinions identify legal obligations in order to explain the conveyancing practices and procedures by which these obligations are discharged. His opinion as to such practices and procedures is relevant where he correctly identifies the legal obligations, which are ultimately a matter for the court. Mr Lynch’s statement of the duties of a representative of an outgoing mortgagee is incomplete, for that representative discharges its duty not merely by advising the incoming mortgagee prior to settlement of the pay out amount required, but by ensuring that, at settlement, the outgoing mortgagee receives, or becomes irrevocably entitled to receive, that sum in exchange for the instrument of discharge of its mortgage and other documents. This latter aspect of the duty owed to the outgoing mortgagee is critical and the antecedent obligation to inform the incoming mortgagee of the pay out required is merely a part of it.
Of the duties of a representative (referring to the respondent[22]) of an incoming mortgagee, Mr Lynch’s evidence was confusing. Mr Lynch stated:
In this transaction, [the respondent] asked for the amount required by John Investments Pty Ltd to settle the transaction and were provided with a figure. There was no obligation on the incoming mortgagee to inquire into the calculation of the payout figure of the outgoing mortgagees. That is a matter between the existing mortgagee and the mortgagor … It is noteworthy that John Investments Pty Ltd had separate mortgages (J810157 and J810294) on two separate titles. It is usual in such circumstances for one cheque to be handed over to Permanent Mortgages at settlement to discharge both mortgages as they are usually in the one facility. So, there would be no surprise for [the respondent] to be asked to provide one cheque only for the one mortgagee even though there are two mortgages over two titles.
A careful review of the documents provided to Mr Lynch, particularly the faxes received by the respondent from Private Mortgage Funding Management, should have precluded, or qualified, the expression of that gratuitous concluding remark.
[22]On whose behalf Mr Lynch was retained.
Mr Lynch summarised his opinion in these terms:
It is my opinion that Purcell Partners did not have a duty to ensure that they had a payout figure from PMFM in respect of the Adelaide Terrace property in circumstances where, on a proper examination of the letter, it was clear that the payout figures provided by PMFM related to a different property. Prior to the scheduled settlement, Purcell Partners sought payout figures from the relevant parties. The response from John Investments Pty Ltd in regard to the request for payout figures is contained in the faxed instruction dated 14 June 2007 from Private Mortgage Funding and Management, apparently received at 11.29 am on 15 June 2007 in anticipation of settlement. It is my opinion that Purcell Partners acted with reasonable skill, care and competence.
Leaving to one side the question of the admissibility of this opinion evidence,[23] Mr Lynch’s summary conclusion is, in the present circumstances, incorrect. The respondent did have the duty to ensure it had that pay out figure. Acting prudently, the respondent ought to have ascertained, before certifying title to Permanent Mortgages and instructing its agent to attend settlement, that it had a payout figure in respect of every mortgage that required discharge. It was incumbent upon it to do so to satisfy the obligations that it owed to Permanent Mortgages by its retainer. That is not to say that the respondent was obliged to inquire into the calculation of a payout figure that is provided. But that was not this case. Here, the respondent ought to have appreciated that it had simply not received a necessary payout figure. A prudent solicitor would have been on notice of the want of that information when he or she read the two faxes. The respondent was unable to certify to Permanent Mortgages that the settlement could be completed with Permanent Mortgages obtaining clear title to the security properties or that sufficient funds would be provided by Permanent Mortgages and Professional Payment Services to repay in full all loans secured against the four properties. That certification would trigger the release of the agreed advance for completion of the refinancing transactions.
[23]It was received by the primary judge without any objection, notwithstanding its content. See generally Dasreef Pty Ltd v Hawchar [2011] HCA 21, (2011) 243 CLR 588.
On the appeal, the respondent submitted that, as Mr Lynch suggested, John Investments’ two mortgages likely secured one facility and it was unsurprising that John Investments only asked the respondent to provide one cheque. There are two responses to this submission. First, careful examination of the relevant correspondence, which Mr Lynch ought to have undertaken before expressing that opinion, does not support the contention. The cheque requested for John Investments was not described as being the pay out required to discharge a facility secured by two separate mortgages. To the contrary, the information provided clearly relates to only one of those mortgages.
Second, there was no evidence of a belief that the respondent was asked by Private Mortgage Funding Management to provide only one cheque in favour of John Investments for that reason. In her evidence in chief, when explaining the details of payout figures that she received, Ms Martin describes the cheque in favour of John Investments for $32,506.66, being the cheque that was ultimately tendered (and accepted) at settlement, as the payout figure for mortgage J810157 (Terrace Road). The notion of a single cheque for a facility secured by two mortgages was not raised by her.
In cross-examination, Ms Martin gave the following evidence:
Can you look at the one with P1 first?---Yes.
That’s a fax from PMFM. It’s dated 14 June and sent on 15 June and it refers specifically to the Terrace Road property. Is that right?---Yes.
It refers to First Mortgage J577 772?---Yes.
It gives some payout figures?---Yes.
You’d agree, wouldn’t you, that doesn’t say anything at all about any mortgage over a property in Adelaide Terrace?---No.
If you have a look at the next page, the one with P2 on it. You’d agree that document similarly refers to a mortgage over Terrace Road and gives some figures about that but doesn’t say anything about Adelaide Terrace?---Yes.
Now, you were aware that one of the mortgages that was held by a PMFM financier was over the Adelaide Terrace property?---Yes.
You would agree that these two faxes, even when read together, don’t say anything at all about the Adelaide Terrace property?---Yes.
Doesn’t that mean that you really should have telephoned or otherwise contacted PMFM after receiving these faxes and asked them about the other mortgage?---The mortgagees. There were two mortgagees noted. They were the two mortgagees that we had to arrange for the discharges.
But these faxes relate only to the Terrace Road property, don’t they?---That’s what the faxes say.
They don’t say anything about Adelaide Terrace?---No.
So should you have contacted them and said, ‘What about the Adelaide Terrace property’?---Perhaps.
Because you needed to know a number of things about the Adelaide Terrace property, didn’t you? You needed to know the payout figure for that property and you also needed confirmation that they were going to provide a discharge?---Yes.
You also would have wanted to know whether they were going to pay $82 rego fee that was referred to in these faxes?---Yes.
You’d want to know how much commission PMFM would want equivalent to the fee mentioned on those two faxes?---Well, if they were getting some payment, yes.
It’s reasonable to assume they’d be getting some payment, isn’t it?---Yes.
So wouldn’t you agree that you received an answer that was clearly incomplete and you didn’t follow it up?---No.
Well, it doesn’t say anything about Adelaide Terrace, does it?---It doesn’t say anything about Adelaide Terrace. However, the two mortgagees that I was to try and arrange for the discharges, they were noted there on the payouts. Yes, it doesn’t say anything about the Adelaide Terrace.
But the document headed P2 gives a payout figure for John Investments, but that’s clearly a payout figure for the mortgage over Terrace Road.
…
The payout figure mentioned in that document is a payout figure for the mortgage over Terrace Road, isn’t it?---That’s what it says, yes.
So there’s just no answer in relation to Adelaide Terrace, is there?---No.
And you didn’t follow it up?---No.
That’s even though you needed that information not only for La Trobe Permanent Mortgages but also for Galic & Co, isn’t it?---Yes.
You also needed the information so that you could certify that they would be getting a first registered mortgage, otherwise you wouldn’t know whether they were going to bring along a discharge?---The information I had at the time was the two faxes.
I have set out what occurred up to the completion of the settlement and I now return to complete the narrative drawing on the primary judge’s findings. After settlement, all bar one of the attendees left the appellant’s offices. Immediately after the completion of the settlement, the appellant’s Ms Davey informed the respondent’s Ms Martin that the matter had settled. An unnamed male person, who attended on behalf of Godfrey Virtue & Co (also referred to as GV Lawyers) for John Investments on instructions from Private Mortgage Funding Management, stayed behind. After apparently checking his figures and adding up the total of the cheques he had received, this person then told the appellant’s Ms Michele that he had not received enough money. He asked for discharge of mortgage J810294 over the Adelaide Terrace property to be returned to him. About 10 minutes after Ms Davey had called her, Ms Martin received another call, and Ms Michele informed Ms Martin what was happening. Ms Martin told Ms Michele to do nothing and to keep the representative from GV Lawyers at her office whilst Ms Martin attempted to get the other parties back to the appellant’s office.
Ms Martin established by calling Private Mortgage Funding Management that King had not provided enough funds to pay out the Adelaide Terrace property. Ms Martin was told the payout figures were, or should have been, set out in three faxes.[24] Ms Martin then established that some of the attending parties had already banked the cheques, so it was not possible for each of the representatives who attended settlement to return to the appellant's offices and hand back the cheques provided to them and receive back their documents.
[24]As I have noted, the primary judge found that the respondent received two faxes from Private Mortgage Funding Management prior to settlement, not three faxes. The third fax was not sent until the day after settlement.
While Ms Martin was attempting to reconvene the settlement, the representative from Godfrey Virtue & Co phoned his office and was instructed to ask for the return of the discharge of mortgage to the Adelaide Terrace property. He again asked Ms Michele for its return. Without obtaining any instructions from the respondent to do so, and contrary to the instructions of Ms Martin to do nothing, Ms Michele handed the Adelaide Terrace discharge of mortgage back to the representative from Godfrey Virtue & Co. Ms Michele could not give a convincing explanation of why she did so.
The settlement was never reconvened and John Investments retained its discharge of the Adelaide Terrace mortgage. On 19 June 2007, acting on the respondent’s instructions, the appellant 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 Terrace Road;
(b)A first registered mortgage over Peninsula Road, Maylands;
(c)A first registered mortgage over Fifth Road, Bejoording; and
(d)A second registered mortgage over Adelaide Terrace, instead of a first registered mortgage. Its mortgage ranked second behind the mortgage to John Investments.
Later, the borrower defaulted and, on 27 October 2009, a sequestration order was made against the borrowers and a trustee in bankruptcy was appointed. There was a shortfall to Permanent Mortgages on the realisation of the securities of $166,216.10. Permanent Mortgages issued the proceeding against the respondent claiming damages, interest and costs, and, on 25 May 2012, compromised with the respondent on the basis that the respondent would pay $200,000, inclusive of interest and costs, to Permanent Mortgages in full and final settlement of its claim.
Procedural issues
Although the respondent by its third party notice sought statutory contribution pursuant to s 23B of the Wrongs Act 1958 (Vic), the respondent did not seek statutory contribution at trial. At trial, and in this court, both parties accepted that Permanent Mortgages and the respondent had compromised the whole of Permanent Mortgages’ claim, not merely the respondent’s exposure to a just proportionate share of Permanent Mortgages’ damages. The appellant accepted that this settlement of Permanent Mortgages’ claim against the respondent was reasonable. The respondent’s claim was put in contract, that the appellant breached its retainer to effect the settlement of the refinancing agreements, attend to registration of Permanent Mortgages as the first registered mortgagee on each security property and act for the respondent strictly in accordance with the settlement instructions that it gave and not otherwise.
The appellant alleged in paragraph 10 of its defence that the respondent owed an obligation to Permanent Mortgages to follow up on its request for the Adelaide Terrace pay out figure. It alleged that the respondent failed to obtain John Investment’s pay out requirement to discharge that mortgage and provide clear title to Permanent Mortgages. The appellant alleged that the respondent’s failure to do so caused Permanent Mortgages’ loss (the contributing fault defence).
The appellant contended at trial, as the primary judge’s reasons record, that in receiving and relying only upon the two faxes dated 15 June 2007 from Private Mortgage Funding Management, the respondent did not discharge its obligations as solicitors for Permanent Mortgages. I do not think that the primary judge cavilled with this submission, accepting that it was clear that the respondent through its agents attended settlement ignorant of the fact that further money was needed to fully discharge the borrowings by King from John Investments while, on the other hand, the representative of John Investments attended settlement ignorant of the fact that the pay out figure and payment directions for mortgage J810294 had not in fact been advised to the respondent before settlement. In concluding that the settlement proceeded in the context of ‘this mistake’, the primary judge erred in failing to give proper effect to the finding that necessarily flows from the mistake. As I have already stated, the ‘mistake’ is, on the one hand, a breach by the respondent of its retainer by Permanent Mortgages, and, possibly, it being unnecessary to decide the point, a breach by John Investment’s representatives of their duty to it.
Was there negligence of the respondent that was a cause of Permanent Mortgages’ loss?
This is the issue raised by ground 1 of the appeal that, in my view, must succeed. It raises two separate issues, breach and causation. I have set out the findings compelled by the evidence before the primary judge; that the respondent breached its retainer by Permanent Mortgages and was negligent in:
(a)failing to obtain the pay out figure for the Adelaide Terrace mortgage,
(b)certifying to Permanent Mortgages that it would obtain clear title to Adelaide Terrace when the funds available at settlement were insufficient to entitle King to a discharge of that mortgage,
(c)instructing the appellant to proceed to settle the several refinancing agreements when the funds available at settlement were insufficient.
The primary judge fell into error in failing to make these findings.
Not making a finding of breach by the respondent, the primary judge made no causation finding in respect of that breach. For the same reason, the primary judge made no finding in respect of the appellant’s contributing fault defence. This court is able to make appropriate findings. Before doing so, it is necessary to say something of the proper approach to finding causation.
Part X of the Wrongs Act applies to any claim for damages resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise.[25]
[25]Section 44 of the Act. No provision in s 45 of the Act excludes its present application.
Division 3 of Part X of the Wrongs Act reads:
Division 3—Causation
51 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 appropriate case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be taken to establish 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 (the injured person) would have done if the negligent person had not been negligent, the matter is to be determined subjectively in the light of all relevant circumstances.
(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.
52 Burden of proof
In determining liability for negligence, the plaintiff always bears the burden of proving, on the balance of probabilities, any fact relevant to the issue of causation.
Although neither the primary judge, nor counsel in submissions addressed causation in terms of the statutory test, the parties conceded in argument that the court is required to do so. In Adeels Palace Pty Ltd v Moubarak,[26] on appeal from the Supreme Court of New South Wales, French CJ, Gummow, Hayne, Heydon and Crennan JJ, stated:[27]
The first point to make about the question of causation is that, in these cases, it is governed by the Civil Liability Act.[28]
Section 5D(1) of that Act divides the determination of whether negligence caused particular harm into two elements: factual causation and scope of liability.
Dividing the issue of causation in this way expresses the relevant questions in a way that may differ from what was said by Mason CJ, in March v Stramare (E&MH) Pty Ltd, to be the common law’s approach to causation. The references in March v Stramare to causation being ‘ultimately a matter of common sense’ were evidently intended to disapprove the proposition ‘that value judgment has, or should have, no part to play in resolving causation as an issue of fact’. By contrast, s 5D(1) treats factual causation and scope of liability as separate and distinct issues.
It is not necessary to examine whether or to what extent the approach to causation described in March v Stramare might lead to a conclusion about factual causation different from the conclusion that should be reached by applying s 5D(1). It is sufficient to observe that, in cases where the Civil Liability Act or equivalent statutes are engaged, it is the applicable statutory provision that must be applied.
Next it is necessary to observe that the first of the two elements identified in s 5D(1) (factual causation) is determined by the ‘but for’ test: but for the negligent act or omission, would the harm have occurred?
[26](2009) 239 CLR 420.
[27]Ibid 440 [41]–[45] (citations omitted).
[28]Section 5D of which is in the same terms as s 51 of the Wrongs Act1958 (Vic).
The High Court returned to the requirements of the statutory test for causation in Strong v Woolworths Limited & Anor.[29]There is, at least in the circumstances of this case, no relevant distinction between s 5D of the Civil Liability Act 2002 (NSW) and s 51 of the Wrongs Act1958 (Vic).[30] Transposed to the context of the Victorian statute, Strong[31] is authority for the following seven propositions about the operation of the statutory causation test.
[29][2012] HCA 5, (2012) 246 CLR 182.
[30]Compare Gunnersen v Henwood [2011] VSC 440 (7 September 2011), [385], [390].
[31][2012] HCA 5, [17]–[30].
(a)Division 3 of Part X of the Wrongs Act applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise.
(b)‘Negligence’, for the purpose of Part X, means failure to exercise reasonable care.[32]
[32]The definition is in slightly different terms to the definition of negligence in s 5 of the Civil Liability Act 2002 (NSW).
(c)Section 52 provides that, in determining liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation.
(d)The determination of factual causation under s 51(1)(a) is a statutory statement of the ‘but for’ test of causation: the plaintiff would not have suffered the particular harm but for the defendant's negligence.
I pause to note that in Strong[33] the plurality commented:
While the value of that test as a negative criterion of causation has long been recognised, two kinds of limitations have been identified. First, it produces anomalous results in particular cases, exemplified by those in which there is more than one sufficient condition of the plaintiff's harm. Secondly, it does not address the policy considerations that are bound up in the attribution of legal responsibility for harm. The division of the causal determination under the statute into the distinct elements of factual causation and scope of liability is in line with the … Ipp Report. The policy considerations that inform the judgment of whether legal responsibility should attach to the defendant's conduct are the subject of the discrete ‘scope of liability’ inquiry … If the [plaintiff] can prove factual causation, it is not in contention that it is appropriate that the scope of [the defendant's] liability extend to the harm that she suffered. In particular cases, the requirement to address scope of liability as a separate element may be thought to promote clearer articulation of the policy considerations that bear on the determination.
(e)Under the statute, factual causation requires proof that the defendant's negligence was a necessary condition of the occurrence of the particular harm. A necessary condition is a condition that must be present for the occurrence of the harm.
(f)There may be more than one set of conditions necessary for the occurrence of particular harm and it follows that a defendant's negligent act or omission which is necessary to complete a set of conditions that are jointly sufficient to account for the occurrence of the harm will meet the test of factual causation within s 51(1)(a). In such a case, the defendant's conduct may be described as contributing to the occurrence of the harm. It is not necessary that the defendant's negligence be the sole necessary condition of the occurrence of the harm.
(g)Section 51(2) makes special provision for cases in which factual causation cannot be established on a ‘but for’ analysis. The provision permits a finding of causation in an appropriate case,[34] notwithstanding that the defendant's negligence cannot be established as a necessary condition of the occurrence of the harm.
[33][2012] HCA 5, [18], [19] (citations omitted).
[34]In ‘exceptional cases’ under the Civil Liability Act 2002 (NSW).
In Strong,[35] the plurality observed:
Whether negligent conduct resulting in a material increase in risk may be said to admit of proof of causation in accordance with established principles under the common law of Australia has not been considered by this Court. Negligent conduct that materially contributes to the plaintiff's harm but which cannot be shown to have been a necessary condition of its occurrence may, in accordance with established principles, be accepted as establishing factual causation, subject to the normative considerations to which s 5D(2) requires that attention be directed.
The plurality noted that the ‘scope of liability’ consideration (s 51(1)(b)) presented little difficulty, it not being in contention that, if the plaintiff proved factual causation, it was appropriate that the scope of the defendant’s liability extended to the harm that she suffered.
[35][2012] HCA 5, [26] (citations omitted).
In the present circumstances, but for the breach of retainer by the respondent, Permanent Mortgages would have avoided the loss it suffered in one of two ways. Relying on the failure to satisfy the loan condition that required that the loans being managed by Private Mortgage Funding Management be paid out and the John Investments mortgage be discharged, Permanent Mortgages would have refused to make any advance to King. Alternatively, it would have deferred settlement until the loan condition was satisfied by King obtaining further funds, if they were able to do so, from Professional Payment Services.[36] But for the negligence of the respondent in certifying that clear title would be obtained on settlement when it had not determined that the John Investments mortgage over Adelaide Terrace could be discharged, no advance of the loan funds would have been made by Permanent Mortgages. Assuming settlement proceeded, but for the negligence of the respondent in calculating the shortfall to be funded by King from the advance from Professional Payment Services, or elsewhere, without including the sum required to discharge the loan from John Investments secured by mortgage over Adelaide Terrace, a registered first mortgage security would have been obtained. The presence of these conditions necessarily resulted in Permanent Mortgages making the advance but receiving only a second ranking mortgage over Adelaide Terrace. Factual causation is demonstrated.
[36]The evidence of the funds available from Professional Payment Services suggests that that facility would not have been adequate to cover the true shortfall in the Permanent Mortgage’s advance.
The respondent contended that any negligence on its part was not causative of the loss suffered by Permanent Mortgages. It contended that the representatives of John Investments caused the loss by failing of to call off or postpone the settlement when offered the incorrect pay out sum. Moreover, the respondent processed the sum advised to it by Private Mortgage Funding Management as King’s tender. Either had Private Mortgage Funding Management informed the respondent of the pay out figure for Adelaide Terrace by the timely dispatch of the third fax or otherwise refused to complete the refinancing of Adelaide Terrace on the sum tendered, Permanent Mortgages would not have made the advance to King or suffered the loss that it did.
This submission must be rejected. It matters not that there may be another set of conditions that are jointly sufficient to account for the occurrence of the harm. Further, it is appropriate, having regard to the scope of liability test, that the scope of the respondent’s liability extended to the harm that Permanent Mortgages suffered. The representatives of John Investments owed no obligations to either Permanent Mortgages or the respondent. It was the respondent who was obliged to protect and advance the interests of Permanent Mortgages in the context of its retainer. It may be that John Investments’ representatives were in breach of duties owed to it but that was not an issue at trial. In any event, John Investments avoided suffering any loss when its representative successfully retrieved the discharge after settlement.
I would allow ground 1 and 6 (in part) of the notice of appeal.
Rights to possession of the instrument of discharge after settlement
The appellant’s central contention on this appeal was that Permanent Mortgages always had an inferior right to retain the discharge against John Investments. John Investments’ contractual obligation to King was to discharge its mortgage once King paid out the secured loan. The appellant contended that, on King’s behalf, Permanent Mortgages never tendered the pay out sum and, as its loan remained unpaid, Permanent Mortgages’ right to possession of the discharge was inferior to that of John Investments. It followed that because Permanent Mortgages could not, against John Investments retain the discharge, it could not be in a better position than it was in after the appellant handed back the discharge to John Investments. The appellant could not be in breach for doing what Permanent Mortgages was obliged to do and cannot have caused loss to Permanent Mortgages by returning what Permanent Mortgages was not entitled to retain.
Although this submission on its face appears attractive, through its foundation in John Investment’s assumed legal rights, it is misconceived and I reject it. The legal basis for its rejection is that the doctrine of equitable estoppel, the application of which was raised before and summarily dealt with by the primary judge, precludes reliance on a critical step in the reasoning. The appellant’s argument becomes untenable when the legal step that John Investments could enforce a better legal right than Permanent Mortgages against the appellant to possession of the discharge after completion of the settlement cannot be advanced. That consequence for the appellant’s contention must follow if neither Permanent Mortgages nor King was obliged to return but, rather, was entitled to retain, the discharge, because John Investments would be estopped from asserting its legal right against King. It is important to appreciate that this issue arises in that context. It was not a primary claim at trial. In argument, there was reference in this context to the doctrines of waiver and election. In my view, those doctrines are unhelpful, principally because the course of the proceeding at trial did not lead to relevant findings and renders more difficult the application of these doctrines when evaluating the appellant’s contentions on this issue. I will in due course explain why that is so.
Because of the negligence of the respondent, the assumption or expectation of Permanent Mortgages, based on the Solicitor’s Certificate, was that the correct pay out sum was tendered, but the assumption or expectation of Permanent Mortgages in this respect is not relevant. First, as I will later explain, it is the assumption or expectation of its agent, the appellant, that is relevant and binding. Secondly, the relevant assumption or expectation of the appellant was that King was entitled to possession of the discharge and able to fulfil the precondition for the advance of funds. The appellant assumed and expected that John Investments made no further claim to the mortgage because it had just been paid out. It then permitted John Investments, and all other lenders, to retain the funds advanced by Permanent Mortgages. John Investments, having had the opportunity to assess independently whether it was receiving its contractual entitlement, and that was entirely a matter for its assessment, by its conduct induced the appellant to rely on the assumption or expectation that King had provided the discharge to Permanent Mortgages. Finding that the appellant’s reliance was reasonable necessarily follows from the well-established practice by which concurrent and mutually dependent obligations are interchangeably performed on the completion of a refinancing contract at a conventional settlement.
The appellant contended that any reliance by Permanent Mortgages on the conduct of John Investments was unreasonable because King had not tendered sufficient funds to be entitled to a discharge, or that relevant detriment to King was absent because they had not ‘paid’ for the discharge. Thus, John Investments could hardly be acting unconscionably in asking for the return of the discharge when the secured loan had not been truly settled.
There are, at least, two responses. First, John Investments exercised an independent choice about the sufficiency of the tender when it agreed to complete its contract with King.[50] It accepted the cheques tendered as completing its contract with King. Second, such contentions misconceive the relevant requirement of detrimental reliance. Here, the detrimental reliance that supports the estoppel need not be consideration moving to John Investments. In Donis & Ors v Donis,[51] Nettle JA explained, referring to the observations of Mason CJ in Verwayen that ‘... equitable estoppel will permit a court to do what is required in order to avoid detriment to the party who has relied on the assumption induced by the party estopped, but no more’: [52]
As the more recent decision in Giumelli v Giumelli shows, however, there is no such restriction in cases where the expectation which is encouraged is the acquisition of an interest in property. In such cases the remedy relates to the understanding of the parties and the expectation that has been encouraged. Prima facie the estopped party can only fulfil his or her equitable obligation by making good the expectation which he or she has encouraged. The estopped party, having promised to confer a proprietary interest on the party entitled to the benefit of the estoppel, and the latter having acted upon the promise to his or her detriment, is bound in conscience to make good the expectation. It follows that the detrimental reliance that supports the estoppel need not constitute in any sense a consideration moving to the party bound. It is a unilateral element of the estoppel and not the price paid for it.
The prima facie position will yield to individual circumstances. Principle and authority compel the view that where a plaintiff’s expectation or assumption is uncertain or extravagant or out of all proportion to the detriment which the plaintiff has suffered, the court should recognise that the claimant’s equity may be better satisfied in another and possibly more limited way. Thus, as was also said in Giumelli, before granting relief the court is required to consider all of the circumstances of the case, including the possible effects on third parties, and to avoid going beyond what is required for conscientious conduct or would do injustice to others. But that does not mean that the court is required to be ‘constitutionally parsimonious’ or that it is necessary for there to be substantial correspondence between expectation and the monetary value of the detriment suffered, or which but for the relief to be accorded would be suffered. The object of the exercise is to do equity and for that purpose ‘detriment’ is no narrow or technical concept. It need not consist of expenditure of money or other quantifiable financial disadvantage so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether departure from a promise would be unconscionable in all the circumstances. [53]
[50]See further the discussion below at [148]-[150].
[51][2007] VSCA 89 (11 May 2007).
[52]Ibid [18].
[53]Ibid [19]–[20](citations omitted).
The act of the representative of John Investments in agreeing that the settlement was complete gave King who gave Permanent Mortgages a registrable discharge, which would confer an indefeasible interest in the property once registered. It was precisely with that expectation that Permanent Mortgages, by its representative, completed its refinancing agreement with King to its detriment. Thus, John Investments acted unconscionably in obtaining the return of the discharge without relieving the detriment by returning Permanent Mortgages to its position prior to completion of its refinancing contract with King. As that was not or could not be done, John Investments was bound in conscience to make good the expectation. In my view, the expectation was not uncertain or extravagant or out of all proportion to the detriment to which I now turn.
Turning to the fifth requirement for an estoppel, Permanent Mortgages’ action, in completing on King’s behalf the remaining refinancing contracts with Keith and Shirley Meyers, Concord Innovations Pty Ltd, Permanent Custodians Ltd, Perpetual Trustees Australia Ltd and Chequecash Pty Ltd caused detriment to Permanent Mortgages when the assumption or expectation that King was not entitled to the discharge of the mortgage over Adelaide Terrace was not fulfilled. That was so because Permanent Mortgages was not contractually obliged to advance any funds to King unless it received clear title to each of the four properties offered by King as security for the advance. Had John Investments stated before the settlement was completed that the correct amount to discharge its security had not been tendered by King and it would not settle its finance contract with King, Permanent Mortgages was entitled to, and would have, refused to settle with King, resulting in King being unable to settle any of the finance contracts. Had it not completed its own advance to King, because its conditions precedent for that advance would be unfulfilled when John Investments resiled from the settlement and obtained the return of the discharge, it would not have suffered detriment.
The final requirement for an estoppel is also made out. John Investments has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. As I have stated, an alternative to fulfilling the assumption would have been to procure a return of Permanent Mortgages to its position prior to the completion of the contracts involving King.
For these reasons, John Investments would have been estopped from asserting its legal right to the return of the discharge after the completed settlement. Once John Investments is denied the legal right formulated by the appellant as a critical step in its reasoning on these grounds, the appellant’s contention must fail. Ground 2, 3 and 4 must be rejected.
Waiver
As I earlier stated, I do not think it helpful to approach the issue by reference to waiver.[54] To do so involves entering into an unresolved doctrinal debate.[55]
[54]See, eg, Commonwealth v Verwayen (1990) 170 CLR 394, 406 (Mason CJ), 422 (Brennan J), 467, 472 (Toohey J); [1990] HCA 39; Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1, 13 [28] (Gleeson CJ, Gaudron, Gummow and Callinan JJ).
[55]See Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57 (11 December 2008), (2008) 238 CLR 570, 586 [50]–[52].
In Craine v Colonial Mutual Fire Insurance Co Ltd[56] and later in Grundt v Great Boulder Pty Gold Mines Ltd,[57] the High Court described as a waiver of a right an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right. Many cases of waiver are applications of the doctrine of election between inconsistent rights.[58] Circumstances constituting election between inconsistent rights may be quite different to circumstances in which there is said to be a waiver of rights,[59] but it is only in the former sense of election that the doctrine of waiver could here be relevant.
[56][1920] HCA 64; (1920) 28 CLR 305, 326.
[57][1937] HCA 58; (1937) 59 CLR 641, 658 (Latham CJ).
[58]Agricultural and Rural Finance, [56].
[59]Ibid [60]–[62].
Election
The High Court noted the distinct character and application of the equitable doctrine of election when compared with the long established common law doctrine to which I am referring, in Agricultural and Rural Finance Pty Limited v Gardiner.[60] The court succinctly described the common law doctrine of election in these terms:
As Jordan CJ pointed out in O'Connor v SP Bray Ltd, ‘[s]ince the days of the Year Books it has been recognised that you cannot have the egg and the halfpenny too’. If, then, something happens which gives rise to the existence of two alternative rights, and one of those rights is satisfied, the other is no longer available.[61]
[60]Ibid [57]–[58].
[61]Ibid [58] (citation omitted).
This passage expresses the conventional analysis of common law election, explained in Sargent v ASL Developments Ltd,[62] as the concurrent existence of inconsistent sets of rights; because they are inconsistent neither one may be enjoyed without the extinction of the other. That extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.[63]
[62][1974] HCA 40; (1974) 131 CLR 634.
[63]Ibid 641.
A distinction between election and estoppel is that the former doctrine is concerned with what a party does, an inquiry that is complete when the election is made and communicated, rather than what the election causes another party to do.[64] When seeking to define the requirements for irrevocable election, the question of detriment to the other party as an ingredient in election can arise. Relevantly, the election was the decision of Godfrey Virtue & Co to state it is happy that the settlement is complete. A difficulty with an analysis of whether John Investments, by its agent elected at settlement to accept the tendered cheques as a pay out, albeit an inadequate one, of the loan secured over Adelaide Terrace is that election was not an issue at the trial and was not the focus of evidence or findings. The documents comprising the loan facility were not in evidence and no witness for John Investments or Godfrey Virtue & Co gave evidence.
[64]Khoury v Government Insurance Office of NSW (1984) 165 CLR 622, 633.
Nonetheless, without deciding it, I incline to the view that the appellant’s contention still fails, if analysed by reference to the doctrine of election. In Sargent,[65] Stephen J explained that for the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses. The absence of a finding at trial about that element of knowledge might be thought to give rise to difficulty in the present circumstances. In a strict sense, the relevant events come only to the knowledge of John Investments’ solicitor or settlement agent, the unnamed young man who stayed behind, and his supervisor at Godfrey Virtue & Co with whom he communicated by phone.
[65](1974) 131 CLR 634, 642.
However, the election in question is between contracting parties, namely John Investments and King, and the conventional conveyancing practices on completion of the contract between them confers the inconsistent rights, as I will shortly explain. As Stephen J explained in Sargent:[66]
… there can be no question whether a party had knowledge of his choice of rights. He is deemed to know the terms of his own contract and the rights it confers, at all events he cannot take advantage of his own ignorance …
[66]Ibid 645.
When John Investments arrived at the point where it was required to complete its finance contract with King by accepting the sum tendered in exchange a discharge of its mortgage, it faced an election between inconsistent rights. One course was rejecting the inadequate tender and reclaiming its discharge, which would have been to decline to complete its agreement with King.[67] In that circumstance, there would not be simultaneous acts in performance of concurrent and mutually dependent obligations. The alternative course, which it adopted, was to complete its agreement with King by retaining what it had received and permitting Permanent Mortgages to retain the discharge. To borrow Jordan CJ’s wonderful aphorism, John Investments elected to accept the halfpenny and extinguished its right to the return of the egg.
[67]Insistence on postponing completion is an alternative action on the same course.
This analysis is applied on the completion of the settlement, for that is when the election was made. Godfrey Virtue & Co, as the representative of John Investments, attended to settle on its behalf two mortgages of the properties at Adelaide Terrace and Terrace Road. It received five cheques including two cheques for the benefit of John Investments, one for fees and expenses and one in repayment of a facility. Although it is now clear that the cheques for John Investments were inadequate for both mortgages, the only inference open when the settlement was completed was that John Investments’ representative chose to accept the cheque made out to John Investments as tendered in respect of both the Adelaide Terrace and the Terrace Road mortgages. That must follow because, having handed over discharges for both mortgages, Godfrey Virtue & Co chose to complete the settlement. By the conduct of its representative, John Investments accepted that single cheque in exchange for two discharges of mortgage. That choice extinguished the alternative rights either to refuse to settle at all or to defer the settlement. That election extinguished the contractual right to possession of the discharges.
Essential to the making of an election is communication by words or conduct to the party affected of the choice thereby made. It is accepted that once an election is made it is binding and cannot be retracted.[68] The findings of the primary judge are clear that John Investments’ representative communicated that it was ‘happy’ to complete the refinance, and the settlement was then completed. Further, as Mason J explained in Sargent:[69]
A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other.
The young man from Godfrey Virtue & Co could have asked for time to check his calculations or phone his office but he chose not to.
[68]Sargent v ASL Developments Ltd (1974) 131 CLR 634, 655-6 (Mason J).
[69]Ibid. See also Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, 55 (Kitto J).
An issue raised in argument was whether mistake by that young man carried the consequence for John Investments that its legal right to retain its security, to the return to it of possession of the discharge exchanged with King for the cheques that it retained, was lost? In other words, could the finality of completion be avoided by an agent’s mistake? This question raises two issues. First, it raises an issue of whether the conduct of Godfrey Virtue & Co operates to attract to the completion of John Investment’s agreement with King the irrevocability of an election. Second, it directly raises whether detriment to the other party is an ingredient in election.
Whether the conduct of Godfrey Virtue & Co operates to attach to the completion of John Investment’s agreement with King the irrevocability of an election was answered in Sarjent.[70] Stephen J approached the like question in that case in two ways, to the same answer, and that analysis is apposite in the present circumstances.
[70]Ibid 648–9.
First, election as between inconsistent contractual rights does not call for any conscious choice as between two sets of rights, it being enough that there should be intentional and unequivocal conduct together with knowledge of the facts giving rise to the legal rights. Where a party (John Investments) employs a solicitor (Godfrey Virtue & Co) to attend to the carrying out of the legal aspects of a transaction (completing the contract), it necessarily authorizes that solicitor to attend to all the usual aspects of conveyancing practice. The solicitor's knowledge, gained from performing its retainer, may properly be imputed to its client since it was acquired both for the purpose of that transaction and in the course of it.[71]
[71]See also Mason J, ibid 658.
Second, where John Investments has arranged matters so that a solicitor, Godfrey Virtue & Co undertakes on its behalf the settlement of a conveyancing transaction, it not only authorises the solicitor to perform all necessary steps but also places the solicitor in the position of acquiring at first hand knowledge of relevant facts, at the same time depriving itself of the opportunity of acquiring such first hand knowledge. If any such steps taken by the solicitor happen to constitute acts of election in respect of the client’s contractual rights, they will be binding upon the client.[72] If they be unequivocal and are performed at a time when the solicitor has himself acquired knowledge of facts giving rise to an election, the client will, without the need to attribute to him the knowledge of his solicitor, be bound by those acts of election; the duly authorised conduct of the solicitor, who has acquired the relevant knowledge, will, without either conduct or knowledge on the client's part, constitute an effective election to complete the contract.
[72]Provincial Insurance Co of Canada v Leduc (1874) LR 6 PC 224, 239.
The second issue of whether detriment is an element of election draws the doctrinal analysis from election towards estoppel. In Sargent, Stephen J stated:[73]
Many of the leading cases on the topic make no reference to detriment and, in speaking of the irrevocability of an election, seem to treat that as arising, regardless of whether or not the other party has acted upon it to his detriment, as soon as the fact of election is communicated to the other party (e.g. Scarf v Jardine, per Lord Blackburn (1882) 7 AC, at p 361 ) or indeed regardless perhaps of communications (e.g. Matthews v Smallwood (1910) 1 Ch, at pp 786-787). On the other hand, in Spencer Bower and Turner: Estoppel by Representation (1966), at pp 323-325, election is treated as necessarily involving detriment, although detriment is there given a wide meaning. It may be that in very many of the decided cases involving election some detriment to the other party can be discovered on an examination of the facts but the authorities in this Court are consistent in their silence as to detriment, regarding the elector's act of disaffirmation or adherence to the contract as itself completing the election without more (Craine's Case (1920) 28 CLR, at pp 325-326 ; Fullers' Theatres Ltd v Musgrove [1923] HCA 12; (1923) 31 CLR 524, at pp 540-541; Elder's Trustee Case (1941) 65 CLR, at pp 616-617, 618; Tropical Traders Ltd v Goonan (1964) 111 CLR, at p 55). Perhaps Newbon v City Mutual Life Assurance Society Ltd [1935] HCA 33; [1935] HCA 33; (1935) 52 CLR 723 throws most light upon the matter. There this Court dealt with two distinct issues, election and estoppel, and their treatment of the former, when contrasted with that accorded to the latter, satisfies me that no question of detriment was thought to be a necessary ingredient in election.
[73]Ibid 646–647.
However, care is needed in drawing principle from cases of election to rescind or affirm contracts, for that is not this case. Stephen J explained that in cases of an election to serve a rescission notice:
There can then be no question of detriment having to be shown before the elector is prevented from seeking to enforce the alternative and vanished right. I conclude that at least in the case of election between affirmation of a contract or its disaffirmation pursuant to rights conferred by that contract detriment to the other party is not a necessary element in election, whatever may be the position in other election situations. Although concerned with election in quite different circumstances, the judgment in Myers v Ross (1935) 10 F Supp 409, at p 411, makes the point succinctly when it is said that an election ‘knowingly made, cannot be withdrawn even though it has not been acted upon by another to his prejudice’ and this because ‘Estoppel depends upon what a party causes his adversary to do. Waiver by election depends upon what the party himself intends to do, and has done’.[74]
[74]Ibid 647.
The critical step in the logic of the appellant’s contentions on this ground is not focussed on the conduct of the elector, John Investments. It is concerned with Permanent Mortgages’ lack of entitlement to the discharge, in particular focussing on the legal right of John Investments to its return. Of itself, that emphasis focuses on estoppel not election.
In applying the doctrine of election, the principle identified by Stephen J does not determine the matter for this is not a rescission case and Stephen J appears to leave open whether detriment is never required as an element of election. The inconsistent ‘rights’ do not, so far as I can tell on the evidence, concern acts of disaffirmation or adherence to the contract as itself completing the election, as was the case in Sargent. If the narrow view be taken that the election by Godfrey Virtue & Co, for John Investments to complete the refinance was binding and irrevocable at the moment when settlement was completed without proof of detriment to the other party should the election have been a mistake, it follows that John Investments was not later entitled to the return of the discharge. A challenge, subsequent to the election, to the finality of the election on the ground of mistake when making it would not be open.
Of course, all parties can agree to return to the status quo prior to completion. Absent consent, when taking the wider view, the circumstances in which a party’s mistake may assist it to recover its legal rights following an election is beset with difficulty. Those circumstances necessarily raise the issue of detriment to the elector’s adversary. Once the inquiry is properly focussed on the conduct of John Investments’ adversary, whether King, Permanent Mortgages or their agents, the doctrine of estoppel becomes applicable. In that context, I have already explained that if it be assumed, as the appellant contends, that John Investments were entitled to wind back a part of the completed transaction, I am satisfied that Permanent Mortgages acted to its detriment when it advanced funds to King, including the cheque that John Investments retained. That is what occurred when the appellant, in breach of its instructions, returned the discharge to Godfrey Virtue & Co at its request.
For these reasons, while I am attracted to the conclusion that John Investments, by its election to complete the contract, was not later entitled to the return of the discharge on the grounds of its solicitor’s mistake, I prefer not to base my rejection of this appeal ground on notions of waiver or election. In my view, the ground must fail because, John Investments would have been estopped from asserting, following completion, that notwithstanding its agent’s mistake, it had a better right to possession of the discharge than Permanent Mortgages. It follows that the conduct of the appellant, in breach of its instructions to do nothing and returning the discharge as it did, was unjustified.
Was the conduct of the appellant after settlement a cause of the loss?
Ground 7 of the appeal challenges the primary judge’s finding that the appellant’s breach of its retainer was a cause of Permanent Mortgages’ loss. As I understood counsel for the appellant, that challenge was based on its contentions that Permanent Mortgages and its agents had an inferior right to possession of the discharge when the representative of John Investments demanded its return. If that argument did not find favour, this ground was not otherwise maintained.
Ground 7 accordingly is rejected. I would add that the question of causation of loss flowing from the appellant’s breach of retainer was not analysed in terms of the statutory test. I do not think that the conclusion of the primary judge would have been different had he been invited to do so. On completion of the settlement, Permanent Mortgages was, by its agents, in possession of the documents necessary to obtain registration of its mortgage over Adelaide Terrace with first ranking priority. But for the failure of the appellant to follow instructions to do nothing, Permanent Mortgages was unable, on discovering that settlement could not be reconvened, to immediately register its interest on title. It can reasonably be inferred, from the primary judge’s finding that on the day following the settlement the respondent instructed the appellant to immediately lodge all the instruments that it then held, that the same instruction would have been given if the subject discharge had not been handed back. There was no evidence of what John Investments might have done had Godfrey Virtue & Co not recovered the discharge.
In that circumstance, the interests of Permanent Mortgages would have been protected by its registered indefeasible proprietorship in its mortgage and John Investments would have been confined to its contractual rights against King and any rights that accrued to it from the conduct of its representatives.
Factual causation was established. It was not contended that, despite the finding of factual causation below, it was not appropriate that the scope of the appellant’s liability extended to the harm that the respondent suffered. Apportioning contributory fault
Counsel agreed that should the court consider that the judgment below cannot stand, as I do, and that each of the parties to the appeal contributed to the loss that was the subject of the claim, quantified at $211,486.20, the court should not remit the proceeding but assess for itself the respective contributing fault of the parties to that loss. It is open to, and appropriate for, this court to do so.
Such an assessment is not a claim for statutory contribution under s 23B of the Wrongs Act because that claim was not maintained below. As I have explained, the claim that the respondent pursued against the appellant was a claim of breach by an agent of its retainer. The appellant’s defences included a claim that the damage suffered by the respondent was caused by the respondent’s failure to take reasonable care when ascertaining the pay out figures for the securities to be discharged and in certifying title to Permanent Mortgages in breach of its retainer.
This pleading, and this court’s findings, enliven the defence of contributory negligence under s 26 of the Wrongs Act, which was pleaded as the contributing fault defence. The section states:
(1)If a person (the claimant) suffers damage as the result partly of the claimant's failure to take reasonable care (contributory negligence) and partly of the wrong of any other person or persons—
(a)except as provided in section 63, a claim in respect of the damage is not defeated by reason of the contributory negligence of the claimant; and
(b)the damages recoverable in respect of the wrong must be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.
Because of my findings on ground 1, the respondent (as claimant) suffered damage by the settlement payment made in the principal claim due to its failure to take reasonable care. The expression ‘the wrong of any other person’ in s 26(1) refers to an act or omission that amounts to a breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort. For the following reasons, the damage suffered by the respondent was partly because of the wrong of the appellant within the contemplation of the section.
The primary judge found the breach by the appellant of its retainer to be its failure to follow the instruction given to it by the respondent to do nothing but detain the representative of Godfrey Virtue & Co at its office while the respondent attempted to reconvene the settlement. The primary judge correctly found that —
The [appellant] as agent for the [respondent] was told by the [respondent] (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 [respondent] to await further instructions. She had no basis for unilaterally proceeding to hand back the discharge of mortgage to the Adelaide Terrace property.
That breach must be evaluated in the context of my conclusion that on the evidence at trial that it was for the respondent to ensure that, if settlement proceeded, there were sufficient funds to enable all of the existing loans to be paid out in full. The appellant’s instructions were limited to handling the procedure and mechanics of the settlement.
Although the appellant’s breach of its retainer may be understood as disobedience by an agent of a specific instruction, nonetheless that act amounted to a failure to exercise reasonable care. It was an implied term of the respondent’s retainer of the appellant, that in carrying out the terms of the retainer, the appellant would act with the reasonable skill, care and diligence expected of a prudent settlement agent. It was not suggested otherwise in argument and it was not contended that the appellant’s return of the discharge to Godfrey Virtue & Co demonstrated that the appellant was acting with reasonable skill, care, and diligence. Rather, it was contended that, after completion of the refinancing, John Investments had the best right to possession of the discharge.
There can be no doubt that the appellant understood the purpose of the instruction that it collect the discharge in exchange for the funds. As a licensed settlement agent in Western Australia, the appellant well understood the relevant features of the transactions that it was being asked to complete. The respondent had also instructed the appellant to lodge the documents at Landgate for registration of the interests acquired by Permanent Mortgages following completion. It was evident to the appellant from its instructions that the lender was acquiring first mortgage securities. Not being involved in organising the funds required for settlement, the appellant would not have been able to evaluate whether the assertions of Godfrey Virtue & Co that it had not received enough money were accurate. Ms Michele, who had attended many settlements, stated that the appellant did not know what cheques related to what securities. When it reported the request to the respondent, the respondent told the appellant that it was seeking clarification of Godfrey Virtue & Co’s claim of insufficient funds, that nothing should be done in the interim, and the settlement may be reconvened. It follows that, when it unilaterally decided to return what was not its document but held for the respondent on instructions, the appellant was unable to evaluate the Godfrey Virtue & Co request that the discharge be returned. A prudent and careful settlement agent would not have returned the discharge to Godfrey Virtue & Co. It is unsurprising that at trial the appellant was unable to advance any credible explanation for what it did when it handed the discharge back.
All of the material facts that would determine the response by the respondent on behalf of Permanent Mortgages to the request of Godfrey Virtue & Co were with, or being sought by, the respondent. In its limited role and with limited information, the appellant could make no judgment call and none was required of it. The prudent standard for a settlement agent in these circumstances was to act on the respondent’s instructions. It was plainly negligent when it failed to do so.
It follows that pursuant to s 26(1)(b) of the Wrongs Act, the damages recoverable in respect of the wrong must be reduced to such extent as the court thinks just and equitable having regard to the respondent's share in the responsibility for the damage. The apportionment of responsibility is a ‘question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be differences of opinion by different minds’.[75] The exercise is similar to the exercise of a broad holistic discretion.[76] The court must assess both the causative impact of each party’s breach in occasioning the loss and the respective culpability of the parties, referring to the degree to which their conduct departed from the applicable standard of care.[77] It is the whole conduct of each negligent party in relation to the circumstances of the loss that must be subjected to comparative examination.
[75]Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529, 532.
[76]Alcoa Portland Aluminium Pty Ltd v Husson [2007] VSCA 209; (2007) 18 VR 112, 136-137 [86]. See also Sali & Anor v Metzke and Allen [2009] VSC 48, [289]-[296].
[77]Pennington v Norris (1956) 96 CLR 10, 16; Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529, 532-533; Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25, 29.
I must also bear in mind s 63 of the Wrongs Act, which provides:
63 Contributory negligence can defeat claim
In determining the extent of a reduction in damages by reason of contributory negligence, a court may determine a reduction of 100% if the court thinks it just and equitable to do so, with the result that the claim for damages is defeated.
In applying these principles in the circumstances, it is unnecessary that I rehearse all that has been said above. I find the causal potency of each party’s breach to be significant and material. Had the respondent not been negligent, Permanent Mortgages would not have made any advance to King and there would have been no liability in the respondent for any loss. Equally, had the appellant not handed back the discharge to John Investments, Permanent Mortgages would have obtained a registered first mortgage and avoided the loss. Each of the parties was obliged, either directly or indirectly, to look out for the interests of Permanent Mortgages.
The respective culpability of the appellant is in my view greater than that of the respondent. The breach by the respondent of its duty was by an oversight, a failure to carefully read and appreciate the contents of correspondence. That oversight became more significant when it certified title to Permanent Mortgages, which the respondent knew to be an act on its part that induced Permanent Mortgages to release its funds. The respondent’s negligence initiated the course of events that led to the loss. Despite that negligence, the respondent remained in a position to safeguard the interests of Permanent Mortgages and avoid inflicting any loss on it in the aftermath of the settlement when it acted prudently in instructing its agent to maintain the status quo and retain possession of the discharge while inquiries were made. The appellant’s negligence deprived the respondent of control over events when it was seeking to protect the interests of its client. The appellant inexplicably disobeyed its instructions and in so doing deprived the respondent of the opportunity to save Permanent Mortgages from the consequences of the respondent’s own actions. It did so when it had no relevant knowledge of the material facts. It was unable to offer any credible explanation for its conduct, and none is apparent. In my view, the appellant departed from the standard of care of the reasonable person to a greater degree than the respondent did.
Bearing all these matters in mind, I consider it just and equitable to reduce the damages recoverable by the respondent by one third.
Disposition of the appeal
I would allow the appeal and set aside the judgment entered below. In lieu thereof, I would declare that the respondent’s damages are reduced by one third by reason of contributory negligence and that there be judgment for the respondent against the appellant in the sum of $140,990.80 together with damages by way of interest pursuant to s 60 of the Supreme Court Act 1986 (Vic).
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