67 Mr Northwood pointed to the fact that the deceased confirmed that the loan was for investment purposes, signing a declaration to that effect.
68 The deceased agreed that he understood at the time that Mr Northwood was a solicitor for ACG (Black 62). He perceived Mr Northwood as "Mrs Howard's company solicitor" on 11 November 1997 (Black 53, 171). The deceased also knew at the time that Mr Northwood was a director of ACG.
69 Nevertheless, as the deceased pointed out, Mr Northwood indicated that he was acting for him that day (Black 66) and the independent solicitor's advice Certificate was signed on that basis. It followed, according to the deceased, that Mr Northwood "should have been looking after both" clients' interests (Black 66). Undoubtedly, Mr Northwood assumed various duties towards the deceased by virtue of his conduct on 11 November 1997. The heart of this appeal is determining whether his fiduciary duties extend so far as to require disgorgement of a benefit flowing indirectly, subsequently and in circumstances in which the solicitor had no knowledge at the time of the potential impact in his favour of the transaction he was assisting.
70 The deceased said he relied upon his discussions with Mrs Howard (not in the presence of Mr Northwood) to the effect that ACG would keep the payments up to date and do everything necessary to ensure that the mortgage did not fall into default (Black 98).
71 There was the following exchange during cross-examination (Black 151):
Q. You understood at the time that you were not going to get a mortgage back from ACG, didn't you?
A. But I was told I was guaranteed that the money was safe, by ACG.
Q. You knew that you weren't going to get a mortgage back by ACG? You knew the transaction was that you were going to give the mortgage to other people?
A. Yes, but ultimately when the place was sold I was going to get my money and that's the only interest I had in this infernal thing.
72 The deceased agreed that nothing was said by either Mr Northwood or Mrs Howard about borrowing money to pay to ACG on 11 November 1997 (Black 169, 172). Mr Northwood gave sworn evidence to similar effect (Blue 136).
73 The deceased agreed that he knew on 11 November that the money he was borrowing was being provided to ACG (Black 55). He said that "the loan wasn't really for me. Ultimately it was for AC&G…. It wouldn't have even touched my pockets at one stage" (Black 63. See also Black 133, 171, 184). "She said she needed [the title deeds] to raise the finance" (Black 187). His purpose in entering into the mortgage was to provide ACG with $450,000 (Black 56, 136). At one stage he described the documents that he signed on 11 November in the following terms (Black 165):
As far as I was concerned this was part of the deal to enable the sale … I realised that [I was signing mortgage documents] but this was part of the sale, as far as I was concerned.
74 His understanding was that ACG intended to use the money to renovate the Vaucluse property and to buy another property, this being based on what Mrs Howard had told him (Black 56). Later he said that he understood the money was to do the extensions and renovations (at Vaucluse) (Black 131, 137). I have already indicated that it should be inferred that Mrs Howard's willingness to exercise the option to purchase on 11 November must have been contingent upon the deceased's willingness to lend her the $450,000 raised on the mortgage that would be extant at least until settlement of the sale.
75 At that stage the deceased was admittedly prepared to give Mrs Howard "whatever she needed within reason" and she had told him that she needed as much as $450,000 (Black 175, 185). He said, however, that he would never have agreed to granting a mortgage if aware that some of the funds would be used to repay a loan to Mr Northwood (Blue 115); and that it was only through the process of discovery that he learnt in 2003 that some of the ACG funds were used to repay loans to Mr Northwood (Black 186). He said that he did not know at the time that Mr Northwood had "invested" any money in ACG (Black 185). Had he known this he would have been concerned because the transaction would have involved Mr Northwood "bailing out his own company" (Black 185).
76 I am highly doubtful about accepting the deceased's claim that he would not have entered into the borrowing and on-lending had he known of the true position of ACG's finances (on 11 November 1997).
77 In November 1997 Mr Northwood and his family company were creditors of Mrs Howard's company to the tune of $245,000. In early December 1997 ACG repaid all of the money it then owed to them, using much of the on-lent $450,000. But, as I demonstrate below, ACG's balance sheet at the time was positive and ACG did not become insolvent until well after 1997. Reference to "bailing out" implies a note of desperation and/or that the Northwood/Maken funds were at risk. In November 1997 they were not at risk (see further below).
78 Evidence by interested parties as to what they would have done if additional information was present at the time of a transaction into which they willingly entered always needs to be closely scrutinised. Here the evidence came from the mouth of a confused and significantly discredited witness. The judgment contains no finding accepting the deceased on this particular testimony. I would not be prepared to infer the causal impact of the respondent's non-disclosure in light of the deceased's readiness to do Mrs Howard's bidding at the time, ACG's solvency at the time (see below) and the significant damage to the deceased's credibility inflicted in the cross-examination that led to the abandonment of the original case against the respondent. I am aware of the extensive debate amongst Equity scholars about the extent to which common law and Equity causation rules coalesce in relation to fiduciary dealings. However, I am unaware of any suggestion that would throw onto a defendant the burden of disproving the causal impact of a relevant non-disclosure. In Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 the High Court referred with approval (at 502[44]) to statements by Mummery LJ in Swindle v Harrison [1997] 4 All ER 705 at 733, 734 that "[t]here is no equitable by-pass of the need to establish causation" and that "[I]n questions of causation it is important to focus on the relevant equitable duty".
79 I point out below that the deceased's case on causation failed by reference to the events of June 1998. These legal principles assume importance in that context.
80 The deceased agreed that the reality of the matter was that so long as he thought that his mortgage was facilitating the sale process and was likely to give rise to a concluded sale, he would have agreed to provide the mortgage (Black 186). What he regarded as improper was that Mr Northwood "should have taken money out of the account" (Black 186) in circumstances where ACG later became unable to meet its later unsecured obligations to himself and others. The elision in this process of reasoning is patent.
81 Mr Northwood was not asked to play any role in the settlement of the Mortgage transaction that took place on 19 November 1997.
82 On 18 November the deceased signed a letter confirming Mrs Howard's authority in completing whatever documents or actions that were required to effect the Mortgage (Blue 12, 368).
83 Mr Molloy obtained an estimate of the value of Vaucluse property as at 18 November 1997. A registered valuer who undertook an external inspection of the property estimated a fair and reasonable price for it to be in the order of $750,000 (Blue 1412).
84 On 19 November 1997 the deceased uplifted the title deeds from the custody of his solicitor Mr Beilby and handed them to Mrs Howard, contrary to Mr Beilby's advice (Black 7. See also the Beilby firm diary notes of that date set out above). This enabled settlement to take place, presumably at the office of Molloy & Schrader. The Mortgage was stamped on 19 November 1997 (Blue 769) and was registered soon after. The $450,000 was received and banked by ACG (Mrs Howard) that day (Blue 701).
85 As indicated, this Mortgage was discharged on 5 June 1998. But the transaction then negotiated between the deceased and Mrs Howard meant that the deceased permitted settlement of the sale to ACG without securing effective payment of the balance of the agreed purchase price. One of the terms of this arrangement was that the deceased would continue to reside at Vaucluse (Blue 1659), which he did until late 1999. Mr Northwood bore no responsibility for this transaction. Shaw J concluded that the events of June 1998 were the effective cause of the deceased's ultimate loss (J31, 59-60 set out below). It is unclear to me whether this conclusion, with which I agree, is under attack in the way that the appeal was ultimately pressed. It will be seen that attention is now focused exclusively upon the benefits received by the respondent and Maken (see below). If that benefit was at most the $250,182.79 received on 1 December 1997, then the failure to press or make good the claim for compensation in the sum of $450,000 assumes at least monetary significance.
86 An affidavit sworn by the deceased early in the proceedings raised a number of issues as to his understanding and/or memory as to the true import of the mortgage transaction and the explanation given by Mr Northwood on 11 November 1997. This case was destroyed in early cross-examination and was formally abandoned on the third day of the trial. It should however be recorded that no version of the pleadings raised a case based upon Mr Northwood being in some way privy to Mrs Howard having exercised influence that was undue in its technical, equity sense. (I am not suggesting that any such case could or should have been run.) The case ultimately pressed against Mr Northwood turned solely upon Mr Northwood's role in acting as the deceased's solicitor on 11 November 1997 and upon what he did not disclose on that occasion about his interest in the proposed borrowing by the deceased from the mortgagees.