Commonwealth Bank of Australian v Hamilton

Judgment Background 1Jason Hamilton (the first defendant) and Karen Hamilton (the second defendant) are husband and wife. At the commencement of these proceedings, Jason Hamilton was the registered proprietor of unit 12/8-10 Lydbrook Street, Wentworthville in the State of New South Wales being the whole of the land in folio identifier 12/SP73061 (unit 12 Lydbrook Street). Karen Hamilton was the registered proprietor of unit 13 in the same building being the whole of the land in folio identifier 13/SP73061 (unit 13 Lydbrook Street). 2A mortgage was registered on the title to unit 12 Lydbrook Street that identified Jason Hamilton as mortgagor and the Commonwealth Bank of Australia (the plaintiff) as the mortgagee. For ease of identification, the plaintiff will hereafter be referred to as 'the bank'. The mortgage was allocated dealing no AB825334R. A mortgage was also registered on the title to unit 13 Lydbrook Street that identified the second defendant as mortgagor and the bank as mortgagee. This mortgage was allocated dealing no AB825424Q. 3By Home Loan Agreements dated 5 September 2005, the bank agreed to loan the amount of $448,000 to Jason Hamilton for the purchase of unit 12 and the same amount to Karen Hamilton for the purchase of unit 13 (the loan agreements). In order to secure their obligations under the loans, the loan agreements provided that the loans were to be secured by registered mortgages and by guarantees provided by Mr and Mrs Hamilton for each other. 4Contracts for the sale of units 12 and 13 Lydbrook Street had been prepared which recorded the vendor as Napier 888 Pty Ltd, the purchase price for each unit as being $560,000, the purchaser for unit 12 as being Jason Hamilton, and Karen Hamilton as the purchaser for unit 13. Webb Lawyers were identified as the solicitors acting both for the vendor and the purchaser on each transaction. Peter Webb (the third defendant), a solicitor, was the principal of Webb lawyers. The contract date for each purchase was recorded as being 6 August 2005. 5Prior to settlement, a deed a variation was prepared for each purchase which recited the vendor's agreement with the purchaser "to accept the reduced consideration of $365,000.00 in lieu of the consideration of $560,000.00 due to the reduced valuation obtained by the "Purchaser lender". Transfers were drafted whereby the transferor acknowledged receipt of the consideration of $365,000.00. 6On 26 September 2005, identical facsimiles in each purchase were forwarded to the bank by Julie Abood, a solicitor employed by Webb Lawyers, directing the bank that 16 separate cheques, totalling $447,659.60, were required on settlement. Direction 14 was for a bank cheque or trust cheque, in the sum of $67,582.15, made payable to Webb Lawyers Trust Account (ex 2 CD2, T81-83). 7Settlement of each purchase took place on 28 September 2005. On each settlement, the bank handed over cheques totalling $447,659.60 to Lawpoint Galloways, the third defendant's agent. There was in each transaction a cheque made in favour of Webb Lawyers Trust Account for $67,582.15. 8Documents entitled Trust Authority had been provided in each transaction to Peter Webb which recited that each of the first and second defendant's authorised Webb Lawyers "to release the balance of funds in my Trust account to be paid to Graham Lee". Graham Lee is the first cross-defendant in Mr and Mrs Hamilton's cross-claims and for ease of identification, will be referred to throughout this judgment as Mr Lee. 9Peter Webb was also in possession of letters of instruction which identified Mr and Mrs Hamilton and recorded in identical terms their instructions as being (ex 3 CD4, p205 - Mrs Hamilton): "I hereby kindly advise that Mr Graham Lee is authorised to act on my behalf in relation to the above purchase for the purpose of authorising and distributing funds in relation to the subject purchase. Mr Lee is acting in the capacity as my buyer's agent and is authorised to do so pursuant to this authority." And (ex2 CD1 p 76 - Mrs Hamilton): "I hereby authorise Webb Lawyers to place all surplus funds from the subject purchase into Trust on my behalf." 10Peter Webb paid to Mr Lee $67,582.15 out of the monies that were held in his trust account for Jason Hamilton and the same amount which was held in his trust account for Mrs Hamilton. 11Mr and Mrs Hamilton failed to make monthly repayments in accordance with the loan agreements. By notices dated June 2007, the bank demanded from the first and second defendants payment of money in the amount of $11,258.27 under each agreement that were not complied with nor were notices pursuant to section 57(2)(b) of the Real Property Act 1900. The bank then, demanded the full debt owing under each of the home loans ($465,348.08) but the demands were not met. 12On 25 June 2007, demands were made by the bank to the first and second defendants in their capacity as guarantors. Neither demand was met nor were subsequent demands for payment of the full amount owing under each guarantee. 13On 2 October 2007, proceedings in this Court were commenced by the bank against the first and second defendants, seeking possession of the land, leave to issue writs of possession and judgments in the amounts owing under the Home Loan Agreements as at 19 September 2007 and the Guarantees. 14On 4 May 2010, the first and second defendants consented to orders being made for the bank to have possession of units 12 and 13 Lydbrook Street. 15By an amended statement of claim filed on 27 August 2010, the bank joined the third defendant seeking damages as a result of a breach of warranty of authority. The statement of claim was further amended on 27 September 2010. 16In September 2010, the bank and the first and second defendants entered into an agreement, whereby they agreed to "limit their dispute." The terms of the agreement (ex 2 CD, p13) included the following: "1. The bank agrees that it will not enforce or proceed to execution upon any money judgment or costs judgment that it obtains against Mr & Mrs Hamilton or either of them in the above mentioned proceedings, whether for principal, interest, rents, profits or costs, except to the extent of any recovery made by Mr & Mrs Hamilton or either of them against the cross defendant Lee or the cross defendant Webb or against any other third party in respect of the same loss or indemnified liability. ... 8. Mr & Mrs Hamilton agree that they will forever withdraw and abandon their defences under the Contracts Review Act, the Consumer Credit Code, the Trade Practices Act and the ASIC Act..." 17The bank sold unit 12 on 7 October 2010 for $350,000.00. As at 23 March 2011, the amount owing under the first defendant's account with the bank was $302,521.29. 18The bank sold unit 13 on 26 November 2010 for $372,000. As at 23 March 2011, the amount owing under the second defendant's account with the bank was $220,728.38. 19Mr Lee did not file a defence nor was he present during the proceedings. A notice of appearance was filed on his behalf on 29 April 2011. There had been 11 hearing days prior to that time. In any event, no one appeared on his behalf when the hearing resumed on 30 May 2011. Leave was granted for the first and second defendants to apply for summary judgments, which were obtained on 1 June 2011. 20The evidence before me plainly demonstrates that Mr Lee was involved in a fraudulent scheme for the sale of units 12 and 13 in the apartment block at Lydbrook Street, which involved inter alia producing to the bank a copy of the front page of the contracts for the purchase of these units at inflated prices, supplying to the bank false material as to Mr and Mrs Hamilton's financial circumstances, the obtaining of bank finance on 80 per cent of those prices, the reduction in the purchase price after finance approval at a price substantially below that approved by the bank, forgery of signatures on documentation, collecting on settlement the loan funds and transferring the surplus funds to himself. 21The bank was represented by D. A. Smallbone, the first and second defendants by K. Ginges, the third defendant by D. Lloyd and LawCover by S. R. Donaldson SC with G. Ng. The Pleadings 22The pleadings may be conveniently summarised as follows: The bank's claim against Mr and Mrs Hamilton (the first and second defendants) 23By further amended statement of claim dated 27 September 2010, the bank claims against the first defendant, judgment in the sum of $468,431.56 being the amount owing under the loan agreement as at 19 September 2007; plus interest, charges and expenses from 20 September 2007. The bank also claims against the second defendant, judgment in the sum of $448,000.00, owing under the Guarantee as at 27 September 2007, plus enforcement expenses. 24By further amended statement of claim dated 27 September 2010, the bank claims against the second defendant judgment in the sum of $468,431.56 being the amount owing under the loan agreement as at 19 September 2007, plus interest, charges and expenses from 20 September 2007. The bank also claims against the first defendant judgment in the sum of $448,000.00, owing under the Guarantee as at 27 September 2007, plus enforcement expenses. 25In an amended defence filed on 27 September 2010, the first defendant admits that he signed the document titled "Consumer credit contract schedule" (the Schedule), admits he is bound by the conditions in the Schedule and a document called "Usual Terms and Conditions for Consumer Mortgage Lending" referred to in the Schedule. The second defendant denies that she signed the Guarantee or authorised it to be signed on her behalf. She pleads that the Guarantee is void. 26In an amended defence filed on 27 September 2010, the second defendant admits that the bank provided credit to her but denies that she signed or authorised the signing of the Schedule. She pleads that the Schedule is void or of no effect and denies that she agreed to repay the amount owing under the Agreement. The second defendant pleads that the signing of the Mortgage and loan agreement was done without her knowledge and consent and they are void and of no effect. The first defendant admits that he guaranteed payment of all money owing at anytime by the second defendant but pleads that if the Schedule is void or of no effect, then he is not liable under the Guarantee. 27In their amended defences, the first and second defendants no longer rely upon defences founded upon the Contracts Review Act 1980, the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). It seems that these defences were withdrawn in accordance with the agreement with the bank (see [16] above). The bank's claim against Peter Webb (the third defendant) 28In each proceeding, the bank makes a claim against the third defendant for breach of warranty of authority. The bank pleads that the third defendant held himself out as acting for the first and second defendants on the purchase of the properties and the loan agreement, that on 26 September 2005, the third defendant directed the bank to draw cheques on the settlement of the two properties including two cheques payable to Webb Trust Account each in the amount of $67,582.15 (the surplus funds), that in accordance with the direction, at settlement, the bank made each cheque for the surplus funds payable to Webb Lawyers Trust Account. The bank claims that, after settlement, the bank became aware that the surplus funds were not used to purchase the properties and were transferred to Mr Lee from Webb Lawyers Trust Account. 29The bank pleads that the third defendant warranted to the bank that he was authorised by each of the defendants to receive surplus funds as his or her agent and the bank proceeded with completion in consideration for the warranty. The bank claims that in breach of the warranty, the third defendant was not authorised by either the first or second defendant to receive the surplus funds and by reason of that breach has suffered loss and damage namely approximately $448,000 paid on settlement, loss of the bank's bargain with the first and second defendants or alternatively the surplus funds. 30In defences filed on 28 September 2010 to the further amended statements of claim, the third defendant says that by the time of settlement, the bank had been advised that the purchase price of each of the properties had been reduced to $365,000 and was aware or ought to have been aware before settlement that some of the funds (including the surplus funds) that the bank advanced at settlement were not used to purchase the properties. The third defendant admits that he held himself out as acting for Jason and Karen Hamilton in relation to the purchase of the properties, that he directed the bank to draw cheques on settlement including the two cheques payable to the Webb Lawyers Trust Account for the surplus funds and that he warranted to the bank that he was authorised by them to receive surplus funds as their agent. The third defendant pleads that at all times he held actual authority conferred on him by Jason and Karen Hamilton to act for them as the purchasers including the receipt of the surplus funds. Further, or in the alternative, the third defendant pleads that all times he held actual authority conferred on him by Mr Lee to act for Jason and Karen Hamilton in relation to the purchase of the properties including the receipt of the surplus funds. Contributory negligence is also pleaded, as is an apportionable claim under s 34 Civil Liability Act. The third defendant, further or in the alternative, says that any loss that the bank has suffered was caused by an intervening act of negligence by the bank, which severed the chain of causation by the third defendant and the bank's loss and damage. 31In an amended defence filed on 25 March 2011, the third defendant pleads that at all times he held actual, ostensible and/or implied authority conferred on him by the first and second defendants to act for them in relation to the purchase of the properties, including to receive the surplus funds on their behalf. The particulars of actual, ostensible or implied authority are as follows: (1)Jason Hamilton signed authority documents dated 7 September 2005 and 14 September 2005 authorising Webb to act for the first defendant in relation to the purchase of the units; (2)Jason Hamilton signed a contract for the sale of land with Webb nominated as his solicitor; (3)Jason Hamilton signed a costs disclosure agreement with Webb; (4)Jason Hamilton had authorised Mr Lee to retain a solicitor to act for him and the second defendant in relation to the purchase of the units; (5)Karen Hamilton had authorised Jason Hamilton to retain a solicitor to act for her to do all that was necessary on the transaction; (6)Jason and Karen Hamilton had authorised Mr Lee to collect mail from Mr Webb's office and deliver it to them; (7)Mr Lee had been given identification documents by Jason and Karen Hamilton and those documents were made available to Mr Webb; (8)Mr Lee gave to Mr Webb authority documents signed or apparently signed by Jason and Karen Hamilton; (9)In the premises, Mr Lee had actual authority to act as Jason and Karen Hamilton's agent in relation to the purchase of the units; (10)In the alternative, Mr Lee had ostensible authority to act as Jason and Karen Hamilton's agent in relation to the purchase of the units. (11)Jason and Karen Hamilton knew that a solicitor was retained to act for them in relation to the purchase of the units and in relation to obtaining finance, and knew that the solicitor would be making representations to the Bank on their behalf, but did nothing to stop Webb from making the representations; (12)In the premises, Jason and Karen Hamilton would be estopped from asserting that Mr Webb was authorised to act and make representations to the bank including representations as to the surplus funds; (13)Karen Hamilton signed a number of documents in relation to the unit she was purchasing; (14)The action of Mr Webb in issuing cheque direction 14 to the bank was a subordinate act necessarily or ordinarily incidental to his authority to act for the first and second defendants, and was therefore within the scope of his authority. Mr and Mrs Hamiltons' cross-claims 32As summary judgments have been obtained, it is unnecessary to recite here the cross-claims against Mr Lee. As against the third defendant, Mr and Mrs Hamilton plead that in the course of acting for them in relation to the purchases of the properties, he owed a duty of care to them, and held a legal retainer to act for, and in their interests, which he breached. 33In defences to the amended cross-claims filed on 28 September 2010, the third defendant admits that he owed a duty of care to, and held a legal retainer to act for and in the interests of the first and second defendants, but denies breach. The third defendant pleads that if he was found liable, the loss or damages alleged was caused wholly or partly by the first and second defendants' negligence. Further, he pleads that the claim is an 'apportionable claim' within the meaning of s 34(1) of the Civil Liability Act 2002 and that any breach by him did not cause the defendants' loss because they are not liable to the bank. The third defendant claims that the first and second defendants failed to mitigate their loss and damage. Mr Webb's cross-claim against Law Cover Insurance Pty Limited (Law Cover) 34The third defendant pleads that by a policy of professional indemnity insurance, Law Cover agreed to indemnify him in respect of certain losses and liabilities arising from the conduct of the practice of Webb Lawyers for the period from 1 July 2006 to 30 June 2007. On or about 28 April 2008 Mr Webb notified LawCover of these proceedings and sought indemnity under the policy, but indemnity was refused. 35In its defence, Law Cover pleads that the third defendant is excluded from relying upon his insurance policy on the following grounds: The proceedings have arisen either directly or indirectly from Mr Webb's dishonest or fraudulent acts or omissions (the dishonesty or fraud exclusion) The claim arises from Mr Webb's knowing involvement in contract discounting (the contract discounting exclusion) The claim arises from a breach of a warranty that Mr Webb was authorised to receive the surplus funds, which is a contract other than a contract to provide legal services in connection with Mr Webb's legal practice (the non-legal services contract exclusion) The contract in question is one that extends Mr Webb's duty beyond exercising the standard of care and skill to be reasonably expected of a legal practitioner in the circumstances (the more onerous contract exclusion). The bank and the first and second defendants 36Units 12 and 13, having been sold, the bank's claims against the first and second defendants are for money judgments. 37The bank's case against Karen Hamilton relies upon the loan agreement, registered mortgage AB825424Q and memorandum of mortgage (affidavit of Michael Quinn exhibit A pp1-30, 34-48). Furthermore, the bank seeks to enforce a guarantee against the first defendant (exhibit A pp 49-57). 38In the case of Jason Hamilton, the bank relies upon the loan agreement, registered mortgage AB 825 334R and, memorandum of mortgage (ex B pp 1-30, 34-48). The guarantee that the bank seeks to enforce against the second defendant is found at pp 49-57 exhibit B. 39The principal contention in Karen Hamilton's case is that the signatures that purport to be hers on the loan agreement and mortgage are forgeries. Jason Hamilton argues that as his wife has no obligation under a forged loan agreement, the guarantee given by him is invalid and unenforceable. 40Jason Hamilton does not contend that the signatures on the loan agreement, mortgage and guarantee, which the bank seeks to enforce against him are not his, but Karen Hamilton says that the signature on the guarantee is not hers and is a forgery. 41Mr Smallbone accepted that the signatures on the "Karen Hamilton" documents (the loan agreement and the guarantee) bear a striking pictorial similarity to the signatures on her driver's licence and on her affidavit. He said that the bank was not able to prove, by any independent evidence, that the signatures on the loan agreement or on the guarantees are Mrs Hamilton's. Mr Smallbone submitted that the only basis that could exist for a finding that the signatures were hers, must be by inference from the circumstances of her involvement in the transaction and to so find, would be to disbelieve her evidence denying the authenticity of the signatures. Mr Smallbone said that she appeared to be an honest and credible witness. Mr Smallbone pointed out that the circumstances of the transaction also involved the interposition of Mr Lee and Dorothy Adams, against whom there is credible reason to suspect fraud in relation to a large number of transactions, including this one. Mr Smallbone accepted that any circumstantial case that Karen Hamilton actually signed the contract is not strong. 42Mr Smallbone argued that if it is found that the loan agreement with Mrs Hamilton was a forgery, the bank had no contract with her. However, had she chosen to instruct Mr Webb to direct payment of the advance by the bank that would have been a sufficient adoption of the loan agreement by her, because she knew that the bank would only be lending on the basis of a loan agreement and she would either enquire and discover its terms or, if she did not, would be proceeding on the basis that she was content to be bound by the terms of the contract, whatever the contract stated. 43Mr Smallbone pointed out that Jason Hamilton, by his defence, admits that he signed the loan agreement. Mr Smallbone argued that Mr Hamilton could only be sued on the loan agreement for what was lent to him under it. Mr Hamilton denies, Mr Smallbone said, that he authorised Mr Webb to give the cheque directions, which meant that the solicitor was not authorised to direct that the advance be made or to give a valid receipt under it. As a consequence, the funds were not advanced under the loan agreement. 44Mr Smallbone contended that, in each case, had the solicitor's warranty been true, the bank would have had a valid and enforceable loan agreement with respect to the amounts advanced on settlement as against the first and second defendants. The bank's submission was that is "the better view that Mr Webb is liable for the bank not having an effective claim in contract against each of Mr and Mrs Hamilton" (prs, par 1). Mr Webb could only succeed in relation to either case, on the basis that it is found that his 'client' in fact authorised him to direct the advance and thereby became liable for the advance under the relevant loan agreement terms. 45During oral submissions, Mr Smallbone explained that the bank's case was "either or". Either Mr Webb had authority to direct payment of the advance in respect of either loan or he did not. The primary submission was that Mr Webb had no such authority and was liable to the bank, whereas Mr and Mrs Hamilton were not. Alternatively, the bank's case was that, if either Mr or Mrs Hamilton had given Mr Webb that authority, then Mr Webb's authority was true, there was no breach by him and whoever of them had provided the authority, would be liable. 46Before venturing further, it is convenient to visit the evidence of the first and second defendants. Some matters of evidence 47In an affidavit sworn 10 June 2009 (ex 1), Jason Hamilton stated that he and Mr Lee had been friends since about 1998. Mr Lee had introduced him to an investment property in Queensland and had assisted he and his wife with the purchase of the property by arranging finance and legal representation. 48During his oral evidence, Mr Hamilton said that he accepted Mr Lee's recommendation that it was a good idea to buy the property as he considered that Mr Lee was a close friend. Mr Lee had not only arranged for a lawyer to act on the purchase but had arranged finance. Mr Hamilton agreed that he had signed a contract for sale, bank loan agreement and mortgage. The property was sold in about 2002. The profit that he and his wife had made on the transaction was a little bit less than $20,000 after capital gains tax. 49The first defendant recounted that he and his wife had purchased a block of land at Glenmore Park in 1996 for which they had used a solicitor and had obtained finance from the St George Bank. They had re-financed to build a house on the land in 1998. He had signed a bank loan application and mortgage for the land purchase and more documentation when they re-financed. He had purchased a tobacconist shop business in 2003 and had retained a solicitor and signed a contract for that purchase. 50Mr Lee had approached him in 2004 about purchasing another investment property at Wentworthville. Mr Lee told him that he was working with developers to sell the apartments, which were being built. Mr Lee asked if he was "interested in getting into one of them". Some time later, Mr Lee told him that because the developers were struggling, they would guarantee the finance, as well as the rent at $400 per week for the twelve months. Mr Hamilton asked to look at the apartments and he and Mr Lee viewed the development at 8-10 Lydbrook Street, Wentworthville shortly thereafter. The development was close to completion. Mr Hamilton thought that the apartments' location "was good" and continued to be interested in purchasing an apartment as an investment property. He recalled having the following conversation with Mr Lee (ex 1 par 12): "Around this time Graham and I had a conversation which included words to the following effect: I said:"Roughly how much are the apartments?" Graham said:"I am not sure. I am waiting on a price. Let's look at financing first. There is no point in discussing a price if you can't afford the mortgage repayments." I said:"Didn't you tell me that finance is guaranteed?" Graham said:"I won't let the bank lend you more money than you can afford to repay. I think that if I can get finance, your Misses should also get one unit." I said:"See what you can do. If the rent is guaranteed and we don't have to pay too much from our own pockets, I don't see why Karen would not want one also." 51In his affidavit at par 13, Mr Hamilton recalled that Mr Lee came to the tobacconist shop during business hours and asked him to sign some documents. He explained that he usually read briefly through the documents between serving customers. His recollection was that before signing each document, he had read it sufficiently in order to understand it. It was possible that, in relation to some documents, he had not read the document properly before he signed it. Mr Hamilton stated that a reason that he only read the documents briefly was because he trusted Mr Lee and believed he was acting in his best interests. When he signed the contract for sale of unit 12, 8-10 Lydbrook Street, he said that the purchase price of $560,000 was not on the contract. He recalled that when he signed the contract, no price was on it. Subsequently, he and Mr Lee had the following conversation (ex 1 par 16): Graham said:"I have confirmed that the Commonwealth Bank will be lending you the money for the unit at Wentworthville. 100% finance approved for the purchase price, legal costs and stamp duty, everything is ready to go for you and Karen." I said:"Cool. We don't have to pay anything correct?" Graham said:"That's right, everything is covered. I will even deal with the Solicitors for you and Karen because I know how busy you are running the shop." 52Mr Hamilton recounted that on some occasions, Mr Lee came to the tobacconist shop, gave him some documents and asked him to have his wife sign them. After work, he took the documents home and asked Karen to sign them, which she did. Mr Lee subsequently collected them from the tobacconist shop. 53It was the first defendants' evidence that at no time did he and his wife sign any document in front of a solicitor or accountant. They never met Peter Webb. 54When Mr Hamilton was questioned by Mr Smallbone as to the signature appearing on the document authorising "Webb Lawyers to place all surplus funds from the subject purchase into Trust" dated 7 September 2005 (ex 2 CD1, p 76: the surplus funds authority), he said that it looked like his signature but did not recall the document. He testified that he was totally unaware of that document until 2006. He said that he did not remember signing the document (ex 2 CD1, p 74: the buyer's agent authority), but it did appear to be his signature on it. His attention was directed to the Trust authority (ex 2 CD1, p 174), by Mr Smallbone and he gave the following evidence (T 98.37-50, T 99.1): "Q. Is it your evidence that the first time you found out about any direction, or purported direction, to Webb Lawyers to release funds in a trust account in your name to be paid to Graham Lee was in 2006? A. At the time we were speaking to the police, yes. Q. And had you ever seen this document before 2006? A. No. Q. Is the first signature, which appears on that page, your signature? A. It is very faint. It looks like my signature. Q. Is it your signature? A. I can't recall. I don't ever remember signing a trust authority document, but that does look my signature." 55During cross-examination by Mr Lloyd, Mr Hamilton agreed that it was his understanding that Mr Lee would entirely deal with the bank and that he [Mr Lee] would deal with the solicitor retained to act on the purchase. He knew that the solicitor was going to be Webb Lawyers. He thought it was likely that he got identification documents from Karen, being her driver's licence and birth certificate and had given them to Mr Lee or the bank. He testified that he did not go to the bank nor did he see a mobile lender. Mr Lee handled it all. He said that the signatures on the bank's Acknowledgement and Consent document at (ex 2 CD1, p 4) appeared to be his as did the signature under Borrower(s) in the bank's letter dated 1 September 2005. He further agreed that the signature on the surplus funds authority (ex 2 CD1, p 76) appeared to be his, as did the signature on other bank documents including Authority to Complete and Pay (ex 2 CD1, p 86) Consumer Credit Contract Schedule (ex 2 CD1, p 92-97) and Home Loan - Direct Debit Request (ex 2 CD1, p 164). 56On the topic of the unstamped memorandum of transfer, the first defendants' evidence included the following (T 127 .3-34): "Q. What I suggest to you is that you when you signed the document that consideration of $365,000 was recorded on it? A. Again, I can't recall. Q. That that is something which you knew by the time you signed this document, correct? A. No. I don't ever recall knowing the price for the property. HIS HONOUR Q. At all? A. No. But, again, I can't recall. So, I'm not saying I did or didn't. I'm saying I just can't remember. LLOYD Q. In relation to the price of the property, the position was that you knew that you were borrowing $448,000 from the bank? A. Yes. Q. You say that the deal was that you didn't want to have to pay out any money from your own pocket? A. Yes, for legal fees and other stuff as well. Q. I suggest to you that if you knew the bank was advancing $448,000, you knew from that sum there had to be some deductions that would not be part of the purchase price? A. Yes. I was under the assumption the property was worth $400,000, $420,000. It was a $448,000 loan. There is only so much that can be incurred for legal fees. 57Mr Hamilton agreed that the transfer appeared to contain his signature. When Mr Lloyd suggested to Mr Hamilton that he signed the transfer knowing full well the consideration was $365,000, Mr Hamilton responded (T141.5-6): "Well, I signed a lot of documents in the shop and in between customers and serving wholesale outlets. I can't ever recall seeing numbers." Mr Hamilton maintained that he did not ever recall seeing a price. When he was signing documents, Mr Hamilton recounted that he signed where "a little tab" said, sign here. He briefly scanned what the document was and signed it. He did not ever recall reading the document in depth (T141.10-25): 58Mr Hamilton stated that he was unaware that $67,582 would be paid to Mr Lee or another person. He believed that all of the money he borrowed, from the bank, namely $448,000, would be used to purchase unit 12. When Mr Lloyd suggested to him that he and Mr Lee had discussed before 28 September 2005 that there would be a surplus from the settlement funds that the bank was advancing, Mr Hamilton replied (T140 .44): "We never knew there was any money left over." 59Mr Hamilton could not tell whether the signature on the trust authority to release funds dated 14 September 2005 (ex 2 CD1, p174) was his. He said that he did not know there were any surplus funds and asked, "So why sign a little piece of paper saying that I'm going to release funds to anybody?" 60He could not confirm or deny that he had read the deed of variation (ex 2 CD1, p 189), but accepted that the signature on the document appeared to be his. When questioned further by Mr Lloyd as to his knowledge that there was going to be a surplus of funds from the bank advance, Mr Hamilton said that he did not understand why he would borrow extra money. He rejected the suggestion that there was some agreement with Mr Lee about the surplus funds being available at settlement for Mr Lee's use for the purpose of a proper syndicate. He stated if he had known that $67,582 or any amount larger than a small commission was being paid to Mr Lee, he would not have proceeded to purchase unit 12. It would have been foolish to pay $448,000 for an investment property worth $365,000. The first time that he had been aware of surplus funds was when Karen Griffin, a police officer, attended his shop in late July or early August 2006. 61During his oral testimony, Mr Hamilton remembered taking documents home for his wife to sign that had been given to him by Mr Lee. His evidence on this topic included the following (T129 .47-50; T130.1-11; T131.1-15): "Q. But you are sure the documents that Graham gave to you related to the purchase of unit 13 by Karen, didn't they? A. No. I think it was for unit 12. I can't remember. Q. Well, is your evidence to your his Honour, seriously that, you were not aware that your wife was also purchasing a unit? A. We were looking at buying two units, but initially we were buying one. Q. That position changed, and I suggest you knew that it had changed at some point before the bank advanced the money? A. The position did change, but I'm not sure when. Q. You knew before you acquired the property. You knew about that time that your wife was also buying a unit? A. No, it wasn't until afterwards. Q. How long afterwards? HIS HONOUR Q. After what? A. After we got the two properties. I can't remember the exact conversation but I had a conversation with Graham about it. Q. You mean after settlement? A. Yes. Q. That was when you first realised that your wife purchased a property? A. Yes, we were originally buying one in both names." 62And (T 134.3-47): "Q. You discussed with him the prospect, you gave evidence about your wife purchasing a unit? A. Yes. Q. And you discussed that with him before settlement, correct? A. Yes. Q. Didn't you say when you were signing all these documents, well, what is the position with Karen's unit? A. It was just a discussion at the time. We were still just doing the one. HIS HONOUR Q. Can I, in fairness to you, direct your attention to paragraph 20 of your affidavit? A. 20? Q. 20? A. Yep. Q. Having read that paragraph, does that assist your recollection? A. I remember there was definitely discussion about getting two. And I know that Karen was opposed to getting two. So apart from that, that is all I remember. Q. Can I just ask you what you meant by paragraph 20 as to your belief? A. Well, that looks like we're purchasing two. But again, this was, a lot has happened since this so it is very hard to recollect what happened. Q. Can I also refer you to paragraph 12, to the "I said", "he said" conversation? A. Yep. Q. In particular the last "I said" conversation, "See what we can do"? Q. Yes? A. Yep. Q. Does that assist you in your recollection? A. Yeah, that was, I had discussed with Karen about getting one for herself but she was against it. Q. Is it still your evidence that you did not understand that Karen was buying a unit until after settlement? A. Yes, that is correct." 63Paragraph 20 of Mr Hamilton's affidavit is as follows: "Graham showed me documents and I believe that Karen and I were each borrowing $448,000 from the CBA to purchase units 12 and 13 of the development." When further questioned on this topic, he said that he could not remember. If he said yes or no, he would be lying but agreed it was likely that what was stated in paragraph 20 was true. 64In her affidavit (ex 2), Karen Hamilton recounted that her husband informed her that Mr Lee told him about some investment property at Wentworthville for which he could arrange 100 per cent finance from the bank. She was not happy about going into further debt but said to Jason that she would support him if he decided to go ahead with the purchase. She recalled Jason brought documents home after work for her to sign but she did not read them. She stated that she signed the documents at her husband's request but had not read them. The police had shown her a copy of the contract for sale and the memorandum of transfer for unit 13 but the signatures appearing on those documents were not hers and were forgeries. She had also been shown by Peter Rosier for the NSW Law Society in March 2007, a bundle of documents and said that all of the signatures appearing on those documents were forgeries. The documents included a Trust Authority, solicitor's cost agreement, letter authorising Mr Lee to act as her agent, loan agreement, authority to complete and mortgage AB 825424Q. 65During cross-examination, Mr Lloyd took Mrs Hamilton to various documents in the tender bundle on which appeared the signature "Karen Hamilton." She gave evidence that none of the signatures were hers. Amongst the documents brought to Mrs Hamilton's attention was the contract for sale for unit 13, 8-10 Lydbrook Street, Wentworthville, surplus funds authority, the loan agreement and the Guarantee of her husband's loan. When Mr Hamilton was being cross-examined by Mr Lloyd, he testified that the signatures appearing at pages 12, 75, 77, 81, 89 and 127 in the tender bundle were not those of his wife. 66Mrs Hamilton said she originally thought that they were only buying one property but it was possible she and her husband had a discussion about buying two properties, instead of one, some time before the end of September 2005. She agreed that she had left the matter in Jason's hands. She agreed that in her mind, the people liaising with the financial institution about the money to purchase the property or properties would be Jason and Mr Lee, because that was the way it had worked for the investment property in Queensland. She agreed that Mr Lee had located solicitors to act for them for the Queensland purchase but did not know whether he had liaised with them. Mrs Hamilton agreed that she had, in her mind, left it to Jason and Mr Lee to look after finding a solicitor and retaining one to act for herself and Jason. On this topic, Mrs Hamilton was asked by Mr Lloyd (T181.36-40): "Q. In dealing with that solicitor, in relation to whatever was required for the transaction? A. Yes." When Mrs Hamilton was recalled on 30 May 2011, her testimony included the following (T786.5-39): "Q. Now, when you were having the discussion with Jason, about finding a solicitor for you, was that at some point before you had a conversation with him about a property having been found and the matter going ahead? A. I didn't want to go ahead with the property at first. I didn't want to buy a property at all, and, then, it took some talking Jason talked to me about going ahead with a property and saying that it is all organised and everything is okay, so that was it, we bought one property. Q. Did you have a discussion with Jason about buying two properties? A. No. I don't recall. No. Q. Did you have a discussion with Jason about he and you each buying one property? A. No. Q. Did you have a conversation with Jason in which you said, words to the effect, that once a solicitor was retained to act for you, he could then give to that solicitor such future instructions as might be needed by the solicitor to progress the transaction to completion? A. No. Q. And did you have a discussion with Jason in which you told him that he could authorise Mr Lee to give to your solicitor, once retained, whatever instructions were needed by that solicitor to progress the transaction to completion? A. No. Q. Did you have a discussion with Jason in which you said to him, words to the effect, that he could appoint Mr Lee to act for you as your buyer's agent? A. No. Q. Did you have a discussion with Jason in which you said to him, words to the effect, that he could give instructions to your solicitor to deal with any surplus funds on the financing of the purchase? A. No." 67In her affidavit, Mrs Hamilton stated that she was unaware that there were excess funds from the purchase of unit 13 and she had not authorised the payment of any funds to Mr Lee. She had never spoken to the bank or Webb Lawyers regarding the loan for the purchase of unit 13 nor was she offered legal advice for the purchase. Can the bank succeed against Karen Hamilton? 68Karen Hamilton bears the onus of establishing forgery on the balance of probabilities. Her evidence on this topic was supported by her husband. It is evident from Mrs Hamilton's testimony that she did sign some documents at the request of her husband, but I am unable to determine, on the evidence, the documents she in fact signed. However, by comparing Mrs Hamilton's signature on her driver's licence (ex 2.B) and her signatures on her affidavit with the signatures appearing on the documents shown to her either by police, Mr Rosier or Mr Lloyd, it is plain that she did not sign any of these documents and I accept her evidence. I am satisfied on the balance of probabilities that the signatures are forgeries. In the present circumstances, it is not necessary for a handwriting expert to be called. I find that the second defendant neither signed the loan agreement, the mortgage, nor the guarantee. 69As Mrs Hamilton's signatures are forged, she neither entered into the loan agreement, the mortgage, nor the guarantee. Mrs Hamilton was not a party to the contract of loan as she had not in any way participated in its formation: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326G. The mortgage by reason of the forgery is "null and void for all purposes": Rogers v Resi-Statewide Corporation Limited and Others (No 2) (1991) 32 FCR 344 at 350 70The mortgages were "all moneys" mortgages. Part A to each Memorandum of mortgage is found at p36 of exhibit A and provides: "This mortgage secures all Amounts Owing under any Secured Agreement." 71"Secured Agreement" is defined to mean (ex A p36): "an agreement between one or more of you and us (including a guarantee given by one or more of you) whenever made, under which you undertake to pay or repay us money, and which you acknowledge in writing to be an agreement to which this mortgage extends..." 72Mrs Hamilton did not enter into an agreement with the bank under which she undertook to repay money nor did she give a mortgage. In these circumstances, the registration of the forged mortgaged does not enable the bank to succeed in a claim in personam for a monetary amount against her: Perpetual Trustees Victoria Limited v English & Anor [2010] NSWCA 32; (2010) 14 BPR 27,339 per Sackville AJA at [13]. The question, however, remains as to whether there had been an adoption of the loan agreement by Mrs Hamilton, a topic to which I will return at [79] below. 73Mrs Hamilton's signature was forged on the guarantee purportedly provided for her husband's loan. It was void at general law. The registration of the mortgage in which the first defendant was the mortgagor does not permit the bank to enforce the forged guarantee against the second defendant. 74It seems to me, in dealing with Mr Smallbone's contention that Mrs Hamilton could be liable if she adopted the loan agreement, that Mr Lloyd's submissions on ostensible authority, although directed to the question of Mr Webb's liability to the bank, are relevant to this issue. 75There is no suggestion that Mr Webb had actual authority from Mrs Hamilton to act on the purchase of unit 13. The signatures bearing her name on the contract for sale, transfer, authorities directed to Mr Webb dated 7 September 2005 and the Trust authority are forgeries. 76Mr Lloyd submitted that Mrs Hamilton knew that her husband was dealing with Mr Lee in relation to the purchase of a unit by her, that there was a solicitor retained for her in relation to the purchase of the unit and that the solicitor would be doing certain acts, including in relation to finance. Mr Lloyd contended that Mr Webb had ostensible authority to act for Mrs Hamilton in relation to "whatever was required" for the transaction being the acquisition of unit 13, including obtaining finance. Accordingly, Mr Webb had ostensible authority to act for her in relation to the conveyance and the transaction with the bank. 77Mr Lloyd drew my attention to what was said by Hodgson JA in Essington Investments Pty Ltd & Ors v Regency Property Pty Ltd [2004] NSWCA 375, at [41]-[46]. Particular emphasis was placed by Mr Lloyd on [42] where Hodgson JA, in citing Bowstead & Reynolds On Agency (17th Ed), referred to the learned authors' suggestion of a second type of case of ostensible authority "where the representation is only of a very general nature, and arises only from the principal's putting the agent in a specific position carrying with it a usual authority." Hodgson JA noted at [44] "that the representation of authority must either be made, or at least permitted to be made, by the principal." His Honour went on to say at [45]: "In my opinion, one circumstance in which it may be said that representations are permitted to be made is where a principal knows that an agent engaged on the principal's behalf is making representations as to the agent's authority, is able to prevent such representations being made or countermand them, but does not do so. There is arguably, in these circumstances, something like a representation by silence: the circumstances call for some action by the principal to ensure that persons are not misled by the agent, and the principal does not take that action." 78Mr Lloyd accepted, however, that a finding that Mr Webb had ostensible authority to act for Mrs Hamilton in relation to the transaction, is not determinative of the question of whether the representation in cheque 14 exceeded his authority, as Mr Webb did not have actual authority to issue that cheque direction. It was argued that Mr Webb had implied authority to issue cheque 14 and did not exceed his authority in requesting cheque number 14 on behalf of Mrs Hamilton. 79Mr Hamilton was less than frank when he initially told me that it was not until after unit 13 was acquired, that he knew that his wife was buying a unit. Mr Lee had previously shown him some documents which lead him to believe that they were each borrowing $448,000 to the bank, which he did not disclose to Karen. He did not do so, as he was acutely aware that she would not have proceeded with the purchase. I have little difficulty accepting Mrs Hamilton's evidence that she did not want to go ahead with the purchase of a unit at all until he talked her into it and they bought, she believed, one property. Although Mrs Hamilton was unable to recall whether there had been a discussion about the purchase of two properties, she was able, without hesitation, to reject the suggestion that she and her husband spoke about each of them buying one property and I accept her evidence. In any event, if the subject had been raised by Mr Hamilton, I have no doubt that it would have been readily despatched by his wife. I find that Mrs Hamilton did not know that her husband was dealing with Mr Lee in relation to the purchase of a unit by her and there was a solicitor retained to act on that purchase. It is patently clear that Mrs Hamilton's signatures were forged to keep her unaware of the separate purchase. 80No representations of authority were made, or permitted to be made by Mrs Hamilton, nor was there a representation by licence. Mr Webb did not have ostensible authority to do "whatever was required" for the purchase of unit 13, nor did he have implied authority to direct the bank as to the payment of cheques on settlement, including cheque 14. Mrs Hamilton did not adopt the loan agreement nor was she content to be bound by the terms of the contract, whatever the contract stated. Accordingly, the bank cannot succeed against Mrs Hamilton. Whether the bank can succeed in its 'either or case' against Mr Webb remains to be considered. Can the bank succeed against Jason Hamilton on the guarantee? 81Mr Hamilton guaranteed the monies advanced by the bank to his wife. I am satisfied that he signed the guarantee and questions of forgery do not arise. Mr Ginges submitted that as Mrs Hamilton had no obligation under the forged loan agreement, the guarantee that her husband gave was also invalid and unenforceable. 82Little attention was given to this issue by the bank and the submissions upon this topic are indeed sparse. 83The principle of co-extensiveness generally provides that if no principal contract is concluded, the guarantor's liability never arises. The illegality of and unforceability of the principal obligation will render the guarantee of that obligation similarly unenforceable: Heald v O'Connor [1971] 1 WLR 497; 2 All ER 1105. As Lord Selborne said in Lakeman v Mountstephen (1874) LR 7 HL 17 at 24-25: "...until there is a principal debtor there can be no suretyship. Nor can a man guarantee anybody else's debt unless there is a debt of some other person to be guaranteed." 84Mr Smallbone did not submit, in the circumstances of Mr Hamilton's guarantee, that the principle of co-extensiveness did not apply. 85I am not satisfied on the balance of probabilities that the guarantee signed by Mr Hamilton is enforceable against him. The bank and Jason Hamilton and Peter Webb 86In the bank's 'either or case', the primary submission was that Mr Hamilton had not authorised Mr Webb to direct the advance and he was not liable to the bank. Mr Hamilton would only be liable if it was found that he had in fact provided that authority to the solicitor. Consequently, the focus of the bank's case was that Mr Webb warranted that he had authority to direct and receive the advance made by the bank on completion of the sales to Mr and Mrs Hamilton when he had no authority from them. Mr Smallbone said that in the case against Mr Hamilton, the problem was not forgery, but want of direction to make the advance. Mr Smallbone submitted that Mr Hamilton did not give that instruction and Mr Webb had breached his warranty of authority. 87Mr Smallbone further submitted that Mr Webb knew that Mr Lee was engaged in a dishonest scheme and was a participant in it. Mr Webb knew or believed, Mr Smallbone argued, that Mr Lee was misleading the financiers. Mr Smallbone contended that Mr Webb's failure to make enquiries concerning Mr Lee's misdeeds occurred because he feared the truth and did not want to be told anymore. He was recklessly indifferent to the truth of Mr Lee's representations to financiers, as well as to his clients, but was prepared to do everything to facilitate the transaction. Mr Smallbone put to me that Mr Webb was dishonest and was a party to Mr Lee's fraud. Mr Smallbone said that Mr Hamilton had not conceded that he had signed the authorities and cost agreement. There could be no comfortable assurance that the material documents were in fact signed by him. 88Mr Ginges relied on the submissions advanced by the bank on the question of breach of warranty of authority to support the submission that no funds were properly advanced to Mr Hamilton or in accordance with his 'authority' and as such the funds disbursed at the direction of Mr Webb were done so without proper knowledge or authority of Mr Hamilton. Mr Ginges argued that the bank's loss, by reason of that direction, was occasioned by Mr Webb's breach of warranty of authority rather than by reason of the mortgage entered into by Mr Hamilton. 89Mr Ginges submitted that, given what is known about Mr Lee and his practice of forging and creating false documents, it is quite probable that the documents signed by Mr Hamilton would have been, or at least could have been, altered to suit Mr Lee's purposes. According to Mr Ginges, "that, therefore, gives credibility to Mr Hamilton's evidence and lack of recall in the face of his apparent signatures": DWS, par 72. 90Mr Lloyd said that the first question to be asked is what authority did Mr Webb have from Mr Hamilton relevant to the question of whether he was authorised to receive the surplus funds into his trust account. Mr Lloyd submitted that there should be a finding that the surplus funds authority (ex 2 CD1, p 76) was signed by Mr Hamilton as was the buyer's agent authority (ex 2 CD1, p 74). The surplus funds authority gave Mr Webb express actual authority, Mr Lloyd contended, to issue cheque direction 14. That authority was confirmed by the buyer's agent authority and the Trust authority (ex 2 CD, p 174). In the alternative, if Mr Webb did not have actual authority, he had ostensible authority to act for Mr Hamilton in relation to the purchase and the principles in Essington Investments applied. Mr Lloyd argued that any assertion made of Mr Webb's dishonesty should be rejected. 91I do not think that Jason Hamilton has discharged the onus of establishing on the balance of probabilities that the signatures on the surplus funds authority (ex 2 CD1, p 76), the buyer's agent authority (ex 2 CD1, p 74) and the Trust authority (ex 2 CD1, p 174) are forgeries. He accepted that the signatures on the surplus funds authority and the buyer's agent authority appeared to be his, but could not tell whether it was his signature on the Trust authority. It became evident during Mr Hamilton's oral testimony that he had signed documents at his shop upon Mr Lee's request, but paid little attention to the detail of the document that had been signed. Mr Hamilton's close friendship with Mr Lee, whom he trusted, the success of their prior real estate dealing and the skilful lure of the prospect of monetary gain, impacted upon the prudence of his consideration of the transaction. 92I do think that his testimony of not seeing the authorities until 2006 is mistaken and arises from his failure to read the documents that he signed. I am satisfied that the surplus funds authority, buyer's agent authority, Trust authority, memorandum of transfer and deed of variation were signed by Mr Hamilton. However, I find that he had no understanding that the purchase price had been reduced and that he had directed that the surplus of the bank's loan be paid to Mr Lee. Mr Lee took advantage of Mr Hamilton's trust and fraudulently manoeuvred his dealings with him for his own financial gain. Mr Hamilton's naivety exposed his wife and himself to the serious risk of fraud. Yet, all of this emphasises the fundamental importance of Mr Webb and his employed solicitor, Ms Abood, acting honestly and exercising reasonable care in the provision of their services. 93As Mr Webb's honesty is at issue, it is necessary to review the evidence of Mr Webb and Ms Abood in a summarised way, prior to advancing further. Further matters of evidence 94There are three affidavits sworn by Mr Webb that are in evidence. Exhibit H is an affidavit sworn on 17 September 2009 and exhibit 2CD8 are affidavits sworn on 23 September 2010 and 24 September 2010. 95Mr Webb was admitted to practice in New South Wales as a Solicitor in August 2000. He was 28 when he completed his law degree in which he majored in intellectual property. Before becoming qualified to practice, Mr Webb worked with a firm of solicitors, primarily in the area of personal injury. Because of that work, he obtained an exemption from having to complete the college of law. Mr Webb said that he had performed "a simple house purchase" in 1999 or 2000. He did not do any other conveyancing between 1999 and 2003. When he started his own firm, he had only completed one conveyance. 96In 2002 he obtained his unrestricted licence to practice as a solicitor and started his own Incorporated Legal Practice (ILP), Webbsite Enterprises Pty Ltd trading as Webb Lawyers Pty Ltd. The practice was located in Burwood, on the first floor of a building above a business known as Mortgage One. Mr Webb subleased the premises from Mortgage One (ex 2 CD8, par 12). 97Mr Webb was first approached by Graham Lee and Dottie Adams in around August 2003. Mr Lee told Mr Webb that he worked for Mortgage One and gave Mr Webb his business card which described him as an 'investment consultant' (T451.39-44). Mr Lee also held himself out as being a 'mortgage broker' and 'buyer's agent'. Mr Webb stated that he understood these titles to mean that Mr Lee held himself out as being in the business of "providing investment advice", organising finance for potential purchasers, receiving instructions and assisting a person to find "a house or a property of some description" and to provide leads for developments for Mortgage One. Mr Webb agreed that his obligations to the purchasers who had been introduced to their property by Mr Lee as a buyer's agent were not in any way reduced or limited because an agent had found the property. 98Mr Webb stated that shortly after his initial meeting with Mr Lee and Ms Adams, they tried to involve him in their investment syndicate, suggesting to him that he could use the equity from his home "to borrow for the purposes of funds required for the purchase of the investment properties". Mr Webb agreed that Mr Lee was persistent "when it came to pushing his investment scheme" but did not agree that Mr Lee was "dogged" or "pursued it relentlessly" (T454.28-32). Mr Webb said that on each occasion he told Mr Lee that he was not interested in the scheme (2 CD8, par 21). 99In late 2003, Mr Lee brought a number of conveyances to Webb Lawyers. Then in early to mid 2004, Mr Lee and Ms Adams approached Mr Webb regarding a scheme, which involved purchasing seven parcels of real estate in the Scone and Worrigee area, building houses on them, and then on-selling them (ex H par 23; T455.29-30). Mr Webb was aware that Mr Lee and Ms Adams wanted "to attract investors to fund the cost of building those houses and with a view to on sale" (T455.39-41). He agreed to act for Mr Lee and Ms Adams on the purchase "free of professional charges" based on the understanding that Mr Webb would act for Mr Lee when the time came to on-sell the properties, for which he would be able to charge a higher fee. Mr Lee arranged his own finance with the bank for these purchases and Mr Webb provided documentation to the bank as it was requested. 100In 2003, Mr Lee referred William and Donna Cooke, who wanted to purchase a unit in a complex at 8-10 Lydbrook Street, Wentworthville to him. He received documents in relation to the purchase from Mauric & Doyle, a firm of solicitors, who had apparently been acting for the vendors. The vendor of the unit (and the registered proprietor of the whole complex) was an investment company, Napier 888 Pty Ltd. One of the directors of Napier 888 Pty Ltd was Tony Sakr, whom Mr Webb knew reasonably well. Mr Sakr was married to Mr Webb's wife's cousin and they had met on several occasions including at family gatherings. Mr Sakr was also the finance broker at Mortgage One. At the time Mr Webb was instructed, contracts for sale had already been exchanged for a purchase price of $425,000. There was however, a deed of variation apparently signed by the vendor and purchasers, recording an agreement to reduce the price to $390,000. 101In regards to what Mr Webb was told concerning the reduction in purchase price he stated (pars 34-35 ex 2 CD8): "I met with William and Donna Cooke. William Cooke said to me: 'I am in a Syndicate of buyers organised by Graham Lee. Graham is going to organise surplus of funds, I am using my house as well as the unit in Lydbrook Street as security for the loan from the Bank. That will allow me to be in the Syndicate to purchase property with Graham.' Graham Lee said to me: The deal for the purchase of this unit is that I don't have to pay the deposit or stamp duty up front. The purchase price has been reduced because the valuation obtained by the Bank is less than we thought it would be'." Mr Webb stated that he accepted what he was told. In hindsight, he accepted that it was unusual for the purchaser and the vendor to agree to reduce the price for a property after exchange, but it was an unusual transaction in that no deposit was actually paid and he was told that additional security was being provided at settlement. He said that it did not occur to him that the bank was not aware of the actual purchase price, because Webb Lawyers provided the transfer recording the purchase price as $390,000 to the bank before settlement. In cross-examination, Mr Webb denied that he had invented the conversation with the Cookes whereby they said that Mr Lee would organise a surplus for them to invest in the property syndicate. He recalled that Mr Cooke was lending the money to Mr Lee because he was "very keen to become an equity partner in it whereas Mrs Cooke wanted a fixed return" on an investment (T463.40-44). 102After the completion of the Cooke purchase, Mr Webb was approached by Tony Sakr to also act on behalf of the vendor for the remaining transactions. Mr Webb expressed a concern that there may be a conflict of interest in acting for both the vendor and the purchasers. Mr Sakr suggested that any conflict could be resolved if Mr Webb acted for the vendor, and Julie Abood acted for the purchasers. The way that the firm handled the Lydbrook Street transactions was that Mr Webb would act for the vendor and Ms Abood would act for the purchasers. Mr Webb agreed, however, that there was a degree of overlap because he had to supervise Ms Abood's work (ex 2 CD8, par 49), as she was quite junior. The supervision involved his reviewing Ms Abood's files and checking them against an automatic checklist generated by the firm's software package LEAP. During cross-examination, he said this supervision may have involved sitting "down for an hour to talk over 100 files" (T649.1-2). He now recognised that as he acted for his wife's cousin's husband whom he knew socially and Ms Abood, as Mr Webb's employee, acted for the purchasers meant that the transaction was not an arm's length sale (T586.16-43) but denied that he recognised it at the time of the transaction. Mr Webb did, however, agree that at the time of the transaction he knew that it was not an arm's length sale because there was no real estate agent, and both Mr Sakr and Mr Lee worked for Mortgage One (T585.48; T586.49 - T587.3). 103The next referral Mr Webb received from Mr Lee was to act on the purchase of unit 10 in the complex for Jason Paag and Julie Roberts. Contracts had already been exchanged for a purchase price of $440,000, however, there was a deed of variation apparently signed by the vendor and the purchaser, recording a reduction in price to $400,000. Mr Webb stated that Mr Paag told him (ex 2 CD8, par 38): "I am in a Syndicate of buyers organized by Graham Lee. Graham has organized all funds to be available at settlement. You can deal with Graham in relation to the finance. I am also going to be involved in the building syndicate." Mr Webb stated that as with the Cooke matter, he accepted what he was told for the same reason. A transfer was provided to the bank before settlement recording the reduced sale price of $400,000. 104Mr Sakr provided to Mr Webb contracts that had been prepared by the previous solicitors and had already been exchanged between Napier 888 Pty Ltd (as vendor) and the following purchasers: Ms Beresford-Maning, Mr Christie, Ms Czyzewska and Mr Nolan (ex 2 CD8, par 46). Mr Webb acted for the vendor and purchaser for each of these transactions. Mr Webb stated that he had the following conversation with Mr Sakr around this time (ex 2 CD8, par 46): "Sakr: We are not taking deposits from the purchasers. I have reached an agreement with Lee about this. PW: How is it that contracts are exchanged without deposit? Sakr: What's the difference - if the purchaser does not complete, Lee substitutes with somebody else. We have nothing to lose. We are just assisting to get the exchange to happen and get our money at the end of the settlement. PW: There is no security or consideration - really exchange has not been effected. Sakr: Graham doesn't exchange unless he knows he has the finance. He screwed us with a couple at first - and we had to do variations and explain it to our bank - but the next few are all contract based - we just want him to sell them. With or without deposits [they will] [doesn't] make much difference to us. PW: Well the contract is wrong. It says you hold the deposit. Sakr: By the time we complete we have the deposit and the rest of the money to give to the bank." 105During cross-examination, Mr Webb said that at the time he believed that if the purchasers failed to complete, Mr Sakr would have "no recourse to seek specific performance and recover any of the damages" from the purchasers because there was no consideration. Mr Webb believed that a deposit was required in order to make the contract enforceable. He did not agree that his belief that there was no consideration, notwithstanding the promise to purchase land, was because he thought the contracts were a sham. When cross-examined about the Hamiltons, Mr Webb gave the following evidence (T582.50 - T584.18): "Q. So you understood that in relation to the Hamiltons, Mr Lee had provided the front pages of the contracts to the bank stating the purchase prices of $560,000? A. I understood that they were provided. I'm not sure who provided them. I presume it was Mr Lee or someone on behalf of Mr Lee or Mortgage One, I'm not sure who, but I presume that they had front pages of the contract. Q. And returning then to your conversation with Mr Sakr about the contracts not having been really exchanged that I was taking you to before lunch, it was your understanding that Mr Lee had provided signed front pages of contracts to the bank in circumstances where there had been no real exchange, is that right? A. Yes. Q. In relation to the Hamiltons, amongst others? A. Yes, sir. Q. And that it was your understanding at all times up to settlement of the Hamilton transaction that Mr Lee had provided those front pages to the bank as if they were front pages of valid binding contracts? A. Yes, sir. Q. That's right, isn't it? A. That's correct. Q. And you knew that he had done that, knowing that there had been no real exchange? A. Well, I don't know what was in Mr Lee's mind. Q. Well, you knew there had been no real exchange? A. No, I knew that they were defective, yes sir. Q. And you knew that Mr Lee had told you that he doesn't exchange unless he knows that he has the finance? A. That's correct, yes sir. Q. And you also knew that he was providing these documents to the bank in order to get finance approval? A. I presume that, yes sir. Q. So you knew that his provision of those front pages to the bank, as if they were front pages of exchanged binding contracts, was a deception that he was practising on the bank, didn't you? A. I presume so, yes. Q. And you knew that prior to settlement of the Hamilton transaction, didn't you? A. Yeah, I knew that the contracts were defective and that he may have provided them to the bank, yes. Q. And you knew that he had been setting out to deceive the bank in providing them to the bank as if they were evidence of a valid, binding exchange? A. No, I didn't know that he was - didn't know that Mr Lee was giving the front pages of the contract to the bank to deceive the bank, but I did know that he had given contracts to the bank. Q. Well, you knew he wanted the bank to think that these were, these front pages were evidence of a valid binding contract, didn't you? A. Yes. Q. And you knew that was wrong? A. Well, I knew that they were defective, yes. Q. You knew that they weren't binding? A. Well, I knew that they could be cured in time, but they weren't binding at the time, yes. Q. And you knew that there had been no real exchange? A. Yes." 106When further cross-examined, Mr Webb said that the Hamiltons' contracts were not binding until settlement and that they were "cured by settlement" (T598.18- 26). He did not tell the bank that the contracts were not binding. He agreed that he had provided deeds of variation to unbinding contracts, but notwithstanding the deeds, the contracts remained unbinding. Mr Webb did not tell the purchasers that the contracts were not binding on either the vendor or the purchasers. He admitted that this "was an error on [his] behalf". He thought that because the property's sale price had been significantly reduced the purchase was "still in their best interests" and he understood that they still "wanted to complete" (T598.47 - T599.18). As to when the contracts became binding, Mr Webb gave the following evidence (T599.33 - T600.31): "Q. You are legally trained? A. Yes, sir. Q. What was it about that which upon which you founded your opinion that at that stage it was a binding contract? A. That there was an offer and there was an acceptance. The offer was now to sell the unit at a reduced price and acceptance to buy the unit for the reduced price. Q. Was there an offer of acceptance at the original price? A. Yes, your Honour. HIS HONOUR: Thank you. SMALLBONE Q. Well, you said a little while ago in answer to one of my questions that you were of the view that notwithstanding the deed of variation, the contract was still non binding; do you remember giving that answer? A. I said that it was still defective, yes. Q. So I take it that when you said a moment ago in relation to his Honour's question that the deed of variation made it binding, that is not a correct answer? A. Well, it cured some of the issues, yes. Q. But not all of them? A. No, not all of them. There was no consideration at that stage. Q. So it was still not binding? A. Well, you had - it had defects, yes. Q. And it was still not binding? A. Well, I don't know if that's binding but it had defects. Q. It was not binding; it was a sham? A. No, sir. Q. And because Mr Hamilton had never put his mind to it? A. No, sir. Q. And had never authorised anyone to exchange it? A. No, sir. Q. And because Mrs Hamilton had not put her mind to it? A. No, sir. Q. And Mrs Hamilton had not authorised anyone to exchange it? A. No, sir." 107Later when being cross examined by Mr Ginges, Mr Webb said that he believed the contracts became binding when "the deeds of variation were executed, because that was a true reflection and there was significant consideration, consideration that both the purchasers was getting a significant reduction in the price. That is really where [he] saw the contract being exchanged" (T652.16-19). He further said (T653.12-15): "In my mind back then I understood that they had exchanged, but they were defective, they were going to be cured through time coming up towards the settlement. They were then interjected by the deeds of variation and that in my mind cemented the exchange." 108Mr Webb agreed that "in a general sense... a solicitor [has] an obligation and a duty to go through the contract for sale and to explain the salient points to the client" (T650.24-27) and that the reason he had not done so with the Hamiltons was that their contracts had already been exchanged prior to him being instructed to act for them. Mr Webb agreed in hindsight that since he had admitted that the contracts had not been validly exchanged, the obligation still remained with him to go through the contract for sale with the Hamiltons. He agreed that he should have advised them of their rights during the cooling off period, under the contract and his failure to advise them of this statutory right was a serious failure of his duty to them. 109For each conveyance, Mr Webb provided Mr Lee with a buyers agent pack consisting of costs agreements, letters of authority to act, a blank front page of the contract, trust authority and a disclosure document. As to whether he expected to receive the three documents that constituted the authority to act and trust authority for each conveyance Mr Webb gave the following evidence (T561.39 - T562.18): "Q. And it was your expectation, wasn't it, that in each one of these matters that Mr Lee was introducing, that you would be receiving in the course of the transaction those three documents signed by the client? A. Yes, sir. Q. Because you understood that that was the way that these transactions involving the Lydbrook Street property were to be progressed by Mr Lee? A. In particularly the authority to act, yes sir, as the agent. Q. You expect, I'm putting to you, at the outset in every one of these matters, to receive all three of those documents at some point from Mr Lee, didn't you? A. No, sir. Q. Because the arrangement was from the beginning one that would involve the production of a surplus for distribution through your trust account to Mr Lee? A. No, sir. Q. And that was why you had those three documents as part of the buyer's pack in each instance, wasn't it? A. No, it was just that we happened to have them all in one file. Q. It is just that you happened to have? A. Those three documents contained in one file. It's like a word document, but it had three pages to it. Q. They were all in one file because you needed all three of them in every matter that Mr Lee was acting on, weren't they? A. No, sir. I needed the authority to act primarily, but the other two were provided if there were to be surplus funds." 110And at (T564.8-47): "Q. But you expected that you would never be dealing with the client direct in relation to these Lydbrook Street transactions? A. No, I didn't. I didn't expect to deal with them, no. Q. And that is why you prepared this document? A. That's correct. Q. And it's also the same reason why you prepared the document at page 224 as a standard form precedent? A. Yes, sir. Q. And it's the same reason why you prepared the document at 239 as a standard form precedent? A. Yes, sir. Q. That is, you expected at all times and on all of these transactions that you would not be dealing with the client direct and that you would be generating a surplus that would be paid to Mr Lee through your trust account? A. No, sir. Q. In the standard form precedent at page 239, you see the words in the fourth line "to be paid to Graham Lee"? A. Yes, sir. Q. Those words were in every such trust authority that you received on all of the Lydbrook Street matters? A. Yes, sir. Q. And they were part of the standard form precedent, weren't they? A. Yes, sir. Q. And that was because you expected that on all the matters you would be paying a surplus to Mr Lee, wasn't it? A. That's correct, yes. If there was a surplus, it would go to Mr Lee, yes. Q. You expected on all the matters that there would be a surplus, didn't you? A. No, sir. Q. That is why you prepared as a standard form the document at page 224? A. No, sir. It was just that was part of that pack, that document." 111And at T566.47-T567.18: "Q. If it indicated to you that the client thought that, is it the case that this document was telling you that the client thought there would be a surplus and was telling you to deal with it by putting it into trust? A. Yes. Q. And that's what you intended by creating this document that it should be communicated to you, isn't it? A. Yes; that if there was a surplus I could deal with it. Q. No, that there would be a surplus and that you should deal with it? A. Yes, if you want to put it that way, yes. Q. And that's what you expected from the beginning in all of these Lydbrook Street transactions, wasn't it? A. Yes, to a certain degree. Q. Well, not to a certain degree, you expected that there would be a surplus in every matter that Mr Lee induced, didn't you? A. I didn't expect, in the sense that I knew for sure, but this gave me a clear indication that there would probably be a surplus, yes, sir. I won't know until the banks give us an idea of how much they expected to lend out to the borrower." 112Mr Webb agreed that the three documents would be insufficient to authorise him to give any cheque directions to the bank and then said the following (T569.32 - T570.28): "Q. And you understood at all times in the Hamilton transactions that before you could give any cheque directions to the bank, including any direction as to the production and payment of a surplus, that you should refer to your client for further instructions, didn't you? A. No. It's an implied position as a lawyer in order to facilitate the transaction that once we're engaged, we do everything we can to facilitate the transaction across. We don't refer to our clients every time we seek cheque directions in a conveyancing. Q. Are you saying that you understood that merely by virtue of your appointment as a solicitor you are authorised to give any cheque direction that you saw fit without referring to your client for instruction? A. Yes, sir. Q. You had no such belief, did you? A. Yes, I did. And that is still the current practice." 113Under cross-examination Mr Webb stated that he provided Mr Sakr with a hard-copy of the contract which had all the required annexures but with a blank front page (T553.19-27) and that "Mr Lee had a full contract with him at all times, as in all the special conditions and all the normal pages that a contract has" (T510.17-18). Mr Webb could not recall how he received the contracts in the matters of Jason and Karen Hamilton (T554.38-44). At the completion of the conveyance Julie Abood would prepare a settlement pack for the purchaser. The settlement pack included a settlement letter, a copy of the front page of the contract, the settlement adjustment sheet, cheque directions to the incoming mortgagee, a copy of the trust ledger showing the transfer of money from the client to Mr Lee, and Webb Lawyers' invoice and receipt (ex H par 41). Aside from the Cooke and Paag transactions, Mr Lee collected all correspondence for the purchasers and delivered it to them. 114Mr Lee told Mr Webb at the end of 2004 that he would "personally attend the clients for the purpose of providing them with the documents and explaining the settlement adjustment sheets to them. I can explain the documents to them and go through the paperwork" (ex 2 CD8, par 51). After the completion of the Cooke settlement, Mr Webb had approached Mr Lee and mentioned to him that the Cooke transaction had taken up a disproportionate amount of time for the sum that he was being paid because they required the whole settlement pack to be explained by him (which was $1,200 exclusive of GST). After this discussion, Mr Lee suggested that in order to relieve Mr Webb of having to explain the documents to the clients he would deliver the settlement packs and "sit with the clients and go through the paperwork with them" (T571.6-12). Mr Webb said that he trusted Mr Lee to take the correspondence to them and had no cause not to trust him. Mr Webb agreed during cross-examination that he was authorising Mr Lee, "to a certain degree", to do part of the work required of the purchaser's solicitor, and that Mr Lee undertook this work completely unsupervised. 115Mr Webb denied that at the time he gave Mr Lee that authorisation he had any knowledge that he was not entitled to do so under the Legal Profession Regulation. He also denied having any knowledge that in 2005 an agent was prohibited from exchanging contracts unless specifically authorised by the client or client's solicitor under the Property, Stock and Business Agents Act 2002 (T557.40-45). Mr Webb admitted that he "knew at all times in 2005 that [Mr Lee] was not a licensed real estate agent" (T558.13-15). He considered Mr Lee to be "an internal quasi agent" for the firm (T571.30-32). Mr Webb denied that a similar authorisation was given to Mr Lee to advise clients about the terms of their contracts but that he may have done so prior to exchange and prior to the time that Mr Webb was acting (T571.34-36; T572.14-16). In his affidavit (ex H), Mr Webb stated at par 30 that he advised Mr Lee, he was unable to obtain commission on any of the sales as he was not a real estate agent. 116As to the professional obligations Mr Webb felt he owed to the client as their legal advisor, he gave the following evidence (T572.23 - T573.9): "Q. Didn't you consider it your obligation as a solicitor acting for the purchaser to advise the purchaser on the contract? A. Normally we do, your Honour, with formal exchange or within the cooling off period. But most times we've got them outside of the cooling off period so there is already that obligation in our mind that they commit to the contract. Q. Didn't you consider even after the cooling off period that you should take your client through the terms of the contract? A. We do that nowadays as a matter of practice. But back then, because of time restrictions, we didn't. Q. When you refer to "time restrictions", what are you referring to precisely? A. Your Honour, we were just inundated with work at that stage. There was only two of us in the office. And around that time we relocated as well, so there was an upheaval of the practices and the systems. Q. What did you actually charge your client for? A. Pretty much just the transactional work. From the time that we received the contracts to the time we settled them. Q. Notwithstanding the costs agreement, I take it that you at no time advised your clients that you would not be advising them on the contract? A. No, your Honour, that's correct. It was just an oversight. We just pumped out the precedents as they came through. Q. Well, that was a major oversight, was it not? A. It was, your Honour. We have corrected that system prior to selling the business. Q. What did you at that time think the role of a solicitor was? A. For these particular units, just transactional, facilitating the actual sale to the purchaser and making sure that all that registration was to occur. Q. So you regarded yourself as a conveyancing clerk, did you? A. To a certain degree. With these ones, because all of the stuff that happened prior to us getting the contract, and then we facilitated the settlement afterwards." 117Although Mr Webb did not advise any of the clients of the Lydbrook Street properties as to the terms of the contracts for sale he "omitted to exclude" it as an item from the Webb Lawyers invoice and costs agreement. Mr Webb admitted that Mr Lee was appointed on behalf of his firm to advise clients where the surplus funds were going, but denied that he had instructed Mr Lee to advise clients on their incoming mortgages. 118For each conveyance the purchase price was reduced after exchange of contracts. Mr Webb gave evidence that he asked Mr Lee why the purchase price was being reduced and was told (ex 2 CD8, par 52): "Tony Sakr and I have reduced the price because in each case the valuations have not come up to the value of the sale price. The vendor has significant financial hardship and the banks are placing a significant amount of pressure on them to sell the units." 119Mr Webb stated that around that time, he had the following conversation with Mr Sakr (ex 2 CD8, par 53): "PW: What's happening to these properties? Sakr: Graham said that they were exchanged a long time ago - we had them up for sale - Graham had them all sold - now he tells me the buyers can't get the finance. PW: What do you want us to do? Sakr: Graham said he will be in contact with you and see what price he can get - I have to sell them as I told the bank we had some sold - pull them from agents as Graham had said the guys were going through - now the banks want to exchange contracts or they will take the units." 120During another conversation around that time, Mr Webb stated that Mr Lee said (ex 2 CD8, par 54): "With the first two reductions it was always the intentions (sic) of the parties, to sell the units at the originally marked price, between $450k and $550k which were the marked rates just before the market collapsed. However, due to a collapsing market, the purchasers were unable to obtain the necessary valuations to acquire the funds." 121Whilst on this topic, it is of significance to observe that Mr Webb received a facsimile dated 3 August 2004 from Mauric & Doyle, the then solicitors for Napier 888 in the sales to Cooke, Paag and Nolan which stated (ex 3 CD4, p 8): "We... are instructed by our client that in view of your client's borrowing capacity having reduced he had agreed to reduce the purchase price of each of the sales of the above lots. Accordingly, in order to formalise the agreement and to fulfil our client's mortgagee's requirements as to receipt of the proceeds of the sales we enclose a Deed of Variation of the contract in respect of each matter for execution by your client's in duplicate and return to us." 122Mr Webb recalled that Mr Sakr or Mr Lee advised him (or Ms Abood) about the price reductions by telephone, or when Mr Sakr attended the office to sign the transfers. Mr Webb also recalled that for each matter Mr Lee provided him or Ms Abood with a signed deed of variation reflecting the new price. The transfer also stated the reduced price. Mr Webb stated that this was important because he knew that the bank would receive the transfer before settlement. The settlement agent was given the deed of variation to take to settlement. The stamp duty figure also reflected the reduced price and was the subject of a cheque request issued to the bank and the bank was provided with a Notice of Sale at settlement, which clearly stated the reduced and final purchase price (ex 2 CD8, par 56; T449.16-25). 123Mr Webb accepted that with the benefit of hindsight, the price reductions in these matters were very unusual. He explained that at the time, he was inexperienced and did not realise how unusual the transactions were. In all matters, he believed that the bank was not misled, because he took steps to ensure that the bank was aware of the true sale price. He also believed that the purchasers were not misled, because he trusted Mr Lee and believed that the surplus funds were explained by them using their homes as additional security for the loan, and that the surplus funds available at settlement would be used for the syndicate that Mr Lee had spoken of. 124Mr Webb did not send the deeds of variation to Lawpoint Galloways specifically, but he did write to them enclosing the contracts to which the deeds of variation were attached. He gave evidence that he did this for all of the conveyances of the Lydbrook Street properties. Mr Webb recalled that he had discussions with Ms Abood about the reductions in purchase price "maybe half a dozen" times, when the firm received instructions or just before settlement, or upon receipt of a deed of variation. 125On 1 September 2004, Mr Webb received an email from Mr Lee which referred to receiving Ms Abood's fax to execute deeds of variation for Nolan, Paag and Cooke and then went, relevantly, on to state (ex 3 CD4, p 10): "Tony's solicitors have sent these documents, representing the true purchase price, through to your office... Was I present last Tuesday when we all had a meeting in your office??? This is not what we agreed or discussed. This is not what Tony directed his solicitors to do. Firstly, this is not the arrangement between Tony and myself. Secondly, this will be the death knell to Tony, as the respective banks will want to issue new DOC's before settlement can proceed on any of these properties..." 126When shown this email, Mr Webb agreed that Mr Lee was very concerned about any proposal to reduce the sale price of these properties through deeds of variation because Mr Lee had put forward a further proposal. He agreed that Mr Lee thought that documenting these transactions "would be the death knell to Tony because the bank would not issue new documents before any settlement could proceed". (T458.1-9). He did not think that it was the deeds of variation they had agreed to the day before, but they had agreed to reduce the purchase price. Mr Lee was also putting forward a proposal that the vendor pay the legal fees and the stamp duty to the purchasers (T 458. 10-20). Mr Webb's evidence as to what he understood the contents of the email to mean was as follows (T461.24-T462.3): "Q. What you were privy to, at the time you received this email, was an expression, and I might say in an email in quite strong terms, of concern on Mr Lee's part not to let the banks know what was happening in connection with the reduction of the purchase prices? A. I read that email to read that he was concerned that if Tony was not able to put these settlements through, the mortgagee was going to take possession and that he would not be able to sell them. Q. He wanted to do some sort of deal whereby the reduction that was made in the purchase prices of these properties was hidden through the vendor assuming obligations such as paying stamp duty and purchasers' legals, didn't he? A. That was what he was proposing, yes. Q. So that the bank would not know what was going on? A. I don't know whether it was the banks or whether it was the discharge of the mortgagee. Q. Well, he did not want the banks to see the deeds of variations? A. I don't know, Mr Donaldson. Q. And you knew full well that the bank had a loan to valuation ratio requirement? A. I believe so, yes. Q. You knew full well it was a matter of considerable significance to the banks to know the purchase price of this property that they were refinancing was being reduced by $35,000? A. I understood that they knew because the valuation did not stack up. So, I understood it was their recommendation that there be a variation." 127Mr Webb's evidence on the proposal for the vendor to pay the purchaser's legal fees and stamp duty included the following (T458.28-42): "A. ... I made it clear to Mr Lee and Mr Sakr that I was not prepared for the price to be different to what was going to be sold, and also that the vendor could not pay our fees for both the vendor's work as well as the purchaser's work, and that the vendor was not able to pay the purchaser's stamp duty. So when this proposal came through, Graham wanted there to be a buffer, so that those figures the stamp duty and the legal fees, would be added into the purchase price. We were not prepared to do that because it did not reflect correctly what was the sale price. Q. What do you mean that he wanted a buffer? A. He wanted the purchase price to include a portion of the stamp duty and for the purchasers' legal fees to be paid by the vendor. So, in effect, he was selling the property - they enticed the purchasers to buy the vendor's priority by saying the vendor will pay the legals as well as the stamp duty." 128During cross-examination, Mr Webb was taken to the purchase of lot 5 in the complex by Peter Nolan. The evidence disclosed that Mr Sakr and Mr Lee had negotiated with Mr Nolan to purchase lot 12 in the complex for $390,000. Mr Donaldson pointed out to Mr Webb that the contract for sale appeared to have lot 12 crossed out, lot 5 inserted and the vendor's solicitor (Mauric & Doyle) crossed out and Webb Lawyers inserted, with which Mr Webb agreed. The date of the contract is stated as being 24 November 2004 (ex 3 CD4, p 42), with a purchase price of $539,950. The bank provided finance in the amount of $431,360. On 25 November 2004, Mr Webb received a facsimile from McPhee Kelshaw, solicitors, (ex 3 CD4, p 44) stating that they had been consulted by Mr Nolan and enquiring about the purchase of lot 12. On this topic, Mr Webb's evidence included the following (T470.6 - T473.28): "Q. And you didn't respond to that letter in any way, did you? A. No, I didn't. Not to that firm directly, no. Q. Nor did you contact Mr Nolan, having received this letter from this firm of solicitors, did you? A. That's correct, no, I didn't. Q. All you did was, I suggest, forward the letter on to Mr Lee? A. That's correct. Q. And the only expression of concern that you made to Mr Lee, which is at page 46 of the exhibit, is that you were confused as to why Mr Nolan had engaged another firm? A. That's correct. Q. Did you think that since your firm was acting for Mr Nolan, it might have been appropriate to take some steps to organise a settlement of this purchase that he wanted to proceed with? A. Back then I wasn't sure what was going on, back then. Q. You knew from the correspondence you'd had from the vendor's solicitors and the discussions that you'd had, that there was an agreement to sell Mr Nolan the property at a reduced price? A. That's correct. Q. And was that $390,000? A. I believe so. Q. Can you offer his Honour any explanation as to why, having received this letter from some solicitors indicating that Mr Nolan wanted to know what was happening with his purchase, you didn't proceed to facilitate a settlement of that purchase at the price that had been agreed with the vendor? A. Because I understand between Graham Lee and Tony Sakr that the unit was to be substituted for unit 5. Q. And if we turn to page 42 of the exhibit, we can see where a contract has been prepared by Webb Lawyers for a purchase of unit 5 for $539,000? A. That wasn't prepared by us, Mr Donaldson. Q. Well all right, there is a contract there where you're named as the purchaser's solicitor? A. That's correct. Q. And the vendor's solicitor's name has been crossed out and your name has been written in as the vendor's solicitor? A. That's correct. ... Q. Did you ask him why he would rather pay $539,950 for lot 5 in 8 10 Lydbrook Street, Wentworthville, rather than the $390,000 for lot 12 that had been negotiated with the vendor? A. No, I didn't. I didn't contact Mr Nolan. Q. Did you have the slightest concern for Mr Nolan's interests when your firm was acting on his behalf in connection with this purchase? A. No, I didn't. Q. You didn't have the slightest concern? A. No. Q. Why not? A. Because I trusted Mr Lee was acting in the best interests. I also understood he was getting a reduction in price for a property which he wanted to purchase in that unit block. Q. Well, you had already negotiated a purchase of a unit of $390,000? A. That's correct. Q. Plainly obviously not in his interests to enter into a contract with a purchase at a price of another unit in the same block for $539,000, when the vendor's agreed to sell him lot 12 for 390? A. I agree. There is an exchange or contract dated 24 November 2004. It was significantly some time before. ... Q. We knew that Graham had negotiated with Tony to sell Mr Nolan 12, 8 10 Lydbrook Street for $390,000? A. That's correct. Q. It was plainly obvious that something very strange was going on here, wasn't it? A. Yeah, they substituted the unit from 12 to 5. Q. And bumped the price up by a massive amount of money? A. Not necessarily. They actually reduced the price for unit 5. Q. 390,000 to 539, it's an extraordinary increase, isn't it? A. No - I agree with you, but I don't know what they agreed initially with regards to unit 5, which is what was subsequently sold." 129Mr Webb received a letter dated 14 December 2004 from the bank stating that it would provide finance for lot 5 in the amount of $431,960 (ex 3 CD4, p 51). Mr Webb gave evidence that he did not contact Mr Nolan to find out how he would be paying for the balance of the purchase monies. He said that he did not direct his mind as to why Mr Nolan swapped the units, and why he was paying $539,950 rather than $390,000. Mr Webb agreed that on 20 January 2005, when he sent a letter to Mr Nolan advising that the contract had been exchanged and was binding, he failed to mention the reduction in the purchase price to $368,000. He agreed that he was aware that the purchase price of lot 5 had been reduced because he calculated stamp duty on the reduced price. Mr Webb denied, however, that he knew "that the reason that a contract had been prepared showing the purchase price of $539,000 was to enable Mr Lee to get a finance approval at an 80% loan to valuation ratio which would still exceed the amount that Mr Nolan was going to have to pay for the property" (T492.42-46). Mr Webb agreed that where the bank had agreed to lend 80 per cent of sale price of the property in order to finance the purchase, an agreement reducing the sale price to a figure substantially less than the amount of the loan would have the "capacity to seriously upset the transaction from the financier's point of view". As to what should have been the appropriate communication between Mr Webb and the bank, Mr Webb said the following (T493.38 - T494.34): "Q. And you were well aware at the time of these transactions that the simplest way to avoid a problem with the bank arising from any failure on their part to appreciate that the contract price had been altered, would have been to respond to the correspondence that they had sent you about the amounts of the loan and the purpose of the loan in terms which said, "Purchase price has now been altered, there's a deed of variation", and there it is, and what are your new requirements. That would have been the obvious thing do, wouldn't it? A. No. Q. Well they had written to you identifying what their requirements were? A. That's right, and we fulfilled them. Q. They had written to you at a time when you were well aware that their understanding was that the sale price of the property was around $539,000? A. That's right. Q. In any regularly conducted transaction if you had learnt that the price had now been reduced to $368,000, the first thing you would do would be to write a letter to the mortgagee and say, "This is what has happened. What are your requirements now"? A. No, that wasn't - it wouldn't be the first thing. We understood that the bank had only given a reduction in the valuation. We understood that they already knew that they were only lending a certain amount of money. Q. You understood that the bank had reduced the amount of money it was prepared to lend because of the valuation? A. That's correct. Q. They didn't reduce the amount of money it was lending, there was no change in the amount of money they were lending whatsoever? A. But we weren't privy to that, Mr Donaldson. Q. What would have been obvious to you if this explanation that you offer the Court was a true explanation, is that having received their disappointing valuation of the security properties, the bank would have written to you and said, "There is a problem with the valuations, we can only lend 80 per cent of valuation. Here's the maximum amount we are prepared to lend"? A. The banks don't deal with the lawyers at that level, especially when there is a broker involved. They normally deal with brokers, the mortgage brokers. We only ever really get what is available at the time of settlement. Sometimes that is only a day or two before settlement." 130On the same day that Mr Webb learnt of the Peter Nolan finance arrangements he also learnt of identical approvals being given to Ms Beresford-Maning, Mr Christie and Ms Czyzewska (T473.30-35; ex 3 CD4, pps 48, 49, 50). When asked why, when the purchasers had entered into contracts for the higher purchase price, the vendor reduced the price, Mr Webb explained (T495.48 - T496.2): "A. Because if they weren't able to complete the banks were going to foreclose on the vendor's properties. It was in the vendor's interest, rather than them being repossessed by the banks, to have them sold, even if they didn't make any money. The vendor had guarantees on his house etcetera to support the construction." Mr Webb, however, agreed that the bank proceeded to lend exactly the amounts they were going to lend in their initial letters to him and the bank transaction progressed seamlessly to conclusion. 131When cross-examined on his understanding of why the value of each property fell and why the purchasers would enter into contracts for sale at substantially inflated prices, Mr Webb gave the following evidence (T480.39 -T 483.9): "Q. So, we had a collapse in the property market between late 2003 and late 2004 which caused the original group of transactions to have to be renegotiated, correct? A. Yes. Q. The Cooke and Paag transactions? A. That's correct. Q. And then, what, between exchange on 18 November 2004 and the 21 December 2004, there was another collapse in the property market? A. No, sir, that is not necessarily the case. What we understood is that these properties were pre negotiated prior to the collapse. Q. But this was a contract that was entered into on 18 November 2004? A. That's correct. Q. Where is there the slightest indication of any communication on your files to suggest it was a pre-negotiated price? A. There isn't. It is just my understanding from a discussion with Mr Lee and Mr Sakr. Q. Why did you imagine that Ms Beresford-Maning would be interested, for example, in entering into a contract to purchase a unit on 18 November 2004 at something substantially greater than its current market? A. I don't know. Q. Why did you imagine that the other three purchasers for whom you were acting simultaneously, that is, Messrs Christie, Nolan and Czyzewska, would have similarly wished to enter into contracts at prices substantially greater than the current market value? A. I don't know. Q. You did not believe that at all, did you? A. What. Q. You didn't believe that the contract at p 36 was a genuine transaction entered into between Ms Beresford Maning and the vendor? A. Yes, I did. Q. You believed that the contract at p 36 was something that was produced in order to persuade the Commonwealth Bank to give a finance approval in the terms that are reflected at p 62 of the bundle, that's right, isn't it? A. No, it is not. Q. It was perfectly obvious to you in December 2004 that the Commonwealth Bank of Australia was not interested in lending $431,960 to finance a property at a purchase price of $370,000 was it? A. I don't know what the Commonwealth Bank was prepared to do and not prepared to do. Sorry. Q. You were familiar with the fact that the Commonwealth Bank had loan valuation ratio requirements? A. I believe so. Q. You told his Honour that lenders at the time had different packages with loan valuation ratios from 80 to maybe up to 95 per cent? A. That's correct. Q. You knew perfectly well that the Commonwealth Bank was not going to be interested in providing loan finance in an amount substantially exceeding the purchase price of the property being continued, didn't you? A. Mr Donaldson, one thing that you neglect is that, at this point, I understood that all the purchasers were cross collateralising their homes to facilitate the purchase of these properties as well. Q. That is just something you invented, Mr Webb? A. No, it is not. Q. Where in your files is there a single document, in relation to any of the transactions with which you were involved with Mr Lee, which records this arrangement for cross collateralisation and other securities? A. Just from my discussions with Mr Lee. Q. My question is, where is there one single document recording that arrangement? A. There isn't. Q. There is not one word of any such arrangement in any communication with any financier in relation to any of these purchases, is there? A. No, because we weren't involved in any financing side of it.' 132Mr Webb said that his knowledge of the clients' arrangements of cross-collateralisation or provision of additional securities also came from discussions he had with Mr Cooke, Mr Paag and Ms Roberts, although none of these discussions were recorded in his affidavit evidence. He denied that his evidence as to discussions of cross-collateral arrangements was false. 133When Mr Webb was asked by Mr Donaldson whether it would have been necessary to provide additional security on settlement to the bank for monies borrowed in excess of the purchase price, Mr Webb said not necessarily, because their existing home loans may have been internally refinanced by the bank with no further security documents at that stage: T487.1-10. 134Mr Webb gave evidence that he believed Ms Beresford-Maning entered into a bona fide contract for $539,950.00. Having subsequently discovered that the property market had collapsed, the property being worth $370,000.00, she had decided to proceed to borrow $431,000 from the bank in addition to cross-collateralising (or borrowing off the equity in) her home. He said that this scenario was the same for the other three purchasers (Mr Nolan, Mr Christie and Ms Czyzewska) and that it did not strike him as "extraordinarily coincidental" that these purchasers would mortgage their properties in order to invest in Mr Lee's syndicate during a collapse in the property market because it was his belief that the market did not collapse everywhere at the same rate. He also denied that it would be extraordinarily coincidental for all four purchasers to have existing facilities (such as previous home loans) with the bank because at that time the bank was offering great rates. 135The amount of surplus generated as a result of the bank lending more than the reduced sale price for Mr Nolan was $70,240, for Mr Christie $46,395, for Ms Beresford-Maning $46,395 and for Ms Czyzewska $67,374. Apart from a small amount from each being returned to the clients, the rest of this surplus was transferred from Webb Lawyer's trust account to Mr Lee. Mr Webb said that he did not ever speak to any of those clients about whether and in what circumstances they were prepared to have those monies paid over to Mr Lee. Mr Webb gave the following evidence (T499.11 -T500.31): "Q. The project to which Mr Lee was applying these funds was the project in respect of which he promised you conveyancing work, wasn't it? A. That is correct, sir. Q. Mr Sakr was providing you with conveyancing work both for vendor and purchaser, Mr Sakr and Mr Lee were providing you with conveyancing work both for vendor and purchaser in relation to each of the sales that Mr Lee was able to facilitate through his scheme with the Commonwealth Bank, correct? A. They weren't only between Mr Lee and Mr Sakr. Mr Lee also referred us other clients for other properties. Q. The answer to my question is still yes, every time Mr Lee obtained a finance approval from the Commonwealth Bank or anyone else to allow one of Mr Sakr's properties to be sold, you expected to be getting a sale file and a purchase file for a conveyancing, correct? A. Yes. Q. That was a valuable source of work to you, wasn't it? A. It is bread and butter for a small practice, Mr Donaldson. Q. In the circumstances where Mr Lee's activities were providing you with bread and butter, and provided you with the prospect of future work at premium rates, you turned a blind eye as to whether or not these so called investors knew what they were doing? A. Categorically not, no. Q. They were your clients? A. Yes, they were. Q. You had never bothered to speak to all four of these clients, did you? A. No, sir. Q. You were perfectly aware that lenders were being deceived by Mr Lee, who was applying for finance with contracts that didn't bear the real purchase price, that's a fact isn't it? A. No, it's not. Q. You were prepared to turn a blind eye as to whether Mr Lee was deceiving these lenders, correct? A. No, sir. Q. You were similarly prepared to turn a blind eye as to whether he was deceiving your own clients into providing him with the sorts of sums of money that we see set out at paragraphs 143 to 146? A. Definitely not, Mr Donaldson." 136Another file opened by Webb Lawyers was in relation to a purchase of unit 5148-50 Courallie Street, Homebush West by David Miller (ex 3 CD4, p 76). The bank provided a loan of $429,400, which Mr Webb believed was a "portion of the purchase monies consistent with" the "loan to valuation ratio" (T501.42-45). The firm's file disclosed that the purchase price of $537,500 was crossed out and $305,000 was written next to this amount. There are two letters from the bank, one dated 12 January 2005 (ex 3 CD4, p 80) and the other 8 February 2005 (ex 3 CD4, p 136). The first letter confirms that the bank "will provide loan funds of $429,400 to meet the balance of purchase moneys." The second recites that the amount payable on settlement "will be $429,400". A contract for the sale of the property with a purchase price of $305,000 bears an exchange date of 22 March 2005 (ex 3 CD4, p 155). An authority was prepared for Mr Miller authorising Webb Lawyers to place all surplus funds into trust. Mr Webb agreed there was no collapse of the property market, which led to a deed of variation in relation to the transaction, nor any occasion for Mr Miller to go to the bank and enter into a cross-collateralisation arrangement. Mr Webb said that he thought Mr Miller was borrowing surplus to the purchase price in order to invest in Mr Lee's syndicate, even though he never had a conversation with Mr Miller to that effect. Mr Webb denied that it was plain that Mr Lee was practising a fraud upon the bank, but agreed that it would have been simple to contact Mr Miller to discuss whether he understood he was paying a surplus of $112,000 to Mr Lee. He said that he never did, because he did not think there was a problem with the authority or with Mr Lee's intentions. 137Webb Lawyers also acted for Christopher Thomas Miller in his purchase of a property in Parramatta. The bank offered loan funds in the amount of $452,000 but the purchase price was $370,000 (ex 3 CD4, p 230). The contract is dated 24 September 2005. Mr Webb said that he did not put his mind to the fact that the finance being provided exceeded the purchase price. $52,821 in surplus funds was received for Christopher Miller and paid to Mr Lee. Mr Webb had no communication with Mr Miller or Mr Lee about the transfer of surplus funds. On the same day, $35,742 was received as surplus funds for the purchase of a property by Adam Miller and paid to Mr Lee. Mr Webb had no communication with Adam Miller about whether he "understood what he was doing" (T524.15-25). 138There was a similar transaction for a purchase by Kelly Sibbald of a property at Parramatta, in which the contract was for substantially less than the loan approval. Ms Sibbald later contacted Mr Webb, indicating that she understood that she had paid considerably more than the purchase price of her property and enquiring about where her money had gone. Mr Webb said that "it was actually from Ms Sibbald's inquiries that made me concerned about Mr Lee's activities". As to his discovery of Mr Lee's fraud, Mr Webb's evidence including the following (T525.13-T526.2): "Q. You told Ms Sibbald not to go to the police, didn't you? A. I don't recall that. Q. Sorry? A. I don't recall that. I may have at the time, because I wanted to make my own inquiries and speak to The Law Society. Q. You told her that it would be best if she didn't go to the police because she might be in trouble for having defrauded RAMS, who had lent the money on the purchase? A. I don't believe that, no. Q. In any event, you became very concerned about Mr Lee's activities you say, don't you? A. Yes, I did, on or about 7 July 2006. Q. When you became concerned about Mr Lee's activities you went to a public telephone and sent him an SMS message, that's right isn't it? A. It wasn't about that time. I think it was in late July, maybe early August. Q. When you wanted to discuss with him your concerns about all these transactions you went to a public telephone and sent him an SMS message? A. Yes, but that's taken out of context, Mr Donaldson. Q. You didn't want to phone him from your own office telephone, did you? A. No. Q. You didn't want to phone him from your own office telephone because you were concerned there might be some sort of telephone interception associated with the investigation of Mr Lee's activities? A. No, that wasn't the case. I actually wanted to give Mr Lee the impression that I didn't want him to be calling me, contacting me until I found out what was going on with The Law Society investigation into the trust accounts. Q. Why would sending Mr Lee an SMS from a public telephone convey to him the impression that he shouldn't be contacting you? A. Because at that stage I was totally confused, my trust had been totally opposite to what I thought about Mr Lee, and I wanted him to distance himself as much as possible from me. It was the perception I wanted to give him that things were there were great concerns." 139Mr Webb gave evidence that the first documents he received in relation to the purchase by the Hamiltons of units 12 and 13 in the complex were the contracts for sale. The contract for sale of unit 13 to Karen Hamilton bears the date 6 August 2005 and the purchase price is recorded as being $560,000 (ex 3 CD4, p 183). The contract for sale of unit 12 to Jason Hamilton bears the date 6 August 2005 and the purchase price is recorded as being $560,000 (ex 3 CD4, p 186). He denied that either he or Ms Abood completed the front page of those contracts but said they were delivered to the firm at some time before 13 September 2005. Mr Webb conceded that there were defects on the front page of the contract, namely that Richardson & Wrench, Merrylands (nominated on the contract as the vendor's agent) was not in fact the vendor's agent, and there was no deposit of $56,000 ever paid (T512.6-12). 140In his affidavit of 17 September 2009, Mr Webb stated that "[he] was informed by Lee on 21 September 2005 shortly before settlement of 12/8-10 Lydbrook Street, Wentworthville that a reduced sale price had been negotiated through Tony Sakr of Napier 888 Pty Ltd. As such, Lee provided [him] with Deeds of Variation regarding the reduction in the sale price from $560,000 to $365,000." When cross-examined, Mr Webb said he could not be certain of the date (T535.19-50). Mr Donaldson took Mr Webb to the entries in the LEAP system that disclosed on 13 September 2005, someone who was logged in as Julie Abood, entered the purchase price as $560,000 on the LEAP system for Karen Hamilton's purchase (ex 3 CD5, p 58). Later in the evening on 13 September 2005 someone who was logged in as Mr Webb changed the purchase price to $365,000 (T512.22-46; T538.33-35). Mr Webb gave evidence that there was a genuine transaction for $560,000 which was reduced to $365,000 and that he presumed that the reduction occurred on 13 September 2005 when someone logged into the LEAP system (T513.4-10). He admitted under cross-examination that the date he swore to in his affidavit as being the date upon which he was informed of the reduction (21 September 2005) may have been incorrect (T537.27-34). However, Mr Webb denied that he was "always aware that the contracts being produced by Mr Lee... were a sham" (T538.7-11). 141Under cross-examination by Mr Smallbone regarding the Hamilton transaction, the following exchange took place (T603.49 - T604.34): "Q. So it is not the case, is it, that you gave to Mr Sakr a copy of the contract with all the required annexures prior to the return of the document signed by the purchaser for the Hamilton transaction? A. We gave Mr Sakr everything, we gave him a set for an off the plan and then when they were registered, we gave him a set for the plan - the registered lots. Q. Well, this one here doesn't have the set for the registered lots, does it? A. No, it doesn't. Q. And you didn't, for the Hamilton transaction, give to Mr Sakr a set of the annexures required for the contract of sale, did you? A. I believe I would have. I don't recall particularly, but I believe I would have. Q. Had you done so, it would have included the title search with respect to lot 13? A. Yes, I know. It all depended when we were required to get the certificate of title. Q. You were required to get the certificate of title before the vendor issued the contract to the purchaser in draft? A. Yes, to a certain degree, yes. Q. Well, not to a certain degree. That was an absolute requirement, wasn't it? A. Well, it was required to be part of the contract prior to the settlement, yes. Q. Prior to exchange? A. Should have been, but with off the plan, because if you noted down what they were and there was an identification as to what unit was going to a particular purchaser, we would sometimes get the exchange done and then add if it hadn't been registered at that stage, we would add the certificate of title in later on. Q. This sale was not off the plan, was it? A. Well, it was off the plan originally, yes sir, but this one isn't for this particular unit that's not off the plan, but the contract that this alludes to was an off the plan contract." 142And at (T605.21 - 606.17): "Q. Were these special conditions at pages 10 to 15 issued to Mr Sakr for inclusion in contracts for the sale of the Lydbrook Street properties? A. I believe so, yes sir. Q. And can you explain how they relate to the item "completion date" on page 3? A. On page 3? Q. Yes. A. They don't. Q. The item for "completion date" on page 3 is an appropriate item for a contract for sale off the plan, do you accept? A. Yes, I suppose so. Q. Particularly having regard to the fact that page 3 contains title particulars referring to an unregistered plan? A. Yes. Q. And it is the case, isn't it, that the disconformity between the special conditions and the front page, page 3, involves a mismatch of the front page with special conditions; you agree with that? A. Yes, I do. Q. And that these special conditions are designed for inclusion in a contract which is not a sale off the plan and which states a completion date on its front page? A. Yes, that's correct. Q. And the reason why you have got special condition 18 in those special conditions at page 13 is not because these special conditions are designed for sale off the plan, is it? A. Not necessarily, no. Q. It is because you expected that you would not have attached to this contract a section 149 certificate? A. Possibly, that's correct. Q. And you expected that because you knew that Mr Lee would be returning these front pages to the firm and you would then be in possession of a very slim few folios of paper supposedly to comprise the contract, is that right? A. No, sir. Q. What in fact happened was that after Mr [Lee] returned the front pages, Ms Abood put together the other pages of the contract and stuck them on the file, isn't that what happened? A. No, I don't believe so, no sir." 143And at (T607.17-37): "Q. It is the case, isn't it, that the Hamilton contract was put together by Ms Abood on or after 19 September 2005, after the front pages of the vendor and purchase of counterparts were returned to your office by Mr Lee, isn't it? A. Maybe that she substituted document, I'm not sure. Q. Why would she do that, Mr Webb? A. Because the plan was registered at that stage, the certificate of title would have been for the other two folios and there would have been two separate sewer diagrams, there might have been a 149 for the unregistered lots. Q. The plan had been registered for about 15 months beforehand, hadn't it? A. That's correct. But we may not have given Mr Lee or Mr Sakr these particular documents, unless we were requested to do so. Q. All you got back from Mr Lee were the front pages only, isn't it? A. I don't know. Q. And your evidence that you received full contracts from him with annexures attached is just false, isn't it? A. I don't know. All I recall, seeing the number of pages, not just two pages. Two pages would have been unusual, because no contract is two pages." 144And at (T609.33-610.6): "Q. And these contracts for the Hamiltons were simply put together after the event to give a false appearance of regularity, weren't they? A. I think they were put together to make sure that everything was right in them. Q. To make sure that everything was right? A. Well, like the certificate of title. The strata plan, the sewer diagram, that they were all correct. Q. Did you instruct Ms Abood to do that? A. I don't recall. I don't think so. Q. How would putting the contract together after the event make everything right in them? A. Because they were - the right particulars are actually inside the contract. Q. Was it because there was no contract at this time and whether there ever would come to be a contract was a matter for the future? A. I don't believe so. I always recall seeing that contract, not just a number of pages. Q. But it was of course your view as at 19 and 20 September 2005 that there was no valid, binding contract, wasn't it? A. That's correct." 145Mr Webb agreed that the costs agreement for Mr Hamilton, which was dated 6 August 2005, was prepared in September and given to Mr Lee. The date of 6 August was inserted by the LEAP system, but Mr Webb denied that he had no intention that the "costs agreements be communicated to Mr and Mrs Hamilton" (T616.28-48). When Mr Smallbone drew Mr Webb's attention to the LEAP entry "Replied to req" for 29 September 2005, Mr Webb said that the answers to the requisitions on title (ex 2 CD2, p 66) were prepared after settlement so that they could "fill the checklist to make sure everything was in there" (T619.17-23). He said the purpose of this was "...to make sure that the file was complete. So that at any time in seven years if anyone came and had a look at this file, that there was requisitions on file and these were the answers to them" (T621.1-3), but he denied that it was "deliberately backdated from the true date of creation in order to create a misleading impression for any person subsequently looking at the file" (T621.10-12). He admitted that he took no step to advise either Jason or Karen Hamilton that the requisitions had not been answered until after their matters had settled and further admitted that this was a failing in his duty to them. Mr Webb also agreed that he failed to advise Mr and Mrs Hamilton of various amendments to the special conditions in their contracts. He did not mention that one amendment made it significantly easier for the vendor to rescind if there was a claim made by the purchaser, or that the vendor could rescind if the vendor was, on reasonable grounds, unwilling or unable to comply with the requisition, even though those amendments significantly affected Mr and Mrs Hamilton's rights as purchasers. 146Mr Webb believed that on or after 7 September 2005, Mr Lee delivered the following documents to the firm (ex 2CD8, par 68): (1)an authority and trust account authority apparently signed by Karen Hamilton and dated 7 September 2005; (2)an authority and trust account authority apparently signed by Jason Hamilton and dated 7 September 2005; (3)copies of Karen and Jason Hamilton's birth certificates and drivers' licences and; (4)two costs agreements, one signed by Jason and the other signed by Karen Hamilton. 147Mr Webb did not actually recall receiving those documents from Mr Lee but gave evidence that this was the usual practice. Mr Webb agreed that on 7 September he would have had no reason for supposing that there would be surplus funds in connection with Karen Hamilton's transaction as the price reduction did not occur until 13 September (T514.8-10). Mr Webb said that he could not be certain that the authority document was produced by Webb Lawyers or by the LEAP system (T514.24 - T515.12). 148On 13 September 2005, Julie Abood generated a letter enclosing requisitions on title, which were answered by Mr Webb (ex 2 CD8, pars 71 -72). The firm also generated a letter to Jason Hamilton on 13 September 2005 advising that the firm had recently been retained to act on behalf of the vendor although this was not true. Mr Webb denied that he had intended to mislead the Hamiltons but stated that the letter was based on a precedent and not amended for the specific circumstances of the Hamiltons' matter (ex 2 CD8, pars 73 - 74). The letter, although dated 13 September 2005, was dated in the LEAP system as 19 September 2005. Mr Webb said that the letter was not necessarily backdated, but that it might have been created externally and added to the LEAP system later. He denied that he never had any intention of communicating a letter of disclosure of conflict to Mr Hamilton or that he expected that the letters he produced addressed to the Hamiltons and provided to Mr Lee would not actually be shown to the Hamiltons. 149Mr Webb agreed in cross-examination that it was likely that the bank was relying on whatever contract Mr Lee supplied them in connection with finance application and that "the only thing which was purported to be forwarded to the bank... was a copy of the unstamped transfer" (T539.44-46). Mr Webb said that he had not thought that there was any need to provide the bank with a copy of the deed of variation because "if the bank was efficient or cautious or diligent enough to compare the amount of consideration shown in the unstamped transfer with the contract for sale that Mr Lee had provided them, they would have noticed the difference" (T540.8-12). He also stated that Mr Lee was the "party organising the finance" and that he understood Mr Lee "may have provided a deed of variation" (T541.22-25). As to whether he had a belief that Mr Lee provided the deed of variation to the bank, the following exchange took place during cross examination (T635.4-14): "Q. I will put the question again. Would you please listen to it carefully. At the time of the Hamilton transaction, you did not have any belief in your mind that Mr Lee had shown deeds of variation to the banks, did you? A. That's not the case. Q. Does that mean you did have such a belief? A. No, I didn't put my mind to it at all. I didn't know what he was providing. Q. If you didn't put your mind to it, that means you had no belief? A. Mr Strongbone, I didn't know what he had - Smallbone - I didn't know what he had put to the banks. I wasn't privy to it." 150Mr Webb believed that he was "facilitating the transaction", that the deeds were negotiated and organised completely independently of his firm and that the deeds required him to "have the correct stamp duty paid at the time of settlement" (T541. 26-45). Although Mr Webb admitted that he prepared the deed of variation and sent it to Mr Lee in the matters of Mr Nolan, Ms Beresford Maning and Mr Christie (T542.35 - T543.11; ex 3 CD6, pps 4, 20, 43) he said that the "negotiations were independent of [his] office" and that he had no discussions with the bank about the changes in purchase price (T543.18-23). The unstamped transfer in relation to Karen Hamilton was sent to the bank again on 22 September 2005 (ex 2 CD8, par 78). On 26 September 2005, Ms Abood wrote to the bank issuing cheque directions for the settlement of both units (ex 2 CD8, par 79). 151Mr Webb gave evidence that he was aware of the surplus money at settlement, which he believed was some additional security for the loan provided by the Hamiltons in conjunction with [Mr] Lee. He stated: "I honestly believed that the surplus was going to be directed to Mr Lee so that the Hamiltons could participate in the syndicate that [Mr] Lee had told [him] about" (ex 2 CD8, par 80). Unit 12 was the unit that had been contracted to be sold to Mr Nolan in November 2003, the price of which had been reduced from $539,000 to $368,000 because of a second crash in the property market. As to why the property would bounce back to $560,000, Mr Webb said that he did not put his mind to what was presented on the contract by way of purchase price. He did not think that the $560,000 purchase price was a device used by Mr Lee to obtain inflated loan approvals from the bank. He did not deal directly with the bank nor did he see the valuations. Mr Webb accepted that the vendor and purchaser had entered into the deed and assumed that the bank was fully aware of what was going on because they had the transfer and would be shown the deed at settlement. He also believed that the bank would be aware of the amount of the stamp duty that was payable from the cheque directions issued by the firm and from the Notice of Sale. 152During cross-examination by Mr Smallbone, Mr Webb said that he had been told by Mr Lee that Mr and Mrs Hamilton were part of the syndicate. In answer to my questions, he gave the following evidence (T578.24-49): "Q. Did you turn your mind to speaking to Mr and Mrs Hamilton as to whether they were part of this syndicate? A. Not at that stage, your Honour. Q. Why was that? A. Because we were actually just processing them through. It wasn't a matter that we understood that Mr Lee had obtained these clients with that joint interest of both obtaining the property, investment property and then investing, so we just assumed, wrongly assumed, that they were all part of this syndicate. Q. When did Mr Lee speak to you specifically about Mr and Mrs Hamilton being part of this syndicate? A. Probably on or around the time I got instructions, your Honour. Q. And do you recall what he said to you precisely? A. No, your Honour, but it would have been something to the effect that they were part of the syndicate and "We are doing the same thing as we are doing with Mr Paag, Mr Nolan, Mr Christie". It was that whole genre of arrangements that was in place. Q. Is that your best recollection of the conversation? A. Yes, your Honour. I don't recall it in detail, because we had a number of discussions. Mr Lee would come up and down from my office sometimes three or four times a day. He worked directly underneath my office at Burwood, your Honour." 153Upon receipt of the deed of variation apparently signed by Mrs Hamilton, Mr Webb said that he understood that the continuing problems in the market caused the bank to revalue unit 13 and decide that they could no longer lend her the full amount of money that she was initially going to borrow (T516.1-7). The contract was renegotiated but the bank did loan the full amount because Mrs Hamilton cross-collateralised some security (T516.8-14). Even though she had "entered into a transaction to purchase a unit, she had decided after the value of the unit had collapsed, to still borrow the full amount... but to apply the surplus towards Mr Lee's property development syndicate" (T516.16-20). Mr Webb believed that the same chain of events and the same decision happened with Mr Hamilton's transaction (T516. 22-29). Mr Webb agreed that to "a certain degree" the "introduction of new investors would dilute the interests of prior investors" in the syndicate and that he did not inform previous clients of the introduction of new investors, nor did he alert new investors to the fact that their interest "stood every chance of being diluted by subsequent investment". He did not have any such communication with Mr and Mrs Hamilton (T622.44 - T623.9). Mr Webb admitted in hindsight that it was his duty to "inform Mr Hamilton of any matter that was within [his] knowledge that might affect his interest in relation to" the instruction to pay trust money to Mr Lee (T623.17-25). He denied that this was something that was obvious to him at the time (T623.26-32). As to what interest Mr Hamilton would get from the final sale of the units in the syndicate, Mr Webb was not certain. There was no reference on the trust account authorities for the Hamiltons that recorded the purpose of the transfer to Mr Lee. Mr Webb's evidence on this was as follows (T624.18 - T625.19): "Q. Did you not think that it was in the interests of your clients to record the purpose and basis of the transfer? A. No, I understood what it was for was for the syndicate. Q. You understood that it was important to record on that basis, didn't you? A. I understand it is now. But back then, I didn't. I didn't think whether I recorded it as a loan or part of a syndicate made any difference. It was the fact that it went from party A to party B, and there was a clear record of how much went from the Hamiltons to Mr Lee. So that when we sold - when eventually when the units were sold, when the buildings were sold, they could divvy up exactly how much each person had put in. And that was the whole reason why there was that double entry into the Hamilton account and then a general entry across to Mr Lee's account. Q. What interest was Mr Hamilton going to get? A. Whatever his proportion of the $67,000. Q. Was he going to get the payment of his advance with interest, or was he going to get a proportion of the profit or loss? What was he going to get? A. I don't know. I wasn't privy to that part of it. Q. The truth is that you didn't care? A. I did care actually. Q. What did you do about it? A. I asked Mr Lee on a number of occasions for a copy of the deed or a memorandum of understanding, or some form of document identifying, but it never came through. Q. I take it you asked him because you felt that it was your obligation as your client's solicitor to make that inquiry of him? A. Well, obviously I was interested, because I needed to know how all the properties were going to be divvied up, yes. Q. You needed to know that because you knew that Mr Lee had an interest that was adverse to those of your clients? A. I wouldn't say adverse, I would say Q. Potentially adverse? A. Potentially adverse, yes. Q. That's why you asked him, wasn't it? A. I just wanted to know how it was that I was - how they were investing into the syndicate, because at the time you are either investing money with a guaranteed return, you are an equity investor, or there was just a fixed loan. It all depended how it was." 154Mr Webb agreed that it was a significant change in the circumstances surrounding the loan for the bank to go from offering a proportion of the purchase monies based on their loan to valuation ratio for the sole purpose of acquiring a home unit, to offering a loan partly for the acquisition of an investment unit and partly for investment in a property syndicate which involved cross collateralised securities. However, he did not agree that "any solicitor acting on a conveyance [who was] made aware of significant changes in the circumstances surrounding the finance for that conveyance, would undoubtedly deal clearly and directly with the bank about their requirements in relation to those changed circumstances" (T518.48 - T519.2). He did not believe that Webb Lawyers was responsible for "or involved in the finance side of things" (T519.50), although he did agree that he was "responsible for ensuring the transaction proceeded to settlement" and that the "lender's requirements were fulfilled" (T520.2-7). He believed that he had satisfied these responsibilities by providing to the bank "documents which, had they examined them carefully enough, may have brought to their attention that things had changed" and by providing the transfer (T520.9-17). He thought that it was the bank's duty to work out the reduction in price itself and "to ensure that their paperwork was all consistent" (T597.27-36). He did not agree that by failing to put the reduction in price to them squarely (such as in a letter) the bank might not find out (T597.48-50). 155In hindsight, Mr Webb said that if he wanted to make sure nothing was going to go wrong at settlement where there was a radical reduction in price, he would have "communicated that in clear terms to the bank" and asked how it changed matters (T520.19-25). 156When Mr Webb was referred to Ms Abood's letter of 26 September 2005 to Lawpoint Galloways that made no reference to the deed of variation being enclosed, Mr Webb gave evidence that he believed the deed would have been sent to Lawpoint Galloways on the basis that it was his experience that the Office of State Revenue would not have accepted that the duty payable was in the sum of $11,919.00 (based on the varied contract price of $365,000) without having seen a deed of variation and the fact that it was Lawpoint Galloways that attended to the stamping. Mr Webb said that Lawpoint Galloways would require the deed of variation in order to stamp the contract and the transfer but that he had never instructed Lawpoint Galloways to hand over to the bank at settlement a copy of the deed of variation. 157Settlement occurred on 28 September 2005 and the surplus amount of $67,582.15 for each matter was received and deposited into Webb Lawyers trust account. Mr Webb said that those surplus funds were released to Mr Lee the following day pursuant to signed authorities dated 14 September 2005. Mr Webb did not speak to the Hamiltons about the surplus funds but denied in cross examination that he had turned "a blind eye as to whether they were aware that they were borrowing more than they needed to" or "whether or not they were aware of what Mr Lee proposed to do with their funds and consented to that proposal", or "whether or not they had received any independent advice from anyone as to whether or not it was in their interests to be borrowing all these monies and providing them to Mr Lee" (T520.46-T521.11). 158There were a number of items listed on the Webb Lawyers invoice for Karen Hamilton and for Jason Hamilton that Mr Webb agreed he did not do. These included receiving instructions, advising on contracts, advising on building and pests issues and exchanging contracts. He agreed that every document prepared was generated from a precedent or template, that there was no actual advice involved and that he never met with the clients. He could not say whether the work that was involved added up to an hour's worth although he charged 10 units (6 minutes per unit) at a cost of $1,200 per conveyance. He never told Mrs Hamilton he was going to charge her $1,200 an hour to do her conveyancing. 159Mr Webb said that the first occasion on which he became aware of any difficulty in relation to the matter was on or around 7 July 2006. The firm wrote to both Jason and Karen Hamilton (separately) on 14 August 2006 enclosing documentation relevant to the settlement and the money received in trust. Mr Webb stated in his affidavit (ex 2 CD8, par 90): "At all times during the Hamilton matters I honestly believed that Lee was acting as the duly authorised agent for the Hamiltons. I believed that the surplus funds were being used for the Hamiltons' benefit, because they were participating in a property syndicate with Lee. I believed that the Commonwealth Bank was aware of the actual reduced purchase price... [because] the firm gave to the Bank the transfers for the properties and the transfer received the adjusted sale price. I also believed that the Hamiltons were aware of the adjusted sale price because I believed that they signed the deed of variation." 160Mr Webb lodged a caveat over the units in the development syndicate, stating that the listed caveators had an equitable interest in the land by virtue of the agreement that Mr Lee had told Mr Webb existed at the time (ex K; T625.42-50). He knew that the caveators had an interest in the property "whether it was by their investment with a return, or whether it was an equitable interest in the property, it was just a matter that [he] wanted to put the caveats on there to halt the sale of those properties" (T626.17-21). He listed his incorporated legal practice "Webbsite Enterprises" as a caveator because he had an agreement with Mr Lee to receive the "professional fees in relation to the sales" (T626.48 - T627.12). Despite this, it was not his belief that "future fees on a future conveyance would give [him] any interest" in the land (T627.40-45). He denied that he had an arrangement with Mr Lee to get a slice of the profits from the development and that was why he put his company down as a caveator with all of the other investors (T628.39-50). As to whether Mr Webb checked "the authority against any other independent documents to see whether they had been signed by the person they purported to be signed by" (T657.22-24) he could not recall seeing the driver's licence of Mrs Hamilton "in any great detail" (T657.28-30). He did confirm that they did a hundred point check of identification but said he never cross-checked Karen Hamilton's driver's licence with the trust authority. In hindsight, he agreed that the signature on Karen Hamilton's driver's licence was "clearly different" from the signature on the trust authority (T658.5-15). Although he received the documents from Mr Lee who stood to obtain a significant benefit financially from the sale, Mr Webb did not think to contact Mrs Hamilton and check with her that she had in fact given the authorities. He said that had he been critical of the signatures and compared them, he would "definitely" have called Mrs Hamilton to qualify whether the signature on the authority was hers (T659.49 - T660.9). 161In an affidavit sworn 22 September 2010 (ex 2 CD2) Julie Abood stated that she commenced employment as a junior solicitor for Webb Lawyers in about early May 2004. She had obtained a practising certificate in July 2004. This was her first job as a solicitor. During her oral evidence, Ms Abood said that she had previously worked in human resources with a bank for about four years and had a Bachelor's Degree in Law and a Bachelor's Degree in Commerce. 162Ms Abood worked mainly in conveyancing. She stated that she was able to run the conveyancing matters with minimal supervision within a short time after she started. She use the precedent letters on the firm's system and the software package LEAP, which Mr Webb had shown her how to use in a conveyancing matter. She explained that "the LEAP software generated a number of precedent letters, and also a checklist of things that had to be done in a conveyancing matter prior to settlement": ex 2 CD2, par 6. She had adopted Mr Webb's direction to rely on that checklist to make sure the conveyancing file was properly run. Ms Abood recounted that she had "fairly regular file reviews with Peter. He would look at the file and check whether the matters on the LEAP checklist had been done": ex 2 CD2, par 7. 163In cross-examination by Mr Donaldson on the topic of Mr Webb's supervision, Ms Abood's testimony included the following (T 266.40-47): "Q. If you'd turn to page 114 of the bundle just before you do, if you'd go back to page 91 of the bundle. I think you have told us that, if you'd been involved in writing this letter, and had you been aware at the time that the contract price wasn't the price shown on the contract, you would have said something to the client in the letter at page 91, correct? A. I think I would have assumed that the client would have known that there was a contract price change." 164Ms Abood recounted that within the first month of her employment with Webb Lawyers, Mr Webb introduced her to Graham Lee and Dorothy Lee (also called Dotty Adams). Mr Lee and Ms Adams dropped into the firm's premises regularly. Ms Abood believed that Mr Lee was part of the mortgage broking firm located in the building and referred a number of residential property purchasers to the firm as clients. About the first time she met Mr Lee, Mr Webb said to her (ex 2 CD2, par 10): "Lee is trying to form a syndicate of purchasers for the purpose of purchasing property in areas where Lee is interested in developing properties." 165In late 2004, Ms Abood became aware that the firm was retained to act in a number of conveyances in a block of units at 8-10 Lydbrook Street, Wentworthville. Prior to being retained in these transactions, the firm was instructed to act in relation to a development at Homebush and Mr Lee referred to the firm a number of purchasers. Ms Abood stated that she could not recall anything unusual about those transactions. 166It was her recollection that many of the contracts for the units in the Lydbrook Street property had been exchanged by the time that the firm was instructed. She was not aware how it was that the firm came to be instructed but she recalled that the first referrals occurred in about November 2004. Ms Abood's recollection that Mr Lee's involvement was as the buyer's agent for the purchasers was based on Mr Lee saying to her (ex 2 CD2, par 13): "I am the buyer's agent for a number of purchasers for units at 8-10 Lydbrook St Wentworthville. I am referring the buyers to you to act in the purchasers." 167Ms Abood stated that she did all of the conveyances for the purchasers for unit in the Lydbrook Street property from November 2004 onwards. The firm also acted for the vendor for whom Mr Webb had the carriage on the files. They attempted to maintain some distance between them in running those files. She believed that she met with the purchasers for Lydbrook Street units, perhaps, for the first two or three transactions. There did not appear to her to be any suspicious circumstances in relation to those transactions. Then, sometimes towards the end of 2004 or in the early part of 2005, Mr Lee said to her on a number of occasions (ex 2 CD2, par 17): "If you receive any loan documents for any of the clients who I have referred to you, you should contact me directly so that I can collect the documents and take them to the clients. The clients are generally from the Blue Mountains area and it will be much more convenient and quick if we it (sic) that way. The buyers are all happy for me to liaise with you on their behalf." 168According to Ms Abood, she did not meet the purchasers for a number of the Lydbrook Street units. 169Ms Abood was closely questioned by Mr Donaldson on the Paag, Cooke and Nolan purchases. Her attention was directed to an email sent by her to Mr Lee on 7 September 2004 (ex 3 CD4, p 16) which stated: "Dear Graham, Please forward us instructions as follows: Dear Sirs, We refer to the above and are instructed that any outstanding amounts in relation to loans obtained on behalf of William & Donna Cooke, Peter Nolan, Jason James Paag & Julie Anne Roberts are to be forwarded to a Trust Account in the name of Graham Lee for the purposes of services rendered and Loan Agreements entered into (sic) the various parties and myself. Would you kindly confirm at the conclusion of the settlement the amounts available in Trust and provide us with a Trust Statement. You are accordingly invited to contact the author should you require clarification. Yours faithfully, Graham Lee." Whilst she could not recall sending the email, Ms Abood said that she could have done so, on instruction from either Mr Lee or Mr Webb: T250.11-15. She said that it was not her idea. 170In each of those matters, Mr Lee gave her an authority apparently signed by the purchasers appointing him as the agent for the purchaser. She "thought that it was ok to accept what Lee had told [her] as [she] did not think there would be anything suspicious in relation to the earlier transactions and [she] believed what Lee had told [her] about being appointed by the purchasers and that he was liaising with them." Ex 2 CD2, par 19. 171Based on her review of her file, she believed that the authorities apparently signed by Mr and Mrs Hamilton, copies of drivers' licences, birth certificates and costs agreements were delivered by Mr Lee to the firm on or around 7 September 2005 (ex 2 CD, par 29). 172Ms Abood stated that she had a limited recollection of the Jason and Karen Hamilton matters. She referred to the front pages of the contracts for the purchase of units 12 and 13 and said they were not completed by her and pointed to the recorded details of Webb Lawyers which provided that she was the solicitor for the vendor and Mr Webb as the purchaser's solicitor (ex 2 CD2, tabs 3 - 4) but noted that "the sums of $11,919 on $365,000" was recorded by hand which she recognised as Mr Webb's handwriting. She reviewed the letters to Mrs and Mrs Hamilton dated 15 August 2005 and stated that the initial letter was one of the documents on the LEAP checklist of documents. She said that in some matters she had not always done all of the things required by the checklist when she had a file review with Peter Webb. If she had not done all of the things required, Peter Webb directed her to attend to the outstanding matters. Whilst the letters were dated 15 August 2005 that did not mean they were prepared on that date. Ms Abood said that it was possible the letters were prepared later than that, although they would have definitely been prepared before settlement. 173Many questions were directed to Ms Abood by Mr Donaldson on differences in particular information appearing in the LEAP software user log and to material contained in the firm's files. The general thrust of her testimony was that he could not recall what had occurred. She explained that some of the documents were created outside the LEAP system, when the LEAP system was not working or as the firm had only one LEAP licence, Mr Webb may have been working on the system. A document may have been created but entered on the LEAP system at a later date. 174Ms Abood said that the LEAP system recording in the Hamilton matters of 13 September 2005, may not have been the date that she actually received instructions. She recalled that she had returned from maternity leave in September which "obviously was a very busy period and there was a lot of work to be carried out. [She] was inundated so files might not have been created immediately": T423.50-T424.1-4. 175Mr Smallbone drew Ms Abood's attention to an entry at 12.36pm on 20 September 2005 in the LEAP user log which disclosed that "Julie Abood" entered the exchange date for Mr Hamilton's purchase as "6/8/2005" (ex 3 CD5, p 62) and asked why she had taken so long to make the entry. Ms Abood replied that "[she] was the only one in the office besides Mr Webb. [They] were quite busy at the time": T332.48-50. 176Ms Abood was aware that there was to be a surplus at settlement, but did not think this was suspicious. During the course of the matter, Mr Lee had said to her (ex 2 CD2, par 39): "The vendor is under financial distress and there's been a valuation after exchange where the value of the property or the value of the property has been valued at significantly less than the contract price. Accordingly the vendor and the purchaser have agreed to reduce the sale price of the property." 177She had nothing to do with arranging finance nor had she seen a valuation. Ms Abood had sent the transfers recording the reduced sale prices to the bank. 178The difficulty of what was said to be Mr Lee's explanation for the reduction in the purchase prices after contracts had been exchanged is demonstrated by Ms Abood's evidence in cross-examination by Mr Donaldson (T 264 35-50, T 265 1-14): "Q. I take it you recall being aware that, as with the Cooke and Paag transactions, the purchase price in connection with Nolan, Czyzewska, Christie and BeresfordManing, was substantially reduced after the contracts had been exchanged by the variation? Do you recall being aware of that when you were working on these matters? A. When it came to my attention, when I had the deeds. Q. And what explanation were you given as to why the vendors had decided not to pursue their legal right to $539,950, but to accept instead $368,000 for the purchase of each of these properties? A. I can't recall who said it, but I mean I was told at the time that the vendor was under financial distress and obviously wanted to get a quick sale of the properties. Q. The vendor already had a quick sale of the properties. The vendor had an exchanged contract for the sale of the properties, correct? A. At that stage. Q. Yes, before the price reduction? A. Before the price reduction, yes. Q. The purchasers had approved finance and letters had been sent to Webb & Co confirming that approved finance, correct? A. Yes. Q. Any explanation that you might have been given about the vendor's need to facilitate a quick settlement because of financial distress couldn't have related to these four transactions, could it? A. That's right." 179During cross-examination, Ms Abood said that she knew throughout the conveyancing transactions that Mr and Mrs Lee wanted to develop the property they had purchased at Worigee near Nowra. When cross-examined by Mr Smallbone on this topic, Ms Abood's testimony included the following (T 378 .14-37; 49-50, T 379 .1-12): "Q. And you knew that the money that they were getting from the surpluses on the sales of Napier's units to purchase the various purchases, you knew that those surpluses were being used by Mr Lee to fund the development at Worigee, didn't you? A. I was told that, that the purchasers had some sort of syndicate. Q. Who told you that? A. I was told, I think, earlier on by Mr Lee or Mr Webb, I am not sure. Q. And when you say "early on", you mean very early after you first came to work for Mr Webb? A. Yeah, after I was introduced to Mr Lee. Q. But you knew from that that Mr Lee had a direct conflict of interest with each of the purchasers of the Napier 888 units, didn't you? A. What do you mean by that, sorry? Q. You knew from the fact that Mr Lee was getting the surpluses that he had a direct conflict of interest with the interest of the various purchases of the Napier units? A. No, I didn't know that, I wasn't aware. Q. That was plain as day, wasn't it? A. No, I wasn't aware. ... Q. You knew that the Worigee property was in his name, some parcels in his wife's name? A. That's right. Q. And none of it was in any of the purchaser's names? A. That's right. Q. There was no mortgage over any of those properties in favour of these purchasers of the Napier 888 units, was there? A. Of the purchasers? Q. None of the purchasers of Napier 888 units had any mortgage over any of the Worigee property, did they? A. I didn't see any documents, no." 180And T 381 .15-26): "Q. Nobody told you Mrs Hamilton was part of that syndicate, did they? A. I wasn't sure. Q. Nobody told you that Jason Hamilton was part of that syndicate, did they? A. It might have been said to me but I don't recall exactly. Q. You have no recollection of that being said to you in relation to Jason Hamilton, do you? A. I knew it was from Mr Lee, obviously. Q. You knew what was from Mr Lee? A. That the purchasers that he referred were part of his syndicate." Further Argument 181Any assessment of Mr Webb's conduct would be incomplete without considering the extensive submissions made by Mr Donaldson on this issue and the further submissions made by Mr Lloyd, to which I will now refer in a summarised way. Mr Donaldson contended that the Hamilton purchases were part of a series of similar conveyancing transactions, each involving Mr Webb as solicitor for the purchasers (and in several instances, for the vendors) and each said to have been arranged by Mr Lee, aided by his partner Dorothy Adams. Mr Lee was engaged in a scheme to defraud both the purchasers and their financiers. Mr Donaldson said that it was necessary to have regard to the context supplied by this series of transactions before focusing upon the Hamilton transactions. 182Mr Donaldson referred to the Cooke, Paag and Peter Nolan purchases and said that Mr Webb's explanation for entry into the mutual set of deeds of variation proceeded upon the premise that prior to 3 August 2004, a property market collapse occurred, such that prices of between $425,000 and $440,000 for units in the complex were no longer sustainable. He argued that "the extent to which one can describe the Deeds of Variation provided by Mauric & Doyle as genuine, was open to question." Mr Donaldson pointed to the email (ex 3 CD4, p 10) and contended that it was very clear that Mr Lee did not want the purchasers' financiers to become aware of documents, such as the deeds of variation, which might cause each of the purchases to be deferred or prolonged. 183The principal importance of the Cooke and Paag transactions, Mr Donaldson said, was that they provide the basis of the explanation proffered by Mr Webb "of his role in the extraordinary course of events that followed". Mr Donaldson pointed to the failure by Mr Webb to mention, in exhibit H, any conversation with Mr Cooke that he was in a "syndicate of buyers" organised by Mr Lee, who was going "to organise surplus of funds" and submitted that was a very strong indication that the evidence was untrue. Mr Donaldson contended that the same may be said of Mr Webb's evidence of having received from Mr Paag an indication that he also was a member of Mr Lee's syndicate. 184Particular emphasis was placed by Mr Donaldson on Mr Nolan's attempted purchase of lot 12, which was said to demonstrate that Mr Webb's explanation of his actions was "incomplete and incredible". The conclusion that Mr Nolan did not elect to assume the additional financial burden involved in the purchase price for Unit 5 was said to be "inescapable" and demonstrated beyond doubt, that no one ever intended that Mr Nolan pay $539,950 for the unit. Mr Donaldson submitted that Mr Webb could not possibly have honestly believed that Mr Nolan had in fact decided to assume the additional burden. 185Another matter to which attention was directed, was the uniformity of conduct in the conveyancing files for the Nolan, Beresford-Maning, Czyzewska and Christie purchases. All purportedly signed letters on 24 January 2005 confirming Mr Lee's authority as buyer's agent, including the distribution of settlement funds and authorisation of Webb Lawyers to hold all surplus funds from settlement in trust on their behalf. Mr Donaldson argued that this uniformity of conduct, should have prompted enquiries as to the genuineness of these transactions. 186Mr Donaldson contended that the proposition that Mr Webb held the belief, in the aftermath of a collapse in the property market, a series of investors having been confronted with weak valuations of investment properties, each quickly opted to invest in a property syndicate and offered their homes as security for that purpose, and in each case, the bank was prepared to fully fund the investments, was incredible and should be rejected. The sum of money transferred to Mr Lee as a consequence of these transactions was $230,405.71. Mr Donaldson said that was an extraordinary sum that would have caused any solicitor acting honestly to take careful steps to obtain instructions from his clients. 187The principal submission that Mr Donaldson made, as to the Hamilton transactions, was that Mr Webb's conduct "transcends negligence and was plainly dishonest". Mr Donaldson contended that if the court was inclined to believe that prior to the Hamilton transactions, Mr Webb was unaware that a fraud was being practised on financiers and/or his clients, it was nevertheless inconceivable that a solicitor acting honestly, aware of what had occurred as a consequence of previous transactions with which Mr Lee was associated, would have failed to take any steps to endeavour to communicate directly with the Hamiltons prior to settlement of their purchases. 188The differences between the dates on documents in the Hamiltons' conveyancers and the user log of Webb Lawyers LEAP system, particularly on 13 September 2005, suggested, Mr Donaldson argued, that persons working within Webb Lawyers were creating documents for insertion into the firm's conveyancing files, intending to generate an impression that those files pertained to genuine transactions, when in truth their contents were fictitious. 189The findings that Mr Donaldson asks the court to make include that Mr Webb: (a)knew that: (i)the Hamiltons and/or the bank were/was unaware: (A) that the contract price had been reduced so as to create surplus loan monies; and (B) that the funds were being disbursed in the manner directed by Mr Lee; and (ii)the funds disbursed in the manner directed by Mr Lee were being applied otherwise than for the purposes of an investment by the Hamiltons; or (b)that Mr Webb had no honest or reasonable belief that: (i)Mr Lee was authorised to act for the Hamiltons in relation to the Hamilton purchases; and (ii)the Hamiltons and/or the bank were/was unaware: (A) that the contract price had been reduced so as to create surplus loan monies; or (B) that the funds were being disbursed in the manner directed by Mr Lee; and (iii)the funds disbursed by Mr Lee were being applied for the purposes of an investment by the Hamiltons. 190Mr Lloyd accepted that Mr Webb had breached his duty of care to Mr and Mrs Hamilton, but contended that Mr Webb had neither been dishonest nor recklessly indifferent to the reality of the transactions. Mr Lloyd's primary submission was that those transactions, other than the Hamilton transactions, are of little relevance on the question of Mr Webb's dishonesty. I propose now to recount, in a summarised way, the ten matters that Mr Lloyd submitted strongly pointed against Mr Webb ever holding a dishonest intention to deceive or cheat the Hamiltons or the bank: (1)Not only did Mr Webb hold a reasonable and honest belief that Mr Lee had been appointed as Mr Hamilton's agent for the transaction, that was actually the true position. (2)Mr Webb's conduct in the Hamilton transactions must be viewed through the prism of his experience at the time. Mr Lloyd pointed out that Mr Webb did not receive any training or tuition in conveyancing before starting his firm in 2003 and his experience was restricted to one "simple house purchase". Mr Lloyd submitted that, in this context, what might be obviously suspicious or unusual to the court, to experienced counsel or to an experienced conveyancing solicitor (although no such person was called to give evidence) is markedly different from what Mr Webb would have regarded as being suspicious or unusual in 2005. (3)The proposition that Mr Webb intended to mislead the bank about the purchase price could not be sustained on any proper view of the evidence. The only documents that Mr Webb provided to the bank were those that disclosed the lower purchase price and it should be accepted that his settlement agent had the deeds of variation at settlement. (4)The submissions by LawCover as to Mr Webb's motive to cheat and deceive are unconvincing and must be rejected. There was no evidence to support any allegation that Mr Webb obtained any financial benefit from the frauds and he was being paid $1,200 for each conveyance that Mr Lee referred to him. Mr Lloyd submitted that a finding that Mr Webb was motivated by a future source of work from a known fraudster is one that the court would have to make in circumstances where Mr Webb must have known that the detection of the fraud was likely, if not inevitable. (5)If there was a conspiracy to cheat and deceive, there must be a finding that Ms Abood was involved at the highest level and held such an intention. Mr Lloyd submitted that her credit was not successfully challenged and she presented as an honest witness. (6)Mr Webb's explanation for believing that there was a rational explanation for the surplus at settlement in the Hamilton transactions was credible. He believed that the Hamiltons were part of a property syndicate organised by Mr Lee and the surpluses were going to be used for that purpose. He believed that the reason the bank was providing money in excess of the purchase price was because other security was being used for the loan. (7)Mr Webb's belief in the explanation for the drop in the purchase price of the Hamiltons' property is credible. LawCover's submission that Mr Webb is asking the court to believe that there were a number of distinct falls in the Wentworthville property market, which is incredible, ignores the evidence given by Mr Webb at ex 2 CD8, par 53 (see [119] above). (8)Mr Webb's demeanour in cross-examination was that of an honest and perhaps gullible man. The credit attack upon Mr Webb founded principally on ex H should be rejected. He merely repeated, in ex H, the information contained in statements prepared by police investigating Mr Lee's conduct. Mr Webb was funding his own defence and had not conferred with counsel. It was after a conference with counsel that he prepared his affidavit of 23 September 2010. (9)The attacks on Mr Webb based on the LEAP documents failed. It may be thought surprising that no expert evidence was called. No proper explanation was given by Ms Spain about the way the information was obtained, or what it meant. Mr Webb and Ms Abood provided adequate explanations about various anomalies and inaccuracies in the LEAP system. (10)The state of the evidence; LawCover's position properly understood is that it is relying on indirect and inexact proofs to prove its serious assertions against Mr Webb, and therefore has failed to discharge its onus in accordance with the requisite standard of proof. 191During oral argument, Mr Lloyd's submissions included the contention that Mr Webb might have been gullible, but not a complete fool. Anyone would have known that if the fraud was going on, the first thing that would have happened is that the bank would have sent a statement to the borrowers, including the Hamiltons showing the true loan amount. It was not much of a deception, Mr Lloyd argued, because on any view, Mr Webb was going to be exposed immediately. Mr Lloyd said that Mr Webb had acted in a number of transactions where similar things had occurred and had not heard a word of complaint from the purchasers. 192Mr Lloyd contended that the court would not find that Mr Webb had the motive to be engaged in such a serious fraud. He argued that it was not a logical proposition that Mr Webb would have been motivated by such "a paltry reward" as the prospect of future work from Mr Lee, to engage in behaviour that was "incredibly high risk taking". Was Mr Webb dishonest? 193At the heart of the submissions advanced by LawCover and the bank is the assertion that Mr Webb was a knowing participant in Mr Lee's fraud. The cases for LawCover and the bank are founded upon circumstantial evidence. In Nguyen v Cosmopolitan Homes [2008] NSWCA 246, McDougall J (with whom McColl and Bell JJA agreed) dealt with what is needed to meet the standard of proof on the balance of probabilities in a case where the evidence is circumstantial. His Honour said [at 55]: "The position may be summarised as follows: (1)A finding that a fact exists (or existed) requires that the evidence induce, in the mind of the fact-finder, an actual persuasion that the fact does (or at the relevant time did) exist; (2)Where on the whole of the evidence such a feeling of actual persuasion is induced, so that the fact-finder finds that the probabilities of the facts existence are greater than the possibilities of its non-existence, the burden of proof on the balance of probabilities may be satisfied; (3)Where circumstantial evidence is relied upon, it is not in general necessary that all reasonable hypotheses consistent with the non-existence of a fact, or inconsistent with its existence, be excluded before the fact can be found; and (4)A rational choice between competing hypotheses, informed by a sense of actual persuasion in favour of the choice made, will support a finding, on the balance of probabilities, as to the existence of the fact in issue." 194An authoritative statement of principle on the standard of proof where fraud is claimed, is found in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; 67 ALJR 170 (Mason CJ, Brennan, Deane and Gaudron JJ) at 449-450: "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." (footnotes omitted). The bank and LawCover bear the onus of proof. 195I do not agree with Mr Lloyd's submission that those transactions, other than the Hamilton purchases, are of little relevance on the question of Mr Webb's dishonesty. It seems to me that the Hamilton purchases cannot be viewed in isolation. They had been preceded by the Nolan, Beresford-Maning, Czyzewska and Christie purchases. At the same time as the Hamilton purchases, the conveyance of unit 9 to Adam Miller was proceeding. The similarities between the way in which those transactions and the Hamilton transactions were conducted, are so substantial that they are relevant to the assessment of Mr Webb's state of mind when he acted on the purchases of units 12 and 13 in September 2005. Moreover, the Cooke and Paag transactions provide the genesis for Mr Webb's evidence of a belief that surplus funds would be directed to Mr Lee, so that the Hamiltons could participate in his property syndicate. 196Mr Donaldson was critical of Mr Webb's failure to mention in ex H the conversations with Mr Cooke and Mr Paag set out in pars 34 and 38 of ex 2 CD8. Mr Lloyd pointed to par 5 of ex 2CD8 in which Mr Webb explained that he had repeated in his earlier affidavit "the information contained in statements [he had] given to police investigating the conduct of the First Cross-Defendant Graham Lee". Mr Webb noted that he was funding his own defence of the proceedings and ex 2CD 8 was prepared after he had conferred with counsel. 197Although being sympathetically mindful that exhibit H was sworn before Mr Webb had a conference with counsel, there is, to my mind, some difficulty in readily accepting Mr Lloyd's argument that LawCover cannot rely "upon imperfections in [Mr Webb's] evidence" prepared without counsel, to support adverse credit findings. 198When Mr Webb came to swear his affidavit on 17 September 2009 (ex H), he had been admitted as a solicitor for just over 9 years. He did not think to mention in this affidavit, the conversations with Mr Cooke and Mr Paag upon which his belief that surplus funds might be directed to Mr Lee was partially founded. In preparing this affidavit, Mr Webb plainly turned his mind to speaking to Mr Cooke, as he stated at par 42 ex H: "...as when William and Donna Cooke received their settlement pack, they rang the office and we had to go through the whole pack in detail. LEE attended shortly after and explained that he too had received a call from William COOKE and that COOKE was a little slow and that he had to explain everything in detail." 199An aspect of Mr Webb's account of the conversation with William Cooke at pars 34-35 ex 2 CD 8 that undermines its reliability, is that there was no surplus in the transaction above the price of the property being purchased. The price of the purchase was reduced by a deed of variation from $425,000 to $390,000 (ex 3CD 4 p 14) and the monies lent by Perpetual Trustee Australia Limited amounted to $304,000, (ex 3CD 4 pp 17A-17B) with the balance of the purchase price being made up by a cheque received from the Public Trustee of Queensland in the sum of $86,547.32 (ex 3CD 4 pp 18A-18B). In these circumstances, it is not easy to understand why Mr Cooke would speak with Mr Webb about Mr Lee organising a surplus of funds. 200Mr Donaldson submitted that no surplus was generated when Mr Paag purchased unit 10. Indeed, the purchase price had been reduced by a deed of variation from $440,000 to $400,000 (ex 3CD 4 p 15). The monies lent by Perpetual Trustee Company Limited amounted to a net amount of $327,958.54. It seems from the letter dated 28 September 2004 from Kemp Strang, solicitors (ex 3CD 4 pp 24-25) that an amount of $43,715.67 was available "from [a] previous settlement." During cross-examination, Mr Webb agreed that that money was not available for investment in any property syndicate and he knew that a surplus was not being generated from the financing arrangements for unit 10. The "Paag and Roberts Property Settlements Amended Summaries" (ex 3CD 4 p 21), however, refer to the inclusion of an amount of $20,000 "to remain in Trust (being the reduction in purchase price)", but that reference does not appear to be supported either by the Settlement Adjustment sheet (ex 3CD 4 p22) or Mr Webb's evidence. I am satisfied that there was no surplus of funds when Mr Paag completed the purchase of unit 10. 201Mr Webb explained that he understood that Mr Paag had bought a previous property to which he was not privy and that his intention was to re-finance his home. In neither affidavit is mention made of a conversation with Mr Paag in those terms, nor is there a reference to a building or property syndicate in the letter from Kemp Strang or any document or file note in the files of Webb Lawyers. I regret to say that this was one of a number of times, I considered during Mr Webb's evidence that he had moulded his testimony in an effort to fill in holes that had emerged in his credibility. I do not accede to Mr Lloyd's invitation to find that Mr Webb's demeanour in cross-examination was that "of an honest and perhaps gullible man." 202I understood from Mr Lloyd's argument that it was incumbent on LawCover to call Mr Paag and/or the Cooke's if Mr Webb's account of his conversations with these persons was to be challenged, he was submitting that the conditions for the operation of the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 were present. 203The principle in Jones v Dunkel only applies where a party is "required to explain or contradict": Jones v Dunkel per Windeyer J at 320-322. The basis of the rule is "plain commonsense": Jones v Dunkel per Windeyer J at 320-322. As was observed in the joint judgment of the majority of the High Court in Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361 (Heydon, Crennan and Bell JJ) at [63]: "The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case..."(italics added). 204It is well established that the principle in Jones v Dunkel does not compel the drawing of such an inference: Galea v Bagtrans Pty Ltd [2010] NSWCA 350 at [2]; CSG Limited v Fuji Xerox Australia Pty Ltd [2011] NSWCA 335 at [82]. 205In my opinion, Mr Webb's accounts of the conversations with Mr Cooke, detailed in par 34 ex 2 CD8 and with Mr Paag, detailed in par 38 ex 2CD8, were so implausible that Mr Cooke and Mr and Mrs Paag were not required to be called as witnesses. 206Mr Webb's dealings with the purchase by Peter Nolan of a unit in the complex point unfavourably to a dishonest state of mind. It is plain that Mr Nolan had entered into a contract to purchase unit 12, but the purchase price had been reduced to $390,000. According to the facsimile from Mauric and Doyle dated 3 August 2004 (ex 3 CD 4 p 8), the reduction had occurred "in view of your client's borrowing capacity having reduced..." The evidence discloses that on the front sheet of Webb Lawyer's file for the purchase of unit 12, the figure "12" was crossed out and replaced with "5" (ex 3 CD 4 p 43). The file contains the front page of the contract for the purchase by Mr Nolan of unit 5 for $539,950, the name of the vendor's solicitors "Mauric & Doyle" having been crossed out and "Webb Lawyers" inserted. Webb lawyers were acting on this purchase for both purchaser and the vendor. The contract is dated 24 November 2004. At the very least, any solicitor, however experienced, would have asked, upon receipt of such a contract, how it was that Mr Nolan, whose reduced borrowing capacity had apparently impacted upon the purchase price of unit 12, was then able to purchase unit 5 for $539,950. 207There is no evidence of any instruction from Mr Nolan that he had decided not to proceed with the purchase of unit 12, but to buy unit 5 instead. On the contrary, the facsimile from McPhee Kelshaw dated 25 November 2004 refers to Mr Nolan's purchase of unit 12. Neither Mr Webb nor Ms Abood sought instructions from Mr Nolan to confirm that he wished to proceed with the purchase of unit 5 for $539,950 rather than unit 12 for $390,000. I do not accept Mr Webb's explanation that he did not contact Mr Nolan as he trusted Mr Lee. In any event, this evidence does not account for the lack of communication with McPhee Kelshaw. Mr Webb's failure to respond to McPhee Kelshaw's enquiries or to contact Mr Nolan, supports a conclusion that Mr Webb knew that the contract for the sale of unit 5 for $539,950 was a sham. 208Another circumstance that re-enforces such a view is the email of 1 September 2004 from Mr Lee to Mr Webb. It is evident from the content of the email that Mr Lee did not want the banks to be made aware of the deeds of variation in the Cooke and Paag purchases and the purchase by Mr Nolan of lot 12. When Mr Donaldson put to Mr Webb, in the passage of evidence quoted at [126] above, that is was a matter of considerable significance to the banks to know about the price reduction of $35,000 in the Cooke purchase, Mr Webb replied that he understood that the banks "knew because the valuation did not stack up. So, [he] understood, it was their recommendation that there be a variation." To my mind, this answer makes little sense. Mr Webb had previously agreed that Mr Lee thought that documenting the reduced prices in deeds of variation "would be the death knell to Tony because the bank would not issue new documents before any settlement could proceed": T 458.5-9. In any event, as Mr Donaldson submits, if the banks had themselves recommended that the purchase prices be reduced, why would Mr Lee have sought to conceal those reduced prices from the bank? 209In all of these circumstances, how could Mr Webb have honestly believed that Mr Nolan was genuine purchaser of unit 5 for the price stated in the contract? Moreover, any honest belief that the price of unit 5 was justified by the larger size or better features of that unit would have been quickly dispelled by an egregious reduction in the purchase price of $171,950 when the deed of variation was prepared. The reduced price of unit 5 was $368,000 whereas the price for unit 12 had been $390,000. 210Mr Lloyd submitted that Mr Webb's conduct must be viewed through the prism of his experience at the time and his training and experience in conveyancing before starting his firm in 2003, was restricted to one "simple house conveyance". I do not think, however, that conveyancing experience is required to understand that if a purchase of unit 12 for $390,000 is to be changed to the purchase of unit 5 for $539,950, the client must be contacted and his instructions confirmed, that the substitution of the lot number in the contract is insufficient. This is a matter of ethics and plain common sense which, to my mind, a first year law student would take as a given. Furthermore, Mr Webb's experience as a legal practitioner had advanced by November 2004. Webb Lawyers had become a busy practice and the work previously undertaken by Mr Webb, included the purchase by Mr Lee and Ms Adams of seven parcels of land in the Scone and Worrigee area as well as other conveyancing. The conversation deposed to by Mr Webb at ex 2 CD8 par 25, reflects a competent and intelligent solicitor. 211The purchase price of unit 5 was reduced by a deed of variation dated 24 January 2005 (ex 3CD4 p 105) from $539,950 to $368,000. The deed recited in clause 2 that the vendor had agreed with the purchaser to accept the reduced consideration "due to the reduced valuation obtained by the purchasers (sic) lender." This statement in the recital was false, as Mr Nolan had been advised by letter dated 14 December 2004 that his application for a home loan had been approved by the bank in an amount of $431,960 and the bank informed Mr Webb by letter dated 21 December 2004 (ex 3CD 4 p 56) that the bank would provide loan funds of $431,360. The letter confirms that the "bank has been approached for finance to assist [Peter Nolan] to complete the purchase of the stated property" and the loan funds would be provided "to meet the balance of purchase moneys" (italics added). The property being purchased is identified as unit 5. 212Mr Webb, however, maintained that he understood that the bank had reduced the amount of money it was prepared to lend because of the lesser valuation. There are no letters from the bank, instructions from Mr Nolan or notes in the conveyancing file that support this evidence. I agree with Mr Donaldon's submission that the implausibility of Mr Webb's account of his belief that Mr Lee was acting honestly, is reinforced by the fact that whilst Mr Nolan's purchase of unit 5 was proceeding, Webb Lawyers was also acting for both vendor and purchaser in the Beresford-Maning, Czyzewska and Christie purchases. The price for each of the units being purchased was $539,950 with the contract dates of 18 November 2004 for unit 3 (Beresford-Maning), 19 November 2004 for unit 2 (Czyzewska) and 20 November 2004 for unit 4 (Christie). 213In January 2005, the purchase price of unit 3 was reduced by a deed of variation from $539,950 to $370,000 (ex 3 CD4 pp 72,73). In the same month, the purchase price of unit 2 was reduced from $539,950 to $350,000 by a deed of variation (ex 3 CD 4 pp 74,75), and purchase price for unit 4 was reduced from $539,950 to $370,000 by a deed of variation (ex 3 CD 4 p 70). Price reductions of such magnitude, unlike those in the Cooke and Paag transaction, were self-evidently remarkable. Each of the deeds of variation recited in clause 2 that the reduced consideration was "due to the reduced valuation obtained by the purchasers (sic) lender." 214These statements in the recitals were false as Miss Beresford-Maning's application for a home loan to purchase unit 3 had been approved by the bank on 14 December 2004 in the amount of $431,960 (ex 3CD 4 p 48). Ms Czyzewska's application for a home loan to purchase unit 2 had also been approved by the bank on 14 December 2004 in the amount of $431,960 (ex 3CD 4 p 50) as had Mr Christie's loan application (ex 3CD 4 p 49). By letters dated 21 December 2004 (the same date as the Nolan letter from the bank), the bank advised Mr Webb of the loan approvals (ex 3CD 4 pp 52,54,58,62). 215Mr Webb accepted that there was no intervening property market collapse between 18-24 November 2004 (the dates of the Beresford-Maning, Christie, Czyzewska and Nolan contracts), and the deeds of variation. He explained that he understood that the prices of these properties had been pre-negotiated prior to the market collapse, which on his evidence, seems, if he is to be accepted, occurred prior to 3 August 2004. Mr Webb agreed in cross-examination that there was no record in any of his conveyancing files that supported his evidence. Plainly stated, Mr Webb's explanation for the reduction in prices makes no sense. Why would the pre-negotiated prices remain as the contract prices when the contracts were not exchanged until mid November 2004? Why would the loan applications to the bank be founded on the pre-negotiated prices? 216Mr Webb gave evidence of his understanding that the purchasers were "cross-collateralising" their homes to facilitate the purchases and thereby enabling them to invest in Mr Lee's property syndicate. It was for this reason, the bank agreed to lend more than the reduced prices of the properties. 217It is plain from the bank's letters to Ms Beresford-Maning, Ms Czyzewska, Mr Christie and Mr Webb that the bank had not reduced its valuations on the properties. Moreover, each of the letters to Mr Webb states in clear terms that the loan funds are being provided "to meet the balance of purchase moneys" and the property being purchased is identified. There is no reference whatsoever to additional security being provided to, or required by the bank, or to an investment in the property syndicate. Furthermore, there is an absence of reference to cross-collateralisation, the property syndicate or a requirement for additional security in any of the conveyancing files. I find it to be remarkable that if Mr Webb or Ms Abood were informed that the purchasers (including the Hamiltons) were to be members of Mr Lee's property syndicate, that there is no record of that information in the conveyancing files. I do not accept Mr Webb's evidence. 218I have referred at [178] above to Ms Abood's concession that what she said was Mr Lee's explanation for the reduction in purchase price could not have applied to the Nolan, Czyzewska, Christie and Beresford-Maning purchases. She further testified that she did not recall receiving an explanation from anyone as to why these four contracts had suddenly changed nor did she remember asking Mr Webb for one: T265.24-30. 219Another circumstance that points to Mr Webb's knowledge that the prices in the contracts were a sham are the letters dated 20 January 2005 written to Mr Nolan, Ms Czyzewska, Mr Christie and Ms Beresford-Maning (ex 3CD 4 pp 90-93) that make no mention of the reduction in purchase price, a surplus to be produced on settlement, or an investment in a property syndicate, but include the amount of stamp duty calculated upon the reduced consideration. It is an unusual feature of the letters that were produced by Webb Lawyers after settlement, that a settlement adjustment sheet and front page of the contract are stated to be enclosed, but a copy of the deed of variation is not (ex 3CD 4 pp 139, 141). Nor is there any express mention of money being paid out of Mr Webb's trust account to Mr Lee. 220The settlements of the Nolan, Czyzewska, Christie and Beresford-Maning purchases generated the following amounts, that were the subject of cheque directions from Webb Lawyers for bank cheques in their favour; Mr Nolan $70,240.17 Mr Christie$46,395.49 Ms Beresford-Maning $46,395.49 Ms Czyzewska$67,374.56 All of these monies were transferred by journal entry to Graham Lee (ex 3CD 4 pp 143-146). 221In each of these transactions, Mr Webb was in possession of authorities that were expressed in similar terms to the buyer's agent authority, the surplus funds authority and the trust authority in the Hamilton purchases. As is mentioned at [246] and [282] below, Mr Webb's failure to seek instructions from the purchasers and his authority to give the cheque directions to the bank cannot be explained by these authorities. Furthermore, the necessity to contact the purchasers and to obtain special instructions for the cheque directions and transfer of the surplus funds to Mr Lee was re-enforced by Mr Webb's knowledge that Mr Lee, who had delivered the authorities, was acting in his own interest, as the surplus funds were to be paid to him. I do not consider that any honest solicitor, however experienced, would have had such a blatant disregard for the fiduciary obligation that he owed to the purchasers. 222I turn now to the Hamilton purchases. The contract for sale of unit 13 to Karen Hamilton bears date 6 August 2005 and the purchase price is recorded as being $560,000 (ex 3CD 4 p 183). The contract for sale of unit 12 to Jason Hamilton bears dated 6 August 2005 and the purchase price is recorded as being $560,000 (ex 3CD 4 p 186). The price of unit 12 had been reduced in August 2004 to $390,000 in the proposed sale to Peter Nolan. When Mr Webb was cross-examined about the substantial increase in the sale price of unit 12 and the substantial differences between the sale prices of units 12 and 13 and the Nolan, Christie, Beresford-Maning and Czyzewska sales in January 2005, he said that "[he] did not put [his] mind to what was presented on the contract by way of purchase price": He understood that the contracts were legitimate: T 508.40-44. 223The purchase prices of units 12 and 13 were reduced from $560,000 to $365,000 in September 2005 by deeds of variation (ex 3CD 4 pp 195,197). Mr Webb testified that he understood that there were problems in the market, the Hamilton's bank valuations had not "come up to scratch" and the bank lent the full amount only because the Hamilton's "cross-collateralised" some security to enable them to apply the surplus towards Mr Lee's property development syndicate. 224Upon any view, the fluctuations in the prices of units 12 and 13 were extraordinary. I find Mr Webb's account of the variations in the prices of units 12 and 13 to be totally implausible. I do not accept that he did not turn his mind to the purchase prices stated on the contracts. Price variations of such a magnitude could not, in my view, have been honestly understood by Mr Webb to have resulted from the vendor's imperative for sales, pre-negotiated contracts, property market collapses or the purchasers' inability to obtain the required bank valuations. Furthermore, Mr Webb could not have honestly understood that the Hamiltons were providing additional security to enable the loans to proceed. 225Clause 2 of the Hamilton deeds of variation were in the same terms as the Nolan, Beresford-Maning, Czyzewska, Christie and Miller deeds, in reciting that the reduced consideration was "due to the reduced valuation obtained by the purchasers (sic) lender." These statements in the recitals were false as the loan applications made on behalf of Mr and Mrs Hamilton to purchase lots 12 and 13 had been approved by the bank. By letters dated 5 September 2005, the bank advised Webb Lawyers that it would provide loan funds in each case of $448,000 "to meet the balance of purchase moneys" (ex 3CD 4 pp 200-203) and the properties being purchased were clearly identified. There is no reference in any of the material from the bank to an investment in a property settlement, or to additional security being provided to, or required by the bank. As in the preceding conveyances, no mention is made of cross-collateralisation, a property syndicate or to additional security in the Hamilton conveyancing files. 226It is apposite to mention that Webb Lawyers were acting, at the time of the Hamilton transactions, for the vendor (Napier 888 Pty Ltd) and purchaser (Adam Thomas Miller) in the sale of unit 9 in the complex. The contract bears date 8 August 2005 and the purchase price is recorded as being $495,950. The purchase price was reduced by a deed of variation in September 2005 to $360,000. Webb Lawyers were advised by facsimile dated 5 September 2005 (ex 3 CD4 p 198) from National Lending Solutions Pty Limited that Mr Miller had obtained a "RAMS Basic Home Loan" in the amount of $445,500. The security was clearly identified as being unit 9. When asked by Mr Donaldson (T 516.46-50): "Given that National Lending Solutions had identified this particular security property, how could you have imagined that they had some sort of cross-collateralised security?" Mr Webb replied: "I didn't put my mind to it." 227This answer, to my mind, provides another example of Mr Webb moulding his testimony in an effort to restore his credibility, as was his evidence that he did not put his mind to the purchase prices on the Hamilton contracts: see [224] above. 228Mr Miller's purchase was settled on the same day as the Hamilton transactions. Mr Webb gave cheque direction no 14 to National Lending Solutions Pty Limited for a bank cheque in favour of Webb Lawyers Trust Account in the sum of $60,606.85 (ex 3CD 4 p 249). This amount was transferred by journal entry to Mr Lee on the same day that the surplus amounts of $67,582.15 were transferred in each of the Hamilton transactions (ex 3 CD 4 pp 254-256). Unlike the journal entries in the Nolan, Christie, Beresford-Maning and Czyzewska transactions that recorded a reason for the transfer as being "Authorised transfer of funds to G Lee", the recorded reason in the Miller and Hamilton transactions was a "Loan to Graham Lee." 229Should a loan have been the true reason for the money transfers, any honest solicitor, however experienced, would have sought, in my view, instructions from his clients before transferring the money and provided advice as to how to secure the loan. The total amount transferred to Mr Lee on 29 September 2005 was $195,771,15. Of that amount, $135,164.30 was transferred from the monies held in trust after the Hamilton purchases. These were significant amounts of money. 230At no time did Mr Webb or Ms Abood endeavour to advise or to seek from Mr and Mrs Hamilton instructions about the contracts, the deeds of variation, the surpluses to be generated on settlement, the cheque directions or the transfer of monies to Mr Lee. 231Much time and attention was devoted during cross-examination of Mr Webb and Ms Abood in seeking to obtain an understanding of the chronological order in which the Hamilton conveyances proceeded. This should not have been necessary as they were uncomplicated strata title transactions, but was brought about by the differences between the dates on documentation in the conveyancing files, the entries in the LEAP system and the testimony of Mr Webb and Ms Abood. 232There are a number of matters that I propose to mention. The Hamilton conveyancing files include costs agreements dated 6 August 2005 (ex 3CD 4 pp 181,184). The detail of the work required to be done includes "advising on the contract." The Hamiltons are notified that the stamp duty payable on each contract is $11,919. The evidence established that Mr Webb and Ms Abood did not give nor did they intend to give contractual advice to Mr and Mrs Hamilton. Furthermore, the stamp duty of $11,919 had been assessed on the reduced purchase price of $365,000 and not on $560,000. Mr Webb explained that "[the costs agreements were] a precedent pulled out [of] the field": (T617.7). He presumed that the costs agreements were prepared in September and the dates of 6 August 2005 were inserted by the LEAP system. Earlier on, in cross-examination by Mr Donaldson, Mr Webb was taken to the log in entry in the LEAP system at 6.26pm on 13 September 2005 (ex 3 CD5 p 54) in his name, when the purchase price was changed from $560,000 to $365,000. Although he did not recall making the data entry, Mr Webb presumed that the purchase price was reduced on 13 September 2005 when he logged into the system T513.8-10. 233Although this evidence might explain how the costs agreements dated 6 August 2005 included stamp duty assessed on purchase prices reduced by the September deeds of variation, it sits uncomfortably with Mr Webb's statement in par 54, ex H: "I was informed by LEE on 21 September 2005 shortly before the settlement of 12/8-10 Lydbrook Street Wentworthville that a reduced sale price had been negotiated through Tony Sakr of Napier 888 Pty Ltd. As such, LEE provided me with Deeds of Variation regarding the reduction in sale price from $560,000 to $365,000." 234In further response to Mr Lloyd's submission that exhibit H could not be used to support adverse credit findings, I do not think that a solicitor of 9 years standing requires the assistance of counsel to appreciate the care and attention that is required before swearing to the truth of the contents of an affidavit. On that account, Mr Webb could not have known of the reduction in the prices of units 12 and 13 until 21 September 2005. 235Although Mr Webb specified in his affidavit sworn on 17 September 2009 (ex H) that he was informed of the price reductions on 21 September 2005, he stated in par 81, ex 2 CD8 that: "At some point during the course of the matter, I cannot recall when, the firm received an undated deed noting the agreement between the vendor and the purchaser for both Karen and Jason Hamilton to reduce the price from $560,000 to $365,000." 236Exhibit 2 CD 8 was sworn by Mr Webb on 23 September 2010, some twelve months after exhibit H. The diminishing clarity of Mr Webb's recollection between the swearing of these affidavits was not satisfactorily explained and undermined the honesty and reliability of his testimony. 237Circumstances other than the costs agreements, that pointed unfavourably to the state of mind with which Mr Webb approached the Hamilton transactions include his evidence that he knew that the front pages of the contracts provided to the bank by Mr Lee, falsely stated that Richardson and Wrench were the real estate agents on the sales and a deposit of 10 per cent had been paid. Notwithstanding that the Nolan, Beresford-Maning, Christie, Czyzewska and Miller contracts contained the same false statements, Mr Webb was content to continue to act for both parties. Another unfavourable feature of the solicitor's evidence was that, although he was of the view, the contracts were not binding and "[were] cured by settlement" (T598.20-25) or became binding because the purchasers had entered into deeds of variation (T 599.26-31), he failed to either notify any of the parties to the contracts or the bank of his view. Mr Webb's evidence on this topic included the following (T 598.45-50, T 599.1-2): "Q. Did you think that it was your view that it was a nonbinding contract prior to settlement that it was important to advise the purchasers of that fact? A. Your Honour, what I thought at that stage was that they were prepared to buy the property at, say, 550 and then now it was reduced they were getting the same property at such a reduced rate that it was still in their best interests that they were getting a property in effect at a significantly discounted price." 238I agree with Mr Donaldson's submission that "unless Mr Webb knew that the reduced purchase prices were the true prices ...from the very beginning, that explanation does not sufficiently deal with why, prior to the execution of the deeds of variation, he nonetheless refrained from advising the Hamiltons that the contracts purportedly executed by them were, in his opinion, non-binding." (LawCover WS par 58). 239The letters dated 15 August 2005 to Mr and Mrs Hamilton (ex 3 CD 4 pp 192, 194) are peculiar. The letters confirm "that exchange took place on 6 August 2005". The Hamilton's are advised that "the Contract is now binding upon you both..." and the stamp duty payable was $11,919. 240When Ms Abood was cross-examined on these letters, the only explanation that she offered for the calculation of stamp duty in accordance with the deeds of variation, is that the letters could have been "[updated] once we knew the figures had changed": T 297. 2-3. On this topic Ms Abood's evidence included the following (T 295 30-36): "Q. Can you offer his Honour any explanation as to why in the conduct of the Webb Lawyers practice it would be likely that anyone would adjust a file copy of a 15 August letter to change the stamp duty figure just because post 15 August the contract price had changed? A. Not unless it had not been sent to the client. I'm not sure. Q. You don't have any recollection of anything of the sort occurring, do you? A. I don't recall. No." 241I do not understand why a solicitor would alter a file copy of a letter so as to include a different stamp duty amount. No credible explanation for "[updating]" these letters was proffered by Ms Abood. Mr Webb did not speak of the subsequent updating of file copies of correspondence sent to clients. Webb Lawyers files include a letter dated 15 August 2005 in similar terms to Mr Miller (ex 3 CD 4 p 193). I do note that there are no letters in the Hamilton or Miller files that advise that the consideration in the "binding" contracts had been reduced by the deeds of variation. 242There are other documents in the Hamilton files that deserve mention. In his affidavit (ex 2 CD 8) at pars 71-72, Mr Webb referred to Ms Abood on 13 September 2005, generating "through the system" requisitions on title. Mr Webb stated that "on that day", the requisitions were answered by him. Copies of the letters are found in ex 2 CD 8, pp 230-237 and ex 2 CD 2 pp 64-71. During cross-examination by Mr Smallbone upon entries in the LEAP system, Mr Webb accepted that the replies to requisitions were probably prepared on 29 September 2005 and not on the date that the letters bear. Mr Webb acknowledged that settlement had already passed, as had the time for insisting on answers to requisitions. He denied that the requisitions were "window dressing for the file", but said "they were there so we can fill the checklist to make sure everything was in there": T 619. 22-23. When asked by Mr Smallbone (T621. 5-10): "Anyone who came and looked at this file later would think that on 13 September 2005 answers to requisitions had been given?" Mr Webb replied: "That's correct. Again that is an error based on our instruction notes that was in the system." 243Quite frankly, I found Mr Webb's responses to be a nonsensical. Mr Webb's testimony upon this topic, reflected poorly on his honesty and reliability. Moreover, the answering of requisitions on title after settlement, is another matter that demonstrates little heed was paid to the interests of Mr and Mrs Hamilton. 244I do not think it is necessary to consider in detail other entries in the LEAP system. Although it is true that expert evidence was not called to establish that entries into the system could not have been made in the manner deposed to by Mr Webb and Ms Abood, I found their evidence to be disingenuous and unconvincing. 245Mr Lloyd contended that it was well established that Mr Webb was not instructed in the Hamilton matters until after 6 August 2005 and that it was probably around 7 September 2005. He referred to par 29 in Ms Abood's affidavit (ex 2 CD2) in which Ms Abood deposed to her belief, based upon a review of the file that Mr Lee delivered the authorities directed to Mr Webb dated 7 September 2005, copies of Mr and Mrs Hamilton's birth certificates, drivers' licences and costs agreements on or around 7 September 2005. In my opinion, the failure of either Mr Webb or Ms Abood to make any enquiry, at that time, at the very least about the surplus funds authority, when on their evidence they had not been informed of a price reduction, is another circumstance, that points to Mr Webb's understanding that the prices in the contracts were a sham. 246It is convenient to mention that Mr Webb's failure to seek the instructions of Mr and Mrs Hamilton, Mr Nolan, Ms Beresford-Maning, Mr Christie and Ms Czyzewska, could not be explained by the buyer's agent authorities. He understood that his obligation to give legal advice was not limited by their introduction to him by Mr Lee. The failure to advise on the contracts and deeds of variation, to permit Mr Lee to attend to having the deeds and transfers signed and to collect correspondence, when considered together with all of the evidence, speaks not of naive incompetence but of dishonesty. 247There are two important issues to be addressed before proceeding further. The first is motive. It is trite to observe that, in criminal prosecutions, it is unnecessary for motive to be established, as the reasons for a person's actions may never be known: De Gruchy v The Queen [2002] HCA 33; (2002) 211 CLR 85. It seems to me that where a lesser standard of proof is required in civil cases, the same observation is appropriately made. The evidence does not establish that Mr Webb received any direct financial benefit from Mr Lee's fraudulent scheme. I accept that Mr Webb had rejected overtures from Mr Lee and Ms Adams to become an investor. Mr Lee, however, was an'investment consultant' with Mortgage One and Mr Sakr was a finance broker with that firm. Mr Webb's legal practice was located on the first floor, above the Mortgage One business. Mr Webb subleased the premises from Mortgage One. Mr Sakr was also a director of Napier 888 Pty Ltd, an investment company and was married to Mr Webb's wife's cousin. 248Mr Webb opened his legal practice in 2002. It is evident that he worked hard to build up his practice and was apparently successful in growing his firm. Supervision of Ms Abood involved discussing over 100 files. The conveyancing work from Mr Lee and Mr Sakr, whilst paying a fee of $1,200 per conveyance, was important to the practice. Mr Webb described the work as "bread and butter for a small practice." He had acted for Mr Lee and Ms Adams on the real estate purchases in the Scone and Worrigee area "free of professional charges", on the understanding, that he would be instructed on the sales for professional fees on the usual scale, plus a premium. 249Mr Webb impressed me as an intelligent man, who was neither naive nor gullible in 2003-2005. I am satisfied that Mr Webb believed that careful cultivation of Mr Lee, Ms Adams and Ms Sakr as clients of the firm brought with it, the prospect of future work and development of his legal practice. Unfortunately he permitted his desire to retain them as his clients to overwhelm his integrity and professional responsibility to the purchasers. 250Mr Lloyd's submission that there was an "incredibly high risk" that Mr Webb's participation in the fraudulent scheme brings me to the second issue, which is the provision to the banks of documents that disclosed the lower purchase prices. Mr Lloyd pointed out that the only documents that Mr Webb provided to the bank were those, such as transfers and notices of sale, which recorded the prices as reduced by the deeds of variation. Furthermore, Mr Lloyd submitted that it should be accepted that Lawpoint Galloways had the deeds of variation on settlement. Mr Lloyd drew my attention to the following passage in Mr Webb's evidence at T 450.5-26: "Q. Mr Webb, did you ever write to LawPoint Galloways enclosing copies of deeds of variation for the Lydbrook Street conveyances? A. Not particularly the deeds of variations, but I wrote to them enclosing the contract which had the deed attached to it. Q. And does that apply to one or more of those conveyances for the Lydbrook Street properties? A. More. Q. I missed that answer? A. More, for all. Q. And was there any other way that you are aware of that you gave copies of the deeds of variation to LawPoint Galloways? A. There was on one occasion where we hadn't received the original deed of variation and I recall Sakr, Mr Sakr having to deliver that letter to LawPoint Galloways under my instructions because they required the original at stamping. Q. Do you know what matter that related to? A. I don't recall the matter." 251During cross-examination by Mr Donaldson, Mr Webb said that he knew for a fact that the deeds of variation were attached to the contracts for stamping. He said that the deeds had to go with the contract in order for stamping to occur. There was, he said, no mention of the deeds in the settlement instructions as he considered the deeds to form part of the contract: (T 545.1-14). 252The settlement instructions, in evidence, from Webb Lawyers to their settlement agents in ex 3 CD 4 do not extend beyond the Hamilton and Miller purchases. The settlement instructions to Lawpoint Galloways in the Hamilton and Miller purchases make no mention of deeds of variation being enclosed or attached to the contract, although the contract and transfer are enclosed for stamping. There is no instruction for the deeds to be brought to the incoming mortgagee's attention. However, as it appears that the deeds were necessary for the payment of stamp duty, I find it more likely than not that they were forwarded to the settlement agents. Whilst I accept that there is no evidence of any instruction issued by Mr Webb or Ms Abood for the deeds of variation not to be shown to the incoming mortgagee, I find that neither Mr Webb nor Ms Abood instructed the settlement agents to show the deeds to the lenders. 253A matter of some controversy is whether Ms Abood sent in Mrs Hamilton's conveyance, the facsimile dated 21 September 2005 to the bank (ex 2CD 1 p 185), that inter alia states: "We enclose for your immediate consideration copy of unstamped Transfer and front page of the Contract..." 254The facsimile was addressed to the attention of "Home Loan Conveyancing." That facsimile had been preceded by a facsimile of the same date (ex 2CD 1, p 181) from Cam Ngo, a home loan officer with the bank, advising that settlement was unable to be authorised until: "...we receive a copy of the transfer with new title particular and a contract for sale from you." 255Mr Smallbone contended that the facsimile of 21 September 2005 was not sent by Ms Abood. He argued that, if it had been sent, there would have been no need for the facsimile of 22 September 2005 (ex 2 CD1, p 185) that was sent by Ms Abood to the bank, addressed to the attention of "Sonia". This facsimile, inter alia, states: "We refer...to your conversation with the author on even date. We enclose for your immediate consideration copy of unstamped Transfer..." 256On the other hand, Mr Lloyd submitted that Ms Abood's evidence should be accepted, that none of the documents tendered by the bank on this issue were persuasive and surprisingly, the bank did not put before the court a copy of its file. 257During cross-examination, Ms Abood agreed that it was her practice to sign faxes that she was sending, but there were occasions that she put unsigned "things on the fax in a rush". She accepted that it was her practice to put a transmission report on the file, when a fax was sent (T 700, 29-46). Ms Abood accepted that Telstra's records (ex EE) for Webb Lawyers fax number in 2005 (no 97454311) did not show any facsimile call to the bank (no 88371475) on 21 September 2005. Ms Abood went on to say "it is quite possible I might have popped it on the fax the next day, I don't know" (T 705. 13-14). 258The cogency of that answer does not bear careful scrutiny. The copy of the facsimile to "Sonia" of 22 September 2005 has a "TX result report" (transmission report) and is signed by Ms Abood (ex CC), whereas the copy of the facsimile of 21 September 2005 is unsigned and there is no transmission report. Furthermore, the copy of the facsimile of 19 September 2005 sent to the bank, addressed to the attention of "Maggie" enclosing a copy of the unstamped transfer in Jason Hamilton's advance, is signed and accompanied by a transmission report (ex 2 CD1 p 176). 259I do not accept Ms Abood's evidence that the facsimile was not signed as she was in a rush or for any other reason. The combination of the Telstra records, the absence of a transmission report and a signed facsimile and my assessment of Ms Abood as a witness, leads to the conclusion that the sending of the front page of the contract with the unstamped transfer was considered, but the facsimile dated 21 September 2005 was not sent. 260I do find that Ms Abood sent the facsimiles to "Maggie" on 19 September 2005 and to "Sonia" on 22 September 2005. I am, also satisfied that a notice of sale in each of the Hamilton transactions was provided to the bank on settlement. The bank's "Settlement Action Sheet" (ex 2 CD 1, p197) and Mr Bourke's evidence supports, in this regard, the evidence of Mr Webb and Ms Abood. 261In all of the conveyances, the bank (and RAMS in the Miller purchase) received transfers and notices of sale with the reduced consideration. None of these documents expressly recorded that there had been a change in the consideration. Neither did Mr Webb communicate with the bank nor the purchasers about the deeds of variation. I am satisfied on the balance of probabilities that it was evident to Mr Lee, Mr Sakr and Mr Webb that the Cooke and Paag transactions proceeded without difficulty, although transfers and notices of sale with the reduced consideration had been given to the bank. The Nolan, Beresford-Maning, Christie and Czyzewska transactions were settled, notwithstanding the substantial variations between the contract prices and the consideration in these documents. The differences in prices had not been detected by the bank. 262Mr Lloyd put to me that if the bank had discovered the reduced consideration in the transfers, Mr Lee would have immediately been found out. That would in Mr Webb's mind have led to serious problems for him once the police started investigating the frauds. There was a real risk to him, if he was sending the transfers as a participant in the conspiracy to defraud. 263In the event of a question being raised about Mr Webb's integrity in any of these transactions, he would have been able to point to the deeds of variation and his supply to the bank of the transfers and notices of sale. I find that Mr Webb believed that it was unlikely his intentional participation in the fraud would be uncovered and I do not accept Mr Lloyd's submissions. 264Another piece of circumstantial evidence that points unfavourably to Mr Webb's state of mind, is his conduct after Ms Sibbald expressed her concern as to where her money had gone. Mr Webb said that he had a number of discussions with Ms Sibbald, the first discussion being on 7 July 2006. He did recall Ms Sibbald telling him that she had reported the matter to police, but did not recall when she did (T 527). On 8 August 2006, Mr Webb sent an SMS message to Mr Lee from a public telephone in a park, asking Mr Lee to ring him on a client's office telephone number. The office was at Kingsgrove. Mr Webb subsequently met Mr Lee in Burwood Park. 265Mr Webb explained that he was totally confused at that stage and he wanted to distance himself as much as possible from Mr Lee, that he had sent the SMS message to give Mr Lee, "the impression that [he] didn't want [Mr Lee] to be calling [him], contacting [him] until [he] found out what was going on with the Law Society investigation into the trust accounts". The sending of the SMS message from a public telephone box was said by Mr Webb to give that message a "little bit more legitimacy"(T 526 1-17). The difficulty with that testimony, is that the SMS message asked Mr Lee to ring him on a client's telephone number. 266Mr Webb's further response to Mr Donaldson was that he had sent the SMS message as he wanted Mr Lee to ring him on the client's telephone number, as the client had a phone system that could actually record conversations. Mr Webb accepted he had made no mention of that in ex H, but had stated in par 75 that the SMS message was sent because he was trying: "...to give the impression that [he] did not want to talk on our mobiles so as to give a sense of severity to the matters at hand." 267Mr Webb said that the client's phone "actually didn't work at the time". He denied that the arrangements had been made because of a concern that the police might intercept the contents of his conversations with Mr Lee. The meeting had been in Burwood Park, because he did not know whether or not Mr Lee "was the type to get violent if [he] said to him that I am going to the police" (T 526.25-31). He did not want to put himself or his staff at any risk. 268I do not overlook the contents of pars 68 - 81 of ex H in which Mr Webb speaks of contact with the Law Society and with Mr Lee. Mr Webb contacted the Law Society on 7 July 2006 "due to discrepancies in the LEE related matters" and had a conference with Leo Gore, a Law Society investigator. He had further discussion with Mr Gore on 28 July 2006: ex H pars 69,73. It makes little sense in these circumstances, that, if Mr Webb was acting honestly, Mr Webb would use a public telephone to invite Mr Lee to ring him on a client's telephone number. 269Speaking plainly, I have concluded that Mr Webb's explanations for his conduct are untruthful. I do not accept that his actions may have arisen because of confusion or for any of the other reasons advanced. I am satisfied on the balance of probabilities that his covert conduct was engendered by the knowledge of his participation in the fraud and to avoid the possible interception by police of communication with Mr Lee. 270It was also submitted for Mr Webb, that for LawCover's case to succeed, there must be a finding that Ms Abood held an intention to cheat the bank and the Hamiltons. Mr Lloyd contended that the court could not be comfortably satisfied so as to make that finding, that Ms Abood presented as an honest witness, although inexperienced and perhaps gullible. 271I am not at all persuaded that it is necessary to find that Ms Abood was knowingly involved in the conspiracy to cheat and deceive before finding that Mr Webb had such an intention. Ms Abood's position, as a junior solicitor with Webb Lawyers was her first as a legal practitioner. She worked under Mr Webb's supervision and upon his directions. I accept Ms Abood's evidence that whenever she encountered "things that were new", she turned to Mr Webb for instruction. By way of brief illustration of the impact of Mr Webb's directions upon his employed solicitor, he instructed Ms Abood to write the facsimile dated 25 November 2004 (ex 3 CD 4 p 46) to Mr Lee, which speaks of Webb Lawyer's confusion "as to why Mr Nolan has engaged another firm", rather than to properly guide her to respond to the solicitor's letter and to seek instructions from Mr Nolan. Another example was Mr Webb's instruction to lodge the caveats (ex K). It was also Ms Abood's evidence that she forwarded the email to Mr Lee on 7 September 2004 (ex 3 CD 4 p 16) on either the instruction of Mr Lee or Mr Webb. The contents of that email, smack of dishonesty. 272Notwithstanding Ms Abood's subordinate position and inexperience, it is disturbing that she did not seek instructions from Mr Nolan, when unit 5 was substituted for unit 12. Furthermore, that she found none of the conveyancing transactions to be suspicious, even though it was plain from Mr Lee's email (ex 3 CD4 p 10) that he was anxious to conceal from the bank any reduction in purchase price and that email had preceded the instruction to forward the email of 7 September 2004 (ex 3 CD 4 p 16) to Mr Lee. Another matter that pointed, at the least to a reckless disregard for the reality of what was occurring, was her acceptance that the buyer's agent authority expressed in similar terms in the Nolan (ex 3 CD 4 p 99), Beresford-Maning (ex 3 CD 4 p 103) Czyzewska (ex 3 CD4 p 107), Adam Miller (ex 3 CD 4, p 208), Karen Hamilton (ex 3 DC 4 p 205) and Jason Hamilton conveyances (ex 3 CD 4 p 206), provided some justification for not communicating with her clients about the deeds of variation and the amount of money being lent by the bank (or RAMS in Mr Miller's case). A further matter that detracted from an assessment of Ms Abood as an honest and reliable witness was the lack of any file note or letter to a client, that supported her understanding that surplus funds were to be paid to Mr Lee to enable that client to join Mr Lee's property syndicate. Ms Abood accepted that it was a matter of normal practice to make a record in the file of any matter that was of importance. Her evidence concerning the dates of the documents and the LEAP entries was confusing and marked by a lack of recollection, which could not be satisfactorily explained by the effluxion of time. 273It is, in my opinion, sufficient to state for present purposes that overall, I found Ms Abood to be an unsatisfactory witness, whose evidence provided little support for the honesty and reliability of Mr Webb's testimony. 274I have given profound consideration as to whether the evidence amounts to no more than negligence or to a reckless disregard by Mr Webb of the falsity of the transactions. An assessment of the whole of the evidence leads to the conclusion on the balance of probabilities that Mr Webb knew that the purchase prices of the Nolan, Beresford-Maning, Czyzewska, Christie, Miller and Hamilton contracts were a sham. I do not make this finding lightly and it is with deep regret that such a finding is made in the case of a legal practitioner. 275Viewing all of the evidence in combination, I am comfortably satisfied on the balance of probabilities that Mr Webb: (i)did not have the conversation with Mr Cooke, detailed in par 34 ex 2 CD 8; (ii)did not have the conversation with Mr Paag, detailed in par 38 ex 2 CD 8; (iii)knew that the purchase price of $539,950 on the contract of sale dated 24 November 2004 of unit 5 to Peter Nolan was false; (iv)knew that the purchase price of $539,950 on the Beresford-Maning, Czyzewska and Christie contracts were false; (v)knew that the bank had agreed to lend money to these purchasers based upon the contract prices; (vi)was familiar with the bank's loan valuation ratio requirements; (vii)knew that the bank had not been advised that the contract prices had been reduced; (viii)knew that the contract prices had been reduced so as to create surplus loan funds to be disbursed in the manner directed by Mr Lee; and (ix)did not hold a belief that the surplus funds were to be used in a property syndicate of which the purchasers were to become members. 276Viewing all of the evidence in combination, I am furthermore, comfortably satisfied on the balance of probabilities that Mr Webb knew that: (i)the purchase price of $560,000 on the contract of sale dated 6 August 2005 of unit 12 to Jason Hamilton was false; (ii)the purchase price of $560,000 on the contract of sale dated 6 August 2005 of unit 13 to Karen Hamilton was false; (iii)the bank had agreed to lend money to Mr and Mrs Hamilton based upon the contract prices; (iv)the bank had not been advised by Mr Lee, Ms Adams or the Hamiltons that the contract prices had been reduced; (v)the contract prices had been reduced so as to create surplus loan funds to be disbursed in the manner directed by Mr Lee; (vi)did not hold a belief that the surplus funds were to be used in a property syndicate of which Mr and Mrs Hamilton were to become members; and (vii)Mr Webb was familiar with the bank's loan valuation ratio requirements. A breach of warranty of authority? 277Mr Hamilton signed the buyer's agent authority (ex 2CD 8 P 223) and understood that Webb Lawyers would act for him on the purchase. Neither of the Hamiltons nor the bank, however, knew that the contract prices had been reduced so as to create surplus loan monies nor that any surplus would be disbursed on settlement in the manner directed by Mr Lee. On the other hand, Mr Webb knew that the bank was being deceived and the directions (No14) given to the bank for cheques to be made payable to Webb Lawyers Trust account in the sum of $67,582.15 were part of the deception. 278There was much debate in both written and oral submissions on the issue of breach of warranty of authority. I propose to confine my consideration of the submissions, to those that relevantly, remain in light of the factual findings. 279It was Mr Webb's case that the agency relationship between a solicitor and client carried with it, an implied or ostensible authority to do all things incidental to the object of the representation. Mr Lloyd drew my attention to a number of cases, including Polkinghorne v Holland [1934] HCA 28; (1934) 51 CLR 143; Pianta v National Finance & Trustees Ltd [1964] HCA 61; (1964) 180 CLR 146 and Nguyen v Taylor (1992) 27 NSWLR 48 and to what was said by the Court of Appeal in Strangas v Young (1975) 1 BPR 9123 at 9124, that the normal retainer of a solicitor in New South Wales for the vendor carried with it "implied authority extending to all subordinate acts necessarily or ordinarily incidental to the express authority to act." 280During his evidence, Mr Webb told me (T 569.31-39): "...It's an implied position as a lawyer in order to facilitate the transaction that once we're engaged, we do everything we can to facilitate the transaction across. We don't refer to our clients every time we seek cheque directions in a conveyancing." 281Mr Webb understood that this was "still the current practice." I do note, however, that Mr Webb accepted that the buyer's agent authority, the surplus funds authority and the trust authority were insufficient to give cheque directions on settlement to the bank (T 569.28-30). 282Submissions made by Mr Lloyd include that the direction of cheques on settlement were a "mechanical step" in acting for a purchaser in a conveyance. Furthermore, that the surplus fund authority signed by Mr Hamilton (ex 2 CD2 p 59) gave express, actual authority to issue, cheque direction 14 in his case. This submission was made, despite Mr Webb's concession that this authority did not confer upon him the authority to give the cheque directions. 283Amongst the arguments advanced for the bank, was the submission that the normal expectation is that a solicitor will refer to his client for instructions before proceeding to settlement and even if the client had asked someone to retain a solicitor to do whatever is required, the client is entitled to expect that the solicitor will once retained, do what is required by inter alia advising the client and taking instructions. His retention as a solicitor did not permit him to give directions at his own discretion or hold himself out to others as having authority to receive or direct funds. Mr Smallbone contended that special authority is needed to give a valid receipt for money, as it was no mere mechanical step to commit a client to financial liability to the bank. Authorities that were brought to my attention included In re Evans, ex parte Jones [1911] 7 Tas LR 122; Fisher v Rumney [1911] 7 Tas LR 104; In re Vince, Curator of Intestate Estates v Kile [1911] 7 Tas LR 31 and Vukmirica v Betyounan [2008] NSWCA 16 per Giles JA at [50]. 284As I have found dishonesty, it is not necessary to delve at any length into the authority of a solicitor acting for a purchaser. I do propose, however, to mention the following: (a) Even if Mr Webb had honestly believed that there was no deception on the bank, his fiduciary duty to the Hamiltons included the need to make enquiries of each of them separately as to the authorities, the deeds of variation and the monies being advanced by the bank: Beach Petroleum NL v Abbot Tout Russell Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at [456] - [460]. (b)I do not think that a direction to the bank that surplus funds be paid in a particular way, may be regarded as the performance of a "mechanical" step in a conveyancing transaction, even if dishonesty is not involved. A solicitor's fiduciary obligation to a client, in my opinion, requires the client to be contacted, the amount of the surplus to be explained and then special instructions to be obtained. 285The need for special instructions was re-enforced in the Hamilton conveyances as the three authorities clearly revealed that Mr Lee, who had acted not only as a courier of this documentation, but had purported to obtain the Hamiltons' signatures upon them, was acting in his own interest, as the surplus funds were to be paid to him. 286Should Mr Webb have been acting honestly (which he was not), he did not have the express, ostensible or implied authority of either Mr or Mrs Hamilton to give cheque direction 14 to the bank. In any event, as Mr Webb knew that the bank was being deceived and cheque directions 14 were part of the deception, he did not have the express, ostensible or implied authority to give those directions on 26 September 2005. In each case Mr Webb dishonestly professed to the bank that he had the authority to give the directions and he breached his warranty of authority. 287Mr Ginges's submissions that Mr Webb did not have Mr Hamilton's proper authority to issue cheque directions were based on the argument that there had not been a valid exchange of contracts and the deed of variation had not been attested in accordance with s 38 Conveyancing Act 1919. It is unnecessary to deal with that argument, other than to observe that it had some force. Is a cause of action of breach of warranty of authority available to the bank? 288Mr Lloyd submitted that the principle in Collen v Wright (1857) 8 EI BI 647; 120 ER 241 was restricted to circumstances where a plaintiff entered into a contract on the inducement of the warranty. What was stated by Kirby P (with whom Gleeson CJ and Samuels JA agreed) in Boulas v Angelopoulos (1991) 5 BPR NSW (SC) 11,477 at 11,490 that "there is no basis for thinking that Australian law upon this subject would be otherwise than as stated in Collen", and Kirby P's citing with approval of the decision of Pape J in Lee v Irons [1958] VR 436, was said to found Mr Lloyd's submission. It was submitted on Mr Webb's behalf that the cause of action of breach of warranty of authority was not available to the bank in Mrs Hamilton's case, as its case fell outside the principle in Collen v Wright and for the following reasons that relevantly, remain after the findings of forgery: (a)there was no contract between the bank and Mrs Hamilton. The bank's complaint is that Mr Webb made a representation that he was authorised to receive the surplus funds at settlement. That cause of action is not asserted in vindication of the bank's contractual rights, because the bank has no contractual rights against Mrs Hamilton to vindicate; and (b)the payment of the surplus funds by the bank was neither a contract nor a transaction. It was not a payment pursuant to a contract or a transaction at all. 289In the case of Mr Hamilton, Mr Lloyd submitted that the bank's case fell outside the Collen v Wright principle, but also argued the bank's case must fail as: (a)the bank was not induced to enter into the contract with Mr Hamilton by Mr Webb. The contract was entered into when the agreement was signed. Consideration was provided on that day. Mr Lloyd submitted that was on 9 September 2005, the contract coming into existence before Mr Webb's letter dated 26 September 2005; and (b)the payment of the surplus funds by the bank on 28 September 2005 was not a contract, nor was it a transaction. It was a step in part performance of the contract with Mr Hamilton. 290The bank's cause of action against Mr Webb is founded on the rule in Collen v Wright, where Willes J said [at 657-658]: "[A] person, who induces another to contract with him as the agent of a third party by an unqualified assertion of his being authorized to act as such agent, is answerable to the person who so contracts for any damages which he may sustain by reason of the assertion of authority being untrue. ...The obligation arising in such a case is well expressed by saying that a person, professing to contract as agent for another, impliedly, if not expressly, undertakes to or promises the person who enters into such contract, upon the faith of the professed agent being duly authorized, that the authority which he professes to have does in point of fact exist." 291In Starkey v Bank of England [1903] AC 114, the principle in Collen v Wright was affirmed. Lord Davey stated at p 119 that the rule "extends to every transaction of business into which a third party is induced to enter by a representation that the person with whom he is doing business has the authority of some other person". 292Buckley LJ in Yonge v Toynbee [1910] 1 KB 215, after reviewing the authorities, including Firbank's Executors v Humphrey's 18 QBD 54, said at p 227: "The result of these judgments, in my opinion, is that the liability of the person who professes to act as agent arises (a) if he has been fraudulent, (b) if he has without fraud untruly represented that he had authority when he had not, and (c) also where he innocently misrepresents that he has authority where the fact is either (1.) that he never had authority or (2.) that his original authority has ceased by reason of facts of which he has not knowledge or means of knowledge. Such last-mentioned liability arises from the fact that by professing to act as agent he impliedly contracts that he has authority, and it is immaterial whether he knew of the defect of his authority or not." 293I have already stated my conclusion that Mr Webb was acting dishonestly in issuing cheque directions 14 in the Hamilton purchases. The bank was induced to draw the cheques made out to Webb Lawyers Trust account by Mr Webb's representations as their solicitor, that he had his clients' authority. 294I do not think that the principle in Collen v Wright has been confined in Australia so that Starkey v Bank of England and Yonge v Toynbee do not apply. It seems to me, there was nothing that was said by Kirby P in Boulas v Angelopoulos or Pape J in Lee v Irons that supports that proposition. In Brownett v Newton [1941] HCA 14; (1941) 64 CLR 439, McTiernan J at p 450, favourably referred to the statements of Lord Davey in Starkey and Buckley LJ in Yonge. His Honour observed that "[t]he warranty sued upon is one that has to be implied." Williams J at pp 457-458 reviewed the authorities that had extended the principle beyond making contracts, without demur. 295In Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52, Windeyer J said at p 64: "The principle of Collen v Wright is of very general application: Starkey v Bank of England; British Russian Gazette, etc, Ltd, v Associated Newspapers Ltd ...and see especially Yonge v Toynbee, which, whether or not an extension of earlier doctrine...must I respectfully think be taken as correctly stating the law..." 296 I do not accept Mr Lloyd's submission that the decisions in Starkey, Yonge and Firbanks extending the scope of the principle to any transaction, are wrong and should not be followed. 297In my opinion, it does not matter that there was no contract between the bank and Mrs Hamilton, nor does it matter that the contract between the bank and Mr Hamilton may have come into existence before Mr Webb's liability to the bank arises under an implied contract, as he dishonestly professed to have the authority of Mr and Mrs Hamilton to make the cheque directions. I conclude that the cause of action is available to the bank. Causation 298The first matter to be determined is whether the bank's action against Mr Webb for breach of warranty of authority is governed by ss 5D and 5E Civil Liability Act (2002) (CLA). Mr Lloyd addressed arguments to the court that the bank's cause of action was analogous to a cause of action in tort, being closer to negligent misrepresentation than an action in contract. Mr Lloyd observed that the definition of "negligence" in s 5A CLA does not refer to the tort of negligence and drew my attention to Booksan Pty Ltd v Wehbe [2006] NSWCA 3 at [166] -[167] where Ipp J (with whom Giles and Tobias JJA agreed) held that a defence of contributory negligence under the CLA was available to a claim based on a breach of statutory duty. 299On the other hand, Mr Smallbone and Mr Donaldson contended that breach of warranty of authority was a contractual action of strict liability and did not involve negligence under the CLA. 300In Boulas v Angelopoulos, Kirby P after observing that there was some controversy as to whether the cause of action was "contractual, quasi - contractual or tortious" went on to say at 11,490: "It appears that Willes J in Collen treated it as being based on an implied contract, consideration for which is the entry into the transaction with the agent. See also Yonge v Toynbee [1910] 1 KB 215, 227. Such an 'implied contract' is enforceable although it may not be evidenced in writing because it is collateral to any agreement for the sale of land..." 301In Brownett, McTiernan J appears to have accepted that the cause of action is contractual. After observing that the warranty sued upon is one that must be implied, his Honour said at p 450: "The liability of the person who proposes to act as agent but whose authority is defective arises under an implied contract." Starke and Williams JJ seem to have been of the same view. 302Although the definition of negligence in s 5 CLA is not limited to the tort of negligence, negligence means for the purposes of Part 1A, a "failure to exercise reasonable care and skill" A plaintiff to succeed in action upon an action for breach of warranty of authority is not required to establish a failure to exercise reasonable care and skill. In Starkey, Lord Davey at p 119 noted that it was utterly immaterial wether the supposed agent knew of the defect of his authority or not. 303In G.E Dal Pont's Law of Agency, 2nd ed, 2008 LexisNexis Butterworths, Professor Dal Pont observes at [3.88]: "Proof of a breach of warranty of authority requires no finding of actual intention, or of fraud or negligence, by the professing agent; it 'is a matter of strict liability imposed on agents.' The professed agent's honesty or bona fides are irrelevant because liability 'arises from an implied undertaking or promise made by him that the authority which he professes to have does in point of fact exist'." (footnotes omitted) Professor Dal Pont refers at [23.91] to an action for breach of warranty of authority, as being 'contractual'. 304In Bowstead & Reynolds on Agency, 18th ed, 2006 Sweet and Maxwell, Professor Reynolds, Q. C (Hon), comments at [9-062] on the historical background of breach of warranty of authority and concludes that the cause of action has been classified as contractual and strict liability applies. It seems to me that the weight of authority favours a conclusion that the cause of action is contractual. 305As the harm does not result from a failure to exercise reasonable care and skill, s 5A CLA does not apply. It follows that Part 1A Division 3, CLA (causation) is not applicable. Accordingly, the test for causation in Adeels Palace Pty Ltd v Moubarack; Adeels Palace Pty Ltd v Bou Najem [2009] HCA 48; (2009) 239 CLR 420 has no relevant application, but the principles expressed in March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 and Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 govern the question of causation. 306The bank bears the onus of showing on the balance of probabilities that its loss was caused by Mr Webb's breaches of warranty of authority. Mr Lloyd submitted the bank had not proved, that any breach of warranty of authority caused any loss, whether the test be in contract, tort or under the CLA. The bank's loss was caused by the conduct of its own employees, principally Darren Rose and others involved in the settlement of the transactions. Mr Lloyd referred to a number of documents that Mr Rose signed, containing false transactions: see in particular, WS par 66 (a)-(i). Findings that should be made, included that Mr Rose was aware of and/or involved in the fraud that was being perpetrated, that he was aware of the adjusted purchase price before settlement and his knowledge was that of the bank. In any event, the adjusted purchase price was brought to the attention of "decision makers" in the bank, and to the settlements department, prior to settlement, through the provision of the transfers and the transfers and notices of sale at settlement. Mr Lloyd argued that the bank knew by the time of settlement, that the transfers showed different prices to the contracts, but did not do anything about it, despite the fact that it was "uncommon" for the bank to have received the contracts (the sole source document showing the higher purchase prices) from someone other than the borrower or the borrower's solicitors and the bank did not obtain valuations of the properties. 307The bank's failure to call Mr Rose to give evidence, Mr Lloyd said, was "bizarre and unexplained" and a Jones v Dunkel inference should be drawn. That the settlements proceeded anyway, occurred by an act of fraud on at least the part of Mr Rose, which severed the chain of causation. Alternatively, the conduct of the bank was said to be so extremely careless as to sever the chain. During oral submissions, Mr Lloyd made particular reference to documents in ex 2CD1, pp 8, 12, 21, 23, 25, 26, 48, 64, 84-85, 156-166, 169 - 171, 181, 185, 187, 191, 195-197. Further factual findings that the court was asked to make included that Mr Rose was aware of the transfer amounts by no later than 22 September when the transfers were sent to Sonia at the Loan Processing Centre; that Maggie Egeto saw the contract by no later than 18 September and that she received the transfer on 19 September showing the lower price and must have known about the funds that were ultimately advanced, when she got the internal memorandum (ex 2 CD1 p 196,198). Mr Lloyd made reference to "Sonia" from the Loan Processing Centre, who received the transfer on 22 September and invited the court to find that it was the loan processing group, who effected the settlement. Mr Lloyd put to me that that the bank was aware between the date of the representation by Mr Webb and settlement, of the true purchase price and that the settlements proceeded anyway, occurred by an act of fraud, on at least the part of Mr Rose which severed the chain of causation. Mr Lloyd cited, in particular, Mallesons Stephen Jaques v Trenorth Ltd [1998] VSCA 58; [1999] 1 VR 727 and Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad [1976] HCA 65; (1976) 136 CLR 529. 308Mr Smallbone emphasised that the cause of action was one of strict liability. If it was being said that Mr Rose signed documents containing false information, deliberately or recklessly, then that should have been squarely raised before the commencement of the hearing. Mr Smallbone submitted that the particulars to par 18 of the amended defence to the further amended statement of claim in each matter, do not mention either dishonesty or even mere negligence on the part of Mr Rose. Mr Webb's submissions that Mr Rose was involved in or had knowledge of the fraud are outside the pleadings, had not fairly been raised in time and should not be acted on. A Jones v Dunkel inference does not arise, since the issue was not raised. 309The arguments made for the bank included that there was no doubt that the bank advanced the entirety of the payments in both transactions upon the faith of Mr Webb's warranty that he had the Hamilton's authority to direct those payments. Even if the bank had been informed of the changes in purchase prices, it did not mean that there can reasonably be attributed to the bank, an intention to make the advance without the direction of the customer. The making of the advance was something that was likely to happen as a result of the breach of warranty, and therefore, a finding of novus actus interveniens was not available. 310The bank's complaint, that Mr Webb's assertion that Mr Rose was aware of and or involved in the fraud is outside the pleadings, is justified. I might add that it was not pleaded that Mr Rose, Maggie Egeto, Sonia or anyone else at the bank knew of the differences between the contract prices and the consideration recorded on the transfers prior to settlement. Paragraphs 18 and 20 of the amended defences to further amended statements of claim that were filed with leave on 25 March 2011, are in the following terms: "18Further, if Webb is liable to the plaintiff as alleged or at all, Webb says that the plaintiff caused or contributed to its own loss. Particulars (a)Failing to read and/or have regard for the transfer before settlement; (b)Failing to read and/or have regard for the Deed between the First and Second Defendants and the vendor before settlement; (c)Failing to take reasonable steps to enquire about the purchase price and/or value of the Property before advancing the funds to the First and Second Defendants; (d)Failing to obtain an external valuation before settlement; (e)Failing to read and/or have regard to the notice of sale before advancing the funds to the First and Second Defendants. ... 20Further or in the alternative, Webb says that any loss that the Plaintiff has suffered was caused by an intervening act of negligence by the Plaintiff which severed the chain of causation between any breach of warranty of authority by Webb and the Plaintiff's loss and damage. Particulars (a)Webb repeats subparagraphs (a)-(e) of paragraph 16 (sic) above." It is obvious from the pleadings that the repetition of subparagraph (a)-(e) was intended to refer to par 18 and not par 16. 311As a matter of procedural fairness, the contentions of fraud and knowledge on behalf of the bank's employees should plainly have been stated in the pleadings. Ample opportunity was available for Mr Webb to ask for leave to further amend his defence, but he failed to do so. In these circumstances, I do not propose to accede to Mr Lloyd's invitation to draw a Jones v Dunkel inference, as the bank was not in the position to properly decide, whether Mr Rose (or any of its employees) should be called as a witness. 312Although it is unnecessary to dissertate upon the un-pleaded assertions of fraud and knowledge, it is my view that, the evidence does not establish on the balance of probabilities that Mr Rose had knowledge of the reduced consideration in the transfers and notices of sale. Nor does it establish that Maggie Egeto or Sonia or any other bank employee, had detected the differences between the prices on the copies of the front pages of the contracts, the moneys being lent and the reduced consideration. 313Colin Bourke, the bank's manager of quality assurance in mortgage services, described in his affidavit and oral evidence, the different "teams" that were involved in September 2005, when the bank was funding an acquisition of property for a retail customer. The lending team, it appears, received a loan application, which was either rejected or approved. After loan approval, a documents preparation team prepared the loan documents and forwarded them to the borrowers. Once the documents were returned, they were forwarded to a certifications team, who received the returned loan documents, and prepared and forwarded a settlement instruction sheet to the settlement team. A member of the settlement team attended on settlement. 314Mr Rose was the lending officer on the Hamilton purchases within the bank's lending team. He received copies of the front pages of the contracts for sale of units 12 and 13 with purchase prices of $560,000, by facsimile from Mr Lee and Ms Adams on 13 August 2005. It was not the bank's practice to obtain external valuations for all properties being financed in September 2005. Mr Bourke was unable to provide a figure above which an external valuation would be required, but said that such a figure would be "determined by the system", which was run by a separate section of the bank with experts in the property market: T 48 L 49-50; T 49.1. In evaluating whether or not an external valuation was required, the bank could rely on one of three documents; the contract, the transfer, or a letter from the solicitor. For the Hamilton loan applications, external valuations were not required and the loans were approved on 22 August 2005, at a loan to valuation ratio of 80 per cent of the purchase prices of $560,000 (ex 2 CD 1 p 90,91). 315Mr Roses's request by email to Farah Mansour (ex 2 CD 1 p 64) and the "comments" on the Loan Processing Memorandum (ex 2 CD 1 p 50) establish on the balance of probabilities that Mr Rose asked to collect the loan documents when prepared, but no more. There was nothing in the cross-examination of Mr Bourke or in the documentary material that demonstrated that Mr Rose was involved upon the settlement side of the Hamilton transactions. The last documents that bear his name are the "action guides" (ex 2 CD 1 p 166 - 171), next to which are the dates 12 September 2005. 316The evidence does demonstrate that there was a weakness in the bank's procedures that involved different sections and personnel at the various stages from loan application to settlement. It is apparent that no attention was given by the bank officers, who were involved after the documents were sent to the certification team, to checking the consideration on a transfer against the copy of the front page of the contract for sale, upon which a loan approval had been granted. Moreover, it was not part of a settlement officer's task, when attending at settlement, to check the transfer amount on the original transfer against the front page of the sale contract. Neither were the settlement officers provided with this document, nor was it required to be produced by a purchaser on settlement. Mr Bourke told me: T 57.25-31 "...our lenders do not always check [the transfer] back to the contract as far as the value. They are looking more at are the names correct (sic), are the title references correct, and the like." 317So much is evident from the failure to detect the reduced consideration when copies of the transfers were sent to the bank on 19 and 22 September 2005. 318I draw the inference on the balance of probabilities that Maggie Egeto was the person to whom Ms Abood's facsimile of 19 September 2005 was addressed. Furthermore, I am satisfied that Ms Egeto had signed the "Action Guides" (ex 2CD 1 pp 166-171) on 18 September 2005 which recorded the amount of the loans to Mr and Mrs Hamilton as being $448,000 and initials appear beside the "contract for sale". She had also signed the "funding requests" (ex 2 CD1 pp 172 - 173). I find that Ms Egeto failed to exercise reasonable care and skill in failing to compare the consideration in the copy of the 'Jason Hamilton' transfer against the consideration in the contract and the amount of the loan. A copy of the 'Karen Hamilton' transfer was sent by facsimile to "Sonia" on 22 September 2005. Although there is no evidence that establishes that she was aware of the consideration in the contract of sale, it is reasonable to infer that Sonia was aware of the amount of the loan. I am satisfied that she failed to exercise reasonable care and skill in failing to compare the consideration in the copy of the 'Karen Hamilton' transfer against the amount of the loan. I do not find negligence on the part of the settlement officer, who attended upon settlement, as it was not part of the settlement officer's task to check the consideration in the transfer. There is no evidence that demonstrates that the bank was negligent in failing to obtain external valuations. 319Mr Webb knew that the bank was being deceived when the cheque directions were forwarded to the settlements section on 26 September 2005 and cheque directions 14 were part of the deception. Mr Webb knew that he was falsely professing an authority to give those directions as the Hamiltons' solicitor. There is no evidence that establishes that the bank knew that the authority which he professed to have, did not in fact exist. Although there was negligence on the part of the bank's employees in failing to detect the reduced consideration, the material cause of the bank's loss was Mr Webb's dishonest participation in Mr Lee's fraudulent scheme by giving the cheque directions. In effect, he took advantage of the weaknesses in the bank's settlement system that had become apparent from the time of the Cooke and Paag transactions. Any negligence on the part of the bank's employees could not be regarded "as a matter of both logic or common sense", as being "a superseding cause or novus actus interveniens" which broke the chain of causation: March's case per Mason CJ at 518 - 19. 320Another argument advanced for Mr Webb was that the conduct of Mr Lee and Ms Adams was an independent cause of the bank's loss, which was much more significant than any conduct of Mr Webb. 321I have referred at [20] above to Mr Lee's involvement in the fraudulent scheme. Ms Adams, who is not a party to the present proceedings, played a role in the fraud. The fraudulent actions of Mr Lee and Ms Adams were undoubtedly, a significant cause of the bank's loss. It is, however, unnecessary for Mr Webb's breach to be the exclusive or dominant cause of the loss complained of. As the majority (Deane, Dawson, Toohey and Gaudron JJ) explained in Medlin at 7: "Nor can the question of causation of damage in a negligence action be automatically answered by classification of operative causes as "pre-eminent" or "subsidiary". Regardless of such classification, two or more distinct causes, without any one of which the particular damage would not have been sustained, can each satisfy the law of negligence's commonsense test of causation. This can be most obviously so in a case where a "subsidiary" cause operates both directly as a cause of the particular damage and indirectly as a contributing component of a "pre-eminent" cause." 322Mr Webb's participation in the deception of the bank was vital to the success of Mr Lee's fraudulent scheme. Without Mr Webb's warranty to the bank, the surplus moneys would not have been paid into his trust account to be paid thereafter, to Mr Lee and the bank's loss would not have been sustained. I do not accede to Mr Lloyd's argument. 323The final argument on causation raised for Mr Webb was that the bank's agreements with the Hamiltons would never have been enforceable. I do not think that this argument has any force, as it was the deception on the bank that caused the bank's loss. Contributory Negligence 324Mr Smallbone submitted that as a matter of law, the defence of contributory negligence was not available as an answer to a cause of action for breach of warranty of authority. The partial defence of contributory negligence was only available in contractual claims, in respect of a contractual duty of care that is concurrent and co-extensive with the duty of care in tort, which, Mr Smallbone contended is not the situation here. Liability was strict in the present cause of action and it was not dependent on any failure to take reasonable care. My attention was drawn to Carter, Contract Law in Australia, 5th ed, (2007) at [35-32], where Professor Carter states: "In cases of strict liability, a defendant who has exercised reasonable care may nevertheless be found to be in breach of contract... This remains true even if the plaintiff has in fact been negligent, because the defendant's breach does not amount to the 'breach of a contractual duty of care that is concurrent and co-extensive with the duty of care in tort'. Thus, the only relevance of the negligence of the plaintiff in such cases is whether it breaks the chain of causation between the defendant's breach and the loss or damage." (italics added) (footnotes omitted) 325The submissions for Mr Webb were principally founded on the contention that the cause of action was not contractual, but analogous to an action in tort. Mr Lloyd argued that if it be a contractual cause of action, the duty owed was co-extensive with a duty in tort. Professor Carter's comments, he said, should not be followed. 326At common law, the contributory negligence of a plaintiff was a complete defence to an action in negligence, but was not available at all in a claim for breach of contract. The Law Reform (Miscellaneous Provisions) Act 1965 abridged that defence to make it a partial defence in negligence. In Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1, the High Court held that the defence did not apply to a contractual claim. Since the decision in Astley, the Law Reform (Miscellaneous Provisions) Act was amended, so that the defence of contributory negligence applies to some claims for breach of contract. 327Section 9(1) of the Law Reform (Miscellaneous Provisions) Act provides: "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: (a) 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 are to 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." Section 8 of the Act defines `wrong' as an act or omission that: "(a) gives rise to a liability in tort in respect of which a defence of contributory negligence is available at common law, or (b) amounts to a breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort." (italics added) 328The defence of contributory negligence is, relevantly, available where the claim is in respect of a breach of a contractual duty of care that is concurrent with and co-extensive with a duty of care in tort. 329As the bank's cause of action is for breach of warranty of authority, to which strict liability applies, there is no act or omission by Mr Webb that amounts to a breach of a contractual duty of care, that is concurrent and co-extensive with a duty of care in tort. Professor Carter's observations are applicable to the present case. 330I do not think that s 5A CLA has application, so as to enable a defence of contributory negligence to be raised. I appreciate that it is necessary to have regard to the substance of the action rather than its form: Booksan per Ipp JA at [166] - [167]; Wynn Tresidder Management Pty Ltd v Barkho [2009] NSWCA 149 per McColl JA at [99]. Mr Webb's liability does not arise because of negligent misrepresentation. He knowingly professed an authority that he never had. 331In my judgement, therefore, in the present state of the law, contributory negligence is not a defence to a claim, which is founded upon and in substance is a breach of warranty of authority. Should my conclusion be incorrect, I assess the extent of the reduction in damages by reason of the bank's contributory negligence to be thirty five per cent. Proportionate liability 332The court was addressed at some length by the parties upon the issue of proportionate liability. Section 34 CLA does not apply, as the bank's action is not a claim for damages arising from a failure to exercise reasonable care. Moreover, Mr Webb's fraudulent conduct caused the bank's damage and s 34A(1)(b) CLA applies, so as to exclude the proportionate liability provisions. Damages 333The bank acted upon Mr Webb's profession that he had the authority of Mr and Mrs Hamilton to give the cheque directions and handed over cheques in each transaction amounting to $447,659.60 on settlement. 334I have stated my conclusion at [80] above that the bank cannot succeed in its action against Mrs Hamilton. 335A difficulty for the bank in the action against Mr Hamilton is that he did not authorise Mr Webb to give the cheque directions, nor the bank to make the advances. I have no doubt that if Mr Hamilton had understood the true nature of the transaction, he would have asked that it not proceed. Mr Webb's cheque direction caused the advance itself to be made, otherwise than in accordance with the agreed loan with the bank. As Young CJ in Eq observed in Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 75; (2004) 12 BPR 22, 281 at [21] and [24]: "It is clear that if no moneys are lent under a mortgage then the mortgage is just completely void... ... If there was no loan to the appellant he could not be in default not repaying the loan." 336The bank lost the ability to recover from Mr and Mrs Hamilton, all of the moneys advanced. It is for this reason that the bank's loss is not confined to the advances directed by cheque directions 14. In Leggo v Brown & Dureau Ltd [1923] HCA 19; (1923) 32 CLR 95 at 99, Knox CJ said that a person who commits a breach of warranty of authority "is bound to make good to the other contracting party what that party has lost, or failed to obtain, by reason of the non-existence of the authority." 337In Bowstead and Reynolds on Agency, Professor Reynolds described at [Article 106] the measure of damages for breach of warranty of authority as being, "the loss which the parties should reasonably have contemplated as liable to result from the breach of warranty." [Article 106] in Bowstead and Reynolds, was cited with approval in Boulas v Angelopoulos by Kirby P at 11,489 - 11,491. 338I conclude that Mr Webb is answerable to the bank for the loss caused by his dishonest profession of authority. The bank's loss has been mitigated by the sales of units 12 and 13. As at 23 March 2011, the amounts owing to the bank were $302,521.29 (Mr Hamilton) and $220,728.38 (Mrs Hamilton) (ex AA). I do note that these amounts include legal costs of $13,687.40 (Mr Hamilton) and $10,402.26 (Mrs Hamilton). Bank fees of $1,052.00 (round figures) are also included in each amount owing. These amounts are not to be included in the bank's loss. 339I should mention that the agreement between the bank and the Hamiltons (see [16] above) has, in my opinion, no impact upon the bank's ability to recover its loss from Mr Webb. 340Mr Smallbone raised the issue of the bank's costs, should the bank be unsuccessful in its actions against Mr and Mrs Hamilton. Although there is authority to suggest that such costs may be included in the damages award, the question is better addressed when orders for costs are to be made. Mr Webb's cross-claim against LawCover 341Clause 23 of the professional indemnity insurance policy (ex 2 CD 15) is as follows: "We will not indemnify you under this Policy when the claim arises from any dishonest or fraudulent acts or omissions of a principal or of corporate firm, whether directly or indirectly." 342As Mr Webb was the principal of Webb Lawyers and the claim arises from his dishonest acts, he is not entitled to be indemnified under the policy. His cross-claim against LawCover must fail. It is unnecessary to consider the submissions covering the other clauses raised by LawCover in its defence. Mr and Mrs Hamiltons cross-claims against Mr Webb 343The bank's lack of success against Mr and Mrs Hamilton renders their cross-claims nugatory. Accordingly, they will be formally dismissed. Interest 344The court may include interest up to judgement: s 100 CPA. I do not propose to accede to the bank's invitation to award such interest for two reasons. The first being that the bank's loss includes interest and the second is the bank's negligent contribution to its own loss. Orders 345For the foregoing reasons, I make the following orders: (1)Verdict and judgment for the first defendant (Jason Hamilton) against the plaintiff (the bank). (2)Verdict and judgment for the second defendant (Karen Hamilton) against the plaintiff (the bank). (3)Verdict and judgment for the plaintiff (the bank) against the third defendant (Peter Webb) in the sum of $497,056.00 (4)The cross-claims of the cross-claimants (Jason Hamilton and Karen Hamilton) against the cross-defendant (Peter Webb) are dismissed. (5)Verdict and judgment for the cross-defendant (LawCover) in the second-cross claim against the cross-claimant (Peter Webb). 346I will hear the parties on the question of costs.

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