Freemantles Pastoral Pty Ltd v Hyett [1999] VSC 129

5. On the same day, Mr Reg Freemantle and Mrs M. Freemantle, the principal shareholders in the plaintiff, sold the land on which the business was conducted to Promack for $420,000 ($20,000 deposit and four payments of $100,000 on 1 June of each succeeding year). The Freemantles' advance was secured by a mortgage given by Promack. It was a term of this agreement that Promack as purchaser would be allowed by the vendors to obtain a first mortgage secured over the land for a sum not exceeding $180,000. Thus that mortgage over the land would have priority over the Freemantles' mortgage.

8. On 24 June 1991, the plaintiff confirmed its consent to Promack's application to register the business name - "Freemantle Lucerne Mills" and agreed to change its name to "Freemantle's Pastoral Pty Ltd". The name was so changed on 3 July, 1991.

11. The plaintiff had retained the defendants, John Rupert Hyett, Richard George Hyett and Michael William Morrison (the defendants) as its solicitors in relation to the sale of business agreement and in relation to the chattel mortgage.

14. It is common ground that the chattel mortgage given to secure moneys owed for the sale of the business and plant and equipment was a charge within the meaning of s.262 of the Corporations Law and that notice of that chattel mortgage was required to be lodged with the Australian Securities Commission pursuant to s.263 of the Law to enable the charge to be registered pursuant to s.265 of the Law. It is also common ground that notice of the chattel mortgage was not lodged and the charge was not registered.

17. On 4 June 1991 Promack gave a mortgage debenture (the Paschi charge) over all its assets and undertakings to Monte Paschi Australia Ltd (Monte Paschi) securing a loan of $180,000. Notice of that charge was lodged under the above mentioned sections on or about 11 June 1991 and it was registered. On 27 September 1991, Monte Paschi and the Freemantles executed a Priority Deed giving the Monte Paschi mortgage priority over their mortgage secured over the above land. On about 17 December 1991 Promack gave a second mortgage debenture (the NAB charge) over all of its assets and undertaking to National Australia Bank. Notice of that charge was also lodged for registration and the charge was registered.

20. On 1 June 1992 Promack defaulted by failing to pay the plaintiff the first instalment of $60,000 under the sale of business agreement. The plaintiff sought advice from the defendants and in doing so became aware of the fact that the chattel mortgage had not been registered. On 9 June 1992, on instructions from the plaintiff and R & M Freemantle, the defendants wrote to J. M. Smith and Emmerton (Smith & Emmerton) instructing them to act on behalf of their clients, advising that they wished to protect their interests "in the best possible manner" and asking them to investigate the possibility of placing Promack in liquidation. On 12 June 1992, Smith and Emmerton wrote to the defendants confirming that Mr. Galvin of that firm had met with Mr. Reg and Graeme Fremantle. They noted that the chattel mortgage had not been registered but that it was possible that Monte Paschi had notice of the chattel mortgage at the time it registered its charge and that it may be possible to obtain an extension of time for registering the charge.

23. The issues were further considered. At the time it was not clear that it would be possible to demonstrate that either Monte Paschi or the National Australia bank did have notice of the chattel mortgage. There was a reasonable suspicion that they did have notice but there was thought to be no hard evidence available. Mr. Wallace, the solicitor acting for Monte Paschi asserted throughout the relevant period that his client had priority. The situation was complicated by the fact that Monte Paschi held the first mortgage over the land on which the mill stood and anyone wishing to buy the plant and equipment for use in the produce mill would need to buy that land. The alternative was to acquire land elsewhere and re-locate the plant and equipment. The situation was further complicated by the fact that it was clear that Promack was insolvent and likely to be wound up at any time. Thus there was no guarantee that if the plaintiffs sought an extension of time to register the chattel mortgage that it would be able to do so before Promack went into liquidation. This would then complicate matters and make much more difficult any attempt to obtain an extension of time for registering the chattel mortgage. If, however, Promack was wound up speedily, there was the possibility, "remote ... at best" in the view of Smith and Emmerton that the NAB charge could be avoided by the liquidator. The Freemantles, with the benefit of advice from Smith and Emmerton, came to the conclusion that the best option for minimising the plaintiff's loss was to take back the business and try to save it. They believed that this needed to be done quickly and the best way to achieve that end was to have a liquidator appointed. They would then be dealing with a liquidator and the situation would not be under the sole control of either Monte Paschi or the National Australia Bank. The plaintiff was at all times the largest unsecured creditor of Promack and there was the second mortgage over the land which gave some bargaining strength.

26. The decision was taken to apply to wind up Promack. The application was issued on 16 June 1992. On 27 July 1992 Promack was wound up. Mr Russell was appointed liquidator.

29. The liquidator held a meeting on 30 July 1992. Following that meeting a further meeting was held on 14 August 1992. In the course of that meeting negotiations took place between Monte Paschi and Mr Reg Freemantle on behalf of the plaintiff. Monte Paschi offered to sell the land and the plant and equipment. In the course of negotiations it reduced its price to $180,000. Mr Reg Freemantle, however, was not prepared to pay that sum. I will refer to the details of this negotiation in more detail in dealing with the issue of mitigation of damages. His son, Graeme Freemantle, then purported to enter the bidding. A deal was struck between Graeme Freemantle and Monte Paschi for the figure of $180,000 with Monte Paschi financing the bulk of the purchase money. The transaction was not finally completed, however, until December 1992.

33. The plaintiff alleged that it was a term of the retainer of the defendants, that they would attend to the lodgement of the notice of the chattel mortgage with the Australian Securities Commission or, alternatively, it would advise the plaintiff of that requirement. It alleged a contractual obligation on the part of the defendants to exercise reasonable care and skill and a common law duty of care in similar terms. It alleged that, in breach of the retainer and the duty of care, the defendants failed to lodge a notice of chattel mortgage in compliance with s.263 of the Law with the Australian Securities Commission and failed to inform or advise the plaintiff as to the requirement. It claims resulting loss and damage.

36. The defendants, having initially denied negligence, admitted negligence and breach of their retainer at the trial. The defendants raised a variety of issues in their amended defence but abandoned some of them. In particular, they abandoned the allegation that the plaintiff had rescinded the sale of business agreement and taken possession of the chattels. The following issues remained:

(1) The defendants alleged that Graeme Freemantle acted as the servant or agent of the plaintiff in relation to the purchase of the chattels and the land from Monte Paschi. It alleged that at the time of the sale the value of the land exceeded $180,000 and that in purchasing the land and chattels in December 1992, the plaintiff did so for less than the value of the land. It alleged that as a result the plaintiff suffered no loss because it did not pay anything to re-acquire the chattels. Alternatively it was put that the plaintiff paid no more than between $30,000 and $60,000 to re-acquire the chattels and the loss is limited to that amount.

(2) Alternatively, the defendants submitted that if Graeme Freemantle did not act for the plaintiff in purchasing the land and chattels, the plaintiff failed to mitigate its loss. The defendants relied on the following:

(i) Failure by the plaintiff to accept an offer to purchase the land and chattels back from Monte Paschi in August 1992 for $200,000.

(ii) Failing to purchase the land and chattels from Monte Paschi at $180,000 to $200,000 and then resell the land on an orderly basis at a price exceeding $200,000.

(iii) Failing to insist that Monte Paschi sell the land and chattels to it instead of to Graeme Freemantle on the same terms.

(iv) Failing to take steps to have the chattel mortgage registered there being reasonable prospects of success.

At most, the defendant submitted that the plaintiff's loss on this alternative basis was $30,000 to $60,000.

43. The defendants also alleged contributory negligence. They accepted that it was reasonable for the plaintiff to wind up Promack but they argued that the plaintiff was guilty of contributory negligence in that:

(a) it failed to seek to have the chattel mortgage registered or to seek a declaration of priority and thus postpone the claims of Monte Paschi and the National Australia bank, and

(b) it failed to object to the sale to Graeme Freemantle and failed to insist on a sale to it in similar terms.

It was part of the defendant's case that the reason those steps were not taken to achieve priority for the plaintiff's charge was that to do so would have "shot the professional negligence case in the foot".

50. The defendants also raised a number of issues concerning the actual assessment of damages. These are canvassed below. I will return to these questions. They also raised some causation issues which can be addressed briefly.

53. The defendants also argued that the loss of the plant and equipment or the secured rights was not caused by the failure to register the charge but by the winding up of Promack and the failure to apply to register the charge out of time (March v. Stramare [1991] HCA 12; (1991) 171 CLR 506; Medlan v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1; Kenny and Good Pty Ltd v M D I C A (1992) Ltd (1997) 77 FCR 307). Whether one describes the plaintiff's loss as being the loss of the chattels or the loss of the opportunity to assert secured rights over the chattels, I am satisfied that a clear causal link has been established between the breach of retainer and negligence and such loss. Counsel for the defendants conceded that he could not say very much about the issue.

56. The defendants also argued that the chain of causation was broken by the plaintiff's failure to take up an offer made by Monte Paschi on 10 December 1992 to sell the land to the plaintiff for $180,000 and to give it the chattels. The defendants argued that the failure to accept the offer was a novus actus interveniens relying upon R W Miller v Kroop (1992) 11 BCL 74.

59. This question concerns the events of December 1992. They have to be interpreted together with the correspondence that passed between the parties. Having done so, it seems to me the height of artificiality to suggest that Monte Paschi through Gadens Ridgeway in their letter of 10 December 1992 was offering the chattels for nothing and simply requiring $180,000 for the land. Monte Paschi was responding in a subtle fashion to an attempt by the legal advisers of the plaintiffs and Mr Graeme Freemantle to secure an admission that it had notice of the plaintiff's chattel mortgage. All that Gadens Ridgway proposed was to release any interest its client held in the chattels. It was clear, however, that it still required payment of the agreed amount. It did not offer to give the chattels to the plaintiff or to Graeme Freemantle.

62. Finally, before turning to a detailed analysis of the outstanding issues, I note that the defendants commenced third party proceedings against Monte Paschi. Monte Paschi in turn issued fourth party proceedings directed to Freemantle Pastoral Pty Ltd and Reginald, Marjorie and Graeme Freemantle.

65. In the course of the proceedings the third and fourth party proceedings were settled. I will return to them in due course to deal with a cost question that arises as a result of that settlement.

68. I turn to the first issue - whether Graeme Freemantle acquired the plant equipment and land in question in his own right or as agent for the plaintiff. The answer to that question will affect the way the remaining issues are considered.

72. The plaintiff relied upon the fact that the documents recording the transaction refer only to Graeme Freemantle as the purchaser of the business and chattels Further, Graeme Freemantle lodged a tax return for the financial year ending 30 June 1993 in his own name declaring in it the income received and expenditure incurred in conducting the business. It also relied upon the evidence given by Mr Reg Freemantle, Graeme Freemantle and their solicitor, Mr Galvin, about the events of the meeting 14th August 1992. In particular, Mr Galvin and Reg Freemantle gave evidence that they were taken completely by surprise when Graeme Freemantle announced that he wished to try to purchase the plant equipment and land. The plaintiff also relied upon the evidence of Mr O'Shea who gave evidence that he was employed by Graeme Freemantle as a book-keeper for the business and gave evidence about the business being conducted by Graeme Freemantle. Mr Bates the accountant also confirmed that from his observation the business was that of Graeme Freemantle.

75. The defendants relied principally upon pieces of evidence which they say, in combination, result in the conclusion that on 14 August 1992 Graeme Freemantle purchased the plant, equipment and land for the plaintiff. The following were referred to by counsel:

(i) The fact that Graeme Freemantle frequently gave substantial instructions to the defendants between March 1992 and mid August 1992 in relation to matters involving the plaintiff. It was put that it had reached the point where he should be regarded as a de-facto director and manager of the company.

I am satisfied that he did become quite involved but I am also satisfied on the evidence that he acted on the instructions of his father who at that time, with increasing age, appears to have had some difficulties visiting solicitors.

(ii) The fact that the plaintiff appears to have paid substantial sums of money towards the purchase of the plant, equipment and land and the fact that there appears to be no record of loans as such in either the records of the plaintiff or the records of Graeme Freemantle. Those records in particular concern the annual financial statements and the Kalamazoo ledger maintained for Graeme Freemantle by Mr O'Shea.

This issue was never completely resolved. The ledgers were produced during the trial but not used to question witnesses by any party. I infer that they did not assist. It is clear, however, that the financial records of Graeme Freemantle's business show that it owes Mr Reginald Freemantle an amount of $183,000 and that was the situation at the end of 30 June 1993 financial year. It is suggested that one explanation is that the loans came from Mr. Reg Freemantle who borrowed the money from the plaintiff. It is clear that Graeme Freemantle needed financial assistance and I am satisfied he received it, directly or indirectly from his father. It seems also that the plaintiff was used for that purpose. It seems, however, that errors were made and the records were not accurately kept. The evidence, however, does not go so far as to point to either a purchase of the plant equipment and land on 14 August 1992, by the plaintiff or the subsequent acquisition by the plaintiff.

(iii) The fact that between mid August 1992 and May 1993 the business was carried on at the site under the name "Freemantle Lucerne Mills Pty Ltd".

It is common ground that this name appeared on all correspondence and invoices. I am satisfied, however, that Promack had used old stationery left over from the days when Freemantle Lucerne Mills Pty Ltd ran the business and that Graeme Freemantle continued to use that stationery and then printed further similar stationery subsequently. I am also satisfied that he believed, wrongly, that in acquiring the plant equipment and land he was entitled to use the name Freemantle Lucerne Mills Pty Ltd as a trading name. At this point it is relevant to note that Graeme Freemantle's education was very limited. He has great difficulty reading and writing. I am satisfied that he would not have been aware in 1992 of the precise legal effect of the purchase and the distinction between corporations and individuals. Until then it was not something in which he had had any interest.

(iv) It was argued that in and between August 1992 and May 1993 group certificates were issued in the name of the plaintiff to Graeme Freemantle as an employee of the plaintiff.

Firstly, it is incorrect to say that the evidence shows that the plaintiff issued the group certificates. The employer noted in the group certificate which was an exhibit was "Freemantle Lucerne Mills". This was consistent with the situation, which I accept, that Graeme Freemantle and his book-keeper were treating the old company name as Graeme Freemantle's trading name. The tax return in noting the employer as "Freemantle Lucerne Mills" did not refer to it being incorporated. The provision of group certificates was the result of an error on the part of Graeme Freemantle and Mr O'Shea. Mr O'Shea had had little or no book-keeping experience when he commenced his duties and Graeme Freemantle had little or no experience in the administration of the business and little understanding of legal matters. Both learnt on the job.

(v) The fact that, contrary to its ordinary practice, Smith and Emmerton did not issue Graeme Freemantle with a separate letter of engagement following his decision on 14 August 1992 to purchase the property. The defendants also relied upon the fact that a new file was not opened and correspondence was sent to the plaintiff's address.

These facts are not disputed but the practice was not something that was always followed by Smith and Emmerton and the transaction was in a broad sense a continuation of the resolution of the problem that was first referred to them by the plaintiff. It is also true that Smith and Emmerton bills were rendered to "Freemantle's Pastoral Pty Ltd" and did not distinguish between the work done for Graeme Freemantle or the company either before or after 14 August 1992 and the draft contract of sale and loan agreement was forwarded to the address of the plaintiff for execution on 8 September 1992. The explanation in my view is simply a lack of precision on the part of Smith and Emmerton. They had sent engagement letters to Graeme Freemantle, as well as his parents and the plaintiff company, in June 1992 and thus saw themselves as acting for all four. I am satisfied that they were not particularly concerned about who paid the bills as long as they were paid. As to the forwarding of the contract of sale and loan agreement and other matters and correspondence I am satisfied that same address was used by Graeme Freemantle as was used by the plaintiff. I note also that the bills and correspondence addresses were computer generated.

(vi) The fact that some letters from Smith and Emmerton spoke of the property being "re-purchased" particularly in October and December of 1992. They also included references to "resuming business" and "our clients".

A study of the correspondence, however, shows letters written which refer to Graeme Freemantle as the purchaser and the client. At best from the defendants point of view there was some confusion on a few occasions resulting from lack of precision by the solicitors.

(vii) The evidence suggesting that Reginald Freemantle continued to be involved in the new business and in particular that he had his own key, answered the telephone, was frequently in attendance, became a cheque signatory on the accounts, was nominated as addressee of the bank statements and had the same RMB number as the mill business. In addition he gave instructions to the defendants. In addition, Mrs Freemantle apparently opened the mail for the mill business - at least on occasions.

This evidence might have some significance if it were not for the fact that the home of Mr and Mrs Freemantle was a short distance away from the office of the mill with access to both down a narrow lane. Further, it was to be expected that Graeme Freemantle would try to take advantage of his father's knowledge and experience in running the business and to seek his assistance and that his father would want to give it. The evidence is at best equivocal from the defendants' point of view. From the bank's point of view it was not surprising that Reg Freemantle featured as he was its old and solvent customer and had guaranteed the account opened by Graeme Freemantle in 1992. It was also no doubt convenient to simply use the same RMB number for the mill business. I also note that for a period from November 1992 onwards for some months, Graeme Freemantle was incapacitated after an accident which caused some damage to his brain. It was understandable in those circumstances that Mr Reg Freemantle stepped into the breach to keep the business going while his son recovered. I am satisfied that during that period that is what occurred. That explains another matter relied upon by the defendants, namely, the involvement of Reg Freemantle by giving instructions to Smith and Emmerton between December 1992 and May 1993 in relation to the assessment of Monte Paschi's costs and the question of the business name.

(viii) The fact that Graeme Freemantle became company secretary for the plaintiff on 16 March 1993 and that the plaintiff gave to the National Australia bank on 17 March 1993 a debenture charge to secure an over-draft on the bank accounts used in the operation of the mill business.

At best this points to a more formal connection emerging between Graeme Freemantle and the company and between the company and the mill business some seven months after the purchase. It was something that might have occurred if it was in fact the company that was secretly purchasing the business but if that was the case it was strange that both Graeme Freemantle and the company would have deliberately created such evidence. It points to a change of thinking at that time.

(ix) A file note of 8 October 1992 records Graeme Freemantle speaking of those running the business as "us" and the business as being "our". Graeme Freemantle said that he could have been referring to himself and his employees. In addition reliance was placed on a file note by Ms. Swain of Smith and Emmerton of a conversation with Reg Freemantle on 12 February 1993 which referred to the name and the failure to change it with the result that " their accountants cannot put their tax through in that name". Mr. Webster had no recollection and the Freemantles were unable to recall the conversation. At best from the defendants' point of view, it showed Reg Freemantle being involved in early 1993 on behalf of Graeme Freemantle but that does not lead to the conclusion on its own or with other evidence that the plaintiff had purchased the business.

(x) Letters from Smith and Emmerton to the liquidator and the Commissioner for Corporate Affairs in which reference was made to Smith and Emmerton's client buying back the business and assets. I am satisfied that this was the result of a lack of care on the part of Mr Webster.

(xi) The evidence of a file note made 3 May 1993 by Mr Webster, which recorded Reg Freemantle as saying that the business name was to be transferred to the plaintiff. This allegation was not put to Mr. Reg Freemantle. The accuracy of the note cannot be established. It may be that Mr Webster was in error. Mr Graeme Freemantle denied that he had any such intention. I accept that evidence.

(xii) The fact that the 1993 financial year accounts were re-organized subsequently to show that Graeme and not "Freemantle Lucerne Mills Pty Ltd" was carrying on the business between August 1992 and May 1993. It is put that this involved a reconstruction. I am satisfied, however, that what occurred was that in about May 1993 it was realised that errors had been made and they were corrected.

(xiii) The fact that Reg Freemantle was a cheque signatory for the mill business and continued to be after it took the name Freemantle Stock Feeds.

Unfortunately, the relevant bank records could not be found. In addition there was some confusion in the evidence about signatures which was not helped by counsels confusing use of the expression "FLM" when dealing with the company and the mill business. I am satisfied on the evidence, however, that Reg Freemantle did not become a signatory of the account used to operate the mill business in 1992 until his son's accident in November of that year. In 1993 when that account was closed and a new one was opened he continued as a signatory. I am satisfied that this had more to do with convenience than with the aftermath of the accident although the latter I am satisfied continued to be a reason. I am also satisfied that Reg Freemantle lent his son money and that the plaintiff was used to provide security for that purpose. I am also satisfied that the Freemantle Lucerne Mills Pty Ltd farm management account was in fact that of Reg Freemantle and it was not connected to the mill.

99. The defendants also submitted that there was a very good reason for creating the deception of Graeme Freemantle as the purchaser, namely, to preserve the professional negligence action against the defendants - in particular to maximise the damages that might be recovered.

102. It is clear on the evidence that at the time of the meeting of 14 August 1992, Graeme Freemantle and his father were well aware of the possibility of legal action being taken against the defendants and it appears that that fact was used in the course of some negotiations as a lever - that is, it was put that the interest of the Freemantle family in purchasing the property was not great in view of the fact that they could recover damages from the defendants. I am satisfied, however, that the supposed advantages asserted by the defendants would not have been apparent to either Mr Reg Freemantle or Graeme Freemantle unless they had been suggested by the defendants or Smith and Emmerton to them. I am satisfied that they were not.

105. In any event, the alleged motive does not withstand close scrutiny. If the plaintiff had purchased the plant equipment and land, any action against the defendants would have been able to proceed. Such a purchase would merely have affected the assessment of damages. At worst, the plaintiff would have recovered the plant and equipment and land and received compensation for the costs incurred in doing so. If the Freemantles had contemplated that Graeme Freemantle should buy the plant and equipment to protect the right of action, any legal advice to them would have drawn their attention to the duty to mitigate their loss and its possible impact on any amount of damages awarded.

108. Further, if what occurred had been part of a plan, one would have expected Smith and Emmerton and the Freemantles to be conscious of the need, in any communication or correspondence, to preserve meticulously the appearance that Mr Graeme Freemantle was the purchaser if only to conceal the reality that it was the company. The correspondence and communications relied upon by the defendants seem to me to point rather to a lack of any such intention by the solicitors or the Freemantles.

Several aspects of the evidence referred to above were left in an unsatisfactory state and I can understand the suspicions of those acting for the defendants. In approaching the evidence I myself started from a position of some suspicion. But the evidence relied upon, considered singly or in combination, did not, in my view, establish that Graeme Freemantle bought the land and business as agent for the plaintiff.

111. Ultimately, the resolution of this question depends on the assessment of the evidence of the witnesses who were present at the meeting on 14 August 1992. I am satisfied that Reg Freemantle, Graeme Freemantle and Mr Galvin were honest. I prefer their evidence to that of the defendants' witnesses. I attach no significances to the correspondence from the solicitors which suggested that they did not know who the purchaser was. I am satisfied that Mr Reg Freemantle and Mr Galvin were genuinely surprised by Graeme Freemantle's decision and that they told the truth when they said that he was not purchasing the property, plant and equipment for the company. I am satisfied that Graeme Freemantle saw an opportunity to acquire a business for himself at a cheap price and on generous terms. I am satisfied that Mr Reg Freemantle had, at the time of the sale to Promack, intended that the plaintiff should assume the role of investment company and dispenser of the proceeds from the sale to Promack. As a result he was a reluctant bidder in 1992 . I am also satisfied, however, that once Graeme Freemantle had decided to buy the property his father would have given him every support and, in fact, did so. This explains Mr Reg Freemantle's continued involvement in the running of the business and matters relating to it. The business and plant and equipment having been acquired by Graeme Freemantle, ownership did not subsequently pass to the plaintiff.

114. I proceed, therefore, on the basis that the plaintiff did not purchase the plant equipment and land in 1992. It is then necessary to determine the issue of damages, contributory negligence and mitigation on that basis.

118. The plaintiff sought damages in tort and in contract. As to the damages in tort, the plaintiff submitted that the measure of damages is the amount necessary to restore the plaintiff to the position it was in before the tortious act (L. Shaddock and Associates Pty Ltd v. Paramatta City Council (1) [1981] HCA 59; (1981) 150 CLR 225). The plaintiff argued that to be restored to the position it would have been in if the chattel mortgage had been registered it would have been necessary that:

(1) Monte Paschi be paid $180,000.

(2) National Australia bank be paid $32,000.

(3) Steps be taken to have the chattel mortgage registered and six months pass without liquidation or an order obtained under s.266(4) of the Corporations Law. The plaintiff argued that the cost associated with that would have been in the order of $40,000.

On that basis the plaintiff argued that damages amount to approximately $250,000 plus costs and interest.

125. Two preliminary comments may be made about this approach. The figure arrived at should be treated as setting an outer limit because it assumes legal action and ignores the other solution available to someone in the position of the plaintiff - to pay money to acquire the plant and equipment which it could otherwise have acquired or sold as mortgagee. In addition the $180,000 figure includes an amount to be paid for the land. Paying that sum would have put the plaintiff in a position better than that which it would have held under the chattel mortgage if it had been registered.

128. As to the claim for damages in contract, the plaintiff argued that it is entitled to be placed as near as may be in the position it would have been in had the contract been performed (Commonwealth v. Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80). The plaintiff sought damages on the basis that the failure to register the chattel mortgage effectively deprived it of the opportunity to sell the plant and equipment (the chattels) on a going concern basis to a person who would buy the plant and equipment and the land. Alternatively, it alleged that it lost the opportunity itself to acquire the plant and equipment for use on the land which it would have had the opportunity to acquire or on the land owned by Mr and Mrs Freemantle adjoining the site. In the further alternative, it was put that it lost the opportunity to sell the chattels at auction. It conceded that the assessment of the value of the lost expectation, opportunity or chance depends to some extent on the value to be ascribed to the chattels on the assumption that they would have been seized by the plaintiff under its first chattel mortgage in or about June or July 1992. The plaintiff submitted that the "auction realisation" value sets the minimum figure for the assessment of the value of the lost opportunity, the reasoning being that that value represents what a willing but not anxious purchaser would have paid for the plant and equipment in the expectation that it would have to remove the plant and equipment and establish a mill elsewhere. The plaintiff argued, however, that the lost opportunity included the lost opportunity to sell the chattels to a person who had purchased the freehold or was prepared to do so. It argued that the assessment also involved an assessment of the market power that the plaintiff might have enjoyed if Monte Paschi had had no more than a first real estate mortgage ahead of Mr and Mrs Freemantle and a second charge over the chattels behind the plaintiff. It was said that it must be borne in mind that the plaintiff's security would have been exerciseable by it in respect of a debt of up to $400,000. (See generally Malec v. J. C. Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638, Sellars v. Adelaide Petroleum N L [1994] HCA 4; (1994) 179 CLR 332 at 350 and Amann (above) at 92, 102-4, 118-9). The plaintiff did not argue that the lost opportunity should be assessed by reference to only one of the above options. The plaintiff submitted that taking these matters into account the figure of $250,000 plus costs and interest emerges again as the appropriate figure.

132. Counsel for the defendants put submissions to me about the appropriate way to assess damages, but I did not understand him to question or challenge the plaintiff's approach of seeking compensation for lost opportunities as such. Discounts, however, must be considered having regard to the nature of the opportunities and the costs associated with them.

135. The defendants argued that the only proper basis on which to assess damages was to start by valuing the chattels on an auction realisation basis. The defendants also argued that the evidence was inadequate. Further, they argued that it is necessary to deduce the value of the chattels by deducting the value of the land from the sum paid by Graeme Freemantle. The defendants further argued that if the value of the plant and equipment exceeded the amount that was paid by Graeme Freemantle for the plant and equipment, the latter amount limited the amount of damages because the plaintiff could have mitigated its loss by purchasing the plant and equipment at that price.

138. Whichever approach is taken it becomes necessary to determine an appropriate value in June or July of 1992 for the plant and equipment over which plaintiff had rights under its chattel mortgage. I note it is common ground that the value is to be assessed at that time. Two approaches need to be considered - the auction realisation value and the going concern value.

142. The plaintiff relied firstly on a valuation of plant and equipment conducted by Mr Schiller, an expert valuer. He did not conduct a valuation for the plaintiff but did so on instructions from Mr Russell the liquidator. The plant and equipment was valued as at 28 July 1992.

145. Mr Schiller defined the auction realisable value as being the value arrived at on the assumption that the owner of the plant and equipment did not have security of tenure as at July 1992 over the land upon which the plant and equipment were situated. He also assessed a market value basis, distinguishing it from an auction realisable basis as an orderly sale approach as opposed to an auction, but was of the view that either approach would not affect the price realised. The going concern valuation basis he defined, in essence, as the valuation of the plant and equipment used in the business as a going concern. This assumed reasonable security of tenure. His view was that this was not an appropriate basis of valuation if there was not security of tenure and if significant costs would be associated with relocating plant and equipment.

148. He inspected the plant and equipment on site. He concluded that that plant and equipment had an auction realisable value of $121,705 and a going concern value of $246,760. He said that his auction realisable valuation of $121,705 did not take into account the costs of conducting the sale which he believed would be of the order of $20,000.

151. The defendants sought to cast doubt on the valuation of Mr Schiller by relying upon the fact that there was evidence that there had been changes in equipment on the site while it was occupied by Promack with the result that the plant and equipment on the site at the time of his valuation was not identical with that sold to Promack. They submitted, in particular, that Mr Hutchinson, the proprietor of Promack, had brought on to the premises plant and equipment involved in his composting business conducted under the name of Compost Company Pty Ltd and that Mr Hutchinson claimed that some of that plant and equipment had been left behind and that he had not been able to retrieve it.

154. Mr Schiller was asked to do a reconciliation of the items listed in his valuation and those listed in the schedule from the original contract between the plaintiff and Promack, a schedule used again in the sale by Monte Paschi to Graeme Freemantle. The result of that exercise was that he said that he could positively identify in both lists a number of items (27 in all out of 89 in the original contract schedule, or 30%) with an auction realisable value of $47,855 and going concern value of $64,995. There were ten items of equipment to which he could not attribute a value because he had valued them as part of a global valuation of equipment. They were part of the equipment in the following areas:

(a) in the lucerne cutting and grinding room, globally valued at $17,170 on an auction realisation basis and $39,650 on a going concern basis;

(b) in the lucerne cube manufacturing mill, globally valued on an auction realisation basis of $11,600 and a going concern basis of $36,200;

(c) in the oat chaff mill, globally valued at $17,100 on an auction realisation basis and $31,350 on a going concern basis; and .

(d) in the grain packing room, globally valued at $8,200 on an auction realisation basis and $28,500 on a going concern basis.

I note that if the above global values are added to the figures, for the 27 identified items the auction realisable value is increased to $101,925.00 and the going concern value to $200,695. In his reconciliation, he also identified 13 items which he had valued which he was satisfied were not in the original Promack agreement schedule. The total value of those items on an auction realisation basis was $16,055 and on a going business basis $34,990. He also identified several items in the original contract schedule which were not in his valuation; namely, a 1974 Ford tip truck, 12' x 6' bin, a MF 11 loader with a 1.5 bucket and Shelvoke- Drewry forklift. Most of the remaining items he said were in a grey area; he could not say whether they were in the agreement schedule or not.

161. In response, the plaintiff relied firstly on the proposition that under the chattel mortgage the chattels mortgaged by Promack to it included "accretions" and that the only missing item was the fork lift sold by Promack without the permission of the plaintiff for $10,000 and which Monte Paschi purported to sell to Graeme Freemantle. On the evidence, however, I am not satisfied that the plaintiff's assertions can be made out. Mr Schiller's evidence, on which the plaintiff relied, points to equipment being valued on site which was not referred to in the contract. The additional items by and large would not constitute accretions. Evidence relevant to this issue includes that of Mr Hutchinson who provided a list of chattels to Smith and Emmerton on 20 July 1993. He listed some 18 items of varying significance for which he claimed an estimated value of $90,000. It appears that he managed to remove some of the plant and equipment belonging to the composting business but he claims to have been stopped. It is difficult in my view to suggest, however, that the items that he listed could have amounted to $90,000. A large number appear to be minor items. In compiling the list, Mr Hutchinson relied in part on what he had been told by people such as Mr West as well as attempting to check the equipment himself. Mr Reg Freemantle and Mr Graeme Freemantle were questioned about those items as well and while acknowledging that a few items were or may have been present they were generally unable to comment.

164. The end result, on the evidence is that it is likely that there were some items in addition to those that were identified by Mr Schiller as not being in the original contract list which were valued by him and thus a discount should be applied in addition to that which flows from the deduction of those identified items from the schedules.

167. Another point to note in this regard is that following the original sale to Promack, some further items of equipment were sold to Promack and an argument developed about whether it had paid for them or not. It returned some of those chattels to the plaintiff but retained a truck motor ($5,000), a bag elevator - Bishops ($500), a teaser ($350) and a conveyor slat for teaser ($150). Promack agreed to pay $6,000 for those items and the other chattels were returned. It seems that the truck motor became an accretion to one of the Echo trucks. In the final analysis, the plaintiff argued that the value of the chattels sold to the plaintiff in early 1992 which were not subject to the chattel mortgage but were presumably on site when Mr Schiller did his valuation was no more than $1,000.

170. The evidence and argument on this point is somewhat confusing. It seems that the plaintiff's propositions are correct provided that the $5,000 motor is treated as an accretion and thus caught by the chattel mortgage. That approach would appear to be correct so that only the other items, totalling $1,000, which were purchased by Promack appear to fall outside the chattel mortgage.

173. Using the valuations by Mr Schiller and taking the above into account, it may at least be said that the value of the plant and equipment that was on site and subject to the plaintiff's chattel mortgage was in round figures not more than $105,000 or less than $48,000 on an auction realisable value basis and not more than $211,000 or less than $65,000 on a going concern value. There is, however, other evidence to consider.

176. The defendants referred to a number of other pieces of evidence which they argued have a bearing on the valuation of the plant and equipment. Reference was made to the 1989 balance sheet of the plaintiff as the former Freemantle Lucerne Mills Pty Ltd which valued the plant and equipment on a written down basis at $96,000. By 30 June 1990 it was reduced to $60,000.

179. It seems to me that these values do not assist ultimately in that they are figures derived presumably from the unknown original cost of the plant and equipment and subjected to a depreciation regime about which there is little or no evidence and cannot ultimately be compared with a valuation by an expert at the critical time. They are also contradicted by the evidence to which I now turn.

182. Of more relevance is the sum for which the plaintiff, as Freemantle Lucerne Mills Pty Ltd, insured its plant and equipment on 30 May 1991, namely, $94,200. In cross examination Mr Reg Freemantle said that he arranged the insurance and accepted that he was keen to insure the plant and equipment for what it was worth. He had been burnt out in 1964 and found that his insurance was far too low. He said that he always kept his insurance up. Thus the figure presumably represented his and, therefore, the company's assessment of the cost of replacement. Whether this included new or second hand equipment was not clear. He drew attention to the fact, however, that the trucks and buildings weren't covered. The defendants did not seek to use that figure as an admission by the plaintiff but relied on it as evidence of the value of the plant and equipment at the time of the original sale, accepting that it does not include the vehicles. The latter were valued by Mr. Schiller at $25,000 on a going concern basis and $19,256 on an auction realisable basis. Adding the latter value to the insured amount, an auction realisable value of $113,456.00 is arrived at. I note, however, that that calculation combines 1991 and 1992 values. In addition, I have assumed that the insurance valuation can be properly categorized as an auction realisation value as Mr Reg Freemantle's focus appears to have been on replacement.

185. The defendants also submitted that to the extent the plaintiff relied upon the value of $220,000 put on the plant and equipment in the original sale of the business, that figure was unrealistic as was demonstrated by what subsequently occurred to Mr Hutchinson in running the business through Promack. The major criticism in my view, that can be made, of this figure is that it appears to have been the result of an arbitrary decision and the basis for that decision is not clear. Nonetheless it was arrived at on the basis presumably of a going concern valuation and the figure of $220,000 is not that far removed from the figure arrived at by Mr Schiller on that basis.

188. The defendants also relied upon the treatment of plant and equipment in the balance sheet of the business for the year ending 30 June 1993 produced for Graeme Freemantle by the accountant Mr Bates. It showed in the depreciation schedule that the delivery trucks and mill plant and equipment had been recorded at a cost of $60,000 as at 21 August 1992. He said that that figure was arrived at after discussion with Graeme Freemantle and the book-keeper Trevor O'Shea. Mr Bates confirmed that in preparing a depreciation schedule he relied on instructions given to him by Trevor O'Shea and Graeme Freemantle as to the apportionment of the purchase price of $180,000. It should be noted that in an exhibit to Mr Bates statement, the land and buildings are valued at a cost of $128,164 as at 30 June 1993. The plant and equipment is shown at cost of $78,050 as at 30 June 1993. The difference between that figure and the figure in the depreciation schedule in exhibit H2 is explained by Mr Freemantle's evidence that he acquired equipment between 21 August 1992 and 30 June 1993.

191. In my view this evidence does not assist either unless it can be said that the price of $180,000 demanded by Monte Paschi represented either an auction realization value or a going concern value. I am satisfied, however, that Monte Paschi's sole concern was to ensure that its debt of $180,000 was covered. Further, they evidence at most Graeme Freemantle's view of the relative value of the land and buildings on the one hand and the plant and equipment on the other. Thus, those figures relied upon by the defendants do not advance the debate.

194. Finally, relying on the figures just referred to, the defendants also advanced an argument that the value of plant and equipment should be arrived at by deducting the value of the land from the amount paid by Graeme Freemantle when he purchased the plant and equipment. It was said that the evidence of the value of the chattels was too imprecise and that this was the most reliable approach. The defendants relied on the evidence of Mr Galante. Mr Galante is a qualified valuer who valued the land on which the mill is situated for Monte Paschi in June 1992. The land comprised 2.4 hectares and included buildings and improvements. His instructions included information as to the amounts paid by Promack. His view was that the Promack price was insupportable. In particular a value of $420,000 for the land and buildings was insupportable. He described the property as unusual in that it was a small block of land surrounded by a substantial pastoral holding. He said that situated on the land was a high concentration of sheds and buildings which were used for the purposes of the milling business. He said that access to the property was from the nearest public road by way of a lane way. The lane way was sealed but narrow and had no verges, footpath or drainage. He assumed on the basis of an earlier report by the valuer Collings that the land was connected to public water mains. He also assumed that it had water rights from the Campaspe River which were used in the milling operation. He said that the property was remote and was not located on or near any main roads or highways. He said that he found it very difficult to value the property given its small size and its location in the middle of a large rural holding and the high concentration of buildings. There were no comparative sales available. His approach, therefore, was to value the land as such, which he did at $10,000. In his view the principal value of the property lay in the improvements. He said that assuming a willing buyer and seller and a reasonable period to negotiate and that the values of properties remained static during such a period, he valued the improvements in the region of $190,000. He therefore consider the land and improvements had a market value of $200,000. He valued the property on a forced sale basis at $150,000.

197. Mr Galante also indicated, however, that two of his assumptions which were of significance had proved to be incorrect; namely, that there was mains water connected and that there were water rights attaching to the property from the Campaspe river. He had subsequently found out that there were no water rights attached to the land and the supply of water was entirely at the discretion of the proprietor of the adjoining land. He also found out that one of the buildings encroached on the neighbouring land and he had made no allowance for that. He thought the cost to address that problem could be significant. He accordingly reduced his market value to an amount of "less than $200,000" and a forced sale value of "less than $150,000".

200. The defendants also relied on a valuation of the land obtained by the plaintiff in July 1992 from a Mr McLoughlin. He valued the land on a forced sale basis at $120,000 and on a current market value at $200,000. Having regard principally to the allocation of values by Graeme Freemantle and the valuation of the land by Galante, the defendants, argued that the value for the land should be seen as being somewhere within the range of $120,000 to $150,000 and that the value of the plant and equipment should be viewed as between $30,000 and $60,000, the value of the land being deducted from the sale price of $180,000.

203. In my view one cannot sensibly use the sum paid by Graeme Freemantle for the land and plant and equipment as a basis for determining either the going concern value of the plant and equipment or the auction realisation value of it. Consideration of such values do not appear to have entered into the calculation of the amount of $180,000 by Promack.

206. One is ultimately driven to the conclusion that it is the analysis of Mr Schiller and the evidence of the amount for which the plant and the equipment was insured by the plaintiff in 1991 that are of assistance. Mr Schiller's valuation of the plant and equipment was not more than $105,000 on auction realisable basis (after deduction of $16,000, at least, for items which were not subject to the chattel mortgage). It is close to the figure used by the plaintiff when insuring the plant and equipment for $94,200 on 30 May 1991 bearing in mind that that did not include vehicles. The precise auction realisable value, however, remains uncertain as does the going concern value. If required to assess them, however, I would assess them at approximately $90,000 and $180,000 respectively.

210. In assessing damages, the defendants argued that the loss should be confined to the auction realisable value of the plant and equipment - a figure, they argued, of between $30,000 to $60,000.

213. The task, however, is to assess compensation for a lost opportunity. Thus the approach of the defendants is incomplete because the plaintiff had the opportunity to obtain the plant and equipment for ongoing use or to sell it to others for that use. That having been said, it must be emphasised that damages have to be assessed not for loss of the plant and equipment but for the lost opportunity to exercise the rights under the chattel mortgage. I note that it was not suggested that any discount was required for any uncertainties connected with the exercise of such rights. Other issues were raised.

216. One option open to the plaintiff if the charge had been registered would have been to exercise its rights as mortgagee to recover the plant and equipment and to do so on the basis that it would operate the business on the site. They might then have been worth approximately $180,000, the ongoing concern value. I accept the defendants' argument, however, that to do that, the plaintiff would have had to purchase the land from the first mortgagee of the land. In doing so it would not have been concerned with the disadvantages facing any other purchaser - for example, access to water. On Mr Galante's valuation the land without those disadvantages was worth $150,000 on a forced sale basis. Mr. McLoughlin assessed the forced sale value at $120,000. Monte Paschi would have been determined to recover $180,000. Proceeding on the basis that the plaintiff would have had to pay $180,000 to acquire the land, but could have relied on the charge to recover the chattels to use in the milling business, the plaintiff would have had to spend approximately $30,000 to $60,000 over and above the value of the land to recover the plant and equipment on a going concern basis. The value of that lost opportunity under this option would be assessed bearing the above in mind.

219. Another option was that the plaintiff could have recovered the plant and equipment and used them on other land owned by the Freemantles. To do so it would have had to construct buildings and relocate the equipment. The costs involved would, in my view, have been substantial. I refer to Mr Galante's valuation of the improvements of $200,000. Even accepting a going concern valuation of say, $180,000 for the chattels once recovered and free use of the land, I am not persuaded that the plaintiff's position under this option would have been improved if the opportunity had been open to it and used.

222. Another option was that the plaintiff exercise its rights under the charge to sell the plant and equipment to a buyer who was interested to operate the business and thus would acquire the land on which the mill stood or re-locate the plant and equipment elsewhere. This scenario has the benefit for the plaintiff that it does not require the plaintiff to purchase the land. Any such purchaser, however, would have been concerned about the fact that the previous purchaser had been wound up because it had been unable to run a profitable business using the plant and equipment on that site. For that reason and because it would also have been facing the prospect of purchasing land it would have been anxious to pay as little as possible for the plant and equipment. This scenario has the disadvantage for the plaintiff, therefore, that the prospects of finding such a buyer were poor and as a result a substantial discount would be required to allow for that disadvantage. On the evidence before me and having regard to the difficulty that the plaintiff had in the past in trying to find a purchaser for the business, I would rate that prospect as much less than a 50% chance. In those circumstances I am satisfied that a buyer could not be found at a price anywhere near $180,000 for the plant and equipment on a going concern basis and that that lost opportunity should be assessed at an amount no greater than that which would follow should the plaintiff have recovered the plant equipment and purchased the land. The reality was that it was the plaintiff and those associated with the plaintiff who were most likely to want the plant and equipment and buy the land.

225. In the course of final submissions a further approach was suggested by the plaintiff. It was put that the price paid by Graeme Freemantle of $180,000 for the plant and equipment and land represented the price of the opportunity lost to the plaintiff because of its inability to use its security to acquire the plant and equipment on a going concern basis. The defendants submitted that, taking that approach, allowance has to be made for the fact that, in paying $180,000, Graeme Freemantle also acquired the land, something which the plaintiff would have had to acquire if it was to use the plant and equipment on the site. The plaintiff sought to meet this criticism by relying on several cases which counsel submitted supported the proposition that when an injured party spends money in rectifying the damage done and in doing so makes a profit, it is not obliged to bring that profit into account. Reference was made to Jewelowski v. Propp [1944] KB 510, Gardner v. Marsh and Parsons [1996] EWCA Civ 940; [1997] 1 WLR 489 at 503, Hussey v Eales [1990] 2 QB 227 at 241 and British Westinghouse Electric and Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd [1912] AC 673 at 689. The issue here, however, is not the profit that might have flowed to the plaintiff had it availed itself of the opportunity it would have had to gain control of the plant and equipment on a going concern basis but the cost of that exercise. The $180,000 figure may represent what realistically a person would have been required to spend to acquire the plant and equipment and the land and thus acquire both as a going concern. If the plaintiff had had the security of a registered first chattel mortgage over the plant and equipment it would not have been obliged to provide funds for their acquisition. It would, however, have had to provide funds to purchase the land because Monte Paschi would have obliged it to do so. Thus, it would have been obliged, to expend money to buy the land to enable it to take advantage in a practical sense of its rights over the plant and equipment. It would have had to expend that money before it could do so. Thus it seems to me that the cost of the land is an amount that again would have to be considered before determining what in fact was the value to the plaintiff of the opportunity which it lost to have exclusive control of the plant and equipment for use at the mill.

228. There remains to be considered the lost opportunity to sell the chattels by auction. In that situation, the market would include those wanting to acquire the chattels to set up a mill but, in addition, those wanting isolated pieces of equipment. On the evidence, the plaintiff had the opportunity to recover approximately $90,000 for the plant and equipment if sold at auction. It may have recovered more. It may have recovered less. That is a reasonable figure having regard to the possible variables and exigencies. It would be necessary, however, to allow for the cost of selling the plant and equipment. On the evidence of Mr Schiller, that would have amounted to approximately $20,000.

231. Ultimately, the exercise is not an arithmetic one and the data available is imprecise. But a view must be formed as to what would be reasonable compensation for the plaintiff to compensate it for the various opportunities lost as a result of the breach of retainer by the defendants. In all the circumstances I consider $65,000 to be the appropriate amount to provide that reasonable compensation.

235. The plaintiff, as noted above, claims $250,000 in damages as the sum required to restore the plaintiff to the position it would have been in but for the tortious act. This amount included an amount of $180,000 that would have had to have been paid to Monte Paschi. It seems to me, as noted above, that a substantial portion of the $180,000 would have had to be allocated to the purchase of the land and improvements that would have been obtained by spending the $180,000. In light of the evidence of the bank's actual response, it is questionable whether money would have had to be paid to remove the bank's charge. Finally, it is relevant to consider the other options available to restore the plaintiff to the position it would have been in but for the tortious act. Taking the plaintiff's approach to compensation in tort, damages are not easy to assess but a figure of $65,000 would appear reasonable.

239. Having regard to the conclusions I have reached about the measure of loss on a contractual or tortious basis, it seems to me to be imposing too high a standard of care upon the person who has suffered loss as a result of the breach of the common law duty of care to suggest that it should have expended $180,000 in purchasing the land and chattels, and resuming the business that it had sold about twelve months earlier.

242. The other issues raised by the defendants in support of their argument of contributory negligence concern the failure to take steps to postpone Monte Paschi's registered charge when the plaintiff found out that its chattel mortgage had not been registered.

245. There were several options open to it when it discovered, in about June 1992, that its chattel mortgage had not been registered and that it was possible that Monte Paschi had notice of it when Monte Paschi registered its charge. As outlined above, those options were difficult and uncertain. Some were likely to be costly. The choices had to be made quickly. The difficult position of the plaintiff had been created by the insolvency of Promack and the negligence of the defendants. Under the pressure of the situation they had to consider the advice from, in particular, Smith and Emmerton. That advice included the advice of 17 June 1992 where Smith and Emmerton said:

"there is only a very remote possibility that these charges can be defeated."

The charges referred to were those of Monte Paschi and the National Australia Bank. The advice they received from independent legal advisers at the time supported the winding up of Promack. It was reasonable to see that as the best way for the plaintiff to minimise its loss. In those circumstances there could be no contributory negligence on the part of the plaintiff in adopting that course and not pursuing steps to have the chattel mortgage registered.

250. Having reached the above conclusions it is unnecessary to consider contributory negligence as a defence to the claim for damages for breach of contract under Victorian Law. In that regard, I note the recent High Court Authority Astley and Others v. Aust Trust Limited, [1999] HCA 6, unreported, 4 March 1999.

254. It was common ground that the plaintiff had a duty to take all reasonable steps to mitigate the losses resulting from the breach and could not claim any part of damages which results from the failure to mitigate the loss (E.G. Falco v. James Mc Cune & Co Pty Ltd [1977] VR 447 at 452). It was also common ground that the onus of proof on the issue of failure to mitigate rests on the defendants and that the issue is to be determined having regard to all the circumstances including the financial resources and abilities of the plaintiff. The defendants must show not only that the suggested course of conduct would have mitigated the damage but also that it was unreasonable that the plaintiff did not pursue it (Private Parking Services Vic) Pty Ltd and Others v. Huggard (1996) Aust Torts Reports at 81 - 397 at 63, 530. What is reasonable is a question of fact (Sotiros Shipping Inc. Shmeiet Solholt (Solholt) [1983] 1 Lloyds Report 605 at 608 and Jamal v Moolla Darwood Sons & Co [1916] 1 AC 175 179). In appropriate circumstances a plaintiff may be expected to expend money to mitigate its losses (Burns v. MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 659 - 660 and 675 - 677) but a refusal to pay may be reasonable (see Burns, above, and Huggard, above,). At the same time a plaintiff is not expected to risk capital it might borrow or to take steps which might expose it to financial ruin if the steps fail (see Metal Fabrication Pty Ltd v. Calsey [1986] VicRp 52; [1986] VR 507 at 513).

257. The debate before me proceeded on the assumption that the plaintiff's claim was made out and that the quantum of damages was of the order of $220,000 to $250,000. Therefore, the defendants argued that the plaintiff had the opportunity on 14 August 1992 to put itself in a position of having the opportunity to use the plant and equipment exclusively for the purposes of the mill on the mill site for an amount significantly less than what it claimed to be the going concern value of the plant and equipment.

260. It is reasonably clear that the plaintiff would not have had any difficulty finding the funds and, in particular, the balance of the purchase money $160,000 was offered by Monte Paschi at the rate of 7.5% which was approximately half the interest rate that was being paid by Promack. It was a very competitive interest rate.

263. The plaintiff argued that circumstances personal to the plaintiff are relevant including personal objections (citing inter alia, Walker - Flynn v. Princeton Motors Pty Ltd [1960] SR (NSW) 488; Medlin v. State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 at 22-3; Huggard's case above at 63, 530). It said that the plaintiff was represented by Mr. Reg Freemantle who justifiably was reluctant to deal with Monte Paschi which was refusing to recognize the plaintiff's first chattel mortgage.

266. In view of my assessment of the damages, however, it does not appear to me that these issues need to be canvassed at any length. Taking the above analysis, the defendant's arguments required the expenditure of an amount significantly greater than the loss. The defendants are unable therefore to demonstrate that the plaintiff acted unreasonably in not purchasing the plant, equipment and land on 14 August 1992 for $180,000. The other issue relied upon was the alleged failure to attempt to register the chattel mortgage in 1992. For reasons already referred to, the defendants cannot demonstrate that the plaintiff's decisions not to attempt to register the charge was unreasonable.

270. The plaintiff also sought damages on the basis of the principle in Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125. It was put that the defendants denied the plaintiff immediate access to the proceeds of realisation of the chattels subject to its chattel mortgage from Promack and that damages should be awarded on that basis. Interest was sought at the rate of 13.2% from mid 1992 to mid 1995 being the penalty interest rate and was sought from 17 June 1992 when the plaintiff came to assert its rights under the contract with Promack or alternatively, from 1 July 1992.

273. The defendants submitted that the principle in Hungerfords v Walker applied only where a plaintiff incurred interest costs by reason of being kept out of its money. They argued further that the claim must be pleaded and a plaintiff must prove that it incurred such interest costs. The defendants submitted that there was no evidence of the plaintiff in this case incurring interest costs by reason of being kept out of its money and Hungerfords v Walker damages were not expressly pleaded. They submitted, therefore, that the plaintiff's entitlement to interest is confined to that available under the Supreme Court Act 1986 s.60(1). It was said that interest is confined to interest from the date of the commencement of the action. (See "Interest revisited" (1997) 71 ALJ 514 at 524 and 525.) In later submissions the defendants conceded that Hungerfords v Walker interest is also available to compensate for the cost of being deprived of money that could have been invested at interest. It became common ground between the parties that the question is whether the loss of use of money was a foreseeable loss.

276. In my view the difficulty facing the plaintiff's claim for Hungerfords v Walker damages is its failure to plead the matter. It is true that "interest" is referred to in the prayer for relief. It is also true that, under cross-examination by the defendant's counsel, evidence was given by Mr Carrol of the prevailing lending interest rate of around 15% of the relevant time. Mr Reg Freemantle gave evidence that the money from the sale of the business was deposited in the plaintiff's account and plaintiff's counsel argued that this was presumably an interest bearing account. While this evidence would assist the plaintiff to establish a claim, it highlights the prejudice caused by the failure to specifically plead Hungerfords v. Walker and the failure to raise it as an issue until the close of evidence. If it had been pleaded, the defendants could have cross examined both witnesses further about what was involved. The argument advanced for the plaintiff also highlights such disadvantage. In seeking to establish the appropriate rate of interest to be allowed, it suggested that it would be reasonable to discount the figure suggested by Mr Carrol by approximately 2% which is close to the statutory penalty rate. This too could have been explored appropriately if it had been raised at the appropriate time. Other issues and evidence might also have been explored by the defendants. In my view it would be unjust to permit the plaintiffs to pursue the claim in the absence of proper notice in the pleadings to the defendants. The claim for interest will be confined to the statutory entitlement. I will invite the parties to seek agreement on what the figure for interest should be calculated pursuant to the Supreme Court Act 1986.

280. The defendants sought orders that the plaintiff reimburse them for the costs they have been ordered to pay the third party. They did so on the basis that the plaintiff commenced proceedings seeking damages in excess of $400,000. It was put that an issue, therefore, arose whether Monte Paschi sold the chattels for an amount significantly below their value. It was on that basis that Monte Paschi it was said, was joined. If damages had been assessed in excess of $460,000 then there was an issue as to the liability of Monte Paschi to make up the difference between the $180,000 and $400,000. The defendants further submitted that at the conclusion of the plaintiff's case it became apparent that the plaintiff was not seriously contending that the chattels were worth more than $180,000.

283. The plaintiff has made the point, inter alia, that it was part of the defence pleaded against it that the sale by Monte Paschi to Graham Freemantle of the chattels and the land was at a gross under value, that the plaintiff ought to have but had not sought an injunction to restrain it; and that the plaintiff failed to object to the sale. A few days before the trial commenced, the plaintiff indicated that it admitted that the sale was for a gross under value but that the questions of whether the plaintiff ought to have sought an injunction and whether or not the plaintiff failed to object to the sale remained an issue. The defendants, however, had never attempted to obtain admissions about those matters from the plaintiff and when ultimately the third party served the notice to admit which fell due for compliance on the first day of the trial, the plaintiff admitted that it had not objected to the sale. The plaintiff submitted that, in those circumstances, if the defence case had been conducted appropriately, it would not have been necessary to join the third party or continue the proceedings against it or that, if there was any necessity, it did not result from any act or omission of the plaintiff.

286. I have come to the conclusion that the defendants have not demonstrated that responsibility should be sheeted home to the plaintiff for the joinder of the third party. It was a decision made by them which flowed from their assessment of the case made against them by the plaintiff and the circumstances of the case. One can put the link to the plaintiff's case no higher than that, so far as the joinder of the third party is concerned. The fact that a party asserts a large claim for damages does not relieve a defendant from the task of making a judgment on the basis of its own assessment of the reality of the claim. The case is not one where it is appropriate for the defendants to recover indemnity from the plaintiff for costs payable to the third party. The defendants made the choice and took the risk and the defendants have to bear the cost of the result. I reject the defendants' application and find that the defendants should pay the plaintiff's costs.

290. There should be judgment for the plaintiff in the sum of $65,000 together with statutory interest. The defendant should pay the plaintiff's costs.