J Redman Investments Pty Limited v Malcolm Nelson Johns

Agreed Facts

1. In about September 1992, after inquiry by the defendant, Mr Redman, the sole shareholder and principal director of the plaintiff, agreed to lend $50,000 on a short term basis to Mr Downie. The plaintiff lent Mr Downie a further $20,000 in 1994 and a further $20,000 in 2002.
2. The precise terms of some parts of the conversations between Mr Redman and the defendant leading to this initial loan and to subsequent loans were in dispute. The following facts were not disputed.
3. The defendant prepared the loan documentation. He prepared a mortgage in the form provided by the Land Titles Office of the Registrar-General of NSW. The provisions of memorandum number Q86000 filed in the Land Titles Office were incorporated into the mortgage and four further conditions were included: 1. the appointment of the plaintiff, described as the mortgagee, as the attorney of Mr Downie, described as the mortgagor, for various purposes; 2. a covenant: 1. to repay the principal sum of $50,000 on 30 November 2011; and 2. to pay interest at 20% per annum by bimonthly instalments on the 30th day of each month, the first to be paid on 30 November 1992; 1. a covenant not to encumber further the security hereby granted without the prior written consent of the mortgagee;
4. The security was described as Folio Identifier 10/SP30284. This was the description of title to Mr Downie's business premises, Lot 10, 4th Floor, 283 George Street, Sydney.
5. In accordance with an Authority to Receive supplied by the defendant, the plaintiff paid $449,774.44 by bank cheque to Malcolm Johns & Company, the defendant's law firm, and $225.56 by ordinary cheque to Mr Downie.
6. On 6 October 1992 the defendant wrote to the plaintiff confirming the completion of the mortgage advance and enclosing a copy of the mortgage document. The heading to the letter read: J REDMAN INVESTMENTS PTY. LIMITED SECOND MORTGAGE ADVANCE TO DANIEL MCGREGOR DOWNIE SECURITY: SECOND MORTGAGE PART 4TH FLOOR (LOT 10) 283 GEORGE STREET, SYDNEY The letter closed with: We hold security documents on the Company's behalf.
7. Mr Downie signed a form of variation of mortgage extending the term of the loan to 31 January 1993 on 30 November 1992. On that date the defendant wrote to the plaintiff confirming the variation and again referring to the Security and security documents.
8. Mr Redman and the defendant had the following conversation in 1994: Defendant: "Downie needs another $20,000, short term. Can you lend it to him? Mr Redman: "What's the arrangement?" Defendant: "Usual arrangement - 20% interest per annum. The loan is for 6 months. I will do the paperwork.
9. Mr Downie paid interest at the rate of 20% without default to that date. On 29 July 1994 Mr Redman gave the defendant $20,000 as an advance to Mr Downie. This loan was never documented except that the defendant wrote a receipt for the payment of $20,000 on the back of his business card. It read: Received $20,000-00 being additional loan to D M Downie, 6 months, 20% pa.
10. None of the capital sums were repaid on their due dates. Mr Downie continued to pay the plaintiff interest at 20% per annum on the sums outstanding.
11. Mr Redman and the defendant had the following conversation in March 2002: Defendant: "Dan Downie wants to borrow a further $20,000.00 for a short term as he needs it for another deal. Can you lend it? Mr Redman: "Yes." Defendant: "The loan will be on the same terms as the previous loans with interest at 20% per annum and will be for 3 months.
12. The plaintiff lent Mr Downie another $20,000. The defendant prepared a mortgage document, dated 27 March 2002, providing for a principal sum of $70,000, repayable on 30 June 2002, with interest payable monthly at 20% per annum. Its provisions were essentially the same as those of the 1992 document, including the covenant not to encumber further the title to the property.
13. The capital sum was not repaid on 30 June 1992 but, as before, Mr Downie continued to pay interest regularly until 2008.
14. Between October 2008 and July 2009 Mr Downie defaulted in the payment of three interest payments.
15. Mr Redman consulted another solicitor in September 2009. He learned from this solicitor that: 1. Mr Downie had engaged in a number of mortgage transactions affecting title to the property; 2. Two mortgages were registered against the title to the property, both noting the Permanent Trustee of Australia as mortgagee; 3. The mortgages granted to the plaintiff in 1992 and 2002 were not registered against the title to the property.
16. The plaintiff placed a caveat on the title to the property. Mr Downie sold the property in February 2010.
17. Prior to settlement of the sale the plaintiff and Mr Downie signed an agreement, the essential terms of which were: 1. Mr Downie acknowledged his indebtedness to the plaintiff in the sum of $90,000. 2. (2) He agreed to repay $20,000 on the withdrawal by the plaintiff of the caveat lodged against the title to the property. 3. (3) He agreed to repay the outstanding $70,000 by 31 March 2011, in the interim paying interest monthly at the rate of 20% per annum. 4. (4) Pending repayment, the plaintiff was to have the right to lodge a caveat on the title to any property subsequently acquired by Mr Downie.
18. Mr Downie failed to repay $70,000 by 31 March 2011. On 12 September 2012 Mr Downie was declared bankrupt.
19. The plaintiff instituted proceedings against the defendant on 25 September 2013.

Disputed Facts

1. The dispute between Mr Redman and the defendant centred on the issue of whether the funds advanced to Mr Downie were to be secured by second mortgage registered against the title to the property.
2. Mr Redman, in his affidavit of 29 January 2015, set out his understanding of the terms offered to him in his conversation with the defendant in September 1992. He said that, when the defendant inquired if he had funds to lend to Mr Downie, he asked what was to be provided by way of security. He claimed that the defendant told him there would be a second mortgage over Mr Downie's business premises, that he knew Mr Downie well and that the loan transaction was safe and a good deal. The defendant was to prepare the documents and Mr Downie was to pay all legal costs.
3. Mr Redman said that, when the defendant asked in March 2002, if he wished to lend Mr Downie a further $20,000 for three months on the same terms, they had the following conversation: Mr Redman: "Is his property worth enough to cover all the loans? The defendant: "Yes. There is plenty of equity in the property so you will be protected" Mr Redman: "Ok".
4. In essence, Mr Redman's claim was that he believed the plaintiff's capital was secured by a registered second mortgage and not at risk. On this basis, and because Mr Downie continued to pay interest as it fell due, he was content to allow the plaintiff to lend more money from time to time, although Mr Downie repeatedly defaulted in the repayment of funds lent on their due dates.
5. The defendant claimed that Mr Downie offered an unregistered second mortgage on the property as security for the loan. He said Mr Downie told him that he didn't think his first mortgagee would consent and he would not allow the registration of a caveat. The defendant said he told Mr Redman that the mortgage would not be registered that, in response, Mr Redman said: Mr Redman: Is he a good bloke? Defendant: Yes. I believe he is as good as gold. Mr Redman: Alright, my company will do it, but it will have to be at a healthy interest rate. What about 20% per annum payable every two months? Defendant: I think he will accept 20%.
6. Mr Redman claimed that, in response to his inquiry in 2002, the defendant said: There is plenty of equity in the property so you will be protected.
7. The defendant did not remember this response and was therefore unable to deny its terms. He doubted that he said words to that effect.
8. The defendant said he received no instructions from the plaintiff to register any of the mortgage documents or to lodge a caveat. After 2002 he had no further dealings with the plaintiff concerning the loans. He did not receive instructions to enforce the mortgage or take any other form of recovery action.

Resolution

1. Mr Redman was cross examined about his experience as a man of business. He agreed that he had a degree of experience, operating two businesses, one of which Able Investigations, provided services to the defendant's law firm, including process serving. He agreed that, on his account and through the plaintiff, he lent money from time to time through law firms including Malcolm Johns & Company.
2. Mr Redman denied that his experience ought to have indicated to him that he could not expect to be given the status of a secured creditor when he lent funds at a higher than prevailing interest rate for short terms only. He denied that the interest was as high as 20% per annum to compensate for the risk involved in having unregistered security. He said in forceful terms (at Transcript 11.48): I wouldn't touch an unregistered mortgage.
3. The defendant relied on his version of his conversations with the plaintiff and his expectations of Mr Redman's understanding, as an experienced businessman. He explained the use of the term security in his letters to the plaintiff as descriptive of the documents recording the loan transaction. He accepted that in the absence of registration the mortgage documents were ineffective to put the plaintiff in the position of a secured creditor. He denied that he intended to convey that the mortgage provided security for payment through registration with the Land Titles Office.
4. There were flaws in the positions of both parties concerning the loan transactions.
5. In the plaintiff's case, the high interest rate and short term nature of each loan were indicative of an unsecured loan. The plaintiff's failure to take action to recover the moneys lent notwithstanding repeated default in repayment on due dates suggested that it was concerned less with repayment of capital than with the continued payment of substantial sums of interest.
6. The defendant struggled to concede that the documents he prepared to record the loan transactions, that he insisted warranted the description of security documents, did not give the plaintiff the protection afforded to a secured creditor. (at Transcript 45-47).
7. The defendant made no attempt on the first occasion when the plaintiff lent money to Mr Downie to check the assertion that the first mortgagee would not consent to the registration of a second mortgage. He accepted Mr Downie at face value when he said that no caveat could be registered. He did not ask Mr Downie for details of or the amount owing on the first mortgage. In the absence of this information, it was difficult to understand the basis upon which any assertion could be made that Mr Downie was a good bloke or, if said, that there was plenty of equity in the property.
8. He did not check on subsequent occasions when money was lent that Mr Downie complied with the terms of the mortgage both as to repayment of principal sums or dealings with the title to the property.
9. There were inconsistencies between the facts asserted in the defence, verified by affidavit by the defendant, and the facts asserted in his affidavit evidence. The defendant's explanations for those inconsistencies were unconvincing.
10. Importantly, the defendant conceded that he could have said some of the words attributed to him in the conversations that were set out in Mr Redman's affidavit including the following: Mr Redman: Is his property worth enough to cover all the loans? Defendant: Yes. There is plenty of equity in the property so you will be protected. and Mr Redman: I have had a search done on Downie's property and my mortgages aren't registered and there is a second mortgage registered to someone else. Defendant: It doesn't matter if the mortgages aren't registered. It's still secured. Mr Redman: I'm issuing a Caveat on the title.

Conclusion

1. The plaintiff relied on Jones v Dunkel(1959) 101 CLR 298 in its submission that I should infer from the absence of evidence from Mr Downie that it would not assist the defendant. I declined to draw that inference for two reasons. The first was that Mr Downie was a witness, not a party, and as such available to both the plaintiff and defendant, each of whom failed to call him. Further, the defendant did not claim that he passed on to the plaintiff the reasons given by Mr Downie for not wanting to have the plaintiff's mortgage registered. His evidence therefore could have little or no relevance to the determination of the plaintiff's understanding of the terms of its loan to Mr Downie.
2. At face value it might be expected that a high interest, short term loan would be unsecured and that an experienced lender would accept that security could not be expected in the circumstances of a loan on these terms. However, there aspects of Mr Redman's evidence that persuaded me to accept that he at all times was lead to believe that his loan transactions with Mr Downie were secured by a registered second mortgage that gave him the right of recovery against the title to the property.
3. Mr Redman had some experience but he was not legally trained and therefore could not be expected to recognise that the copies of mortgage documents that were provided to him did not bear the dealing numbers allocated by the Land Titles Office to registered instruments. Indeed, the documents were described in correspondence as security documents, and, except for dealing numbers, they bore all of the hallmarks of a registered mortgage. They were stamped to recognise the payment of stamp duty. They were stamped with the name of the defendant's firm and its LTO box number.
4. Mr Redman's evidence concerning his background and experience also indicated that he was sufficiently astute to recognise that action would have been necessary if a borrower defaulted in the repayment of unsecured capital sums. This added credibility to his assertion that he lent further moneys and refrained from taking enforcement action because he believed that recovery of his capital was secured by a second mortgage over the title to the property.
5. The defendant initially denied that he told Mr Redman: It doesn't matter if the mortgages aren't registered, it's still secured. In evidence (at Transcript T.54) he accepted that he might have said these words.
6. The defendant's reference to an equitable mortgage and his concession that he might have told Mr Redman that registration was irrelevant to the provision of security suggested that he, in fact, held the view that the documents he prepared put the plaintiff into the position of a secured creditor.
7. Finally, there was no evidence that the defendant at any stage wrote to the plaintiff advising that he was holding an equitable or unregistered mortgage or that his status as an unsecured creditor was compensated for by the high interest rate.
8. I therefore preferred the evidence of Mr Redman to that of the defendant and I found: 1. it was a term of the loan transactions between the plaintiff and Mr Downie that the principal sums advanced be secured by a second mortgage registered against the title to the property; and 2. no mortgage was registered at any stage.

Duty of Care

1. Each party called experts on the question of the care and skill expected of a competent practitioner in the circumstances of this case.
2. Ms Hole addressed the issue on the basis that it was intended to register the second mortgage against the title to the property. In her opinion, the defendant's conduct fell below the standard widely accepted by peer professional opinion as competent professional practice in four respects. 1. in failing to advise the plaintiff that the second mortgage would not provide security equal to that of a first mortgage. This was not a complaint that was particularised in the Amended Statement of Claim and it was not relied on by the plaintiff. 2. in failing to obtain the consent of the first mortgagee to the registration of the mortgage and attempting to register the second mortgage; 3. in the event that the first mortgagee refused consent, failing to require compulsory production of the title to allow registration to proceed; 4. failing to enter a caveat on the title if steps to register the second mortgage were unsuccessful.
3. Ms Hole acknowledged that she was unaware of the plaintiff's prior business experience. In her opinion, however, a practitioner ought not to assume that a client knew or remembered details of prior transactions but should provide advice concerning the weaker position of a second mortgagee on all occasions. She acknowledged that the interest rate of 20% per annum was high but said that high rates of interest were to be expected with private mortgages.
4. Ms Hole agreed that failure to take action to recover capital for 16 to 17 years in the absence of further agreement was unusual. She agreed that a caveat provided no protection against the first mortgagee's right to exercise its power of sale but noted that it provided some limited protection in requiring notice to be given to the caveator of other dealings with the property.
5. Mr Rosier's opinion was based upon the assumption that the plaintiff was told and accepted that no security could be registered against the title to the property and that Mr Redman was a sophisticated client who well knew about caveats from other transactions in which he had been involved. There was no evidence to support the proposition that Mr Redman was familiar with caveats and he was not cross examined on this aspect of his experience.
6. In Mr Rosier's opinion it was axiomatic that a high interest loan carried a greater risk than a loan at bank interest rates. He said that, in 1992 and 2002, interest at the rate of 20% per annum was well above prevailing bank interest rates.
7. Mr Rosier referred to a number of factors that, he said, commonly applied to high interest loan transactions. He assumed that these factors applied to the transaction entered into by the plaintiff in reaching his opinion that the limited services provided by the defendant were of the relevant standard and were not departed from when he failed to lodge a caveat or register the mortgage.
8. Those factors were that where interest was to be paid at a high rate it would not unusual for: 1. security to be poor or non-existent; 2. speed to involved in completing the transaction to be carried; 3. a lender to be motivated to place money and earn interest and give less scrutiny to the transaction; 4. little by way of documentation to be provided.
9. Mr Rosier said a competent practitioner would have realised that the security obtained for the plaintiff was of limited value although it maintained the right of the lender to enforce the security, subject to the rights of equity holders with priority. He did not accept that the defendant's failure to lodge a caveat fell below the relevant standard.
10. Mr Rosier agreed that he did not know what inquiries the defendant made to confirm that the mortgage could not be registered. He agreed that security would be expected to be poor if, as the defendant claimed, Mr Downie told him that the mortgage could not be registered. He agreed that the defendant made no claim in his affidavit evidence that he advised Mr Redman that the security was poor or that the defendant took any steps to confirm that the first mortgagee would not consent to registration of second mortgage. He agreed that there was no evidence that urgency influenced either the plaintiff or Mr Downie.
11. Both Ms Hole and Mr Rosier were experts of considerable and recognised expertise in property law. Having regard to my factual findings and to the evidence as a whole, I considered that the opinions expressed by Ms Hole were more to the point in determining whether the defendant breached his duty of care to the plaintiff.
12. The defendant argued that a combined reading of ss 5B and 5D of the Civil Liability Act would lead to the conclusion that there was no breach of the duty of care by the defendant.
13. In respect of s 5B the defendant claimed that it was not reasonably foreseeable that the risk to be guarded against, namely the failure of a borrower to repay loan funds, would eventuate some 18 years after the initial transaction or 6 - 8 years after the later transaction.
14. This argument can be dealt with shortly. The section requires that reasonable steps be taken to avoid a reasonably foreseeable risk. In the case of a loan transaction, it requires that attention be given to a risk that is reasonably foreseeable at the time the transaction is entered into. In this case the risk to be guarded against was that the borrower would default in the repayment of the funds lent. In this respect, the defendant did not even take the minimal steps, that Mr Rosier considered would have been prudent, of requiring Mr Downie to establish the extent of his equity in the property.
15. If the terms of the transaction were that the risk of default was to be guarded against by registration of the mortgage against title to the borrower's property and the party charged with that responsibility failed to register the mortgage, it followed that protection against this clearly foreseeable risk was not provided, regardless of when that risk eventuated, and a reasonable step to avoid the risk was not taken.
16. I was satisfied therefore that the provisions of s 5B were satisfied.
17. The provisions of s 5D are:

5D General principles 1. A determination that negligence caused particular harm comprises the following elements: 1. that the negligence was a necessary condition of the occurrence of the harm ("factual causation"), and 2. that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused ("scope of liability"). 1. In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. 2. If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent: 1. the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and 2. any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest. 1. For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

1. The defendant contended that s 5D(4) ought to be applied in the circumstances where, some 18 years after the initial transactions and 8 years after the later transaction, risk eventuated. The basis for this contention was that the plaintiff did not consult him concerning the enforcement of the covenant to repay the funds lent and did nothing else in those periods to recover its money. Thus, it was argued, responsibility for the plaintiff's loss should not be imposed upon him.
2. There were a number of reasons why, having considered the question raised by s 5D(4), I decided that it was appropriate that the scope of liability should extend to the defendant in this case.
3. The first was that the defendant failed to take a number of elementary steps when acting for the plaintiff in these transactions. He did not register the mortgage. Even if, as the defendant claimed, he told the plaintiff that the mortgage would not be registered, he did not advise the plaintiff of the risks involved in an unregistered transaction. Indeed, he appeared even to the date of the hearing, to apprehend that the mortgage, creating as it did an equitable interest in the property, conferred some form of secured or priority right on the plaintiff. He did not register a caveat to protect the equitable interest. When the loans were rewritten in 2002 the defendant gave no advice to suggest that Mr Downie's failure to repay the moneys that remained outstanding from 1992 and 1994 were a cause for concern.
4. The second was that the defendant's correspondence with the plaintiff made no reference to the fact that the securities referred to were unregistered and provided no security for payment in preference to other unsecured creditors. This correspondence, coupled with the form of the documentation enclosed with it, was apt to and in fact did create in Mr Redman the belief that he held a registered second mortgage.
5. I did not accept that these acts and omissions on the defendant's part could be excused on the basis that Mr Redman was experienced in business or in moneylending. He was not legally trained. There was no evidence that he previously lent money on an unsecured basis. He could not be expected to appreciate the subtleties of legal and equitable rights in the absence of the advice of his lawyer.
6. The result was that Mr Redman proceeded, without legal advice to the contrary, on the false assurance that his capital was secured against the title to the property. This false assurance was the direct result of the defendant's negligence and I concluded, that having created the situation faced by the plaintiff through this neglect, it was appropriate that the scope of liability should extend to require the defendant to take responsibility for the harm caused to the plaintiff.
7. I find that the evidence established that the defendant was in breach of his duty of care in failing to exercise the care and skill reasonably expected of a competent practitioner in the respects listed in paragraph 31 of the Amended Statement of Claim under particulars (a), (b), (c), (e), (f), (g), (h), (j) and (l).
8. The evidence did not support the claim in particular (d) that the defendant failed to advise the plaintiff of a registered first mortgage over the property at the time of the 1992 and 2002 mortgages. Mr Redman at no stage suggested that the plaintiff expected to have the security of a first mortgage.
9. There was no evidence as contended in particular (i) that the defendant was instructed to take any step to obtain repayment of the loans on their due dates. There was no evidence to support the claim in particular (k) of a conflict of interest.

The Limitation Act 1969

1. In respect of a cause of action founded on tort, s 14 of the Limitation Act applies a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff.
2. I was provided with ample authority that established the following principles: 1. there is no cause of action in tort unless there is both negligence and damage suffered as a consequence of the negligence; 2. damage may be suffered before a plaintiff becomes aware of it if, on reasonable inquiry, the loss or damage was discoverable; 3. it is essential in each case to identify with precision the right of action on which the limitation period is said to operate.
3. Hawkins v Clayton & Ors (1987-1988) 164 CLR 539; Wardley Australia Limited & Anor v The State of Western Australia (1992) 175 CLR 514; The Commonwealth of Australia v Cornwell (2007) 229 CLR 519.
4. It was clear that the plaintiff suffered damage in this case through the loss of its capital. The defendant relied on the decision of the NSW Court of Appeal in Christie v Purves & Ors [2007] NSWCA 182 in contending that its loss was suffered or was discoverable on reasonable inquiry when the terms of the loans expired, namely in January 1993 and June 2002, because they were the earliest dates when the plaintiff was capable of establishing a measurable loss.
5. The defendant arrived at this position by identifying the value of the plaintiff's mortgage as the right infringed and by claiming that its value diminished at the time when the funds lent were due for repayment because at that time the plaintiff had no registered mortgage to enforce. This was the point at which, according to the defendant, the plaintiff was able to establish a measurable loss.
6. With respect to the defendant, this analysis of the law was contrary to authority. The reliance on Christie was misplaced because the facts in that case differed from those under consideration in the current matter. The plaintiff in Christie claimed income losses that were capable of identification and quantification at specific dates that put his claim outside the limitation period.
7. The issue in the current case was when the diminution in value was demonstrated through actual loss. As the defendant accepted, a negligently drawn mortgage will not necessarily lead to loss. It must also be accepted that default under a mortgage will not necessarily lead to loss, particularly when the covenant to repay is secured against title to property. I did not accept therefore that the plaintiff's failure to call upon the borrower to repay the loans when they fell due established that loss occurred at that time.
8. The defendant noted the absence of evidence of Mr Downie's capacity to repay the loans on their due dates. Since it was the defendant who raised the limitation issue, it was the defendant's responsibility to provide evidence of this nature: Pullen & Anor v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27. In the absence of such evidence, I could not conclude that any loss was suffered at the time of default in repayment on due dates.
9. To arrive at this conclusion would be contrary to the authority of Hawkins where Justice Gaudron at 601 and 602 said: So too, if the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible. … It would be too simplistic to restrict analysis of economic loss merely to a consideration of reduced value or increased liability.
10. The action in Wardley involved the realisation of a contingent liability. Mason CJ, Dawson, Gaudron and McHugh JJ repeated these passages from the judgment in Hawkins and said at 533: It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled.
11. These authorities were again referred to and applied by the High Court in Cornwell.
12. The plaintiff in this case was not faced with the realisation of a contingent liability but it did have the right to the full value of its mortgage, which, stated in terms expressed by Justice Gaudron, encompassed the right to recoupment of moneys lent to Mr Downie.
13. There was no evidence that recoupment of the funds became impossible in 1994. Indeed, it appeared that the defendant accepted this to be the position when in 2002 he rewrote the security documents. In 2010 Mr Downie was able to make a payment of $20,000 and at the same time promise to pay the balance of the loans in instalments. Correspondence sent by Mr Downie to the plaintiff's current solicitor, although referring to his difficult financial position, continued to hold out the prospect of repayment. There was therefore no basis upon which I could conclude that at any stage before Mr Downie was made bankrupt in September 2012 the plaintiff's recoupment of the balance of moneys lent to Mr Downie became impossible.
14. My conclusion therefore was that the plaintiff's right of action accrued in 2012. The proceedings having been commenced in September 2013, the claim was not statute barred.

Causation

1. No claim of contributory negligence was brought against the plaintiff and it was unclear precisely how it was contended that the suffered no loss as a result of the negligence of the defendant.
2. Any claim that the plaintiff more than recovered the outstanding loan funds of $70,000 through interest payments was clearly untenable. The bargain he had with Mr Downie was that he would receive an income stream of interest at 20% per annum as well as repayment of the funds advanced.
3. A second, similarly untenable, proposition advanced by the defendant was that, even if the plaintiff was told that the mortgage was to be registered, it was never capable of registration and therefore no loss could have resulted. Even if that proposition was acceptable as a matter of principle, there was no evidence that the mortgage was not capable of registration. The evidence only went so far as to assert that Mr Downie said that the first mortgagee would not consent to its registration. The defendant made no inquiries to confirm that this was correct. Similarly, there was no evidence that Mr Redman was told that the mortgage was not capable to registration and that the plaintiff should therefore have less confidence in Mr Downie's capacity to repay the loans.
4. The loss suffered by the plaintiff was clearly the result of its inability to be paid out of the proceeds of sale of the property, a situation that was the direct consequence of the defendant's negligence.

Mitigation

1. The defendant accepted that it was his responsibility to establish that the plaintiff failed to mitigate its loss. This would require the production of evidence that a reasonable person in the plaintiff's position would have taken action to enforce the covenant to repay at an earlier point in time and that, if action had been taken, the plaintiff would have recovered the moneys lent to Mr Downie.
2. It was submitted that it was not reasonable to ignore default in repayment for such extended periods. The difficulty for the defendant with this argument was that he knew when the 2002 transaction was documented that Mr Downie had defaulted for over 10 years in the repayment of $50,000 and for 8 years in the repayment of $20,000.
3. Notwithstanding these defaults, he passed on to the plaintiff Mr Downie's request for the further advance of $20,000. Nowhere in his evidence did he suggest that he cautioned the plaintiff against advancing further funds or that he call up the funds already lent.
4. I took this as an indication that all parties to the transaction, including the defendant, accepted that the dates for repayment were nominal only, allowing the lender to call up loans or the borrower to repay them at their convenience provided the other conditions of the loan were complied with.
5. As far as the plaintiff was concerned, those conditions were complied with. Mr Redman believed the mortgage was registered as a second mortgage so that the plaintiff had priority over unsecured creditors and that, in the absence of notice to the contrary, Mr Downie complied with his obligation not to encumber further title to the property.
6. Further, the defendant provided no evidence to support the contention that steps taken to enforce repayment at an earlier date would have avoided the loss.
7. In the circumstances, the claimed failure to mitigate was not established.

The 2010 Agreement

1. The document that recorded the 2010 agreement between the plaintiff and the defendant was in evidence as Exhibit 2. It was undated but a letter of Boyd House & Partners, the plaintiff's current solicitors, stated that the agreement was dated 1 March 2010.
2. The document recorded an arrangement under which $20,000 was to be paid to reduce Mr Downie's indebtedness and in return the plaintiff was to withdraw the caveat he placed on the title to the property. Mr Downie agreed to pay the balance of $70,000 on or before 1 March 2011.
3. The defendant argued that, without consultation with him, the plaintiff made a commercial decision to enter into a new arrangement with Mr Downie rather than to seek to enforce the terms of the mortgage and that it was Mr Downie's breach of this agreement that caused the plaintiff's loss.
4. The plaintiff's response to this argument, which I accepted as sound, pointed out that the plaintiff was dealing with a situation created by the defendant's negligence and that the agreement evidenced an attempt by the plaintiff to mitigate its loss.
5. Further, there was no provision in the agreement that suggested that it discharged or released Mr Downie from his obligations under the mortgage. To the contrary clause 7 of the agreement contained an acknowledgment of a continuing liability under the mortgage, both as to the principal sum and the payment of interest.
6. I therefore did not accept that entry into the agreement could be classed as an intervening act that absolved the defendant from liability.

Proportionate Liability

1. The Civil Liability Act deals with the apportionment of liability between concurrent wrongdoers in claims of economic loss as follows: 34 Application of Part This Part applies to the following claims ("apportionable claims" ): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, … (1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). In this Part, a "concurrent wrongdoer", in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. (3) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1). …. (4) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died. … 35 Proportionate liability for apportionable claims 1. In any proceedings involving an apportionable claim: 1. the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and 2. the court may give judgment against the defendant for not more than that amount. 1. If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: 1. liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and 2. liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. 1. In apportioning responsibility between defendants in the proceedings: 1. the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and 2. the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. 1. This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings. 2. A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.
2. The plaintiff argued unconvincingly that Mr Downie was not a concurrent wrongdoer for the purposes of the application of these provisions. Having worked through the provisions of s 34 with counsel for the plaintiff, without formally conceding the point, he put nothing further to the court on the subject. I proceeded therefore on the basis that Mr Downie clearly fell within the definition of a concurrent wrongdoer.
3. The issue then became one of apportionment. Each party relied on the majority reasoning in the High Court in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd & Ors (2013) 247 CLR 613 where French CJ, Hayne and Kieffel JJ dealt with competing arguments concerning the requirement of s 34(2) that the damage or loss that is the subject of the claim be the same damage in respect of each concurrent wrongdoer. They said that principles of identification of the interests infringed that were applied in Hawkins and Wardley to the determination of limitation issues were equally applicable to the identification of harm suffered and the determination of the acts and omissions that caused that harm. One such interest, they said, was that which a lender had in the recovery of moneys lent and that the loss or damage suffered by Mitchell Morgan in that case was the inability to recover money lent.
4. The majority rejected the proposition, accepted by the Court of Appeal of NSW, that the damage suffered by Mitchell Morgan through the fraudulent conduct of the borrowers and that suffered through the negligence in drafting the security documents was different. Those differences, they said, were relevant to causation of loss and damage, but could not be equated with that loss or damage. Nor did the majority accept that it was necessary that one wrongdoer contribute to the wrongful actions of the other in order to cause the same damage. The question, they said, was whether each of the wrongdoers, separately, materially contributed to the loss or damage suffered.
5. They apportioned liability as to 85% to the fraudulence of the borrowers and 15% to the negligence of the lawyers who drafted the ineffective mortgage documents.
6. The plaintiff argued that this case should be distinguished on the basis that the negligence of the defendant was sufficiently serious to be regarded as egregious. The defendant did not suggest that his proportionate liability should be assessed at the levels applied in the Mitchell Morgandecision.
7. I accepted that there were different circumstances in the case before me. On the one hand, the defendant prepared documents that were ineffective in protecting the plaintiff against default on the part of the borrower, represented them to be security documents when in truth they conferred no right to priority over unsecured creditors, failed to make clear to the plaintiff the risks involved in holding unregistered securities, failed to secure the limited protection afforded by registering a caveat against title to the property, failed to take any steps to confirm that Mr Downie had the capacity to repay the loans, failed to warn the plaintiff against renewing the loans in 2002 when Mr Downie was already in default in the repayment of moneys advanced to that date. On the other hand Mr Downie retained a substantial proportion of the plaintiff's money for many years until his financial situation reached the point where recovery became impossible.
8. In the circumstances, I accepted that the proportionate liability of the defendant and Mr Downie should be assessed at 50% to each party.

Assessment

1. The plaintiff claimed in damages the capital of $70,000 that it could not recover from Mr Downie, together with interest at the rate specified in the mortgage, namely 20% per annum to the date of judgment.
2. The defendant argued that his liability should not extend to the payment of interest at 20%. The basis for this argument was once more the period of time during which the plaintiff allowed Mr Downie to remain in default of the covenant to repay. The defendant contended that the appropriate rate of interest was that prescribed from time to time by the provisions of the Civil Procedure Act2005.
3. This argument could not be reconciled with the unanimous decision of the High Court at 639[61] in Mitchell Morgan where it was held that there was no error in the reasoning of Macfarlan JA in the NSW Court of Appeal so that: … Hunt & Hunt undertook the preparation of a mortgage to protect the interests of its client as a lender. Hunt & Hunt was fully aware of the terms of the loan agreement, which it drafted. In these circumstances, his Honour could not see why Hunt & Hunt's liability should not extend to the rates charged by the client, when the loss was caused by its own negligence.
4. The plaintiff's loss is therefore assessed at $70,000 together with interest at the rate of 20% per annum to the date of final orders.
5. I find the defendant liable to the plaintiff for one half of this loss.

ORDERS

1. Verdict for the plaintiff.
2. My reasons are published.
3. The proceedings are adjourned to a date to be fixed to deal with issues of interest and costs.

FURTHER ORDERS

1. Verdict and judgment for the plaintiff in the sum of $62,572.19.
2. The Defendant is to pay the Plaintiff's costs on a party and party basis up to and including 9 March 2015, and on an indemnity basis thereafter.
3. Exhibits are returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 April 2015